The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
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 and our most recent acquisitions, 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, 2017,
included in our Form 10-K filed on April 2, 2018. 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 and year to date period ended September 30, 2018 are not necessarily indicative of the results to be expected
for any other interim period of any future year.
Where Food Comes From, Inc.
Notes to the Consolidated Financial
Statements
(Unaudited)
Reclassifications
Certain prior year amounts have been reclassified
to conform to current year presentation. Net income and shareholders’ equity were not affected by these reclassifications.
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 May 2014, the FASB issued ASU No. 2014-09,
“Revenue from Contracts with Customers” (ASC 606), which created a comprehensive, five-step model for revenue recognition
that requires a company to recognize revenue to depict the transfer of promised goods or services to a customer at an amount that
reflects the consideration it expects to receive in exchange for those goods or services. Under ASC 606, a company will be required
to use more judgment and make more estimates when considering contract terms as well as relevant facts and circumstances when identifying
performance obligations, estimating the amount of variable consideration in the transaction price and allocating the transaction
price to each separate performance obligation. The Company adopted this standard on January 1, 2018 using the modified retrospective
approach. Refer to Note 12, “Revenue,” for a further discussion on the adoption of ASC 606.
In January 2016, the FASB issued ASU No.
2016-01 which requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions;
(ii) present the changes in instrument-specific credit risk for financial liabilities measured using the fair value option in Other
Comprehensive Income; (iii) present financial assets and financial liabilities by measurement category and form of financial asset;
(iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation
allowance on deferred tax assets related to unrealized losses of available-for-sale debt securities in combination with other deferred
tax assets. The Update provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment
and adjusted for certain observable price changes. The update also requires a qualitative impairment assessment of such equity
investments and amends certain fair value disclosure requirements. The Company adopted this standard on January 1, 2018.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02,
“Leases,” which will require lessees to recognize a right-of-use asset and a lease liability for all leases that are
not short-term in nature. For a lessor, the accounting applied is also largely unchanged from previous guidance. The new rules
will be effective for the Company in the first quarter of 2019. We continue to execute on our implementation plan and gather lease
data to derive the impact of the ASU on its financial statements. The Company expects that the adoption will impact the Company’s
financial statements as the standard requires the recognition on the balance sheet of a right of use asset and corresponding lease
liability. The adoption is anticipated to have a material impact on assets and liabilities on the balance sheet effective January
1, 2019. However, we do not expect the adoption to have a material impact to our consolidated results of operations or statement
of cash flows.
Where Food Comes From, Inc.
Notes to the Consolidated Financial
Statements
(Unaudited)
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 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, including interim periods within those fiscal years, and early adoption is permitted. We are in the process of evaluating
the impact of adoption of this ASU on our consolidated financial statements.
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.
Note 2 – Business Acquisitions
SureHarvest Acquisition
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” or “SureHarvest, Inc.”). We acquired substantially all the assets of the Seller. SureHarvest
develops software and provides services related to sustainability measurement and benchmarking, traceability, verification and
certification to the food and agriculture industries.
Pursuant to the SureHarvest Purchase Agreement,
WFCF 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.
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.
A Bee Organic Acquisition
On May 30, 2017, we acquired A Bee Organic
for $150,000 in cash and 45,684 shares of common stock of WFCF valued at approximately $98,000 based on the closing price of our
stock on May 30, 2017, of $2.15 per share. The acquisition primarily consisted of the existing customer relationships and represents
further expansion of our verification and certification solutions into hydroponics/aquaponics and apiary spaces. We believe the
total consideration paid approximates the fair value of the assets acquired. We have allocated the total consideration to our identifiable
intangible assets to be amortized over an estimated useful life of 8 years.
Sow Organic Acquisition
On May 16, 2018, we acquired Sow Organic
for $450,000 in cash and 217,654 shares of common stock of WFCF valued at approximately $433,100 based on the closing price of
our stock on May 16, 2018, of $1.99 per share. We believe the transaction adds complementary solutions and services. 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.
