UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2025
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ____________ to _____________
Commission
File No. 001-40314
WHERE
FOOD COMES FROM, INC.
(Exact
name of registrant as specified in its charter)
(State of incorporation or organization) (I.R.S. Employer Identification No.)
202
6th Street, Suite
400
Castle
Rock, CO80104
(Address
of principal executive offices, including zip code)
Registrant’s
telephone number, including area code:
(303)895-3002
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, $0.001 par value
(Title
of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer: ☐ Accelerated filer: ☐
Non-accelerated filer: ☒ Smaller reporting company: ☒
Emerging growth company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☒
Indicated
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7252(b)) by the registered
public accounting firm that prepared or issued its audit report. Yes ☐ No ☒
If
securities are registered pursuant to Section 12(b) of the Act, indicate by checkmark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Yes
☐ No ☒
Indicate
by checkmark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to Section 240.10D-1(b). Yes
☐ No ☒
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No ☒
The
aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2025, the last business day of our most
recently completed second fiscal quarter, was $27,604,411, based on the closing stock price on June 30, 2025 of $11.06.
The
number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of February 18, 2026 was 5,048,251.
DOCUMENTS
INCORPORATED BY REFERENCE: Part III is incorporated by reference from the registrant’s Definitive Proxy Statement for its 2026
Annual Meeting of Shareholders to be filed, pursuant to Regulation 14A, within 120 days after the close of the registrant’s 2025
fiscal year.
TABLE
OF CONTENTS
Page
PART I
ITEM 1. BUSINESS 3
ITEM 1A. RISK FACTORS 10
ITEM 1B. UNRESOLVED STAFF COMMENTS 18
ITEM 1C. CYBERSECURITY 18
ITEM 2. PROPERTIES 19
ITEM 3. LEGAL PROCEEDINGS 19
ITEM 4. MINE SAFETY DISCLOSURES 19
PART II
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 31
ITEM 9A. CONTROLS AND PROCEDURES 61
ITEM 9B. OTHER INFORMATION 61
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 61
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 62
ITEM 11. EXECUTIVE COMPENSATION 62
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 62
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 63
SIGNATURES 65
PART
I
ITEM 1. BUSINESS
GENERAL
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 estimates that
it supports more than approximately 17,500 farmers, ranchers, vineyards, wineries, processors, retailers, distributors, trade associations,
consumer brands, chefs and restaurants with a wide variety of value-added services provided through its family of verifiers. 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, aquaculture, crops and other food products are accurate.
We
also provide a wide range of professional consulting services that generate incremental revenue specific to the food and agricultural
industry and drive sustainable value creation. 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.
WFCF
was founded in 1996 and incorporated in the state of Colorado as a subchapter C corporation in 2006. The Company’s shares of common
stock trade on the NASDAQ Capital Market (“NASDAQ”), under the stock ticker symbol, “WFCF.”
The
Company’s original name – Integrated Management Information, Inc. (d.b.a. IMI Global) – was changed to Where Food Comes
From, Inc. in 2012 to better reflect the Company’s mission. Early growth was attributable to source and age verification services
for beef producers that wanted access to markets overseas following the discovery of “mad cow” disease in the U.S. Over the
years, WFCF has expanded its portfolio to include verification and professional services for most food groups and over 50 programs and
organizations. This growth has been achieved both organically and through the acquisition of other companies.
BUSINESS
OVERVIEW
What
We Do
The
Company is one of the nation’s largest independent, third-party traceability and verification providers. We use rigorous verification
processes on food production processes to ensure that claims made by food producers and processors 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. Our customers
include top-tier players in the food and wine space.
The
Company also provides a wide range of professional consulting services and technology solutions that generate incremental revenue specific
to the food and agricultural industry and drive sustainable value creation.
The
Company’s business benefits from growing demand by consumers, retailers and government for increased transparency into food production
practices.
Consumers:
Due to concerns about social responsibility and sustainability, food safety, and an overall increase in health consciousness, consumers
are demanding more information about the food they purchase. Third-party verification means highly trained verification specialists reviewed
documentation and have sent independent auditors onsite to where the food came from to confirm if a claim is true.
