10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended March 31, 2019

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________

Commission File No. 333-133624

WHERE FOOD COMES FROM, INC.

(exact name of registrant as specified in its charter)

Colorado	43-1802805
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

202 6^th Street, Suite 400

Castle Rock, CO 80104

(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code:

(303) 895-3002

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a small reporting company. See definitions of “large accelerated filer” and “accelerated filer” and “smaller reporting entity” in Rule 12b-2 of the Exchange Act.

Large accelerated filer:	☐	Accelerated filer:	☐
Non-accelerated filer:	☐	Smaller reporting company:	☒
Emerging growth company	☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value	WFCF	OTC Markets Group

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of May 10, 2019, was 24,921,498.

Where Food Comes From, Inc.

Table of Contents

March 31, 2019

Part 1 - Financial Information
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 4.	Controls and Procedures	33
Part II - Other Information
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 6.	Exhibits	35

2

Where Food Comes From, Inc.

Consolidated Balance Sheets

	March 31,			December 31,
	2019			2018
Assets		(Unaudited)
Current assets:
Cash and cash equivalents	$	2,452,477		$	1,482,391
Accounts receivable, net of allowance		2,005,766			2,205,162
Short-term investments in certificates of deposit		246,506			245,597
Prepaid expenses and other current assets		428,619			439,424
Total current assets		5,133,368			4,372,574
Property and equipment, net		1,765,595			1,675,472
Operating lease right-of-use assets		3,359,810			—
Long-term investments in certificates of deposit		254,246			252,999
Investment in Progressive Beef		991,115			991,115
Intangible and other assets, net		3,698,000			3,852,121
Goodwill		3,143,734			3,143,734
Deferred tax assets, net		203,923			175,923
Total assets	$	18,549,791		$	14,463,938
Liabilities and Equity
Current liabilities:
Accounts payable	$	691,562		$	533,925
Accrued expenses and other current liabilities		567,935			419,619
Customer deposits and deferred revenue		1,362,882			727,854
Current portion of notes payable		10,299			10,173
Current portion of finance lease obligations		7,303			11,309
Current portion of operating lease obligations		210,847			—
Total current liabilities		2,850,828			1,702,880
Notes payable, net of current portion		30,440			32,220
Finance lease obligations, net of current portion		31,968			32,747
Operating lease obligation, net of current portion		3,647,424			—
Deferred rent liability		—			119,187
Lease incentive obligation		—			362,088
Total liabilities		6,560,660			2,249,122
Commitments and contingencies
Contingently redeemable non-controlling interest		1,405,172			1,449,007
Equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized;
none issued or outstanding		—			—
Common stock, $0.001 par value; 95,000,000 shares authorized;
25,473,115 (2019) and 25,473,115 (2018) shares issued, and
24,921,498 (2019) and 24,968,256 (2018) shares outstanding		25,473			25,473
Additional paid-in-capital		11,075,966			11,031,264
Treasury stock of 551,617 (2019) and 504,859 (2018) shares		(1,192,484	)		(1,109,061	)
Retained earnings		675,004			818,133
Total equity		10,583,959			10,765,809
Total liabilities and stockholders' equity	$	18,549,791		$	14,463,938

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

3

Where Food Comes From, Inc.

Consolidated Statements of Operations

(Unaudited)

	Three months ended March 31,
	2019			2018
Revenues:
Verification and certification service revenue	$	2,811,694		$	2,796,194
Product sales		641,058			353,894
Software license, maintenance and support services revenue		295,029			287,444
Software-related consulting service revenue		206,759			183,270
Total revenues		3,954,540			3,620,802
Costs of revenues:
Costs of verification and certification services		1,562,090			1,450,609
Costs of products		443,185			225,975
Costs of software license, maintenance and support services		154,003			137,434
Costs of software-related consulting services		129,536			75,461
Total costs of revenues		2,288,814			1,889,479
Gross profit		1,665,726			1,731,323
Selling, general and administrative expenses		1,966,339			1,704,474
(Loss)/income from operations		(300,613	)		26,849
Other expense (income):
Dividend income from Progressive Beef		(30,000	)		—
Other income, net		(2,696	)		(2,918	)
Gain on sale of assets		(1,000	)		—
Interest expense		3,047			1,079
(Loss)/income before income taxes		(269,964	)		28,688
Income tax (benefit)/expense		(83,000	)		8,000
Net (loss)/income		(186,964	)		20,688
Net loss attributable to non-controlling interest		43,835			14,796
Net (loss)/income attributable to Where Food Comes From, Inc.	$	(143,129	)	$	35,484
Per share - net (loss)/income attributable to Where Food Comes From, Inc.:
Basic	$	*		$	*
Diluted	$	*		$	*
Weighted average number of common shares outstanding:
Basic		24,957,082			24,648,610
Diluted		24,957,082			24,845,002
* less than $0.01 per share

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

4

Where Food Comes From, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	Three months ended March 31,
	2019			2018
Operating activities:
Net (loss)/income	$	(186,964	)	$	20,688
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		260,121			272,500
Lease incentive obligation		—			(2,709	)
Gain on sale of assets		(1,000	)		—
Stock-based compensation expense		44,702			37,902
Deferred tax benefit		(28,000	)		(46,000	)
Bad debt expense		—			8,900
Changes in operating assets and liabilities, net of effect from acquisitions:
Accounts receivable		199,396			366,515
Short-term investments		(2,156	)		(1,916	)
Prepaid expenses and other assets		10,805			(71,951	)
Accounts payable		157,637			1,713
Accrued expenses and other current liabilities		148,316			111,671
Customer deposits and deferred revenue		635,028			617,352
Right of use assets and liabilities, net		14,062			—
Net cash provided by operating activities		1,251,947			1,314,665
Investing activities:
Proceeds from sale of assets		1,000			—
Purchases of property, equipment and software development costs		(196,373	)		(152,949	)
Purchases of other long-term assets		—			(1,350	)
Net cash used in investing activities		(195,373	)		(154,299	)
Financing activities:
Repayments of notes payable		(1,654	)		(2,312	)
Repayments of finance lease obligations		(1,411	)		(1,862	)
Stock repurchase under Stock Buyback Plan		(83,423	)		(39,648	)
Net cash used in financing activities		(86,488	)		(43,822	)
Net change in cash		970,086			1,116,544
Cash at beginning of period		1,482,391			2,705,778
Cash at end of period	$	2,452,477		$	3,822,322

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

5

Where Food Comes From, Inc.

Consolidated Statement of Equity

(Unaudited)

						Additional
	Common Stock					Paid-in		Treasury			Retained
	Shares			Amount		Capital		Stock			Earnings			Total
Balance at December 31, 2017		24,652,895			24,972		10,353,037		(724,530	)		17,397		$	9,670,876
Stock-based compensation expense		—			—		37,902		—			—			37,902
Repurchase of common shares under Stock Buyback Plan		(15,680	)		—		—		(39,648	)		—			(39,648	)
Net income attributable to Where Food Comes From, Inc.		—			—		—		—			35,484			35,484
Balance at March 31, 2018		24,637,215		$	24,972	$	10,390,939	$	(764,178	)	$	52,881		$	9,704,614
Balance at December 31, 2018		24,968,256		$	25,473	$	11,031,264	$	(1,109,061	)	$	818,133		$	10,765,809
Stock-based compensation expense		—			—		44,702		—			—			44,702
Repurchase of common shares under Stock Buyback Plan		(46,758	)		—		—		(83,423	)		—			(83,423	)
Net loss attributable to Where Food Comes From, Inc.		—			—		—		—			(143,129	)		(143,129	)
Balance at March 31, 2019		24,921,498		$	25,473	$	11,075,966	$	(1,192,484	)	$	675,004		$	10,583,959

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

6

Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

Note 1 – The Company and Basis of Presentation

Business Overview

Where Food Comes From, Inc. is a Colorado corporation based in Castle Rock, Colorado (“WFCF”, the “Company,” “our,” “we,” or “us”). We are an independent, third-party food verification company conducting both on-site and desk audits to verify that claims being made about livestock, food, other high-value specialty crops and agricultural products are accurate. We care about food and other agricultural products, how it is grown and raised, the quality of what we eat, what farmers and ranchers do, and authentically telling that story to the consumer. Our team visits farms and ranches and looks at their plants, animals, and records, and compares the information we collect to specific standards or claims that farms and ranches want to make about how they are producing food. We strive to ensure that everyone involved in the food business - from growers and farmers to retailers and shoppers – can count on WFCF to provide authentic and transparent information about the food we eat and how, where, and by whom it is produced.

We also provide sustainability programs, compliance management and farming information management solutions to drive sustainable value creation. We employ a software-as-a-service (“SaaS”) revenue model that bundles annual software licenses with ongoing software enhancements and upgrades and a wide range of professional services that generate incremental revenue specific to the food and agricultural industry. Finally, the Company’s Where Food Comes From Source Verified® retail and restaurant labeling program utilizes the verification of product attributes to connect consumers directly to the source of the food they purchase through product labeling and web-based information sharing and education.

Most of our customers are located throughout the United States.

Basis of Presentation

Our unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the results of operations, financial position and cash flows of Where Food Comes From, Inc. and its subsidiaries, International Certification Services, Inc. (“ICS”), Validus Verifications Services, LLC (“Validus”), Sterling Solutions (“Sterling”), SureHarvest Services, Inc. (“SureHarvest”), A Bee Organic, Sow Organic and JVF Consulting (collectively referred to as “we,” “us,” and “our” throughout this Form 10-Q). The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues, costs and expenses during the reporting period. All significant intercompany transactions and amounts have been eliminated. The results of businesses acquired are included in the consolidated financial statements from the date of the acquisition. Actual results could differ from the estimates.

The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with our audited financial statements and footnotes thereto for the year ended December 31, 2018, included in our Form 10-K filed on March 29, 2019. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. However, we believe that the disclosures are adequate to make the information presented not misleading. The financial statements reflect all adjustments (consisting primarily of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations. The consolidated operating results for the quarter ended March 31, 2019 are not necessarily indicative of the results to be expected for any other interim period of any future year.

7 

Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

Seasonality

Our business is subject to seasonal fluctuations. Significant portions of our verification and certification service revenue are typically realized during late May through early October when the calf marketings and the growing seasons are at their peak. Because of the seasonality of the business and our industry, results for any quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year.

Recent Accounting Pronouncements

The Financial Accounting Standards Board (FASB) Accounting Standards Codification is the sole source of authoritative GAAP other than SEC issued rules and regulations that apply only to SEC registrants. The FASB issues an Accounting Standards Update (ASU) to communicate changes to the codification. The Company considers the applicability and impact of all ASU’s. ASU’s not listed below were assessed and determined to be either not applicable or are not expected to have a material impact on the consolidated financial statements.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use asset and a lease liability for all leases that are not short-term in nature. Accounting for finance leases is substantially unchanged. Topic 842 is effective for fiscal years beginning after December 15, 2018. We adopted the new lease standard as of January 1, 2019 using a modified retrospective transition. Under the effective date method, financial results reported in periods prior to 2019 are unchanged. We also elected the package of practical expedients, which among other things, does not require reassessment of lease classification.

To assist in quantifying the impact on our consolidated financial statements and supplementing our existing disclosures, we designed internal controls over the adoption and implemented a software solution to manage and account for our leases. The adoption had a significant impact on our consolidated balance sheet due to the recognition of approximately $3.9 million of operating lease liabilities with corresponding right-of-use (“ROU”) assets for operating leases of $3.44 million as of January 1, 2019. The difference between the lease liability and the ROU asset primarily represents the existing deferred rent liabilities balances before adoption, resulting from historical straight-lining of operating leases. Balances for deferred rent and lease incentive obligation, which were historically presented separately, were cleared to zero and reclassed to our operating ROU assets.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments made to nonemployees so the accounting for such payments is substantially the same as those made to employees. Under this ASU, share based awards to nonemployees will be measured at fair value on the grant date of the awards, entities will need to assess the probability of satisfying performance conditions if any are present, and awards will continue to be classified according to Accounting Standards Codification (“ASC”) 718 upon vesting which eliminates the need to reassess classification upon vesting, consistent with awards granted to employees. This ASU is effective for fiscal years beginning after December 15, 2018. The Company adopted the new guidance on January 1, 2019 and it did not have any effect on its consolidated financial statements.

Recently Issued Accounting Pronouncements

In June 2016 the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current U.S. GAAP, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life. The Company is required to adopt the new standard in 2020.

8 

Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

In April 2017, the FASB has issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” which removes Step 2 from the goodwill impairment test. As a result, under the ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The Company is required to adopt the new standard in 2020.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 8420): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 modifies the requirements associated with the hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. The provisions of this ASU are effective for reporting periods after December 15, 2019; early adoption is permitted. We are currently evaluating the effect that this ASU will have on our consolidated financial statements.

In August 2018 the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal Use Software - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which amends the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract to align with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We are in the process of evaluating the impact on our consolidated financial statements and the timing of adoption of this update.

Note 2 – Business Acquisitions

Sow Organic Acquisition

On May 16, 2018, we acquired substantially all of the assets of Sow Organic for $450,000 in cash and 217,654 shares of common stock of WFCF valued at approximately $433,100. We believe the transaction further diversifies our offerings by adding complementary solutions and services available to new and existing customers. Sow Organic’s software as a service (SaaS) model allows organic certification bodies to automate and accelerate new customer onboarding by converting traditional paper-based processes to digital format, resulting in lower costs, improved workflow management and increased productivity. Sow Organic’s unique design allows certification bodies to digitize any certification scheme. Likewise, the software affords producers and handlers a more efficient way to become certified and to digitally manage their records on an ongoing basis, including completing annual certification requirements fully online. We intend to further develop the organic business opportunity and collaborate on a broader rollout of the solution to other certification markets where the tool is equally suited to improve efficiencies and reduce costs in the certification process. This transaction further strengthens our intellectual property portfolio, which we believe represents a distinct competitive advantage for the Company.

9 

Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

We believe the impacts on proforma revenue and earnings are immaterial. The following table summarizes the final fair values assigned to the assets and liabilities acquired in addition to the excess of the purchase price over the net assets acquired at the acquisition date.

Sow Organic, LLC:	May 16, 2018
Software acquired	$	156,000
Identifiable intangible assets:		—
Tradenames and trademarks		48,000
Non-compete agreements		84,000
Customer relationships		162,000
Goodwill		433,131
Total consideration	$	883,131

Excess attributable to goodwill reflects the excess over the identifiable intangible assets acquired based on the final allocation of the purchase price. Goodwill is primarily attributable to the operational and financial benefits expected to be realized from the acquisition, including cost saving synergies from operating efficiencies, future growth in bundling opportunities across divisions and brands, realized savings from a more sophisticated information technology infrastructure, and strategic advances from expansion of our intellectual property.

JVF Consulting Acquisition

On August 30, 2018, we acquired substantially all of the assets of JVF Consulting, LLC (“Seller” or “JVF”) for $500,000 in cash and 158,437 shares of common stock of WFCF valued at approximately $315,300. We believe the transaction adds value to certain of our existing software solutions which are based on intellectual property built and owned by the Seller. JVF is currently the largest technology provider to our SureHarvest division. With this acquisition, WFCF controls the intellectual property associated with its current Software as a Service (SaaS) offerings. Additionally, WFCF employed three of the Seller’s employees who enhance our ability to address new markets and services with our SaaS Solutions.

We believe the impacts on proforma revenue and earnings are immaterial. The following table summarizes the final fair values assigned to the assets and liabilities acquired in addition to the excess of the purchase price over the net assets acquired at the acquisition date.

JVF Consulting, LLC:	August 30, 2018
Software acquired	$	207,000
Identifiable intangible assets:
Tradenames and trademarks		87,000
Non-compete agreements		37,000
Customer relationships		104,000
Goodwill		380,290
Total consideration	$	815,290

Excess attributable to goodwill reflects the excess over the identifiable intangible assets acquired based on the final allocation of the purchase price. Goodwill is primarily attributable to the operational and financial benefits expected to be realized from the acquisition, including cost saving synergies from operating efficiencies, future growth in bundling opportunities across divisions and brands, realized savings from a more sophisticated information technology infrastructure, and strategic advances from expansion of our intellectual property.

10 

Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

Note 3 – Basic and Diluted Net Income per Share

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

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

	Three months ended March 31,
	2019		2018
Basic:
Weighted average shares outstanding		24,957,082		24,648,610
Diluted:
Weighted average shares outstanding		24,957,082		24,648,610
Weighted average effects of dilutive securities		—		196,392
Total		24,957,082		24,845,002
Antidilutive securities:		265,700		124,000

The effect of the inclusion of the antidilutive shares would have resulted in an increase in earnings per share. Accordingly, the weighted average shares outstanding have not been adjusted for antidilutive shares.

Note 4 – Investment in Progressive Beef, LLC

On August 9, 2018, the Company purchased a ten percent membership interest in Progressive Beef, LLC (“Progressive Beef”) for an aggregate purchase price of approximately $991,000. The purchase price was payable in cash of $900,000 and 50,340 shares of common stock of WFCF valued at approximately $91,100 based upon the closing price of our stock on August 9, 2018, of $1.81 per share. Where Food Comes From is the primary certifier for Progressive Beef. For the first quarter ended March 31, 2019, the Company received dividend income from Progressive Beef of $30,000 representing a distribution of their earnings. The income is reflected within the “other (expense) income” section of the Company’s Consolidated Statement of Income for the quarter ended March 31, 2019. The investment is accounted for as a financial instrument under ASC 321 and the Company has elected to apply the practical expedient to value the investment at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. The Company completed a qualitative assessment and determined that there were no impairment indicators as of March 31, 2019.

11 

Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

Note 5 – Intangible and Other Assets

The following table summarizes our intangible and other assets:

	March 31,		December 31,
	2019		2018
Intangible assets subject to amortization:
Tradenames and trademarks	$	417,307	$	417,307
Accreditations		85,395		85,395
Customer relationships		3,350,551		3,350,551
Patents		970,100		970,100
Non-compete agreements		121,000		121,000
		4,944,353		4,944,353
Less accumulated amortization		1,731,679		1,577,558
		3,212,674		3,366,795
Tradenames/trademarks (not subject to amortization)		465,000		465,000
		3,677,674		3,831,795
Other assets		20,326		20,326
Intangible and other assets:	$	3,698,000	$	3,852,121

Note 6 – Accrued Expenses and Other Current Liabilities

The following table summarizes our accrued expenses and other current liabilities as of:

	March 31,		December 31,
	2019		2018
Income and sales taxes payable	$	25,800	$	19,978
Payroll related accruals		224,572		147,798
Professional fees and other expenses		317,563		251,843
	$	567,935	$	419,619

12 

Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

Note 7 – Notes Payable

Notes Payable consist of the following:

	March 31,			December 31,
	2019			2018
Vehicle note	$	40,739		$	42,393
Less current portion of notes payable and other long-term debt		(10,299	)		(10,173	)
Notes payable and other long-term debt	$	30,440		$	32,220

In September 2017, we entered into a note payable of $54,165 for the purchase of a vehicle. Interest and principal payments are due in equal monthly installments of $1,087 over five years beginning October 2017. This note bears an interest rate of 7.44% per annum and is fully secured by the vehicle.

Unison Revolving Line of Credit

The Company has a revolving line of credit (“LOC”) agreement which matures April 12, 2020. The LOC provides for $75,080 in working capital. The interest rate is at the Wall Street Journal prime rate plus 1.50% and is adjusted daily. Principal and interest are payable upon demand, but if demand is not made, then annual payments of accrued interest only are due, with the principal balance due on maturity. As of March 31, 2019 and December 31, 2018, the effective interest rate was 7.0%. The LOC is collateralized by all the business assets of ICS. As of March 31, 2019, and December 31, 2018, there were no amounts outstanding under this LOC.

Note 8 – Stock-Based Compensation

In addition to cash compensation, the Company may compensate certain service providers, including employees, directors, consultants, and other advisors, with equity-based compensation in the form of stock options and restricted stock awards. The Company recognizes all equity-based compensation as stock-based compensation expense based on the fair value of the compensation measured at the grant date. For stock options, fair value is calculated at the date of grant using the Black-Scholes-Merton option pricing model. For restricted stock awards, fair value is the closing stock price for the Company’s common stock on the grant date. The expense is recognized over the vesting period of the grant. For the periods presented, all stock-based compensation expense was classified as a component within selling, general and administrative expense in the Company’s consolidated statements of income.