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. Measurement period adjustments were completed in 2018 and reflect new information obtained about
facts and circumstances that existed as of the Acquisition Date. Accordingly, the carrying amounts were retrospectively adjusted
as of May 16, 2018. The impact of the retrospective adjustments was not material to the Company’s results of operations or
cash flows for the period from the Acquisition Date through September 30, 2018.
Where Food Comes From, Inc.
Notes to the Consolidated Financial
Statements
(Unaudited)
Sow Organic,
LLC
:
|
|
May
16, 2018
(as reported)
|
|
|
Adjustments
|
|
|
May
16, 2018
(as adjusted)
|
|
Software
acquired
|
|
$
|
445,000
|
|
|
|
(289,000
|
)
|
|
$
|
156,000
|
|
Indentifiable
intangible assets:
|
|
|
143,754
|
|
|
|
(143,754
|
)
|
|
|
—
|
|
Tradenames
and trademarks
|
|
|
—
|
|
|
|
48,000
|
|
|
|
48,000
|
|
Non-compete
agreements
|
|
|
—
|
|
|
|
84,000
|
|
|
|
84,000
|
|
Customer
relationships
|
|
|
—
|
|
|
|
162,000
|
|
|
|
162,000
|
|
Goodwill
|
|
|
294,377
|
|
|
|
138,754
|
|
|
|
433,131
|
|
Total
consideration
|
|
$
|
883,131
|
|
|
|
|
|
|
$
|
883,131
|
|
Excess attributable to goodwill reflects
the excess over the identifiable intangible assets acquired based on the preliminary provisional 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.
This acquisition did not materially affect
the Company’s consolidated results of operations.
JVF Consulting Acquisition
On August 30, 2018, we acquired 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 based on the closing price of our stock on August 29, 2018, of $1.99 per share. 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 will control all of the intellectual property
associated with its current Software as a Service (SaaS) offerings. Additionally, WFCF will employ 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. Management has not yet completed the fair values of the identifiable intangible assets. The following table
summarizes the preliminary purchase price allocated fair values assigned to the assets acquired in addition to the excess of
the purchase price over the net assets acquired:
JVF Consulting, LLC
:
|
|
August 30, 2018
|
|
Software acquired
|
|
$
|
250,000
|
|
Indentifiable intangible assets:
|
|
|
|
|
Tradenames and trademarks
|
|
|
5,290
|
|
Non-compete agreements
|
|
|
10,000
|
|
Customer relationships
|
|
|
100,000
|
|
Goodwill
|
|
|
450,000
|
|
Total consideration
|
|
$
|
815,290
|
|
Excess attributable to goodwill reflects
the excess over the identifiable intangible assets acquired based on the preliminary provisional 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.
Where Food Comes From, Inc.
Notes to the Consolidated Financial
Statements
(Unaudited)
Out of Period Adjustment
For the periods prior to December 31, 2017,
the Company discovered that a discount for the lack of marketability related to certain lock-up provisions within our purchase
agreements had not been considered for stock issued in which the restriction exceeds one-year. The company evaluated the impact
of not recording the discount in the Consolidated Balance Sheet in the historical period presented and concluded that the effect
was immaterial. We corrected the immaterial error in second quarter 2018 by recording an out-of-period adjustment for approximately
$321,900 to decrease goodwill and additional paid-in-capital.
In evaluating the adjustment, we referred
to the SEC Staff Accounting Bulletin (SAB) No. 99, including SAB Topic 1.M, which provides guidance on the assessment of materiality
and states that “the omission or misstatement of an item in a financial report is material if, in the light of surrounding
circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the
report would have been changed or influenced by the inclusion or correction of the item.” We also referred to SAB 108 for
guidance on considering the effects of prior year misstatements when quantifying misstatements in current year financial statements
and the assessment of materiality.
Our analysis of the materiality of the
adjustment was performed by reviewing quantitative and qualitative factors. We determined based on this analysis that the adjustment
was not material to the current period and any prior periods.
