UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FormFORM 10-Q
(Mark One)
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
or
Or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-41092
WaveDancer, Inc.
Information Analysis Incorporated
(Exact name of registrant as specified in its charter)
Delaware | 54-1167364 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
12015 Lee Jackson Memorial Highway, Suite 210 | ||
Fairfax, Virginia | 22033 | |
(Address of principal executive offices) | (Zip Code) |
12015 Lee Jackson Memorial Highway
Suite 210
Fairfax, Virginia 22033
(Address of principal executive offices, Zip Code)
(703) 383-3000
(Registrant’sRegistrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)code: (703) 383-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading | Name of each exchange on which registered | ||
Common Stock, par value $0.001 per share | WAVD | The NASDAQ Stock Market LLC |
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"emerging growth company”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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
Indicate the numberNumber of shares outstanding ofby each of the issuer’s classesclass of common stock, as of the latest practicable date:November 7, 2022:
13,510,690 shares of common stock,Common Stock, $0.001 par value $0.01 per share, as of October 28, 2021.– 19,165,548 shares outstanding
This document is also available through our website at http://ir.wavedancer.com/.
Form 10-Q September 30, |
INFORMATION ANALYSIS INCORPORATEDWAVEDANCER, INC.
FORM 10-Q
Table of Contents
Page Number | |||
PART I. | FINANCIAL INFORMATION | ||
|
| ||
Item 1. | Condensed Consolidated Financial Statements (unaudited except for the balance sheet as of December 31, | ||
Condensed Consolidated Balance Sheets as of September 30, | 3 | ||
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended September 30, 2022 and 2021 | 4 | ||
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the |
| ||
|
| ||
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 | 6 | ||
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, | 7 | ||
Notes to Condensed Consolidated Financial Statements | 8 | ||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
| |
Item 4. | Controls and Procedures |
| |
PART II. | OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 29 | |
Item 1A. | Risk Factors | 29 | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 29 | |
Item 3. | Defaults Upon Senior Securities | 29 | |
Item 4. | Mine Safety Disclosures | 29 | |
Item 5. | Other Information | 29 | |
Item 6. | Exhibits | 30 | |
SIGNATURES | 31 |
Form 10-Q September 30, |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INFORMATION ANALYSIS INCORPORATEDWAVEDANCER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, 2021 | December 31, 2020 | |||||||||||||||
(Unaudited) | (Note 1) | September 30, 2022 | December 31, 2021 | |||||||||||||
ASSETS | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 3,682,613 | $ | 1,858,160 | $ | 1,521,651 | $ | 4,931,302 | ||||||||
Accounts receivable | 2,874,656 | 1,442,231 | 1,532,174 | 1,664,862 | ||||||||||||
Prepaid expenses | 283,567 | 142,770 | ||||||||||||||
Other current assets | 5,556 | 0 | ||||||||||||||
Prepaid expenses and other current assets | 302,443 | 276,990 | ||||||||||||||
Total current assets | 6,846,392 | 3,443,161 | 3,356,268 | 6,873,154 | ||||||||||||
Intangible assets, net of amortization of $87,912 and $0, | 1,402,088 | 0 | ||||||||||||||
Intangible assets, net of accumulated amortization of $1,250,711 and $201,032 | 6,999,289 | 8,048,968 | ||||||||||||||
Goodwill | 785,000 | 0 | 5,330,645 | 7,585,269 | ||||||||||||
Contract assets - non-current | 0 | 210,688 | ||||||||||||||
Right-of-use operating lease asset | 285,667 | 51,405 | 536,455 | 672,896 | ||||||||||||
Property and equipment, net of accumulated depreciation and amortization of $349,300 and $312,320 | 94,965 | 62,166 | ||||||||||||||
Property and equipment, net of accumulated depreciation and amortization of $381,473 and $347,886 | 305,729 | 105,256 | ||||||||||||||
Other assets | 5,707 | 6,281 | 79,305 | 77,100 | ||||||||||||
Total assets | $ | 9,419,819 | $ | 3,773,701 | $ | 16,607,691 | $ | 23,362,643 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable | $ | 926,643 | $ | 103,646 | $ | 227,560 | $ | 650,499 | ||||||||
Revolving line of credit | 402,306 | 0 | ||||||||||||||
Notes payable - current | 797,295 | 93,009 | ||||||||||||||
Accrued payroll and related liabilities | 555,483 | 375,168 | 701,652 | 524,055 | ||||||||||||
Commissions payable | 236,438 | 181,626 | 225,096 | 224,250 | ||||||||||||
Other accrued liabilities | 82,158 | 54,274 | 680,269 | 204,080 | ||||||||||||
Contract liabilities | 78,045 | 946,884 | 37,686 | 186,835 | ||||||||||||
Operating lease liability - current | 35,805 | 45,595 | 203,342 | 192,128 | ||||||||||||
Interest payable | 2,666 | 3,125 | ||||||||||||||
Total current liabilities | 3,116,839 | 1,803,327 | 2,075,605 | 1,981,847 | ||||||||||||
Note payable - non-current | 400,856 | 356,991 | ||||||||||||||
Operating lease liability - non-current | 260,141 | 0 | 353,486 | 507,120 | ||||||||||||
Deferred tax liabilities, net | 154,252 | 1,167,504 | ||||||||||||||
Other liabilities | 1,394,467 | 2,265,000 | ||||||||||||||
Total liabilities | 3,777,836 | 2,160,318 | 3,977,810 | 5,921,471 | ||||||||||||
Stockholders' equity | ||||||||||||||||
Common stock, $0.01 par value, 30,000,000 shares authorized, 15,153,306 and 12,904,376 shares issued, 13,510,690 and 11,261,760 shares outstanding as of September 30, 2021, and December 31, 2020, respectively | 151,532 | 129,043 | ||||||||||||||
Common stock, $0.001 par value 100,000,000 shares authorized; 20,808,654 and 18,882,313 shares issued, 19,135,603 and 17,239,697 shares outstanding as of September 30, 2022 and December 31, 2021, respectively | 20,809 | 18,882 | ||||||||||||||
Additional paid-in capital | 18,507,731 | 14,720,065 | 35,315,514 | 31,789,464 | ||||||||||||
Accumulated deficit | (12,087,069 | ) | (12,305,514 | ) | (21,741,231 | ) | (13,436,963 | ) | ||||||||
Treasury stock, 1,642,616 shares at cost | (930,211 | ) | (930,211 | ) | ||||||||||||
Treasury stock, 1,673,051 and 1,642,616 shares at cost, as of September 30, 2022 and December 31, 2021, respectively | (965,211 | ) | (930,211 | ) | ||||||||||||
Total stockholders' equity | 5,641,983 | 1,613,383 | 12,629,881 | 17,441,172 | ||||||||||||
Total liabilities and stockholders' equity | $ | 9,419,819 | $ | 3,773,701 | $ | 16,607,691 | $ | 23,362,643 |
The accompanying notes are an integral part of the condensed consolidated financial statements
Form 10-Q September 30, |
INFORMATION ANALYSIS INCORPORATEDWAVEDANCER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE (LOSS) INCOMELOSS
(Unaudited)
Three months ended September 30, | Three months ended September 30, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Revenues | ||||||||||||||||
Professional fees | $ | 2,798,105 | $ | 1,580,684 | $ | 2,114,012 | $ | 2,798,105 | ||||||||
Software sales | 1,501,820 | 2,342,062 | 192,367 | 1,501,820 | ||||||||||||
Total revenues | 4,299,925 | 3,922,746 | 2,306,379 | 4,299,925 | ||||||||||||
Cost of revenues | ||||||||||||||||
Cost of professional fees | 1,832,812 | 1,051,102 | 1,724,040 | 1,832,812 | ||||||||||||
Cost of software sales | 1,488,238 | 2,257,317 | 100,717 | 1,488,238 | ||||||||||||
Total cost of revenues | 3,321,050 | 3,308,419 | ||||||||||||||
Total cost of revenues, excluding depreciation and amortization | 1,824,757 | 3,321,050 | ||||||||||||||
Gross profit | 978,875 | 614,327 | 481,622 | 978,875 | ||||||||||||
Selling, general and administrative expenses | 1,000,880 | 342,778 | 2,926,243 | 1,023,897 | ||||||||||||
Commissions expense | 23,017 | 56,643 | ||||||||||||||
Acquisition costs | 39,245 | 0 | 38,617 | 39,245 | ||||||||||||
Goodwill impairment | 2,254,624 | - | ||||||||||||||
(Loss) income from operations | (84,267 | ) | 214,906 | |||||||||||||
Loss from operations | (4,737,862 | ) | (84,267 | ) | ||||||||||||
Other expense, net | (11,260 | ) | (203 | ) | ||||||||||||
Other income (expense) | ||||||||||||||||
Interest expense | (20,437 | ) | (15,055 | ) | ||||||||||||
Other income, net | 3,188 | 3,795 | ||||||||||||||
(Loss) income before provision for income taxes | (95,527 | ) | 214,703 | |||||||||||||
Loss before provision for income taxes | (4,755,111 | ) | (95,527 | ) | ||||||||||||
Provision for income taxes | 0 | 0 | ||||||||||||||
Deferred income tax benefit | 54,592 | - | ||||||||||||||
Net (loss) income | $ | (95,527 | ) | $ | 214,703 | |||||||||||
Net loss | $ | (4,700,519 | ) | $ | (95,527 | ) | ||||||||||
Comprehensive (loss) income | $ | (95,527 | ) | $ | 214,703 | |||||||||||
Comprehensive loss | $ | (4,700,519 | ) | $ | (95,527 | ) | ||||||||||
Net (loss) income per common share - basic | $ | (0.01 | ) | $ | 0.02 | |||||||||||
Net (loss) income per common share - diluted | $ | (0.01 | ) | $ | 0.02 | |||||||||||
Net loss per common share - basic | $ | (0.26 | ) | $ | (0.01 | ) | ||||||||||
Net loss per common share - diluted | $ | (0.26 | ) | $ | (0.01 | ) | ||||||||||
Weighted average common shares outstanding | ||||||||||||||||
Basic | 12,596,126 | 11,211,760 | 18,382,131 | 12,596,126 | ||||||||||||
Diluted | 12,596,126 | 11,837,427 | 18,382,131 | 12,596,126 |
The accompanying notes are an integral part of the condensed consolidated financial statements
Form 10-Q September 30, |
WAVEDANCER, INC.
