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Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2024
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | Note 2 - Summary of Significant Accounting Policies Cash and Cash Equivalents We place our cash with high quality financial institutions. At times, cash balances may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit; however, we have not experienced any losses related to balances that exceed such FDIC insurance limits (currently $250,000), and we believe our credit risk is minimal. At times, we may also invest in short-term investments with original maturities of three months or less, which we consider to be cash and cash equivalents, since they are readily convertible to cash. Where Food Comes From, Inc. Notes to the Consolidated Financial Statements 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. We recognize revenue utilizing an input method to measure over-time progress of each verification audit based on the number of audit days performed. For certain of our third-party crop and other processed product audits, we assess a fixed fee for the annual certification period. We recognize revenue utilizing 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. Product sales are primarily generated from the sale of cattle identification ear tags. 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. Professional Services Segment Professional services, data analysis and other reporting fees are derived from a standard rate card by employee level, and we invoice for services monthly on a time-incurred basis. We recognize revenue over time utilizing the practical expedient that allows us to recognize revenue in the amount to which we have a right to invoice. Other Generally, we do not provide right of return or warranty on product sales or services performed. In connection with the provision of on-site audits, 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. Our business is subject to seasonal fluctuations. Significant portions of our verification and certification service revenue is typically realized during late May through early October when the calf marketings and the growing seasons are at their peak. Although this seasonality does not impact our policies for revenue recognition, it does generally impact our results of operations by potentially causing an increase in our profit margins during May through October and decreased margins during November through April. Additionally, the cattle industry is cyclical by nature based on factors impacting current and future supplies such as drought-induced feedlot placements, higher cow and heifer slaughter, and lower auction receipts. The production lags inherent to this industry lead to long-lasting impacts of production decisions. For example, increased liquidation implies tighter supplies for next year. Similarly, times of herd expansion are typically a multi-year period. Historically, these cycles typically lasted approximately 10 years. The beginning of 2024 marks the tenth 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. Where Food Comes From, Inc. Notes to the Consolidated Financial Statements Disaggregation of Revenue We have identified three material revenue categories in our business: (i) verification and certification service revenue, (ii) product sales, and (iii) professional service revenue. Revenue attributable to each of our identified revenue categories is disaggregated in the table below (amounts in thousands). Schedule of Revenue Attributable to Each of Our Identified Revenue Categories
|  | Verification and Certification Segment |  |  | Professional Services Segment |  |  | Eliminations and Other |  |  | Consolidated Totals |  |  | Verification and Certification Segment |  |  | Professional Services Segment |  |  | Eliminations and Other |  |  | Consolidated Totals |
|  | Year ended December 31, 2024 |  |  | Year ended December 31, 2023 |
|  | Verification and Certification Segment |  |  | Professional Services Segment |  |  | Eliminations and Other |  |  | Consolidated Totals |  |  | Verification and Certification Segment |  |  | Professional Services Segment |  |  | Eliminations and Other |  |  | Consolidated Totals |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Verification and certification service revenue |  | $ | 20,552 |  |  | $ | - |  |  | $ | - |  |  | $ | 20,552 |  |  | $ | 19,413 |  |  | $ | - |  |  | $ | - |  |  | $ | 19,413 |
Product sales |  |  | 3,803 |  |  |  | - |  |  |  | - |  |  |  | 3,803 |  |  |  | 4,001 |  |  |  | - |  |  |  | - |  |  |  | 4,001 |
Professional services |  |  | - |  |  |  | 1,391 |  |  |  | - |  |  |  | 1,391 |  |  |  | - |  |  |  | 1,721 |  |  |  | - |  |  |  | 1,721 |
Total revenues |  | $ | 24,355 |  |  | $ | 1,391 |  |  | $ | - |  |  | $ | 25,746 |  |  | $ | 23,414 |  |  | $ | 1,721 |  |  | $ | - |  |  | $ | 25,135 |
As of December 31, 2024 and 2023, accounts receivable from contracts with customers, net of allowance for doubtful accounts, were approximately $1.8 million and $2.1 million, respectively. As of December 31, 2024 and 2023, deferred revenue from contracts with customers were approximately $1.7 million and $1.5 million, respectively. The balance of the contract liabilities at December 31, 2023 was recognized as revenue in 2024 and the balance at December 31, 2024 is expected to be recognized as revenue during 2025. The following table reflects the changes in our contract liabilities during the year ended December 31, 2024 and 2023: Schedule of Changes in Contract Liabilities
Deferred revenue (in thousands): |  | 2024 |  |  | 2023 |
Deferred revenue January 1 |  | $ | 1,485 |  |  | $ | 1,278 |
Unearned billings |  |  | 3,757 |  |  |  | 3,618 |
Revenue recognized |  |  | (3,494 | ) |  |  | (3,411 | )
Deferred revenue December 31 |  | $ | 1,748 |  |  | $ | 1,485 |