Retailers:
Responding to consumer demands for increased transparency as well as to the negative impact food scandals have on their bottom lines,
retailers are requiring their suppliers to adhere to more stringent traceability and verification of product claims. Verification and
certification provide retailers and food service a way to differentiate themselves from their competitors. Ultimately, verification helps
build trust while communicating how much a retailer cares about the authenticity of the claims on their products.
Government
Regulation: Regulations including the U.S. Department of Agriculture’s (“USDA”) Animal Disease Traceability program,
international export requirements, non-GMO and gluten-free testing requirements, and ingredient labeling regulations are all impacting
product verification. Verification programs add value to products. In addition to adding value, they also enable access to new market
opportunities, which include international exports.
Growth
Strategy
Due
to organic growth in our portfolio of auditing standards, consumer demand and acquisitions, our sales have grown rapidly from $1.1 million
in 2006 to $24.9 million in 2025, a 19-year compounded annual growth rate (“CAGR”) of approximately 17.87%.
Our
growth strategy is as follows:
INDUSTRY
BACKGROUND
The
value-added food industry has been growing rapidly for the past several years in response to increased consumer interest about social
responsibility, sustainability and food safety production practices. We continue to see a growing interest from consumers regarding how
their food is produced. We are in an increasingly global food market with food products traveling around the world, and brands differentiating
themselves in the market. These key drivers are increasing the number of food labeling claims made on food products.
Natural
and/or organic are examples of food labels that indicate that the food or other agricultural product has been produced in a certain way.
Natural and organic sales are only part of the story of how consumers look for the verification of practices tied to food labeling claims.
Other factors are also becoming increasingly more important to consumers, evidenced on menus and product labels. While not an exhaustive
list, some of the issues that farms, ranches, producers, processors, restaurants and retailers are addressing include how animals are
cared for and handled, how a product’s production impacts the environment and societies, and what inputs were used in the production
of food items (like antibiotics).
As
consumers want more assurance about the trustworthiness of labeling claims, there is a growing trend for verification of practices around
sustainability. As the agriculture, livestock and food industries continue to mature and expand internationally, there is an increasing
need to record, manage, report and verify information regarding the source, age, genetic background, animal husbandry, environmental
stewardship, practices surrounding the people and community, and other credence attributes. We believe verification of labeling claims
by an independent third-party can meet consumer demands and expectations. Third-party verification also benefits producers, processors,
distributors, restaurants, and retailers by addressing marketplace differentiation and global competitiveness.
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
Market
Driver #2 - Global competitiveness and risk mitigation among producers, restaurants, and retailers
Market
Driver #3 - Government regulation
REVENUES
We
offer a wide array of services, including verification, certification, consulting and other professional services, to help food producers,
brands and consumers differentiate certain attributes and production methods in the marketplace. We sell our services directly to customers
at various levels in the agriculture, food and livestock supply chain. Most of our service offerings can be bundled to provide a “one-stop
shop” for customers that have multiple levels of verification and certification needs, such as source verification and food safety
certification. Our customers include some of the largest U.S. beef and pork packers, organic producers and processors, and specialty
retail chains. No single customer generated more than 10% of the Company’s consolidated revenue in 2025 or 2024.
Verification
and Certification Revenue
Our
verification and certification service revenues consist of fees charged for verification audits and other verification and certification
related services 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. We are recognized and utilized by numerous
standard-setting bodies as an accredited verification or certification service provider. We enable food producers and brands to make
certain claims on live animals or packaged food products by verifying that they are meeting the standards or guidelines associated with
the claim(s) they are making. For the years ended December 31, 2025 and 2024, our third-party verification programs provided 80.8% and
79.8% of our total revenue, respectively.
Product
Sales
Our
product sales are an ancillary part of our verification and certification services and represent sales of cattle identification ear tags.
Our product sales allow us to offer our customers a comprehensive solution. Approximately 14.5% and 14.8% of our total revenue was generated
by the sale of product during the years ended December 31, 2025 and 2024, respectively.
Professional
Services Revenue
Professional
services include a wide range of professional consulting, data analysis, reporting and technology solutions that support our verification
business and generate incremental revenue specific to the food and agricultural industry.
