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 June 30, 2018

☐ 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 ☒

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of August 8, 2018, was 24,805,169.

Where Food Comes From, Inc.
Table of Contents
June 30, 2018
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	34
Part II - Other Information
Item 1.	Legal Proceedings	34
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

	June 30,			December 31,
	2018			2017
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	3,061,152		$	2,705,778
Accounts receivable, net of allowance		1,979,029			1,898,749
Short-term investments		749,110			743,206
Prepaid expenses and other current assets		242,306			245,073
Total current assets		6,031,597			5,592,806
Property and equipment, net		1,513,682			1,068,087
Intangible and other assets, net		3,754,305			3,948,530
Goodwill		2,624,690			2,652,250
Deferred tax assets, net		114,622			79,622
Total assets	$	14,038,896		$	13,341,295
Liabilities and Equity
Current liabilities:
Accounts payable	$	539,563		$	457,307
Accrued expenses and other current liabilities		664,328			555,129
Customer deposits and deferred revenue		1,135,034			851,185
Current portion of notes payable		9,803			9,446
Current portion of capital lease obligations		7,627			7,527
Total current liabilities		2,356,355			1,880,594
Notes payable, net of current portion		37,431			42,452
Capital lease obligations, net of current portion		21,580			25,419
Lease incentive obligation		141,771			147,189
Total liabilities		2,557,137			2,095,654
Commitments and contingencies (Note 9)
Contingently redeemable non-controlling interest		1,548,195			1,574,765
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; 25,190,338 (2018) and 24,972,684 (2017) shares issued, and 24,805,169 (2018) and 24,652,895 (2017) shares outstanding		25,190			24,972
Additional paid-in-capital		10,544,034			10,353,037
Treasury stock of 385,169 (2018) and 319,789 (2017) shares		(865,380	)		(724,530	)
Retained earnings		229,720			17,397
Total equity		9,933,564			9,670,876
Total liabilities and stockholders’ equity	$	14,038,896		$	13,341,295

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

3 

Where Food Comes From, Inc.

 Consolidated Statements of Income

(Unaudited)

	Three months ended June 30,
	2018			2017
Revenues:
Verification and certification service revenue	$	3,507,757		$	2,925,298
Product sales		496,312			295,640
Software license, maintenance and support services revenue		263,316			130,234
Software-related consulting service revenue		170,923			150,910
Total revenues		4,438,308			3,502,082
Costs of revenues:
Costs of verification and certification services		1,850,555			1,573,858
Costs of products		319,970			179,133
Costs of software license, maintenance and support services		168,511			92,775
Costs of software-related consulting services		87,546			66,128
Total costs of revenues		2,426,582			1,911,894
Gross profit		2,011,726			1,590,188
Selling, general and administrative expenses		1,770,468			1,711,020
Income (loss) from operations		241,258			(120,832	)
Other expense (income):
Interest expense		1,315			154
Other income, net		(5,122	)		(7,970	)
Income (loss) before income taxes		245,065			(113,016	)
Income tax expense (benefit)		80,000			(52,000	)
Net income (loss)		165,065			(61,016	)
Net loss attributable to non-controlling interest		11,774			123,387
Net income attributable to Where Food Comes From, Inc.	$	176,839		$	62,371
Per share - net income attributable to Where Food Comes From, Inc.:
Basic	$	0.01		$	*
Diluted	$	0.01		$	*
Weighted average number of common shares outstanding:
Basic		24,718,430			24,664,882
Diluted		24,896,195			24,822,563

* 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 Income

(Unaudited)

	Six months ended June 30,
	2018			2017
Revenues:
Verification and certification service revenue	$	6,303,951		$	5,479,933
Product sales		850,206			538,906
Software license, maintenance and support services revenue		550,760			289,498
Software-related consulting service revenue		354,193			267,693
Total revenues		8,059,110			6,576,030
Costs of revenues:
Costs of verification and certification services		3,301,164			2,831,231
Costs of products		545,945			332,999
Costs of software license, maintenance and support services		305,945			220,237
Costs of software-related consulting services		163,007			138,738
Total costs of revenues		4,316,061			3,523,205
Gross profit		3,743,049			3,052,825
Selling, general and administrative expenses		3,474,942			3,181,849
Income (loss) from operations		268,107			(129,024	)
Other expense (income):
Interest expense		2,394			316
Other income, net		(8,040	)		(9,298	)
Income (loss) before income taxes		273,753			(120,042	)
Income tax expense (benefit)		88,000			(49,000	)
Net income (loss)		185,753			(71,042	)
Net loss attributable to non-controlling interest		26,570			248,792
Net income attributable to Where Food Comes From, Inc.	$	212,323		$	177,750
Per share - net income attributable to Where Food Comes From, Inc.:
Basic	$	0.01		$	0.01
Diluted	$	0.01		$	0.01
Weighted average number of common shares outstanding:
Basic		24,683,264			24,656,398
Diluted		24,871,523			24,802,564

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

5 

Where Food Comes From, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	Six months ended June 30,
	2018			2017
Operating activities:
Net income (loss)	$	185,753		$	(71,042	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		501,603			420,915
Lease incentive obligation		(5,418	)		(5,418	)
Stock-based compensation expense		80,021			89,470
Common stock issued for services rendered		—			25,000
Deferred tax expense (benefit)		(35,000	)		(82,000	)
Bad debt expense		10,097			10,249
Changes in operating assets and liabilities, net of effect from acquisitions:
Accounts receivable		(90,377	)		(138,570	)
Short-term investments		(5,904	)		(7,284	)
Prepaid expenses and other assets		2,767			(189,368	)
Accounts payable		82,256			94,814
Accrued expenses and other current liabilities		135,801			100,805
Customer deposits and deferred revenue		257,247			541,976
Net cash provided by operating activities		1,118,846			789,547
Investing activities:
Acquisition of Sow Organic		(450,000	)		—
Acquisition of A Bee Organic		—			(150,000	)
Purchases of property and equipment		(162,869	)		(20,563	)
Purchases of other long-term assets		(1,350	)		—
Net cash used in investing activities		(614,219	)		(170,563	)
Financing activities:
Repayments of notes payable		(4,664	)		—
Repayments of capital lease obligations		(3,739	)		(2,017	)
Proceeds from stock option exercise		—			8,168
Stock repurchase under Stock Buyback Plan		(140,850	)		(26,723	)
Net cash used in financing activities		(149,253	)		(20,572	)
Net change in cash		355,374			598,412
Cash at beginning of year		2,705,778			2,489,985
Cash at end of year	$	3,061,152		$	3,088,397

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

6 

Where Food Comes From, Inc.

Consolidated Statement of Equity

Six months ended June 30, 2018

(Unaudited)

						Additional
	Common Stock					Paid-in			Treasury			Retained
	Shares			Amount		Capital			Stock			Earnings		Total
Balance at January 1, 2018		24,652,895		$	24,972	$	10,353,037		$	(724,530	)	$	17,397	$	9,670,876
Effect of acquisition fair value adjustment		—		$	—		(321,937	)	$	—		$	—		(321,937	)
Stock-based compensation expense		—			—		80,021			—			—		80,021
Issuance of common shares in acquisition of Sow Organic LLC		217,654			218		432,913			—			—		433,131
Repurchase of common shares under Stock Buyback Plan		(65,380	)		—		—			(140,850	)		—		(140,850	)
Net income attributable to Where Food Comes From, Inc.		—			—		—			—			212,323		212,323
Balance at June 30, 2018		24,805,169		$	25,190	$	10,544,034		$	(865,380	)	$	229,720	$	9,933,564

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

7 

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 acquisition, Sow Organic (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 June 30, 2018 are not necessarily indicative of the results to be expected for any other interim period of any future year.

 8

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.

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. The Company is currently in the process of evaluating the impact of adoption of the new rules on the Company’s financial condition, results of operations and cash flows. Although the evaluation is ongoing, 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 Company is currently analyzing its contracts to determine whether they contain a lease under the revised guidance and has not quantified the amount of the asset and liability that will be recognized on the Company’s balance sheet.

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. We continue to execute on our implementation plan and we are currently gathering lease data to derive the impact of the ASU on its financial statements. The adoption is anticipated to have a material impact on assets and liabilities due to the recognition of lease rights and obligations 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.

 9

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.

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 $2.8 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.

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.

 10

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.

This acquisition did not materially affect the Company’s consolidated results of operations. 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:

	May 16, 2018
Property and equipment	$	445,000
Indentifiable intangible assets		143,754
Excess attributable to goodwill		294,377
Total consideration	$	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.

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 the current period 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.

 11

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 June 30,				Six months ended June 30,
	2018		2017		2018		2017
Basic:
Weighted average shares outstanding		24,718,430		24,664,882		24,683,264		24,656,398
Diluted:
Weighted average shares outstanding		24,718,430		24,664,882		24,683,264		24,656,398
Weighted average effects of dilutive securities		177,765		157,681		188,259		146,166
Total		24,896,195		24,822,563		24,871,523		24,802,564
Antidilutive securities:		124,000		94,000		124,000		94,000

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.

 12

Note 4 – Intangible and Other Assets

The following table summarizes our intangible and other assets:

	June 30,		December 31,		Estimated
	2018		2017		Useful Life
Intangible assets subject to amortization:
Tradenames and trademarks	$	292,307	$	282,307	2.5  - 8.0 years
Accreditations		85,395		97,706	5.0 years
Customer relationships		3,218,305		3,084,551	8.0 - 15.0 years
Beneficial lease arrangement		—		120,200	11.0 years
Patents		970,100		970,100	4.0 years
		4,566,107		4,554,864
Less accumulated amortization		1,290,347		1,084,879
		3,275,760		3,469,985
Tradenames/trademarks (not subject to amortization)		465,000		465,000
		3,740,760		3,934,985
Other		13,545		13,545
	$	3,754,305	$	3,948,530

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.

Note 5 – Accrued Expenses and Other Current Liabilities

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

	June 30,		December 31,
	2018		2017
Income and sales taxes payable	$	75,589	$	255,099
Payroll related accruals		372,967		148,408
Professional fees and other expenses		95,991		80,326
Deferred rent expense		119,781		71,296
	$	664,328	$	555,129

Note 6 – Notes Payable

Notes Payable consist of the following:

	June 30,			December 31,
	2018			2017
Vehicle note	$	47,234		$	51,898
Less current portion of notes payable and other long-term debt		(9,803	)		(9,446	)
Notes payable and other long-term debt	$	37,431		$	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.

 13

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 June 30, 2018, and December 31, 2017, the effective interest rate was 5.5%. The LOC is collateralized by all the business assets of ICS. As of June 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.

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

	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
Stock options	$	19,944	$	14,722	$	36,375	$	29,413
Restricted stock awards		22,175		29,691		43,646		60,057
Total	$	42,119	$	44,413	$	80,021	$	89,470

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. 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	25,000	None
Risk-free interest rate	2.60%	N/A
Expected volatility	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

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.

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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 six months)		59,426		30,184		89,610
2019		115,223		15,674		130,897
2020		62,636		4,251		66,887
2021		24,272		706		24,978
	$	261,557	$	50,815	$	312,372

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:

	Number of awards		Weighted avg.  exercise price  per share		Weighted avg.  fair value  per share		Weighted avg.  remaining  contractual life  (in years)		Aggregate  intrinsic value
Outstanding, December 31, 2017		266,585	$	1.23	$	1.22		6.06	$	462,508
Granted		25,000	$	2.55	$	2.51		9.70
Exercised		—	$	—	$	—		—
Expired/Forfeited		—	$	—	$	—		—
Outstanding, June 30, 2018		291,585	$	1.34	$	1.33		5.92	$	173,810
Exercisable, June 30, 2018		203,914	$	1.02	$	1.03		4.68	$	173,810
Unvested, June 30, 2018		87,671	$	2.08	$	2.06		8.81	$	—

The aggregate intrinsic value represents the total pre-tax intrinsic value (the aggregate difference between the closing price of our common stock on June 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 June 30, 2018.

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Restricted Stock Activity

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

	Number of  options		Weighted avg. grant date fair value
Non-vested restricted shares, December 31, 2017		99,000	$	2.56
Granted		5,000	$	2.55
Vested		—	$	—
Forfeited		—	$	—
Non-vested restricted shares, June 30, 2018		104,000	$	2.56

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.

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 will continue to evaluate the impact of the U.S. Tax Act and will record any resulting tax adjustments during 2018.

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 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 June 30, 2018 we recorded income tax expense of $80,000 compared to an income tax benefit of $52,000 for the 2017 period. For the six months ended June 30, 2018 we recorded income tax expense of $88,000 compared to an income tax benefit of $49,000 for the 2017 period.

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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. The additional space is currently not approved for occupancy. 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.

The Company recorded leasehold improvements of approximately $406,400, which included approximately $163,000 in lease incentives. 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 connection with the August 2017 amended lease agreement with The Move, LLC, the Company will receive an additional $230,000 in lease incentives to build-out the new additional square footage.

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.

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 is approximately $600 and the lease agreement is month-to-month.

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As of June 30, 2018, future minimum lease payments for all operating leases are as follows:

Years ended December 31st:	Total
2018 (remaining six months)		254,913
2019		479,498
2020		468,620
2021		482,678
2022		497,159
Thereafter		4,927,253
Total lease commitments		7,110,121

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 June 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 June 30, 2018		(26,570	)
Balance, June 30, 2018	$	1,548,195

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.

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

	Three months ended June 30, 2018							Three months ended June 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	$	3,507,757	$	—		$	3,507,757	$	2,925,298	$	—		$	2,925,298
Product sales		496,312		—			496,312		295,640		—			295,640
Software license, maintenance and support services revenue		—		263,316			263,316		—		130,234			130,234
Software-related consulting service revenue		—		170,923			170,923		—		150,910			150,910
Total revenues	$	4,004,069	$	434,239		$	4,438,308	$	3,220,938	$	281,144		$	3,502,082
Costs of revenues:
Costs of verification and certification services		1,850,555		—			1,850,555		1,573,858		—			1,573,858
Costs of products		319,970		—			319,970		179,133		—			179,133
Costs of software license, maintenance and support services		—		168,511			168,511		—		92,775			92,775
Costs of software-related consulting services		—		87,546			87,546		—		66,128			66,128
Total costs of revenues		2,170,525		256,057			2,426,582		1,752,991		158,903			1,911,894
Gross profit		1,833,544		178,182			2,011,726		1,467,947		122,241			1,590,188
Selling, general and administrative expenses		1,500,446		270,022			1,770,468		1,280,665		430,355			1,711,020
Segment operating income (loss)	$	333,098	$	(91,840	)	$	241,258	$	187,282	$	(308,114	)	$	(120,832	)

	Six months ended June 30, 2018							Six months ended June 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	$	6,303,951	$	—		$	6,303,951	$	5,479,933	$	—		$	5,479,933
Product sales		850,206		—			850,206		538,906		—			538,906
Software license, maintenance and support services revenue		—		550,760			550,760		—		289,498			289,498
Software-related consulting service revenue		—		354,193			354,193		—		267,693			267,693
Total revenues	$	7,154,157	$	904,953		$	8,059,110	$	6,018,839	$	557,191		$	6,576,030
Costs of revenues:
Costs of verification and certification services		3,301,164		—			3,301,164		2,831,231		—			2,831,231
Costs of products		545,945		—			545,945		332,999		—			332,999
Costs of software license, maintenance and support services		—		305,945			305,945		—		220,237			220,237
Costs of software-related consulting services		—		163,007			163,007		—		138,738			138,738
Total costs of revenues		3,847,109		468,952			4,316,061		3,164,230		358,975			3,523,205
Gross profit		3,307,048		436,001			3,743,049		2,854,609		198,216			3,052,825
Selling, general and administrative expenses		2,910,840		564,102			3,474,942		2,362,330		819,519			3,181,849
Segment operating income (loss)	$	396,208	$	(128,101	)	$	268,107	$	492,279	$	(621,303	)	$	(129,024	)

Note 11 – Supplemental Cash Flow Information

	Six months ended June 30,
	2018		2017
Cash paid during the year:
Interest expense	$	2,394	$	316
Income taxes	$	304,765	$	—
Non-cash investing and financing activities:
Common stock issued in connection with acquisition of Sow Organic	$	433,131	$	—
Common stock issued in connection with acquisition of A Bee Organic	$	—	$	98,221
Common stock issued for acquisition-related consulting fees	$	—	$	25,000

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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:

	Six months ended June 30, 2018
	Under ASC 606		Under ASC 605		Increase / (Decrease)
Revenues:
Verification and certification service revenue	$	—	$	70,250	$	(70,250	)
Costs and expenses:
Cost of verification and certification services	$	—	$	70,250	$	(70,250	)
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.

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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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 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 customer 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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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.

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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 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 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.

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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.

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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.

Other Significant Judgments

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.

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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 June 30, 2018						Six months ended June 30, 2018
	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
Product sales	$	3,507,757	$	—	$	3,507,757	$	6,303,951	$	—	$	6,303,951
Software license, maintenance and support services revenue		496,312		—		496,312		850,206		—		850,206
Software-related consulting service revenue		—		263,316		263,316		—		550,760		550,760
Total revenues		—		170,923		170,923		—		354,193		354,193
	$	4,004,069	$	434,239	$	4,438,308	$	7,154,157	$	904,953	$	8,059,110

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.