Cost of Revenues Salaries and related fringe benefits directly associated with our verification and certification service revenues are allocated to costs of verification and certification services. Costs of products primarily represents the cost of livestock EID ear tags generally used in connection with our verification programs. Costs of professional services include direct costs of salaries and related fringe benefits, and fees incurred from other service providers directly related to our professional services revenue. Where Food Comes From, Inc. Notes to the Consolidated Financial Statements Accounts Receivable and Allowance for Doubtful Accounts Our receivables are generally due from trade customers. Credit is extended based on our evaluation of the customer’s financial condition, and generally collateral is not required. Accounts receivable are generally due approximately 30 days from the invoice date and are stated at amounts due from customers, net of an allowance for doubtful accounts. Accounts receivable that are outstanding longer than the contractual payment terms are considered past due. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss and payment history, the customer’s current ability to pay its obligations to us and the condition of the general economy and the industry as a whole. We write-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. The allowance for doubtful accounts was approximately $64,000 and $55,000, respectively, at December 31, 2024 and 2023. At December 31, 2024 and 2023, no single customer accounted for greater than 10% of our accounts receivable balance. Fair Value Measurements ASC Topic 820, Fair Value Measurements and Disclosure, establishes a hierarchy for inputs used in measuring fair value for financial assets and liabilities that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
| ● | Level 1: Quoted prices available in active markets for identical assets or liabilities;
| ● | Level 2: Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability;
| ● | Level 3: Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash or valuation models.
The financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The Company’s non-recurring fair value measurements include purchase price allocations for the fair value of assets and liabilities acquired through business combinations. The acquisition of a group of assets in a business combination transaction requires fair value estimates for assets acquired and liabilities assumed. The fair value of assets and liabilities acquired through business combinations is calculated using a discounted future cash flows method. The discounted cash flows are developed using the income approach in which a value (based on management’s expectations for the future) is determined by converting anticipated benefits. The fair value measurements are based on significant inputs not observable in the market and thus represent fair value measurements which are designated as Level 3 inputs within the fair value hierarchy. Key assumptions and considerations include:
| a) | A discount rate range of 19-32 percent;
| b) | Terminal value based on long-term sustainable growth rates of 3 percent;
| c) | Financial data of comparable companies for market participant assumptions; and
| d) | Consideration of the marketability that market participants would consider when measuring the fair value of a non-controlling interest in our acquisition.
Where Food Comes From, Inc. Notes to the Consolidated Financial Statements Other Financial Instruments The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair value due to their short maturities. The carrying values shown for short-term investments, long-term investments and notes payable also approximate fair value because current interest rates and terms offered to us for similar instruments are substantially the same (Level 2 inputs). Inventory Inventory consists of cattle identification ear tags and tag readers, which are recorded at the lower of cost or market value, with the cost calculated using the first-in-first-out (FIFO) method. Market value represents the estimated selling price. We do not manufacture any of the items in inventory. All items in inventory are finished goods. As of December 31, 2024, there is no indication of obsolescence or impairment of inventory. No items in inventory have been pledged as security. Property and Equipment Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful-lives of the respective assets. Leasehold improvements are depreciated over the shorter of the lease term, which generally includes reasonably assured option periods, or the estimated useful-lives of the assets, in accordance with ASC842. All other property and equipment have depreciable lives which range from two to seven years. Upon retirement or disposal of assets, the accounts are relieved of cost and accumulated depreciation and the related gain or loss is reflected in earnings. Digital Assets Digital assets or “cryptocurrency” are included in non-current assets in the Consolidated Balance Sheets due to the Company’s investment in digital assets. The Company does not accept or receive digital assets for transactional purposes. We have ownership of and control over our digital assets and use a third-party custodial service to secure it. Effective January 1, 2024, the Company measures the digital assets at fair value with changes recognized in net income each reporting period. See Note 5 for implementation accounting. Prior to January 1, 2024, digital assets were held as indefinite-lived intangible assets in accordance with ASC Topic 350 – Intangibles-Goodwill and Other. The digital assets were initially recorded at cost and subsequently remeasured on the consolidated balance sheet at cost, net of any impairment losses incurred since acquisition as of December 31, 2023. Where Food Comes From, Inc. Notes to the Consolidated Financial Statements Goodwill and Other Intangible Assets Goodwill represents the excess of purchase price over fair value of tangible net assets of acquired businesses at the acquisition date, after amounts allocated