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
September 30,
|
|
|
Nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
24,900,919
|
|
|
|
24,705,934
|
|
|
|
24,756,262
|
|
|
|
24,673,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
24,900,919
|
|
|
|
24,705,934
|
|
|
|
24,756,262
|
|
|
|
24,673,080
|
|
Weighted average effects of dilutive securities
|
|
|
173,558
|
|
|
|
180,213
|
|
|
|
182,437
|
|
|
|
161,851
|
|
Total
|
|
|
25,074,477
|
|
|
|
24,886,147
|
|
|
|
24,938,699
|
|
|
|
24,834,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive securities:
|
|
|
202,750
|
|
|
|
94,000
|
|
|
|
202,750
|
|
|
|
94,000
|
|
Where Food Comes From, Inc.
Notes to the Consolidated Financial
Statements
(Unaudited)
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 – Intangible and Other Assets
The following table summarizes our intangible
and other assets:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Estimated
Useful Life
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
Tradenames and trademarks
|
|
$
|
335,597
|
|
|
$
|
282,307
|
|
|
2.5 - 15.0 years
|
Accreditations
|
|
|
85,395
|
|
|
|
97,706
|
|
|
5.0 years
|
Customer relationships
|
|
|
3,346,551
|
|
|
|
3,084,551
|
|
|
8.0 - 15.0 years
|
Beneficial lease arrangement
|
|
|
—
|
|
|
|
120,200
|
|
|
11.0 years
|
Patents
|
|
|
970,100
|
|
|
|
970,100
|
|
|
4.0 years
|
Non-compete agreements
|
|
|
94,000
|
|
|
|
—
|
|
|
5.0 years
|
|
|
|
4,831,643
|
|
|
|
4,554,864
|
|
|
|
Less accumulated amortization
|
|
|
1,433,839
|
|
|
|
1,084,879
|
|
|
|
|
|
|
3,397,804
|
|
|
|
3,469,985
|
|
|
|
Tradenames/trademarks (not subject to amortization)
|
|
|
465,000
|
|
|
|
465,000
|
|
|
|
|
|
|
3,862,804
|
|
|
|
3,934,985
|
|
|
|
Investment in Progressive Beef, LLC (at cost)
|
|
|
991,115
|
|
|
|
—
|
|
|
|
Other assets
|
|
|
13,545
|
|
|
|
13,545
|
|
|
|
Intangible and other assets:
|
|
$
|
4,867,464
|
|
|
$
|
3,948,530
|
|
|
|
Beneficial Lease Arrangement
In connection with our acquisition of ICS
in 2012, we recorded a beneficial lease arrangement of $120,200 related to a 2,300-square foot building located on approximately
¾ acre in Medina, North Dakota.
On January 12, 2018, the Company purchased the 2,300-square
foot building and terminated the lease. The net book value of the beneficial lease arrangement at December 31, 2017 was approximately
$56,500 and was fully amortized in January 2018.
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. On
September 24, 2018, the Company received dividend income of $100,000 from Progressive Beef representing a distribution of their
earnings. The income is reflected within the Other Income section of the Company’s Consolidated Statement of Income for
the quarter and nine months ended September 30, 2018. 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.
Where Food Comes From, Inc.
Notes to the Consolidated Financial
Statements
(Unaudited)
Note 5 – Accrued Expenses and Other Current Liabilities
The following table summarizes
our accrued expenses and other current liabilities as of:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Income and sales taxes payable
|
|
$
|
24,281
|
|
|
$
|
255,099
|
|
Payroll related accruals
|
|
|
660,114
|
|
|
|
148,408
|
|
Professional fees and other expenses
|
|
|
220,386
|
|
|
|
80,326
|
|
Deferred rent expense
|
|
|
140,961
|
|
|
|
71,296
|
|
|
|
$
|
1,045,742
|
|
|
$
|
555,129
|
|
Note 6 – Notes Payable
Notes
Payable consist of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Vehicle note
|
|
$
|
44,836
|
|
|
$
|
51,898
|
|
Less current portion of notes payable and other long-term debt
|
|
|
(9,986
|
)
|
|
|
(9,446
|
)
|
Notes payable and other long-term debt
|
|
$
|
34,850
|
|
|
$
|
42,452
|
|
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 $75,050 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 September 30, 2018, and December
31, 2017, the effective interest rate was 6.75% and 5.5%, respectively. The LOC is collateralized by all the business assets of
ICS. As of September 30, 2018, and December 31, 2017, there were no amounts outstanding under this LOC.
