Where Food Comes From, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are with FY2022. This is an annual report, not a standalone fourth-quarter report. The company provides third-party food and agricultural verification and certification, related products such as livestock identification tags, and agricultural consulting and technology services.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $25.14 million | $24.85 million |
| Gross profit | $10.52 million | $10.47 million |
| Gross margin | 41.9% | 42.1% |
| Operating income | $2.70 million | $2.65 million |
| Net income | $2.15 million | $1.99 million |
| Diluted earnings per share | $0.39 | $0.33 |
| Cash from operating activities | $2.82 million | $2.65 million |
- Verification and certification services generated $19.41 million, up 10.2%. Product sales were $4.00 million, down 8.3%; professional services were $1.72 million, down about $1.15 million. Management attributed the professional-services decline partly to a significant, short-term Japanese seafood engagement in 2022.
- Verification and certification gross margin declined to 43.4% from 45.0%, with cost inflation and compensation expenses cited. Professional-services gross margin improved to 21.3% from 20.0%, while that segment reported a $108,000 operating loss versus $146,000 operating income in 2022.
- Consolidated gross margin was approximately 41.9%; operating margin was 10.7% and net margin was 8.6%.
- Cash and cash equivalents were $2.64 million at year-end, down from $4.37 million. Working capital was about $3.2 million, versus $4.9 million.
- Investing activities used $648,000, including $200,000 invested in BlueTrace and $300,000 for the Upcycled Certified program. Financing activities used $3.90 million, primarily for share repurchases.
- No balance was outstanding on the $75,080 revolving credit line at year-end; it matures April 2025 and bears interest at prime plus 1.5%. Lease liabilities totaled $2.80 million, including $2.75 million of operating lease obligations and $55,000 of finance lease obligations.
- Total assets were $16.29 million and total liabilities were $5.47 million. The company reported no material off-balance-sheet arrangements.
Changes, outlook, and notable items
- Revenue grew 1.2% and net income rose about 7.9% year over year. Higher verification-service revenue was partly offset by lower tag sales and professional-services revenue.
- Management says the cattle industry is in a contraction phase of its cycle, with smaller beef-cow inventories weighing on tag demand and revenue linked to cattle volumes. Drought and pasture conditions could affect how long the contraction lasts. Seasonal activity is typically strongest from late May to early October.
- Management cites customer growth, bundled offerings, diversification, and selective acquisitions as growth priorities. It expects operating cash generation and available financing options to support current operations and debt obligations, but provides no specific revenue, earnings, or cash-flow guidance.
- Inflation, wage and benefit costs, customer spending pressure, competition, changing regulation, adverse weather, disease outbreaks, project timing, cybersecurity incidents, and acquisition integration are identified risks.
- Progressive Beef dividend income increased to $320,000 from $250,000. The company repurchased 287,000 shares for $3.96 million in 2023; fourth-quarter purchases were 76,109 shares for $1.04 million. No cash dividends were paid in 2023 or 2022.
- Digital assets had a carrying value of $116,000, with no impairment recorded in 2023. Management estimated that fair-value accounting under a new standard, if early adopted, would have shown a value of approximately $300,000 and an unrealized gain of about $200,000 for 2023.
- The CEO and President have a jointly held 24.3% interest in the company leasing the corporate headquarters to WFCF. The filing reports approximately $0.5 million in annual headquarters rent and common-area charges. The Saunders collectively and with the rest of the board hold significant voting influence.
- The auditor issued an unqualified opinion on the financial statements. Revenue recognition and inventory valuation were identified as critical audit matters. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal-control effectiveness. No material pending legal proceedings were reported.
Investor verification priorities
- Review whether verification-service growth continues to offset lower tag volumes and the decline in project-based professional-services revenue.
- Monitor cash, working capital, and the pace of share repurchases relative to operating cash flow and planned investment.
- Assess the impact of cattle-cycle contraction, herd size, weather, inflation, and labor costs on revenue and segment margins.
- Review the related-party headquarters lease and the company’s governance and ownership concentration disclosures.
- Track acquisition integration and the treatment of the BlueTrace investment, Upcycled Certified assets, and digital assets.