INFORMATION ANALYSIS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE (LOSS) INCOME
(Unaudited)
Nine months ended September 30, | Nine months ended September 30, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Revenues | ||||||||||||||||
Professional fees | $ | 8,565,639 | $ | 3,353,508 | $ | 7,025,396 | $ | 8,565,639 | ||||||||
Software sales | 3,885,828 | 7,450,389 | 2,593,877 | 3,885,828 | ||||||||||||
Total revenues | 12,451,467 | 10,803,897 | 9,619,273 | 12,451,467 | ||||||||||||
Cost of revenues | ||||||||||||||||
Cost of professional fees | 5,698,407 | 2,232,405 | 5,401,666 | 5,698,407 | ||||||||||||
Cost of software sales | 3,798,607 | 7,289,321 | 2,430,139 | 3,798,607 | ||||||||||||
Total cost of revenues | 9,497,014 | 9,521,726 | ||||||||||||||
Total cost of revenues, excluding depreciation and amortization | 7,831,805 | 9,497,014 | ||||||||||||||
Gross profit | 2,954,453 | 1,282,171 | 1,787,468 | 2,954,453 | ||||||||||||
Selling, general and administrative expenses | 2,346,680 | 1,049,761 | 8,880,973 | 2,523,340 | ||||||||||||
Commissions expense | 176,660 | 179,560 | ||||||||||||||
Acquisition costs | 192,530 | 0 | 829,478 | 192,530 | ||||||||||||
Change in fair value of contingent consideration | (930,000 | ) | - | |||||||||||||
Goodwill impairment | 2,254,624 | - | ||||||||||||||
Income from operations | 238,583 | 52,850 | ||||||||||||||
(Loss) income from operations | (9,247,607 | ) | 238,583 | |||||||||||||
Other (expense) income, net | (20,138 | ) | 894 | |||||||||||||
Other income (expense) | ||||||||||||||||
Interest expense | (59,574 | ) | (31,738 | ) | ||||||||||||
Other income, net | 3,977 | 11,600 | ||||||||||||||
Income before provision for income taxes | 218,445 | 53,744 | ||||||||||||||
(Loss) income before provision for income taxes | (9,303,204 | ) | 218,445 | |||||||||||||
Provision for income taxes | 0 | 0 | ||||||||||||||
Deferred income tax benefit | 998,936 | - | ||||||||||||||
Net income | $ | 218,445 | $ | 53,744 | ||||||||||||
Net (loss) income | $ | (8,304,268 | ) | $ | 218,445 | |||||||||||
Comprehensive income | $ | 218,445 | $ | 53,744 | ||||||||||||
Comprehensive (loss) income | $ | (8,304,268 | ) | $ | 218,445 | |||||||||||
Net income per common share - basic | $ | 0.02 | $ | 0 | ||||||||||||
Net income per common share - diluted | $ | 0.02 | $ | 0 | ||||||||||||
Net (loss) income per common share - basic | $ | (0.47 | ) | $ | 0.02 | |||||||||||
Net (loss) income per common share - diluted | $ | (0.47 | ) | $ | 0.02 | |||||||||||
Weighted average common shares outstanding | ||||||||||||||||
Basic | 11,957,878 | 11,211,760 | 17,688,528 | 11,957,878 | ||||||||||||
Diluted | 12,584,914 | 11,810,392 | 17,688,528 | 12,584,914 |
The accompanying notes are an integral part of the condensed consolidated financial statements
Form 10-Q September 30, |
WAVEDANCER, INC.
INFORMATION ANALYSIS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30, | Nine months ended September 30, | |||||||||||||||
2021 | 2020 | 2022 | 2021 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 218,445 | $ | 53,744 | ||||||||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||||||||||
Cash flows from operating activities | ||||||||||||||||
Net (loss) income | $ | (8,304,268 | ) | $ | 218,445 | |||||||||||
Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 111,123 | 6,821 | 1,083,266 | 111,123 | ||||||||||||
Stock option compensation | 220,455 | 7,171 | ||||||||||||||
Goodwill impairment | 2,254,624 | - | ||||||||||||||
Stock-based compensation | 1,455,835 | 220,455 | ||||||||||||||
Deferred income tax benefit | (1,013,252 | ) | - | |||||||||||||
Amortization of right-of-use assets | 136,441 | 54,652 | ||||||||||||||
Non-cash interest expense | 59,467 | - | ||||||||||||||
Change in fair value of contingent consideration liability | (930,000 | ) | - | |||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable | (820,954 | ) | (931,517 | ) | 132,688 | (820,954 | ) | |||||||||
Prepaid expenses and other current assets | (140,015 | ) | 461,592 | 84,842 | (140,015 | ) | ||||||||||
Contract assets | 210,688 | (89,404 | ) | - | 210,688 | |||||||||||
Other assets | 16,663 | 0 | ||||||||||||||
Accounts payable | 508,408 | 317,048 | (422,939 | ) | 508,408 | |||||||||||
Contract liabilities | (868,839 | ) | (132,574 | ) | (149,149 | ) | (868,839 | ) | ||||||||
Accrued payroll and related liabilities and other accrued liabilities | 63,404 | 334,325 | 653,786 | 63,404 | ||||||||||||
Operating lease liability | (142,420 | ) | (37,989 | ) | ||||||||||||
Commissions payable | 54,812 | 11,363 | 846 | 54,812 | ||||||||||||
Net cash (used in) provided by operating activities | (425,810 | ) | 38,569 | |||||||||||||
Net cash used in operating activities | (5,100,233 | ) | (425,810 | ) | ||||||||||||
Cash flows from investing activities | ||||||||||||||||
Acquisition of property and equipment | (56,010 | ) | (58,640 | ) | (234,060 | ) | (56,010 | ) | ||||||||
Acquisition of Tellenger, net of cash acquired | (2,233,884 | ) | 0 | - | (2,233,884 | ) | ||||||||||
Net cash used in investing activities | (2,289,894 | ) | (58,640 | ) | (234,060 | ) | (2,289,894 | ) | ||||||||
Cash flows from financing activities | ||||||||||||||||
Borrowing under revolving line of credit | 502,306 | 0 | - | 502,306 | ||||||||||||
Repayments under revolving line of credit | (100,000 | ) | 0 | - | (100,000 | ) | ||||||||||
Proceeds from note payable | 1,000,000 | 450,000 | ||||||||||||||
Principal payments - long-term note | (251,849 | ) | 0 | |||||||||||||
Net proceeds from issuance of stock | 3,294,554 | 0 | ||||||||||||||
Proceeds from from exercise of stock options | 95,146 | 0 | ||||||||||||||
Borrowing under long-term note | - | 1,000,000 | ||||||||||||||
Repayments of long-term note | - | (251,849 | ) | |||||||||||||
Proceeds from issuance of stock | 1,887,000 | 3,294,554 | ||||||||||||||
Proceeds from exercise of stock options | 37,642 | 95,146 | ||||||||||||||
Net cash provided by financing activities | 4,540,157 | 450,000 | 1,924,642 | 4,540,157 | ||||||||||||
Net increase in cash and cash equivalents | 1,824,453 | 429,929 | ||||||||||||||
Net (decrease) increase in cash and cash equivalents | (3,409,651 | ) | 1,824,453 | |||||||||||||
Cash and cash equivalents, beginning of the period | 1,858,160 | 1,039,442 | ||||||||||||||
Cash and cash equivalents, end of the period | $ | 3,682,613 | $ | 1,469,371 | ||||||||||||
Cash and cash equivalents, beginning of year | 4,931,302 | 1,858,160 | ||||||||||||||
Cash and cash equivalents, end of year | $ | 1,521,651 | $ | 3,682,613 | ||||||||||||
Supplemental cash flow Information | ||||||||||||||||
Interest paid | $ | 32,197 | $ | 0 | $ | 1,002 | $ | 32,197 | ||||||||
Non-cash investing and financing activities | ||||||||||||||||
Value of common stock issued in connection with the acquisition of Tellenger, Inc. | $ | 200,000 | $ | 0 | ||||||||||||
Value of common stock issued in connection with: | ||||||||||||||||
Common stock purchase agreement | $ | 112,500 | $ | - | ||||||||||||
Acquisition of Tellenger, Inc. | $ | - | $ | 200,000 |
The accompanying notes are an integral part of the condensed consolidated financial statements
Form 10-Q September 30, |
INFORMATION ANALYSIS INCORPORATEDWAVEDANCER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
Nine months ended September 30, 2021 | Nine months ended September 30, 2022 | |||||||||||||||||||||||||||||||||||||||
Additional | Additional | |||||||||||||||||||||||||||||||||||||||
Common | Paid-In | Accumulated | Treasury | Common | Paid-In | Accumulated | Treasury | |||||||||||||||||||||||||||||||||
Stock | Capital | Deficit | Stock | Total | Stock | Capital | Deficit | Stock | Total | |||||||||||||||||||||||||||||||
Balances at December 31, 2020 | $ | 129,043 | $ | 14,720,065 | $ | (12,305,514 | ) | $ | (930,211 | ) | $ | 1,613,383 | ||||||||||||||||||||||||||||
Net income | 0 | 0 | 270,815 | 0 | 270,815 | |||||||||||||||||||||||||||||||||||
Balances at December 31, 2021 | $ | 18,882 | $ | 31,789,464 | $ | (13,436,963 | ) | $ | (930,211 | ) | $ | 17,441,172 | ||||||||||||||||||||||||||||
Net loss | - | - | (2,078,307 | ) | - | (2,078,307 | ) | |||||||||||||||||||||||||||||||||
Stock option compensation | - | 312,176 | - | - | 312,176 | |||||||||||||||||||||||||||||||||||
Issuance of stock from exercise of options | 105 | 26,694 | - | - | 26,799 | |||||||||||||||||||||||||||||||||||
Balances at March 31, 2022 | 18,987 | 32,128,334 | (15,515,270 | ) | (930,211 | ) | 15,701,840 | |||||||||||||||||||||||||||||||||
Net loss | - | - | (1,525,442 | ) | - | (1,525,442 | ) | |||||||||||||||||||||||||||||||||
Stock option compensation | - | 529,565 | - | - | 529,565 | |||||||||||||||||||||||||||||||||||
Issuance of stock from exercise of options | 52 | 8,340 | - | - | 8,392 | |||||||||||||||||||||||||||||||||||
Balances at June 30, 2022 | 19,039 | 32,666,239 | (17,040,712 | ) | (930,211 | ) | 14,714,355 | |||||||||||||||||||||||||||||||||
Net loss | - | - | (4,700,519 | ) | - | (4,700,519 | ) | |||||||||||||||||||||||||||||||||
Stock option compensation | 0 | 27,711 | 0 | 0 | 27,711 | - | 614,094 | - | - | 614,094 | ||||||||||||||||||||||||||||||
Stock issued | 3,306 | 492,693 | 0 | 0 | 495,999 | 1,663 | 1,997,837 | - | - | 1,999,500 | ||||||||||||||||||||||||||||||
Issuance of stock from exercise of options | 250 | 3,300 | 0 | 0 | 3,550 | 107 | 37,344 | - | (35,000 | ) | 2,451 | |||||||||||||||||||||||||||||
Balances at March 31, 2021 | 132,599 | 15,243,769 | (12,034,699 | ) | (930,211 | ) | 2,411,458 | |||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 43,157 | 0 | 43,157 | |||||||||||||||||||||||||||||||||||
Stock option compensation | 0 | 111,862 | 0 | 0 | 111,862 | |||||||||||||||||||||||||||||||||||
Stock issued, net | 683 | 197,872 | 0 | 0 | 198,555 | |||||||||||||||||||||||||||||||||||
Issuance of stock from exercise of options | 3,600 | 76,395 | 0 | 0 | 79,995 | |||||||||||||||||||||||||||||||||||
Balances at June 30, 2021 | 136,882 | 15,629,898 | (11,991,542 | ) | (930,211 | ) | 2,845,027 | |||||||||||||||||||||||||||||||||
Net loss | 0 | 0 | (95,527 | ) | 0 | (95,527 | ) | |||||||||||||||||||||||||||||||||
Stock option compensation | 0 | 80,882 | 0 | 0 | 80,882 | |||||||||||||||||||||||||||||||||||
Stock and warrants issued | 14,000 | 2,786,000 | 0 | 0 | 2,800,000 | |||||||||||||||||||||||||||||||||||
Issuance of stock from exercise of options | 650 | 10,951 | 0 | 0 | 11,601 | |||||||||||||||||||||||||||||||||||
Balances at September 30, 2021 | $ | 151,532 | $ | 18,507,731 | $ | (12,087,069 | ) | $ | (930,211 | ) | $ | 5,641,983 | ||||||||||||||||||||||||||||
Balances at September 30, 2022 | $ | 20,809 | $ | 35,315,514 | $ | (21,741,231 | ) | $ | (965,211 | ) | $ | 12,629,881 |
Nine months ended September 30, 2020 | Nine months ended September 30, 2021 | |||||||||||||||||||||||||||||||||||||||
Additional | ||||||||||||||||||||||||||||||||||||||||
Common | Paid-In | Accumulated | Treasury | |||||||||||||||||||||||||||||||||||||
Stock | Capital | Deficit | Stock | Total | ||||||||||||||||||||||||||||||||||||
Balances at December 31, 2019 | $ | 128,543 | $ | 14,682,937 | $ | (12,718,893 | ) | $ | (930,211 | ) | $ | 1,162,376 | ||||||||||||||||||||||||||||
Balances at December 31, 2020 | $ | 129,043 | $ | 14,720,065 | $ | (12,305,514 | ) | $ | (930,211 | ) | $ | 1,613,383 | ||||||||||||||||||||||||||||
Net income | - | - | 270,815 | - | 270,815 | |||||||||||||||||||||||||||||||||||