The amount of stock-based compensation expense is as follows:

	Three months ended March 31,
	2019		2018
Stock options	$	38,744	$	16,431
Restricted stock awards		5,958		21,471
Total	$	44,702	$	37,902

During first quarter 2018, the Company awarded stock options to purchase 25,000 shares of the Company’s common stock at an exercise price of $2.55 per share to one of our business consultants. No awards were granted during the first quarter 2019.

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Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

The Company estimated the fair value of stock options using the Black-Scholes-Merton option pricing model with the following assumptions:

	Three months ended March 31,
	2019		2018
Number of options awarded to purchase common shares		None		25,000
Risk-free interest rate		N/A		2.60	%
Expected volatility		N/A		154.3	%
Assumed dividend yield		N/A		N/A
Expected life of options from the date of grant		N/A		9.8 years

The estimated unrecognized compensation cost from unvested awards which will be recognized ratably over the remaining vesting phase is as follows:

Years ended December 31st:	Unvested stock options		Unvested restricted stock awards		Total unrecognized compensation expense
2019 (remaining nine months)		118,789		9,716		128,505
2020		110,072		4,251		114,323
2021		66,770		706		67,476
	$	295,631	$	14,673	$	310,304

Equity Incentive Plans

Our 2016 Equity Incentive Plan (the “Equity Incentive Plan”) provides for the issuance of stock-based awards to employees, officers, directors and consultants. The Plan permits the granting of stock awards and stock options. The vesting of stock-based awards is generally subject to the passage of time and continued employment through the vesting period.

Stock Option Activity

Stock option activity under our Equity Incentive Plan is summarized as follows:

							Weighted avg.
			Weighted avg.		Weighted avg.		remaining
	Number of		exercise price		grant date fair		contractual life		Aggregate
	awards		per share		value per share		(in years)		intrinsic value
Outstanding, December 31, 2018		434,451	$	1.49	$	1.47		6.91	$	230,039
Granted		—	$	—	$	—		—
Exercised		—	$	—	$	—		—
Expired/Forfeited		—	$	—	$	—		—
Outstanding, March 31, 2019		434,451	$	1.49	$	1.47		6.67	$	226,039
Exercisable, March 31, 2019		235,710	$	1.16	$	1.16		4.52	$	197,593
Unvested, March 31, 2019		198,741	$	1.89	$	1.83		9.21	$	28,447

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Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

The aggregate intrinsic value represents the total pre-tax intrinsic value (the aggregate difference between the closing price of our common stock on March 31, 2019 and the exercise price for the in-the-money options) that would have been received by the option holders if all the in-the-money options had been exercised on March 31, 2019.

Restricted Stock Activity

Restricted stock activity under our Equity Incentive Plan is summarized as follows:

			Weighted avg.
	Number of		grant date
	options		fair value
Non-vested restricted shares, December 31, 2018		30,000	$	2.38
Granted		—	$	—
Vested		—	$	—
Forfeited		—	$	—
Non-vested restricted shares, March 31, 2019		30,000	$	2.38

Note 9 – Income Taxes

Deferred tax assets and liabilities have been determined based upon the differences between the financial statement amounts and the tax bases of assets and liabilities as measured by enacted tax rates expected to be in effect when these differences are expected to reverse. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company’s subsidiary, SureHarvest, is a California limited liability company (“LLC”). As an LLC, management believes SureHarvest is not subject to income taxes, and such taxes are the responsibility of the respective members. The Company is not providing for income taxes for the 40% interest owned by unrelated members of SureHarvest.

The provision or benefit for income taxes is recorded at the end of each interim period based on the Company’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year. For the three months ended March 31, 2019 we recorded an income tax benefit of $83,000 compared to income tax expense of $8,000 for the 2018 period.

Note 10 – Revenue Recognition

Verification and Certification Segment

We offer a range of products and services to maintain identification, traceability, and verification systems. We conduct both on-site and desk audits to verify that claims being made about livestock, food, other high-value specialty crops and agricultural products are accurate. We generate revenue primarily from the sale of our verification solutions, consulting services and hardware sales. We sell our products and services directly to customers at various levels in the livestock and agricultural supply chains.

Verification and certification service revenue primarily consists of fees charged for verification audits and other verification services that the Company performs for customers.

A more detailed summary of our verification and certification services is included in the subsections below.

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Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

Animal Verification and Certification Services

Our animal verification and certification services contracts are generally structured in one of the following ways: (i) we commit to perform the required number of animal audits to verify a customer’s compliance with a standard or claim, or (ii) we commit to perform animal audit services at a fixed price by site or location type as requested by our customer during an annual period. These contract structures are discussed in more detail in the subsections below.

Contract to Provide Required Number of Animal Audit Services

For certain of our animal verification and certification services, we commit to perform the required number of location or site audits within our customer’s supply chain to verify customer’s compliance with a contractually-specified standard or claim. Each location or site audit is typically very short-term in nature, with a typical duration of one to two weeks. Upon completion of an audit, we provide the customer with an audit verification report for the specific site or location that was audited. Payment is made by customer upon completion of each site or location audit.

We generally enter into revenue contracts with a one-year term. Our customers generally have the right to terminate the contract without prejudice with thirty days’ written notice. We have determined that, as a result of the termination provisions present in these contracts, the accounting contract term is a thirty-day period, with each thirty-day time increment representing a separate accounting contract under ASC 606.

Furthermore, we have concluded that there is a single performance obligation that is a series comprised of each distinct location or site audit performed. Our customers are charged a standard daily rate for the provision of an audit based on the scale of site operations and geographical location. Consideration attributable to each audit within the series is variable, as the number of days required to complete each audit is not known until performance of that audit occurs. We have concluded that it is appropriate to allocate variable consideration (that is, the number of days required to complete an audit) to each audit within the series. This is because the consideration that we earn for each audit relates specifically to our efforts to transfer to our customer that discrete audit, and the resulting audit opinion or verification report, for that specified site or location, and this allocation is consistent with the allocation objective as defined in ASC 606. As a result, instances in which the Company evaluates and applies the constraint on variable consideration are immaterial.

We further concluded that over-time recognition is appropriate because: (i) our performance of audits does not create an asset with an alternative use, as the audit and related verification report relates to facts and circumstances that are specific to each customer site or location (that is, there is a practical limitation on our ability to readily direct the asset to another customer) and (ii) we have an enforceable right to payment, inclusive of a reasonable profit, for performance completed to date. We utilize an input method to measure over-time progress of each audit within the series based on the number of audit days performed.

We do, however, note that there are instances in which we only have an enforceable right to payment upon completion of an audit, and thus, over-time recognition is not permitted. For these contracts, revenue is recognized at the point in time at which an audit is completed. This does not result in a significant difference in the timing of revenue recognition (as compared to those audits that are recognized over time) due to the very short-term duration of an audit.

Our customers may also have the option to purchase incremental review services (for example, an investigative audit or video review services) that are unrelated to the audit services to verify compliance with a specified standard or claim. The incremental review services are also typically very short-term in nature (that is, one to two weeks). We have concluded that these optional purchases do not reflect a material right under ASC 606 because the incremental review services are performed at standard pricing that would be charged to other similarly situated customers. Upon customer request for an incremental review service, we believe that our customer has made a discrete purchasing decision that should be treated as a separate accounting contract under ASC 606.

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Where Food Comes From, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

We charge a fixed fee for the incremental review service, and thus, upon customer request, we are entitled to fixed consideration for that service under ASC 606. We concluded that over-time revenue recognition is appropriate for incremental review services because: (i) our performance of incremental review services does not create an asset with an alternative use because that review service, and the associated customer deliverable, relates to facts and circumstances that are specific to each customer site or location (that is, there is a practical limitation on our ability to readily direct the asset to another customer) and (ii) we have an enforceable right to payment, inclusive of a reasonable profit, for performance completed to date on incremental review services. We utilize a time-based input method to measure progress toward complete satisfaction of an incremental review service, which is based on the number of hours performed on the incremental review service relative to the total number of hours required to complete that review service. As previously mentioned, our incremental review services are typically completed within one to two weeks of a customer request.

Contract to Provide Animal Audit Services at Customer Request

Other animal verification and certification services contracts are structured such that we commit to perform audit services at a fixed price by site or location type as requested by our customer during an annual period. Performance of an audit typically occurs within a one to two-week period. We invoice our customer upon completion of an audit, and payment is due from customer within thirty days or less of receipt of invoice.

Under this contract structure, the customer is, in effect, provided a pricing list for animal audit services, and pricing is effective over a one-year period. We have concluded that enforceable rights and obligations do not arise until a customer actually engages us to perform an audit service documented in the pricing list; therefore, each customer request represents a purchasing decision that is a separate accounting contract under ASC 606.

We note that the termination provisions specified in our pricing lists vary. In certain instances, a customer may only have the right to terminate in the event of non-performance. Alternatively, in other contracts, a customer may have the right to terminate without prejudice at any time or with thirty days’ written notice. However, regardless of the termination provision specified, we have concluded that the accounting contract term is equal to the duration of the requested audit service (that is, the termination provisions generally do not affect the accounting contract term for each requested audit service).

Upon a customer’s request for an audit service, consideration is fixed, as we charge the customer a fixed fee by audit type over the annual period per the pricing list.

We concluded that over-time revenue recognition is appropriate for a requested audit service because: (i) our performance of the requested audit service does not create an asset with an alternative use as that audit, and the associated audit report, relate to facts and circumstances that are specific to each customer site or location (that is, there is a practical limitation on our ability to readily direct the asset to another customer) and (ii) we have an enforceable right to payment, inclusive of a reasonable profit, for performance completed to date on a requested audit. A time-based input method is utilized to measure progress toward complete satisfaction of an audit based on the number of hours performed on that audit relative to the total number of hours expected to be required to complete the audit. As previously mentioned, our audit services are typically completed within one to two weeks of a customer request.

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Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

(Unaudited)

Other Considerations for Animal Certification and Verification Services

In connection with the provision of on-site audits related to animal certification and verification services, reimbursable expenses are incurred and billed to customers, and such amounts are recognized on a gross basis as both revenue and cost of revenue.

Any amounts collected on behalf of a third-party and remitted in full to that third-party are excluded from the transaction price and, thus, revenue.

Crop and Other Processed Product Verification and Certification Services

Third-party crop and other processed product audits are generally structured such that we commit to perform an independent audit to verify that food producers and/or farmers comply with certain standards. We generally provide verification services related to organic, Non-GMO and gluten-free standards. Depending on the crop or product type, verification audit activities may take two months to one year to complete. During this assessment period, various integrated audit activities and/or input reviews are performed in accordance with the regulations specified by the relevant standard.

The fee structure is such that customers pay an annual assessment fee for a crop or other processed product to verify compliance with the specified standard. This fee is payable upfront on a nonrefundable basis. Our customers can typically terminate a crop or other processed product audit at any time without prejudice. However, given the nonrefundable upfront payment structure for the annual assessment service, we have concluded that the contract term is one year. We record the upfront payment made by the customer for the annual assessment service as deferred revenue.

The audit activities and input reviews required in the provision of an annual assessment are not distinct under ASC 606, and consequently, we account for an annual assessment as a single integrated performance obligation.

For certain of our third-party crop and other processed product audits, the annual assessment fee is fixed for the annual period. In other scenarios, the annual assessment fee may be variable due to increased review activities required for incremental inputs to a crop or processed product identified through the assessment process. At the time that an incremental input is identified, which generally occurs in the early stages of an annual assessment, the incremental consideration for the provision of review services related to that incremental input also becomes known.

We allocate the transaction price derived from the annual assessment fee to the single integrated performance obligation for that annual assessment. Revenue related to the annual assessment is recognized over time in accordance with ASC 606. This is because the annual assessment service does not create an asset with an alternative use, as it relates to facts and circumstances that are specific to a customer’s crop or processed product. Further, we have an enforceable right to payment for performance completed to date on the annual assessment due to the nonrefundable upfront payment made by customer. We utilize an input method to measure progress toward satisfaction of the annual assessment based on the percentage of activities/phases or input reviews completed under the annual assessment.

As it relates to the upfront payment for the annual assessment, we have utilized the practical expedient that exempts us from adjusting consideration for the effects of a significant financing component when we expect that the period between customer payment and the provision of the related service is one year or less.

In certain contracts, an independent third-party inspection may be required for a site or location in our customer’s supply chain in accordance with the regulations for a specified standard. An inspection is performed by an independent third-party inspector, and the customer is charged an hourly rate for these inspection services.

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Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

(Unaudited)

Under this scenario, a separate accounting contract arises upon initiation and performance of an inspection, and we typically invoice our customer for the inspection upon completion of the inspection service. Given that the customer has the ability to terminate at any time without prejudice, we have concluded that the contract term for each inspection ends as control of an inspection service transfers. Inspections are generally short-term in nature with a term ranging from a few days to two weeks.

We have further determined that inspections are distinct from an annual assessment. Consideration attributable to an inspection is variable, as the inspector is only able to provide a high-level estimate of the cost of the inspection based on the inspector’s hourly rate until the inspector is at the relevant producer/supplier site to determine the time and level of effort required to complete the inspection. Given the very short-term nature of an inspection, variability related to an inspection generally resolves itself within a reporting period. However, we are typically required by certain regulations to provide an inspection cost estimate to our customer, and, if required, we utilize that estimate as our estimate of variable consideration. The cost estimate is generally derived from the cost to perform the prior-year inspection for that specific customer site or location or, when required, the historical cost to provide an inspection for a comparable site or location. In our experience, the historical cost of inspections has been predictive of the future cost of an inspection.

Other Considerations for Crop and Other Processed Product Verification Services

Reimbursable expenses incurred in the provision of an annual assessment or required inspection are billed to our customers, and such amounts are recognized on a gross basis as both revenue and cost of revenue.

In addition, any amounts collected on behalf of a third-party and remitted in full to that third-party are excluded from the transaction price and, thus, revenue.

Product Sales

Product sales are primarily generated from the sale of cattle identification ear tags. Each customer purchase request represents a purchasing decision made by customer. As such, enforceable rights and obligations (and, thus, a separate accounting contract under ASC 606) arise at the time a customer submits its purchase request to us. At the time of request, we are entitled to fixed consideration, as the sales quantity and related price of the product is known. All of our customers are charged the same fixed price per tag.

Revenue for product sales is recognized upon delivery of the goods to customer, at which point title, custody and risk of loss transfer to the customer. We typically deliver product to the customer within a few days of customer’s sales request. At the time of delivery, we invoice our customer for the related product sales and record invoiced amounts to accounts receivable. Payment is typically due by customer upon receipt of invoice.

In relation to our product sales, the sales taxes collected from customers and remitted to government authorities are excluded from revenue.

Additionally, we do not typically provide right of return or warranty on product sales.

Software Sales and Related Consulting Segment

We predominately offer software products via a SaaS model, which is an annual subscription-based model. Support services are generally included in the subscription. We also provide web-hosting services on an annual basis to all of our customers in conjunction with their software subscription. Customers have the ability to terminate without prejudice upon thirty days’ written notice; however, the subscription fee, inclusive of maintenance and support services, and the web-hosting fee are paid upfront by the customer on a nonrefundable basis. Consequently, we have concluded that the contract term for the annual software subscription and web-hosting services is one year.

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Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

(Unaudited)

We have determined that a software license subscription and the related hosting service should be accounted for as a service transaction, as we provide the functionality of our software through the hosting arrangement. The SaaS arrangement provides customers with unlimited access to our software and, thus, is accounted for as a series of distinct daily service periods that provide substantially the same service (that is, continuous access to the hosted software) each day during the annual contract term. Further, the provision of basic technical support services also represents a stand-ready obligation that is a series of distinct daily service periods that provide substantially the same service (that is, access to our technical support infrastructure) during the annual contract term. Because the basic technical support services and SaaS each represent performance obligations that are a series of distinct daily service periods, we have elected to combine these performance obligations.

We are entitled to fixed consideration for the software license subscription, inclusive of support services, and the related hosting service. The software license subscription and hosting fees in our contracts represent the standalone selling price for that related service. This is because the fees charged for the software license subscription and hosting service represent the software license subscription and hosting service fees that are charged to other customers with a similar level of data loaded into the software (regardless of whether that customer contracts for professional services). Accordingly, the software license subscription and hosting fees are allocated to the combined SaaS performance obligation.

We recognize revenue related to the SaaS arrangement over time because a customer simultaneously receives and consumes the benefit from the provision of access to the hosted software over the annual subscription period. Accordingly, we utilize a time-based output measure of progress that results in a straight-line attribution of revenue. That is, revenue related to the combined SaaS obligation should be recognized daily on a straight-line basis over the one-year subscription term, as this reflects the direct measurement of value to a customer of the provision of access to the software via hosting each day.

As it relates to the upfront payment for the software subscription and hosting service, we have utilized the practical expedient that exempts us from adjusting consideration for the effects of a significant financing component when we expect that the period between customer payment and the provision of the related service is one year or less.

In addition, we record the upfront payment made by customer for the annual assessment service as deferred revenue.

In some of our SaaS contracts, we also provide software-related consulting services to our customers during an annual software subscription period. Consulting services fees are derived from a standard rate card by employee level, and we invoice for consulting services monthly on a time-incurred basis. Due to the termination provisions present in our SaaS contracts, our customers have an in-substance renewal decision each month for further consulting services (that is, via their decision not to terminate the contract each month). Accordingly, the contract term for consulting services is on a month-to-month basis within the annual subscription period.

We have concluded that consulting services are distinct from the SaaS arrangement. To the extent that consulting services result in a software enhancement or new functionality, we have determined that those consulting services are still distinct because added features typically provide new, discrete capabilities with independent value to a customer and a customer accesses the SaaS in a single-tenant architecture. Further, additional features and functionality are often made available to a customer substantially after the “go-live” date of the software (via the hosting service). As a result, our software-related consulting services represent distinct performance obligations.

We recognize revenue over time in accordance with ASC 606. This is because our performance does not create an asset with an alternative use, as consulting services, and, if applicable, any related software enhancements, are highly tailored to the farming industry specific to the given customer, and we have an enforceable right to payment, inclusive of profit, for performance completed to date. As a result, for our consulting services, we have elected to utilize the practical expedient that allows us to recognize revenue in the amount to which we have a right to invoice, as we believe that we have a right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date for the provision of consulting services.

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Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

(Unaudited)

Principal versus Agent Considerations

Under certain of our verification and certification service contracts, a third-party inspector may be required to perform an independent inspection of a site or location within our customer’s supply chain in accordance with regulations of a certain standard or claim. In this scenario, we have concluded that we are the principal in the provision of inspection services to our customer, as we control the inspection service, and the related inspection report, before it is transferred to our customer. In accordance with this conclusion, we present revenue related to inspections on a gross basis, with customer payment for an inspection presented as revenue and the inspection cost paid to the third-party inspector presented as an expense.

In addition, we utilize a third-party to provide web-hosting services in the provision of our SaaS arrangements. In this scenario, we are primarily responsible for fulfilling the promise to provide web-hosting services to the customer, and we establish the fee that the customer is charged for the web-hosting services. Consequently, we have also concluded that we are the principal in the provision of web-hosting services under our SaaS arrangements. As such, we present revenue on a gross basis, with consideration received from our customer for the web-hosting service recorded as revenue and the cost paid to the third-party to provide those web-hosting services recorded as an expense.

Disaggregation of Revenue

We have identified four material revenue categories in our business: (i) verification and certification service revenue, (ii) product sales, (iii) software license, maintenance and support services revenue and (iv) software-related consulting service revenue.

Revenue attributable to each of our identified revenue categories is disaggregated in the table below.

