WFCF 10-K & 10-Q changes, risk factors and insider trading

We arehave been in a multi-year period of increasingmanaging inflation and economic uncertainty

For approximately 4 years, the economy ishas been facing inflationary pressures which has resulted in a few challenges for our business, most notably in the form of a tight labor market where job candidates have considerable bargaining power which has driven wages up. Additionally, we are experiencing higher labor and benefit related costs to retain our existing personnel. We believe we will continue to see significant pressure inon our labor and benefit related costs which impacts both our gross margins and net income.

We also continue to monitor for weakened demand in our professional services business segment due to significant customer concentration. IncreasedEconomic inflationuncertainty could continue to put pressure on our customers’ timing of approval for consulting projects to move forward. Currently, it is difficult to estimate the financial impact to this revenue stream, if any. We actively market our sustainability solutions and services to new types of customers. We believe the growing awareness of environmental, social and governance (“ESG”) matters creates a key opportunity for us because we have the expertise and technology needed to help companies achieve ESG objectives within the food supply chain by specifically focusing on climate, land stewardship and sustainability metrics.

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. Global economic and business activities continue to face widespread uncertainties, and global credit and financial markets have experienced extreme volatility and disruptions in the past several years, including severely diminished liquidity and credit availability, rising inflation and monetary supply shifts, rising interest rates, labor shortages, declines in consumer confidence, declines in economic growth, increases in unemployment rates, recession risks, and uncertainty about economic and geopolitical stability. A severe or prolonged economic downturn, or additional global financial or political crises, could result in a variety of risks to our business, including weakened demand for our products and/or services or our ability to raise additional capital when needed on acceptable terms, if at all. The extent of the impact of these conditions on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected timeframe, will depend on future developments which are uncertain and cannot be predicted. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions conditions could adversely impact our business. Furthermore, our stock price may decline due in part to the volatility of the stock market and the general economic downturn.

Over the past several years, changing weather patterns and climatic conditions have added to the unpredictability and frequency of natural natural disasters, such as drought, hailstorms, wildfires and wind, snow and ice storms. Any such extreme weather condition can negatively impact a significant portion of our customers who produce food (including all major species of animal-based protein or edible edible plant variety) in various regions. For example, the drought conditions that impacted nearly one-half of the United States in the first half of 2022 predominately affected our ranch customers resulting in fewer cattle subject to verification. In the nation’s top 10 beef-producing states — responsible for nearly 60% of the country’s beef production — half of the states reported the lowest number of cattle since 1995 as of the beginning of 2024, according to an Investigate Midwest analysis of the USDA’s data. WhileTight thiscattle examplesupply doesn’t directly affectaffects our audit-related revenue, it does impact our product sales and other related supply chain fees due to smaller herd sizes.sizes and weakened demand for verified cattle. We cannot anticipate changes in weather patterns/conditions, and we cannot predict their impact on our customer’s operations if they they were to occur.

Additionally, the cattle industry is cyclical by nature based on factors impacting current and future supplies such as drought-induced feedlot placements, higher cow and heifer slaughter, and lower auction receipts. The production lags inherent to this industry lead to long-lasting impacts of production decisions. For example, increased liquidation implies tighter supplies for next year. Similarly, times of herd expansion are typically a multi-year period. Historically, these cycles typically lasted approximately 10 years. The beginning of 20242025 marks the tentheleventh year of the current cycle that began in 2014. We are currently in the contraction phase of the cycle after peaking in 2018-2019. How long we will continue to contract will be directly impacted by drought and pasture conditions.