MARKETING
Our
marketing strategy includes direct marketing, advertising, event sponsorship, and trade show participation. From a public relations perspective,
members of our staff are frequently quoted in industry trade journals and requested as speakers at various industry events as subject
matter experts on the topics of animal identification, traceability, branding, third-party verification and certification, and the USDA
verification programs.
In
order to reach additional customers, we continually develop strategic marketing partnerships with leading companies in the industry with
complementary abilities and products. We do not currently rely on any third-party contracts with distributors, licensors or manufacturers
in conducting our business.
We
also use social media sites such as Facebook and X.com to help promote our business, market our product offerings, and connect consumers
with current topics in agriculture, livestock and food industries.
COMPETITION
The
competition for third-party verification services in the food and agriculture industry is growing more intense, especially within the
organic market. As of December 31, 2025, we estimate there are approximately eight key competitors serving the food and agricultural
industry, including Quality Assurance International, California Certified Organic Farmers, Oregon Tilth, Organic Crop Improvement Association,
Earth Claims, FoodChain ID, NSF International, SGS and SCS Global Services. Differentiation hinges upon understanding all facets of food
verification and the complex compliance challenges to make product verifications efficient, cost-effective, and seamless. Our core business
and expertise focus on the “on farm” verifications to a variety of standards, guidelines and criteria, including source verification,
natural, animal care and well-being, and sustainability verification.
SEASONALITY
Our
business is subject to seasonal fluctuations annually. Significant portions of our verification and certification service revenue is
typically realized during late May through early October when the calf marketings and the growing seasons are at their peak. 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.
Additionally,
the cattle industry is cyclical by nature based on factors impacting current and future supplies such as drought-induced feedlot placements,
higher cow and heifer slaughter, and lower auction receipts. The production lags inherent to this industry lead to long-lasting impacts
of production decisions. For example, increased liquidation implies tighter supplies for next year. Similarly, times of herd expansion
are typically a multi-year period. Historically, these cycles typically lasted approximately 10 years. The beginning of 2025 marks the
eleventh year of the current cycle that began in 2014. We are currently in the contraction phase of the cycle after peaking in 2018-2019.
How long we continue to contract will be directly impacted by drought and pasture conditions.
INTELLECTUAL
PROPERTY
We
create, own and maintain a variety of intellectual property assets that we believe are among our most valuable assets. Our intellectual
property assets include our internally developed software, patents and patent applications related to our innovations, tradenames and
trademarks related to our brands, products and services, and other property rights. We also have licensing arrangements when features
from our programs are desirable to incorporate into either a new or an existing technology we offer. We seek to protect our intellectual
property right assets through patent, copyright, trade secret, trademark and other laws of the United States and other countries, and
through contractual provisions. Additional information regarding certain risks related to our intellectual property is included in Part
I, Item 1A “Risk Factors” of this Annual Report on Form 10-K.
EMPLOYEES
As
of December 31, 2025, we had 100 total employees, of which 89 were full-time employees. Approximately 84% of our workforce is comprised
of female and other minority employees. Our future success is substantially dependent upon the performance of our key senior management
personnel, as well as our ability to attract and retain highly qualified technical personnel. Additional information regarding certain
risks related to our employees is included in Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K.
AVAILABLE
INFORMATION
Our
corporate website is located at www.wherefoodcomesfrom.com. We make available free of charge on our investor relations website under
“SEC Filings” our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments
to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the U.S. Securities and
Exchange Commission (the “SEC”). Further, a copy of this Annual Report on Form 10-K is located at the SEC’s Public
Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room can
be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements
and other information regarding our filings at http://www.sec.gov.
INFORMATION
ABOUT OUR EXECUTIVE OFFICERS
John
Saunders, 54, founded the Company in 1998 and has served as the Chief Executive Officer since then.
Mr. Saunders is also the Chairman of the Board of Directors of the Company and has served in this position since 1998. Previously, Mr.
Saunders was a partner and consultant for Pathfinder Consulting Services, Inc. in Parker, Colorado. An expert in both technology and
the livestock industry, Mr. Saunders is a graduate of Yale University.