Stock option compensation | - | 27,711 | - | - | 27,711 | |||||||||||||||||||||||||||||||||||
Stock issued | 3,306 | 492,693 | - | - | 495,999 | |||||||||||||||||||||||||||||||||||
Issuance of stock from exercise of options | 250 | 3,300 | - | - | 3,550 | |||||||||||||||||||||||||||||||||||
Balances at March 31, 2021 | 132,599 | 15,243,769 | (12,034,699 | ) | (930,211 | ) | 2,411,458 | |||||||||||||||||||||||||||||||||
Net income | - | - | 43,157 | - | 43,157 | |||||||||||||||||||||||||||||||||||
Stock option compensation | - | 111,862 | - | - | 111,862 | |||||||||||||||||||||||||||||||||||
Stock issued | 683 | 197,872 | - | - | 198,555 | |||||||||||||||||||||||||||||||||||
Issuance of stock from exercise of options | 3,600 | 76,395 | - | - | 79,995 | |||||||||||||||||||||||||||||||||||
Balances at June 30, 2021 | 136,882 | 15,629,898 | (11,991,542 | ) | (930,211 | ) | 2,845,027 | |||||||||||||||||||||||||||||||||
Net loss | 0 | 0 | (126,339 | ) | 0 | (126,339 | ) | - | - | (95,527 | ) | - | (95,527 | ) | ||||||||||||||||||||||||||
Stock option compensation | 0 | 450 | 0 | 0 | 450 | - | 80,882 | - | - | 80,882 | ||||||||||||||||||||||||||||||
Balances at March 31, 2020 | 128,543 | 14,683,387 | (12,845,232 | ) | (930,211 | ) | 1,036,487 | |||||||||||||||||||||||||||||||||
Net loss | 0 | 0 | (34,620 | ) | 0 | (34,620 | ) | |||||||||||||||||||||||||||||||||
Stock option compensation | 0 | 356 | 0 | 0 | 356 | |||||||||||||||||||||||||||||||||||
Balances at June 30, 2020 | 128,543 | 14,683,743 | (12,879,852 | ) | (930,211 | ) | 1,002,223 | |||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 214,703 | 0 | 214,703 | |||||||||||||||||||||||||||||||||||
Stock option compensation | 0 | 6,365 | 0 | 0 | 6,365 | |||||||||||||||||||||||||||||||||||
Balances at September 30, 2020 | $ | 128,543 | $ | 14,690,108 | $ | (12,665,149 | ) | $ | (930,211 | ) | $ | 1,223,291 | ||||||||||||||||||||||||||||
Stock issued | 14,000 | 2,786,000 | - | - | 2,800,000 | |||||||||||||||||||||||||||||||||||
Issuance of stock from exercise of options | 650 | 10,951 | - | - | 11,601 | |||||||||||||||||||||||||||||||||||
Balances at September 30, 2021 | $ | 151,532 | $ | 18,507,731 | $ | (12,087,069 | ) | $ | (930,211 | ) | $ | 5,641,983 |
The accompanying notes are an integral part of the condensed consolidated financial statements
Form 10-Q September 30, |
INFORMATION ANALYSIS INCORPORATEDWAVEDANCER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1.Summary of Significant Accounting Policies |
|
Organization and Business
WaveDancer, Inc. (“WaveDancer”), formerly known as Information Analysis Incorporated (the “Company”(“IAI”), is engaged in providing professional services to U.S. government agencies to modernize information technology services, in selling and supporting third-party software, primarily Adobe products, to U.S. government agencies, and, with our December, 2021 acquisition of Gray Matters, Inc. (“GMI” or “IAI”“Gray Matters”), in conjunction with its subsidiary, is primarily serving the U.S. government as a technology integrator. IAI provides information technologyproviding blockchain enabled supply chain management software solutions (“IT”SCM”) services with a specialized set of capabilities. The Company has a long and successful history of over 40 years. IAI has served many branches of the federal civilian market (Department of Agriculture, Department of Education, Department of Homeland Security, Department of the Treasury, U.S. Small Business Administration), the Department of Defense (U.S. Army and Air Force), and several commercial clients. The Company has performed software development and conversion projects for over 100 commercial and government clients, including the most significant application database modernization undertaking to date by the U.S. Small Business Administration. The Company’s long-standing customer relationships and past performance enable it to apply its expertise to meet customers' mission and provide unique capabilities to the market.
On April 7, 2021, IAI completed. With the acquisition of Tellenger, Inc.GMI, we began implementing a strategy to expand our offerings well beyond systems modernization services and sales of third-party software. Our Chief Executive Officer, as the chief operating decision maker (“Tellenger”CODM”), organizes our company, manages resource allocations, and measures performance among two operating and reportable segments: Tellenger and GMI.
Liquidity and Going Concern
During the nine months ended September 30, 2022, the Company generated a loss from operations of $9,247,607. As of September 30, 2022, the Company had working capital of $1,280,663, including cash and cash equivalents of $1,521,651, and had an accumulated deficit of $21,741,231 . The Company intends to continue to invest in its SCM platform and to execute its strategy to become a leading zero trust, blockchain-enabled cybersecurity company and believes strongly in the long-term viability of our strategy. However, executing our strategy requires additional sources of capital which expandswe are pursuing, including acquisitions or mergers. There is no assurance that such activities will result in any transactions or provide additional capital, which creates substantial doubt about the Company’s capabilities in government priority areas of cyber security, cloud services, complex systems integrations, and data analytics. Tellenger expands and enhances IAI’s portfolio of capabilities through new technology-driven offerings and customers. The expanding customer base includes past and current performance in many branches ofability to continue as a going concern for at least one year from the federal civilian market (Department of Homeland Security, Department of Health and Human Services, Department of Commerce, United States Department of Agriculture, National Transportation Safety Administration, and Consumer Product Safety Commission), anddate that the Department of Defense (U.S. Marine Corps). Tellenger advances integrated solid project management solutions with its well-defined metrics-based, Capability Maturity Model Integration/Development (CMMI/DEV) Level 3 independently appraised approach for managing projects (a/k/a Tellenger Integrated Quality [T-IQ]). A proven project management approach to support harnessing a first-class quality system that integrates Information Technology Infrastructure Library (ITIL), CMMI, and Project Management Institute (PMI) best practices. This approach is applied to projects in various customer environments and technology solutions.accompanying financial statements are issued.
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business. The propriety of using the going-concern basis is dependent upon, among other things, the achievement of future profitable operations, the ability to generate sufficient cash from operations and potential other funding sources, in addition to cash on-hand, to meet its obligations as they become due. The Company’s unaudited consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.
Unaudited Interim Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements (“financial statements”) have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial statements include all adjustments necessary (which are of a normal and recurring nature) for the fair and not misleading presentation of the results of the interim periods presented. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 20202021 included in the Annual Report on Form 10-K filed by the Company with the SEC on March 31, 2021April 12, 2022 (the “Annual Report”), as amended. The accompanying December 31, 2020,2021 balance sheet was derived from the audited financial statements included in the Annual Report. The results of operations for any interim periods are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.
The condensed consolidated financial statements as of September 30, 20212022, and for the three- and nine month period-month periods ended September 30, 20212022 include the accounts of WaveDancer and its condensed consolidated subsidiaries (collectively, the Company, including the accounts and results of operations of its wholly owned subsidiary, Tellenger, for the period from April 7, 2021 through September 30, 2021. “Company”, “we” or “our”). All significant intercompany transactions and balances have been eliminated in consolidation.
The following policies were addedOther than disclosing our policy for software development costs since these costs are now, and will likely continue to Note 1, “Summarybe, material, and a clarification of Significant Accounting Policies,”our policy for goodwill and intangibles, both as a result of activity during the quarter ended June 30, 2021: Business Combinations and Intangibles and Goodwill. Therediscussed below, there have been no additional changes in the Company’s significant accounting policies as of September 30, 2021,2022, as compared to the significant accounting policies disclosed in Note 1, "Summary of Significant Accounting Policies" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020, that was filed with the SEC on March 31, 2021.Report.
Form 10-Q September 30, |
Use of Estimates and Assumptions
The preparationPreparation of condensed consolidated financial statements in accordanceconformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”)GAAP requires managementus to make estimates and assumptions that affect certainthe amounts reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date ofdisclosed in the financial statements and the reported amounts of revenue and expenses during the reporting period.accompanying notes. Actual results can,could differ materially from these estimates due to uncertainties, including the impact of rising interest rates on valuation methods as discussed in Note 5 Fair Value Measurements. On an ongoing basis, we evaluate our estimates, including those related to the allowance for credit losses; fair values of financial instruments, intangible assets, and in many cases will, differ from those estimates.goodwill, including the underlying estimates of cash flows of our products and reporting units; useful lives of intangible assets and property and equipment; the valuation of stock-based compensation, the valuation of deferred tax assets and liabilities; and contingent consideration liabilities, among others. We base our estimates on assumptions, both historical and forward looking, that are believed to be reasonable, and the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Revenue RecognitionReclassification
See Note 2 for a detailed description of revenue recognition under Accounting Standards Update No.2014-09,Revenue from ContractsBeginning with Customers (Topic 606) (“ASU 2014-09”) and its related amendments (collectively known as “ASC 606”).
Segment Reporting
The Company has assessed its Tellenger subsidiary and has continued to conclude that it operates in 1 business segment, providing information technology products and services to modernize, secure, and increase functionality of client information systems.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of ninety days or less at the time of purchase to be cash equivalents. Deposits are maintained with a federally insured bank. Balances at times exceed federally insured limits, but management does not consider this to be a significant concentration of credit risk.