We are currently benefiting from a slow but growing movement among the agriculture, livestock and food industries to source and/or age verify products, and bundle with other marketing claims such as upcycling food ingredients to avoid food waste. This emerging trend is fueled in part by consumers’ focus on sustainable practices, food safety and assurance. However, we can offer no assurances that there will be market acceptance of our technologies. Furthermore, some of our primary target segments within the agriculture, livestock and food industries are experiencing unpredictable economic conditions and are expected to continue to struggle with supply, trade and profitability issues in the near term. Although we believe that our products, if adopted on a wide-scale basis, would have a significant impact on diverting food waste, and improving the safety, quality and confidence in the world’s food supply, our customers for these products historically have been very slowsensitive to changecosts and reluctant to adopt new technologies and business practices.

We face risks that parasites, highly contagious diseases or viral outbreaks may negatively impact the source of product we are able to verify and/or impact the efficiency in which we conduct ongoing business operations.

Today, parasites, infectious disease and viral outbreaks appear to be emerging more quickly than ever, in both human and animals. For example, Porcine Porcine Epidemic Diarrhea Virus (“PEDv”) negatively impacted the pork/sow industry in 2014 and Highly Pathogenic Avian Influenza, more commonly known as Bird Flu, impacted poultry operations in 2016 and continues to impact poultry operations today. In 2024, other species such as dairy cattle were infected with an adaptation of the Bird Flu virus. In March 2020, the Global Health Organization declared the outbreak of the Corona Virus as a pandemic in human populations. ContagiousMore recently, the New World Screwworm has been detected in Mexico near the Texas border, raising concerns for US livestock. Parasites, contagious diseases or viral outbreaks create increased bio-exclusion and social distancing considerations in our business.

As a public company, we are subject to numerous legal, accounting and NASDAQ listing requirements that do not apply to private companies. The cost of compliance with many of these requirements is substantial, not only in absolute terms but, more importantly, in relation to the overall scope of the operations of a small company. Failure to comply with these requirements can have numerous adverse consequences, including, but not limited to, our inability to file required periodic reports on a timely basis, loss of market confidence, delisting of our securities and/or governmental or private actions against us. We cannot assure you that we will be able to comply with all ofthese these requirements or that the cost of such compliance will not prove to be a substantial competitive disadvantage as compared with privately held and larger public competitors.

The following table shows information for the reportable operating business segmentssegment:

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 year ended December 31, 20242025 decreased approximately $0.2 million or 5.0%4.9% compared to 2023.2024. We continue to see some new customer growth, but our customers are ordering less tags due to smaller beef cow herd size. According to the USDA statistics, overall beef cow inventories have declined from 28.9 million head on January 1, 2023 to 28.2 million head on January 1, 2024 and is now estimated at less than 28 million head. WeThe believe we are at a low point of a contraction phase within thetight cattle cyclesupply whichand weakened demand for verified cattle is negatively impacting revenueour tiedproduct directly to price per head of cattle.sales. Additionally, some customers are receivingreceived free tags under the USDA’s program program to jumpstart efforts to enable the fastest possible response to a foreign animal disease in connection with its definitive traceability regulation, mandating the use of electronic ID tags for specific interstate movements of cattle and bison.

Professional services revenue includeincludes a wide range of professional consulting, data analysis, reporting and technology solutions that support our verification business and generate incremental revenue specific to the food and agricultural industry. Our consulting revenue stream is predominantly project based and not recurring in nature. For the year ended December 31, 2024,2025, professional service revenue decreased approximately $0.3$0.2 million over 2023.2024.

Costs of revenues for our professional services segmentrevenues for the years ended December 31, 20242025 and 20232024 were approximately approximately$0.9 and $1.0 andmillion, $1.4 million, respectively. For the year ended December 31, 2024,2025, gross margin improveddecreased to 26.5%26.0% from 21.3%26.5% in 2024. Increases in 2023.salaries Duringand 2024,benefits, becauseinsurance ofand taxes spread over a reduction decline in consultingour projects,revenue we reallocated staffcompared to otherthe internalprior departments,year negatively asimpacted needed.our margins. As our consulting revenue is predominately project based, margins are greatly impacted by the timing of the project work and the fixed and/or variable labor necessary to complete the project.

