Business Overview

We are a leading provider of verification and communication solutions for the agriculture, livestock and food industry.

We provide our owned and operated online properties and services which specialize in identification and traceability, process, production practice and supply verification, document control for USDA verification programs and third party auditing services. We apply information technology to the agriculture, livestock and food industry by addressing the growing importance of marketing claims such as: source of origin information, genetic background, animal treatment, animal health history, animal age, animal movements, nutrition, carbon credits and other credence attributes. Our solutions provide assurance regarding those claims made that can not be confirmed by visual inspection once the product reaches the meat case and is marketed to the consumer. We have developed a range of proprietary web based applications, consulting methodologies, auditing processes, and other services to allow the livestock and food industry to record, manage, report, and audit this information. Our solutions help our customers establish their own systems, meet government regulations, create their own premium brand identity, gain cost efficiencies and command a higher price for their product.

We stand at the forefront of a rapidly evolving movement to track livestock and verify sources of beef and other livestock products. In the aftermath of the discovery of the first case of mad cow disease in the United States in December, 2003, many of the largest U.S. beef and other livestock export markets were closed resulting in significant losses to the industry. In response to the crisis, several initiatives were enacted to facilitate the reopening of key export markets. Most notably, U.S. suppliers seeking to sell beef and other livestock products to other countries must participate in a pre-approved Quality System Assessment Program so as to have an approved means of verifying specific product requirements. In response, we were the first to develop a USDA Quality System Assessment document management system for auditing the tracking systems used by beef and other livestock producers to verify source and age. We introduced our USVerified Source and Age Verification system in 2005, and over the years we have continued to enhance and further develop programs to address other verification needs including, but not limited to, non-hormone treated cattle (NHTC) and humane handling marketing claims. More recently, we worked with compliance programs, and marketing approaches in advance of completion of the country of origin labeling (COOL) legislation's final rule, requiring meat retailers to display the country of origin on their meat and produce labels. In March 2009, we introduced our VerifiedGreen™ Verification program. This program caters to producers and consumers who are committed to reducing their carbon footprint. Such a program is expected to appeal to forward-thinking producers and retailers who are both environmentally conscious and looking for a marketing edge as well as to consumers who want to support producers practicing good environmental stewardship.

Seasonality

Our business is subject to seasonal fluctuations. Significant portions of our revenues are typically realized during the second and fourth quarters of the fiscal year when the calf marketings 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 March 31, 2009, we had cash and cash equivalents of $30,647 compared to $154,044 of cash and cash equivalents at December 31, 2008. Our working capital at March 31, 2009 was $218,098 compared to $387,901 at December 31, 2008.

Net cash used in operating activities during the first quarter 2009 was $104,650 compared to $126,652 during the same period in 2008. Cash used by operating activities (continuing and discontinued operations) is driven by our net loss and adjusted by non-cash items. Non-cash adjustments primarily include depreciation, amortization of intangible assets and stock based compensation expense. The improvement was primarily driven by the timing of cash receipts and cash disbursements.

Net cash used in investing activities of $53,302 is primarily attributable to capital expenditures. Our capital expenditures were $57,302 and $19,803 for the first quarters ended March 31, 2009 and 2008, respectively. Our capital expenditures are primarily related to purchases and internal development of information technology assets to support our product and service offerings. As we anticipate continued growth, we expect to continue investing additional capital in our information technology assets.

Net cash provided by financing activities of $34,555 during the first quarter ended March 31, 2009 was primarily related to new debt acquired in connection with the acquisition of equipment.

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.

Our plan for continued growth is primarily based upon intensifying our focus on international markets. We believe that there are significant growth opportunities available to us because often the only way to access various restrictions as imposed on international market imports/exports is via a quality verification program, like our USVerified™.com product line.

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. Based on the continued sales growth and overall improvement in our performance, we believe that we will achieve profitability for the year ended December 31, 2009. The culmination of all our efforts toward profitability has brought opportunities to us including: increased investor confidence and renewed interest in our company, third-party interest in our expertise to develop and enhance websites, 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.

Off Balance Sheet Arrangements

As of March 31, 2009, we had no off-balance sheet arrangements of any type.

RESULTS OF OPERATIONS

First Quarter ended March 31, 2009 compared to the Same Period in 2008

Our Statements of Operations present income (loss) from continuing operations and loss from discontinued operations. All discussions are based on income from continuing operations and therefore exclude all income statement items of the current and prior year's discontinued operations.