Note 7 – 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.
Where Food Comes From, Inc.
Notes to the Consolidated Financial
Statements
(Unaudited)
The amount of stock-based compensation
expense is as follows:
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Stock options
|
|
$
|
28,445
|
|
|
$
|
14,687
|
|
|
$
|
64,820
|
|
|
$
|
44,100
|
|
Restricted stock awards
|
|
|
16,773
|
|
|
|
26,480
|
|
|
|
60,419
|
|
|
|
86,537
|
|
Total
|
|
$
|
45,218
|
|
|
$
|
41,167
|
|
|
$
|
125,239
|
|
|
$
|
130,637
|
|
On March 8, 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. On July 9, 2018, the Company awarded stock options to purchase 70,750 shares of Company common stock
to all eligible full-time employees, excluding the executive officers. The grant-date exercise price is $1.80 per share. In
connection with our acquisition of JVF Consulting, on August 29, 2018, we awarded stock options to a new employee to purchase
10,000 shares of the Company’s common stock at an exercise price of $1.99 per share.
The Company estimated the fair value of
stock options using the Black-Scholes-Merton option pricing model with the following assumptions:
|
|
2018
|
|
|
2017
|
|
Number of options awarded to purchase common shares
|
|
105,750
|
|
|
None
|
|
Risk-free interest rate
|
|
2.6 - 2.8%
|
|
|
N/A
|
|
Expected volatility
|
|
149.3% - 154.3%
|
|
|
N/A
|
|
Assumed dividend yield
|
|
N/A
|
|
|
N/A
|
|
Expected life of options from the date of grant
|
|
9.8 years
|
|
|
N/A
|
|
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
|
|
2018 (remaining three months)
|
|
|
$
|
31,686
|
|
|
$
|
5,958
|
|
|
$
|
37,644
|
|
2019
|
|
|
|
121,749
|
|
|
|
15,674
|
|
|
|
137,423
|
|
2020
|
|
|
|
69,154
|
|
|
|
4,251
|
|
|
|
73,405
|
|
2021
|
|
|
|
28,071
|
|
|
|
706
|
|
|
|
28,777
|
|
|
|
|
$
|
250,660
|
|
|
$
|
26,589
|
|
|
$
|
277,249
|
|
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.
Where Food Comes From, Inc.
Notes to the Consolidated Financial
Statements
(Unaudited)
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
|
|
|
fair value
|
|
|
contractual life
|
|
|
Aggregate
|
|
|
|
|
awards
|
|
|
per share
|
|
|
per share
|
|
|
(in years)
|
|
|
intrinsic value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2017
|
|
|
|
266,585
|
|
|
$
|
1.23
|
|
|
$
|
1.22
|
|
|
|
6.06
|
|
|
$
|
462,508
|
|
Granted
|
|
|
|
105,750
|
|
|
$
|
2.00
|
|
|
$
|
1.96
|
|
|
|
9.71
|
|
|
$
|
—
|
|
Exercised
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Expired/Forfeited
|
|
|
|
(5,334
|
)
|
|
$
|
1.87
|
|
|
$
|
1.86
|
|
|
|
6.39
|
|
|
$
|
—
|
|
Outstanding, September 30, 2018
|
|
|
|
367,001
|
|
|
$
|
1.44
|
|
|
$
|
1.43
|
|
|
|
6.57
|
|
|
$
|
391,117
|
|
Exercisable, September 30, 2018
|
|
|
|
199,913
|
|
|
$
|
1.00
|
|
|
$
|
1.01
|
|
|
|
4.40
|
|
|
$
|
299,076
|
|
Unvested, September 30, 2018
|
|
|
|
167,088
|
|
|
$
|
1.96
|
|
|
$
|
1.93
|
|
|
|
9.16
|
|
|
$
|
92,041
|
|
The aggregate intrinsic value represents
the total pre-tax intrinsic value (the aggregate difference between the closing price of our common stock on September 30, 2018
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 September 30, 2018.