	Three months ended March 31, 2019									Three months ended March 31, 2018
	Verification and Certification Segment		Software Sales and Related Consulting Segment		Eliminations and Other			Consolidated		Verification and Certification Segment		Software Sales and Related Consulting Segment		Eliminations and Other		Consolidated
Verification and certification service revenue	$	2,811,694	$	—	$	—		$	2,811,694	$	2,796,194	$	—	$	—	$	2,796,194
Product sales		641,058		—		—			641,058		353,894		—		—		353,894
Software license, maintenance and support services revenue		—		343,566		(48,537	)		295,029		—		287,444		—		287,444
Software-related consulting service revenue		—		221,223		(14,464	)		206,759		—		183,270		—		183,270
Total revenues	$	3,452,752	$	564,789	$	(63,001	)	$	3,954,540	$	3,150,088	$	470,714	$	—	$	3,620,802

Transaction Price Allocated to Remaining Performance Obligations

We generally enter into revenue contracts with a one-year term. In certain instances, we have concluded that our contract term is less than one year because: (i) the termination provisions present in the contract impact the contract term under ASC 606 or (ii) a contract under ASC 606 arises at the time our customer requests the provision of a good or service that is delivered within or over a few days to a couple of weeks. As a result of our short-term contract structures, we have utilized the practical expedient in ASC 606-10-50-14 that exempts us from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

21

Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

(Unaudited)

Contract Balances

Under our animal verification and certification services contracts, we invoice customers once the performance obligation for the provision of a site or location audit has been satisfied, at which point payment is unconditional. In addition, any product sales are invoiced upon delivery to the customer, at which point payment is also unconditional. Accordingly, our animal verification and certification services contracts do not give rise to a contract asset under ASC 606; rather, invoiced amounts reflect accounts receivable.

Under our crop and other processed product verification and certification services, a nonrefundable payment for an annual assessment of compliance with a standard is typically made by our customers upfront upon contract execution. That is, payment is made in advance of the provision of annual assessment services. Accordingly, we recognize deferred revenue upon receipt of the upfront payment from our customers for crop and other processed product audit assessment services. Revenue is subsequently recognized, and the related deferred revenue is reduced, over the one-year period during which assessment services are provided to the customer using the over-time measure of progress selected in accordance with ASC 606. To the extent that an inspection is required during the annual assessment period, we invoice customers once the performance obligation for the inspection has been satisfied, at which point payment is unconditional. As such, inspection services give rise to accounts receivable.

Our software subscriptions, web-hosting, and support services are paid by our customers upfront on a nonrefundable basis. That is, payment is made in advance of the provision of these services to our customers. As a result, we recognize deferred revenue upon receipt of the upfront payment from our customers for software subscriptions, web-hosting and maintenance and support services. Revenue is subsequently recognized, and the related deferred revenue is reduced, on a straight-line basis during the annual contract term that these stand-ready services are provided to customer.

Software-related consulting services are invoiced monthly on a time-incurred basis, at which point we have an enforceable right to payment for those services. Because payment is unconditional upon invoicing, our software-related consulting services are reflected as accounts receivable.

As of March 31, 2019, and December 31, 2018, accounts receivable from contracts with customers, net of allowance for doubtful accounts, were approximately $2,005,800 and $2,205,200, respectively.

As of March 31, 2019, and December 31, 2018, deposits and deferred revenue from contracts with customers were approximately $1,362,900 and $727,900, respectively. The balance of the contract liabilities at March 31, 2019 and December 31, 2018 are expected to be recognized as revenue within one year or less of the invoice date.

Costs to fulfill a contract

Prior to August 2018, we incurred a fixed cost, payable to JVF Consulting, LLC, a third-party provider, to perform set-up activities for new (or first-year) customers that contract for our software subscription and hosting services. As previously discussed in Note 2, on August 30, 2018, we acquired JVF Consulting, which included three key employees. We concluded that those set-up activities performed by JVF did not transfer a good or service as defined in ASC 606 to our customers.

We capitalize fixed set-up costs as an asset on the following basis: (i) the fixed set-up costs incurred relate specifically to a customer contract for our software subscription and hosting service, (ii) the fixed set-up costs incurred are expected to be recovered via provision of the software subscription and hosting service to that customer and (iii) the set-up costs generate or enhance resources of the Company by permitting us to provide software subscription and hosting services to our customer, which, in turn, generates revenues.

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Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

(Unaudited)

Capitalized costs related to those set-up activities are amortized on a straight-line basis over the one-year license subscription and hosting period.

The ending balance at March 31, 2019 and December 31, 2018 of capitalized assets attributable to the set-up costs incurred to fulfill software subscription and hosting contracts was not material. No set-up costs related to our software subscription and hosting services were incurred for the first quarter ended March 31, 2019 or the year-ended December 31, 2018.

In addition, amortization of capitalized set-up costs for the first quarter ended March 31, 2019 or the year ended December 31, 2018 was not material, and no impairment loss was incurred related to capitalized set-up costs.

Commissions and other costs to obtain a contract are expensed as incurred as our contracts are typically completed in one year or less, and where applicable, we generally would incur these costs whether or not we ultimately obtain the contract.

Note 11 – Leases

We adopted ASU 2016-02: Leases (Topic 842) as of January 1, 2019. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (ROU) assets, current operating lease liabilities and noncurrent operating lease liabilities in our consolidated balance sheet. Finance leases are included in property and equipment, current finance lease obligations and long-term finance lease obligations in our consolidated balance sheet.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

As the discount rates in the Company's lease are not implicit, the Company estimated the incremental borrowing rate based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term.

Our lease term includes options to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recorded on the balance sheet. Our lease agreements do not contain any residual value guarantees.

We have operating and finance leases for corporate offices, other regional offices, and certain equipment. Our leases have remaining lease terms of 1 year to 15 years, some of which include multiple options to extend the leases for up to 5 years each.

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Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

(Unaudited)

The components of lease expense were as follows:

	Three months ended
	March 31, 2019
Operating lease cost	$	119,697
Finance lease cost
Amortization of ROU assets	$	2,267
Interest on finance lease obligations	$	2,006
Total net lease cost	$	123,970

Included in the table above, is $92,200 of operating lease cost for our corporate headquarters. This space is being leased from The Move, LLC. Our CEO and President, each a related party to WFCF, have a 24.3% jointly-held ownership interest in The Move, LLC.

Rent expense for the quarter ended March 31, 2018 was $126,200.

Supplemental balance sheet information related to leases was as follows:

	March 31, 2019
Operating leases:	Related Party		Other		Total
Operating lease ROU assets	$	3,059,939	$	299,871	$	3,359,810
Current operating lease liabilities	$	144,078	$	66,769	$	210,847
Noncurrent operating lease liabilities		3,379,897		267,527		3,647,424
Total operating lease liabilities	$	3,523,975	$	334,296	$	3,858,271

Finance leases:	March 31, 2019
Property and equipment, at cost	$	47,367
Accumulated amortization		(15,794	)
Property and equipment, net	$	31,573
Current obligations of finance leases	$	7,303
Finance leases, net of current obligations		31,968
Total finance lease liabilities	$	39,271
Weighted average remaining lease term (in years):
Operating leases		11.7
Finance leases		3.6
Weighted average discount rate:
Operating leases		5.8	%
Finance leases		20.9	%

24 

Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

(Unaudited)

Supplemental cash flow and other information related to leases was as follows:

	Three months ended
	March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	100,110
Operating cash flows from finance leases	$	2,006
Financing cash flows from finance leases	$	1,411

Maturities of lease liabilities were as follows:

Years Ending December 31st,	Operating Leases			Finance Leases
2019 (remaining nine months)	$	321,306		$	10,861
2020		422,164			15,705
2021		434,829			14,143
2022		447,874			10,984
2023		461,310			5,609
Thereafter		3,308,155			—
Total lease payments		5,395,638			57,302
Less amount representing interest		(1,537,637	)		(18,031	)
Total lease obligations		3,858,271			39,271
Less current portion		(210,847	)		(7,303	)
Long-term lease obligations	$	3,647,424		$	31,968

As previously reported in the 2018 Form 10-K under ASC Topic 840, future minimum lease payments under the Company’s operating lease agreements that had initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2018 were as follows:

Years ended December 31st:	Total
2019	$	420,370
2020		421,590
2021		432,079
2022		447,264
2023		460,682
Thereafter		3,327,705
Total lease commitments	$	5,509,690

Note 12 – Commitments and Contingencies

Legal proceedings

From time to time, we may become involved in various legal actions, administrative proceedings and claims in the ordinary course of business. We generally record losses for claims in excess of the limits of purchased insurance in earnings at the time and to the extent they are probable and estimable. We are not aware of any legal actions currently pending against us.

Contingently Redeemable Non-Controlling Interest

On December 28, 2016, we entered into an Asset Purchase Agreement (the “SureHarvest Purchase Agreement”), by and among the Company, SureHarvest Services LLC (the “Buyer” or “SureHarvest”); and SureHarvest, Inc., a California corporation (the “Seller”). We purchased the business assets of the Seller for total consideration of approximately $2.66 million, comprised of approximately $1,122,000 in cash and 850,852 shares of common stock of WFCF valued at approximately $1,534,900. Additionally, we issued the Seller a 40% membership interest in SureHarvest, with the Company holding a 60% interest.

25 

Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

(Unaudited)

Following the thirty-six-month anniversary of the effective date of the SureHarvest Purchase Agreement, the Company shall have the option, but not the obligation, to purchase all the units (the 40% interest) of SureHarvest held by the Seller, and the Seller shall have the option, but not the obligation, to require the Company to purchase all the units of SureHarvest held by the Seller. The purchase price for the units shall be equal to the amount the selling holders of the units would be entitled to receive upon a liquidation of SureHarvest assuming all of the assets of SureHarvest are sold for a purchase price equal to the product of eight and half times trailing twelve-month earnings before income taxes, depreciation and amortization, as defined, subject to an $8 million ceiling.

Because SureHarvest, Inc. at its option, can require the Company to purchase its 40% interest in SureHarvest, the SureHarvest non-controlling interest meets the definition of a contingently redeemable non-controlling interest. Redeemable non-controlling interests are presented at the greater of their carrying amount or redemption value at the end of each reporting period and are shown as a separate caption between liabilities and equity (mezzanine section) in the accompanying consolidated balance sheet.

The table below reflects the activity of the contingently redeemable non-controlling interest:

Balance, December 31, 2018	$	1,449,007
Net loss attributable to non-controlling interest in SureHarvest for the year to date period ended March 31, 2019		(43,835	)
Balance, March 31, 2019	$	1,405,172

Note 13 – Segments

With each acquisition, we assess the need to disclose discrete information related to our operating segments. Because of the similarities of certain of our acquisitions that provide certification and verification services, we aggregate operations into one verification and certification reportable segment. The operating segments included in the aggregated verification and certification segment include IMI Global, ICS, and Validus. The factors considered in determining this aggregated reporting segment include the economic similarity of the businesses, the nature of services provided, production processes, types of customers and distribution methods.

The Company also determined that it has a software sales and related consulting reportable segment. SureHarvest, which includes Sow Organic and JVF Consulting, is the sole operating segment. This segment includes software license, maintenance, support and software-related consulting service revenues.

The Company’s chief operating decision maker (the Company’s CEO) allocates resources and assesses the performance of its operating segments. Segment management makes decisions, measures performance, and manages the business utilizing internal reporting operating segment information. Performance of operating segments are based on net sales, gross profit, selling, general and administrative expenses and most importantly, operating income.

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Where Food Comes From, Inc.

Notes to the Consolidated Financial Statements

(Unaudited)

The Company eliminates intercompany transfers between segments for management reporting purposes. The following table shows information for reportable operating segments:

	Three months ended March 31, 2019												Three months ended March 31, 2018
	Verification and Certification Segment			Software Sales and Related Consulting Segment			Eliminations and Other			Consolidated Totals			Verification and Certification Segment		Software Sales and Related Consulting Segment			Eliminations and Other			Consolidated Totals
Assets:
Intangible and other assets, net	$	1,424,275		$	2,273,725		$	—		$	3,698,000		$	1,591,786	$	2,166,298		$	—		$	3,758,084
Goodwill		1,133,122			2,010,612			—			3,143,734			1,279,762		1,372,488			—			2,652,250
Total assets		13,031,344			5,518,447			—			18,549,791			9,830,255		4,253,835			—			14,084,090
Revenues:
Verification and certification service revenue	$	2,811,694		$	—		$	—		$	2,811,694		$	2,796,194	$	—		$	—		$	2,796,194
Product sales		641,058			—			—			641,058			353,894		—			—			353,894
Software license, maintenance and support services revenue		—			343,566			(48,537	)		295,029			—		287,444			—			287,444
Software-related consulting service revenue		—			221,223			(14,464	)		206,759			—		183,270			—			183,270
Total revenues	$	3,452,752		$	564,789		$	(63,001	)	$	3,954,540		$	3,150,088	$	470,714		$	—		$	3,620,802
Costs of revenues:
Costs of verification and certification services		1,594,763			—			(32,673	)		1,562,090			1,450,609		—			—			1,450,609
Costs of products		443,185			—			—			443,185			225,975		—			—			225,975
Costs of software license, maintenance and support services		—			154,003			—			154,003			—		137,434			—			137,434
Costs of software-related consulting services		—			129,536			—			129,536			—		75,461			—			75,461
Total costs of revenues		2,037,948			283,539			(32,673	)		2,288,814			1,676,584		212,895			—			1,889,479
Gross profit		1,414,804			281,250			(30,328	)		1,665,726			1,473,504		257,819			—			1,731,323
Depreciation & amortization		81,938			178,183			—			260,121			77,997		138,046			—			216,043
Other operating expenses		1,510,592			225,954			(30,328	)		1,706,218			1,332,397		156,034			—			1,488,431
Segment operating (loss)/income	$	(177,726	)	$	(122,887	)	$	—		$	(300,613	)	$	63,110	$	(36,261	)	$	—		$	26,849
Other items to reconcile segment operating income (loss) to net income attributable to WFCF:
Other expense (income)		—			—			(30,649	)		(30,649	)		—		—			(1,839	)		(1,839	)
Income tax (benefit)/expense		—			—			(83,000	)		(83,000	)		—		—			8,000			8,000
Net loss attributable to non-controlling interest		—			43,835			—			43,835			—		—			14,796			14,796
Net (loss)/income attributable to WFCF	$	(177,726	)	$	(79,052	)	$	113,649		$	(143,129	)	$	63,110	$	(36,261	)	$	8,635		$	35,484

Note 14 – Supplemental Cash Flow Information

	Three months ended March 31,
	2019		2018
Cash paid during the year:
Interest expense	$	3,047	$	1,079
Income taxes	$	—	$	7,283

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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

This information should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Form 10−K for the fiscal year ended December 31, 2018. The following discussion and analysis includes historical and certain forward−looking information that should be read together with the accompanying consolidated financial statements, related footnotes and the discussion below of certain risks and uncertainties that could cause future operating results to differ materially from historical results or from the expected results indicated by forward−looking statements.

Business Overview

Where Food Comes From, Inc. and its subsidiaries (“WFCF,” the “Company,” “our,” “we,” or “us”) is a leading trusted resource for third-party verification of food production practices in North America. The Company supports more than 15,000 farmers, ranchers, vineyards, wineries, processors, retailers, distributors, trade associations, consumer brands and restaurants with a wide variety of value-added services provided through its family of verifiers, including IMI Global, International Certification Services, Validus Verification Services, Sterling Solutions, and A Bee Organic. In order to have credibility, product claims such as gluten-free, non-GMO, non-hormone treated, humane handling, and others require verification by an independent third-party such as WFCF. The Company’s principal business is conducting both on-site and desk audits to verify that claims being made about livestock, crops and other food products are accurate.

Through our more recent acquisitions, including SureHarvest Services LLC; Sow Organic, LLC; and JVF Consulting, LLC, we provide sustainability programs, compliance management and farming information management solutions to drive sustainable value creation. We employ a software-as-a-service (“SaaS”) revenue model that bundles annual software licenses with ongoing software enhancements and upgrades and a wide range of professional services that generate incremental revenue specific to the food and agricultural industry.

Finally, the Company’s Where Food Comes From Source Verified® retail and restaurant labeling program utilizes the verification of product attributes to connect consumers directly to the source of the food they purchase through product labeling and web-based information sharing and education. With the use of Quick Response Code (“QR”) technology, consumers can instantly access information about the producers behind their food.

WFCF was founded in 1996 and incorporated in the state of Colorado as a subchapter C corporation in 2006. The Company’s shares of common stock trade on the OTCQB marketplace under the stock ticker symbol, “WFCF.”

The Company’s original name – Integrated Management Information, Inc. (d.b.a. IMI Global) – was changed to Where Food Comes From, Inc. in 2012 to better reflect the Company’s mission. Early growth was attributable to source and age verification services for beef producers that wanted access to markets overseas following the discovery of “mad cow” disease in the U.S. Over the years, WFCF has expanded its portfolio to include verification and software services for most food groups and 40 standards. This growth has been achieved both organically and through the acquisition of other companies.

Current Marketplace Opportunities

Because of growing demand for increased transparency into food production practices, we believe there are three main market drivers to promote forward momentum for our business:

Market Driver #1 - Consumer awareness and expectations

● Per the August 2017 edition of Global Organic Food Market produced by TechSci Research, the global organic food market stood at $110.25 billion in 2016 and is projected to grow at a compounded annual growth rate of 16.15%, in value terms, during 2017 – 2022, to reach $262.85 billion by 2022. Growing awareness regarding health benefits of organic food consumption, rising per capita spending on organic food products and increasing health concerns due to the growing number of chemical poisoning cases are expected to drive global organic food market in the coming years. In addition, continuing product innovations and aggressive marketing strategies adopted by major players and online retailers would positively influence the global organic food market during forecast period.

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● Per the 2018 U.S. Grocery Shopper Trends produced by the Food Marketing Institute, shoppers evaluate a food retailer by how well it supports an overarching goal of eating well. Eating well means meeting one’s needs, pleasures and values through food experiences delivering health, taste or discovery and mindful connections. As consumers navigate a landscape of increasing choice around their sources for food, shopping well has come to mean more than just meeting eating needs within budget. Shopping well affords engagement with food discovery and ethical sourcing, even as it prompts shoppers to evolve their eating well aspirations. Shoppers continue to look “beyond the shelf” in their purchase decisions. Grass-fed beef has seen more engagement since last year’s study, as have local and fair-trade products, amidst an otherwise consistent picture of sustainable and ethical shopper behaviors. Shoppers also report a higher reliance on their food store to ensure food safety, with less reliance on the Food and Drug Administration. Consumers believe it is especially important for retailers to provide detailed information (transparency) about the products they sell.

Market Driver #2 - Global competitiveness among retailers

● Producers, restaurant chains and retailers with dominant market shares and large buying power, like Dannon, McDonald’s and Wal-Mart, are leading the way in prioritizing sustainable food supply initiatives in response to consumer demands. With information literally at our fingertips, Google searches and smart phone apps are making it easier to expose where sustainable food supply chains are, and where they are not.

● Producers, packers, distributors and retailers understand that verification, identification and traceability are key competitive differentiators. Oftentimes, it is necessary for export into international markets, including Korea, Russia, China and the European Union.

Market Driver #3 - Government regulation

● The Animal Disease Traceability Rule promulgated by the USDA primarily covers beef cattle 18 months of age or older. Under the final rule, unless specifically exempted, livestock moved interstate must be officially identified and accompanied by an interstate certificate of veterinary inspection or other documentation, such as owner-shipper statements or brand certificates. Although animal disease traceability does not prevent disease, an efficient and accurate traceability system reduces the number of animals and response time involved in a disease investigation.

● Cattle export verification (“EV”) requirements to China include source and age verification with the use of a program compliant ear tag. In addition, China bans the use of synthetic growth promotants, including ractopamine. So, although there is not a formal non-hormone component to the EV requirements for the supply chain, due to China’s residue testing, packers seek non-hormone treated cattle and/or verified natural cattle to ensure continued market access. China is the world's second largest buyer of beef.

● The development of the U.S. Hemp Authority Certified program demonstrates commitment toward high standards and transparency with hemp cultivation. The 2014 Farm Bill allowed farmers to start pilot programs for hemp alongside their agricultural programs. As of 2018, a new bill allows farmers to grow hemp with all the protections traditional farming receives. This Farm Bill allows farmers to legally grow hemp, which means more CBD products on the shelves. Through this bill, hemp will no longer be considered a controlled substance but rather take its place alongside all other types of traditional farming.