Leann
Saunders, 55, began working for the Company in 2003 and has been the President of the Company since
2008. Mrs. Saunders is also a Director on our Board of Directors and has served in this position since January 2012. Prior to 2003, Mrs.
Saunders worked for PM Beef Holdings (“PM”), an integrated beef company, and developed a supply system for PM’s Ranch
to Retail product line and managed PM’s USDA Process Verified program. She then served as the company’s Vice President of
Marketing and Communications. Prior to joining PM in 1996, Mrs. Saunders worked for McDonald’s Corporation as a Purchasing Specialist,
and Hudson Foods Corporation. Mrs. Saunders graduated with a B.S. in Agriculture Business and an M.S. in Beef Industry Leadership from
Colorado State University. Mrs. Saunders currently sits on the Colorado State University Agriculture Dean’s Advisory Board, the
University of Nebraska’s Engler Agribusiness Entrepreneurship Program Advisory Board, the Board of Directors for the International
Stockmen’s Education Foundation and was the Chair for the United States Meat Export Federation for the 2015-2016 year.
Dannette
Henning, 56, has been the Chief Financial Officer of the Company since January 2008. Prior to her
appointment, she was engaged by the Company as a consultant beginning in November 2007. From 2004 to 2007, Mrs. Henning was the Corporate
Controller for Einstein Noah Restaurant Group. From 2001 to 2003, she served as the Controller for Vari-L Company. Mrs. Henning’s
previous experience includes financial management positions with KPMG Peat Marwick, DF&R Restaurant Company, and CSI/CDC Company.
Mrs. Henning is a Certified Public Accountant with more than 30 years of professional experience. She received a B.B.A. degree in Accounting
from the University of Texas at Arlington.
Jason
Franco, 49, has been the Chief Technology Officer of the Company since August 2021. Previously,
Mr. Franco served as Senior Vice President of Technology since September 2018 when WFCF acquired JVF Consulting, LLC, the consulting
firm Mr. Franco founded in 2004 serving as President. From 2000 to 2004, Mr. Franco worked as a technical application consultant and
integration specialist with Peoplesoft / Oracle. He began his career in 1998 as a software developer with John Deere Special Technologies
Group, where he specialized in traceability applications. He received his B.S. degree in Computer Science from the University of the
Pacific in Stockton, CA.
Family
Relationships
John
Saunders, our CEO and Chairman of the Board, is married to Leann Saunders, our President. Both Mr. and Mrs. Saunders serve on our Board
of Directors.
ITEM 1A.RISK FACTORS
In
addition to the other information included in this report and our other public filings and releases, the following factors should be
considered when evaluating our business, financial condition, results of operations and prospects:
We
have been in a multi-year period of managing inflation and economic uncertainty
For
approximately 4 years, the economy has been facing inflationary pressures which resulted in a few challenges for our business, most notably
in the form of a tight labor market where job candidates have considerable bargaining power which has driven wages up. Additionally,
we are experiencing higher labor and benefit related costs to retain our existing personnel. We believe we will continue to see significant
pressure on our labor and benefit related costs which impacts both our gross margins and net income.
We
also continue to monitor for weakened demand in our professional services business segment due to significant customer concentration.
Economic uncertainty could continue to put pressure on our customers’ timing of approval for consulting projects to move forward.
Currently, it is difficult to estimate the financial impact to this revenue stream, if any. We actively market our sustainability solutions
and services to new types of customers. We believe the growing awareness of environmental, social and governance (“ESG”)
matters creates a key opportunity for us because we have the expertise and technology needed to help companies achieve ESG objectives
within the food supply chain by specifically focusing on climate, land stewardship and sustainability metrics.
Unfavorable
global economic conditions, including any adverse macroeconomic conditions or geopolitical events, including the conflict between Ukraine
and Russia, and the conflict between Israel and Hamas could adversely affect our business, financial condition, results of operations
or liquidity.