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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 June 30, 2018, and January 1, 2018, accounts receivable from contracts with customers, net of allowance for doubtful accounts, were approximately $1,979,000 and $1,898,700, respectively.

As of June 30, 2018, and January 1, 2018, deposits and deferred revenue from contracts with customers were approximately $1,108,400 and $851,200, respectively. The balance of these contract liabilities at the beginning of the period is expected to be recognized as revenue during 2018.

Costs to fulfill a contract

We incur a fixed cost, payable to a third-party provider, to perform set-up activities for new (or first-year) customers that contract for our software subscription and hosting services. We have concluded that those set-up activities do 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 June 30, 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 six months ended June 30, 2018.

In addition, amortization of capitalized set-up costs for the six months ended June 30, 2018 was not material, and no impairment loss was incurred related to capitalized set-up costs for the six months ended June 30, 2018.

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 13 – Subsequent Event

On August 9, 2018, the Company purchased a ten percent membership interest in Progressive Beef, LLC for an aggregate purchase price of approximately $1 million 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 exclusive certifier for Progressive Beef.

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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, 2017. 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 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, SureHarvest Services 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. In addition, we develop software and provide services related to sustainability measurement and benchmarking, traceability, verification and certification to the food and agriculture industries. 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 2005. 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, Inc.) – 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. We verify claims to over 40 independent 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

● The 13^th Edition of “The Why? Behind The Buy,” based on the annual survey conducted by Acosta, a leading full-service sales and marketing agency in the consumer packaged goods (“CPG”) industry, was released in December 2016. The survey found that today’s shoppers are seeking positive culinary experiences, making deliberate decisions from the store to the stove, including wanting to feel good about the foods they eat, have pride in the brands they buy and share their cooking journeys online. The survey also explores the key factors contributing to this experiential evolution for grocery shoppers, including the growing natural/organics category. Shoppers’ spending on health products has seen steady growth in the past several years, driven by the desire of shoppers to feel good about the foods they are eating. “From online grocery ordering and a desire to explore new foods, to natural products and socially responsible brands, consumers are at the wheel when it comes to steering the CPG industry in a new direction. There’s no doubt that this evolution will continue in the coming year, so it’s up to the industry to adapt by leaning into these trends and building trust and loyalty among all shoppers,” said Colin Stewart, senior vice president at Acosta.

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● According to research dated March 2016 from Sullivan Higdon & Sink FoodThink, only one-third of consumers believe that the agriculture community and food companies are transparent. The research appears in “Evolving Trust in the Food Industry,” a white paper with insights into Americans’ knowledge and trust of the food industry and how those perceptions have changed from 2012 to 2016. These numbers are an improvement from 2012, when only 22% and 19% agreed that the agricultural community and food companies, respectively, are transparent. Increasing media attention and dialogue about food production, and the food industry’s willingness to be more open about its production practices, have likely caused this increase in perceived transparency. In turn, this provides consumers the knowledge to have definite opinions on the degree of industry transparency and an increased desire for more knowledge about how their food is produced.

● According to the Organic Trade Association’s 2018 Organic Industry Survey, American consumers in 2017 filled more of their grocery carts with organic, buying everything from organic produce and organic ice cream to organic fresh juices and organic dried beans. Organic sales in the U.S. totaled a new record of $49.4 billion in 2017, up 6.4 percent from the previous year. Organic continued to increase its penetration into the total food market, and now accounts for 5.5 percent of the food sold in retail channels in the U.S.

Market Driver #2 - Global competitiveness among retailers

● Restaurant chains and retailers with dominant market shares and large buying power, like 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.

● The Saudi Arabia market closed to U.S. beef in 2012. Since that time, the beef industry has been working with the U.S. government to re-open that market, which officially happened in early August 2016. In order to be approved to meet the export requirements, a company must have or must be approved by a USDA process verified plan and meet the Saudi Arabia export verification requirements. U.S. exports to Saudi Arabia in 2010 and 2011 were valued at approximately $30 million. We believe the Saudi Arabia market focuses on the highest quality middle meats, making it a valuable market for the U.S. to re-gain access.

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● On June 12, 2017, officials announced the technical requirements for beef exports to the People’s Republic of China. Export verification (“EV”) requirements include source and age verification with the use of a program compliant 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 will be seeking non-hormone treated cattle and/or verified natural cattle to ensure continued market access. China is the world’s second largest buyer of beef, but beef imports from the U.S. to China have been banned since the 2003 Bovine Spongiform Encephalopathy outbreak, also known as “mad cow Disease.”

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 June 30, 2018, we had cash, cash equivalents and short-term investments of approximately $3,810,300 compared to approximately $3,449,000 at December 31, 2017. Our working capital at June 30, 2018 was approximately $3,675,200 compared to $3,712,200 at December 31, 2017.

Net cash provided by operating activities for the six months ended June 30, 2018 was approximately $1,118,800 compared to net cash provided of $789,500 during the same period in 2017. 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 six months ended June 30, 2018, was $614,200 compared to $170,600 used in the 2017 period. Net cash used in the 2018 period was primarily attributable to the acquisition Sow Organic for $450,000 in cash and $135,600 for the 2,300-square foot building located in Medina, North Dakota, which was previously leased. Net cash used in the 2017 period was primarily attributable to the acquisition of A Bee Organic, as well as routine purchase of property and equipment.

Net cash used in financing activities for the six months ended June 30, 2018, was $149,300 compared to $20,600 used in the 2017 period. Net cash used in the both the 2018 and 2017 period was primarily due to the repurchase of common shares under the Stock Buyback Plan.

Historically, our growth has been funded through a combination of convertible debt from private investors and private placement offerings. 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.

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 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.

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Our plan for continued growth is primarily based upon acquisitions, as well as intensifying our focus on international markets. We believe that there are significant growth opportunities available to us because often the only way to overcome import or 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 June 30, 2018, and December 31, 2017, the effective interest rate was 5.5%. The LOC is collateralized by all the business assets of International Certification Services, Inc. (“ICS”). As of June 30, 2018, and December 31, 2017, there were no amounts outstanding under this LOC.

Off-Balance Sheet Arrangements

As of June 30, 2018, we had no off-balance sheet arrangements of any type.

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RESULTS OF OPERATIONS

Three and six months ended June 30, 2018 compared to the same periods in fiscal year 2017

The following table shows information for reportable operating segments:

	Three months ended June 30, 2018							Three months ended June 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	$	3,507,757	$	—		$	3,507,757	$	2,925,298	$	—		$	2,925,298
Product sales		496,312		—			496,312		295,640		—			295,640
Software license, maintenance and support services revenue		—		263,316			263,316		—		130,234			130,234
Software-related consulting service revenue		—		170,923			170,923		—		150,910			150,910
Total revenues	$	4,004,069	$	434,239		$	4,438,308	$	3,220,938	$	281,144		$	3,502,082
Costs of revenues:
Costs of verification and certification services		1,850,555		—			1,850,555		1,573,858		—			1,573,858
Costs of products		319,970		—			319,970		179,133		—			179,133
Costs of software license, maintenance and support services		—		168,511			168,511		—		92,775			92,775
Costs of software-related consulting services		—		87,546			87,546		—		66,128			66,128
Total costs of revenues		2,170,525		256,057			2,426,582		1,752,991		158,903			1,911,894
Gross profit		1,833,544		178,182			2,011,726		1,467,947		122,241			1,590,188
Selling, general and administrative expenses		1,500,446		270,022			1,770,468		1,280,665		430,355			1,711,020
Segment operating income (loss)	$	333,098	$	(91,840	)	$	241,258	$	187,282	$	(308,114	)	$	(120,832	)

	Six months ended June 30, 2018							Six months ended June 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	$	6,303,951	$	—		$	6,303,951	$	5,479,933	$	—		$	5,479,933
Product sales		850,206		—			850,206		538,906		—			538,906
Software license, maintenance and support services revenue		—		550,760			550,760		—		289,498			289,498
Software-related consulting service revenue		—		354,193			354,193		—		267,693			267,693
Total revenues	$	7,154,157	$	904,953		$	8,059,110	$	6,018,839	$	557,191		$	6,576,030
Costs of revenues:
Costs of verification and certification services		3,301,164		—			3,301,164		2,831,231		—			2,831,231
Costs of products		545,945		—			545,945		332,999		—			332,999
Costs of software license, maintenance and support services		—		305,945			305,945		—		220,237			220,237
Costs of software-related consulting services		—		163,007			163,007		—		138,738			138,738
Total costs of revenues		3,847,109		468,952			4,316,061		3,164,230		358,975			3,523,205
Gross profit		3,307,048		436,001			3,743,049		2,854,609		198,216			3,052,825
Selling, general and administrative expenses		2,910,840		564,102			3,474,942		2,362,330		819,519			3,181,849
Segment operating income (loss)	$	396,208	$	(128,101	)	$	268,107	$	492,279	$	(621,303	)	$	(129,024	)

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 and six months ended June 30, 2018 increased approximately $582,500, or 19.9%, and $824,000, or 15.0%, respectively, compared to the same periods in 2017. Overall, the increase is due to an increase in new verification customers, as well as an increase in product offerings. We are seeing increased demand from cattle producers in response to the re-opening of the export market to China as discussed above in “Current Marketplace Opportunities.”

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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 June 30, 2018 increased approximately $200,700, or 67.9% and $311,300, or 57.8%, respectively, compared to the same periods in 2017. Overall, our product sales have increased primarily in response to the re-opening of the China export market and the requirement for source and age verification using an identification tag at birth for cattle.

Costs of revenues for our verification and certification segment for the three and six months ended June 30, 2018 were approximately $2.17 million and $3.85 million, respectively, compared to approximately $1.75 million and $3.16 million, respectively, for the same periods in 2017. Gross margin for the three months ended June 30, 2018 improved slightly to 45.8% compared to 45.6% in 2017. Gross margin for the six months ended June 30, 2018 decreased slightly to 46.2% compared to 47.4% in 2017. Fluctuations in our margins are predominately due to product mix changes. Additionally, our margins are impacted by various costs such as cost of products, salaries and benefits, insurance, and taxes.

Selling, general and administrative expenses for the three and six months ended June 30, 2018 increased approximately 17.2% and 23.2%, respectively compared to the same periods in 2017. Overall, the increase in our selling, general and administrative expenses is due in part to slightly higher head count, an increase in base salaries, the accelerated amortization of the ICS beneficial lease arrangement previously discussed, increased square footage and corresponding rent expense for the corporate headquarters, and increasing public company compliance costs and professional fees due to implementing new accounting standards.

Software Sales and Related Consulting Segment

Software license, maintenance and support services revenue is a revenue stream specific to our acquisitions of SureHarvest and Sow Organic. 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. Software license, maintenance and support services revenue for the three and six months ended June 30, 2018 increased approximately $133,100, or 102.2%, and $261,300, or 90.3%, respectively, compared to the same periods in 2017. The increase is 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 specific to our acquisition of SureHarvest. Software-related consulting service revenue for the three and six months ended June 30, 2018 increased approximately $20,000, or 13.3%, and $86,500, or 32.3%, respectively compared to the same periods in 2017. 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 and six months ended June 30, 2018 were approximately $256,100 and $469,000, respectively, compared to approximately $158,900 and $359,000, respectively, for the same periods in 2017. Gross margin for the three months ended June 30, 2018 decreased slightly to 41.0% compared to 43.5% for the same period in 2017. The decrease was predominately due to additional costs absorbed from the Sow Organic acquisition. Gross margin for the six months ended June 30, 2018 improved to 48.2% compared to 35.6% for the same period in 2017. Our margins were positively impacted by improvements in overall efficiency and the number of our billable hours, as well as other variable costs of salaries and benefits, insurance, and taxes.

Selling, general and administrative expenses for the three and six months ended June 30, 2018 decreased approximately 37.3% and 31.2%, respectively, compared to the same periods in 2017. The decrease is predominately due to some employee turnover and re-alignment with a shift from non-billable hours to billable hours to reduce fixed costs.

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 of a larger acquisition, at which time, we have seen solid improvements in revenues and/or costs.

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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 and six months ended June 30, 2018, we recorded income tax expense of $80,000 and $88,000, respectively, compared to income tax benefit of $52,000 and $49,000, respectively for the comparable periods in 2017.

Net Income and Per Share Information

As a result of the foregoing, net income attributable to WFCF shareholders for the three months ended June 30, 2018 was approximately $176,800, or $0.01 per basic and diluted common share, compared to $62,400, or less than $0.01 per basic and diluted common share for the same period in 2017. Net income attributable to WFCF shareholders for the six months ended June 30, 2018 was approximately $212,300, or $0.01 per basic and diluted common share, compared to $177,800, or $0.01 per basic and diluted common share for the same period in 2017.

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 weakness 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.

In July 2018, management concluded that a material weakness existed with respect to management placing undue reliance on their third-party specialist’s valuation of restricted stock issued in connection with our business acquisitions. This impacts equity and the calculation of goodwill. 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 a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Since such time, management is implementing the following measure to remediate the material weakness related to the process of valuation in connection with our business acquisitions. Management is implementing a review process that is performed in collaboration with outside legal counsel and third-party valuation specialists, where valuations of our business acquisitions are considered and analyzed to determine if discounts on the issuance of restricted stock has been appropriately considered. The valuations are further reviewed and approved by management to ensure the underlying information used by the valuation specialist is complete and accurate and that the valuation is consistent with generally accepted accounting principles. 

Based on our assessment, we consider that the material weakness related to the process of valuation of restricted stock issued in connection with our business acquisitions has not been fully remediated and is still present as of June 30, 2018 as the remedial measures have not operated effectively for a sufficient period of time for management to conclude, through testing, that the applicable controls have operated effectively for a sufficient period of time.

Internal Control Over Financial Reporting

As previously discussed, management revised its policies and procedures with respect to controls over the process of valuation of restricted stock issued in connection with our business acquisitions. Additionally, with the adoption of ASC Topic 606 as further described in Note 11 to the Consolidated Financial Statements in Part I of this Quarterly Report, we have analyzed our internal control over financial reporting framework and implemented new controls around contract inception and contract modifications, as well as periodic reviews of material contracts. 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.

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.

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ITEM 1A. RISK FACTORS

Our business is subject to a number of risks, including those identified in Item 1A. — “Risk Factors” of our 2017 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 June 30, 2018, 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

In connection with the Sow Organic acquisition, we issued 217,654 shares of common stock of Where Food Comes From, Inc. valued at approximately $433,100 based upon the closing price of our stock on May 16, 2018, of $1.99 per share.

The issuance of these shares of our common stock described above was pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended and related state private offering exemptions. All of the investors were Accredited Investors as defined in the Securities Act who took their shares for investments purposes without a view to distribution and had access to information concerning the Company and its business prospects, as required by the Securities Act. In addition, there was no general solicitation or advertising for these shares. All certificates for these shares issued pursuant to Section 4(2) contain a restrictive legend. Finally, our stock transfer agent has been instructed not to transfer any of such shares, unless such shares are registered for resale or there is an exemption with respect to their transfer.

ITEM 6. EXHIBITS

(a) Exhibits

Number	Description
10.1	Asset Purchase Agreement between Where Food Comes From, Inc and Sow Organic, LLC signed on May 16, 2018
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

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: August 14, 2018	Where Food Comes From, Inc.
	By:	/s/ John K. Saunders
		Chief Executive Officer

By:	/s/ Dannette Henning
	Chief Financial Officer

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EX-10.1

Where Food Comes From, Inc. 10-Q

EXHIBIT 10.1

ASSET PURCHASE AGREEMENT

THIS AGREEMENT, is made and entered into as of the fifteenth day of May, 2018, by and among Sow Organic, LLC, a Mississippi limited liability company (“Seller”); and Crosstek Solutions, LLC a Mississippi limited liability company (“Crosstek”), and Uptrend Technologies, Inc. a California corporation (“Uptrend”); and Brandon Orther, a resident of California, (“Uptrend Principal”); and Delta Engineering Solutions, LLC (“Crosstek Principal”); and Seth Broadfoot, Matthew F. Bell and Lydia Henshaw (collectively “Delta Principals”) (collectively Uptrend, Uptrend Principal, Crosstek, Crosstek Principals and Delta Principals are “Seller Principals”); and Where Food Comes From, Inc., a Colorado corporation (“Buyer”). Seller and Seller Principals are referred to collectively as “Seller Parties” and singularly as a “Seller Party”.

Preliminary Statement

Seller is engaged in the business of manufacturing, licensing, and distributing a computer program named “Sow Organic” and related products and services to customers across the United States of America (collectively the “Business”). Seller desires to sell, and Buyer desires to purchase, all assets of Seller used in the conduct of the Business.

Seller Principals Crosstek and Uptrend are the holders of record and beneficially of all of the outstanding membership interests of Seller and will benefit directly and indirectly from the transactions contemplated herein. Crosstek owns a 92.083% interest in Seller, and Uptrend owns a 7.9167% interest in Seller. Uptrend Principal, Brandon Orther, owns 100% of Uptrend. Crosstek Principal, Delta Engineering Solutions, LLC, owns 100% of Crosstek. Delta Principals, Seth Broadfoot, Matthew F. Bell and Lydia Henshaw, respectively own 57%, 25% and 18% of Crosstek Principal.

A table of certain capitalized defined terms used in this Agreement is attached as a convenience.