Accounts Receivable
Accounts receivable consist of trade accounts receivable and do not bear interest. The Company typically does not require collateral from its customers. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company reviews its allowance for doubtful accounts monthly. Accounts with receivable balances past due over 90 days are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers. NaN allowance for doubtful accounts has been recorded at September 30, 2021 and December 31, 2020.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. Furniture and fixtures are depreciated over the lesser of the useful life or five years, off-the-shelf software is depreciated over the lesser of three years or the term of the license, custom software is depreciated over the least of five years, the useful life, or the term of the license, and computer equipment is depreciated over three years. Leasehold improvements are amortized over the estimated term of the lease or the estimated life of the improvement, whichever is shorter. Maintenance and minor repairs are charged to operations as incurred. Gains and losses on dispositions are recorded in operations.
Stock-Based Compensation
At December 31, 2020, the Company had the stock-based compensation plans described in Note 6 below. Total compensation expense related to these plans was $80,882 and $6,365 for the three months ended September 30, 2021March 31, 2022, our condensed consolidated statement of cash flows presents separately the amortization of the right-of-use operating lease asset as a non-cash adjustment from net income and 2020, respectively,the change in the operating lease liability due to cash payments as a change in operating assets and $220,455liabilities. Previously, the net of these amounts was reported as a change in operating assets and $7,171liabilities. Amounts on the condensed consolidated statement of cash flows for the nine months ended September 30, 2021, and 2020, respectively. have been reclassified to conform to the current year presentation.
Software Development Costs
The Company estimatescapitalizes costs related to software developed or obtained for internal use in accordance with the ASC 350-40, Internal-Use Software (“ASC 350-40”). The following illustrates the various stages and related processes of computer software development in accordance with ASC 350-40:
● | Preliminary project stage: (a) conceptual formulation of alternatives; (b) evaluation of alternatives; (c) determination of existence of needed technology; and (d) final selection of alternatives. Internal and external costs incurred during the preliminary project stage are expensed as incurred. |
● | Application development stage: (a) design of chosen path, including software configuration and software interfaces; (b) coding; (c) installation to hardware; and (d) testing, including parallel processing phase. Internal and external costs incurred to develop internal-use computer software during the application development stage are capitalized. |
● | Post-implementation-operation stage: (a) training; and (b) application maintenance. Internal and external costs incurred during the post-implementation-operation stage are expensed as incurred. |
The Company is continuing to develop its blockchain SCM software which it markets under a Software as a Service ("SaaS") model, whereby, a customer does not take possession of the Company’s software; rather, the software is accessed on an as-needed basis over the Internet.
Therefore, when the software is used to produce a product or in a process to provide a service to a customer, and the customer is not given the right to obtain or use the software, the related costs are accounted for in accordance with ASC 350-40. When a hosting arrangement includes multiple modules or components, capitalized costs are amortized on a module-by-module basis. When a module or component is substantially ready for its intended use, amortization begins, regardless of whether the overall hosting arrangement is being placed in service in planned stages. If the module’s functionality is entirely dependent on the completion of one or more other modules, then amortization does not begin until that group of interdependent modules is substantially ready for use.
As of September 30, 2022 we had $214,251 of capitalized internal use software development costs and zero accumulated amortization. Capitalized software development costs are included in plant and equipment on the condensed consolidated balance sheets.
Intangibles and Goodwill
The Company accounts for goodwill and other intangible assets in accordance with ASC Topic 350, Goodwill – Intangibles and Other (“ASC 350”) and has concluded that it has two operating segments, which are also its two reporting units for purposes of goodwill impairment testing. Goodwill is not amortized but instead tested for impairment (i) on at least an annual basis and (ii) when changes in circumstances indicate that it is more likely than not that the fair value of options granted using a Black-Scholes valuation modelreporting unit may be below its carrying value. These circumstances include, but are not limited to, establishsignificant changes in performance relative to expected operating results; significant changes in the expense. When stock-based compensation is awarded to employees,use of the expense is recognized ratably overassets; significant negative industry or economic trends; a significant decline in the vesting period. When stock-based compensation is awarded to non-employees, the expense is recognized over theCompany’s stock price for a sustained period of performance.time; and changes in the Company’s planned revenue or earnings. Management evaluates the recoverability of the Company’s goodwill annually on October 31 or more often as events or circumstances indicate the fair value of a reporting unit is below its carrying value, including goodwill. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the reporting unit carrying amount exceeds the estimated fair value of the reporting unit.
Management evaluates the recoverability of the Company’s indefinite-lived intangible assets (tradenames) annually on October 31, or more often when events or circumstances indicate a potential impairment exists.
Management evaluates the recoverability of the Company’s finite-lived intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets or asset groups that contain those assets. If impairment is indicated based on a comparison of an asset group’s carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the asset group exceeds the fair value of the asset group.
Form 10-Q September 30, |
Income Taxes
Deferred tax assets and liabilities are computed based on the difference between the financial statement and tax basis of assets and liabilities and are measured by applying enacted tax rates and laws for the taxable years in which those differences are expected to reverse. In addition, a valuation allowance is required to be recognized if it is believed more likely than not that a deferred tax asset will not be fully realized. Authoritative guidance prescribes a recognition threshold of more likely than not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those positions to be recognized in the financial statements. The Company continually reviews tax laws, regulations and related guidance in order to properly record any uncertain tax liabilities.
The Company has analyzed its income tax positions using the criteria required by GAAP and concluded that as of September 30, 2021,2022, and December 31, 2020,2021, it has no material uncertain tax positions and no interest or penalties have been accrued. The Company has net operating loss carryforwards of approximately $2.7 million,expects that recent tax law changes contained in the Inflation Reduction Act and CHIPS Act will nonenot of which will expire, if unused,have a material impact on December 31, 2021. The net operating loss carryforwards are offset by a full valuation allowance.its provision for income taxes.
Income (Loss) Per ShareConcentration of Credit Risk
During the three months ended September 30, 2022, the Company’s prime contracts with U.S. government agencies represented 11.4% of revenue, subcontracts under federal procurements represented 82.8% of revenue, and 5.8% of revenue came from commercial and local government contracts. The Company’s income (loss) per share calculations are based upon the weighted average numberterms of sharesthese contracts and subcontracts vary from single transactions to five years. Three subcontracts under federal procurements represented 30.9%, 21.3%, and 13.0% of common stock outstanding. The dilutive effect of stock options, warrants, and other equity instruments are included for purposes of calculating diluted income per share, except for periods whenrevenue, respectively. Revenue from one prime contractor under which the Company reports a net loss,has multiple subcontracts represented 49.9% of the Company’s revenue in which case the inclusion of such equity instruments would be antidilutive. See Note 10 for more details.aggregate.
During the three months ended September 30, 2021, the Company’s prime contracts with U.S. government agencies represented 37.0% of revenue and subcontracts under federal procurements represented 62.9% of revenue, and 0.2% of revenue came from commercial and local government contracts. The terms of these contracts and subcontracts vary from single transactions to five years. Three subcontracts under federal procurements represented 32.5%, 11.4%, and 10.6% of revenue, respectively. Revenue from one prime contractor under which the Company has multiple subcontracts represented 45.8% of the Company’s revenue in aggregate.
During the nine months ended September 30, 2022, the Company’s prime contracts with U.S. government agencies represented 32.8% of revenue, subcontracts under federal procurements represented 63.8% of revenue, and 3.3% of revenue came from commercial and local government contracts. One prime contract with a U.S. government agency represented 11.1% of revenue, and two subcontracts under federal procurements represented 25.8%, and 15.6% of revenue, respectively. Revenue from Business Combinationsone prime contractor under which the Company has multiple subcontracts represented 38.9% of the Company’s revenue in aggregate.
During the nine months ended September 30, 2021 the Company’s prime contracts with U.S. government agencies represented 35.1% of revenue and subcontracts under federal procurements represented 63.5% of revenue, and 1.4% of revenue came from commercial and local government contracts. The terms of these contracts and subcontracts vary from single transactions to five years. One subcontract under federal procurements represented 33.1% of revenue. Revenue from one prime contractor under which the Company has multiple subcontracts represented 44.3% of the Company’s revenue in aggregate.
The Company appliessold third-party software and maintenance contracts under agreements with one major supplier, accounting for 8.3% and 34.8% of total revenue during the guidancethree months ended September 30, 2022 and 2021, respectively, and 27.0% and 30.8% of Accounting Standards Codification (“ASC”) Topictotal revenue during the 805,nine Business Combinations. Themonths ended September 30, 2022 and 2021, respectively.
As of September 30, 2022, receivables from one prime contractor under which the Company recognizes the fair value of assets acquired and liabilities assumed in transactions; establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed; expenses transaction and restructuring costs; and discloses the information needed to evaluate and understand the nature and financial effecthas multiple subcontracts represented 66.8% of the business combination. See Note 5 for more details.Company’s outstanding accounts receivable in aggregate.
As of September 30, 2021, receivables from one prime contractor under which the Company has multiple subcontracts represented 63.7% of the Company’s outstanding accounts receivable in aggregate.
Intangibles and Goodwill
The Company accounts for goodwill and other intangible assets in accordance with ASC Topic 350,Goodwill – Intangibles and Other (“ASC 350”). Goodwill and intangible assets with indefinite useful lives are not amortized but are instead tested for impairment (i) on at least an annual basis and (ii) when changes in circumstances indicate that the fair value of goodwill may be below its carrying value. These circumstances include, but are not limited to, (i) a significant adverse change in the business climate, (ii) unanticipated competition or (iii) an adverse action or assessment by a regulator. The Company performs its annual impairment testing as of October 31. Determining impairment involves estimating the fair value of a reporting unit using a combination of (i) the income or discounted cash flows approach and (ii) the market approach that utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds its fair value, the amount of the impairment loss must be measured. The impairment loss is calculated by comparing the implied fair value of the reporting unit’s goodwill to its carrying amount. In calculating the implied fair value of the reporting unit’s goodwill, the fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied value of goodwill. See Note 5 for more details.
Form 10-Q September 30, |
COVID-Note 192.Revenue from Contracts with Customers
The COVID-19 (coronavirus) outbreak has had a notable impact on general economic conditions, including, but not limited to, the temporary closures of many businesses, “shelter in place” and other governmental regulations, and “work from home” directives. There are many unknowns, and many regional inconsistencies. Notable potential effects on the Company include U.S. government procurements may be delayed or cancelled, work on new or existing contracts that require personal interactions may be suspended, payment processing for customer invoices may be delayed, employees and customers or their families may become infected, and personal business development meetings may not be able to take place. The Company continues to monitor the impact of the COVID-19 outbreak closely.
To date, the COVID-19 impact on the Company’s existing business has been minimal. The Company had previously implemented the necessary infrastructure for its employees to work remotely, so it did not experience material issues supporting its customers. The Company rapidly adapted to the challenges presented to its administration, including challenges to management, accounting, and information technology infrastructure. The extent to which business development efforts have been hampered by the inability to meet with potential customers in person is indeterminable. The full extent to which the COVID-19 outbreak will impact the Company’s business, results of operations, financial condition, and cash flows over time is uncertain.
|
|
Revenue is recognized when all of the following steps have been taken and criteria met for each contract:
|
|
|
|
|
|
|
|
|
|
Nature of Products and Services
The Company generatesWe generate revenue from the sales of information technology professional services, sales of third-party software licenses and implementation and training services, sales of third-party support and maintenance contracts based on those software products, and incentive payments received from third-party software suppliers for facilitating sales directly between that supplier and a customer introduced by the Company. The Company sellsIn addition, with the GMI acquisition, we expanded our offerings to include licensing and implementation services for proprietary blockchain-based SCM software. We sell through itsour direct relationships with end customers and under subcontractor arrangements.