Our
results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. Global
economic and business activities continue to face widespread uncertainties, and global credit and financial markets have experienced
extreme volatility and disruptions in the past several years, including severely diminished liquidity and credit availability, rising
inflation and monetary supply shifts, rising interest rates, labor shortages, declines in consumer confidence, declines in economic growth,
increases in unemployment rates, recession risks, and uncertainty about economic and geopolitical stability. A severe or prolonged economic
downturn, or additional global financial or political crises, could result in a variety of risks to our business, including weakened
demand for our products and/or services or our ability to raise additional capital when needed on acceptable terms, if at all. The extent
of the impact of these conditions on our operational and financial performance, including our ability to execute our business strategies
and initiatives in the expected timeframe, will depend on future developments which are uncertain and cannot be predicted. Any of the
foregoing could harm our business and we cannot anticipate all the ways in which the current economic climate and financial market conditions
could adversely impact our business. Furthermore, our stock price may decline due in part to the volatility of the stock market and the
general economic downturn.
We
face risks due to changing weather patterns and other environmental factors
Over
the past several years, changing weather patterns and climatic conditions have added to the unpredictability and frequency of
natural disasters, such as drought, hailstorms, wildfires and wind, snow and ice storms. Any such extreme weather condition can
negatively impact a significant portion of our customers who produce food (including all major species of animal-based protein or
edible plant variety) in various regions. For example, the drought conditions that impacted nearly one-half of the United States in
the first half of 2022 predominately affected our ranch customers resulting in fewer cattle subject to verification. In the
nation’s top 10 beef-producing states — responsible for nearly 60% of the country’s beef production — half
of the states reported the lowest number of cattle since 1995 as of the beginning of 2024, according to an Investigate Midwest
analysis of the USDA’s data. Tight cattle supply affects our audit-related
revenue, product sales and other related supply chain fees due to smaller herd sizes and weakened demand for verified cattle. We
cannot anticipate changes in weather patterns/conditions, and we cannot predict their impact on our customer’s operations if
they were to occur.
Additionally,
the cattle industry is cyclical by nature based on factors impacting current and future supplies such as drought-induced feedlot placements,
higher cow and heifer slaughter, and lower auction receipts. The production lags inherent to this industry lead to long-lasting impacts
of production decisions. For example, increased liquidation implies tighter supplies for next year. Similarly, times of herd expansion
are typically a multi-year period. Historically, these cycles typically lasted approximately 10 years. The beginning of 2025 marks the
eleventh year of the current cycle that began in 2014. We are currently in the contraction phase of the cycle after peaking in 2018-2019.
How long we will continue to contract will be directly impacted by drought and pasture conditions.
If
the operating results of our customers are impaired, the financial resources of our customers may limit purchases of our verification
solutions and consulting services. Therefore, our ability to generate revenue is subject to the risks and uncertainties relating to the
financial condition of our customers.
We
operate in a competitive industry with a limited market characterized by changing technology, frequent introductions of new service offerings,
service enhancements, and evolving industry standards.
We
compete with many other vendors of products and services designed for tracking cattle and other livestock, for herd management, for crop
production practices and other verification of marketing claims over processed foods. Our competitors range from small start-up companies
to multi-national firms. Our competitors may have significantly more financial, technical and marketing resources than we do. Competition
is likely to intensify as current competitors expand their service offerings and as new companies enter the market. Additionally, competition
may intensify as our competitors enter into business combinations or alliances, and established companies in other market segments expand
to become competitive with our business. Increasing competition may result in reduced margins and the loss of market share. Our competitors
may offer broader service offerings or technologies that are more commercially attractive and gain greater market acceptance than our
current or future products. Additionally, new technology may render our products and services obsolete.
The
success of our business model depends on the broad acceptance of our technologies into markets that are continuing to develop as a result
of the increasing focus on sustainably produced foods, food safety and assurance.
We
are currently benefiting from a slow but growing movement among the agriculture, livestock and food industries to source and/or age verify
products, and bundle with other marketing claims such as upcycling food ingredients to avoid food waste. This emerging trend is fueled
in part by consumers’ focus on sustainable practices, food safety and assurance. However, we can offer no assurances that there
will be market acceptance of our technologies. Furthermore, some of our primary target segments within the agriculture, livestock and
food industries are experiencing unpredictable economic conditions and are expected to continue to struggle with supply, trade and profitability
issues in the near term. Although we believe that our products, if adopted on a wide-scale basis, would have a significant impact on
diverting food waste, and improving the safety, quality and confidence in the world’s food supply, our customers for these products
historically have been very sensitive to costs and reluctant to adopt new technologies and business practices.