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Seasonality

Our business is subject to seasonal fluctuations. Significant portions of our verification and certification service revenue are typically realized during late May through early October when the calf marketings and the growing seasons are at their peak. Because of the seasonality of the business and our industry, results for any quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year.

Liquidity and Capital Resources

At March 31, 2019, we had cash, cash equivalents and certificates of deposits (classified as short-term and long-term investments) of approximately $2,953,200 compared to approximately $1,981,000 at December 31, 2018. Our working capital at March 31, 2019 was approximately $2,282,500 compared to $2,669,700 at December 31, 2018.

Net cash provided by operating activities for the three months ended March 31, 2019 was approximately $1,251,900 compared to net cash provided of $1,314,700 during the same period in 2018. Net cash provided by operating activities is driven by our net income (loss) and adjusted by non-cash items. Non-cash adjustments primarily include depreciation, amortization of intangible assets, stock-based compensation expense, and deferred taxes.

Net cash used in investing activities for the three months ended March 31, 2019, was $195,400 compared to $154,300 used in the 2018 period. Net cash used in the 2019 and 2018 period was primarily attributable to routine purchases of property, equipment and software development costs.

Net cash used in financing activities for the three months ended March 31, 2019, was $86,500 compared to $43,800 used in the 2018 period. Net cash used in both the 2019 and 2018 periods was primarily due to the repurchase of common shares under the Stock Buyback Plan.

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

The culmination of all our efforts has brought significant opportunities to us, including increased investor confidence and renewed interest in our company, as well as the potential to develop business relationships with long-term strategic partners. In keeping with our core business, we will continue to review our business model with a focus on profitability, long-term capital solutions and the potential impact of acquisitions or divestitures, if such an opportunity arises. Additionally, we continually evaluate all funding options, including additional offerings of our securities to private, public and institutional investors and other credit facilities as they become available.

Our plan for continued growth is primarily based upon continued expansion of verification bundling opportunities, as well as acquisitions in national and international markets. We believe that there are significant growth opportunities available to us because often the only way to differentiate a product or brand, or overcome import/export restrictions is via a quality verification program.

Debt Facility

The Company has a revolving line of credit (“LOC”) agreement which matures April 12, 2020. The LOC provides for $75,080 in working capital. The interest rate is at the Wall Street Journal prime rate plus 1.50% and is adjusted daily. Principal and interest are payable upon demand, but if demand is not made, then annual payments of accrued interest only are due, with the principal balance due upon maturity. As of March 31, 2019, and December 31, 2018, the effective interest rate was 7.0%. The LOC is collateralized by all the business assets of International Certification Services, Inc. (“ICS”). As of March 31, 2019, and December 31, 2018, there were no amounts outstanding under this LOC.

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Off-Balance Sheet Arrangements

As of March 31, 2019, we had no off-balance sheet arrangements of any type.   

RESULTS OF OPERATIONS

Three months ended March 31, 2019 compared to the same period in fiscal year 2018

The following table shows information for reportable operating segments:

	Three months ended March 31, 2019												Three months ended March 31, 2018
		Verification and Certification Segment			Software Sales and Related Consulting Segment			Eliminations and Other			Consolidated Totals			Verification and Certification Segment		Software Sales and Related Consulting Segment			Eliminations and Other			Consolidated Totals
Assets:
Intangible and other assets, net	$	1,424,275		$	2,273,725		$	—		$	3,698,000		$	1,591,786	$	2,166,298		$	—		$	3,758,084
Goodwill		1,133,122			2,010,612			—			3,143,734			1,279,762		1,372,488			—			2,652,250
Total assets		13,031,344			5,518,447			—			18,549,791			9,830,255		4,253,835			—			14,084,090
Revenues:
Verification and certification service revenue	$	2,811,694		$	—		$	—		$	2,811,694		$	2,796,194	$	—		$	—		$	2,796,194
Product sales		641,058			—			—			641,058			353,894		—			—			353,894
Software license, maintenance and support services revenue		—			343,566			(48,537	)		295,029			—		287,444			—			287,444
Software-related consulting service revenue		—			221,223			(14,464	)		206,759			—		183,270			—			183,270
Total revenues	$	3,452,752		$	564,789		$	(63,001	)	$	3,954,540		$	3,150,088	$	470,714		$	—		$	3,620,802
Costs of revenues:
Costs of verification and certification services		1,594,763			—			(32,673	)		1,562,090			1,450,609		—			—			1,450,609
Costs of products		443,185			—			—			443,185			225,975		—			—			225,975
Costs of software license, maintenance and support services		—			154,003			—			154,003			—		137,434			—			137,434
Costs of software-related consulting services		—			129,536			—			129,536			—		75,461			—			75,461
Total costs of revenues		2,037,948			283,539			(32,673	)		2,288,814			1,676,584		212,895			—			1,889,479
Gross profit		1,414,804			281,250			(30,328	)		1,665,726			1,473,504		257,819			—			1,731,323
Depreciation & amortization		81,938			178,183			—			260,121			77,997		138,046			—			216,043
Other operating expenses		1,510,592			225,954			(30,328	)		1,706,218			1,332,397		156,034			—			1,488,431
Segment operating (loss)/income	$	(177,726	)	$	(122,887	)	$	—		$	(300,613	)	$	63,110	$	(36,261	)	$	—		$	26,849
Other items to reconcile segment operating income (loss) to net income attributable to WFCF:
Other expense (income)		—			—			(30,649	)		(30,649	)		—		—			(1,839	)		(1,839	)
Income tax (benefit)/expense		—			—			(83,000	)		(83,000	)		—		—			8,000			8,000
Net loss attributable to non-controlling interest		—			43,835			—			43,835			—		—			14,796			14,796
Net (loss)/income attributable to WFCF	$	(177,726	)	$	(79,052	)	$	113,649		$	(143,129	)	$	63,110	$	(36,261	)	$	8,635		$	35,484

Verification and Certification Segment

Verification and certification service revenues consist of fees charged for verification audits and other verification and certification related services that the Company performs for customers. Fees earned from our WFCF labeling program are also included in our verification and certification revenues as it represents a value-added extension of our source verification. Verification and certification service revenue for the three months ended March 31, 2019 increased approximately $15,500, or 0.6% compared to 2018. The increase is due to an increase in new verification customers, as well as an increase in product offerings.

Our product sales are an ancillary part of our verification and certification services and represent sales of cattle identification ear tags. Product sales for the three months ended March 31, 2019 increased approximately $287,200, or 81.1% compared to the same period in 2018. Overall, our product sales have increased primarily in response to the growth of the China export market and the requirement for source and age verification using an identification tag at birth for cattle.

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Costs of revenues for our verification and certification segment for the three months ended March 31, 2019 were approximately $2.04 million compared to approximately $1.68 million for the same period in 2018. Gross margin for the three months ended March 31, 2019 decreased to 41.0% compared to 46.8% in 2018 primarily due to competitive pricing offered to dairy calf ranches for significantly higher purchase volumes of cattle identification ear tags. Our margins are generally impacted by various costs such as cost of products, salaries and benefits, insurance, and taxes.

Other operating expenses for the three months ended March 31, 2019 increased approximately 13.4% compared to the same period in 2018. Overall, the increase in other operating expenses is due to increased marketing efforts, more specifically, we had a larger presence at the 2019 Annual Cattle Industry Convention and Trade Show hosted by the National Cattlemen’s Beef Association. We also incurred additional expenses due to a company-wide auditor conference we hosted at our corporate headquarters and increasing public company compliance costs.

Software Sales and Related Consulting Segment

Software license, maintenance and support services revenue is a revenue stream specific to our acquisitions of SureHarvest, Sow Organic and JVF Consulting. We employ a SaaS revenue model that bundles annual software licenses with ongoing software enhancements and upgrades and a wide range of professional services that generate incremental revenue specific to the food and agricultural industry. For the three months ended March 31, 2019, software license, maintenance and support services revenue increased approximately 19.5% over 2018 predominately due to a significant increase in the number of billable hours of staff focused on software enhancements and upgrades.

Software-related consulting service revenue primarily represents fees earned from professional appearances, customer education and training related services. Software-related consulting service revenue for the three months ended March 31, 2019 increased approximately 20.7% compared to the same period in 2018. The increase is predominately due to growth in customer education and training services.

Costs of revenues for our software sales and related consulting segment for the three months ended March 31, 2019 were approximately $283,500 compared to approximately $212,900 for the same period in 2018. Gross margin for the three months ended March 31, 2019 decreased to 49.8% compared to 54.8% for the same period in 2018. The decrease was predominately due to additional costs absorbed from the Sow Organic and JVF acquisitions.

Other operating expenses for the three months ended March 31, 2019 increased approximately 44.8% compared to the same period in 2018. The increase is predominately due to additional fixed costs absorbed from the Sow Organic and JVF acquisitions.

As with all of our acquisitions, we continue to identify synergies and implement best practices. We focus our efforts to create value in various ways such as improving the performance of our acquired businesses, removing excess capacity, creating market access for products, acquiring skills and technologies more quickly or at a lower cost than we can build in-house, exploiting our industry-specific scalability and bundling opportunities, and picking winners early and helping them develop their businesses. Achieving any or all of these strategies take time to implement. We have learned that it can take two to three years after an acquisition to fully understand the complexities, at which time, we have seen solid improvements in revenues and/or costs.

Dividend Income from Progressive Beef

On August 9, 2018, the Company purchased a ten percent membership interest in Progressive Beef, LLC (“Progressive Beef”) for an aggregate purchase price of approximately $991,000. For the three months ended March 31, 2019, the Company received dividend income of $30,000 from Progressive Beef representing a distribution of their earnings.

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Income Tax Expense

The provision or benefit for income taxes is recorded at the end of each interim period based on the Company's best estimate of its effective income tax rate expected to be applicable for the full fiscal year. For the three months ended March 31, 2019, we recorded income tax benefit of $83,000 compared to income tax expense of $8,000 for the same period in 2018.

Net Income and Per Share Information

As a result of the foregoing, net loss attributable to WFCF shareholders for the three months ended March 31, 2019 was approximately $143,100, or less than a penny per basic and diluted common share, compared to net income of $35,500, or less than a penny per basic and diluted common share for the same period in 2018.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, including our principal executive and financial officers, have conducted an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures,” as such term is defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act, to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information we are required to disclose in such reports is accumulated and communicated to management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and financial officers concluded, as a result of the material weaknesses in internal control over financial reporting discussed below, that our disclosure controls and procedures were not effective as of the end of the period covered by this report. However, we believe that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

Material Weaknesses in Internal Control over Financial Reporting and Remediation Plan

In connection with the audit of our consolidated financial statements for the year ended December 31, 2018, we and our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

● As a smaller reporting company, we have limited accounting and financial reporting personnel and other resources with which to address our internal controls over financial reporting. Due to limited accounting personnel, we did not apply the appropriate level of review, oversight and segregation of duties to the accounting and financial reporting function. This resulted in the identification of a material weakness in our internal control over financial reporting. As of March 31, 2019, we have hired additional accounting personnel. Additionally, we are in the process of implementing more robust review, supervision and monitoring of the financial reporting process also intended to remediate the identified material weakness.

● The Company lacked effective procedures for ensuring review and approval related to journal entries. Due to the related risks associated with financial reporting, this deficiency has been deemed an individual material weakness. As of March 31, 2019, we have strengthened controls around the journal entry process, including limiting access and ensuring all journal entries are reviewed and approved by appropriate personnel.

33 

● We also identified a material weakness related to general information technology controls in the areas of user access to systems that support the Company’s financial reporting processes. We did not implement a procedure or control to periodically review the access granted in order to ensure that users of our information systems had the appropriate access relative to the user’s job responsibilities. We did not restrict and maintain network access accounts to only employees in the information technology department and had no compensating controls. With the acquisition of JVF Consulting in August 2018, we added 3 additional information technology professionals with knowledge of security, networking and infrastructure. These individuals are committed to ensuring user access is documented, properly approved and routinely monitored to determine appropriateness.

The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. The Company expects that the remediation of these material weaknesses will be completed prior to the end of fiscal year 2019.

In light of these material weaknesses, in preparing our financial statements for the quarter ended March 31, 2019, we performed additional analyses and procedures to ensure that our consolidated financial statements included in this Form 10-Q have been prepared in accordance with U.S. GAAP. There have been no material misstatements identified in the financial statements as a result of these deficiencies.

Management believes that the foregoing efforts will effectively remediate the material weaknesses. As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to address the material weaknesses or to modify the remediation plans described above.

Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and can only provide reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The changes in our internal control over financial reporting that occurred prior to and during the quarter ended March 31, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting are described above under the heading “Material Weakness in Internal Control over Financial Reporting and Remediation Plan.”

With the adoption of ASC Topic 842 as further described in Note 1 and Note 11 to the Consolidated Financial Statements in Part I of this Quarterly Report, we designed internal controls over the adoption and implemented a software solution to manage and account for our leases. This enabled us in quantifying the impact on our consolidated financial statements and supplementing our existing disclosures.

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

34 

PART II – OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

Our business is subject to a number of risks, including those identified in Item 1A. — “Risk Factors” of our 2018 Annual Report on Form 10−K, that could have a material effect on our business, results of operations, financial condition and/or liquidity and that could cause our operating results to vary significantly from period to period. As of March 31, 2019, there have been no material changes to the risks disclosed in our most recent Annual Report on Form 10−K. We may also disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

On January 7, 2008, we announced our intention to buy back up to one million shares of our common stock from the open market (“Stock Buyback Plan”). Our Stock Buyback Plan has been and will be used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. In the future, we may consider additional share repurchases under our plan based on several factors, including our cash position, share price, operational liquidity, and planned investment and financing needs.

Activity for the quarter ended March 31, 2019 is as follows:

	Number of Shares		Cost of Shares		Average Cost per Share
Shares purchased - January 2019		8,401	$	16,406	$	1.95
Shares purchased - February 2019		1,500		2,750	$	1.83
Shares purchased - March 2019		36,857		64,267	$	1.74
Total		46,758		83,423	$	1.78

ITEM 6. EXHIBITS

(a) Exhibits

Number	Description
31.1	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

35 

SIGNATURES

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 thereunto duly authorized.

Date: May 14, 2019	Where Food Comes From, Inc.
	By:	/s/ John K. Saunders
		Chief Executive Officer

By:	/s/ Dannette Henning
	Chief Financial Officer

36 

EX-31.1

Where Food Comes From, Inc. 10-Q

EXHIBIT 31.1

I, John Saunders, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: May 14, 2019

/s/ John Saunders

John Saunders, Chief Executive Officer

37

EX-31.2

Where Food Comes From, Inc. 10-Q

EXHIBIT 31.2

I, Dannette Henning, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: May 14, 2019

/s/ Dannette Henning

Dannette Henning, Chief Financial Officer

38

EX-32.1

Where Food Comes From, Inc. 10-Q

EXHIBIT 32.1

Certification of Periodic Financial Report

Pursuant to 18 U.S.C. Section 1350

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

(i) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

Date: May 14, 2019

/s/ John Saunders

John Saunders, Chief Executive Officer

39

EX-32.2

Where Food Comes From, Inc. 10-Q

EXHIBIT 32.2

Certification of Periodic Financial Report

Pursuant to 18 U.S.C. Section 1350

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

(i) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

Date: May 14, 2019

/s/ Dannette Henning

Dannette Henning, Chief Financial Officer

40

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 10, 2019
Document And Entity Information
Entity Registrant Name	Where Food Comes From, Inc.
Entity Central Index Key	0001360565
Document Type	10-Q
Trading Symbol	WFCF
Document Period End Date	Mar. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Reporting Status Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		24,921,498
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2019

XML

Consolidated Balance Sheets (Unaudited) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 2,452,477	$ 1,482,391
Accounts receivable, net of allowance	2,005,766	2,205,162
Short-term investments in certificates of deposit	246,506	245,597
Prepaid expenses and other current assets	428,619	439,424
Total current assets	5,133,368	4,372,574
Property and equipment, net	1,765,595	1,675,472
Operating lease right-of-use assets	3,359,810
Long-term investments in certificates of deposit	254,246	252,999
Investment in Progressive Beef	991,115	991,115
Intangible and other assets, net	3,698,000	3,852,121
Goodwill	3,143,734	3,143,734
Deferred tax assets, net	203,923	175,923
Total assets	18,549,791	14,463,938
Current liabilities:
Accounts payable	691,562	533,925
Accrued expenses and other current liabilities	567,935	419,619
Customer deposits and deferred revenue	1,362,882	727,854
Current portion of notes payable	10,299	10,173
Current portion of finance lease obligations	7,303	11,309
Current portion of operating lease obligations	210,847
Total current liabilities	2,850,828	1,702,880
Notes payable, net of current portion	30,440	32,220
Finance lease obligations, net of current portion	31,968	32,747
Operating lease obligation net of current portion	3,647,424
Deferred rent liability		119,187
Lease incentive obligation		362,088
Total liabilities	6,560,660	2,249,122
Commitments and contingencies
Contingently redeemable non-controlling interest	1,405,172	1,449,007
Equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; none issued or outstanding
Common stock, $0.001 par value; 95,000,000 shares authorized; 25,473,115 (2019) and 25,473,115 (2018) shares issued, and 24,921,498 (2019) and 24,968,256 (2018) shares outstanding	25,473	25,473
Additional paid-in-capital	11,075,966	11,031,264
Treasury stock of 551,617 (2019) and 504,859 (2018) shares	(1,192,484)	(1,109,061)
Retained earnings	675,004	818,133
Total equity	10,583,959	10,765,809
Total liabilities and stockholders' equity	$ 18,549,791	$ 14,463,938

XML

Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Mar. 31, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, authorized	5,000,000	5,000,000
Preferred stock, issued
Preferred stock, outstanding
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized	95,000,000	95,000,000
Common stock, issued	25,473,115	25,473,115
Common stock, outstanding	24,921,498	24,968,256
Treasury stock, shares	551,617	504,859

XML

Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Revenues:
Total revenues	$ 3,954,540	$ 3,620,802
Costs of revenues:
Total costs of revenues	2,288,814	1,889,479
Gross profit	1,665,726	1,731,323
Selling, general and administrative expenses	1,966,339	1,704,474
(Loss)/income from operations	(300,613)	26,849
Other expense (income):
Dividend income from Progressive Beef	(30,000)
Other income, net	(2,696)	(2,918)
Gain on sale of assets	1,000
Interest expense	3,047	1,079
(Loss)/income before income taxes	(269,964)	28,688
Income tax (benefit)/expense	(83,000)	8,000
Net (loss)/income	(186,964)	20,688
Net loss attributable to non-controlling interest	43,835	14,796
Net (loss)/income attributable to Where Food Comes From, Inc.	$ (143,129)	$ 35,484
Weighted average number of common shares outstanding:
Basic (in shares)	24,957,082	24,648,610
Diluted (in shares)	24,957,082	24,845,002
Verification and Certification Service Revenue [Member]
Revenues:
Total revenues	$ 2,811,694	$ 2,796,194
Costs of revenues:
Total costs of revenues	1,562,090	1,450,609
Product Sales [Member]
Revenues:
Total revenues	641,058	353,894
Costs of revenues:
Total costs of revenues	443,185	225,975
Software License, Maintenance and Support Services Revenue [Member]
Revenues:
Total revenues	295,029	287,444
Costs of revenues:
Total costs of revenues	154,003	137,434
Software-Related Consulting Service Revenue [Member]
Revenues:
Total revenues	206,759	183,270
Costs of revenues:
Total costs of revenues	$ 129,536	$ 75,461

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Operating activities:
Net (loss)/income	$ (186,964)	$ 20,688
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	260,121	272,500
Lease incentive obligation		(2,709)
Gain on sale of assets	(1,000)
Stock-based compensation expense	44,702	37,902
Deferred tax benefit	(28,000)	(46,000)
Bad debt expense		8,900
Changes in operating assets and liabilities, net of effect from acquisitions:
Accounts receivable	199,396	366,515
Short-term investments	(2,156)	(1,916)
Prepaid expenses and other assets	10,805	(71,951)
Accounts payable	157,637	1,713
Accrued expenses and other current liabilities	148,316	111,671
Customer deposits and deferred revenue	635,028	617,352
Right of use assets and liabilities, net	14,062
Net cash provided by operating activities	1,251,947	1,314,665
Investing activities:
Proceeds from sale of assets	1,000
Purchases of property, equipment and software development costs	(196,373)	(152,949)
Purchases of other long-term assets		(1,350)
Net cash used in investing activities	(195,373)	(154,299)
Financing activities:
Repayments of notes payable	(1,654)	(2,312)
Repayments of finance lease obligations	(1,411)	(1,862)
Stock repurchase under Stock Buyback Plan	(83,423)	(39,648)
Net cash used in financing activities	(86,488)	(43,822)
Net change in cash	970,086	1,116,544
Cash at beginning of period	1,482,391	2,705,778
Cash at end of period	$ 2,452,477	$ 3,822,322