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, 2017
|
|
|
|
99,000
|
|
|
$
|
2.56
|
|
Granted
|
|
|
|
5,000
|
|
|
$
|
2.55
|
|
Vested
|
|
|
|
(74,000
|
)
|
|
$
|
2.63
|
|
Forfeited
|
|
|
|
—
|
|
|
$
|
—
|
|
Non-vested restricted shares, September 30, 2018
|
|
|
|
30,000
|
|
|
$
|
2.38
|
|
Note 8 – Income Taxes
On December 22, 2017, the U.S. government
enacted comprehensive tax legislation (the “Tax Act”), which significantly revises the ongoing U.S. corporate income
tax law by lowering the U.S. federal corporate income tax rate from 35% to 21%, implementing a territorial tax system, imposing
a one-time tax on foreign unremitted earnings and setting limitations on deductibility of certain costs, among other things.
The Company is subject to the provisions
of the FASB ASC 740-10, Income Taxes, which requires that the effect on deferred tax assets and liabilities of a change in tax
rates be recognized in the period the tax rate change was enacted. Due to the complexities involved in accounting for the recently
enacted Tax Act, the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) 118 requires
that the Company include in its financial statements the reasonable estimate of the impact of the Tax Act on earnings to the extent
such estimate has been determined.
Where Food Comes From, Inc.
Notes to the Consolidated Financial
Statements
(Unaudited)
Pursuant to the SAB118, the Company is
allowed a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related
tax impacts. The final impact on the Company from the Tax Act’s transition tax legislation may differ from the aforementioned
estimates due to the complexity of calculating and supporting with primary evidence. Such differences could be material, due to,
among other things, changes in interpretations of the Tax Act, future legislative action to address questions that arise because
of the Tax Act, changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any
updates or changes to estimates the Company has utilized to calculate the transition tax’s reasonable estimate. The Company has
implemented the U.S. Tax Act and does not expect any material changes related to the final impact from implementation.
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 September 30, 2018 we recorded income tax expense of $169,000
compared to $199,000 for the 2017 period. For the nine months ended September 30, 2018 we recorded income tax expense of $257,000
compared to $150,000 for the 2017 period.
Note 9 – Commitments and Contingencies
Operating Leases & Lease Incentive Obligation
The Company relocated its headquarters
within Castle Rock, Colorado, during the third quarter 2016 and entered into a new lease agreement for approximately 8,000 square
feet of office space. This space is being leased from The Move, LLC in which our CEO and President, each a related party to the
Company, have a 27% ownership interest. The lease agreement has an initial term of five years plus two renewal periods, which the
Company is more likely than not to renew. In August 2017, the Company amended its lease agreement with The Move, LLC to provide
for an additional 7,700 square feet of office space commencing on December 1, 2017. Total rental payments beginning December 1, 2017 increased from $18,000 to approximately $35,100 per month. The
rental payments include common area charges and are subject to annual increases over the term of the lease. The Company recognizes
rent expense on a straight-line basis over the non-cancelable lease term and option renewal periods. The resulting deferred rent
is included in accrued expenses and other current liabilities on the consolidated balance sheet.
Prior to 2018, the Company recorded leasehold
improvements of approximately $425,000, which included approximately $163,000 in lease incentives. During the nine months ended
September 30, 2018, the Company has recorded an additional $370,500 in leasehold improvements in connection with the August 2017
amended lease agreement, which included approximately $230,200 in lease incentives to build out the new additional square footage.
Leasehold improvements are included in property and equipment on the consolidated balance sheets. Lease incentives have been included
in other long-term liabilities and will reduce rent expense on a straight-line basis over 15 years. Lease incentives are excluded
from minimum lease payments in the schedule below.
In September 2017, the Company entered
into a new lease agreement for our Urbandale, Iowa office space. The lease is for a period of two years and expires on August 31,
2019. Rental payments are approximately $2,900 per month, which includes common area charges, and are subject to annual increases
over the term of the lease.
Where Food Comes From, Inc.
Notes to the Consolidated Financial
Statements
(Unaudited)
The Company also owns approximately ¾
acre on which a 2,300-square foot building is located in Medina, North Dakota. Until January 12, 2018, the Company leased space
in this building under a five-year lease with an expiration date of March 1, 2018.