We
face risks of rapidly changing regulations which may negatively impact our programs.
Regulations
and standards are continually evolving and present a challenging risk. For example:
Due
to our commitment to innovation, diversification of our product offerings, and our strategy of managing profitability, we believe we
can quickly minimize the impact of any adverse changes in regulations or verification standards. While we attempt to mitigate these risks,
we can give no assurance that we will be successful in overcoming the potential negative impact on the results of our operations.
Increased
scrutiny and changing expectations from stakeholders with respect to the Company’s ESG practices may result in additional costs
or risks.
Companies
across many industries are facing increasing scrutiny related to their environmental, social and governance (“ESG”) practices.
Investor advocacy groups, certain institutional investors, investment funds and other influential investors are also increasingly focused
on ESG practices and in recent years have placed increasing importance on the non-financial impacts of their investments. We take social
responsibility very seriously. It’s the entire reason we spend day in and day out helping farmers, ranchers and brands around the
world provide transparency to their consumers by communicating authentic, sustainable and traceable stories that directly impact our
future. However, if our ESG practices do not meet investor or other industry stakeholder expectations, which continue to evolve, we may
incur additional costs. Also, our brand, ability to attract and retain qualified employees and business may be harmed.
We
face risks that parasites, highly contagious diseases or viral outbreaks may negatively impact the source of product we are able to verify
and/or impact the efficiency in which we conduct ongoing business operations.
Today,
parasites, infectious disease and viral outbreaks appear to be emerging more quickly than ever, in both human and animals. For example,
Porcine Epidemic Diarrhea Virus (“PEDv”) negatively impacted the pork/sow industry in 2014 and Highly Pathogenic Avian Influenza,
more commonly known as Bird Flu, impacted poultry operations in 2016 and continues to impact poultry operations today. In 2024, other
species such as dairy cattle were infected with an adaptation of the Bird Flu virus. In March 2020, the Global Health Organization declared
the outbreak of the Corona Virus as a pandemic in human populations. More recently, the New World Screwworm has been detected in Mexico
near the Texas border, raising concerns for US livestock. Parasites, contagious diseases or viral outbreaks create increased bio-exclusion
and social distancing considerations in our business.
These
diseases and viral outbreaks frequently impact our business resulting in some customers requesting postponement of onsite visits. We
work closely with our customers and standard setting bodies to identify innovative solutions and reschedule onsite visits as timely as
possible. We also closely monitor the situation and react accordingly to any future restrictions or limitations, while keeping the interests
of our customers, employees, and business operations in mind.
We
have created innovative solutions that mitigate the risk of transferring disease but due to uncertainty in the severity and duration
of various diseases and viral outbreaks, we can give no assurance that we will be successful in overcoming the impact on our business
operations, employees, customers, and suppliers which could negatively impact our business revenues, profitability and financial condition.
In
the event that market demand for third-party verified products declines, our customers may not be able to generate sufficient revenues
to justify the purchase of our verification solutions and consulting services.
Public
attitudes towards food production practices may be influenced by claims that these products are unsafe for consumption or pose unknown
health risks. For example, decreased demand for beef and other livestock products could have a material adverse effect on the operating
results and financial condition of our existing or prospective customers. If operating results of our customers are impaired, the resources
that our customers can devote to building information systems for tracking cattle and other livestock and herd management are reduced,
which in turn may limit purchases of our verification solutions and consulting services. Therefore, our ability to generate revenue is
subject to the risks and uncertainties relating to the financial condition of our customers.
We
look for opportunities to expand our presence in international markets in which we may have limited experience, and inherently international
operations are subject to increased risks which could harm our business, operating results and financial condition.