XML

Consolidated Statement of Equity (Unaudited) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Treasury Stock [Member]	Retained Earnings [Member]	Total
Balance, beginning at Dec. 31, 2017	$ 24,972	$ 10,353,037	$ (724,530)	$ 17,397	$ 9,670,876
Balance, beginning, (in shares) at Dec. 31, 2017	24,652,895
Stock-based compensation expense		37,902			37,902
Repurchase of common shares under Stock Buyback Plan			(39,648)		(39,648)
Repurchase of common shares under Stock Buyback Plan (in shares)	(15,680)
Net income attributable to Where Food Comes From, Inc.				35,484	35,484
Balance, ending at Mar. 31, 2018	$ 24,972	10,390,939	(764,178)	52,881	9,704,614
Balance, ending, shares at Mar. 31, 2018	24,637,215
Balance, beginning at Dec. 31, 2018	$ 25,473	11,031,264	(1,109,061)	818,133	$ 10,765,809
Balance, beginning, (in shares) at Dec. 31, 2018	24,968,256				24,968,256
Stock-based compensation expense		44,702			$ 44,702
Repurchase of common shares under Stock Buyback Plan			(83,423)		(83,423)
Repurchase of common shares under Stock Buyback Plan (in shares)	(46,758)
Net income attributable to Where Food Comes From, Inc.				(143,129)	(143,129)
Balance, ending at Mar. 31, 2019	$ 25,473	$ 11,075,966	$ (1,192,484)	$ 675,004	$ 10,583,959
Balance, ending, shares at Mar. 31, 2019	24,921,498				24,921,498

XML

The Company and Basis of Presentation

3 Months Ended

Mar. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The Company and Basis of Presentation

Note 1 – The Company and Basis of Presentation

Business Overview

Where Food Comes From, Inc. is a Colorado corporation based in Castle Rock, Colorado (“WFCF”, the “Company,” “our,” “we,” or “us”). We are an independent, third-party food verification company conducting both on-site and desk audits to verify that claims being made about livestock, food, other high-value specialty crops and agricultural products are accurate. We care about food and other agricultural products, how it is grown and raised, the quality of what we eat, what farmers and ranchers do, and authentically telling that story to the consumer. Our team visits farms and ranches and looks at their plants, animals, and records, and compares the information we collect to specific standards or claims that farms and ranches want to make about how they are producing food. We strive to ensure that everyone involved in the food business - from growers and farmers to retailers and shoppers – can count on WFCF to provide authentic and transparent information about the food we eat and how, where, and by whom it is produced.

We also provide sustainability programs, compliance management and farming information management solutions to drive sustainable value creation. We employ a software-as-a-service (“SaaS”) revenue model that bundles annual software licenses with ongoing software enhancements and upgrades and a wide range of professional services that generate incremental revenue specific to the food and agricultural industry. Finally, the Company’s Where Food Comes From Source Verified® retail and restaurant labeling program utilizes the verification of product attributes to connect consumers directly to the source of the food they purchase through product labeling and web-based information sharing and education.

Most of our customers are located throughout the United States.

Basis of Presentation

Our unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the results of operations, financial position and cash flows of Where Food Comes From, Inc. and its subsidiaries, International Certification Services, Inc. (“ICS”), Validus Verifications Services, LLC (“Validus”), Sterling Solutions (“Sterling”), SureHarvest Services, Inc. (“SureHarvest”), A Bee Organic, Sow Organic and JVF Consulting (collectively referred to as “we,” “us,” and “our” throughout this Form 10-Q). The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues, costs and expenses during the reporting period. All significant intercompany transactions and amounts have been eliminated. The results of businesses acquired are included in the consolidated financial statements from the date of the acquisition. Actual results could differ from the estimates.

The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with our audited financial statements and footnotes thereto for the year ended December 31, 2018, included in our Form 10-K filed on March 29, 2019. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. However, we believe that the disclosures are adequate to make the information presented not misleading. The financial statements reflect all adjustments (consisting primarily of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations. The consolidated operating results for the quarter ended March 31, 2019 are not necessarily indicative of the results to be expected for any other interim period of any future year.

Seasonality

Our business is subject to seasonal fluctuations. Significant portions of our verification and certification service revenue are typically realized during late May through early October when the calf marketings and the growing seasons are at their peak. Because of the seasonality of the business and our industry, results for any quarter are not necessarily indicative of the results that may be achieved for any other quarter or for the full fiscal year.

Recent Accounting Pronouncements

The Financial Accounting Standards Board (FASB) Accounting Standards Codification is the sole source of authoritative GAAP other than SEC issued rules and regulations that apply only to SEC registrants. The FASB issues an Accounting Standards Update (ASU) to communicate changes to the codification. The Company considers the applicability and impact of all ASU’s. ASU’s not listed below were assessed and determined to be either not applicable or are not expected to have a material impact on the consolidated financial statements.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use asset and a lease liability for all leases that are not short-term in nature. Accounting for finance leases is substantially unchanged. Topic 842 is effective for fiscal years beginning after December 15, 2018. We adopted the new lease standard as of January 1, 2019 using a modified retrospective transition. Under the effective date method, financial results reported in periods prior to 2019 are unchanged. We also elected the package of practical expedients, which among other things, does not require reassessment of lease classification.

To assist in quantifying the impact on our consolidated financial statements and supplementing our existing disclosures, we designed internal controls over the adoption and implemented a software solution to manage and account for our leases. The adoption had a significant impact on our consolidated balance sheet due to the recognition of approximately $3.9 million of operating lease liabilities with corresponding right-of-use (“ROU”) assets for operating leases of $3.44 million as of January 1, 2019. The difference between the lease liability and the ROU asset primarily represents the existing deferred rent liabilities balances before adoption, resulting from historical straight-lining of operating leases. Balances for deferred rent and lease incentive obligation, which were historically presented separately, were cleared to zero and reclassed to our operating ROU assets.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments made to nonemployees so the accounting for such payments is substantially the same as those made to employees. Under this ASU, share based awards to nonemployees will be measured at fair value on the grant date of the awards, entities will need to assess the probability of satisfying performance conditions if any are present, and awards will continue to be classified according to Accounting Standards Codification (“ASC”) 718 upon vesting which eliminates the need to reassess classification upon vesting, consistent with awards granted to employees. This ASU is effective for fiscal years beginning after December 15, 2018. The Company adopted the new guidance on January 1, 2019 and it did not have any effect on its consolidated financial statements.

Recently Issued Accounting Pronouncements

In June 2016 the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current U.S. GAAP, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life. The Company is required to adopt the new standard in 2020.

In April 2017, the FASB has issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” which removes Step 2 from the goodwill impairment test. As a result, under the ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The Company is required to adopt the new standard in 2020.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 8420): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 modifies the requirements associated with the hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. The provisions of this ASU are effective for reporting periods after December 15, 2019; early adoption is permitted. We are currently evaluating the effect that this ASU will have on our consolidated financial statements.

In August 2018 the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal Use Software - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which amends the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract to align with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. We are in the process of evaluating the impact on our consolidated financial statements and the timing of adoption of this update.

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Business Acquisitions

3 Months Ended

Mar. 31, 2019

Business Combinations [Abstract]

Business Acquisitions

Note 2 – Business Acquisitions

Sow Organic Acquisition

On May 16, 2018, we acquired substantially all of the assets of Sow Organic for $450,000 in cash and 217,654 shares of common stock of WFCF valued at approximately $433,100. We believe the transaction further diversifies our offerings by adding complementary solutions and services available to new and existing customers. Sow Organic’s software as a service (SaaS) model allows organic certification bodies to automate and accelerate new customer onboarding by converting traditional paper-based processes to digital format, resulting in lower costs, improved workflow management and increased productivity. Sow Organic’s unique design allows certification bodies to digitize any certification scheme. Likewise, the software affords producers and handlers a more efficient way to become certified and to digitally manage their records on an ongoing basis, including completing annual certification requirements fully online. We intend to further develop the organic business opportunity and collaborate on a broader rollout of the solution to other certification markets where the tool is equally suited to improve efficiencies and reduce costs in the certification process. This transaction further strengthens our intellectual property portfolio, which we believe represents a distinct competitive advantage for the Company.

We believe the impacts on proforma revenue and earnings are immaterial. The following table summarizes the final fair values assigned to the assets and liabilities acquired in addition to the excess of the purchase price over the net assets acquired at the acquisition date.

Sow Organic, LLC:	May 16, 2018
Software acquired	$	156,000
Identifiable intangible assets:		—
Tradenames and trademarks		48,000
Non-compete agreements		84,000
Customer relationships		162,000
Goodwill		433,131
Total consideration	$	883,131

Excess attributable to goodwill reflects the excess over the identifiable intangible assets acquired based on the final allocation of the purchase price. Goodwill is primarily attributable to the operational and financial benefits expected to be realized from the acquisition, including cost saving synergies from operating efficiencies, future growth in bundling opportunities across divisions and brands, realized savings from a more sophisticated information technology infrastructure, and strategic advances from expansion of our intellectual property.

JVF Consulting Acquisition

On August 30, 2018, we acquired substantially all of the assets of JVF Consulting, LLC (“Seller” or “JVF”) for $500,000 in cash and 158,437 shares of common stock of WFCF valued at approximately $315,300. We believe the transaction adds value to certain of our existing software solutions which are based on intellectual property built and owned by the Seller. JVF is currently the largest technology provider to our SureHarvest division. With this acquisition, WFCF controls the intellectual property associated with its current Software as a Service (SaaS) offerings. Additionally, WFCF employed three of the Seller’s employees who enhance our ability to address new markets and services with our SaaS Solutions.

We believe the impacts on proforma revenue and earnings are immaterial. The following table summarizes the final fair values assigned to the assets and liabilities acquired in addition to the excess of the purchase price over the net assets acquired at the acquisition date.

JVF Consulting, LLC:	August 30, 2018
Software acquired	$	207,000
Identifiable intangible assets:
Tradenames and trademarks		87,000
Non-compete agreements		37,000
Customer relationships		104,000
Goodwill		380,290
Total consideration	$	815,290

Excess attributable to goodwill reflects the excess over the identifiable intangible assets acquired based on the final allocation of the purchase price. Goodwill is primarily attributable to the operational and financial benefits expected to be realized from the acquisition, including cost saving synergies from operating efficiencies, future growth in bundling opportunities across divisions and brands, realized savings from a more sophisticated information technology infrastructure, and strategic advances from expansion of our intellectual property.

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Basic and Diluted Net Income per Share

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Basic and Diluted Net Income per Share

Note 3 – Basic and Diluted Net Income per Share

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

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

	Three months ended March 31,
	2019		2018
Basic:
Weighted average shares outstanding		24,957,082		24,648,610
Diluted:
Weighted average shares outstanding		24,957,082		24,648,610
Weighted average effects of dilutive securities		—		196,392
Total		24,957,082		24,845,002
Antidilutive securities:		265,700		124,000

The effect of the inclusion of the antidilutive shares would have resulted in an increase in earnings per share. Accordingly, the weighted average shares outstanding have not been adjusted for antidilutive shares.

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Investment in Progressive Beef, LLC

3 Months Ended

Mar. 31, 2019

Equity Method Investments and Joint Ventures [Abstract]

Investment in Progressive Beef, LLC

Note 4 – Investment in Progressive Beef, LLC

On August 9, 2018, the Company purchased a ten percent membership interest in Progressive Beef, LLC (“Progressive Beef”) for an aggregate purchase price of approximately $991,000. The purchase price was payable in cash of $900,000 and 50,340 shares of common stock of WFCF valued at approximately $91,100 based upon the closing price of our stock on August 9, 2018, of $1.81 per share. Where Food Comes From is the primary certifier for Progressive Beef. For the first quarter ended March 31, 2019, the Company received dividend income from Progressive Beef of $30,000 representing a distribution of their earnings. The income is reflected within the “other (expense) income” section of the Company’s Consolidated Statement of Income for the quarter ended March 31, 2019. The investment is accounted for as a financial instrument under ASC 321 and the Company has elected to apply the practical expedient to value the investment at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. The Company completed a qualitative assessment and determined that there were no impairment indicators as of March 31, 2019.

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Intangible and Other Assets

3 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible and Other Assets

Note 5 – Intangible and Other Assets

The following table summarizes our intangible and other assets:

	March 31,		December 31,
	2019		2018
Intangible assets subject to amortization:
Tradenames and trademarks	$	417,307	$	417,307
Accreditations		85,395		85,395
Customer relationships		3,350,551		3,350,551
Patents		970,100		970,100
Non-compete agreements		121,000		121,000
		4,944,353		4,944,353
Less accumulated amortization		1,731,679		1,577,558
		3,212,674		3,366,795
Tradenames/trademarks (not subject to amortization)		465,000		465,000
		3,677,674		3,831,795
Other assets		20,326		20,326
Intangible and other assets:	$	3,698,000	$	3,852,121

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Accrued Expenses and Other Current Liabilities

3 Months Ended

Mar. 31, 2019

Payables and Accruals [Abstract]

Accrued Expenses and Other Current Liabilities

Note 6 – Accrued Expenses and Other Current Liabilities

The following table summarizes our accrued expenses and other current liabilities as of:

	March 31,		December 31,
	2019		2018
Income and sales taxes payable	$	25,800	$	19,978
Payroll related accruals		224,572		147,798
Professional fees and other expenses		317,563		251,843
	$	567,935	$	419,619

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Notes Payable

3 Months Ended

Mar. 31, 2019

Notes Payable [Abstract]

Notes Payable

Note 7 – Notes Payable

Notes Payable consist of the following:

	March 31,			December 31,
	2019			2018
Vehicle note	$	40,739		$	42,393
Less current portion of notes payable and other long-term debt		(10,299	)		(10,173	)
Notes payable and other long-term debt	$	30,440		$	32,220

In September 2017, we entered into a note payable of $54,165 for the purchase of a vehicle. Interest and principal payments are due in equal monthly installments of $1,087 over five years beginning October 2017. This note bears an interest rate of 7.44% per annum and is fully secured by the vehicle.

Unison Revolving Line of Credit

The Company has a revolving line of credit (“LOC”) agreement which matures April 12, 2020. The LOC provides for $75,080 in working capital. The interest rate is at the Wall Street Journal prime rate plus 1.50% and is adjusted daily. Principal and interest are payable upon demand, but if demand is not made, then annual payments of accrued interest only are due, with the principal balance due on maturity. As of March 31, 2019 and December 31, 2018, the effective interest rate was 7.0%. The LOC is collateralized by all the business assets of ICS. As of March 31, 2019, and December 31, 2018, there were no amounts outstanding under this LOC.

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Note 8 – Stock-Based Compensation

In addition to cash compensation, the Company may compensate certain service providers, including employees, directors, consultants, and other advisors, with equity-based compensation in the form of stock options and restricted stock awards. The Company recognizes all equity-based compensation as stock-based compensation expense based on the fair value of the compensation measured at the grant date. For stock options, fair value is calculated at the date of grant using the Black-Scholes-Merton option pricing model. For restricted stock awards, fair value is the closing stock price for the Company’s common stock on the grant date. The expense is recognized over the vesting period of the grant. For the periods presented, all stock-based compensation expense was classified as a component within selling, general and administrative expense in the Company’s consolidated statements of income.

The amount of stock-based compensation expense is as follows:

	Three months ended March 31,
	2019		2018
Stock options	$	38,744	$	16,431
Restricted stock awards		5,958		21,471
Total	$	44,702	$	37,902

During first quarter 2018, the Company awarded stock options to purchase 25,000 shares of the Company’s common stock at an exercise price of $2.55 per share to one of our business consultants. No awards were granted during the first quarter 2019.

The Company estimated the fair value of stock options using the Black-Scholes-Merton option pricing model with the following assumptions:

	Three months ended March 31,
	2019		2018
Number of options awarded to purchase common shares		None		25,000
Risk-free interest rate		N/A		2.60	%
Expected volatility		N/A		154.3	%
Assumed dividend yield		N/A		N/A
Expected life of options from the date of grant		N/A		9.8 years

The estimated unrecognized compensation cost from unvested awards which will be recognized ratably over the remaining vesting phase is as follows: 

Years ended December 31st:	Unvested stock options		Unvested restricted stock awards		Total unrecognized compensation expense
2019 (remaining nine months)		118,789		9,716		128,505
2020		110,072		4,251		114,323
2021		66,770		706		67,476
	$	295,631	$	14,673	$	310,304

Equity Incentive Plans

Our 2016 Equity Incentive Plan (the “Equity Incentive Plan”) provides for the issuance of stock-based awards to employees, officers, directors and consultants. The Plan permits the granting of stock awards and stock options. The vesting of stock-based awards is generally subject to the passage of time and continued employment through the vesting period.

Stock Option Activity

Stock option activity under our Equity Incentive Plan is summarized as follows:

							Weighted avg.
			Weighted avg.		Weighted avg.		remaining
	Number of		exercise price		grant date fair		contractual life		Aggregate
	awards		per share		value per share		(in years)		intrinsic value
Outstanding, December 31, 2018		434,451	$	1.49	$	1.47		6.91	$	230,039
Granted		—	$	—	$	—		—
Exercised		—	$	—	$	—		—
Expired/Forfeited		—	$	—	$	—		—
Outstanding, March 31, 2019		434,451	$	1.49	$	1.47		6.67	$	226,039
Exercisable, March 31, 2019		235,710	$	1.16	$	1.16		4.52	$	197,593
Unvested, March 31, 2019		198,741	$	1.89	$	1.83		9.21	$	28,447

The aggregate intrinsic value represents the total pre-tax intrinsic value (the aggregate difference between the closing price of our common stock on March 31, 2019 and the exercise price for the in-the-money options) that would have been received by the option holders if all the in-the-money options had been exercised on March 31, 2019.

Restricted Stock Activity

Restricted stock activity under our Equity Incentive Plan is summarized as follows:

			Weighted avg.
	Number of		grant date
	options		fair value
Non-vested restricted shares, December 31, 2018		30,000	$	2.38
Granted		—	$	—
Vested		—	$	—
Forfeited		—	$	—
Non-vested restricted shares, March 31, 2019		30,000	$	2.38

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Income Taxes

3 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Note 9 – Income Taxes

Deferred tax assets and liabilities have been determined based upon the differences between the financial statement amounts and the tax bases of assets and liabilities as measured by enacted tax rates expected to be in effect when these differences are expected to reverse. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company’s subsidiary, SureHarvest, is a California limited liability company (“LLC”). As an LLC, management believes SureHarvest is not subject to income taxes, and such taxes are the responsibility of the respective members. The Company is not providing for income taxes for the 40% interest owned by unrelated members of SureHarvest.

The provision or benefit for income taxes is recorded at the end of each interim period based on the Company’s best estimate of its effective income tax rate expected to be applicable for the full fiscal year. For the three months ended March 31, 2019 we recorded an income tax benefit of $83,000 compared to income tax expense of $8,000 for the 2018 period.

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Revenue Recognition

3 Months Ended

Mar. 31, 2019

Revenue Recognition [Abstract]

Revenue Recognition

Note 10 - Revenue Recognition

Verification and Certification Segment

We offer a range of products and services to maintain identification, traceability, and verification systems. We conduct both on-site and desk audits to verify that claims being made about livestock, food, other high-value specialty crops and agricultural products are accurate. We generate revenue primarily from the sale of our verification solutions, consulting services and hardware sales. We sell our products and services directly to customers at various levels in the livestock and agricultural supply chains.

Verification and certification service revenue primarily consists of fees charged for verification audits and other verification services that the Company performs for customers.