Under the
lease,
the Company was charged a monthly rental rate of approximately $150 plus all insurance, taxes and other costs based
on actual expenses to maintain the building.
On January 12, 2018, the Company purchased the 2,300-square
foot building and terminated the lease. The purchase price of approximately $135,600 was funded by cash on hand.
In connection with our acquisition of SureHarvest,
we added two locations in California: Soquel and Modesto. Our office space in Soquel expires on November 30, 2018 and requires
rental payments of approximately $2,700 per month. In addition to primary rent, this lease requires additional payments for operating
costs and other common area maintenance costs. The monthly rental payments for our leased space in Modesto was approximately $600
and the lease agreement was month-to-month. We ceased using the Modesto location in July 2018.
In connection with our acquisition of JVF,
we added one additional location in Pleasanton, California. The lease expires November 30, 2018. Rental payments are approximately
$2,200 per month. In addition to primary rent, this lease requires additional payments for operating costs and other common area
maintenance costs. We are currently researching new rental spaces for the SureHarvest and JVF businesses to jointly occupy.
As of September 30, 2018, future minimum
lease payments for all operating leases are as follows:
Years ended December 31st
:
|
|
|
Total
|
|
2018 (remaining three months)
|
|
|
|
125,957
|
|
2019
|
|
|
|
476,165
|
|
2020
|
|
|
|
465,187
|
|
2021
|
|
|
|
479,143
|
|
2022
|
|
|
|
493,517
|
|
Thereafter
|
|
|
|
4,891,163
|
|
Total lease commitments
|
|
|
|
6,931,132
|
|
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
Contingently redeemable non-controlling
interest on our consolidated balance sheet represents the non-controlling interest related to the SureHarvest acquisition, in which
the non-controlling interest holder, at its election, can require the Company to purchase its 40% investment in SureHarvest.
The table below reflects the activity of
the contingently redeemable non-controlling interest at September 30, 2018:
Balance, January 1, 2018
|
|
$
|
1,574,765
|
|
Net loss attributable to non-controlling interest in SureHarvest for the year to date period
ended
September 30, 2018
|
|
|
(53,261
|
)
|
Balance, September 30, 2018
|
|
$
|
1,521,504
|
|
Where Food Comes From, Inc.
Notes to the Consolidated Financial
Statements
(Unaudited)
The contingently redeemable non-controlling
interest has been adjusted to the greater of the carrying value or redemption value as of each period end.
Note 10 – 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 services
reportable segment. 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’s
chief operating decision maker (the Company’s CEO) allocates resources and assesses the performance of its certification
and verification services activities as one segment, which includes product sales.
Additionally, the Company determined that
it also has a software sales and related consulting services segment. This segment includes software license, maintenance, support
and software-related consulting service revenues.
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.
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 September 30, 2018
|
|
|
Three
months ended September 30, 2017
|
|
|
|
Verification
and Certification Segment
|
|
|
Software
Sales and Related Consulting Segment
|
|
|
Consolidated
|
|
|
Verification
and Certification Segment
|
|
|
Software
Sales and Related Consulting Segment
|
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Verification
and certification service revenue
|
|
$
|
3,906,996
|
|
|
$
|
—
|
|
|
$
|
3,906,996
|
|
|
$
|
3,672,587
|
|
|
$
|
—
|
|
|
$
|
3,672,587
|
|
Product
sales
|
|
|
783,303