We
continually seek to expand our product and service offerings in international markets. As we expand into new international markets, we
will have only limited experience in marketing and operating our products and services in such markets. In other instances, we may rely
on the efforts and abilities of foreign business partners in such markets. Certain international markets may develop more slowly than
domestic markets, and our operations in international markets may not develop at a rate that supports our level of investment.
In
addition to uncertainty about our ability to expand into international markets, there are certain risks inherent in doing business internationally,
including, but not limited to:
● trade barriers and changes in trade regulations;
● differing local labor laws and regulations;
● longer payment cycles;
● currency exchange rate fluctuations;
● political or social unrest or economic instability;
● import or export restrictions;
● seasonal volatility in business activity;
● potentially adverse tax consequences.
One
or more of these factors could harm our future international operations and consequently could harm our brand, business, operating results
and financial condition.
Our
business could suffer if we are unsuccessful in making, integrating, and maintaining our acquisitions and investments.
We
have acquired and invested in a number of companies, and we may acquire or invest in or enter into joint ventures with additional companies.
These transactions create risks such as:
● problems retaining key personnel;
As
a result of future acquisitions or mergers, we might need to issue additional equity securities, spend our cash, or incur debt, contingent
liabilities, or amortization expenses related to intangible assets, any of which could reduce our profitability and harm our business.
In addition, valuations supporting our acquisitions and strategic investments could change rapidly given the current global economic
climate. We could determine that such valuations have experienced impairments or other-than-temporary declines in fair value which could
adversely impact our financial results.
Federal,
state or local laws and regulations, or our failure to comply with such laws and regulations, could increase our expenses and expose
us to legal risks.
We
are subject to a wide range of general and industry-specific laws and regulations imposed by federal, state and local authorities such
as sales tax, intellectual property infringement, zoning and occupancy matters. In addition, various federal and state laws govern our
relationship with, and other matters pertaining to, our employees, including wage and hour laws, laws governing independent contractor
classifications, requirements to provide meal and rest periods or other benefits, family leave mandates, requirements regarding working
conditions and accommodations to certain employees, citizenship or work authorization and related requirements, insurance and workers’
compensation rules and anti-discrimination laws. We believe that we have complied with these laws and regulations; however, there is
a risk that we will become subject to claims that allege we have failed to do so. Any claim that alleges a failure by us to comply with
any of the foregoing laws and regulations may subject us to fines, penalties, injunctions, litigation and/or potential criminal violations,
which could adversely affect our reputation, business, financial condition and operating results.
Any
changes to the foregoing laws or regulations or any new laws or regulations that are passed or go into effect may make it more difficult
for us to operate our business and in turn adversely affect our operating results.
We
may also be subject to audits by various taxing authorities. Similarly, changes in tax laws in any of the multiple jurisdictions in which
we operate, or adverse outcomes from tax audits that we may be subject to in any of the jurisdictions in which we operate, could result
in an unfavorable change in our effective tax rate, which could adversely affect our business, financial condition and operating results.
Our
future success depends upon our ability to obtain and enforce patents; prevent others from infringing on our patents, trademarks and
other intellectual property rights; and operate without infringing upon the patents and proprietary rights of others.
We
will be able to protect our intellectual property (“IP”) from unauthorized use by third parties only to the extent that it
is covered by valid and enforceable patents and trademarks. IP protection generally involves complex legal and factual issues and, therefore,
the enforceability of IP rights cannot be predicted with certainty. Moreover, the laws of some foreign countries do not protect proprietary
rights to the same extent as do the laws of the United States. In the event that IP owned by us does not provide adequate protection,
we may not be able to prevent competitors from offering substantially similar products and services.
In
the event that third parties claim that our current or future products or services infringe upon their intellectual property, we may
face litigation and be prevented from selling the products and services at issue. Infringement or other claims could be asserted or prosecuted
against us in the future, and it is possible that past or future assertions or prosecutions could harm our business. Litigation either
in defense of our IP rights or in response to infringement claims made by others may be both expensive and time consuming, which in turn
would adversely affect our business.
A
significant data breach or information technology system disruption could adversely affect our business, financial results, or reputation,
and we may be required to increase our spending on data and system security.
We
rely heavily on information technology networks and systems, including the Internet, to manage or support a wide variety of important
business processes and activities throughout our operations.