Selling, general and administrative expenses for the professional services segment for the year ended December 31, 20242025 decreased approximately $112,000 $53,000 compared to 2023.2024.

For the years ended December 31, 20242025 and 2023,2024, we recorded income tax expense of approximately $0.7 million and $0.9 million.million, respectively. The effective tax rate for the year ended December 31, 20242025 and 20232024 was 28.8%31.1% and 29.7%,28.8%, respectively, compared to a federal corporate rate of 21.0%.

Net cash provided by operating activities during 20242025 was approximately $2.7$1.6 million compared to $2.8$2.7 million during the same period in 2023.2024. Net cash provided by operating activities is driven by our net income and adjusted by non-cash items and changes in current assets and liabilities. Non-cash adjustments primarily include depreciation, amortization of intangible assets, fair market value gains / losses on digital assets, stock-based compensation expense, bad debt expense, and deferred taxes. TheFluctuations decline in cash provided by operating activities for 2024 wasare primarily due to a decline in the gross margins of our Verification and Certification Segment and increased spendingoperating for marketing related activities,performance offset by the timing of cash receipts and cash disbursements. The decline in cash provided by operating activities for 2025 was primarily due to absorption of increasing costs of services and products over a reduction in revenue.

Net cash usedprovided inby financinginvesting activities during 20242025 was approximately $3.2$1.7 million compared to net cash used by investing activities during 2024 of $3.9$0.2 millionmillion. Net cash provided in the 2023 period. Net cash used in the 20232025 period was approximately $1.7 due primarily forto the repurchasesale of common shares under the StockCompany’s Buybackequity investment Planin andProgressive a private purchase of common shares.Beef.

The Company has a revolving line of credit (“LOC”) agreement which maturesmatured on April 12, 2025. The LOC providesprovided for $75,080 in working working capital. The interest rate iswas at the Wall Street Journal prime rate plus 1.50% and iswas adjusted daily. Principal and interest are were payable upon demand, but if demand iswas not made, then annual payments of accrued interest only arewere due, with the principal balance due upon maturity. As of December 31, 2024 and 2023,2024, the effective interest rate was 9.0% and 10.0%, respectively.9.0%. The LOC iswas collateralized by all the business assets of Where Food Comes From Organic, Inc. (“WFCFO”), a subsidiary of WFCF. As of December 31, 20242024, and 2023, there were no amounts outstanding under this LOC. The Company decided not to renew the LOC at April 12, 2025.

Revenue Recognition

Our business is subject to seasonal fluctuations. Significant portions of our verification and certification service revenue is typically realized during late May through early October when the calf marketings and the growing seasons are at their peak. Although this seasonality does not impact our policies for revenue recognition, it does generally impact our results of operations by potentially causing an increase in our profit margins during May through October and decreased margins during November through April. Additionally, the cattle industry is cyclical by nature based on factors impacting current and future supplies such as drought-induced feedlot placements, higher cow and heifer slaughter, and lower auction receipts. The production lags inherent to this industry lead to long-lasting impacts of production decisions. For example, increased liquidation implies tighter supplies for next year. Similarly, times of herd expansion are typically a multi-year period. Historically, these cycles typically lasted approximately 10 years. The beginning of 20242025 marks the tentheleventh year of of the current cycle that began in 2014. We are currently in the contraction phase of the cycle after peaking in 2018-2019. How long we we will continue to contract will be directly impacted by drought and pasture conditions.

The first step of the impairment test involves comparing the estimated fair value of our reporting unitsunit(s) with the reporting unit’s carrying amount, including goodwill. If we determine that the carrying value of a reporting unit exceeds its estimated fair value, we perform a second step to compare the carrying amount of goodwill to the implied fair value of that goodwill. The implied fair value of goodwill is determined in the same manner as utilized to recognize goodwill in a business combination. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss would be recognized in an amount equal to the excess.