NOW, THEREFORE, in consideration of the premises hereof, the mutual covenants and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the terms and conditions and exceptions set forth below, the parties hereto agree as follows:

Statement of Agreement

1. Sale of Assets.

1.1

Transfer of Assets. At the Closing, for the consideration herein provided, Seller shall convey, transfer, assign and deliver to Buyer, and Buyer shall purchase and accept from Seller, all of Seller’s right, title and interest in and to substantially all assets and rights of Seller, including the following assets (collectively the “Assets”):

1.1.1

All of Seller’s accounts receivable, which are less than 90 days old at the time of Closing (the “Accounts”), as described in Schedule 1.1.1.

1.1.2

All of Seller’s customer contracts, customer orders, and RFPs (collectively the “Customer Contracts”), including the customer contracts described in Schedule 1.1.2.

1.1.3

All of Seller’s licenses of intellectual property rights, repair and service contracts, warranty rights and operating agreements (collectively the “Operating Contracts”), including those items described in Schedule 1.1.3.

1.1.4

All of any Seller Party’s, to the extent it relates to the “Sow Organic” software, and all of Seller’s know how, product and service research, technical data and documents, processes, computer software, patents, patents pending, patent applications, trade secrets, trademarks, service marks, domain names, websites, and trade names (including “Sow Organic” and derivations thereof), and the benefit of all licenses for same which are used but not owned by Seller, (collectively the “Intellectual Property”), including those items described in Schedule 1.1.4.

1.1.5

All of Seller’s customer lists, market and customer information, customer records, advertising contracts and rights, and marketing materials, post office boxes, yellow pages advertisements, telephone numbers, domain addresses, websites, and similar rights (collectively the “Marketing Materials”), including those items described in Schedule 1.1.5.

1.1.6

All of Seller’s permits, licenses, franchises, authorizations, and rights granted by governmental agencies (collectively the “Permits”), including those items described in Schedule 1.1.6.

1.1.7

 Every other asset (whether tangible, intangible, personal, real, or mixed property, or interests therein) of Seller used or useful in the Business or in connection with any portion of the Business, including sales and promotional materials; general business records and data; market research; licenses and permits; operations and other manuals; training materials; prepaid expenses; unemployment compensation and other reserves; contract or commitment rights; and the benefit of all rights, claims, arrangements, and agreements of Seller relating to the assets and properties to be transferred hereunder.

1.1.8

All of Seller’s and any Seller Party’s interest in the “Sow Organic” software, including any and all source code, source code listings, source files, design details, algorithms, processes, flow charts, formulas, and related material that enable the “Sow Organic” software to be produced, created, or compiled, and further including relevant items described in Schedule 1.1.8.

1.2

Excluded Assets. Anything contained in this Agreement to the contrary notwithstanding, the Parties acknowledge and agree that Seller Parties will not sell, assign, or convey to Buyer, and Buyer will not acquire, any right, title, or interest whatsoever in or to, or obligation for, any of the assets or property of Seller Parties described in Schedule 1.2 (collectively “Excluded Assets”). The term “Assets” as used herein shall not include the Excluded Assets. Buyer shall not be the insurer of the safety or condition of the Excluded Assets after Closing; and Seller Parties shall retain the risk of loss with respect to any Excluded Assets after Closing.

1.3

Assumed Contracts. Seller shall assign, and Buyer shall assume, Seller’s purchase orders and contracts listed in Schedule 1.3 (collectively the “Assumed Contracts”); provided however, that anything contained in this Agreement to the contrary notwithstanding, Buyer shall: (a) assume only obligations maturing after Closing under or with respect to the Assumed Contracts requiring Buyer to furnish goods, services, or other non-cash benefits to another party after Closing or to pay for goods, services, or other non-cash benefits that another party will furnish to Buyer after Closing; and (b) not be obligated to accept the assignment of customer order contract rights, and supplier or vendor purchase order contract rights, or assume the corresponding contract obligations of Seller (collectively the “Excluded Contracts”) (i) which are in default as of Closing or would, by virtue of such assignment and assumption, be in default as of Closing, (ii) which Buyer, in the exercise of Buyer’s commercially reasonable judgment, determines are not capable of completion in the ordinary course of business at a profit, impose an undue or unreasonable risk, are contrary to Buyer’s business plans or are otherwise not in Buyer’s best interests, (iii) for the fulfillment of which Buyer would be required to be, and is not, and cannot timely become, an authorized dealer or distributor, or (iv) were entered into outside of the ordinary course of business. Buyer shall identify for rejection all such Excluded Contracts as soon as practicable, and Seller Party shall retain such contracts. The terms “Assets” and “Assumed Contracts” as used herein shall not include the Excluded Contracts.

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1.4

Method of Transfer. The aforesaid transfer and sale will be evidenced by appropriate bills of sale, assignments, deeds, titles, and other instruments executed and delivered by Seller to Buyer at Closing, as set forth in this Agreement.

1.5

Not Sale of Business. This transaction constitutes the sale and transfer of assets by Seller and not the sale of a business; provided however, that anything contained in this Agreement to the contrary notwithstanding, it is the intent of the parties that Buyer purchase and acquire and Seller Parties sell and transfer the complete operating process of the Business and all properties and interests necessary to operate the Business substantially as it is presently being operated.

1.6

Possession. Buyer shall take, and Seller shall deliver, possession of the Assets, and Seller Parties shall relinquish to Buyer operation of the Business, at Closing.

2.

Consideration for Acquisitions by Buyer. The aggregate purchase price (the “Purchase Price”) for the Assets is $900,000 plus or minus the adjustments, prorations, and set offs described herein, which shall be paid, allocated, held and adjusted as follows:

2.1

Cash Payment. Buyer shall pay Seller in cash or other immediately available funds an amount equal to $450,000 at Closing.

2.2      

  Stock Payment. Buyer shall deliver to Seller [**_____**] shares of Buyer’s restricted securities that are of the same class that are currently publicly traded but are subject to resale limitations; such number of shares being the number of shares having a total value of $450,000 when using the average trading value of the Buyer’s publicly-traded stock in the four-week period ending on the Closing Date. (“WFCF Stock Consideration”). Of the WFCF Stock Consideration, a total of [***____***] shares having a total value of $100,000 using the same valuation as above (“the Escrow Stock”) shall be shall be deposited at Closing with Dannette Henning as escrow agent (“Escrow Agent”) to be held in trust as the escrowed portion of the Purchase Price, invested, and disbursed pursuant to an escrow agreement (the “Escrow Agreement”) among Seller Parties, Buyer, and Escrow Agent. For a period of twelve (12) months following the Closing, the Escrow Stock shall be held in escrow pursuant to the terms of the Escrow Agreement, to support any claims by the Buyer for breaches of representations and warranties by Seller under the indemnification provision set forth herein.

2.3 Agreement Relating to WFCF Stock Consideration. Seller agrees not to sell, transfer or otherwise distribute any of the WFCF Stock Consideration anytime during the Lock-Up Period except to the extent distributed in accordance with Section 2.4 to the Seller’s members upon the dissolution and liquidation of Seller which shall not occur until the later of (i) the first anniversary of the Closing Date, and (ii) the expiration of the twelve (12) month escrow term provided that each of the Seller’s members agrees in writing to be bound by the terms and other transfer restrictions of the Lock-Up Period and other applicable restrictions set forth on the applicable stock certificates. The form and content of such writing must be reasonably acceptable to Buyer. The Parties hereto further acknowledge that the WFCF Stock Consideration shall be “restricted stock” under federal securities laws (meaning that it was purchased other than through a registered public offering). The certificates evidencing the WFCF Stock Consideration shall bear a restrictive legend in substantially the following form:

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, HAVE BEEN TAKEN WITHOUT A VIEW TO THE DISTRIBUTION THEREOF WITHIN THE MEANING OF SUCH ACT, AND MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH SUCH ACT AND THE RULES AND REGULATIONS THEREUNDER AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THE COMPANY WILL NOT TRANSFER SUCH SHARES EXCEPT UPON RECEIPT OF EVIDENCE SATISFACTORY TO THE COMPANY, WHICH MAY INCLUDE AN OPINION OF COUNSEL, THAT THE REGISTRATION PROVISIONS OF SUCH ACT HAVE BEEN COMPLIED WITH, THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT SUCH TRANSFER WILL NOT VIOLATE ANY APPLICABLE STATE SECURITIES LAWS.

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2.4

Dissolution of the Seller; Transfer of WFCF Stock Consideration. In accordance with Section 2.3, at some future date, Buyer acknowledges that the Seller may be liquidated and dissolved, at which time, all remaining assets of the Seller, including the WFCF Stock Consideration, shall be distributed to the Seller’s members pursuant to the Seller’s Operating Agreement and any other bonus plans adopted by the Seller; provided however, the Parties acknowledge and agree that the distribution of the WFCF Stock Consideration to Seller’s members shall not occur until the later of each of the following; (i) the first anniversary of the Closing Date, and (ii) the expiration of escrow period set forth in the Escrow Agreement. Subject to the foregoing, upon the dissolution of the Seller and each of the Seller’s members agreeing to be bound by the terms and other transfer restrictions of the Lock-Up Period and other applicable restrictions set forth on the applicable stock certificates, the form and content of which must be reasonably acceptable to the Buyer, and the Buyer hereby consents to the shares of WFCF Stock Consideration being distributed to the Seller’s members. Upon distribution of the shares of WFCF Stock Consideration to the Seller’s members, WFCF shall issue new stock certificates to the Seller’s members pursuant to the stock allocation provided by the Seller. Finally, upon such distribution to Seller’s members and the expiration of all lockup periods attached to the shares of any WFCF Stock Consideration issued under this Agreement, and upon compliance with all applicable requirements set forth in Rule 144 of the Act, state securities laws, the Escrow Agreement, and this Agreement, Buyer shall cause its transfer agent to issue new stock certificates without legends representing shares of the WFCF Stock Consideration so as to permit the holders of such shares to trade the shares under Rule 144 of the Act.

2.5

Allocations. The parties agree that the Purchase Price for the Assets shall be allocated, and the transaction shall be reported on all tax returns (including IRS Form 8594), as provided in Exhibit 2.5, subject to adjustment as set forth in this Agreement.

2.6

Accounts Receivable.

a.

Collection in Ordinary Course. Seller Parties shall cooperate with Buyer’s attempts to collect accounts receivable constituting portions of the Assets, and Seller Parties will receive in trust and promptly pay over to Buyer any proceeds of such accounts receivable that are paid to Seller Parties after the Closing. As between Seller Parties and Buyer, payments by each account debtor will be applied to each customer’s accounts in the chronological order in which they were incurred, with the oldest account being paid first, unless otherwise directed by the customer.

b.

Reimbursement for Aged Accounts. In the event that all accounts receivable assigned to Buyer pursuant to this Agreement (other than those specified as uncollectible on Schedule 6.15) are not collected in full (net of reserves specified in Schedule 6.15) within ninety (90) days after the Closing then, at the request of Buyer, Seller Parties shall promptly reimburse and pay Buyer an amount equal to the assigned accounts receivable not so collected (the “Accounts Receivable Adjustment Amount”) which will be treated as an adjustment to the Purchase Price pursuant to Section 2. Upon reimbursement in full by Seller Parties to Buyer for such uncollected accounts receivable, Buyer shall: (i) re-assign such uncollected accounts receivable to Seller and provide commercially reasonable assistance to Seller with collections of the uncollected accounts receivable to the extent Buyer has been reimbursed therefor, and Seller Parties shall not undertake or pursue any collection activities with respect to such uncollected accounts receivable that are inconsistent with past practices or that are commercially unreasonable; and (ii) thereafter promptly remit to Seller any excess collections received by Buyer from the customer with respect to such re-assigned accounts receivable, unless such collections are otherwise properly directed by the customer to other accounts.

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2.8

Prorations. The amount of the cash payment set forth in Section 2.1 shall be adjusted for prorations as required in this Agreement.

3.

Closing.

3.1

Closing Date. The closing of the sale and purchase of the Assets and related transactions (the “Closing”) shall take place simultaneous with the execution of this Agreement.

3.2

Transactions at Closing. At the Closing:

3.2.1

Seller Parties shall deliver to Buyer a Bill of Sale, Assignment and Assumption Agreement substantially in the form attached hereto as Exhibit 3.2.1.

3.2.2

Seller shall deliver to Buyer all consents, certificates, vehicle titles, and other instruments required to effect the valid transfer of the Assets contemplated hereby, in form and substance reasonably acceptable to Buyer.

3.2.3

Buyer shall deliver to: (a) Seller the cash payment to be paid pursuant to Section 2.1 and the WFCF Stock Consideration except for the Escrow Stock pursuant to Section 2.2; and (b) the Escrow Agent the Escrow Stock to be deposited pursuant to Section 2.2. The parties shall direct such pay-offs and similar disbursements to be made from such cash payments as are required to satisfy liens, terminate leases, or otherwise deliver title to the Assets as required by this Agreement.

3.2.4

Seller Parties shall deliver to Buyer copies of such duly filed UCC termination statements, security agreement terminations, lease terminations, deeds-of-trust, mortgage or other lien satisfactions, pay-off letters, and other documents, as are reasonably required by Buyer to evidence Seller’s clear and marketable title to the Assets.

3.2.5

Seller, Buyer, and Escrow Agent shall execute and deliver the Escrow Agreement substantially in the form attached hereto as Exhibit 3.2.5.

3.2.6

Seller Parties shall deliver to Buyer any and all other documents and instruments required, to effect the conveyance of good and marketable title to the Assets, free and clear of all liens, claims, and encumbrances, including any required subordination, attornment, and non-disturbance agreement and all owner’s affidavits, lien waivers, gap indemnities, FIRPTA non-foreign affidavits, state withholding tax affidavits, Patriot Act affidavits, and other certificates and affidavits required by Buyer’s title insurance company, bank, or other institutional lender, or as otherwise reasonably requested by Buyer, and such other documents as are customary and reasonably required to give effect to the transactions contemplated in this Agreement.

3.2.7

Seller Parties shall deliver to Buyer a closing certificate for Seller substantially in the forms attached hereto as Exhibit 3.2.7.

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3.2.8

Buyer shall deliver to Seller Parties a closing certificate for Buyer substantially in the form attached hereto as Exhibit 3.2.8.

3.2.9

Seller shall deliver to Buyer a copy of all available information and documentation described in Section 1.1, including all current customer lists, data, and contracts; technical documentation, information and know how; market and customer information; licenses and permits; architectural drawings, building plans and specifications, and construction contracts and permits; and general business, tax, personnel, financial and other records and data for the Business, the Assets.

3.2.10

Seller shall deliver Articles of Amendment to Buyer changing the name of Seller to a name that does not include the words “Sow Organic” and is otherwise distinguishable from “Sow Organic”.

3.2.11

Uptrend shall execute and deliver to Buyer the Parent Guaranty substantially in the form attached hereto as Exhibit 3.2.11.

3.2.12

Crosstek shall execute and deliver to Buyer the Parent Guaranty substantially in the form attached hereto as Exhibit 3.2.12.

3.2.13

Seller Parties shall deliver to the Buyer a certificate from the Secretary of State (or other applicable governmental entity) of its jurisdiction of formation and each jurisdiction listed on Schedule 3.2.13 in which the Seller Party is qualified to do business as to such entity’s good standing and payment of all taxes in such jurisdiction.

3.2.14

Seller Parties shall deliver to Buyer Investment Letters establishing each Seller as an “accredited investor” in the form attached hereto as Exhibit 3.2.14.

3.2.15

The parties will take such other actions called for at Closing by this Agreement.

3.3

Conditions of Title.

3.3.1

 Assets. At Closing, Seller shall convey good, indefeasible and marketable title to the Assets by appropriate instruments of conveyance free and clear of all claims, liens, leases and encumbrances except: (a) personal property and ad valorem taxes for the year of Closing (which shall be prorated as provided in this Agreement) which are not yet due; and (b) as provided in Exhibit 3.3.1.

3.4

Transactions Subsequent to Closing.

3.4.1

Uptrend, Uptrend Principal and Buyer shall, prior to the expiration of the current consulting agreement by and between Seller and Uptrend, execute and deliver the Consulting Agreement substantially in the form attached hereto as Exhibit 3.4.1.

3.4.2

Taxes. Seller Parties shall file such tax returns and reports, and pay such taxes respecting the Assets and Business, as are required for periods ending with the Closing.

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3.4.3

Creditors. Seller Parties shall pay and satisfy all of Seller Parties’ valid liabilities and perform and discharge all of Seller Parties’ valid obligations which Seller Parties have incurred in connection with the Assets or the operation of the Business.

3.4.4

Excluded Assets. Seller Parties or their respective designees shall remove the Excluded Assets and Buyer shall cooperate with such removal as provided in Section 1.3.

3.4.5

Trade Name. Seller Parties shall discontinue commercial use of the trade name “Sow Organic” and all derivatives thereof, and shall make same available to Buyer.

3.4.6

Accounts Receivable and Charge-Backs. Seller Parties shall cooperate with Buyer’s attempts to collect accounts receivable constituting portions of the Assets and will promptly pay over to Buyer any proceeds of such accounts receivable that are paid to Seller Parties after the Closing. Seller Parties shall be responsible for, and shall pay all costs and absorb all losses associated with, any and all charge-backs and credits from Seller’s customers for products sold or services performed by Seller prior to Closing subject to any right Seller may have to lawfully challenge or seek verification of charge-backs or credits, provided that Buyer and Seller shall incur no costs or losses as a result of such challenge or verification.