Our
information technology systems may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading
or replacing software, databases or components thereof, power outages, hardware failures, computer viruses, cyber-attacks, ransomware
attacks, malware attacks, malicious employees or other insiders, telecommunications failures, human errors or catastrophic events. Hackers,
foreign governments, cyber-terrorists and cyber-criminals, acting individually or in coordinated groups, may launch distributed denial
of service attacks or other coordinated attacks that may cause service outages, gain inappropriate or block legitimate access to systems
or information, or result in other interruptions in our business. Such attacks are increasing in their frequency, levels of persistence,
levels of sophistication and intensity. In addition, breaches in security could expose us and our customers, or the individuals affected,
to a risk of loss or misuse of proprietary information and sensitive or confidential data, including personal information of customers,
employees and others. Like many other companies, we experience attempted cybersecurity actions on a periodic basis, and the frequency
of such attempts could increase in the future. While we have invested in the protection of data and information technology, there can
be no assurance that our efforts will prevent or quickly identify service interruptions or security breaches. The techniques used by
cybercriminals change frequently, may not be recognized until launched and can originate from a wide variety of sources. We cannot assure
that our data protection efforts and our investment in information technology will prevent significant breakdowns, data leakages or breaches
in our systems or those of our third-party services providers or partners.
We
also depend on and interact with the information technology networks and systems of third parties for many aspects of our business operations,
including our customers and service providers such as cloud service providers and third-party delivery services. These third parties
may have access to information we maintain about our company, operations, customers, employees and vendors, or operating systems that
are critical to or can significantly impact our business operations. Like us, these third parties are subject to risks imposed by data
breaches and cyber-attacks and other events or actions that could damage, disrupt or close down their networks or systems. Security processes,
protocols and standards that we have implemented and contractual provisions requiring security measures that we may have sought to impose
on such third parties may not be sufficient or effective at preventing such events, which could result in unauthorized access to, or
disruptions or denials of access to, or misuse of, information or systems that are important to our business, including proprietary information,
sensitive or confidential data, and other information about our operations, customers, employees and suppliers, including personal information.
Any
of these events that impact our information technology networks or systems, or those of acquired businesses, customers, service providers
or other third parties, could result in disruptions in our operations, the loss of existing or potential customers, damage to our brand
and reputation, regulatory scrutiny, and litigation and potential liability for the Company. Among other consequences, our customers’
confidence in our ability to protect data and systems and to provide services consistent with their expectations could be impacted, further
disrupting our operations. Similarly, an actual or alleged failure to comply with applicable U.S. or foreign data protection regulations
or other data protection standards may expose us to litigation, fines, sanctions or other penalties.
We
have invested and continue to invest in technology security initiatives, information technology risk management and disaster recovery
plans. The cost and operational consequences of implementing, maintaining and enhancing further data or system protection measures could
increase significantly to overcome increasingly intense, complex and sophisticated global cyber threats. Despite our best efforts, we
are not fully insulated from data breaches and system disruptions. There is no assurance that such impacts will not be material in the
future, and our efforts to deter, identify, mitigate and/or eliminate future breaches may require significant additional effort and expense
and may not be successful.
Our
future success depends to a significant degree upon the continued service of key senior management personnel, in particular, John and
Leann Saunders.
Both
John and Leann Saunders’ reputation and prominence in the field provide us with a strong competitive advantage. While they are
currently bound by employment agreements, we can offer no assurance that John and/or Leann Saunders will be able to continue to work
for us in the event of an unforeseen accident, severe injury or major disease, or on a long-term basis. The loss of key personnel could
have a material adverse effect on our business and operating results.
Directors,
executive officers, principal stockholders and affiliated entities beneficially own or control a significant amount of our outstanding
common stock and together meaningfully influence our activities.
As
of February 18, 2026, John Saunders, our Chairman and CEO, and Leann Saunders, our President, beneficially owned in the aggregate approximately
34.5% of our common stock. The Saunders, together with the rest of our Board, beneficially own approximately 53.5% of our common stock.
These directors and officers, if they determine to vote in the same manner, would have a significant impact on the outcome of any matter