A more detailed summary of our verification and certification services is included in the subsections below.

Animal Verification and Certification Services

Our animal verification and certification services contracts are generally structured in one of the following ways: (i) we commit to perform the required number of animal audits to verify a customer’s compliance with a standard or claim, or (ii) we commit to perform animal audit services at a fixed price by site or location type as requested by our customer during an annual period. These contract structures are discussed in more detail in the subsections below.

Contract to Provide Required Number of Animal Audit Services

For certain of our animal verification and certification services, we commit to perform the required number of location or site audits within our customer’s supply chain to verify customer’s compliance with a contractually-specified standard or claim. Each location or site audit is typically very short-term in nature, with a typical duration of one to two weeks. Upon completion of an audit, we provide the customer with an audit verification report for the specific site or location that was audited. Payment is made by customer upon completion of each site or location audit.

We generally enter into revenue contracts with a one-year term. Our customers generally have the right to terminate the contract without prejudice with thirty days’ written notice. We have determined that, as a result of the termination provisions present in these contracts, the accounting contract term is a thirty-day period, with each thirty-day time increment representing a separate accounting contract under ASC 606.

Furthermore, we have concluded that there is a single performance obligation that is a series comprised of each distinct location or site audit performed. Our customers are charged a standard daily rate for the provision of an audit based on the scale of site operations and geographical location. Consideration attributable to each audit within the series is variable, as the number of days required to complete each audit is not known until performance of that audit occurs. We have concluded that it is appropriate to allocate variable consideration (that is, the number of days required to complete an audit) to each audit within the series. This is because the consideration that we earn for each audit relates specifically to our efforts to transfer to our customer that discrete audit, and the resulting audit opinion or verification report, for that specified site or location, and this allocation is consistent with the allocation objective as defined in ASC 606. As a result, instances in which the Company evaluates and applies the constraint on variable consideration are immaterial.

We further concluded that over-time recognition is appropriate because: (i) our performance of audits does not create an asset with an alternative use, as the audit and related verification report relates to facts and circumstances that are specific to each customer site or location (that is, there is a practical limitation on our ability to readily direct the asset to another customer) and (ii) we have an enforceable right to payment, inclusive of a reasonable profit, for performance completed to date. We utilize an input method to measure over-time progress of each audit within the series based on the number of audit days performed.

We do, however, note that there are instances in which we only have an enforceable right to payment upon completion of an audit, and thus, over-time recognition is not permitted. For these contracts, revenue is recognized at the point in time at which an audit is completed. This does not result in a significant difference in the timing of revenue recognition (as compared to those audits that are recognized over time) due to the very short-term duration of an audit.

Our customers may also have the option to purchase incremental review services (for example, an investigative audit or video review services) that are unrelated to the audit services to verify compliance with a specified standard or claim. The incremental review services are also typically very short-term in nature (that is, one to two weeks). We have concluded that these optional purchases do not reflect a material right under ASC 606 because the incremental review services are performed at standard pricing that would be charged to other similarly situated customers. Upon customer request for an incremental review service, we believe that our customer has made a discrete purchasing decision that should be treated as a separate accounting contract under ASC 606.

We charge a fixed fee for the incremental review service, and thus, upon customer request, we are entitled to fixed consideration for that service under ASC 606. We concluded that over-time revenue recognition is appropriate for incremental review services because: (i) our performance of incremental review services does not create an asset with an alternative use because that review service, and the associated customer deliverable, relates to facts and circumstances that are specific to each customer site or location (that is, there is a practical limitation on our ability to readily direct the asset to another customer) and (ii) we have an enforceable right to payment, inclusive of a reasonable profit, for performance completed to date on incremental review services. We utilize a time-based input method to measure progress toward complete satisfaction of an incremental review service, which is based on the number of hours performed on the incremental review service relative to the total number of hours required to complete that review service. As previously mentioned, our incremental review services are typically completed within one to two weeks of a customer request.

Contract to Provide Animal Audit Services at Customer Request

Other animal verification and certification services contracts are structured such that we commit to perform audit services at a fixed price by site or location type as requested by our customer during an annual period. Performance of an audit typically occurs within a one to two-week period. We invoice our customer upon completion of an audit, and payment is due from customer within thirty days or less of receipt of invoice.

Under this contract structure, the customer is, in effect, provided a pricing list for animal audit services, and pricing is effective over a one-year period. We have concluded that enforceable rights and obligations do not arise until a customer actually engages us to perform an audit service documented in the pricing list; therefore, each customer request represents a purchasing decision that is a separate accounting contract under ASC 606.

We note that the termination provisions specified in our pricing lists vary. In certain instances, a customer may only have the right to terminate in the event of non-performance. Alternatively, in other contracts, a customer may have the right to terminate without prejudice at any time or with thirty days’ written notice. However, regardless of the termination provision specified, we have concluded that the accounting contract term is equal to the duration of the requested audit service (that is, the termination provisions generally do not affect the accounting contract term for each requested audit service).

Upon a customer’s request for an audit service, consideration is fixed, as we charge the customer a fixed fee by audit type over the annual period per the pricing list.

We concluded that over-time revenue recognition is appropriate for a requested audit service because: (i) our performance of the requested audit service does not create an asset with an alternative use as that audit, and the associated audit report, relate to facts and circumstances that are specific to each customer site or location (that is, there is a practical limitation on our ability to readily direct the asset to another customer) and (ii) we have an enforceable right to payment, inclusive of a reasonable profit, for performance completed to date on a requested audit. A time-based input method is utilized to measure progress toward complete satisfaction of an audit based on the number of hours performed on that audit relative to the total number of hours expected to be required to complete the audit. As previously mentioned, our audit services are typically completed within one to two weeks of a customer request.

Other Considerations for Animal Certification and Verification Services

In connection with the provision of on-site audits related to animal certification and verification services, reimbursable expenses are incurred and billed to customers, and such amounts are recognized on a gross basis as both revenue and cost of revenue.

Any amounts collected on behalf of a third-party and remitted in full to that third-party are excluded from the transaction price and, thus, revenue.

Crop and Other Processed Product Verification and Certification Services

Third-party crop and other processed product audits are generally structured such that we commit to perform an independent audit to verify that food producers and/or farmers comply with certain standards. We generally provide verification services related to organic, Non-GMO and gluten-free standards. Depending on the crop or product type, verification audit activities may take two months to one year to complete. During this assessment period, various integrated audit activities and/or input reviews are performed in accordance with the regulations specified by the relevant standard.

The fee structure is such that customers pay an annual assessment fee for a crop or other processed product to verify compliance with the specified standard. This fee is payable upfront on a nonrefundable basis. Our customers can typically terminate a crop or other processed product audit at any time without prejudice. However, given the nonrefundable upfront payment structure for the annual assessment service, we have concluded that the contract term is one year. We record the upfront payment made by the customer for the annual assessment service as deferred revenue.

The audit activities and input reviews required in the provision of an annual assessment are not distinct under ASC 606, and consequently, we account for an annual assessment as a single integrated performance obligation.

For certain of our third-party crop and other processed product audits, the annual assessment fee is fixed for the annual period. In other scenarios, the annual assessment fee may be variable due to increased review activities required for incremental inputs to a crop or processed product identified through the assessment process. At the time that an incremental input is identified, which generally occurs in the early stages of an annual assessment, the incremental consideration for the provision of review services related to that incremental input also becomes known.

We allocate the transaction price derived from the annual assessment fee to the single integrated performance obligation for that annual assessment. Revenue related to the annual assessment is recognized over time in accordance with ASC 606. This is because the annual assessment service does not create an asset with an alternative use, as it relates to facts and circumstances that are specific to a customer’s crop or processed product. Further, we have an enforceable right to payment for performance completed to date on the annual assessment due to the nonrefundable upfront payment made by customer. We utilize an input method to measure progress toward satisfaction of the annual assessment based on the percentage of activities/phases or input reviews completed under the annual assessment.

As it relates to the upfront payment for the annual assessment, we have utilized the practical expedient that exempts us from adjusting consideration for the effects of a significant financing component when we expect that the period between customer payment and the provision of the related service is one year or less.

In certain contracts, an independent third-party inspection may be required for a site or location in our customer’s supply chain in accordance with the regulations for a specified standard. An inspection is performed by an independent third-party inspector, and the customer is charged an hourly rate for these inspection services.

Under this scenario, a separate accounting contract arises upon initiation and performance of an inspection, and we typically invoice our customer for the inspection upon completion of the inspection service. Given that the customer has the ability to terminate at any time without prejudice, we have concluded that the contract term for each inspection ends as control of an inspection service transfers. Inspections are generally short-term in nature with a term ranging from a few days to two weeks.

We have further determined that inspections are distinct from an annual assessment. Consideration attributable to an inspection is variable, as the inspector is only able to provide a high-level estimate of the cost of the inspection based on the inspector’s hourly rate until the inspector is at the relevant producer/supplier site to determine the time and level of effort required to complete the inspection. Given the very short-term nature of an inspection, variability related to an inspection generally resolves itself within a reporting period. However, we are typically required by certain regulations to provide an inspection cost estimate to our customer, and, if required, we utilize that estimate as our estimate of variable consideration. The cost estimate is generally derived from the cost to perform the prior-year inspection for that specific customer site or location or, when required, the historical cost to provide an inspection for a comparable site or location. In our experience, the historical cost of inspections has been predictive of the future cost of an inspection.

Other Considerations for Crop and Other Processed Product Verification Services

Reimbursable expenses incurred in the provision of an annual assessment or required inspection are billed to our customers, and such amounts are recognized on a gross basis as both revenue and cost of revenue.

In addition, any amounts collected on behalf of a third-party and remitted in full to that third-party are excluded from the transaction price and, thus, revenue.

Product Sales

Product sales are primarily generated from the sale of cattle identification ear tags. Each customer purchase request represents a purchasing decision made by customer. As such, enforceable rights and obligations (and, thus, a separate accounting contract under ASC 606) arise at the time a customer submits its purchase request to us. At the time of request, we are entitled to fixed consideration, as the sales quantity and related price of the product is known. All of our customers are charged the same fixed price per tag.

Revenue for product sales is recognized upon delivery of the goods to customer, at which point title, custody and risk of loss transfer to the customer. We typically deliver product to the customer within a few days of customer’s sales request. At the time of delivery, we invoice our customer for the related product sales and record invoiced amounts to accounts receivable. Payment is typically due by customer upon receipt of invoice.

In relation to our product sales, the sales taxes collected from customers and remitted to government authorities are excluded from revenue.

Additionally, we do not typically provide right of return or warranty on product sales.

Software Sales and Related Consulting Segment

We predominately offer software products via a SaaS model, which is an annual subscription-based model. Support services are generally included in the subscription. We also provide web-hosting services on an annual basis to all of our customers in conjunction with their software subscription. Customers have the ability to terminate without prejudice upon thirty days’ written notice; however, the subscription fee, inclusive of maintenance and support services, and the web-hosting fee are paid upfront by the customer on a nonrefundable basis. Consequently, we have concluded that the contract term for the annual software subscription and web-hosting services is one year.

We have determined that a software license subscription and the related hosting service should be accounted for as a service transaction, as we provide the functionality of our software through the hosting arrangement. The SaaS arrangement provides customers with unlimited access to our software and, thus, is accounted for as a series of distinct daily service periods that provide substantially the same service (that is, continuous access to the hosted software) each day during the annual contract term. Further, the provision of basic technical support services also represents a stand-ready obligation that is a series of distinct daily service periods that provide substantially the same service (that is, access to our technical support infrastructure) during the annual contract term. Because the basic technical support services and SaaS each represent performance obligations that are a series of distinct daily service periods, we have elected to combine these performance obligations.

We are entitled to fixed consideration for the software license subscription, inclusive of support services, and the related hosting service. The software license subscription and hosting fees in our contracts represent the standalone selling price for that related service. This is because the fees charged for the software license subscription and hosting service represent the software license subscription and hosting service fees that are charged to other customers with a similar level of data loaded into the software (regardless of whether that customer contracts for professional services). Accordingly, the software license subscription and hosting fees are allocated to the combined SaaS performance obligation.

We recognize revenue related to the SaaS arrangement over time because a customer simultaneously receives and consumes the benefit from the provision of access to the hosted software over the annual subscription period. Accordingly, we utilize a time-based output measure of progress that results in a straight-line attribution of revenue. That is, revenue related to the combined SaaS obligation should be recognized daily on a straight-line basis over the one-year subscription term, as this reflects the direct measurement of value to a customer of the provision of access to the software via hosting each day.

As it relates to the upfront payment for the software subscription and hosting service, we have utilized the practical expedient that exempts us from adjusting consideration for the effects of a significant financing component when we expect that the period between customer payment and the provision of the related service is one year or less.

In addition, we record the upfront payment made by customer for the annual assessment service as deferred revenue.

In some of our SaaS contracts, we also provide software-related consulting services to our customers during an annual software subscription period. Consulting services fees are derived from a standard rate card by employee level, and we invoice for consulting services monthly on a time-incurred basis. Due to the termination provisions present in our SaaS contracts, our customers have an in-substance renewal decision each month for further consulting services (that is, via their decision not to terminate the contract each month). Accordingly, the contract term for consulting services is on a month-to-month basis within the annual subscription period.

We have concluded that consulting services are distinct from the SaaS arrangement. To the extent that consulting services result in a software enhancement or new functionality, we have determined that those consulting services are still distinct because added features typically provide new, discrete capabilities with independent value to a customer and a customer accesses the SaaS in a single-tenant architecture. Further, additional features and functionality are often made available to a customer substantially after the “go-live” date of the software (via the hosting service). As a result, our software-related consulting services represent distinct performance obligations.

We recognize revenue over time in accordance with ASC 606. This is because our performance does not create an asset with an alternative use, as consulting services, and, if applicable, any related software enhancements, are highly tailored to the farming industry specific to the given customer, and we have an enforceable right to payment, inclusive of profit, for performance completed to date. As a result, for our consulting services, we have elected to utilize the practical expedient that allows us to recognize revenue in the amount to which we have a right to invoice, as we believe that we have a right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date for the provision of consulting services.

Principal versus Agent Considerations

Under certain of our verification and certification service contracts, a third-party inspector may be required to perform an independent inspection of a site or location within our customer’s supply chain in accordance with regulations of a certain standard or claim. In this scenario, we have concluded that we are the principal in the provision of inspection services to our customer, as we control the inspection service, and the related inspection report, before it is transferred to our customer. In accordance with this conclusion, we present revenue related to inspections on a gross basis, with customer payment for an inspection presented as revenue and the inspection cost paid to the third-party inspector presented as an expense.

In addition, we utilize a third-party to provide web-hosting services in the provision of our SaaS arrangements. In this scenario, we are primarily responsible for fulfilling the promise to provide web-hosting services to the customer, and we establish the fee that the customer is charged for the web-hosting services. Consequently, we have also concluded that we are the principal in the provision of web-hosting services under our SaaS arrangements. As such, we present revenue on a gross basis, with consideration received from our customer for the web-hosting service recorded as revenue and the cost paid to the third-party to provide those web-hosting services recorded as an expense.

Disaggregation of Revenue

We have identified four material revenue categories in our business: (i) verification and certification service revenue, (ii) product sales, (iii) software license, maintenance and support services revenue and (iv) software-related consulting service revenue.

Revenue attributable to each of our identified revenue categories is disaggregated in the table below. 

	Three months ended March 31, 2019									Three months ended March 31, 2018
	Verification and Certification Segment		Software Sales and Related Consulting Segment		Eliminations and Other			Consolidated		Verification and Certification Segment		Software Sales and Related Consulting Segment		Eliminations and Other		Consolidated
Verification and certification service revenue	$	2,811,694	$	—	$	—		$	2,811,694	$	2,796,194	$	—	$	—	$	2,796,194
Product sales		641,058		—		—			641,058		353,894		—		—		353,894
Software license, maintenance and support services revenue		—		343,566		(48,537	)		295,029		—		287,444		—		287,444
Software-related consulting service revenue		—		221,223		(14,464	)		206,759		—		183,270		—		183,270
Total revenues	$	3,452,752	$	564,789	$	(63,001	)	$	3,954,540	$	3,150,088	$	470,714	$	—	$	3,620,802

Transaction Price Allocated to Remaining Performance Obligations

We generally enter into revenue contracts with a one-year term. In certain instances, we have concluded that our contract term is less than one year because: (i) the termination provisions present in the contract impact the contract term under ASC 606 or (ii) a contract under ASC 606 arises at the time our customer requests the provision of a good or service that is delivered within or over a few days to a couple of weeks. As a result of our short-term contract structures, we have utilized the practical expedient in ASC 606-10-50-14 that exempts us from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

Contract Balances

Under our animal verification and certification services contracts, we invoice customers once the performance obligation for the provision of a site or location audit has been satisfied, at which point payment is unconditional. In addition, any product sales are invoiced upon delivery to the customer, at which point payment is also unconditional. Accordingly, our animal verification and certification services contracts do not give rise to a contract asset under ASC 606; rather, invoiced amounts reflect accounts receivable.

Under our crop and other processed product verification and certification services, a nonrefundable payment for an annual assessment of compliance with a standard is typically made by our customers upfront upon contract execution. That is, payment is made in advance of the provision of annual assessment services. Accordingly, we recognize deferred revenue upon receipt of the upfront payment from our customers for crop and other processed product audit assessment services. Revenue is subsequently recognized, and the related deferred revenue is reduced, over the one-year period during which assessment services are provided to the customer using the over-time measure of progress selected in accordance with ASC 606. To the extent that an inspection is required during the annual assessment period, we invoice customers once the performance obligation for the inspection has been satisfied, at which point payment is unconditional. As such, inspection services give rise to accounts receivable.

Our software subscriptions, web-hosting, and support services are paid by our customers upfront on a nonrefundable basis. That is, payment is made in advance of the provision of these services to our customers. As a result, we recognize deferred revenue upon receipt of the upfront payment from our customers for software subscriptions, web-hosting and maintenance and support services. Revenue is subsequently recognized, and the related deferred revenue is reduced, on a straight-line basis during the annual contract term that these stand-ready services are provided to customer.

Software-related consulting services are invoiced monthly on a time-incurred basis, at which point we have an enforceable right to payment for those services. Because payment is unconditional upon invoicing, our software-related consulting services are reflected as accounts receivable.

As of March 31, 2019, and December 31, 2018, accounts receivable from contracts with customers, net of allowance for doubtful accounts, were approximately $2,005,800 and $2,205,200, respectively.

As of March 31, 2019, and December 31, 2018, deposits and deferred revenue from contracts with customers were approximately $1,362,900 and $727,900, respectively. The balance of the contract liabilities at March 31, 2019 and December 31, 2018 are expected to be recognized as revenue within one year or less of the invoice date.

Costs to fulfill a contract

Prior to August 2018, we incurred a fixed cost, payable to JVF Consulting, LLC, a third-party provider, to perform set-up activities for new (or first-year) customers that contract for our software subscription and hosting services. As previously discussed in Note 2, on August 30, 2018, we acquired JVF Consulting, which included three key employees. We concluded that those set-up activities performed by JVF did not transfer a good or service as defined in ASC 606 to our customers.

We capitalize fixed set-up costs as an asset on the following basis: (i) the fixed set-up costs incurred relate specifically to a customer contract for our software subscription and hosting service, (ii) the fixed set-up costs incurred are expected to be recovered via provision of the software subscription and hosting service to that customer and (iii) the set-up costs generate or enhance resources of the Company by permitting us to provide software subscription and hosting services to our customer, which, in turn, generates revenues.

Capitalized costs related to those set-up activities are amortized on a straight-line basis over the one-year license subscription and hosting period.

The ending balance at March 31, 2019 and December 31, 2018 of capitalized assets attributable to the set-up costs incurred to fulfill software subscription and hosting contracts was not material. No set-up costs related to our software subscription and hosting services were incurred for the first quarter ended March 31, 2019 or the year-ended December 31, 2018.

In addition, amortization of capitalized set-up costs for the first quarter ended March 31, 2019 or the year ended December 31, 2018 was not material, and no impairment loss was incurred related to capitalized set-up costs.

Commissions and other costs to obtain a contract are expensed as incurred as our contracts are typically completed in one year or less, and where applicable, we generally would incur these costs whether or not we ultimately obtain the contract.