During the fourth quarter of 20242025 and 2023,2024, we performed a qualitative assessment on our WFCF, WFCFO, Validus and SureHarvest unitsunit(s) and concluded that the fair value of the reporting units unit(s) exceeded their carrying value.

Our business is subject to a number of risks, including those identified in Item 1A. — “Risk Factors” of our 2025 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 MarchJune 30, 31, 2026, the Company recognizes matters specific to tariffs, pandemics, the inflationary environment and and weather-related risks may have a continued economic impact on the Company, but management does not know and cannot estimate what the the long-term financial impact may be. We may also disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

Our greatest asset is our people, and we continue to attract the best and brightest with our competitive pay and benefits package. As of MarchJune 31,30, 2026, we had 9694 total employees, of which 8786 were full-time employees. Approximately 83% of our workforce is comprised of female and other minority employees.

At MarchJune 31,30, 2026, we had cash and cash equivalents of approximately $3.3$3.4 million compared to approximately $3.2 million at December 31, 2025. Our working capital at MarchJune 31,30, 2026 and December 31, 2025 was approximately $3.0 million and $3.2 million.million, respectively.

Net cash provided by operating activities for the threesix months ended MarchJune 31,30, 2026 was approximately $0.5$1.5 million compared to $0.6$1.8 million during the same period in 2025. Net cash provided by operating activities is driven by our net income and adjusted by non-cash items. Non-cash adjustments primarily include depreciation, amortization of intangible assets, fair market value gains and losses on digital assets, stock-based compensation expense, and deferred taxes. Fluctuations are primarily due to operating performance offset by the timing of cash receipts and cash disbursements. The cash provided by operating activities for the period ending March 31, 2026 decreased compared to the same period in 2025 primarily due to absorption of certain fixed costs of services over a reduction in our professional services revenue.

Net cash used in investing activities for the threesix months ended MarchJune 31,30, 2026 was approximately $148,000$155,000 compared to $29,000$63,000 in the 2025 period. period. Net cash used in the period ending MarchJune 31,30, 2026 and 2025 was for purchases of equipment and increased expenditures towards capitalized capitalized software development costs.

Net cash used in financing activities for the threesix months ended MarchJune 31,30, 2026 and 2025 was approximately $0.3$1.1 million and $0.4$0.6 million, respectively. respectively. Cash used for the periods ending MarchJune 31,30, 2026 and 2025, was primarily due to the repurchase of common shares under the Stock Buyback Plan.

As of MarchJune 31,30, 2026, we had no off-balance sheet arrangements of any type.

Three and six months ended MarchJune 31,30, 2026 compared to the same period in fiscal year 2025 The following table shows information for reportable operating segment (amounts in thousands):

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 and six months ended MarchJune 31,30, 2026 increasedincreased, $0.2$57,000 millionand $0.3 million, compared with the same periodperiods in 2025. We continue to experience new customer growth and bundling opportunities, but offsetting some of this growth are supply-side dynamics within the cattle industry. The beef side of our business has been impacted the most significantly. We know the cattle industry is cyclical in nature and based on the data from the USDA, we appear to be at the bottom of a contraction phase within the cattle cycle, however, we are still seeing signs of further contraction in the cattle industry in early 2026. We are also facing rapidly changing trade and tariff uncertainties. Because of the tight cattle supply, ranchers are receiving the highest cattle prices per head in a decade without verification; and beef packers are reluctant to incur additional costs of verification to their supply chain because of the high costs of acquiring cattle for slaughter. slaughter. To expand supply, herds must be rebuilt within the United States and via imports. But rebuilding of the herd takes time and is impacted by many factors including drought conditions in different regions, the price of inputs and interest rates. We are encouraged because because premiums for verified cattle remain strong in the marketplace above commodity cattle prices in spite of significant pressure on beef packer margins. Verified product attributes like animal care, sustainability and natural continued to be demanded and our programs allow allow supply chains to meet this growing customer demand. We are also optimistic about the recent launch of our Raisewell Certified Standard, which was developed to meet growing consumer and retailer demand for responsibly raised proteins.