to other identifiable intangible assets. Factors that contribute to the recognition of goodwill include synergies that are specific to our business and not available to other market participants and are expected to increase net sales and profits; acquisition of a talented workforce; cost savings opportunities; the strategic benefit of expanding our presence in core and adjacent markets; and diversifying our product portfolio. The fair values of other identifiable intangible assets are determined using the income approach or fair value measurement. Other intangible assets include, but are not limited to, developed technology, customer relationships, accreditations, tradenames/trademarks, patents and digital assets. Intangible assets with determinable useful-lives are amortized on a straight-line basis over their estimated useful-lives of two to 15 years. Certain acquired trade names and digital assets are considered to have indefinite lives and are not amortized but are assessed at least annually for potential impairment as described below. Goodwill, Intangibles and Long-Lived Asset Impairment Tests We perform our annual impairment test for goodwill in the fourth quarter of each year. We consider qualitative indicators of the fair value of a reporting unit when it is unlikely that a reporting unit has impaired goodwill. In certain circumstances, we may also utilize a discounted cash flow analysis that requires certain assumptions and estimates be made regarding market conditions and our future profitability. Indefinite-lived intangible assets are also tested at least annually for impairment by comparing the individual carrying values to the fair value. We review long-lived assets for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, or at least annually. The evaluation is performed at the lowest level of identifiable cash flows. Undiscounted cash flows expected to be generated by the related assets are estimated over the asset’s useful life based on updated projections. If the evaluation indicates that the carrying amount of the asset may not be recoverable, any potential impairment is measured based upon the fair value of the related asset or asset group as determined by an appropriate market appraisal or other valuation technique. We determine the fair value of our digital assets on a quarterly basis based on quoted prices on the active exchange(s) that we have determined is the principal market for such assets. We perform an analysis each quarter to identify whether significant events or changes in circumstances, indicate that it is more likely than not that our digital assets are permanently impaired. In determining if an impairment has occurred, we consider the lowest market price of one unit of digital asset quoted on an active exchange since acquiring the digital asset. If the current carrying value of a digital asset significantly exceeds the fair value so determined, a permanent impairment loss has occurred with respect to the digital assets in the amount equal to the difference between their carrying values and the price determined. Research and Development and Software Development Costs Research and development costs are charged to operations as incurred. We did not incur any research and development expense in 2024 and 2023. Internal use software development costs represent the capitalization of certain external and internal computer software costs incurred during the application development stage. The application development stage is characterized by software design and configuration activities, coding, testing and installation. Training costs and maintenance are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditures will result in additional functionality. Where Food Comes From, Inc. Notes to the Consolidated Financial Statements Website software development costs related to certain planning and training costs incurred in the development of website software are expensed as incurred, while application development stage costs are capitalized. Advertising and Marketing Expenses Advertising and marketing costs are expensed as incurred. Total advertising and marketing expenses for the years ended December 31, 2024 and 2023, were approximately $0.8 million and $0.3 million, respectively. Income Taxes We record income taxes under the asset and liability method. Deferred tax assets and liabilities reflect our estimation of the future tax consequences of temporary differences between the carrying amounts of assets and liabilities for book and tax purposes. We determine deferred income taxes based on the differences in accounting methods and timing between financial statement and income tax reporting. Accordingly, we determine the deferred tax asset or liability for each temporary difference based on the enacted tax rates expected to be in effect when we realize the underlying items of income and expense. We consider all relevant factors when assessing the likelihood of future realization of our deferred tax assets, including our recent earnings experience by jurisdiction, expectations of future taxable income and the carryforward periods available to us for tax reporting purposes, as well as assessing available tax planning strategies. We may establish a valuation allowance to reduce deferred tax assets to the amount we believe is more likely than not to be realized. Due to inherent complexities arising from the nature of our businesses, future changes in income tax law, tax sharing agreements or variances between our actual and anticipated operating results, we make certain judgments and estimates. Therefore, actual income taxes could materially vary from these estimates. The accounting standard related to income taxes applies to all tax positions and defines the confidence level that a tax position must meet in order to be recognized in the financial statements. The accounting standard requires that the tax effects of a position be recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date. If