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Leases

3 Months Ended

Mar. 31, 2019

Lessee Disclosure [Abstract]

Leases

Note 11 – Leases

We adopted ASU 2016-02: Leases (Topic 842) as of January 1, 2019. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (ROU) assets, current operating lease liabilities and noncurrent operating lease liabilities in our consolidated balance sheet. Finance leases are included in property and equipment, current finance lease obligations and long-term finance lease obligations in our consolidated balance sheet.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

As the discount rates in the Company's lease are not implicit, the Company estimated the incremental borrowing rate based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term.

Our lease term includes options to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recorded on the balance sheet. Our lease agreements do not contain any residual value guarantees.

We have operating and finance leases for corporate offices, other regional offices, and certain equipment. Our leases have remaining lease terms of 1 year to 15 years, some of which include multiple options to extend the leases for up to 5 years each.

The components of lease expense were as follows:

	Three months ended
	March 31, 2019
Operating lease cost	$	119,697
Finance lease cost
Amortization of ROU assets	$	2,267
Interest on finance lease obligations	$	2,006
Total net lease cost	$	123,970

Included in the table above, is $92,200 of operating lease cost for our corporate headquarters. This space is being leased from The Move, LLC. Our CEO and President, each a related party to WFCF, have a 24.3% jointly-held ownership interest in The Move, LLC.

Rent expense for the quarter ended March 31, 2018 was $126,200.

Supplemental balance sheet information related to leases was as follows:

	March 31, 2019
Operating leases:	Related Party		Other		Total
Operating lease ROU assets	$	3,059,939	$	299,871	$	3,359,810
Current operating lease liabilities	$	144,078	$	66,769	$	210,847
Noncurrent operating lease liabilities		3,379,897		267,527		3,647,424
Total operating lease liabilities	$	3,523,975	$	334,296	$	3,858,271

Finance leases:	March 31, 2019
Property and equipment, at cost	$	47,367
Accumulated amortization		(15,794	)
Property and equipment, net	$	31,573
Current obligations of finance leases	$	7,303
Finance leases, net of current obligations		31,968
Total finance lease liabilities	$	39,271
Weighted average remaining lease term (in years):
Operating leases		11.7
Finance leases		3.6
Weighted average discount rate:
Operating leases		5.8	%
Finance leases		20.9	%

Supplemental cash flow and other information related to leases was as follows:

	Three months ended
	March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	100,110
Operating cash flows from finance leases	$	2,006
Financing cash flows from finance leases	$	1,411

Maturities of lease liabilities were as follows:

Years Ending December 31st,	Operating Leases			Finance Leases
2019 (remaining nine months)	$	321,306		$	10,861
2020		422,164			15,705
2021		434,829			14,143
2022		447,874			10,984
2023		461,310			5,609
Thereafter		3,308,155			—
Total lease payments		5,395,638			57,302
Less amount representing interest		(1,537,637	)		(18,031	)
Total lease obligations		3,858,271			39,271
Less current portion		(210,847	)		(7,303	)
Long-term lease obligations	$	3,647,424		$	31,968

As previously reported in the 2018 Form 10-K under ASC Topic 840, future minimum lease payments under the Company’s operating lease agreements that had initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2018 were as follows:

Years ended December 31st:	Total
2019	$	420,370
2020		421,590
2021		432,079
2022		447,264
2023		460,682
Thereafter		3,327,705
Total lease commitments	$	5,509,690

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 12 – Commitments and Contingencies

Legal proceedings

From time to time, we may become involved in various legal actions, administrative proceedings and claims in the ordinary course of business. We generally record losses for claims in excess of the limits of purchased insurance in earnings at the time and to the extent they are probable and estimable. We are not aware of any legal actions currently pending against us.

Contingently Redeemable Non-Controlling Interest

On December 28, 2016, we entered into an Asset Purchase Agreement (the “SureHarvest Purchase Agreement”), by and among the Company, SureHarvest Services LLC (the “Buyer” or “SureHarvest”); and SureHarvest, Inc., a California corporation (the “Seller”). We purchased the business assets of the Seller for total consideration of approximately $2.66 million, comprised of approximately $1,122,000 in cash and 850,852 shares of common stock of WFCF valued at approximately $1,534,900. Additionally, we issued the Seller a 40% membership interest in SureHarvest, with the Company holding a 60% interest.

Following the thirty-six-month anniversary of the effective date of the SureHarvest Purchase Agreement, the Company shall have the option, but not the obligation, to purchase all the units (the 40% interest) of SureHarvest held by the Seller, and the Seller shall have the option, but not the obligation, to require the Company to purchase all the units of SureHarvest held by the Seller. The purchase price for the units shall be equal to the amount the selling holders of the units would be entitled to receive upon a liquidation of SureHarvest assuming all of the assets of SureHarvest are sold for a purchase price equal to the product of eight and half times trailing twelve-month earnings before income taxes, depreciation and amortization, as defined, subject to an $8 million ceiling.

Because SureHarvest, Inc. at its option, can require the Company to purchase its 40% interest in SureHarvest, the SureHarvest non-controlling interest meets the definition of a contingently redeemable non-controlling interest. Redeemable non-controlling interests are presented at the greater of their carrying amount or redemption value at the end of each reporting period and are shown as a separate caption between liabilities and equity (mezzanine section) in the accompanying consolidated balance sheet.

The table below reflects the activity of the contingently redeemable non-controlling interest:

Balance, December 31, 2018	$	1,449,007
Net loss attributable to non-controlling interest in SureHarvest for the year to date period ended March 31, 2019		(43,835	)
Balance, March 31, 2019	$	1,405,172

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Segments

3 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Segments

Note 13 – Segments

With each acquisition, we assess the need to disclose discrete information related to our operating segments. Because of the similarities of certain of our acquisitions that provide certification and verification services, we aggregate operations into one verification and certification reportable segment. The operating segments included in the aggregated verification and certification segment include IMI Global, ICS, and Validus. The factors considered in determining this aggregated reporting segment include the economic similarity of the businesses, the nature of services provided, production processes, types of customers and distribution methods.

The Company also determined that it has a software sales and related consulting reportable segment. SureHarvest, which includes Sow Organic and JVF Consulting, is the sole operating segment. This segment includes software license, maintenance, support and software-related consulting service revenues.

The Company’s chief operating decision maker (the Company’s CEO) allocates resources and assesses the performance of its operating segments. Segment management makes decisions, measures performance, and manages the business utilizing internal reporting operating segment information. Performance of operating segments are based on net sales, gross profit, selling, general and administrative expenses and most importantly, operating income.

The Company eliminates intercompany transfers between segments for management reporting purposes. The following table shows information for reportable operating segments:

	Three months ended March 31, 2019												Three months ended March 31, 2018
	Verification and Certification Segment			Software Sales and Related Consulting Segment			Eliminations and Other			Consolidated Totals			Verification and Certification Segment		Software Sales and Related Consulting Segment			Eliminations and Other			Consolidated Totals
Assets:
Intangible and other assets, net	$	1,424,275		$	2,273,725		$	—		$	3,698,000		$	1,591,786	$	2,166,298		$	—		$	3,758,084
Goodwill		1,133,122			2,010,612			—			3,143,734			1,279,762		1,372,488			—			2,652,250
Total assets		13,031,344			5,518,447			—			18,549,791			9,830,255		4,253,835			—			14,084,090
Revenues:
Verification and certification service revenue	$	2,811,694		$	—		$	—		$	2,811,694		$	2,796,194	$	—		$	—		$	2,796,194
Product sales		641,058			—			—			641,058			353,894		—			—			353,894
Software license, maintenance and support services revenue		—			343,566			(48,537	)		295,029			—		287,444			—			287,444
Software-related consulting service revenue		—			221,223			(14,464	)		206,759			—		183,270			—			183,270
Total revenues	$	3,452,752		$	564,789		$	(63,001	)	$	3,954,540		$	3,150,088	$	470,714		$	—		$	3,620,802
Costs of revenues:
Costs of verification and certification services		1,594,763			—			(32,673	)		1,562,090			1,450,609		—			—			1,450,609
Costs of products		443,185			—			—			443,185			225,975		—			—			225,975
Costs of software license, maintenance and support services		—			154,003			—			154,003			—		137,434			—			137,434
Costs of software-related consulting services		—			129,536			—			129,536			—		75,461			—			75,461
Total costs of revenues		2,037,948			283,539			(32,673	)		2,288,814			1,676,584		212,895			—			1,889,479
Gross profit		1,414,804			281,250			(30,328	)		1,665,726			1,473,504		257,819			—			1,731,323
Depreciation & amortization		81,938			178,183			—			260,121			77,997		138,046			—			216,043
Other operating expenses		1,510,592			225,954			(30,328	)		1,706,218			1,332,397		156,034			—			1,488,431
Segment operating (loss)/income	$	(177,726	)	$	(122,887	)	$	—		$	(300,613	)	$	63,110	$	(36,261	)	$	—		$	26,849
Other items to reconcile segment operating income (loss) to net income attributable to WFCF:
Other expense (income)		—			—			(30,649	)		(30,649	)		—		—			(1,839	)		(1,839	)
Income tax (benefit)/expense		—			—			(83,000	)		(83,000	)		—		—			8,000			8,000
Net loss attributable to non-controlling interest		—			43,835			—			43,835			—		—			14,796			14,796
Net (loss)/income attributable to WFCF	$	(177,726	)	$	(79,052	)	$	113,649		$	(143,129	)	$	63,110	$	(36,261	)	$	8,635		$	35,484

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Supplemental Cash Flow Information

3 Months Ended

Mar. 31, 2019

Supplemental Cash Flow Information [Abstract]

Supplemental Cash Flow Information

Note 14 – Supplemental Cash Flow Information

	Three months ended March 31,
	2019		2018
Cash paid during the year:
Interest expense	$	3,047	$	1,079
Income taxes	$	—	$	7,283

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Business Acquisitions (Tables)

3 Months Ended

Mar. 31, 2019

Business Combinations [Abstract]

Schedule of acquisitions

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

Sow Organic, LLC:	May 16, 2018
Software acquired	$	156,000
Identifiable intangible assets:		—
Tradenames and trademarks		48,000
Non-compete agreements		84,000
Customer relationships		162,000
Goodwill		433,131
Total consideration	$	883,131

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

JVF Consulting, LLC:	August 30, 2018
Software acquired	$	207,000
Identifiable intangible assets:
Tradenames and trademarks		87,000
Non-compete agreements		37,000
Customer relationships		104,000
Goodwill		380,290
Total consideration	$	815,290

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Basic and Diluted Net Income per Share (Tables)

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Schedule of reconciliation of basic and diluted income per share computations

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

	Three months ended March 31,
	2019		2018
Basic:
Weighted average shares outstanding		24,957,082		24,648,610
Diluted:
Weighted average shares outstanding		24,957,082		24,648,610
Weighted average effects of dilutive securities		—		196,392
Total		24,957,082		24,845,002
Antidilutive securities:		265,700		124,000

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Intangible and Other Assets (Tables)

3 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of intangible and other assets

The following table summarizes our intangible and other assets:

	March 31,		December 31,
	2019		2018
Intangible assets subject to amortization:
Tradenames and trademarks	$	417,307	$	417,307
Accreditations		85,395		85,395
Customer relationships		3,350,551		3,350,551
Patents		970,100		970,100
Non-compete agreements		121,000		121,000
		4,944,353		4,944,353
Less accumulated amortization		1,731,679		1,577,558
		3,212,674		3,366,795
Tradenames/trademarks (not subject to amortization)		465,000		465,000
		3,677,674		3,831,795
Other assets		20,326		20,326
Intangible and other assets:	$	3,698,000	$	3,852,121

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Accrued Expenses and Other Current Liabilities (Tables)

3 Months Ended

Mar. 31, 2019

Payables and Accruals [Abstract]

Schedule of accrued expenses and other current liabilities

The following table summarizes our accrued expenses and other current liabilities as of:

	March 31,		December 31,
	2019		2018
Income and sales taxes payable	$	25,800	$	19,978
Payroll related accruals		224,572		147,798
Professional fees and other expenses		317,563		251,843
	$	567,935	$	419,619

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Notes Payable (Tables)

3 Months Ended

Mar. 31, 2019

Notes Payable Tables Abstract

Schedule of notes payable

Notes Payable consist of the following:

	March 31,			December 31,
	2019			2018
Vehicle note	$	40,739		$	42,393
Less current portion of notes payable and other long-term debt		(10,299	)		(10,173	)
Notes payable and other long-term debt	$	30,440		$	32,220

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of stock-based compensation expense

The amount of stock-based compensation expense is as follows:

	Three months ended March 31,
	2019		2018
Stock options	$	38,744	$	16,431
Restricted stock awards		5,958		21,471
Total	$	44,702	$	37,902

Schedule of unrecognized compensation cost from unvested awards

The estimated unrecognized compensation cost from unvested awards which will be recognized ratably over the remaining vesting phase is as follows: 

Years ended December 31st:	Unvested stock options		Unvested restricted stock awards		Total unrecognized compensation expense
2019 (remaining nine months)		118,789		9,716		128,505
2020		110,072		4,251		114,323
2021		66,770		706		67,476
	$	295,631	$	14,673	$	310,304

Schedule of estimated fair value of stock options

The Company estimated the fair value of stock options using the Black-Scholes-Merton option pricing model with the following assumptions:

	Three months ended March 31,
	2019		2018
Number of options awarded to purchase common shares		None		25,000
Risk-free interest rate		N/A		2.60	%
Expected volatility		N/A		154.3	%
Assumed dividend yield		N/A		N/A
Expected life of options from the date of grant		N/A		9.8 years

Schedule of stock option activity under Equity Incentive Plan

Stock option activity under our Equity Incentive Plan is summarized as follows:

							Weighted avg.
			Weighted avg.		Weighted avg.		remaining
	Number of		exercise price		grant date fair		contractual life		Aggregate
	awards		per share		value per share		(in years)		intrinsic value
Outstanding, December 31, 2018		434,451	$	1.49	$	1.47		6.91	$	230,039
Granted		—	$	—	$	—		—
Exercised		—	$	—	$	—		—
Expired/Forfeited		—	$	—	$	—		—
Outstanding, March 31, 2019		434,451	$	1.49	$	1.47		6.67	$	226,039
Exercisable, March 31, 2019		235,710	$	1.16	$	1.16		4.52	$	197,593
Unvested, March 31, 2019		198,741	$	1.89	$	1.83		9.21	$	28,447

Schedule of restricted stock activity under Equity Incentive Plan

Restricted stock activity under our Equity Incentive Plan is summarized as follows:

			Weighted avg.
	Number of		grant date
	options		fair value
Non-vested restricted shares, December 31, 2018		30,000	$	2.38
Granted		—	$	—
Vested		—	$	—
Forfeited		—	$	—
Non-vested restricted shares, March 31, 2019		30,000	$	2.38

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Revenue Recognition (Tables)

3 Months Ended

Mar. 31, 2019

Revenue Recognition Tables Abstract

Schedule of revenues disaggregated by revenue discipline

Revenue attributable to each of our identified revenue categories is disaggregated in the table below.

	Three months ended March 31, 2019									Three months ended March 31, 2018
	Verification and Certification Segment		Software Sales and Related Consulting Segment		Eliminations and Other			Consolidated		Verification and Certification Segment		Software Sales and Related Consulting Segment		Eliminations and Other		Consolidated
Verification and certification service revenue	$	2,811,694	$	—	$	—		$	2,811,694	$	2,796,194	$	—	$	—	$	2,796,194
Product sales		641,058		—		—			641,058		353,894		—		—		353,894
Software license, maintenance and support services revenue		—		343,566		(48,537	)		295,029		—		287,444		—		287,444
Software-related consulting service revenue		—		221,223		(14,464	)		206,759		—		183,270		—		183,270
Total revenues	$	3,452,752	$	564,789	$	(63,001	)	$	3,954,540	$	3,150,088	$	470,714	$	—	$	3,620,802

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Leases (Tables)

3 Months Ended

Mar. 31, 2019

Lessee Disclosure [Abstract]

Schedule of lease expense

The components of lease expense were as follows:

	Three months ended
	March 31, 2019
Operating lease cost	$	119,697
Finance lease cost
Amortization of ROU assets	$	2,267
Interest on finance lease obligations	$	2,006
Total net lease cost	$	123,970

Schedule of supplemental balance sheet information related to leases

Supplemental balance sheet information related to leases was as follows:

	March 31, 2019
Operating leases:	Related Party		Other		Total
Operating lease ROU assets	$	3,059,939	$	299,871	$	3,359,810
Current operating lease liabilities	$	144,078	$	66,769	$	210,847
Noncurrent operating lease liabilities		3,379,897		267,527		3,647,424
Total operating lease liabilities	$	3,523,975	$	334,296	$	3,858,271

Finance leases:	March 31, 2019
Property and equipment, at cost	$	47,367
Accumulated amortization		(15,794	)
Property and equipment, net	$	31,573
Current obligations of finance leases	$	7,303
Finance leases, net of current obligations		31,968
Total finance lease liabilities	$	39,271
Weighted average remaining lease term (in years):
Operating leases		11.7
Finance leases		3.6
Weighted average discount rate:
Operating leases		5.8	%
Finance leases		20.9	%

Schedule of supplemental cash flow information related to leases

Supplemental cash flow and other information related to leases was as follows:

	Three months ended
	March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	100,110
Operating cash flows from finance leases	$	2,006
Financing cash flows from finance leases	$	1,411

Schedule of maturities of operating lease liabilities

Maturities of lease liabilities were as follows:

Years Ending December 31st,	Operating Leases			Finance Leases
2019 (remaining nine months)	$	321,306		$	10,861
2020		422,164			15,705
2021		434,829			14,143
2022		447,874			10,984
2023		461,310			5,609
Thereafter		3,308,155			—
Total lease payments		5,395,638			57,302
Less amount representing interest		(1,537,637	)		(18,031	)
Total lease obligations		3,858,271			39,271
Less current portion		(210,847	)		(7,303	)
Long-term lease obligations	$	3,647,424		$	31,968

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Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Schedule of redeemable noncontrolling interest

The table below reflects the activity of the contingently redeemable non-controlling interest:

Balance, December 31, 2018	$	1,449,007
Net loss attributable to non-controlling interest in SureHarvest for the year to date period ended March 31, 2019		(43,835	)
Balance, March 31, 2019	$	1,405,172

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Segments (Tables)

3 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Schedule of operating segments

The following table shows information for reportable operating segments:

	Three months ended March 31, 2019												Three months ended March 31, 2018
	Verification and Certification Segment			Software Sales and Related Consulting Segment			Eliminations and Other			Consolidated Totals			Verification and Certification Segment		Software Sales and Related Consulting Segment			Eliminations and Other			Consolidated Totals
Assets:
Intangible and other assets, net	$	1,424,275		$	2,273,725		$	—		$	3,698,000		$	1,591,786	$	2,166,298		$	—		$	3,758,084
Goodwill		1,133,122			2,010,612			—			3,143,734			1,279,762		1,372,488			—			2,652,250
Total assets		13,031,344			5,518,447			—			18,549,791			9,830,255		4,253,835			—			14,084,090
Revenues:
Verification and certification service revenue	$	2,811,694		$	—		$	—		$	2,811,694		$	2,796,194	$	—		$	—		$	2,796,194
Product sales		641,058			—			—			641,058			353,894		—			—			353,894
Software license, maintenance and support services revenue		—			343,566			(48,537	)		295,029			—		287,444			—			287,444
Software-related consulting service revenue		—			221,223			(14,464	)		206,759			—		183,270			—			183,270
Total revenues	$	3,452,752		$	564,789		$	(63,001	)	$	3,954,540		$	3,150,088	$	470,714		$	—		$	3,620,802
Costs of revenues:
Costs of verification and certification services		1,594,763			—			(32,673	)		1,562,090			1,450,609		—			—			1,450,609
Costs of products		443,185			—			—			443,185			225,975		—			—			225,975
Costs of software license, maintenance and support services		—			154,003			—			154,003			—		137,434			—			137,434
Costs of software-related consulting services		—			129,536			—			129,536			—		75,461			—			75,461
Total costs of revenues		2,037,948			283,539			(32,673	)		2,288,814			1,676,584		212,895			—			1,889,479
Gross profit		1,414,804			281,250			(30,328	)		1,665,726			1,473,504		257,819			—			1,731,323
Depreciation & amortization		81,938			178,183			—			260,121			77,997		138,046			—			216,043
Other operating expenses		1,510,592			225,954			(30,328	)		1,706,218			1,332,397		156,034			—			1,488,431
Segment operating (loss)/income	$	(177,726	)	$	(122,887	)	$	—		$	(300,613	)	$	63,110	$	(36,261	)	$	—		$	26,849
Other items to reconcile segment operating income (loss) to net income attributable to WFCF:
Other expense (income)		—			—			(30,649	)		(30,649	)		—		—			(1,839	)		(1,839	)
Income tax (benefit)/expense		—			—			(83,000	)		(83,000	)		—		—			8,000			8,000
Net loss attributable to non-controlling interest		—			43,835			—			43,835			—		—			14,796			14,796
Net (loss)/income attributable to WFCF	$	(177,726	)	$	(79,052	)	$	113,649		$	(143,129	)	$	63,110	$	(36,261	)	$	8,635		$	35,484