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 and six months ended MarchJune 31,30, 2026 increaseddecreased slightly by $11,000,$27,000 and $16,000, compared to the same period periods in 2025. We continue to see some new customer growth, but our customers are ordering less tags due to smaller beef cow herd size. According to the USDA statistics, overall beef cow inventories have declined from 28.9 million head on January 1, 2023 to 27.6 million head on January 1, 2026.

Professional services revenue includes a wide range of professional consulting, data analysis, reporting and technology solutions that support our verification business and generate incremental revenue specific to the food and agricultural industry. Our professional services revenue stream is predominantly project based and not recurring in nature. Professional services revenue for the three months ended MarchJune 31,30, 2026 increased marginally by $19,000 while the six months ended June 30, 2026 decreased less than $0.2$0.1 million, compared to the same periodperiods in 2025.

Costs of verification and certification services for the three and six months ended MarchJune 31,30, 2026 were approximately $3.2 million and $5.9 million, respectively, compared to $3.3 million and $5.7 million, respectively, for the same periods in 2025. Gross margin for the three months ended June 30, 2026 and 2025 werewas approximately $2.7 million40.6% and $2.4 million,38.4%, respectivelyrespectively, or 61.5% of revenue compared to 57.3% of revenue inwhile the comparablegross margin for the six months ended June 30, 2026 and 2025 period.was 39.7% and 40.3%, respectively. Our costs of verification and certification services are generally impacted by various costs such as salaries and benefits, insurance and taxes. The increase in the percentage of our costs of verification and certification services is primarily due to absorption of certain fixed costs of services over a reduction in revenue related to the beef side of our business. New customer growth helps offset the inflationary impacts on our margins, to some extent.

Costs of our professional services revenue for the three months ended MarchJune 31,30, 2026 and 2025 was approximately $0.2 millionmillion. andThe costs for the six months ended June 30, 2026 was approximately $0.3 million, respectively.million compared to $0.5 million for the same period in 2025.

Other operating expenses for the three months ended MarchJune 31,30, 2026 and 2025 were approximately $1.6$1.8 million. Expenses for the six months ended June 30, 2026 were approximately $3.4 million andcompared $1.9to million,$3.6 respectively. for the same period in 2025. Our most significant operating expense includes salaries and benefits. The decrease in the 2026 period is primarily due to a decision by the executive management team to return the bonus amounts paid in late December 2025 which were based on previous internal projections that indicated strong fourth quarter revenue. These projections were made prior to the unexpected announcement that a large midwestern packing plant would cease operations, resulting in a negative impact to the Company’s fourth quarter 2025 revenue. Depreciation and amortization expense for the three and six months ended MarchJune 31,30, 2026 and 2025 were approximately $0.2 million.million and $0.3 million, respectively.

The Company measures the digital assets at fair value with changes recognized in the Consolidated Statements of Income for each reporting period. For the three and six months ended MarchJune 31,30, 2026 and 2025,2026, the Company recorded an unrealized loss of approximately $0.1 million.million and $0.2 million, respectively, compared to an unrealized gain of approximately $0.2 million and $0.1 million, respectively, for the same periods in 2025.

The provision 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 and six months ended MarchJune 31,30, 2026, we recorded income tax tax expense of approximately $93,000$0.2 million and $0.3 million, respectively, compared to income tax expense of $38,000$0.2 million for theboth same period periods in 2025.

As a result of the foregoing, net income attributable to WFCF shareholders for the three and six months ended MarchJune 31,30, 2026 was approximately $0.4 $0.1 million and $0.02$0.5 million, respectively, and $0.08 and $0.10 per basic and diluted common share, respectively, compared to net income of approximately $31,000$0.6 million and $0.01$0.11 per basic and diluted common share for theboth same periodperiods in 2025.