Revenues

Revenues are derived from sales of our USVerified identification and verification solutions, consulting services, web-based development and hardware sales. Revenues for the first quarter ended March 31, 2009 were $477,324 compared to $537,330 in the 2008 comparable quarter. On a comparable basis, the first quarter in the prior year included a significant growth in new customers due to a delisting of a competitor by the USDA. Currently, verification services provided to those customers that we acquired in the prior year are now spread more evenly throughout our fiscal year.

During the first quarter ended March 31, 2009, our third party verification revenue, which includes sales of our USVerified solutions and related consulting, program development and web-based development services, decreased 8.3% to $412,639 compared to $449,842 in the same quarter 2008. On a comparable basis, the first quarter in the prior year included approximately $110,000 in revenue related to a special grant funded project for premise registrations throughout the USDA. This project was specific to the years ended 2007 and 2008. Midway through the USDA grant funded project, the USDA re-evaluated the project and decided to discontinue the project. As of March 31, 2009 we have approximately $150,000 in receivables outstanding related to this project that is greater than 90 days past due. We believe we will collect the full amount due and accordingly have not reserved any portion of the amount outstanding.

Revenues derived from sales of hardware, primarily sales of cattle identification ear tags, increased 40% to $59,095 in the first quarter 2009 compared to $42,239 in the first quarter 2008.

We believe that occurrence of the following events will drive our business forward effectively increasing customer demand for third party verification services and presenting additional opportunities:

†          Increased demand from key export markets;

†          An ever increasing consumer demand for verification of NHTC and
humane handling marketing claims;

†          The many recent product recalls in fresh produce and the advent of
legislation concerning country of origin labeling (COOL);

†          Increased congressional scrutiny of food safety which creates an ever
growing movement towards a mandatory identification program (NAIS);

†          An increase in forward-thinking producers and retailers who are both
environmentally conscious and looking for a marketing edge;

†          An increase in producers and consumers who are committed to reducing
their carbon footprint;

†          A shift in attitude within the new administration that is uniquely
positioning the agricultural industry.

Cost of Sales and Gross Margin

Cost of sales for the first quarter 2009 were $279,096 compared to $206,326 during the first quarter 2008. Gross margin for the first quarter 2009 declined by approximately 20 basis points to 41.5% of revenues compared to 61.6% for the first quarter 2008.

Certain elements of costs of sales are fixed in nature such as salaries and rent. Accordingly, when sales volumes decrease, cost of sales does not decrease in the same proportion as the reduction in related revenues. Therefore, cost of sales as a percentage of sales may be adversely affected by reduced volumes. The decrease in our gross margins for first quarter 2009 compared to first quarter 2008 was partially due to the absorption of certain costs which are generally fixed in nature over a lower volume of sales. More specifically in early 2008, we increased our headcount of dedicated personnel providing program development and web based development services in connection with our third party verification programs. Due to our focus on margins and customer service, we are committed to long term growth and the scalability of the programs we develop.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the first quarter 2009 were $356,307, a decrease of $33,354, or 8.6% over the first quarter 2008 amount of $389,661. The decrease was primarily due to a net reduction in salaries due to a lesser number of office support personnel offset by adjustments to salaries for costs of living and annual performance reviews.

Other Expense (Income)

Interest expense for the first quarter 2009 decreased to $8,162 compared to $8,513 for the first quarter 2008. The decrease during 2009 was primarily attributable to less interest expense incurred on a smaller borrowing base as compared to 2008.

Loss from Continuing Operations and per Share information

As a result of the foregoing, loss from continuing operations for the first quarter ended March 31, 2009 was $161,978 or $0.01 per basic and diluted common share, compared to loss from continuing operations of $66,025 or less than a penny per basic and diluted common share for the first quarter ended March 31, 2008.

Net Loss

Net loss for the first quarter ended March 31, 2009 was $161,978 compared to net loss of $60,550 for the first quarter ended March 31, 2008.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe that the following critical accounting policy reflects the more significant estimates and assumptions used in the preparation of the consolidated financial statements.

Stock-Based Compensation Expense

Calculating stock-based compensation expense 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 estimate the expected life of options granted based on historical exercise patterns, which we believe are representative of future behavior. We estimate the volatility of our common stock on the date of grant based on the implied volatility of publicly traded options on our common stock, with a term of one year or greater. We believe that implied volatility calculated based on actively traded options on our common stock is a better indicator of expected volatility and future stock price trends than historical volatility. Therefore, expected volatility was based on a market-based implied volatility. The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience of our stock-based awards that are granted, exercised and cancelled. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current period.