3.4.7

Permits and Licenses. Seller Parties agree, to the extent permitted by law, that Buyer may operate after Closing under the permits or licenses of Seller Parties respecting the Business, provided Buyer indemnifies Seller Parties from loss or damage arising from Buyer’s operations under such permits or licenses. In the event that any such permit or license is held in the name of an officer or agent of Seller Parties, Seller Parties shall use their best efforts to cause such person to cooperate in carrying out the intent of this Section.

3.4.8

Miscellaneous Required Acts. The parties shall take such other actions and comply with other obligations as are required after Closing under this Agreement or under documents ancillary hereto.

3.4.9

Other Actions. Seller Parties and Buyer agree that they will at any time and from time to time do, execute, acknowledge and deliver, or will cause to be done, executed, acknowledged and delivered, all such further acts, assignments, transfers, conveyances and assurances as may be reasonably required by the other party in order to carry out fully and to effectuate the transactions herein contemplated in accordance with the provisions of this Agreement.

4.

Post-Closing Confidentiality and Restrictive Covenants.

4.1

Confidentiality. Each Seller Party acknowledges and agrees that (i) he or it has, or may have, access to Confidential Information and that such Confidential Information does and will constitute valuable, special and unique property of the Buyer from and after the Closing Date and (ii) for a period of five (5) years after the Closing Date, neither he or it nor any of his or its officers, managers, directors, employees, agents, attorneys, accountants, lenders, and other representatives (collectively, “Affiliates”) will, directly or indirectly, disclose, reveal, divulge or communicate to any person or entity other than authorized officers, directors, shareholders and employees of the Buyer any Confidential Information, or use or otherwise exploit any Confidential Information for his or its own benefit or the benefit of anyone other than the Buyer in a manner inconsistent with the business interest of Buyer. The term “Confidential Information” shall mean the following information and items as related to the Business and/or the Assets: (a) corporate information, including plans, strategies, methods, policies, resolutions, negotiations; (b) marketing information, including strategies, trade secrets, methods, customer identities or other information about customers, prospect identities or other information about prospects, or market analyses or projections; (c) financial information, including cost and performance data, price lists; (d) operational and technological information, including plans, specifications, manuals, forms, templates, software, designs, procedures, formulas, discoveries, inventions, improvements, concepts and ideas; and (e) any written document, memorandum, report, correspondence, drawing or other material, or computer software or program, developed or prepared by any employee or agent of either party which incorporates, references or uses any information described above. The term “Confidential Information”, for purposes of this Section 4.1 does not include, and there shall be no obligation hereunder with respect to, information that (a) is generally available to the public or the industries in which the Business is conducted on the date of this Agreement, (b) becomes generally available to the public other than as a result of an impermissible disclosure by the Seller Parties or their Affiliates, (c) the Seller Parties learn from other sources where such sources have not violated their confidentiality obligation to the Buyer, (d) is independently developed by the Seller Parties after the date hereof or (e) is required by a court of competent jurisdiction to be disclosed, provided that the Seller Parties affected give written notice to the Buyer of such disclosure and allow the Buyer to seek a protective order or otherwise limit the disclosure and provided further that such information shall be excluded from the term “Confidential Information” only to the extent required to comply with such court order.

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4.2

Seller Parties Non-Competition Covenants. Each Seller Party agrees that for a period of five (5) years after the Closing Date (the “Non-Compete Period”), it or he will not, directly or indirectly, and it or he will not permit his or its Affiliates to own, manage, operate, control or participate in the ownership, management, operation or control of any business, whether in corporate, proprietorship or partnership form or otherwise, engaged in offering a software or other platform that links organic operations to their certification bodies in the food, livestock and/or agriculture industries anywhere in the United States, other than (a) as an employee of, or consultant to, the Buyer or (b) owning shares of stock of any corporation having a class of equity securities actively traded on a national securities exchange or on the Nasdaq Stock Market which represent, in the aggregate, not more than two percent (2%) of such corporation’s fully-diluted shares.

4.3

Seller Parties Non-Solicitation Covenants. Each Seller Party agrees that for a period of five (5) years after the Closing Date (the “Non-Solicit Period”), it or he will not, directly or indirectly, and it or he will not permit its or his Affiliates to induce, or attempt to induce, the following entities to reduce or cease doing business with the Buyer, or in any way interfere with the relationship between these customers and the Buyer:

(a)

CCOF Certification Services, LLC;

(b)

Oregon Tilth Inc.;

(b)

A Bee Organic, LLC;

(d)

Stellar Certification Services, Inc; and/or

(e)

Demeter Association, Inc.

4.4

Remedies; Reformation. The Parties hereto specifically acknowledge and agree that the remedy at law for any breach of the foregoing covenants in this Section 4 may be inadequate and that the Buyer or the Seller Parties, as applicable, in addition to any other relief available to it, shall be entitled to such temporary and permanent injunctive relief without the necessity of proving actual damage or posting any bond whatsoever. If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 4 is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. In the event that any court will not reform such covenants, then the Parties hereto agree that such provisions shall be reformed to set forth the maximum limitations permitted by applicable Legal Requirements.

5.

 Debts and Liabilities. Except as specifically provided for in Section 2.1.3 herein, Buyer do not assume any, and expressly disclaim all, obligations or liabilities of Seller Parties, contingent or absolute, including liabilities for (i) federal or state income, property, payroll, withholding, sales or other taxes for any period, or (ii) any tort, contract, statutory or other liability resulting from or alleged to have resulted from the business or operations of Seller Parties prior to Closing, except for Buyer’s obligations arising after Closing to perform under those contracts expressly assumed by Buyer hereunder, or (iii) the Excluded Contracts and Excluded Assets. Seller Parties shall be responsible for compliance or non-compliance with any applicable Bulk Sales Act and the payment of any liabilities imposed upon Seller Parties or Buyer under such Act.

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6.

Representations and Warranties of Seller Parties. Seller Parties hereby jointly and severally represent, warrant, and covenant to Buyer as follows:

6.1

Seller Parties’ Status and Standing. Seller is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Mississippi and has all corporate power and authority to own and sell its property and conduct its business as such business is now being conducted. Seller is duly qualified or licensed as a foreign corporation under the laws of all jurisdictions in which the ownership, leasing or use of its assets or the conduct of its business require it to be so qualified or licensed, except where the failure to be so qualified would not have a material adverse effect on the business, financial condition, operations, of Seller. Seller has no subsidiaries and does not own equity interests in any entity.

Crosstek and Uptrend are the holders of record and beneficially of all of the outstanding membership interests of Seller. Crosstek owns a 92.083% interest in Seller, and Uptrend owns a 7.9167% interest in Seller. Uptrend Principal, Brandon Orther, owns 100% of Uptrend. Crosstek Principal, Delta Engineering Solutions, LLC, owns 100% of Crosstek. Delta Principals, Seth Broadfoot, Matthew F. Bell and Lydia Henshaw, respectively own 57%, 25% and 18% of Crosstek Principal.

6.2

Authorization and Approval of Agreement. Each of Seller Parties has taken all action necessary to authorize the execution of this Agreement and the consummation of the transactions contemplated hereby. All shareholders of Seller have been informed of, and consented to, the terms of all of the transactions contemplated hereby. Each of the representatives of Seller Parties signing this Agreement has full power and authority to execute this Agreement in the indicated capacity and to consummate the transactions contemplated hereby. When executed and delivered by Seller Parties, this Agreement and all documents contemplated hereby shall constitute valid and binding obligations of Seller Parties enforceable in accordance with their terms and conditions. Neither the execution nor the delivery of this Agreement nor the consummation of the transactions contemplated hereby, nor compliance with any of the terms and conditions hereof, will result in the breach by any of Seller Parties of any of the terms, conditions or provisions of any organizational or constitutive document, agreement order, judgment, or instrument to which any of Seller Parties is a party, or by which they are bound, or constitute a default of such organizational or constitutive document, agreement order, judgment, or instrument.

6.3

Compliance with Laws. Each of Seller Parties is in compliance with all laws, ordinances, and regulations that govern such Seller Party’s ownership and use of its respective portion of the Assets the violation of which would have an adverse effect on the Assets or Business. The Assets and Business comply with applicable environmental, zoning, health, OSHA, Americans with Disabilities Act (“ADA”), consumer products and fire safety regulations. Seller Parties have all licenses, permits, certificates, approvals, and other authorizations which are required in connection with their ownership, occupancy, and use of the Assets and the operation of the Business, which items are listed in Schedule 1.1.7, and Seller Parties will transfer to Buyer all such licenses, permits, certificates, approvals, and other authorizations as permitted by applicable authorities. No notice has been issued and, to the knowledge of Seller Parties, no investigation or review is pending or threatened by any governmental entity (a) with respect to any alleged violation by Seller Parties of any law, ordinance, regulation, order, policy, or guideline of any governmental entity, or (b) with respect to any alleged failure to have any permit, certificate, license, approval or other authorization required in connection with ownership, occupancy, or use of the Assets or the operation of the Business.

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6.4

Title to Properties. At Closing, Seller will have, and shall be entitled convey to Buyer, good, indefeasible, marketable and insurable (at standard title insurance rates) title to the Assets as required in Section 3.3. Prior to Closing, Seller Parties shall have delivered to Buyer a complete and accurate list of all security interests, liens, pledges, leases, and rental agreements to be paid, discharged, satisfied, released, and terminated as of Closing. At Closing, Seller will not be indebted to any contractor, laborer, mechanic, materialman or any other person or entity for work, labor, materials or services in connection with the Assets for which such person or entity could claim a lien on the Assets; and Buyer shall be entitled to possession of the Assets free and clear of any and all security interests, liens, pledges, leases or rental agreements, claims of possession, or claims under the Bulk Transfer provisions of the Uniform Commercial Code of any applicable jurisdiction by any other person or entity. No officer, director or shareholder or any relative of any such officer, director, or shareholder is a party to any material agreement with Seller or owns a material interest (except in the capacity as a shareholder, director or employee) in any property, real, personal or mixed, tangible or intangible, which is used in the Business. 

6.5

Litigation. Except as described in Schedule 6.5, there are no judicial, arbitration, or administrative actions or other legal proceedings pending, or to the best of Seller Parties’ knowledge, threatened that question the validity of this Agreement or any transaction contemplated hereby or that relate to the Assets or to the conduct of the Business, including condemnation or bankruptcy proceedings. Except as described in Schedule 6.5, there is no material judgment, decree, injunction, ruling or order of any court, governmental department, commission, agent or instrumentality or arbitrator outstanding against any of Seller Parties and none of them is bound by any material judgment, decree, injunction, ruling or order of any court, governmental department, commission, agency or instrumentality, arbitrator or any other person.

6.6

 Consents. No consent of any third party is required in connection with Seller Parties’ transfer and assignment of the Assets to Buyer hereunder, except as set forth in Schedule 6.6, and to the extent so required, such consents shall be delivered to Buyer at Closing, if any.

6.7

 Insurance Coverage. Crosstek maintains policies of insurance, listing Seller as an insured, covering the Assets in amounts and against such losses and risks as are customary for operations such as the Business in its present usage, as well as general public liability coverage in the amount of $1,000,000 per occurrence, and same will be outstanding and duly in force through Closing. For a period of one (1) year after Closing, Seller Parties shall maintain a comprehensive general liability policy for discontinued operations in the amount of $1,000,000 per occurrence, and Buyer shall be listed as additional insureds under such policy.

6.8

 Normal Course. Seller shall have operated the Assets in the normal and ordinary course of business since at least April 1, 2018, and shall have paid or caused to be paid promptly when due taxes, charges, and assessments imposed upon or assessed against the Assets prior to Closing. Seller Parties shall have exercised their best efforts to preserve intact the business organization of the Business and the goodwill of the employees, customers, suppliers and others having business relationships with the Business through Closing.

6.9

Financial Statements. The financial statements attached as Schedule 6.9 (collectively the “Financial Statements”) consist of the internal balance sheet and income statement of Seller for the 15-month accounting period ending March 31, 2018. All the Financial Statements are true and correct and present fairly in all material respects the financial condition and results of operations of Seller as at their respective dates, including all material liabilities, contingent or otherwise, and the results of operations of Seller for such periods in accordance with generally accepted accounting principles consistently applied during all such periods, except as otherwise stated in Schedule 6.9. All books and records of Seller upon which the Financial Statements were based have been maintained in the normal course of business and reflect in all material respects the transactions and results of operations of Seller in accordance with generally accepted accounting principles consistently applied during all such periods. There has been no material change in the accounting methods or practices followed by Seller or in the depreciation, amortization, or inventory valuation policies used or adopted by Seller since fiscal year 2017. 

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6.10

No Change or Undisclosed Liabilities.

(a)

Between the date of the Financial Statements and Closing, there has been no material adverse change in the condition (financial or otherwise) of Seller, and Seller has incurred no debts, liabilities, or obligations, whether accrued, absolute, contingent, or otherwise and whether due or to become due, except in the ordinary course of business or as disclosed in Schedule 6.10.

(b)

With the exception of the liabilities set forth on the Financial Statements and specifically referenced as such on the Schedules hereto, and the liabilities incurred in the ordinary course of the business of Seller since the date of the latest of the Financial Statements or set forth on Schedule 6.10, Seller does not have any liabilities of any nature, whether absolute, accrued, contingent or otherwise or whether due or to become due. 

6.11

Creditors, Solvency, and Bankruptcy. Neither any of Seller Parties, nor the shareholders or members of any of Seller Parties, has any intent to hinder, delay, defraud, or avoid any obligation to any past, present or future creditor or shareholder in the transactions contemplated by this Agreement. Neither any of Seller Parties, nor the shareholders or members of any of Seller Parties, is insolvent as of Closing or will be rendered insolvent as a result of the transactions contemplated hereby. Neither any of Seller Parties, nor the shareholders or members of any of Seller Parties, has initiated or intends to initiate with respect to itself as debtor, has had initiated or expects to have initiated against it as debtor, any proceeding under federal or any state’s bankruptcy, insolvency or similar laws. At the conclusion of the transactions contemplated in this Agreement, Seller Parties shall have sufficient resources to satisfy the claims of all of Seller Parties’ creditors as required by Section 3.4.3.

6.12

Labor and Employee Benefit Matters. Attached as Schedule 6.12(A) is a true and complete list as of the date hereof, showing the names of all employees of Seller, their weekly salary or hourly rate of compensation, their position entitling them to such compensation, identification of any employment contract with such employee, and designating any such employee about whom Seller have any written notice or actual knowledge of any existing or past occupational disease symptom. Seller is not a party to any agreement with any labor organization. Seller sponsors no employee benefit plan and have not incurred any accumulated funding deficiency within the meaning of the Employee Retirement Income Security Act of 1974 or any liability to the Pension Benefit Guaranty Corporation established under such Act, nor has any tax been assessed against them for the alleged violation of the Internal Revenue Code with respect to the Business or their operations. Buyer shall incur no liability whatsoever in connection with any employee benefit plan of Seller. Seller shall have complied with all continuation of health care and similar requirements (i.e., COBRA) of the Internal Revenue Code and the Employee Retirement Income Security Act of 1974, as amended, with respect to all current and former employees of the Business. No former employee (or dependent) of Seller is (a) currently exercising COBRA rights for continuation health care coverage, or (b) has claimed or will be eligible to claim retiree health care or similar benefits. Seller has not enrolled any individuals under this retirement, group medical or other benefit plans who were not eligible for benefits or coverage under such plans. Seller shall have complied with all notice and other requirements of the Federal WARN Act or any similar state law with respect to all current and former employees.

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6.13 

Workers’ Compensation. There are no workers’ compensation or similar claims or actions pending or, to the best of Seller Parties’ knowledge, threatened, and Seller Parties do not know of facts which would make such claims likely, by past or present employees of Seller Parties except for those claims listed on Schedule 6.5 for which Seller Parties shall remain responsible. For purposes of this Section, Schedule 6.5 may be supplemented by Seller Parties in writing to Buyer prior to Closing respecting only such claims filed after the date hereof and prior to Closing.

6.14

Status of Assets. The Assets sold hereunder constitute all of the assets of the Business (except the Excluded Assets) and include all property, rights, and intangibles necessary for Buyer to operate after Closing a business substantially similar to the Business as heretofore conducted. The operation of the Business is not dependent on services, rights, or assets which are shared with or provided by affiliates of the Seller Parties. All buildings, improvements (including tank fields), systems, machinery, equipment, vehicles and other tangible property which are portions of the Assets are accurately described in the Schedules attached hereto, and are generally sound, in good repair, may be safely operated within all applicable standards or regulations in their present conditions, and are in merchantable condition, except as set forth on Schedule 6.14. Seller Parties have not received any uncured citation, variance, or other notice to the effect that their facilities do not comply with applicable OSHA, ADA, or other governmental laws or regulations. To the best of Seller Parties’ knowledge, there are no material capital expenditures which Seller Parties now anticipate would be required to be made in connection with the Business as now conducted, or the Assets as presently used in the Business, in order to comply with any existing laws, regulations or other governmental requirements applicable to the Business as it is presently conducted, including ADA and requirements relating to occupational health and safety and protection of the environment.