|
|
|
|
—
|
|
|
|
783,303
|
|
|
|
687,235
|
|
|
|
—
|
|
|
|
687,235
|
|
Software
license, maintenance and support services revenue
|
|
|
—
|
|
|
|
208,541
|
|
|
|
208,541
|
|
|
|
—
|
|
|
|
243,186
|
|
|
|
243,186
|
|
Software-related
consulting service revenue
|
|
|
—
|
|
|
|
226,538
|
|
|
|
226,538
|
|
|
|
—
|
|
|
|
131,427
|
|
|
|
131,427
|
|
Total
revenues
|
|
$
|
4,690,299
|
|
|
$
|
435,079
|
|
|
$
|
5,125,378
|
|
|
$
|
4,359,822
|
|
|
$
|
374,613
|
|
|
$
|
4,734,435
|
|
Costs
of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of verification and certification services
|
|
|
2,098,462
|
|
|
|
—
|
|
|
|
2,098,462
|
|
|
|
2,096,907
|
|
|
|
—
|
|
|
|
2,096,907
|
|
Costs
of products
|
|
|
489,149
|
|
|
|
—
|
|
|
|
489,149
|
|
|
|
410,309
|
|
|
|
—
|
|
|
|
410,309
|
|
Costs
of software license, maintenance and support services
|
|
|
—
|
|
|
|
183,942
|
|
|
|
183,942
|
|
|
|
—
|
|
|
|
141,902
|
|
|
|
141,902
|
|
Costs
of software-related consulting services
|
|
|
—
|
|
|
|
117,303
|
|
|
|
117,303
|
|
|
|
—
|
|
|
|
43,981
|
|
|
|
43,981
|
|
Total
costs of revenues
|
|
|
2,587,611
|
|
|
|
301,245
|
|
|
|
2,888,856
|
|
|
|
2,507,216
|
|
|
|
185,883
|
|
|
|
2,693,099
|
|
Gross
profit
|
|
|
2,102,688
|
|
|
|
133,834
|
|
|
|
2,236,522
|
|
|
|
1,852,606
|
|
|
|
188,730
|
|
|
|
2,041,336
|
|
Selling,
general and administrative expenses
|
|
|
1,545,512
|
|
|
|
273,507
|
|
|
|
1,819,019
|
|
|
|
1,308,442
|
|
|
|
283,155
|
|
|
|
1,591,597
|
|
Segment
operating income (loss)
|
|
$
|
557,176
|
|
|
$
|
(139,673
|
)
|
|
$
|
417,503
|
|
|
$
|
544,164
|
|
|
$
|
(94,425
|
)
|
|
$
|
449,739
|
|
|
|
Nine
months ended September 30, 2018
|
|
|
Nine
months ended September 30, 2017
|
|
|
|
Verification
and Certification Segment
|
|
|
Software
Sales and Related Consulting Segment
|
|
|
Consolidated
|
|
|
Verification
and Certification Segment
|
|
|
Software
Sales and Related Consulting Segment
|
|
|
Consolidated
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Verification
and certification service revenue
|
|
$
|
10,210,947
|
|
|
$
|
—
|
|
|
$
|
10,210,947
|
|
|
$
|
9,152,520
|
|
|
$
|
—
|
|
|
$
|
9,152,520
|
|
Product
sales
|
|
|
1,633,509
|
|
|
|
—
|
|
|
|
1,633,509
|
|
|
|
1,226,141
|
|
|
|
—
|
|
|
|
1,226,141
|
|
Software
license, maintenance and support services revenue
|
|
|
—
|
|
|
|
759,301
|
|
|
|
759,301
|
|
|
|
—
|
|
|
|
532,684
|
|
|
|
532,684
|
|
Software-related
consulting service revenue
|
|
|
—
|
|
|
|
580,731
|
|
|
|
580,731
|
|
|
|
—
|
|
|
|
399,120
|
|
|
|
399,120
|
|
Total
revenues
|
|
$
|
11,844,456
|
|
|
$
|
1,340,032
|
|
|
$
|
13,184,488
|
|
|
$
|
10,378,661
|
|
|
$
|
931,804
|
|
|
$
|
11,310,465
|
|
Costs of
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of verification and certification services
|
|
|
5,399,626
|
|
|
|
—
|
|
|
|
5,399,626
|
|
|
|
4,928,139
|
|
|
|
—
|
|
|
|
4,928,139
|
|
Costs of
products
|
|
|
1,035,094
|
|
|
|
—
|
|
|
|
1,035,094
|
|
|
|
743,308
|
|
|
|
—
|
|
|
|
743,308
|
|
Costs
of software license, maintenance and support services
|
|
|
—
|
|
|
|
489,887
|
|
|
|
489,887
|
|
|
|
—
|
|
|
|
362,139
|
|
|
|
362,139
|
|
Costs
of software-related consulting services
|
|
|
—
|
|
|
|
280,310
|
|
|
|
280,310
|
|
|
|
—
|
|
|
|
182,718
|
|
|
|
182,718
|
|
Total
costs of revenues
|
|
|
6,434,720
|
|
|
|
770,197
|
|
|
|
7,204,917
|
|
|
|
5,671,447
|
|
|
|
544,857
|
|
|
|
6,216,304
|
|
Gross
profit
|
|
|
5,409,736
|
|
|
|
569,835
|
|
|
|
5,979,571
|
|
|
|
4,707,214
|
|
|
|
386,947
|
|
|
|
5,094,161
|
|
Selling,
general and administrative expenses
|
|
|
4,456,352
|
|
|
|
837,609
|
|
|
|
5,293,961
|
|
|
|
3,670,771
|
|
|
|
1,102,675
|
|
|
|
4,773,446
|
|
Segment
operating income (loss)
|
|
$
|
953,384
|
|
|
$
|
(267,774
|
)
|
|
$
|
685,610
|
|
|
$
|
1,036,443
|
|
|
$
|
(715,728
|
)
|
|
$
|
320,715
|
|
Where Food Comes From, Inc.