Professional services are offered through several arrangements – through time and materials arrangements, fixed-price-per-unit arrangements, fixed-price arrangements, or combinations of these arrangements within individual contracts. Revenue under time and materials arrangements is recognized over time in the period the hours are worked or the expenses are incurred, as control of the benefits of the work is deemed to have passed to the customer as the work is performed. Revenue under fixed-price-per-unit arrangements is recognized at a point in time when delivery of units havehas occurred and units are accepted by the customer or are reasonably expected to be accepted. Generally, revenue under fixed-price arrangements and mixed arrangements is recognized either over time or at a point in time based on the allocation of transaction pricing to each identified performance obligation as control of each is transferred to the customer. For fixed-price arrangements under which documentary evidence of acceptance or receipt of deliverables is not present or withheld by the periods reported herein,customer, the majority ofCompany recognizes revenue recognized under fixed price and mixed arrangements occurred over time, andwhen it has the amounts resulting from additional disaggregation would be immaterial.right to invoice the customer. For fixed-price arrangements for which the Company is paid a fixed fee to make itself available to support a customer, with no predetermined deliverables to which transaction prices can be estimated or allocated, revenue is recognized ratably over time.
Third-party software licenses are classified as enterprise server-based software licenses or desktop software licenses, and desktop licenses are further classified by the type of customer and whether the licenses are bulk licenses or individual licenses. The Company’s obligations as the seller for each class differ based on its reseller agreements and whether its customers are government or non-government customers. Revenue from enterprise server-based sales to either government or non-government customers is usually recognized in full at a point in time based on when the customer gains use of the full benefit of the licenses, after the licenses are implemented. If the transaction prices of the performance obligations related to implementation and customer support for the individual contract is material, these obligations are recognized separately over time, as performed. Revenue for desktop software licenses for government customers is usually recognized on a gross basis at a point in time, based on when the customer’s administrative contact gains training in and beneficial use of the administrative portal. Revenue for bulk desktop software licenses for non-government customers is usually recognized on a gross basis at a point in time, based on when the customer’s administrative contact gains training in and beneficial use of the administrative portal. For desktop software licenses sold on an individual license basis to non-government customers, where the Company has no obligation to the customer after the third-party makes delivery of the licenses, the Company has determined it is acting as an agent, and the Company recognizes revenue upon delivery of the licenses only for the net of the selling price and its contract costs.
Third-party support and maintenance contracts for enterprise server-based software include a performance obligation under the Company’s reseller agreements for it to be the first line of support (direct support) and second line of support (intermediary between customer and manufacturer) to the customer. Because of the support performance obligations, and because the amount of support is not estimable, the Company recognizes revenue ratably over time as it makes itself available to provide the support.
Incentive payments are received under reseller agreements with software manufacturers and suppliers where the Company introduces and courts a customer, but the sale occurs directly between the customer and the supplier or between the customer and the manufacturer. Since the transfer of control of the licenses cannot be measured from outside of these transactions, revenue is recognized when payment from the manufacturer or supplier is received.
Form 10-Q September 30, |
Disaggregation of Revenue from Contracts with Customers
Three months ended September 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
Contract Type | Amount | Percentage | Amount | Percentage | ||||||||||||
Services time & materials | $ | 1,896,829 | 82.2 | % | $ | 2,705,099 | 62.9 | % | ||||||||
Services fixed price over time | 58,965 | 2.6 | % | 19,175 | 0.5 | % | ||||||||||
Services combination | 50,440 | 2.2 | % | 47,060 | 1.1 | % | ||||||||||
Services fixed price per unit | 107,778 | 4.7 | % | 26,771 | 0.6 | % | ||||||||||
Third-party software | 59,076 | 2.6 | % | 1,445,757 | 33.6 | % | ||||||||||
Software support & maintenance | 44,804 | 1.9 | % | 48,421 | 1.1 | % | ||||||||||
Incentive payments | 88,487 | 3.8 | % | 7,642 | 0.2 | % | ||||||||||
Total revenue | $ | 2,306,379 | 100.0 | % | $ | 4,299,925 | 100.0 | % |
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
Contract | September 30,2021 | September 30,2020 | September 30,2021 | September 30,2020 | ||||||||||||||||||||||||||||
Type | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||
Services Time & Materials | $ | 2,705,099 | 62.9 | % | $ | 1,403,270 | 35.8 | % | $ | 7,519,190 | 60.4 | % | $ | 2,724,653 | 25.2 | % | ||||||||||||||||
Services Fixed Price | 19,175 | 0.5 | % | 27,150 | 0.7 | % | 452,726 | 3.6 | % | 177,705 | 1.7 | % | ||||||||||||||||||||
Services Combination | 47,060 | 1.1 | % | 133,914 | 3.4 | % | 506,331 | 4.1 | % | 382,860 | 3.5 | % | ||||||||||||||||||||
Services Fixed Price per Unit | 26,771 | 0.6 | % | 16,350 | 0.4 | % | 87,391 | 0.7 | % | 68,290 | 0.6 | % | ||||||||||||||||||||
Third-Party Software | 1,445,757 | 33.6 | % | 2,248,574 | 57.4 | % | 3,683,967 | 29.6 | % | 6,859,994 | 63.5 | % | ||||||||||||||||||||
Software Support & Maintenance | 48,421 | 1.1 | % | 56,290 | 1.4 | % | 150,696 | 1.2 | % | 531,983 | 4.9 | % | ||||||||||||||||||||
Incentive Payments | 7,642 | 0.2 | % | 37,198 | 0.9 | % | 51,166 | 0.4 | % | 58,412 | 0.6 | % | ||||||||||||||||||||
Total Revenue | $ | 4,299,925 | 0 | $ | 3,922,746 | 0 | $ | 12,451,467 | 0 | $ | 10,803,897 | 0 |
Nine months ended September 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
Contract Type | Amount | Percentage | Amount | Percentage | ||||||||||||
Services time & materials | $ | 5,963,361 | 62.0 | % | $ | 7,519,190 | 60.4 | % | ||||||||
Services fixed price over time | 161,273 | 1.7 | % | 452,726 | 3.6 | % | ||||||||||
Firm fixed price | 566,862 | 5.9 | % | - | - | |||||||||||
Services combination | 80,520 | 0.8 | % | 506,331 | 4.1 | % | ||||||||||
Services fixed price per unit | 253,379 | 2.6 | % | 87,391 | 0.7 | % | ||||||||||
Third-party software | 2,345,884 | 24.4 | % | 3,683,967 | 29.6 | % | ||||||||||
Software support & maintenance | 142,891 | 1.5 | % | 150,696 | 1.2 | % | ||||||||||
Incentive payments | 105,103 | 1.1 | % | 51,166 | 0.4 | % | ||||||||||
Total revenue | $ | 9,619,273 | 100.0 | % | $ | 12,451,467 | 100.0 | % |
Contract Balances
Accounts Receivable
Trade accounts receivable are recorded at the billable amount where the Company has the unconditional right to bill, net of allowances for doubtful accounts. The allowance for doubtful accounts is based on the Company’s assessment of the collectability of accounts. Management regularly reviews the adequacy of the allowance for doubtful accounts by considering the age of each outstanding invoice, each customer's expected ability to pay and collection history, when applicable, to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectible are charged against the allowance for doubtful accounts when identified. There were 0no such allowances recognized atas of September 30, 2021,2022 and December 31, 2020.2021.
Accounts receivable as of September 30, 2022 and December 31, 2021, consist of the following:
September 30, 2022 | December 31, 2021 | |||||||
Billed federal government | $ | 1,491,705 | $ | 1,594,473 | ||||
Billed commercial | 40,469 | - | ||||||
Unbilled receivables | - | 70,389 | ||||||
Accounts receivable | $ | 1,532,174 | $ | 1,664,862 |
WaveDancer, Inc. | Form 10-Q September 30, 2022 |
Billed receivables from the federal government include amounts due from both prime contracts and subcontracts where the federal government is the end customer.
Contract Assets
Contract assets consist of assets resulting when revenue recognized exceeds the amount billed or billable to the customer due to allocation of transaction price, and of amounts withheld from payment of invoices as a financing component of a contract. There were no amounts recorded to contract assets as of September 30, 2022 or December 31, 2021. Changes in contract assets balances in thethree months and nine months ended September 30, 2021, and 2020, arewere as follows:
Contract Assets | ||||
Balance at December 31, 2020 | $ | 210,688 | ||
Contract assets added | 131,923 | |||
Balance at March 31, 2021 | 342,611 | |||
Contract assets added | 134,657 | |||
Balance at June 30, 2021 | 477,268 | |||
Contract assets added | 45,895 | |||
Reduction in contract assets | (523,163 | ) | ||
Balance at September 30, 2021 | $ | 0 | ||
Balance at December 31, 2019 | $ | 0 | ||
Balance at March 31, 2020 | 0 | |||
Contract assets added | 13,918 | |||
Balance at June 30, 2020 | 13,918 | |||
Contract assets added | 75,486 | |||
Balance at September 30, 2020 | $ | 89,404 |
Balance as of December 31, 2020 | $ | 210,688 | ||
Contract assets added | 131,923 | |||
Balance as of March 31, 2021 | 342,611 | |||
Contract assets added | 134,657 | |||
Balance as of June 30, 2021 | 477,268 | |||
Contract assets added | 45,895 | |||
Reduction in contract assets | (523,163 | ) | ||
Balance as of September 30, 2021 | $ | - |
The contract asset balance was reduced to zero as of September 30, 2021 because the amounts withheld from payment of invoices as a financing component of a subcontract became fully due and billable as the prime contractor met a specific deliverable.
Contract Liabilities
Contract liabilities consist of amounts that have been invoiced and for which the Company has the right to bill, but that have not been recognized as revenue because the related goods or services have not been transferred. Changes in contracts liabilities balances in the three months and nine months ended September 30, 20212022 and 2020,2021, are as follows:
Contract Liabilities | ||||||||
Balance at December 31, 2020 | $ | 946,884 | ||||||
Balance as of December 31, 2021 | $ | 186,835 | ||||||
Contract liabilities added | 93,934 | 19,280 | ||||||
Revenue recognized | (585,322 | ) | (56,423 | ) | ||||
Balance at March 31, 2021 | 455,496 | |||||||
Balance as of March 31, 2022 | 149,692 | |||||||
Contract liabilities added | 4,815 | 87,612 | ||||||
Revenue recognized | (354,427 | ) | (71,461 | ) | ||||
Balance at June 30, 2021 | 105,884 | |||||||
Balance as of June 30, 2022 | 165,843 | |||||||
Contract liabilities added | 79,640 | 2,491 | ||||||
Revenue recognized | (107,479 | ) | (130,648 | ) | ||||
Balance at September 30, 2021 | $ | 78,045 | ||||||
Balance at December 31, 2019 | $ | 464,223 | ||||||
Contract liabilities added | 19,136 | |||||||
Revenue recognized | (212,568 | ) | ||||||
Balance at March 31, 2020 | 270,791 | |||||||
Contract liabilities added | 9,906 | |||||||
Revenue recognized | (216,353 | ) | ||||||
Balance at June 30, 2020 | 64,344 | |||||||
Contract liabilities added | 480,024 | |||||||
Revenue recognized | (212,719 | ) | ||||||
Balance at September 30, 2020 | $ | 331,649 | ||||||
Balance as of September 30, 2022 | $ | 37,686 |
Balance as of December 31, 2020 | $ | 946,884 | ||
Contract liabilities added | 93,934 | |||
Revenue recognized | (585,322 | ) | ||
Balance as of March 31, 2021 | 455,496 | |||
Contract liabilities added | 4,815 | |||
Revenue recognized | (354,427 | ) | ||
Balance as of June 30, 2021 | 105,884 | |||
Contract liabilities added | 79,640 | |||
Revenue recognized | (107,479 | ) | ||
Balance as of September 30, 2021 | $ | 78,045 |
Revenues recognized during the three months ended September 30, 2022 and 2021, from the balances as of December 31, 2021 and 2020, were $48,708 and $58,556, respectively. Revenues recognized during the nine months ended September 30, 2022 and 2021, from the balances as of December 31, 2021 and 2020, from the balances at December 31, 2020 were $160,809 and 2019, were $946,884, and $464,223, respectively.