6.15 

Contracts and Accounts. All of Seller’s Accounts, Customer Contracts, Vendor Contracts, Operating Contracts, and other contracts and warranty rights as of the date hereof are accurately listed on Schedules 1.1.1, 1.1.2, and 1.1.3. The list of customer contracts, list of material contracts, and accounts receivable listing, dated as of Closing as provided to Buyer, are materially accurate and reflect valid, binding, and enforceable rights of the Business, which shall be lawfully transferred to Buyer hereunder. All contracts, commitments, accounts receivable, and similar rights which are portions of the Assets (including the Customer Contracts) are valid, binding, enforceable in accordance with their terms; and there exists no uncured default nor event which upon the passage of time or the giving of notice would constitute a default thereunder by any party thereto. All of such accounts receivable arose from bona fide sales of products and services to third parties in the ordinary course of the Business pursuant to, and consistent with, the applicable customer contracts and all legal requirements, and are collectible in the ordinary course of business, except as provided in Schedule 6.15. Seller has no contracts with the federal government or any subdivision thereof which are subject to Executive Order 11246 (1965) or any similar or succeeding law, regulation, order, or standard relating to “affirmative action” or similar programs or requirements relating to procurement or sales practices.

6.16 

Taxes and Tax Returns. Seller Parties have filed through the date hereof, and shall file through the date of Closing, all income, franchise, property, ad valorem, sales, payroll, and other tax returns and other reports which they are required by law to file and have paid all taxes which have or will become due pursuant to applicable law, such returns, or any assessment received by them. All such tax returns accurately reflected in all material respects the taxes due and conformed to applicable law. None of Seller Parties has received any notice of a proposed assessment of a tax. The federal income tax returns of Seller Parties have not been examined or audited by the Internal Revenue Service (the “IRS”) for any year since 2011. None of Seller Parties (a) has filed any consent or agreement under Section 341(f) of the Internal Revenue Code; (b) executed any waiver of statutes of limitation for federal income or other tax liability; (c) joined in the filing of consolidated returns for any year; or (d) been required to file a consolidated return in any year.

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6.17

Patents, Copyrights, Trademarks, Etc. Set forth in Schedule 6.17 is a list and brief description or identification of all patents, patents pending, patent applications, patent assignments, copyrights, trademarks, trade names, trade secrets, and other intellectual property and licenses of same (including the Intellectual Property) which are currently used in the Business or owned by or registered in the name of Seller or in which Seller has any rights. Seller owns or possesses adequate title, license, or other right to use all patents, patents pending, patent applications, patent assignments, copyrights, trademarks, trade names, trade secrets, know-how, inventions, designs, specifications, formulae, processes, and other intellectual property (including the Intellectual Property) necessary to conduct the Business as now conducted without interference with or infringement on the rights of others. All such title, licenses, or other rights are transferable by Seller, and Seller will transfer such title, license, or other right to Buyer in connection herewith. To the best of Seller Parties’ knowledge, no one is currently infringing on or interfering with, or has in the past infringed on or interfered with, the rights of Seller with respect to such intellectual property to be transferred hereunder.

6.18 

Status of Inventory. Seller’s inventory is in good and merchantable condition, generally complies with any warranty customarily given to customers, and generally meets with vendors’ and customers’ product and use specifications. All work-in-process of the Business at the time of Closing may be processed, and is capable of completion, in the ordinary course of business without undue effort or expense.

6.19 

Environmental Matters. There are, except as described on Schedule 6.19, no conditions existing respecting the Business or Assets: (a) which constitute an unsafe or unlawful environmental condition; (b) which would constitute a violation of any environmental protection, antipollution, health, safety, nuisance, or related laws (whether common law, statutory law, ordinance, order, decree, rule or regulation, including the federal Comprehensive Environmental Response, Compensation, and Liability Act, Hazardous Materials Transportation Act, Resource Conservation and Recovery Act, Federal Water Pollution Control Act, Clean Air Act, Clean Water Act, Toxic Substance Control Act, or Safe Drinking Water Act, the amendments thereto, and all rules, regulations, and publications promulgated pursuant thereto); (c) which involved the use, production, or possession and/or the presence or occurrence at, or runoff, drainage, removal, emission, leaching, disposal, or release from the Assets of hazardous or regulated sludge, industrial waste, asbestos, PCBs, chemicals, chemical or fluid or solid containers, air-borne particulate pollutants, gases, fumes, or any other hazardous, dangerous, or regulated substances or pollutants emitting from or relating to the Assets and operations thereof, any of which are in violation of applicable laws, rules, regulations, ordinances, orders or decrees, constitute an unsafe condition, require present or future (based upon current law) remedial actions, or require the expenditure of material sums in order to comply with laws, rules, regulations, ordinances, orders, or decrees in the event of demolition or remodeling of existing facilities or improvements; or (d) which presently constitute, or which (to the best of Seller Parties’ knowledge) upon further inspection or determination may constitute, a “loss contingency” as defined by the Statement of Financial Accounting Standards No. 5 issued by the Financial Accounting Standards Board.

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6.20

Brokerage. None of Seller Parties has dealt with an investment banker, broker or other agent in connection with this transaction and, to the best of Seller Parties’ knowledge, no brokerage commission or finders fee nor claim therefor shall accrue or become payable to any person or entity respecting this transaction.

6.21

No Adverse Conditions. Except as disclosed in Exhibits 3.3.1 and Schedules 6.5, 6.10, and 6.14, there are no adverse conditions or circumstances (other than matters of a general economic or political nature which do not affect the Business uniquely) that may interfere with Buyer’s use and enjoyment of, or opportunity to resell or encumber, any of the Assets that might otherwise impede the Buyer’s ability to operate a business substantially similar to the Business utilizing the Assets, or that would have a material adverse effect on the financial condition, properties, liabilities, operations, of the Business.

6.22

Disclosures. No representation or warranty by Seller Parties contained in this Agreement nor any statement or certificate furnished or to be furnished by or on behalf of any of Seller Parties to Buyer or its representatives in connection herewith or pursuant hereto contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact required to make the statements contained herein or therein not misleading.

7.

Representations and Warranties of Buyer. Buyer hereby represents, warrants and covenants to Seller Parties as follows:

7.1

Buyer’s Status and Standing. Buyer is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Colorado, and has all company power and authority to own and buy its property and conduct its business as such business is now being conducted and is anticipated to be conducted as a result of this Agreement. 

7.2

Authorization and Approval of Agreement. Buyer has taken all action necessary to approve and authorize the execution of this Agreement and consummation of the transactions contemplated hereby. Each of the representatives of Buyer signing this Agreement has full power and authority to execute this Agreement in the indicated capacity and to consummate the transactions contemplated hereby. When executed and delivered by Buyer, this Agreement and all documents contemplated hereby will constitute valid and binding obligations of Buyer, enforceable in accordance with their terms and conditions. Neither the execution nor the delivery of this Agreement nor the consummation of the transactions contemplated hereby, nor compliance with any of the terms and conditions hereof, will result in the breach by Buyer of any of the terms, conditions or provisions of any organizational or constitutive document, agreement, order, judgment, or instrument to which Buyer are a party, or by which it is bound, or constitute a default of such organizational or constitutive document, agreement, order, judgment, or instrument.

7.3 

Consents. No consent of any third party is required in connection with Buyer’s acquisition of the Assets hereunder, except as set forth in Exhibit 7.3 attached hereto, and to the extent so required, such consents shall be delivered to Seller Parties at Closing, if any.

7.4

Litigation. There are no judicial, arbitration, or administrative actions or other legal proceedings pending, or to the best of Buyer’s knowledge, threatened that question the validity of this Agreement or any transaction contemplated hereby, which if adversely determined would have a material adverse effect upon Buyer’s ability to enter into this Agreement or perform its obligations hereunder. There is no material judgment, decree, injunction, ruling or order of any court, governmental department, commission, agent or instrumentality or arbitrator outstanding against Buyer and it is not bound by any material judgment, decree, injunction, ruling or order of any court, governmental department, commission, agency or instrumentality, arbitrator or any other person.

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7.5

Brokerage. Buyer has not dealt with any investment banker, broker, or agent in connection with this transaction and, to the best of Buyer’s knowledge, no brokerage commission or finders fee nor claim therefor shall accrue or become payable to any person or entity respecting this transaction.

8.

Cost and Expenses.

8.1

Transactional Costs. Seller Parties and Buyer shall be responsible for their respective attorneys’ fees, accountants’ fees, experts’ fees, and other expenses incurred by them in connection with the negotiations and Closing of this transaction; provided however, that in the event litigation is commenced to enforce any rights under this Agreement or to pursue any other remedy available to any party, all legal expense or other direct costs of litigation of the prevailing party shall be paid by the non-prevailing party. Any environmental assessment, title examination, title insurance, or survey desired by Buyer shall be provided at Buyer’s expense.

8.2

Documentary Stamps. Seller Parties shall pay all documentary stamp taxes or transfer taxes which become due through the execution, delivery and/or recordation of any instruments of conveyance required to be executed or delivered by Seller Parties under this Agreement.

8.3

Proration of Taxes and Charges. All property taxes, all public utility charges, rents, and like charges (which are not terminated and paid as of Closing by Seller Parties), if any, relating to the property comprising the Assets shall be prorated as of the Closing in accordance with regular accounting procedure. Settlement at Closing will be made on proration of estimates of such taxes and charges. If, as the result of such proration at Closing, a net balance is owed by Seller to Buyer, or by Buyer to Seller Parties, the amount thereof shall be paid to such party at or within thirty (30) days after receipt of the next succeeding payment notice. Seller shall provide appropriate affidavits as to withholding of state taxes on the proceeds of sale of the Assets, or such taxes shall be withheld as required by law.

8.4

Sales Taxes. Seller Parties shall be responsible for, and shall pay, all sales taxes, if any, applicable to the sale of the Assets (including any sales or excise tax on vehicles) as called for herein.

9.

Indemnity Rights.

9.1

Indemnity Damages. For purposes hereof, the term “Indemnity Damages” shall mean all losses, damages, non-speculative lost profits, liabilities, claims, suits, demands, penalties, assessments, remedial costs, fines, obligations, causes of action, expenses, or costs (including litigation expenses and reasonable attorneys fees) with respect to which an indemnification right applies hereunder.

9.2

General Indemnity. Seller Parties shall jointly and severally indemnify and hold Buyer and Buyer’s officers, directors, partners, shareholders, members, managers, and agents harmless, and Buyer shall indemnify and hold Seller Parties and their respective officers, directors, partners, shareholders, members, managers, and agents harmless, from any and all Indemnity Damages asserted against or incurred by the indemnified party as a result of any breach of a representation, warranty, covenant, or agreement, made by such indemnifying party herein or in agreements to be delivered at Closing hereunder.

9.3 

Special Indemnities. Seller Parties shall jointly and severally indemnify and hold Buyer and Buyer’s respective officers, directors, partners, shareholders, members, managers, and agents harmless from any and all Indemnity Damages asserted against or incurred by the indemnified party:

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9.3.1

Environmental. As a result of any environmental contamination or the remediation thereof arising from the Business prior to Closing.

9.3.2

Products Liability. As a result of any products liability or similar claim arising from products or services of the Business manufactured, produced, served, delivered, or sold, or any services performed, prior to Closing.

9.3.3

Bulk Sales. Under the Uniform Commercial Code - Bulk Transfers Act or similar law of any applicable jurisdiction relating in any way to this Agreement.

9.3.4

Worker’s Compensation. As a result of any Worker’s Compensation award or settlement with respect to any claim of an employee of Seller arising from an accident or work-related injury occurring prior to Closing.

9.3.5

Litigation. As a result of any lawsuit or similar claim against one or both Seller Parties arising from events or conditions prior to Closing, including all claims and litigation described in Schedule 6.5.

9.3.6

Title. As a result of any challenge to or defect in Seller’s title to the Assets.

9.3.7

COBRA. Under any continuation health care and similar requirements (i.e., COBRA) of the Internal Revenue Code and the Employee Retirement Income Security Act of 1974, as amended, with respect to current or former employees of the Business, or their dependents.

9.3.8 

Taxes. As a result of any taxes imposed on the Assets or Business for periods prior to completion of Closing, or Seller for any period.

9.3.9

ERISA. As a result of any liability imposed on Buyer for any employee benefit plan of Seller arising from actions, omissions, or conditions prior to the completion of Closing.

9.4

Set Off and Recoupment. In addition to any other available remedies, Buyer shall have the right of set off and recoupment against the Escrow Stock pursuant to the terms of the Escrow Agreement, and to the extent that the Escrow Stock is insufficient or unavailable, against other amounts coming due to any of Seller Parties under this Agreement or any other instruments ancillary hereto in the event that any of Seller Parties breaches this Agreement or any right of indemnification arises in favor of either Buyer under this Agreement. The exercise of such set off or recoupment by Buyer in good faith, whether or not ultimately determined to be valid, will not constitute an event of default under this Agreement or any other instrument ancillary hereto. Seller Parties retain the right to contest any such set off or recoupment in an action to collect any amounts due Seller Parties under this Agreement or such other ancillary instruments. Neither the exercise of nor the failure to exercise such right of set off or recoupment shall constitute an election of remedies or impair the availability of other remedies. The inclusion of this special set off or recoupment provision shall not effect the availability, if any, of rights of set off or recoupment arising at law or in equity.

9.5

Provisions of General Application. With respect to any right of indemnification arising under this Agreement, the following provisions shall apply:

9.5.1

Procedures. The indemnified party and the indemnifying party agree to cooperate in the defense of any third party claim or action subject to this Section 9, to permit the cooperation and participation of the other parties in any such claim or action, and to promptly notify the other parties of the occurrence of any indemnified event or any material developments or amounts due respecting any indemnification event.

16

9.5.2

No Implications. Neither the rights of any party to indemnification from another party nor the obligations of any party to indemnify another party, under this Agreement shall in any way imply or create, and each party specifically disclaims, any responsibility whatsoever by such party for any other party’s liabilities to any other person or entity or governmental body.

9.5.3

Settlement. No settlement of an action covered by this Section 9 shall be made without the prior written consent of each party to this Agreement, which consent shall not be unreasonably withheld; provided however, that anything in this Agreement to the contrary notwithstanding, (a) if there is a reasonable probability that a claim may materially and adversely affect an indemnifying party other than as a result of money damages or other money payments, the indemnifying party shall have the right, at its own cost and expense, to compromise or settle such claim in any reasonable manner, but (b) the indemnifying party shall not, without prior written consent of the indemnified party, settle or compromise any claim or consent to the entry of any judgment which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the indemnified party a release from all liability in respect of such claim. In any event, all parties hereto shall retain the right to participate in the prosecution and/or defense of any such actions, and the party prosecuting and/or defending such action shall act reasonably and in accordance with good business judgment giving due recognition to the interests of the other parties to this Agreement.

9.5.4

Insurance. In the event that insurance proceeds are paid to the indemnified party respecting an event to which an indemnification right applies hereunder, such indemnification right shall apply only to the extent that the amount of loss, claim, or other liabilities, etc. indemnified against exceeds such insurance proceeds actually paid to the indemnified Party; provided however, that: (a) this Section shall not apply to the extent it conflicts with, is prohibited by, or would invalidate, any such insurance policy; and (b) collection of such insurance proceeds shall not be a condition precedent to asserting or collecting such indemnification.

10.

Miscellaneous.

10.1

Entire Agreement. This Agreement, including the Exhibits and Schedules hereto (which are incorporated herein by reference), embodies the entire Agreement and understanding between the Parties hereto as to the matters herein addressed and supersedes all prior agreements and understandings relating to the subject matter hereof.

10.2

No Waiver. No failure to exercise, and no delay in exercising any right, power or remedy hereunder or under any document delivered pursuant hereto shall impair any right, power or remedy which the parties hereto may have, nor shall any such delay be construed to be a waiver of any of such rights, powers or remedies, or an acquiescence in any breach or default under this Agreement, nor shall any waiver of any breach or default of any party hereunder be deemed a waiver of any default or breach subsequently occurring.

10.3

Survival. All representations, warranties, covenants, and obligations in this Agreement, the Schedules, the certificates delivered pursuant to this Agreement, and any other document delivered pursuant to this Agreement will survive the Closing. The right to indemnification, payment of Indemnity Damages, or other remedy based on such representations, warranties, covenants, and obligations will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) by Buyer at any time, whether before or after the execution and delivery of this Agreement or the Closing, with respect to the accuracy or inaccuracy of or compliance with, any such representations, warranties, covenants, or obligations. The waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification, payment of Indemnity Damages, or other remedy based on such representations, warranties, covenants, and obligations.

17

10.4

Amendment. No provision of this Agreement or any document or instrument relating to the Agreement, may be amended, modified, supplemented, changed, waived, discharged, or terminated, unless the parties hereto consent thereto in writing.