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Supplemental Cash Flow Information (Tables)

3 Months Ended

Mar. 31, 2019

Supplemental Cash Flow Information [Abstract]

Schedule of supplemental cash flow information

	Three months ended March 31,
	2019		2018
Cash paid during the year:
Interest expense	$	3,047	$	1,079
Income taxes	$	—	$	7,283

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The Company and Basis of Presentation (Details Narrative) - USD ($)	Mar. 31, 2019	Jan. 02, 2019
Operating lease liabilities	$ 3,858,271
Operating leases right-of-use	$ 3,359,810
Accounting Standards Update 2016-02 [Member]
Operating lease liabilities		$ 3,440,000
Operating leases right-of-use		$ 3,540,000

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Business Acquisitions (Details) - USD ($)	Aug. 30, 2018	May 16, 2018	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018
Business Acquisition [Line Items]
Goodwill			$ 3,143,734	$ 3,143,734	$ 2,652,250
Sow Organic [Member]
Business Acquisition [Line Items]
Goodwill		$ 433,131
Total consideration		883,131
Sow Organic [Member] | Software Acquired [Member]
Business Acquisition [Line Items]
Identifiable intangible assets		156,000
Sow Organic [Member] | Tradenames and Trademarks [Member]
Business Acquisition [Line Items]
Identifiable intangible assets		48,000
Sow Organic [Member] | Noncompete Agreements [Member]
Business Acquisition [Line Items]
Identifiable intangible assets		84,000
Sow Organic [Member] | Customer Relationships [Member]
Business Acquisition [Line Items]
Identifiable intangible assets		$ 162,000
JVF Consulting LLC [Member]
Business Acquisition [Line Items]
Goodwill	$ 380,290
Total consideration	815,290
JVF Consulting LLC [Member] | Software Acquired [Member]
Business Acquisition [Line Items]
Identifiable intangible assets	207,000
JVF Consulting LLC [Member] | Tradenames and Trademarks [Member]
Business Acquisition [Line Items]
Identifiable intangible assets	87,000
JVF Consulting LLC [Member] | Noncompete Agreements [Member]
Business Acquisition [Line Items]
Identifiable intangible assets	37,000
JVF Consulting LLC [Member] | Customer Relationships [Member]
Business Acquisition [Line Items]
Identifiable intangible assets	$ 104,000

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Business Acquisitions (Details Narrative) - USD ($)	May 16, 2018	Aug. 30, 2017
JVF Consulting [Member[
Cash payments for acquisition		$ 500,000
Number of shares issued upon acquisition, shares		158,437
Value of shares issued upon acquisition		$ 315,300
Sow Organic [Member]
Cash payments for acquisition	$ 450,000
Number of shares issued upon acquisition, shares	217,654
Value of shares issued upon acquisition	$ 433,100

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Basic and Diluted Net Income per Share (Details) - $ / shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Basic:
Weighted average shares outstanding	24,957,082	24,648,610
Diluted:
Weighted average shares outstanding	24,957,082	24,648,610
Weighted average effects of dilutive securities		196,392
Total	24,957,082	24,845,002
Antidilutive securities:	$ 265,700	$ 124,000

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Investment in Progressive Beef, LLC (Details Narrative) - Progressive Beef, LLC [Member] - USD ($)		3 Months Ended
	Aug. 09, 2018	Mar. 31, 2019
Percentage of voting interests acquired	10.00%
Beneficial lease arrangement	$ 991,000
Amount paid in cash	$ 900,000
Number of shares issued (in shares)	50,340
Value of number of shares issued	$ 91,100
Business acquisition, share price (in dollars per share)	$ 1.81
Dividend income		$ 30,000

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Intangible and Other Assets (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Intangible and other assets, gross	$ 4,944,353	$ 4,944,353
Less accumulated amortization	1,731,679	1,577,558
Intangible and other assets, net	3,212,674	3,366,795
Tradenames/trademarks (not subject to amortization)	465,000	465,000
Intangible and other assets, before other	3,677,674	3,831,795
Other assets	20,326	20,326
Intangible and other assets, net	3,698,000	3,852,121
Tradenames and Trademarks [Member]
Intangible and other assets, gross	417,307	417,307
Accreditations [Member]
Intangible and other assets, gross	85,395	85,395
Customer Relationships [Member]
Intangible and other assets, gross	3,350,551	3,350,551
Patents [Member]
Intangible and other assets, gross	970,100	970,100
Noncompete Agreements [Member]
Intangible and other assets, gross	$ 121,000	$ 121,000

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Accrued Expenses and Other Current Liabilities (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Payables and Accruals [Abstract]
Income and sales taxes payable	$ 25,800	$ 19,978
Payroll related accruals	224,572	147,798
Professional fees and other expenses	317,563	251,843
Accrued Expenses and Other Current Liabilities	$ 567,935	$ 419,619

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Notes Payable (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Notes Payable [Abstract]
Vehicle note	$ 40,739	$ 42,393
Less current portion of notes payable and other long-term debt	(10,299)	(10,173)
Notes payable and other long-term debt	$ 30,440	$ 32,220

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Notes Payable (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended
	Sep. 30, 2017	Mar. 31, 2019	Dec. 31, 2018
Revolving Line of Credit [Member]
Debt instrument, face amount		$ 75,080
Maturity date on debt		Apr. 12, 2020
Effective interest rate		7.00%	7.00%
Interest rate, basis spread		1.50%
Note Payable - Vehicle [Member]
Debt instrument, face amount	$ 54,165
Interest and principal payments	$ 1,087
Interest rate	7.44%

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Stock-Based Compensation (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 44,702	$ 37,902
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	38,744	16,431
Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 5,958	$ 21,471

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Stock-Based Compensation (Details 1)	3 Months Ended
	Mar. 31, 2018 shares
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Number of options awarded to purchase common shares	25,000
Risk-free interest rate	2.60%
Expected volatility	154.30%
Expected life of options from the date of grant	9 years 9 months 18 days

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Stock-Based Compensation (Details 2)	Mar. 31, 2019 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested stock options	$ 295,631
Unvested restricted stock awards	14,673
Total unrecognized compensation expense	310,304
2019 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested stock options	118,789
Unvested restricted stock awards	9,716
Total unrecognized compensation expense	128,505
2020 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested stock options	110,072
Unvested restricted stock awards	4,251
Total unrecognized compensation expense	114,323
2021 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested stock options	66,770
Unvested restricted stock awards	706
Total unrecognized compensation expense	$ 67,476

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Stock-Based Compensation (Details 3)	3 Months Ended
	Mar. 31, 2019 USD ($) $ / shares shares
Number of awards
Balance, beginning | shares	434,451
Balance, ending | shares	434,451
Exercisable, ending | shares	235,710
Unvested, ending | shares	198,741
Weighted avg. exercise price per share
Balance, beginning	$ 1.49
Balance, ending	1.49
Exercisable, ending	1.16
Unvested, ending	1.89
Weighted avg. grant date fair value per share
Balance, beginning	1.47
Balance, ending	1.47
Exercisable, ending	1.16
Unvested, ending	$ 1.83
Weighted avg. remaining contractual life (in years)
Balance, beginning	6 years 10 months 28 days
Balance, ending	6 years 8 months 12 days
Exercisable, ending	4 years 6 months 7 days
Unvested, ending	9 years 2 months 16 days
Aggregate intrinsic value
Balance, beginning | $	$ 230,039
Balance, ending | $	226,039
Exercisable, ending | $	197,593
Unvested, ending | $	$ 28,447

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Stock-Based Compensation (Details 4) - $ / shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Weighted Average Exercise Price
Granted		$ 2.55
Restricted Stock Awards [Member]
Restricted Stock
Balance, beginning	30,000
Granted
Balance, ending	30,000
Weighted Average Exercise Price
Balance, beginning	$ 2.38
Granted
Balance, ending	$ 2.38

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Stock-Based Compensation (Details Narrative)	3 Months Ended
	Mar. 31, 2018 $ / shares shares
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock options - Granted | shares	25,000
Exercise price - Granted | $ / shares	$ 2.55

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Income Taxes (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Income tax expense	$ (83,000)	$ 8,000
Percentage Owned	24.30%
Sure Harvest [Member]
Percentage Owned	40.00%

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Revenue Recognition (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Segment Reporting Information [Line Items]
Total revenues	$ 3,954,540	$ 3,620,802
Verification and Certification Service Revenue [Member]
Segment Reporting Information [Line Items]
Total revenues	2,811,694	2,796,194
Product Sales [Member]
Segment Reporting Information [Line Items]
Total revenues	641,058	353,894
Software License, Maintenance and Support Services Revenue [Member]
Segment Reporting Information [Line Items]
Total revenues	295,029	287,444
Software-Related Consulting Service Revenue [Member]
Segment Reporting Information [Line Items]
Total revenues	206,759	183,270
Verification and Certification Segment [Member]
Segment Reporting Information [Line Items]
Total revenues	3,452,752	3,150,088
Verification and Certification Segment [Member] | Verification and Certification Service Revenue [Member]
Segment Reporting Information [Line Items]
Total revenues	2,811,694	2,796,194
Verification and Certification Segment [Member] | Product Sales [Member]
Segment Reporting Information [Line Items]
Total revenues	641,058	353,894
Software Sales and Related Consulting Segment [Member]
Segment Reporting Information [Line Items]
Total revenues	564,789	470,714
Software Sales and Related Consulting Segment [Member] | Software License, Maintenance and Support Services Revenue [Member]
Segment Reporting Information [Line Items]
Total revenues	343,566	287,444
Software Sales and Related Consulting Segment [Member] | Software-Related Consulting Service Revenue [Member]
Segment Reporting Information [Line Items]
Total revenues	221,223	183,270
Eliminations And Other [Member]
Segment Reporting Information [Line Items]
Total revenues	(63,001)
Eliminations And Other [Member] | Software License, Maintenance and Support Services Revenue [Member]
Segment Reporting Information [Line Items]
Total revenues	(48,537)
Eliminations And Other [Member] | Software-Related Consulting Service Revenue [Member]
Segment Reporting Information [Line Items]
Total revenues	(14,464)
Consolidated [Member]
Segment Reporting Information [Line Items]
Total revenues	3,954,540	3,620,802
Consolidated [Member] | Verification and Certification Service Revenue [Member]
Segment Reporting Information [Line Items]
Total revenues	2,811,694	2,796,194
Consolidated [Member] | Product Sales [Member]
Segment Reporting Information [Line Items]
Total revenues	641,058	353,894
Consolidated [Member] | Software License, Maintenance and Support Services Revenue [Member]
Segment Reporting Information [Line Items]
Total revenues	295,029	287,444
Consolidated [Member] | Software-Related Consulting Service Revenue [Member]
Segment Reporting Information [Line Items]
Total revenues	$ 206,759	$ 183,270

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Revenue Recognition (Details Narrative) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Accounts receivable from contract with customers	$ 2,005,800	$ 2,205,200
Deposits and Deferred Revenue [Member]
Contract of customer liability	$ 1,362,900	$ 727,900

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Leases (Details)	3 Months Ended
	Mar. 31, 2019 USD ($)
Lessee Disclosure [Abstract]
Operating lease cost	$ 119,697
Finance lease cost amortization of ROU assets	2,267
Interest on finance lease obligations	2,006
Total net lease cost	$ 123,970

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Leases (Details 1) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Operating lease ROU assets	$ 3,359,810
Current operating lease liabilities	210,847
Noncurrent operating lease liabilities	3,647,424
Total operating lease liabilities	3,858,271
Property and equipment, net	1,765,595	$ 1,675,472
Current obligations of finance leases	7,303	11,309
Finance leases, net of current obligations	31,968	$ 32,747
Total finance lease liabilities	$ 39,271
Weighted average remaining operating lease term (in years)	11 years 8 months 12 days
Weighted average remaining finance lease term (in years)	3 years 7 months 6 days
Operating leases weighted average discount rate	7.00%
Finance leases weighted average discount rate	20.90%
Related Party [Member]
Operating lease ROU assets	$ 3,059,939
Current operating lease liabilities	144,078
Noncurrent operating lease liabilities	3,379,897
Total operating lease liabilities	3,523,975
Other [Member]
Operating lease ROU assets	29,981
Current operating lease liabilities	66,769
Noncurrent operating lease liabilities	267,527
Total operating lease liabilities	334,296
Finance Leases [Member]
Property and equipment, at cost	47,367
Accumulated amortization	(15,794)
Property and equipment, net	$ 31,573

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Leases (Details 2)	3 Months Ended
	Mar. 31, 2019 USD ($)
Lessee Disclosure [Abstract]
Operating cash flows from operating leases	$ 100,110
Operating cash flows from finance leases	2,006
Financing cash flows from finance leases	$ 1,411

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Leases (Details 3) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Operating Leases
2019 (remaining nine months)	$ 321,306
2020	422,164
2021	434,829
2022	447,874
2023	461,310
Thereafter	3,308,155
Total lease payments	5,395,638
Less amount representing interest	(1,537,637)
Total lease obligations	3,858,271
Less current portion	(210,847)
Long-term lease obligations	3,647,424
Finance Leases
2019 (remaining nine months)	10,861
2020	15,705
2021	14,143
2022	10,984
2023	5,609
Total lease payments	57,302
Less amount representing interest	(18,031)
Total lease obligations	39,271
Less current portion	(7,303)	$ (11,309)
Long-term lease obligations	$ 31,968	$ 32,747

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Leases (Details Narrative)	3 Months Ended
	Mar. 31, 2019 USD ($)
Lessee, Operating Lease, Existence of Option to Extend	true
Lessee, Operating Lease, Option to Extend	P5Y
Operating lease cost	$ 119,697
Ownership Interest	24.30%
Maximum [Member]
Leases Term	15 years
Minimum [Member]
Leases Term	1 year
Corporate Headquarters [Member]
Operating lease cost	$ 92,200

XML

Commitments and Contingencies (Details)	3 Months Ended
	Mar. 31, 2019 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Redeemable noncontrolling interest, beginning	$ 1,449,007
Net loss attributable to non-controlling interest	(43,835)
Redeemable noncontrolling interest, ending	$ 1,405,172

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Commitments and Contingencies (Details Narrative) - SureHarvest Services LLC [Member]	Dec. 28, 2016 USD ($) shares
Percentage of business acquired	60.00%
Total consideration for acquisition	$ 2,660,000
Cash payments for acquisition	$ 1,122,000
Number of shares issued upon acquisition, shares | shares	850,852
Value of shares issued upon acquisition	$ 1,534,900
Percentage of remaining ownership interest	40.00%
Assumed purchase price of remaining ownership interest	$ 8,000,000

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Segments (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Assets:
Intangible and other assets, net	$ 3,698,000	$ 3,758,084
Goodwill	3,143,734	2,652,250	$ 3,143,734
Total assets	18,549,791	14,084,090	$ 14,463,938
Revenues:
Total revenues	3,954,540	3,620,802
Costs of revenues:
Total costs of revenues	2,288,814	1,889,479
Gross profit	1,665,726	1,731,323
Depreciation & amortization	260,121	272,500
Other operating expenses	1,706,218	1,488,431
Segment operating (loss)/income	(300,613)	26,849
Other items to reconcile segment operating income (loss) to net income attributable to WFCF:
Other expense (income)	(30,649)	(1,839)
Income tax (benefit)/expense	(83,000)	8,000
Net loss attributable to non-controlling interest	43,835	14,796
Net (loss)/income attributable to WFCF	(143,129)	35,484
Verification and Certification Service Revenue [Member]
Revenues:
Total revenues	2,811,694	2,796,194
Costs of revenues:
Total costs of revenues	1,562,090	1,450,609
Product Sales [Member]
Revenues:
Total revenues	641,058	353,894
Costs of revenues:
Total costs of revenues	443,185	225,975
Software License, Maintenance and Support Services Revenue [Member]
Revenues:
Total revenues	295,029	287,444
Costs of revenues:
Total costs of revenues	154,003	137,434
Software-Related Consulting Service Revenue [Member]
Revenues:
Total revenues	206,759	183,270
Costs of revenues:
Total costs of revenues	129,536	75,461
Verification and Certification Segment [Member]
Assets:
Intangible and other assets, net	1,424,275	1,591,786
Goodwill	1,133,122	1,279,762
Total assets	13,031,344	9,830,255
Revenues:
Total revenues	3,452,752	3,150,088
Costs of revenues:
Total costs of revenues	1,562,090	1,450,609
Gross profit	1,414,804	1,473,504
Depreciation & amortization	81,938	77,997
Other operating expenses	1,510,592	1,332,397
Segment operating (loss)/income	(177,726)	63,110
Other items to reconcile segment operating income (loss) to net income attributable to WFCF:
Net (loss)/income attributable to WFCF	(177,726)	63,110
Verification and Certification Segment [Member] | Verification and Certification Service Revenue [Member]
Revenues:
Total revenues	2,811,694	2,796,194
Costs of revenues:
Total costs of revenues	1,594,763	1,450,609
Verification and Certification Segment [Member] | Product Sales [Member]
Revenues:
Total revenues	641,058	353,894
Costs of revenues:
Total costs of revenues	443,185	225,975
Other [Member]
Revenues:
Total revenues	(63,001)
Costs of revenues:
Total costs of revenues	(32,673)
Gross profit	(30,328)
Other operating expenses	(30,328)
Other items to reconcile segment operating income (loss) to net income attributable to WFCF:
Other expense (income)	(30,649)	(1,839)
Income tax (benefit)/expense	(83,000)	8,000
Net loss attributable to non-controlling interest		14,796
Net (loss)/income attributable to WFCF	113,649	8,635
Other [Member] | Software License, Maintenance and Support Services Revenue [Member]
Revenues:
Total revenues	(48,537)
Other [Member] | Software-Related Consulting Service Revenue [Member]
Revenues:
Total revenues	(14,464)
Software Sales and Related Consulting Segment [Member]
Assets:
Intangible and other assets, net	2,273,725	2,166,298
Goodwill	2,010,612	1,372,488
Total assets	5,518,447	4,253,835
Revenues:
Total revenues	564,789	470,714
Costs of revenues:
Total costs of revenues	283,539	212,895
Gross profit	281,250	257,819
Depreciation & amortization	178,183	138,046
Other operating expenses	225,954	156,034
Segment operating (loss)/income	(122,887)	(36,261)
Other items to reconcile segment operating income (loss) to net income attributable to WFCF:
Net loss attributable to non-controlling interest	43,835
Net (loss)/income attributable to WFCF	(79,052)	(36,261)
Software Sales and Related Consulting Segment [Member] | Software License, Maintenance and Support Services Revenue [Member]
Revenues:
Total revenues	343,566	287,444
Costs of revenues:
Total costs of revenues	154,003	137,434
Software Sales and Related Consulting Segment [Member] | Software-Related Consulting Service Revenue [Member]
Revenues:
Total revenues	221,223	183,270
Costs of revenues:
Total costs of revenues	$ 129,536	$ 75,461

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Supplemental Cash Flow Information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Supplemental Cash Flow Information Details Abstract
Interest expense	$ 3,047	$ 1,079
Income taxes		$ 7,283