WaveDancer, Inc. | Form 10-Q September 30, 2022 |
Costs to Obtain or Fulfill a Contract
When applicable, the Company recognizes an asset related to the costs incurred to obtain a contract only if it expects to recover those costs and it would not have incurred those costs if the contract had not been obtained. The Company recognizes an asset from the costs incurred to fulfill a contract if the costs (i) are specifically identifiable to a contract, (ii) enhance resources that will be used in satisfying performance obligations in future and (iii) are expected to be recovered. There were no such assets atas of September 30, 2021,2022 and December 31, 2020.2021. When incurred, these costs are amortized ratably over the periods of the contracts to which those costs apply.
Financing Components
In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that 1 of its subcontracts to a prime contractor includes a significant financing component. The subcontract is invoiced on a time and materials basis, under which 90% of each invoice amount had been paid under regular terms, and the 10% payment balance of each invoice was deferred until the prime contractor met a specific deliverable under its prime contract. The primary purpose of this arrangement was to assist the prime contractor in meeting all of its financial obligations until it could realize the financial benefit of meeting the deliverable. The Company estimated its interest rate of 4.5% based on a small premium over the rate of its revolving line of credit as of the measurement date. The deliverable was met on August 31, 2021, ahead of the original schedule.
Deferred Costs of Revenue
Deferred costs of revenue consist of the costs of third-party support and maintenance contracts for enterprise server-based software. These costs are reported under the prepaid expenses and other current assets caption on the Company’s condensed consolidated balance sheets. The Company recognizes these direct costs ratably over time as it makes itself available to provide its performance obligation for software support, commensurate with its recognition of revenue. Changes in deferred costs of revenue balances in the three months and nine months ended September 30, 2021,2022 and 2020,2021, are as follows:
Deferred Costs of Revenue | ||||||||
Balance at December 31, 2020 | $ | 89,068 | ||||||
Balance as of December 31, 2021 | $ | 154,218 | ||||||
Deferred costs added | 17,406 | 2,800 | ||||||
Deferred costs expensed | (75,223 | ) | (55,362 | ) | ||||
Balance at March 31, 2021 | 31,251 | |||||||
Deferred costs added | 11,188 | |||||||
Balance as of March 31, 2022 | 101,656 | |||||||
Deferred costs expensed | (16,681 | ) | (53,434 | ) | ||||
Balance at June 30, 2021 | 25,758 | |||||||
Deferred costs added | 194,686 | |||||||
Balance as of June 30, 2022 | 48,222 | |||||||
Deferred costs expensed | (33,118 | ) | (48,222 | ) | ||||
Balance at September 30, 2021 | $ | 187,326 | ||||||
Balance at December 31, 2019 | $ | 453,607 | ||||||
Deferred costs added | 181 | |||||||
Deferred costs expensed | (207,437 | ) | ||||||
Balance at March 31, 2020 | 246,351 | |||||||
Deferred costs added | 2,472 | |||||||
Deferred costs expensed | (192,548 | ) | ||||||
Balance at June 30, 2020 | 56,275 | |||||||
Deferred costs added | 0 | |||||||
Deferred costs expensed | (54,477 | ) | ||||||
Balance at September 30, 2020 | $ | 1,798 | ||||||
Balance as of September 30, 2022 | $ | - |
Balance as of December 31, 2020 | $ | 89,068 | ||
Deferred costs added | 17,406 | |||
Deferred costs expensed | (75,223 | ) | ||
Balance as of March 31, 2021 | 31,251 | |||
Deferred costs added | 11,188 | |||
Deferred costs expensed | (16,681 | ) | ||
Balance as of June 30, 2021 | 25,758 | |||
Deferred costs added | 194,686 | |||
Deferred costs expensed | (33,118 | ) | ||
Balance as of September 30, 2021 | $ | 187,326 |
Note 3.Segment Financial Information In periods earlier than the quarter ended September 30, 2022, we managed our business as a single operating segment. During the quarter ended September 2022, we reassessed our business strategy and our CODM changed his approach to managing the business and allocating resources. As a result, we determined that we have two operating segments: Tellenger and Blockchain SCM. Tellenger provides professional services, primarily to US government agencies, related to legacy software migration and modernization, developing web-based and mobile device solutions, including dynamic electronic forms development and conversion, and data analytics. The Blockchain SCM segment is an early-stage business focused on developing, marketing, and selling a SaaS supply chain management platform built on blockchain technology. No separate revenues and operating income for the Blockchain SCM operating segment are presented for the three- and nine-month periods ended September 30, 2021, since we did not own this SCM business during such prior periods.
Corporate operating loss primarily includes stock-based compensation expenses, acquisition-related costs, and other expenses related to executive, legal, finance, tax, and investor relations expenses.
Note 4.Leases |
|
The Company has a primarytwo significant operating lease which is a real estate leaseleases, one for its headquarters offices in Fairfax, Virginia. ThisVirginia and one for additional office space in Annapolis, Maryland. The leases both commenced in 2021 and have original lease has a fixed lease term of 66terms ranging from 37 to 67 months and commenced July 1, 2021. rental rates escalate by approximately 2.5% annually under both leases. The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use operating lease assets and operating lease liabilities in the Company’s condensed consolidated balance sheets as of September 30, 2021,2022 and December 31, 2020. 2021.
As of September 30, 2021,2022 and December 31, 2020,2021, the Company does not have any sales-type or direct financing leases.
The Company’s primary operating lease asset represents its right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Since the lease does not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company’s lease agreement includes rental payments escalating annually for inflation at a fixed rate. These payments are included in the initial measurement of the operating lease liability and operating lease asset. The Company does not have any rental payments which are based on a change in an index or a rate that can be considered variable lease payments, which would be expensed as incurred.
Form 10-Q September 30, |
The Company also has an operating lease which is a real estate lease for its Tellenger subsidiary. The original term of the lease expired, and it continues on a month-to-month basis at a fixed rate of $900 per month. Neither a lease asset nor a lease liability is recognized for this lease.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictions or covenants.
The Company does not sublease any real estate to third parties.
The following table provides supplemental balance sheet information related to the Company’s operating lease:
Balance Sheet | As of | As of | ||||||
Assets: | ||||||||
Right-to-use operating lease asset | $ | 285,667 | $ | 51,405 | ||||
Liabilities: | ||||||||
Operating lease liability - current | $ | 35,805 | $ | 45,595 | ||||
Operating lease liability - non-current | 260,141 | - | ||||||
Total lease liabilities | $ | 295,946 | $ | 45,595 |
The following table reconciles the undiscounted cash flows to the operating lease liabilities recorded in the Company’s consolidated balance sheet:
As of | ||||
Remainder of 2021 | $ | 0 | ||
2022 | 69,334 | |||
2023 | 71,210 | |||
2024 | 54,699 | |||
2025 | 75,111 | |||
2026 | 51,327 | |||
Total lease payments | 321,681 | |||
Less: discount | (25,735 | ) | ||
Present value of lease liabilities | $ | 295,946 |
As of September 30, 2021,2022, the Company’s primaryour two operating leaseleases had a weighted average remaining lease term of 66 months. The discount rate of the lease is equal to IAI’s estimated incremental borrowing rate at the measurement date of the lease agreement. The37 months and a weighted average discount rate of the Company’s5.0%. Future lease payments under operating lease is approximately 5.5%. Forleases as of September 30, 2022, were as follows:
Remainder of 2022 | $ | 56,639 | ||
2023 | 228,862 | |||
2024 | 174,721 | |||
2025 | 74,804 | |||
2026 | 70,220 | |||
Total lease payments | 605,246 | |||
Less: discount | (48,418 | ) | ||
Present value of lease liabilities | $ | 556,828 |
The total expense incurred related to its operating leases was $53,560 and $15,985 for the three months ended September 30, 2021,2022 and 2020,2021, the Company incurred $15,985respectively, and $26,122 of expense related to its operating leases,$164,280 and $68,229 for the nine months ended September 30, 20212022 and 2020,2021, respectively, and is included in selling, general and administrative expenses on the condensed consolidated statements of operations.
Note 5.Fair Value Measurements
The Company incurred $68,229defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and $78,365minimize the use of expenseunobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the firsttwo are considered observable and the last unobservable, that may be used to measure fair value which are the following:
• | Level 1—Quoted prices in active markets for identical assets or liabilities; | |
• | Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and | |
• | Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The following table represents the fair value hierarchy for the Company’s financial instruments measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021:
September 30, 2022 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | $ | 980,112 | $ | - | $ | - | $ | 980,112 |
December 31, 2021 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Cash equivalents: | ||||||||||||||||
Money market funds | $ | 1,600,663 | $ | - | $ | - | $ | 1,660,663 | ||||||||
Other liabilities: | ||||||||||||||||
Fair value of contingent consideration | $ | - | $ | - | $ | 930,000 | $ | 930,000 |
See Note 6 below for an explanation of the decrease in fair value of contingent consideration related to its operating leases.the acquisition of Gray Matters, Inc.
WaveDancer, Inc. | Form 10-Q September 30, 2022 |
The following table is a roll-forward of the Level 3 fair value measurements.
Fair value of contingent consideration: | ||||
December 31, 2021 | $ | 930,000 | ||
Change in fair value | 12,609 | |||
March 31, 2022 | 942,609 | |||
Change in fair value | (942,609 | ) | ||
June 30, 2022 | - | |||
Change in fair value | - | |||
September 30, 2022 | $ | - |
There were no unrealized gains or losses included in income for the three or nine months ended September 30, 2022.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The following table is a summary of gains and losses on assets measured at fair value on a nonrecurring basis:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Impairment of goodwill | $ | 2,254,624 | $ | - | $ | 2,254,624 | $ | - |
During the third quarter of 2022, our Gray Matters reporting unit, which is the same as our Blockchain SCM operating segment, experienced delays in receiving approval from its government customer of certain milestone achievements specified in our contract with that customer. This delay, in turn, resulted in a decline in the reporting unit’s estimated future cash flows. Accordingly, we performed an interim goodwill impairment test as of September 30, 2022, prior to our annual impairment test.