a tax position is not considered “more-likely-than-not” to be sustained, then no benefits of the position are to be recognized. Differences between financial and tax reporting which do not meet this threshold are required to be recorded as unrecognized tax benefits. This standard also provides guidance on the presentation of tax matters and the recognition of potential Internal Revenue Service interest and penalties. As of December 31, 2024 and 2023, the Company did not have an unrecognized tax liability. The Company classifies penalty and interest expense related to income tax liabilities as an income tax expense. The Company did not incur any material interest and penalties for the years ended December 31, 2024 and 2023. The Company files income tax returns in the U.S. and various state jurisdictions, and there are open statutes of limitation for taxing authorities to audit our tax returns from 2020 through the current period. Where Food Comes From, Inc. Notes to the Consolidated Financial Statements Stock-Based Compensation 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 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. Calculating stock-based compensation expense using the Black-Scholes-Merton option-pricing model requires the input of highly subjective assumptions, including the expected term of the stock-based awards, stock price volatility, and the pre-vesting option forfeiture rate. We consider many factors when estimating expected forfeitures, including the types of awards, employee classification and historical experience. Actual forfeitures may differ substantially from our current estimate. Under this pricing model, which incorporates ranges of assumptions for inputs, our assumptions are as follows:
● | Dividend yield is based on our historical policy of not paying cash dividends.
● | Expected volatility assumptions were derived from our actual volatilities.
● | The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant with maturity dates approximately equal to the expected term at the grant date.
● | The expected term of options represents the period of time that options granted are expected to be outstanding giving consideration to vesting schedules, based on historical exercise patterns, which we believe are representative of future behavior.
Leases In accordance with ASU 2016-02: Leases (Topic 842), we determine if an arrangement is a lease at inception. Operating leases are included in the right-of-use (ROU) assets, current operating lease liabilities and noncurrent operating lease liabilities in our consolidated balance sheet. Finance leases are included in property and equipment, current finance lease obligations and long-term finance lease obligations in our consolidated balance sheet. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. As the discount rates in the Company’s lease are not implicit, the Company estimated the incremental borrowing rate based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term. Our lease term includes options to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recorded on the balance sheet. Our lease agreements do not contain any residual value guarantees. We have operating and finance leases for corporate offices, other regional offices, and certain equipment. Our leases have remaining lease terms of 1 year to 7 years, some of which include multiple options to extend the leases for up to 5 years each. Where Food Comes From, Inc. Notes to the Consolidated Financial Statements 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 On January 1, 2023, we adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. The adoption of this update did not have an impact on our Consolidated Financial Statements. On January 1, 2024, we adopted ASU 2023-07, Segment Reporting (Topic 28); Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The Company adopted this update January 1, 2024 for annual reporting and January 1, 2025 for quarterly reporting. Effective January 1,2024, we early adopted ASU 2023-08, Intangibles – Goodwill and Other – Crypto Assets (Subtopic 350-60); Accounting for and Disclosure of Crypto Assets, which better reflects the economics of crypto assets, measuring those assets at fair value versus the current cost-less-impairment accounting model. An entity is required to measure crypto assets at fair value with changes recognized in net income each reporting period and report the crypto asset fair value separately from other intangible assets in the balance sheet. As of the effective adoption date, management determined the cumulative retained earnings impact, net of taxes, was $0.1 million. Recently Issued Accounting Pronouncements In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements, which will modify the disclosure or presentation requirements of a variety of Topics in the Codification. The updates align the requirements in the Codification with the SEC’s regulations. The effective date is anticipated to be June 30, 2027. At this time, management has not determined the impact on its financial statements. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740); Improvements to Income Tax Disclosures, which enhance the transparency and decision usefulness of tax disclosures. The Company will be required to adopt this update January 1, 2025 for annual reporting. At this time, management is determining the extent of enhanced disclosures on its financial statements. In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40), which improves disclosures of an entity’s expense by providing more detailed information about the types of expenses in commonly presented expense captions. The Company will be required to adopt this update January 1, 2027 for interim and annual reporting. At this time, management is determining the extent of enhanced disclosures on its financial statements. Where Food Comes From, Inc. Notes to the Consolidated Financial Statements

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