10.5 

Notices. All notices, requests, approvals, consents, demands and other communication provides for or permitted hereunder shall be in writing, signed by an authorized representative of the sender and addressed to the respective party at the address set forth below:

Buyer:	Where Food Comes From, Inc.
	202 6th Street Suite 400
	Castle Rock, CO 80104
	ATTN: Dannette Henning
Copy To:	NEXSEN PRUET, PLLC
	27 W. Trade Street, Suite 1550
	Charlotte, NC 28202
	ATTN: Chris Kouri
	ckouri@nexsenpruet.com
Seller Parties:	Sow Organic, LLC
	ATTN:
Copy To:
	ATTN:
	Crosstek Solutions, LLC
	ATTN:
	Uptrend Techologies, Inc.
	ATTN:
	Delta Engineering Solutions, LLC
	ATTN:

18

Seth Broadfoot:

133 Kensington Drive

Florence, AL 35633  

Matthew F. Bell:

103 Twin Creeks Drive

Vicksburg, MS 39180

Lydia Henshaw

514 Madison Avenue

Covington, KY 41011

Brandon Orther

406 Borden Circle

San Marcos, CA 92069

A party hereto may change its respective address by notice in writing given to the other parties to this Agreement. Any notice, request, approval, consent, demand or other communication shall be effective upon the first to occur of the following: (i) when delivered to the party to whom such notice, request, approval, consent, demand or other communication is being given, or (ii) three (3) business days after being duly deposited in the U.S. mail, certified, return receipt requested.

10.6

Severability of Provisions. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

10.7

Successors and Assigns. This Agreement shall be binding upon the parties, and their respective successors and assigns, and shall inure to the benefit of the parties and their respective successors and permitted assigns.

10.8

Execution. This instrument may be executed in any number of counterparts and signature pages may be separately signed and attached hereto to create a fully executed original instrument. Signature pages may be delivered with original signatures or by photostatic reproduction, telephonic facsimile transmission, electronic transmission or other similar means whereby each original signature has been reproduced, and all reproduced signatures shall be deemed “electronic signatures” and equivalent to an original signature for all purposes. Delivery of a signature page in any such manner shall evidence the agreement of each submitting party to be fully bound by all terms and conditions of this instrument when signature pages for all parties have been delivered for attachment to this instrument

10.9 

Choice of Law. All questions concerning the construction, validity and interpretation of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of Colorado without giving effect to any choice of law or conflict of law provision (whether of the State of Colorado or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Colorado.

10.10

Jurisdiction. The parties hereto consent to jurisdiction (regarding any disputes arising hereunder), subject to proper service of process, in the state and federal courts for Douglas County in the State of Colorado.

19

10.11

Usage. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Terms such as “hereof”, “hereunder”, “hereto”, “herein”, and words of similar import shall refer to this Agreement in its entirety and all references to “Articles”, “Paragraphs”, “Sections”, and similar cross references shall refer to specified portions of this Agreement, unless the context clearly requires otherwise. The term “including” shall also have the same meaning as “including without limitation” and “including but not limited to”.

10.12

Further Instruments and Acts. From time to time at a party’s request, whether at or after Closing and without further consideration, the other party(ies) shall execute and deliver such further instruments of conveyance, transfer and assignment and upon reimbursement for actual reasonable out-of-pocket expenses take such other action as the requesting party reasonably may require to more effectively convey and transfer to the requesting party the properties to be conveyed, transferred and assigned hereunder, and, if necessary, will assist the requesting party in the collection or reduction to possession of such property. In addition, each party agrees to provide reasonable access to records respecting the Business as are requested by the other party(ies) for proper purpose with good cause shown (subject to appropriate confidentiality agreements to be negotiated at such time) and agree to reasonably cooperate in resolving any matters resulting from the transactions contemplated hereby.

10.13

Assignment. This Agreement is not assignable by any party without the prior written consent of the other party(ies) hereto, which shall not be unreasonably withheld, except Buyer shall have the right to assign their rights under this Agreement in whole or in part to a corporation or partnership which owns or controls, is owned or controlled by, or is under substantially common ownership or control with, Buyer, in which case such assignee(s) will succeed to all rights and liabilities of the assigning Buyer hereunder, except that the assigning Buyer shall not be relieved of liability hereunder.

10.14

Remedies. Upon any breach or other violation of this Agreement, the parties hereto shall be entitled to exercise any and all rights and remedies contained herein or now or hereinafter existing and available at law, in equity, by statute, or otherwise. No right or remedy herein conferred upon a party is intended to be exclusive of any other right or remedy contained herein, and every such right or remedy shall be cumulative and shall be in addition to every other right or remedy contained herein or now or hereafter existing and available at law, in equity, by statute, or otherwise.

[Signature Page Attached]

20

IN WITNESS WHEREOF, the parties have executed and delivered this Asset Purchase Agreement to be legally binding and effective as of the date first above written.

BUYER:
Where Food Comes From, Inc.
By:	/s/ John Saunders
	Print Name:	John Saunders
	Title:	CEO

SELLER PARTIES:
SELLER:
Sow Organic, LLC
By:	/s/ Seth Broadfoot
	Print Name:	Seth Broadfoot
	Title:	Manager

SELLER PRINCIPALS:
Crosstek Solutions, LLC
By:	/s/ Seth Broadfoot
	Print Name:	Seth Broadfoot
	Title:	Manager

Uptrend Technologies, Inc.
By:	/s/ Brandon Orther
	Print Name:	Brandon Orther
	Title:	President

Delta Engineering Solutions, LLC
By:	/s/ Seth Broadfoot
	Print Name:	Seth Broadfoot
	Title:	Manager

21

INDIVIDUAL SELLER PRINCIPALS:
/s/ Seth Broadfoot
	Print Name:	Seth Broadfoot

/s/ Matthenw Bell
	Print Name:	Matthenw Bell

/s/ Lydia Henshaw
	Print Name:	Lydia Henshaw

/s/ Brandon Orther
	Print Name:	Brandon Orther

22

TABLE OF DEFINED TERMS

“Accounts” – see Section 1.1.2.

“Accounts Receivable Adjustment Amount” – see Section 2.6(b).

“ADA” – see Section 6.3.

“Affiliates” – see Section 4.1

“Assets” – see Section 1.1.

“Assumed Contracts” – see Section 1.4.

“Assumed Liabilities” – see Section 2.3.

“Business” – see Preliminary Statement.

“Buyer” – see introductory paragraph.

“Closing” – see Section 3.1.

“Confidential Information” – see Section 4.1

“Customer Contracts” – see Section 1.1.3.

“Escrow Agent” – see Section 2.1.

“Escrow Agreement” – see Section 2.1.

“Escrow Stock” – see Section 2.2.

“Effective Time” – see Section 3.1.

“Excluded Assets” – see Section 1.3.

“Financial Statements” – see Section 6.9.

23

“GAAP” – see Section 2.5(a).

“Indemnity Damages” – see Section 9.1.

“Intellectual Property” – see Section 1.1.7.

“Inventory” – see Section 1.1.4.

“IRS” – see Section 6.16.

“Marketing Materials” – see Section 1.1.8.

“Operating Contracts” – see Section 1.1.6.

“Permits” – see Section 1.1.9.

“Purchase Price” – see Section 2.

“Seller” – see introductory paragraph.

“WFCF Stock Consideration” – see Section 2.2.

“Seller Parties” – see introductory paragraph.

“Seller Principals” – see introductory paragraph.

24

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: August 14, 2018

/s/ John Saunders

John Saunders, Chief Executive Officer

 36

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: August 14, 2018

/s/ Dannette Henning

Dannette Henning, Chief Financial Officer

 37

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 June 30, 2018, 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: August 14, 2018

/s/ John Saunders

John Saunders, Chief Executive Officer

 38

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 June 30, 2018, 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: August 14, 2018

/s/ Dannette Henning

Dannette Henning, Chief Financial Officer

 39

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Aug. 08, 2018
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	Jun. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity's Reporting Status Current	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		24,805,169
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2018

XML

Consolidated Balance Sheets (Unaudited) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 3,061,152	$ 2,705,778
Accounts receivable, net of allowance	1,979,029	1,898,749
Short-term investments	749,110	743,206
Prepaid expenses and other current assets	242,306	245,073
Total current assets	6,031,597	5,592,806
Property and equipment, net	1,513,682	1,068,087
Intangible and other assets, net	3,754,305	3,948,530
Goodwill	2,624,690	2,652,250
Deferred tax assets, net	114,622	79,622
Total assets	14,038,896	13,341,295
Current liabilities:
Accounts payable	539,563	457,307
Accrued expenses and other current liabilities	664,328	555,129
Customer deposits and deferred revenue	1,135,034	851,185
Current portion of notes payable	(9,803)	(9,446)
Current portion of capital lease obligations	7,627	7,527
Total current liabilities	2,356,355	1,880,594
Notes payable, net of current portion	37,431	42,452
Capital lease obligations, net of current portion	21,580	25,419
Lease incentive obligation	141,771	147,189
Total liabilities	2,557,137	2,095,654
Commitments and contingencies (Note 9)
Contingently redeemable non-controlling interest	1,548,195	1,574,765
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; 25,190,338 (2018) and 24,972,684 (2017) shares issued, and 24,805,169 (2018) and 24,652,895 (2017) shares outstanding	25,190	24,972
Additional paid-in-capital	10,544,034	10,353,037
Treasury stock of 385,169 (2018) and 319,789 (2017) shares	(865,380)	(724,530)
Retained earnings	229,720	17,397
Total equity	9,933,564	9,670,876
Total liabilities and stockholders' equity	$ 14,038,896	$ 13,341,295

XML

Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Jun. 30, 2018	Dec. 31, 2017
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	95,000,000	95,000,000
Common stock, shares issued	25,190,338	24,972,684
Common stock, shares outstanding	24,805,169	24,652,895
Treasury stock, shares	385,169	319,789

XML

Consolidated Statements of Income (Unaudited) - USD ($)	3 Months Ended			6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017		Jun. 30, 2018		Jun. 30, 2017
Revenues:
Verification and certification service revenue	$ 3,507,757	$ 2,925,298		$ 6,303,951		$ 5,479,933
Product sales	496,312	295,640		850,206		538,906
Software license, maintenance and support services revenue	263,316	130,234		550,760		289,498
Software-related consulting service revenue	170,923	150,910		354,193		267,693
Total revenues	4,438,308	3,502,082		8,059,110		6,576,030
Costs of revenues:
Costs of verification and certification services	1,850,555	1,573,858		3,301,164		2,831,231
Costs of products	319,970	179,133		545,945		332,999
Costs of software license, maintenance and support services	168,511	92,775		305,945		220,237
Costs of software-related consulting services	87,546	66,128		163,007		138,738
Total costs of revenues	2,426,582	1,911,894		4,316,061		3,523,205
Gross profit	2,011,726	1,590,188		3,743,049		3,052,825
Selling, general and administrative expenses	1,770,468	1,711,020		3,474,942		3,181,849
Income (loss) from operations	241,258	(120,832)		268,107		(129,024)
Other expense (income):
Interest expense	1,315	154		2,394		316
Other income, net	(5,122)	(7,970)		(8,040)		(9,298)
Income (loss) before income taxes	245,065	(113,016)		273,753		(120,042)
Income tax expense (benefit)	80,000	(52,000)		88,000		(49,000)
Net income (loss)	165,065	(61,016)		185,753		(71,042)
Net loss attributable to non-controlling interest	11,774	123,387		26,570		248,792
Net income attributable to Where Food Comes From, Inc.	$ 176,839	$ 62,371		$ 212,323		$ 177,750
Per share - net income attributable to Where Food Comes From, Inc.:
Basic (in dollars per share)	$ .01		[1]	$ 0.01	[1]	$ 0.01	[1]
Diluted (in dollars per share)	$ .01		[1]	$ 0.01	[1]	$ 0.01	[1]
Weighted average number of common shares outstanding:
Basic (in shares)	24,718,430	24,664,882		24,683,264		24,656,398
Diluted (in shares)	24,896,195	24,822,563		24,871,523		24,802,564

[1] less than $0.01 per share

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Operating activities:
Net income (loss)	$ 185,753	$ (71,042)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	501,603	420,915
Lease incentive obligation	(5,418)	(5,418)
Stock-based compensation expense	80,021	89,470
Common stock issued for services rendered		25,000
Deferred tax expense (benefit)	(35,000)	(82,000)
Bad debt expense	10,097	10,249
Changes in operating assets and liabilities, net of effect from acquisitions:
Accounts receivable	(90,377)	(138,570)
Short-term investments	(5,904)	(7,284)
Prepaid expenses and other assets	2,767	(189,368)
Accounts payable	82,256	94,814
Accrued expenses and other current liabilities	135,801	100,805
Customer deposits and deferred revenue	257,247	541,976
Net cash provided by operating activities	1,118,846	789,547
Investing activities:
Acquisition of Sow Organic	(450,000)
Acquisition of A Bee Organic		(150,000)
Purchases of property and equipment	(162,869)	(20,563)
Purchases of other long-term assets	(1,350)
Net cash used in investing activities	(614,219)	(170,563)
Financing activities:
Repayments of notes payable	(4,664)
Repayments of capital lease obligations	(3,739)	(2,017)
Proceeds from stock option exercise		8,168
Stock repurchase under Stock Buyback Plan	(140,850)	(26,723)
Net cash used in financing activities	(149,253)	(20,572)
Net change in cash	355,374	598,412
Cash at beginning of year	2,705,778	2,489,985
Cash at end of year	$ 3,061,152	$ 3,088,397

XML

Consolidated Statement of Equity (Unaudited) - 6 months ended Jun. 30, 2018 - 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, shares at Dec. 31, 2017	24,652,895				24,652,895
Effect of acquisition fair value adjustment		(321,937)			$ (321,937)
Stock-based compensation expense		80,021			80,021
Issuance of common shares in acquisition of Sow Organic LLC	$ 218	432,913			433,131
Issuance of common shares in acquisition of Sow Organic LLC, shares	217,654
Repurchase of common shares under Stock Buyback Plan			(140,850)		(140,850)
Repurchase of common shares under Stock Buyback Plan, shares	(65,380)
Net income attributable to Where Food Comes From, Inc.				212,323	212,323
Balance, ending at Jun. 30, 2018	$ 25,190	$ 10,544,034	$ (865,380)	$ 229,720	$ 9,933,564
Balance, ending, shares at Jun. 30, 2018	24,805,169				24,805,169

XML

The Company and Basis of Presentation

6 Months Ended

Jun. 30, 2018

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 and our most recent acquisition, Sow Organic (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 June 30, 2018 are not necessarily indicative of the results to be expected for any other interim period of any future year.

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.

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. The Company is currently in the process of evaluating the impact of adoption of the new rules on the Company’s financial condition, results of operations and cash flows. Although the evaluation is ongoing, 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 Company is currently analyzing its contracts to determine whether they contain a lease under the revised guidance and has not quantified the amount of the asset and liability that will be recognized on the Company’s balance sheet.

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. We continue to execute on our implementation plan and we are currently gathering lease data to derive the impact of the ASU on its financial statements. The adoption is anticipated to have a material impact on assets and liabilities due to the recognition of lease rights and obligations 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.

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.

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Business Acquisitions

6 Months Ended

Jun. 30, 2018

Business Combinations [Abstract]

Business Acquisitions

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 $2.8 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.

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.

This acquisition did not materially affect the Company’s consolidated results of operations. 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:

	May 16, 2018
Property and equipment	$	445,000
Indentifiable intangible assets		143,754
Excess attributable to goodwill		294,377
Total consideration	$	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.

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 the current period 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.

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Basic and Diluted Net Income per Share

6 Months Ended

Jun. 30, 2018

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 June 30,				Six months ended June 30,
	2018		2017		2018		2017
Basic:
Weighted average shares outstanding		24,718,430		24,664,882		24,683,264		24,656,398
Diluted:
Weighted average shares outstanding		24,718,430		24,664,882		24,683,264		24,656,398
Weighted average effects of dilutive securities		177,765		157,681		188,259		146,166
Total		24,896,195		24,822,563		24,871,523		24,802,564
Antidilutive securities:		124,000		94,000		124,000		94,000

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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Intangible and Other Assets

6 Months Ended

Jun. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible and Other Assets

Note 4 – Intangible and Other Assets

The following table summarizes our intangible and other assets:

	June 30,		December 31,		Estimated
	2018		2017		Useful Life
Intangible assets subject to amortization:
Tradenames and trademarks	$	292,307	$	282,307	2.5  - 8.0 years
Accreditations		85,395		97,706	5.0 years
Customer relationships		3,218,305		3,084,551	8.0 - 15.0 years
Beneficial lease arrangement		—		120,200	11.0 years
Patents		970,100		970,100	4.0 years
		4,566,107		4,554,864
Less accumulated amortization		1,290,347		1,084,879
		3,275,760		3,469,985
Tradenames/trademarks (not subject to amortization)		465,000		465,000
		3,740,760		3,934,985
Other		13,545		13,545
	$	3,754,305	$	3,948,530

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.

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Accrued Expenses and Other Current Liabilities

6 Months Ended

Jun. 30, 2018

Payables and Accruals [Abstract]

Accrued Expenses and Other Current Liabilities

Note 5 – Accrued Expenses and Other Current Liabilities

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

	June 30,		December 31,
	2018		2017
Income and sales taxes payable	$	75,589	$	255,099
Payroll related accruals		372,967		148,408
Professional fees and other expenses		95,991		80,326
Deferred rent expense		119,781		71,296
	$	664,328	$	555,129

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Notes Payable

6 Months Ended

Jun. 30, 2018

Notes Payable [Abstract]

Notes Payable

Note 6 – Notes Payable

Notes Payable consist of the following:

	June 30,			December 31,
	2018			2017
Vehicle note	$	47,234		$	51,898
Less current portion of notes payable and other long-term debt		(9,803	)		(9,446	)
Notes payable and other long-term debt	$	37,431		$	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 June 30, 2018, and December 31, 2017, the effective interest rate was 5.5%. The LOC is collateralized by all the business assets of ICS. As of June 30, 2018, and December 31, 2017, there were no amounts outstanding under this LOC.