Notes to the Consolidated Financial
Statements
(Unaudited)
Note 11 – Supplemental
Cash Flow Information
|
|
Nine months ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Cash paid during the year:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
3,755
|
|
|
$
|
603
|
|
Income taxes
|
|
$
|
418,965
|
|
|
$
|
184,440
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Common stock issued in connection with acquisition of Sow Organic
|
|
$
|
433,131
|
|
|
$
|
—
|
|
Common stock issued in connection with investment in Progressive Beef
|
|
$
|
91,115
|
|
|
$
|
—
|
|
Common stock issued in connection with acquisition of JVF Consulting
|
|
$
|
315,291
|
|
|
$
|
—
|
|
Equipment acquired under a capital lease
|
|
$
|
19,809
|
|
|
$
|
18,033
|
|
Lease incentive obligation
|
|
$
|
230,220
|
|
|
$
|
—
|
|
Common stock issued in connection with acquisition of A Bee Organic
|
|
$
|
—
|
|
|
$
|
98,221
|
|
Common stock issued for acquisition-related consulting fees
|
|
$
|
—
|
|
|
$
|
25,000
|
|
Vehicle acquired under note payable
|
|
$
|
—
|
|
|
$
|
54,165
|
|
Note 12 – Revenue from Contracts with Customers
Impact of ASC 606 Adoption
On January 1, 2018, the Company adopted
Accounting Standards Update, Topic 606, “Revenue from Contracts with Customers” (ASC 606) using the modified retrospective
method of transition. Under this method of transition, we applied ASU 606 to all new contracts entered into on or after January
1, 2018 and all existing contracts for which all (or substantially all) of the revenue attributable to a contract had not been
recognized under legacy revenue guidance as of January 1, 2018.
ASU 606 supersedes nearly all existing
revenue recognition guidance under U.S. GAAP and includes a five-step process to recognize revenue when promised goods or services
are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods
or services.
The impact of adoption on our current period results is as follows:
|
|
Nine months ended September 30, 2018
|
|
|
|
Under ASC 606
|
|
|
Under ASC 605
|
|
|
Increase / (Decrease)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Verification and certification service revenue
|
|
$
|
—
|
|
|
$
|
114,900
|
|
|
$
|
(114,900
|
)
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of verification and certification services
|
|
$
|
—
|
|
|
$
|
114,900
|
|
|
$
|
(114,900
|
)
|
Gross profit
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net income (loss)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Retained earnings
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Changes to verification and certification
service revenue and costs of verification and certification services are due to the conclusion that fees collected on behalf of
the Non-GMO Project related to the Company’s Non-GMO verification services should be excluded from the transaction price
(and, thus, revenue), as these amounts are collected on behalf of a third party. This represents a change from our accounting practice
under legacy revenue guidance of presenting these amounts on a gross basis in verification and certification service revenue, with
an offsetting amount presented as an expense in costs of verification and certification services.
Where Food Comes From, Inc.
Notes to the Consolidated Financial
Statements
(Unaudited)
Revenue Recognition