As a result of the interim goodwill impairment test, the estimated fair value of the Gray Matters reporting unit was determined to be lower than its carrying value. In the third quarter of 2022, we recorded a non-cash pre-tax and after-tax charge of $2,254,624 to impair the carrying value of this reporting unit’s goodwill under the caption, “Goodwill impairment” in the accompanying condensed consolidated statement of operations and comprehensive (loss) income. There were no tax benefits associated with the goodwill impairment charge, since the Gray Matters goodwill is not deductible for tax purposes. The fair value of the reporting unit was determined using an income approach based on a discounted cash flow (“DCF”) model which requires a complex series of judgments about future events and uncertainties and relies heavily on estimates of expected cash flows and like an appropriate discount rate and terminal growth rate. Any changes in key assumptions, including failure to grow the revenue and improve the profitability of GMI, or other unanticipated events and circumstances, may affect such estimates. Fair value assessments of the reporting unit are considered a Level 3 measurement due to the significance of unobservable inputs developed using company specific information. The discount rate and terminal growth rate used in our 2022third quarter interim impairment test for the Gray Matters reporting unit were 22.5% and 3.0%, respectively.
Note |
|
Accounts receivable at September 30, 2021 and December 31, 2020, consist of the following:Tellenger, Inc.
September 30, | December 31, | |||||||
Billed federal government | $ | 2,832,906 | $ | 1,425,217 | ||||
Unbilled receivables | 41,750 | 17,014 | ||||||
Accounts receivable | $ | 2,874,656 | $ | 1,442,231 |
Billed receivables from the federal government include amounts due from both prime contracts and subcontracts where the federal government is the end customer.
|
|
On April 7, 2021, the Company executed and closed a stock purchase agreement to purchasepurchased all of the issued and outstanding shares of stock of Tellenger, Inc. The adjusted purchase price was approximately $2.3 million in cash and 68,264 unregistered shares of the Company’s stock, valued at $200,000. Legal fees and other costs specifically related to the Tellenger acquisition in the amounts of $18,575 and $171,860 were incurred during the three-month and nine-month periods ended September 30, 2021, respectively, and were classified as acquisition costs in the Company’s consolidated statement of operations. The Company also incurred other acquisition types of costs unrelated to Tellenger. Included in the cash consideration is $272,000 in amounts held in escrow at Citizens Bank, N.A. Institutional Services Group (as escrow agent) to satisfy any potential post-closing claims.
(“Tellenger”). Tellenger is primarily engaged in the businesses of cyber security,providing professional services related to cybersecurity, cloud services,computing, and data analytics services. Tellenger has access to a range of federal government contract vehicles and subcontracts under federalanalytics. Tellenger’s customers include U.S. government agencies, which include the Department of Homeland Security, the U.S. Department of Agriculture, the Department of Health and Human Services, the U.S. Marine Corps, and the U.S. Census Bureau, among others. Tellenger also performs cloud services foreither as a prime contractor or sub-contractor, as well as several national not-for-profits. Tellenger’s processes are appraised-for-profit organizations. The purchase price of $2,515,357 was paid with $2,315,357 of cash and 68,264 shares of Company common shares valued at CMMI Level 3, providing assurance to customers of consistency and quality in their efforts.
Following the April 7, 2021, Tellenger acquisition, the Company engaged an independent valuation firm to aid in the application of ASC 805 inclusive$200,000 as of the initial measurementtransaction closing date. The value of anythe shares was determined by the closing price as of the transaction date. Goodwill is attributable to human capital related intangible assets like the value of the acquired by the Company. The Company’sassembled workforce and strategic and enterprise related intangible assets subject to amortization consist of acquired customer relationships and non-compete agreements. The Company amortizes intangible assets over their respective estimate useful lives. Identifiableincluding growth opportunities that are not reportable separately from goodwill. Goodwill also arises from recognizing deferred tax liabilities from intangible assets that are subject toamortizable for financial reporting but not for income tax purposes. The transaction did not result in a step-up in tax basis and neither the intangible assets nor goodwill recorded for financial reporting purposes results in deductible amortization are evaluated for impairment and the Company will periodically reassess the carrying value, useful lives, and classifications of all identifiable intangible assets.
tax purposes. The purchase price allocationfor Tellenger has been prepared on a preliminary basis and changes to the preliminary purchase price allocations may occur as additional information concerning asset and liability valuations is finalized. Under the acquisition method of accounting, the total consideration was firstallocated to net tangible assets and identifiable intangible assets based upon their fair values as of the date of completion of the acquisition. As a result of the acquisition, the Company recorded net tangible assets of $240,357, and intangible assets in the form of $1,090,000 for customer relationships with an amortizable useful life of eight years, $280,000 for Tellenger’s trade name / trademarks with an indefinite life, and $120,000 for executed non-compete agreements with a useful life of three years. In accordance with ASC 350, the excess of the total consideration over the fair values of the net tangible and intangible assets of $785,000 was recorded as goodwill on the transaction.
The components of the Company’s identifiable intangible assets are as follows:
September 30, 2021 | ||||||||
Gross | ||||||||
Useful | Carrying | |||||||
Lives (years) | Amounts | |||||||
Intangible assets with estimated useful lives | ||||||||
Customer relationships | 8 | $ | 1,090,000 | |||||
Non-compete agreements | 3 | 120,000 | ||||||
Intangible assets with indefinite lives | ||||||||
Trade names | 280,000 | |||||||
Gross identified intangible assets | 1,490,000 | |||||||
Accumulated amortization | (87,912 | ) | ||||||
Net identifiable intangible assets | 1,402,088 | |||||||
Goodwill | 785,000 | |||||||
Intangible assets | $ | 2,187,088 |
Useful | Amounts | Valuation Methodology | ||||||
Cash | $ | 81,473 | ||||||
Accounts receivable | 611,471 | |||||||
Other current assets | 6,338 | |||||||
Intangible assets with estimated useful lives: | ||||||||
Customer relationships | 8 | 1,090,000 | Replacement cost and relief from royalty | |||||
Non-compete agreements | 3 | 120,000 | Multi-period excess earnings | |||||
Intangible assets with indefinite lives: | ||||||||
Trade names | 280,000 | |||||||
Goodwill | 785,000 | |||||||
Total assets acquired | 2,974,282 | |||||||
Current liabilities | (458,925 | ) | ||||||
Net assets acquired | $ | 2,515,357 |
Form 10-Q September 30, |
Amortization expense relatedGray Matters, Inc.
On December 10, 2021, the Company purchased all the issued and outstanding shares of Gray Matters. Gray Matters provides supply chain management software designed to aggregate customer data into a single, interconnected, blockchain secured framework. The purchase price of $11,005,100 comprises the following:
Net cash consideration | $ | 7,240,100 | ||
Buyer common stock | 1,500,000 | |||
Fair value of deferred consideration | 1,335,000 | |||
Fair value of contingent consideration | 930,000 | |||
Total | $ | 11,005,100 |
Common stock consideration consisted of 436,481 shares of WaveDancer common stock valued at $1,500,000 as of the transaction closing date. The deferred consideration of $1,335,000 is the estimated present value as of the closing date of the $1,500,000 cash payment due to the amortizable intangible assets was $44,061 and $87,912selling shareholder of GMI (the “Seller”) on the second anniversary of the acquisition. We applied a discount rate of 6% reflecting our recent secured borrowing rate adjusted to include a premium for the three months andunsecured status of the deferred consideration liability. Accretion of the liability will be recorded as interest expense. For the nine months ended September 30, 2022, we recorded $59,467 of interest expense.
Contingent consideration was estimated as of the acquisition date using a probability weighted average of possible outcomes, discounted to its net present value as of the acquisition date. We identified the set of possible outcomes and assigned probabilities to each by applying management judgment to the assumptions underlying the projections of 2022 revenue and gross profit. Under the terms of the purchase agreement, the Seller is eligible to receive from zero up to $4,000,000 of additional consideration, payable in cash, based on the amounts of revenue and gross profit achieved by GMI during the period from the acquisition date through December 31, 2022. We estimated that the outcomes to apply a probability weighting to range from $500,000 to $1,500,000, with an outcome of $1,000,000 given the highest probability weighting. The undiscounted probability weighted outcome was determined to be $1,000,000 and was discounted back to its present value of $930,000 as of December 31, 2021. We applied a discount rate of 6% reflecting our recent secured borrowing rate adjusted to include a premium for the unsecured status of the contingent consideration liability. The contingent consideration liability will be remeasured at fair value at the end of each reporting period and reported in the consolidated statements of operations until the liability is settled.
We remeasured the contingent consideration liability as of June 30, 2022 and determined that the undiscounted probability weighted outcome had decreased to zero and we reduced the liability amount accordingly and for the nine months ended September 30, 2022 we have recognized $930,000 of income.
The deferred consideration liability is included in other liabilities on the condensed consolidated balance sheets and totals $1,394,467 and $1,335,000 as of September 30, 2022 and December 31, 2021, respectively. Amortization expense
Goodwill is attributable to human capital related intangible assets like the value of the acquired assembled workforce and strategic and enterprise related intangible assets including growth opportunities that are not reportable separately from goodwill. Goodwill also arises from recognizing deferred tax liabilities from recording in the purchase accounting intangible assets that are amortizable for the remainingfinancial reporting but threenot months offor income tax purposes. The transaction did 2021not result in a step-up in tax basis and the five years after 2021 is estimated to be:Company will carry over the legacy tax basis of $0 for all intangibles. Neither the intangible assets nor goodwill recorded for financial reporting purposes will generate deductible amortization for tax purposes.
Remainder of 2021 | $ | 44,061 | ||
2022 | 176,244 | |||
2023 | 176,244 | |||
2024 | 146,259 | |||
2025 | 136,248 | |||
2026 | 136,248 | |||
Thereafter | 306,784 | |||
Total | $ | 1,122,088 |
The purchase price for GMI has been allocated as follows:
Useful | Amounts | Valuation Methodology | ||||||
Cash | $ | 20,235 | ||||||
Fixed assets | 8,902 | |||||||
Intangible assets with estimated useful lives: | ||||||||
Technology | 5 | 2,900,000 | Replacement cost and relief from royalty | |||||
Customer relationships | 6 | 3,860,000 | Multi-period excess earnings | |||||
Goodwill | 4,560,099 | |||||||
Total assets acquired | 11,349,236 | |||||||
Current liabilities | (344,136 | ) | ||||||
Net assets acquired | $ | 11,005,100 |
WaveDancer, Inc. | Form 10-Q September 30, 2022 |
Supplemental Combined Pro Forma Information
The following unaudited pro forma financial information presents combined results of operations for the periods presented as if the acquisitionacquisitions of both Tellenger and Gray Matters had been completed on January 1, 2020.2021. The pro forma information includes adjustments to amortization expense for the intangible assets acquired and interest expense for the additional debt used to partially fund the acquisition price.acquired.