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2018

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

Stock-Based Compensation

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.

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

	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
Stock options	$	19,944	$	14,722	$	36,375	$	29,413
Restricted stock awards		22,175		29,691		43,646		60,057
Total	$	42,119	$	44,413	$	80,021	$	89,470

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. 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	25,000	None
Risk-free interest rate	2.60%	N/A
Expected volatility	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

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.

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 six months)		59,426		30,184		89,610
2019		115,223		15,674		130,897
2020		62,636		4,251		66,887
2021		24,272		706		24,978
	$	261,557	$	50,815	$	312,372

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:

	Number of awards		Weighted avg.  exercise price  per share		Weighted avg.  fair value  per share		Weighted avg.  remaining  contractual life  (in years)		Aggregate  intrinsic value
Outstanding, December 31, 2017		266,585	$	1.23	$	1.22		6.06	$	462,508
Granted		25,000	$	2.55	$	2.51		9.70
Exercised		—	$	—	$	—		—
Expired/Forfeited		—	$	—	$	—		—
Outstanding, June 30, 2018		291,585	$	1.34	$	1.33		5.92	$	173,810
Exercisable, June 30, 2018		203,914	$	1.02	$	1.03		4.68	$	173,810
Unvested, June 30, 2018		87,671	$	2.08	$	2.06		8.81	$	—

The aggregate intrinsic value represents the total pre-tax intrinsic value (the aggregate difference between the closing price of our common stock on June 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 June 30, 2018.

Restricted Stock Activity

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

	Number of  options		Weighted avg. grant date fair value
Non-vested restricted shares, December 31, 2017		99,000	$	2.56
Granted		5,000	$	2.55
Vested		—	$	—
Forfeited		—	$	—
Non-vested restricted shares, June 30, 2018		104,000	$	2.56

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Income Taxes

6 Months Ended

Jun. 30, 2018

Income Tax Disclosure [Abstract]

Income Taxes

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.

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 will continue to evaluate the impact of the U.S. Tax Act and will record any resulting tax adjustments during 2018.

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 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 June 30, 2018 we recorded income tax expense of $80,000 compared to an income tax benefit of $52,000 for the 2017 period. For the six months ended June 30, 2018 we recorded income tax expense of $88,000 compared to an income tax benefit of $49,000 for the 2017 period.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

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. The additional space is currently not approved for occupancy. 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.

The Company recorded leasehold improvements of approximately $406,400, which included approximately $163,000 in lease incentives. 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 connection with the August 2017 amended lease agreement with The Move, LLC, the Company will receive an additional $230,000 in lease incentives to build-out the new additional square footage.

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.

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 is approximately $600 and the lease agreement is month-to-month.

As of June 30, 2018, future minimum lease payments for all operating leases are as follows:

Years ended December 31st:	Total
2018 (remaining six months)		254,913
2019		479,498
2020		468,620
2021		482,678
2022		497,159
Thereafter		4,927,253
Total lease commitments		7,110,121

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 June 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 June 30, 2018		(26,570	)
Balance, June 30, 2018	$	1,548,195

The contingently redeemable non-controlling interest has been adjusted to the greater of the carrying value or redemption value as of each period end.

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Segments

6 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

Segments

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.

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

	Three months ended June 30, 2018							Three months ended June 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	$	3,507,757	$	—		$	3,507,757	$	2,925,298	$	—		$	2,925,298
Product sales		496,312		—			496,312		295,640		—			295,640
Software license, maintenance and support services revenue		—		263,316			263,316		—		130,234			130,234
Software-related consulting service revenue		—		170,923			170,923		—		150,910			150,910
Total revenues	$	4,004,069	$	434,239		$	4,438,308	$	3,220,938	$	281,144		$	3,502,082
Costs of revenues:
Costs of verification and certification services		1,850,555		—			1,850,555		1,573,858		—			1,573,858
Costs of products		319,970		—			319,970		179,133		—			179,133
Costs of software license, maintenance and support services		—		168,511			168,511		—		92,775			92,775
Costs of software-related consulting services		—		87,546			87,546		—		66,128			66,128
Total costs of revenues		2,170,525		256,057			2,426,582		1,752,991		158,903			1,911,894
Gross profit		1,833,544		178,182			2,011,726		1,467,947		122,241			1,590,188
Selling, general and administrative expenses		1,500,446		270,022			1,770,468		1,280,665		430,355			1,711,020
Segment operating income (loss)	$	333,098	$	(91,840	)	$	241,258	$	187,282	$	(308,114	)	$	(120,832	)

	Six months ended June 30, 2018							Six months ended June 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	$	6,303,951	$	—		$	6,303,951	$	5,479,933	$	—		$	5,479,933
Product sales		850,206		—			850,206		538,906		—			538,906
Software license, maintenance and support services revenue		—		550,760			550,760		—		289,498			289,498
Software-related consulting service revenue		—		354,193			354,193		—		267,693			267,693
Total revenues	$	7,154,157	$	904,953		$	8,059,110	$	6,018,839	$	557,191		$	6,576,030
Costs of revenues:
Costs of verification and certification services		3,301,164		—			3,301,164		2,831,231		—			2,831,231
Costs of products		545,945		—			545,945		332,999		—			332,999
Costs of software license, maintenance and support services		—		305,945			305,945		—		220,237			220,237
Costs of software-related consulting services		—		163,007			163,007		—		138,738			138,738
Total costs of revenues		3,847,109		468,952			4,316,061		3,164,230		358,975			3,523,205
Gross profit		3,307,048		436,001			3,743,049		2,854,609		198,216			3,052,825
Selling, general and administrative expenses		2,910,840		564,102			3,474,942		2,362,330		819,519			3,181,849
Segment operating income (loss)	$	396,208	$	(128,101	)	$	268,107	$	492,279	$	(621,303	)	$	(129,024	)

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Supplemental Cash Flow Information

6 Months Ended

Jun. 30, 2018

Supplemental Cash Flow Information [Abstract]

Supplemental Cash Flow Information

Note 11 – Supplemental Cash Flow Information

	Six months ended June 30,
	2018		2017
Cash paid during the year:
Interest expense	$	2,394	$	316
Income taxes	$	304,765	$	—
Non-cash investing and financing activities:
Common stock issued in connection with acquisition of Sow Organic	$	433,131	$	—
Common stock issued in connection with acquisition of A Bee Organic	$	—	$	98,221
Common stock issued for acquisition-related consulting fees	$	—	$	25,000

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Revenue from Contracts with Customers

6 Months Ended

Jun. 30, 2018

Revenue from Contract with Customer [Abstract]

Revenue from Contracts with Customers

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:

	Six months ended June 30, 2018
	Under ASC 606		Under ASC 605		Increase / (Decrease)
Revenues:
Verification and certification service revenue	$	—	$	70,250	$	(70,250	)
Costs and expenses:
Cost of verification and certification services	$	—	$	70,250	$	(70,250	)
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.

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 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 customer 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 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 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.

Other Significant Judgments

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 June 30, 2018						Six months ended June 30, 2018
	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
Product sales	$	3,507,757	$	—	$	3,507,757	$	6,303,951	$	—	$	6,303,951
Software license, maintenance and support services revenue		496,312		—		496,312		850,206		—		850,206
Software-related consulting service revenue		—		263,316		263,316		—		550,760		550,760
Total revenues		—		170,923		170,923		—		354,193		354,193
	$	4,004,069	$	434,239	$	4,438,308	$	7,154,157	$	904,953	$	8,059,110

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 June 30, 2018, and January 1, 2018, accounts receivable from contracts with customers, net of allowance for doubtful accounts, were approximately $1,979,000 and $1,898,700, respectively.

As of June 30, 2018, and January 1, 2018, deposits and deferred revenue from contracts with customers were approximately $1,108,400 and $851,200, respectively. The balance of these contract liabilities at the beginning of the period is expected to be recognized as revenue during 2018.

Costs to fulfill a contract

We incur a fixed cost, payable to a third-party provider, to perform set-up activities for new (or first-year) customers that contract for our software subscription and hosting services. We have concluded that those set-up activities do 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 June 30, 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 six months ended June 30, 2018.

In addition, amortization of capitalized set-up costs for the six months ended June 30, 2018 was not material, and no impairment loss was incurred related to capitalized set-up costs for the six months ended June 30, 2018.

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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Subsequent Event

6 Months Ended

Jun. 30, 2018

Subsequent Events [Abstract]

Subsequent Event

Note 13 – Subsequent Event

On August 9, 2018, the Company purchased a ten percent membership interest in Progressive Beef, LLC for an aggregate purchase price of approximately $1 million 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 exclusive certifier for Progressive Beef.

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Business Acquisitions (Tables)

6 Months Ended

Jun. 30, 2018

Business Combinations [Abstract]

Schedule of acquisition

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: 

	May 16, 2018
Property and equipment	$	445,000
Indentifiable intangible assets		143,754
Excess attributable to goodwill		294,377
Total consideration	$	883,131

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Basic and Diluted Net Income per Share (Tables)

6 Months Ended

Jun. 30, 2018

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 June 30,				Six months ended June 30,
	2018		2017		2018		2017
Basic:
Weighted average shares outstanding		24,718,430		24,664,882		24,683,264		24,656,398
Diluted:
Weighted average shares outstanding		24,718,430		24,664,882		24,683,264		24,656,398
Weighted average effects of dilutive securities		177,765		157,681		188,259		146,166
Total		24,896,195		24,822,563		24,871,523		24,802,564
Antidilutive securities:		124,000		94,000		124,000		94,000

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Intangible and Other Assets (Tables)

6 Months Ended

Jun. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of intangible and other assets

The following table summarizes our intangible and other assets:

	June 30,		December 31,		Estimated
	2018		2017		Useful Life
Intangible assets subject to amortization:
Tradenames and trademarks	$	292,307	$	282,307	2.5  - 8.0 years
Accreditations		85,395		97,706	5.0 years
Customer relationships		3,218,305		3,084,551	8.0 - 15.0 years
Beneficial lease arrangement		—		120,200	11.0 years
Patents		970,100		970,100	4.0 years
		4,566,107		4,554,864
Less accumulated amortization		1,290,347		1,084,879
		3,275,760		3,469,985
Tradenames/trademarks (not subject to amortization)		465,000		465,000
		3,740,760		3,934,985
Other		13,545		13,545
	$	3,754,305	$	3,948,530

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Accrued Expenses and Other Current Liabilities (Tables)

6 Months Ended

Jun. 30, 2018

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:

	June 30,		December 31,
	2018		2017
Income and sales taxes payable	$	75,589	$	255,099
Payroll related accruals		372,967		148,408
Professional fees and other expenses		95,991		80,326
Deferred rent expense		119,781		71,296
	$	664,328	$	555,129

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Notes Payable (Tables)

6 Months Ended

Jun. 30, 2018

Notes Payable [Abstract]

Schedule of Notes Payable

Notes Payable consist of the following:

	June 30,			December 31,
	2018			2017
Vehicle note	$	47,234		$	51,898
Less current portion of notes payable and other long-term debt		(9,803	)		(9,446	)
Notes payable and other long-term debt	$	37,431		$	42,452

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2018

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 June 30,				Six months ended June 30,
	2018		2017		2018		2017
Stock options	$	19,944	$	14,722	$	36,375	$	29,413
Restricted stock awards		22,175		29,691		43,646		60,057
Total	$	42,119	$	44,413	$	80,021	$	89,470

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:

	2018	2017
Number of options awarded to purchase common shares	25,000	None
Risk-free interest rate	2.60%	N/A
Expected volatility	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

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
2018 (remaining six months)		59,426		30,184		89,610
2019		115,223		15,674		130,897
2020		62,636		4,251		66,887
2021		24,272		706		24,978
	$	261,557	$	50,815	$	312,372

Schedule of stock option activity under Equity Incentive Plan

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

	Number of awards		Weighted avg.  exercise price  per share		Weighted avg.  fair value  per share		Weighted avg.  remaining  contractual life  (in years)		Aggregate  intrinsic value
Outstanding, December 31, 2017		266,585	$	1.23	$	1.22		6.06	$	462,508
Granted		25,000	$	2.55	$	2.51		9.70
Exercised		—	$	—	$	—		—
Expired/Forfeited		—	$	—	$	—		—
Outstanding, June 30, 2018		291,585	$	1.34	$	1.33		5.92	$	173,810
Exercisable, June 30, 2018		203,914	$	1.02	$	1.03		4.68	$	173,810
Unvested, June 30, 2018		87,671	$	2.08	$	2.06		8.81	$	—

Schedule of restricted stock activity under Equity Incentive Plan

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

	Number of  options		Weighted avg. grant date fair value
Non-vested restricted shares, December 31, 2017		99,000	$	2.56
Granted		5,000	$	2.55
Vested		—	$	—
Forfeited		—	$	—
Non-vested restricted shares, June 30, 2018		104,000	$	2.56

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Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

Schedule of operating leases future minimum lease payments

As of June 30, 2018, future minimum lease payments for all operating leases are as follows:

Years ended December 31st:	Total
2018 (remaining six months)		254,913
2019		479,498
2020		468,620
2021		482,678
2022		497,159
Thereafter		4,927,253
Total lease commitments		7,110,121

Schedule of redeemable noncontrolling interest

The table below reflects the activity of the contingently redeemable non-controlling interest at June 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 June 30, 2018		(26,570	)
Balance, June 30, 2018	$	1,548,195

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Segments (Tables)

6 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

Schedule of operating segments

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

	Three months ended June 30, 2018							Three months ended June 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	$	3,507,757	$	—		$	3,507,757	$	2,925,298	$	—		$	2,925,298
Product sales		496,312		—			496,312		295,640		—			295,640
Software license, maintenance and support services revenue		—		263,316			263,316		—		130,234			130,234
Software-related consulting service revenue		—		170,923			170,923		—		150,910			150,910
Total revenues	$	4,004,069	$	434,239		$	4,438,308	$	3,220,938	$	281,144		$	3,502,082
Costs of revenues:
Costs of verification and certification services		1,850,555		—			1,850,555		1,573,858		—			1,573,858
Costs of products		319,970		—			319,970		179,133		—			179,133
Costs of software license, maintenance and support services		—		168,511			168,511		—		92,775			92,775
Costs of software-related consulting services		—		87,546			87,546		—		66,128			66,128
Total costs of revenues		2,170,525		256,057			2,426,582		1,752,991		158,903			1,911,894
Gross profit		1,833,544		178,182			2,011,726		1,467,947		122,241			1,590,188
Selling, general and administrative expenses		1,500,446		270,022			1,770,468		1,280,665		430,355			1,711,020
Segment operating income (loss)	$	333,098	$	(91,840	)	$	241,258	$	187,282	$	(308,114	)	$	(120,832	)

	Six months ended June 30, 2018							Six months ended June 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	$	6,303,951	$	—		$	6,303,951	$	5,479,933	$	—		$	5,479,933
Product sales		850,206		—			850,206		538,906		—			538,906
Software license, maintenance and support services revenue		—		550,760			550,760		—		289,498			289,498
Software-related consulting service revenue		—		354,193			354,193		—		267,693			267,693
Total revenues	$	7,154,157	$	904,953		$	8,059,110	$	6,018,839	$	557,191		$	6,576,030
Costs of revenues:
Costs of verification and certification services		3,301,164		—			3,301,164		2,831,231		—			2,831,231
Costs of products		545,945		—			545,945		332,999		—			332,999
Costs of software license, maintenance and support services		—		305,945			305,945		—		220,237			220,237
Costs of software-related consulting services		—		163,007			163,007		—		138,738			138,738
Total costs of revenues		3,847,109		468,952			4,316,061		3,164,230		358,975			3,523,205
Gross profit		3,307,048		436,001			3,743,049		2,854,609		198,216			3,052,825
Selling, general and administrative expenses		2,910,840		564,102			3,474,942		2,362,330		819,519			3,181,849
Segment operating income (loss)	$	396,208	$	(128,101	)	$	268,107	$	492,279	$	(621,303	)	$	(129,024	)

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Supplemental Cash Flow Information (Tables)

6 Months Ended

Jun. 30, 2018

Supplemental Cash Flow Information [Abstract]

Schedule of supplemental cash flow information

Six months ended June 30,
	2018		2017
Cash paid during the year:
Interest expense	$	2,394	$	316
Income taxes	$	304,765	$	—
Non-cash investing and financing activities:
Common stock issued in connection with acquisition of Sow Organic	$	433,131	$	—
Common stock issued in connection with acquisition of A Bee Organic	$	—	$	98,221
Common stock issued for acquisition-related consulting fees	$	—	$	25,000

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Revenue from Contracts with Customers (Tables)

6 Months Ended

Jun. 30, 2018

Revenue from Contract with Customer [Abstract]

Schedule of impact of adoption ASU606

The impact of adoption on our current period results is as follows:

	Six months ended June 30, 2018
	Under ASC 606		Under ASC 605		Increase / (Decrease)
Revenues:
Verification and certification service revenue	$	—	$	70,250	$	(70,250	)
Costs and expenses:
Cost of verification and certification services	$	—	$	70,250	$	(70,250	)
Gross profit	$	—	$	—	$	—
Net income (loss)	$	—	$	—	$	—
Retained earnings	$	—	$	—	$	—

Schedule of disaggregation of revenue

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

		Three months ended June 30, 2018						Six months ended June 30, 2018
	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
Product sales	$	3,507,757	$	—	$	3,507,757	$	6,303,951	$	—	$	6,303,951
Software license, maintenance and support services revenue		496,312		—		496,312		850,206		—		850,206
Software-related consulting service revenue		—		263,316		263,316		—		550,760		550,760
Total revenues		—		170,923		170,923		—		354,193		354,193
	$	4,004,069	$	434,239	$	4,438,308	$	7,154,157	$	904,953	$	8,059,110

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Business Acquisitions (Details) - USD ($)	May 16, 2018	Jun. 30, 2018	Dec. 31, 2017
Business Acquisition [Line Items]
Excess attributable to goodwill		$ 2,624,690	$ 2,652,250
Swa Organic [Member]
Business Acquisition [Line Items]
Property and equipment	$ 445,000
Indentifiable intangible assets	143,754
Excess attributable to goodwill	294,377
Total consideration	$ 883,131

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Business Acquisitions (Details Narrative) - USD ($)				6 Months Ended	12 Months Ended
	May 16, 2018	May 30, 2017	Dec. 28, 2016	Jun. 30, 2018	Dec. 31, 2017	May 31, 2018
Value of shares issued upon acquisition				$ 433,131
Decrease goodwill and additional paid-in-capital					$ 321,900
A Bee Organic [Member]
Cash payments for acquisition		$ 150,000
Number of shares issued upon acquisition, shares		45,684
Value of shares issued upon acquisition		$ 98,000
Share price (in dollars per share)		$ 2.15
Useful lives for intangible assets		8 years
SureHarvest Services LLC [Member]
Percentage of business acquired			60.00%
Total consideration for acquisition			$ 2,800,000
Cash payments for acquisition			$ 1,122,000
Number of shares issued upon acquisition, shares			850,852
Value of shares issued upon acquisition			$ 1,534,900
Percentage of remaining ownership interest			40.00%			60.00%
Assumed purchase price of remaining ownership interest			$ 8,000,000
Swa Organic [Member]
Total consideration for acquisition	$ 883,131
Cash payments for acquisition	$ 450,000
Number of shares issued upon acquisition, shares	217,654
Value of shares issued upon acquisition	$ 433,100
Share price (in dollars per share)	$ 1.99

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Basic and Diluted Net Income per Share (Details) - $ / shares	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Basic:
Weighted average shares outstanding	24,718,430	24,664,882	24,683,264	24,656,398
Diluted:
Weighted average shares outstanding	24,718,430	24,664,882	24,683,264	24,656,398
Weighted average effects of dilutive securities	177,765	157,681	188,259	146,166
Total	24,896,195	24,822,563	24,871,523	24,802,564
Antidilutive securities:	$ 124,000	$ 94,000	$ 124,000	$ 94,000

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Intangible and Other Assets (Details) - USD ($)	6 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Intangible and other assets, gross	$ 4,566,107	$ 4,554,864
Less accumulated amortization	1,290,347	1,084,879
Intangible and other assets, net	3,275,760	3,469,985
Tradenames/trademarks (not subject to amortization)	465,000	465,000
Intangible and other assets, before other	3,740,760	3,934,985
Other	13,545	13,545
Intangible and other assets, net	3,754,305	3,948,530
Tradenames and Trademarks [Member]
Intangible and other assets, gross	$ 292,307	282,307
Tradenames and Trademarks [Member] | Minimum [Member]
Estimated Useful Life	2 years 6 months
Tradenames and Trademarks [Member] | Maximum [Member]
Estimated Useful Life	8 years
Accreditations [Member]
Intangible and other assets, gross	$ 85,395	97,706
Estimated Useful Life	5 years
Customer Relationships [Member]
Intangible and other assets, gross	$ 3,218,305	3,084,551
Customer Relationships [Member] | Minimum [Member]
Estimated Useful Life	8 years
Customer Relationships [Member] | Maximum [Member]
Estimated Useful Life	15 years
Beneficial lease arrangement [Member]
Intangible and other assets, gross		120,200
Estimated Useful Life	11 years
Patents [Member]
Intangible and other assets, gross	$ 970,100	$ 970,100
Estimated Useful Life	4 years

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Intangible and Other Assets (Details Narrative) - North Dakota Office [Member]	Jan. 12, 2018 USD ($) ft²	Dec. 31, 2012 USD ($) a ft²
Operating Leased Assets [Line Items]
Area of land owned, lease office space | a		0.75
Number of square foot of leased space | ft²		2,300
Beneficial lease arrangement | $		$ 120,200
Number of square foot of real property | ft²	2,300
Net book value of beneficial lease wriiten-off | $	$ 56,500

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Accrued Expenses and Other Current Liabilities (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Payables and Accruals [Abstract]
Income and sales taxes payable	$ 75,589	$ 255,099
Payroll related accruals	372,967	148,408
Professional fees and other expenses	95,991	80,326
Deferred rent expense	119,781	71,296
Accrued Expenses and Other Current Liabilities	$ 664,328	$ 555,129

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Notes Payable (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Notes Payable [Abstract]
Vehicle note	$ 47,234	$ 51,898
Less current portion of notes payable and other long-term debt	(9,803)	(9,446)
Notes payable and other long-term debt	$ 37,431	$ 42,452

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Notes Payable (Details Narrative) - USD ($)	1 Months Ended	6 Months Ended
	Sep. 30, 2017	Jun. 30, 2018	Dec. 31, 2017
Revolving Line of Credit [Member]
Debt instrument, face amount		$ 75,050
Maturity date on debt		Apr. 12, 2020
Effective interest rate		5.50%	5.50%
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%
Debt instrument term	5 years

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Stock-Based Compensation (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 42,119	$ 44,413	$ 80,021	$ 89,470
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	19,944	14,722	36,375	29,413
Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 22,175	$ 29,691	$ 43,646	$ 60,057

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Stock-Based Compensation (Details 1)	6 Months Ended
	Jun. 30, 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)	Jun. 30, 2018 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested stock options	$ 261,557
Unvested restricted stock awards	50,815
Total Unrecognized Compensation Expense	312,372
2018 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested stock options	59,426
Unvested restricted stock awards	30,184
Total Unrecognized Compensation Expense	89,610
2019 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested stock options	115,223
Unvested restricted stock awards	15,674
Total Unrecognized Compensation Expense	130,897
2020 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested stock options	62,636
Unvested restricted stock awards	4,251
Total Unrecognized Compensation Expense	66,887
2021 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unvested stock options	24,272
Unvested restricted stock awards	706
Total Unrecognized Compensation Expense	$ 24,978

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Stock-Based Compensation (Details 3)	6 Months Ended
	Jun. 30, 2018 USD ($) $ / shares shares
Number of Awards
Balance, beginning | shares	266,585
Granted | shares	25,000
Balance, ending | shares	291,585
Exercisable, ending | shares	203,914
Unvested, ending | shares	87,671
Weighted Avg. Exercise Price per Share
Balance, beginning	$ 1.23
Granted	2.55
Balance, ending	1.34
Exercisable, ending	1.02
Unvested, ending	2.08
Weighted Avg Fair Value per Share
Balance, beginning	1.22
Granted	2.51
Balance, ending	1.33
Exercisable, ending	1.03
Unvested, ending	$ 2.06
Weighted Avg Remaining Contractual Life (in years)
Balance, beginning	6 years 22 days
Granted	9 years 8 months 12 days
Balance, ending	5 years 11 months 1 day
Exercisable, ending	4 years 8 months 5 days
Unvested, ending	8 years 9 months 22 days
Aggregate Intrinsic Value.
Balance, beginning | $	$ 462,508
Balance, ending | $	173,810
Exercisable, ending | $	$ 173,810

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Stock-Based Compensation (Details 4) - Restricted Stock Awards [Member]	6 Months Ended
	Jun. 30, 2018 $ / shares shares
Restricted Stock
Balance, beginning | shares	99,000
Granted | shares	5,000
Balance, ending | shares	104,000
Weighted Average Exercise Price
Balance, beginning | $ / shares	$ 2.56
Granted | $ / shares	2.55
Balance, ending | $ / shares	$ 2.56

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Income Taxes (Details Narrative) - USD ($)		3 Months Ended		6 Months Ended
	Dec. 22, 2018	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Income Tax Disclosure [Abstract]
Income tax expense		$ 80,000	$ (52,000)	$ 88,000	$ (49,000)
U.S. federal corporate income tax rate	21.00%			35.00%

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Commitments and Contingencies (Details)	Jun. 30, 2018 USD ($)
Years ended December 31st:
2018	$ 254,913
2019	479,498
2020	468,620
2021	482,678
2022	497,159
Thereafter	4,927,253
Total lease commitments	$ 7,110,121

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Commitments and Contingencies (Details 1)	6 Months Ended
	Jun. 30, 2018 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Redeemable noncontrolling interest, beginning	$ 1,574,765
Net loss attributable to non-controlling interest	(26,570)
Redeemable noncontrolling interest, ending	$ 1,548,195

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Commitments and Contingencies (Details Narrative)		1 Months Ended		6 Months Ended
	Jan. 12, 2018 USD ($)	Sep. 30, 2017 USD ($)	Aug. 31, 2017 USD ($) ft²	Jun. 30, 2018 USD ($) ft² Number	Dec. 31, 2017	Sep. 30, 2016	Dec. 31, 2012 ft²
SureHarvest Services LLC [Member] | Modesto [Member]
Monthly rental rate				$ 600
Number of square feet of leased space | ft²				8,000
Lease expiration date				Nov. 30, 2018
SureHarvest Services LLC [Member] | Soquel [Member]
Monthly rental rate				$ 2,700
Castle Rock New Lease [Member]
Monthly rental rate				$ 18,000
Number of square feet of leased space | ft²				8,300
Amortization period of leased assets				15 years
Lease incentives				$ 163,000
Leasehold improvements				$ 406,400
Castle Rock New Lease [Member] | CEO and President[Member]
Ownership by related party						27.00%
First Amendment Castle Rock New Lease [Member]
Monthly rental rate			$ 35,100
Number of square feet of leased space | ft²			7,700
Lease incentives			$ 230,000
North Dakota Office [Member]
Term of the operating lease				5 years
Renewal options | Number				1
Monthly rental rate				$ 150
Number of square feet of leased space | ft²							2,300
Lease expiration date				Mar. 01, 2018
Purchase price funded by cash	$ 135,600
Urbandale, Lowa Office [Member]
Term of the operating lease		2 years
Monthly rental rate		$ 2,900
Revolving Line of Credit [Member]
Debt instrument, face amount				$ 75,050
Maturity date on debt				Apr. 12, 2020
Effective interest rate				5.50%	5.50%
Interest rate, basis spread				1.50%

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Segments (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenues:
Total revenues	$ 4,438,308	$ 3,502,082	$ 8,059,110	$ 6,576,030
Costs of revenues:
Total costs of revenues	2,426,582	1,911,894	4,316,061	3,523,205
Gross profit	2,011,726	1,590,188	3,743,049	3,052,825
Selling, general and administrative expenses	1,770,468	1,711,020	3,474,942	3,181,849
Segment operating income	241,258	(120,832)	268,107	(129,024)
Verification and certification service revenue [Member]
Revenues:
Total revenues	3,507,757	2,925,298	6,303,951	5,479,933
Costs of revenues:
Total costs of revenues	1,850,555	1,573,858	3,301,164	2,831,231
Product sales [Member]
Revenues:
Total revenues	496,312	295,640	850,206	538,906
Costs of revenues:
Total costs of revenues	319,970	179,133	545,945	332,999
Software license, maintenance and support services revenue [Member]
Revenues:
Total revenues	263,316	130,234	550,760	289,498
Costs of revenues:
Total costs of revenues	168,511	92,775	305,945	220,237
Software license, maintenance and support services revenue [Member]
Revenues:
Total revenues	170,923	150,910	354,193	267,693
Costs of revenues:
Total costs of revenues	87,546	66,128	163,007	138,738
Verification and Certification Segment [Member]
Revenues:
Total revenues	4,004,069	3,220,938	7,154,157	6,018,839
Costs of revenues:
Total costs of revenues	2,170,525	1,752,991	3,847,109	3,164,230
Gross profit	1,833,544	1,467,947	3,307,048	2,854,609
Selling, general and administrative expenses	1,500,446	1,280,665	2,910,840	2,362,330
Segment operating income	333,098	187,282	396,208	492,279
Verification and Certification Segment [Member] | Verification and certification service revenue [Member]
Revenues:
Total revenues	3,507,757	2,925,298	6,303,951	5,479,933
Costs of revenues:
Total costs of revenues	1,850,555	1,573,858	3,301,164	2,831,231
Verification and Certification Segment [Member] | Product sales [Member]
Revenues:
Total revenues	496,312	295,640	850,206	538,906
Costs of revenues:
Total costs of revenues	319,970	179,133	545,945	332,999
Software Sales and Related Consulting Segment [Member]
Revenues:
Total revenues	434,239	281,144	904,953	557,191
Costs of revenues:
Total costs of revenues	256,057	158,903	468,952	358,975
Gross profit	178,182	122,241	436,001	198,216
Selling, general and administrative expenses	270,022	430,355	564,102	819,519
Segment operating income	(91,840)	(308,114)	(128,101)	(621,303)
Software Sales and Related Consulting Segment [Member] | Software license, maintenance and support services revenue [Member]
Revenues:
Total revenues	263,316	130,234	550,760	289,498
Costs of revenues:
Total costs of revenues	168,511	92,775	305,945	220,237
Software Sales and Related Consulting Segment [Member] | Software license, maintenance and support services revenue [Member]
Revenues:
Total revenues	170,923	150,910	354,193	267,693
Costs of revenues:
Total costs of revenues	$ 87,546	$ 66,128	$ 163,007	$ 138,738

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Supplemental Cash Flow Information (Details) - USD ($)	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Cash paid during the year:
Interest expense	$ 2,394	$ 316
Income taxes	304,765
Non-cash investing and financing activities:
Common stock issued for acquisition-related consulting fees		25,000
A Bee Organic [Member]
Non-cash investing and financing activities:
Common stock issued in connection with acquisition		$ 98,221
Swa Organic [Member]
Non-cash investing and financing activities:
Common stock issued in connection with acquisition	$ 433,131

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Revenue from Contracts with Customers (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenues:
Verification and certification service revenue	$ 3,507,757	$ 2,925,298	$ 6,303,951	$ 5,479,933
Costs and expenses:
Cost of verification and certification services	$ 1,850,555	$ 1,573,858	3,301,164	$ 2,831,231
Under ASC 605 [Member]
Revenues:
Verification and certification service revenue			70,250
Costs and expenses:
Cost of verification and certification services			70,250
Increase / (Decrease) [Member]
Revenues:
Verification and certification service revenue			(70,250)
Costs and expenses:
Cost of verification and certification services			$ (70,250)

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Revenue from Contracts with Customers (Details 1) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2018
Segment Reporting Information [Line Items]
Total revenues	$ 4,438,308	$ 8,059,110
Verification and Certification Service [Member]
Segment Reporting Information [Line Items]
Total revenues	3,507,757	6,303,951
Product Sales [Member]
Segment Reporting Information [Line Items]
Total revenues	496,312	850,206
Software License, Maintenance and Support Services Revenue [Member]
Segment Reporting Information [Line Items]
Total revenues	263,316	550,760
Software-related Consulting Service Revenue [Member]
Segment Reporting Information [Line Items]
Total revenues	170,923	354,193
Verification and Certification Segment [Member]
Segment Reporting Information [Line Items]
Total revenues	4,004,069	7,154,157
Verification and Certification Segment [Member] | Verification and Certification Service [Member]
Segment Reporting Information [Line Items]
Total revenues	3,507,757	6,303,951
Verification and Certification Segment [Member] | Product Sales [Member]
Segment Reporting Information [Line Items]
Total revenues	496,312	850,206
Software Sales and Related Consulting Segment [Member]
Segment Reporting Information [Line Items]
Total revenues	434,239	904,953
Software Sales and Related Consulting Segment [Member] | Software License, Maintenance and Support Services Revenue [Member]
Segment Reporting Information [Line Items]
Total revenues	263,316	550,760
Software Sales and Related Consulting Segment [Member] | Software-related Consulting Service Revenue [Member]
Segment Reporting Information [Line Items]
Total revenues	$ 170,923	$ 354,193

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Revenue from Contracts with Customers (Details Narrative) - USD ($)	Jun. 30, 2018	Jan. 02, 2018
Accounts receivable from contract with customers	$ 1,979,000	$ 1,898,700
Deposits and Deferred Revenue [Member]
Contract of customer liability	$ 1,108,400	$ 851,200

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Subsequent Event (Details Narrative) - USD ($)		6 Months Ended
	Aug. 09, 2018	Jun. 30, 2018
Subsequent Event [Line Items]
Amount paid in cash		$ 450,000
Value of number of shares issued		$ 433,131
Subsequent Event [Member] | Beef, LLC [Member]
Subsequent Event [Line Items]
Percentage of voting interests acquired	10.00%
Aggregate purchase price	$ 1,000,000
Amount paid in cash	$ 900,000
Number of shares issued (in shares)	53,340
Value of number of shares issued	$ 91,100
Business acquisition, share price (in dollars per share)	$ 1.81