The pro forma data are for informational purposes only and are not necessarily indicative of the consolidated results of operations of the combined business had the acquisitionacquisitions of both Tellenger and Gray Matters occurred on January 1, 2020,2021, or the results of future operations of the combined business. For instance, planned or expected operational synergies following the acquisition are not reflected in the pro forma information. Consequently, actual results will differ from the unaudited pro forma information presented below.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenue | $ | 4,299,925 | $ | 5,061,260 | $ | 13,677,430 | $ | 14,058,930 | ||||||||
Income (loss) from operations | $ | (84,267 | ) | $ | 252,947 | $ | 291,508 | $ | (9,425 | ) |
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenues | $ | 2,306,379 | $ | 4,299,925 | $ | 9,619,273 | $ | 13,677,429 | ||||||||
Net loss | $ | (4,700,519 | ) | $ | (802,424 | ) | $ | (8,304,268 | ) | $ | (2,128,680 | ) |
Note 7.Intangible Assets and Goodwill
Information regarding our intangible assets is as follows:
Weighted Average Useful Life (Years) | December 31, 2021 | Additions | September 30, 2022 | ||||||||||||
Intangible assets with estimated useful lives | |||||||||||||||
Technology | 5.0 | $ | 2,900,000 | $ | - | $ | 2,900,000 | ||||||||
Customer relationships | 6.4 | 4,950,000 | - | 4,950,000 | |||||||||||
Non-compete agreements | 3.0 | 120,000 | - | 120,000 | |||||||||||
Accumulated amortization | (201,032 | ) | (1,049,679 | ) | (1,250,711 | ) | |||||||||
Sub-total | 7,768,968 | (1,049,679 | ) | 6,719,289 | |||||||||||
Intangible assets with indefinite lives | |||||||||||||||
Trade names | Indefinite | 280,000 | - | 280,000 | |||||||||||
Net identifiable intangible assets | $ | 8,048,968 | $ | (1,049,679 | ) | $ | 6,999,289 |
Information regarding our goodwill for each operating segment is as follows:
Tellenger | Blockchain SCM | Corporate | Consolidated | |||||||||
Goodwill, gross | ||||||||||||
Balance at December 31, 2021 | $ | 785,000 | $ | 4,560,098 | $ | 2,240,171 | $ | 7,585,269 | ||||
Additions | - | - | - | - | ||||||||
Balance at September 30, 2022 | 785,000 | 4,560,098 | 2,240,171 | 7,585,269 | ||||||||
Cumulative impairment loss | ||||||||||||
Balance at December 31, 2021 | - | - | - | - | ||||||||
Impairment expense | - | (2,254,624 | ) | - | (2,254,624 | ) | ||||||
Balance at September 30, 2022 | - | (2,254,624 | ) | - | (2,254,624 | ) | ||||||
Goodwill, net | ||||||||||||
Balance at December 31, 2021 | $ | 785,000 | $ | 4,560,098 | $ | 2,240,171 | $ | 7,585,269 | ||||
Balance at September 30, 2022 | $ | 785,000 | $ | 2,305,474 | $ | 2,240,171 | $ | 5,330,645 |
See Note 5, Fair Value Measurements, for a discussion of goodwill impairment charges.
As of September 30, 2022, expected amortization expense relating to purchased intangible assets for each of the next five years and thereafter is as follows:
Remainder of 2022 | $ | 349,893 | ||
2023 | 1,399,572 | |||
2024 | 1,369,635 | |||
2025 | 1,359,576 | |||
2026 | 1,326,854 | |||
Thereafter | 913,759 | |||
Total | $ | 6,719,289 |
|
|
The Company hasNote two8. shareholder-approvedStock-Based Compensation
We have three stock-based compensation plans. The 2006 Stock Incentive Plan was adopted in 2006 (“2006 Plan”) and had options granted under it through April 12, 2016. On June 1, 2016, the shareholders ratified the IAIThe 2016 Stock Incentive Plan was adopted in 2016(“2016 Plan”), which and had been approved by options granted under it through November 15, 2021. On October 11, 2021, the Board of Directors approved the 2021 Stock Incentive Plan (“2021 Plan”) and on April 4, 2016.December 2, 2021, our shareholders approved the 2021 Plan.
The Company recognizes compensation costs only for those shares expected to vest on a straight-line basis over the requisite service period of the awards. Such options generally vest over periods of six months to two years. Fair values of option awards granted in the three months ended September 30, 2022 and2021, and the nine months ended September 30, 20212022 and 2020,2021, were estimated using the Black-Scholes option pricing model under the following assumptions:
Three Months Ended September 30, | Nine Months Ended September 30, | Three months ended September 30, | Nine Months ended September 30, | |||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
Risk-free interest rate | 0.84% | 0.26% | 0.46% | - | 0.92% | 0.26% | - | 0.33% | 2.85% - 2.90% | 0.84% | 1.91% - 2.90% | 0.46% - 0.92% | ||||||||||||||||||
Dividend yield | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 0% | ||||||||||||||||||||||
Expected term (in years) | 5 | 5% | 5 | 5 | ||||||||||||||||||||||||||
Expected term (years) | 3.25 - 6.00 | 5.00 | 3.25 - 6.00 | 5.00 | ||||||||||||||||||||||||||
Expected volatility | 46.8% | 69.6% | 47.1% | - | 92.6% | 65.8% | - | 69.6% | 45.9% - 48.1% | 46.8% | 45.8% - 48.5% | 47.1% - 92.6% |
Determining the assumptions for the expected term and volatility requires management to exercise significant judgment. The expected term represents the weighted-average period that options granted are expected to be outstanding giving consideration to vesting schedules. Since the Company does not have an extended history of actual exercises, the Company has estimated the expected term using a simplified method which calculates the expected term as the average of the time-to-vesting and the contractual life of the awards. Given the limited public market for the Company’s stock, the Company has elected to estimate its expected volatility by benchmarking its volatility against the calculated volatilityto that of several public company issuers that operate within its market segment. The first issuance for which this benchmarkingguideline companies’ volatility was applied was effective with options granted on March 31, 2021.
2016 Stock Incentive Plan
The 2016 Plan became effective June 1, 2016 and expires April 4, 2026. The 2016 Plan providesincreased by a size adjustment premium to compensate for the granting of equity awards to key employees, including officersdifference in size between the guideline companies and directors. The maximum number of shares for which equity awards may be granted under the 2016 Plan is 1,000,000. Options under the 2016 Plan expire no later than ten years from the date of grant or within prescribed periods following cessation of employment, whichever comes first, and vest over periods determined by the Board of Directors. The minimum exercise price of each option is the quoted market price of the Company’s stock on the date of grant. At September 30, 2021, there were unexpired options for 853,500 shares issued under the 2016 Plan, of which 556,000 were exercisable.Company in its calculation.
2006 Stock Incentive Plan
The 2006 Plan became effective May 18, 2006, and expired April 12, 2016. The 2006 Plan provides for the granting of equity awards to key employees, including officers and directors. Options under the 2006 Plan were generally granted at-the-money or above, expire no later than ten years from the date of grant or within three months of within prescribed periods following cessation of employment, whichever comes first, and vest over periods determined by the Board of Directors. The number of shares subject to options available for issuance under the 2006 Plan could not exceed 1,950,000. There were 374,000 unexpired options remaining from the 2006 Plan at September 30, 2021, all of which were exercisable.
The status of the options issued under the foregoing option plans as of September 30, 2021 and 2020, and changes during the three months and nine months ended September 30, 2021 and 2020, were as follows:
Options outstanding | |||||||||||||
Weighted average | Weighted average | Aggregate | |||||||||||
exercise price | remaining | intrinsic | |||||||||||
Incentive Options | Shares | per share | contractual term | value | |||||||||
Outstanding at December 31, 2020 | 1,395,000 | $ | 0.31 | ||||||||||
Options granted | 145,000 | 2.62 | |||||||||||
Options exercised | (25,000 | ) | 0.14 | ||||||||||
Options expired | - | - | |||||||||||
Options forfeited | - | - | |||||||||||
Outstanding at March 31, 2021 | 1,515,000 | $ | 0.53 | ||||||||||
Options granted | 127,500 | 2.85 | |||||||||||
Options exercised | (360,000 | ) | 0.22 | ||||||||||
Options expired | (20,000 | ) | 0.17 | ||||||||||
Options forfeited | - | - | |||||||||||
Outstanding at June 30, 2021 | 1,262,500 | $ | 0.86 | ||||||||||
Options granted | 30,000 | 2.80 | |||||||||||
Options exercised | (65,000 | ) | 0.18 | ||||||||||
Options expired | - | - | |||||||||||
Options forfeited | - | - | |||||||||||
Outstanding at September 30, 2021 | 1,227,500 | $ | 0.94 | 5 years, 1 month | $ | 2,450,068 | |||||||
Exercisable at September 30, 2021 | 930,000 | $ | 0.44 | 4 years, 5 months | $ | 2,326,943 | |||||||
Outstanding at December 31, 2019 | 1,349,000 | $ | 0.23 | ||||||||||
Options granted | - | - | |||||||||||
Options exercised | - | - | |||||||||||
Options expired | (129,000 | ) | 0.17 | ||||||||||
Options forfeited | - | - | |||||||||||
Outstanding at March 31, 2020 | 1,220,000 | 0.24 | |||||||||||
Options granted | 10,000 | 0.15 | |||||||||||
Options exercised | - | - | |||||||||||
Options expired | (10,000 | ) | 0.19 | ||||||||||
Options forfeited | - | - | |||||||||||
Outstanding at June 30, 2020 | 1,220,000 | 0.24 | |||||||||||
Options granted | 210,000 | 0.66 | |||||||||||
Options exercised | - | - | |||||||||||
Options expired | - | - | |||||||||||
Options forfeited | - | - | |||||||||||
Outstanding at September 30, 2020 | 1,430,000 | $ | 0.30 | 4 years, 5 months | $ | 487,773 | |||||||
Exercisable at September 30, 2020 | 1,208,500 | $ | 0.24 | 3 years, 5 months | $ | 482,268 |
There were 265,000 options with grant date fair values totaling $157,300 and 30,000 options and 210,000 optionswith grant date fair values totaling $34,500 granted during the three months ended September 30, 2021,2022 and 2020,2021, respectively,respectively. There were 1,177,000 options with grant date fair values totaling $2,231,970, and there were 302,500 options and 220,000 optionswith grant date fair values totaling $363,550 granted during the nine months ended September 30, 20212022 and 2020,2021, respectively. There were 65,000 options107,000 and 065,000 options exercised during the three months ended September 30, 2021,2022 and 2020,2021, respectively, and thererespectively. There were 450,000264,000 options and 0450,000 options exercised during the nine months ended September 30, 2021,2022 and 2020,2021, respectively. As of September 30, 2021,2022, there was $163,847$2,019,066 of total unrecognized compensation cost related to nonvestednon-vested share-based compensation arrangements granted under the stock incentive plans; thatplans. That cost is expected to be recognized over a weighted-average period of seven9.4 months.
Total compensation expense related to these plans was $80,882$614,094 and $6,365$80,882 for the three months ended September 30, 2021,2022 and 2020,2021, respectively, and $220,455$1,455,835 and $7,171$220,455 for the nine months ended September 30, 2021,2022 and 2020,2021, respectively.
Nonvested option awards asrespectively, and is included in selling, general and administrative expenses on the condensed consolidated statements of September 30, 2021, and 2020, and changes during the three months and nine months ended September 30, 2021 and 2020, were as follows:
Nonvested | ||||||||
Weighted average | ||||||||
grant date | ||||||||
Shares | fair value | |||||||
Nonvested at December 31, 2020 | 235,000 | $ | 0.36 | |||||
Granted | 145,000 | 1.22 | ||||||
Vested | 0 | 0 | ||||||
Forfeited | 0 | 0 | ||||||
Nonvested at March 31, 2021 | 380,000 | $ | 0.94 | |||||
Granted | 127,500 | 1.19 | ||||||
Vested | (25,000 | ) | 1.01 | |||||
Forfeited | 0 | 0 | ||||||
Nonvested at June 30, 2021 | 482,500 | $ | 0.81 | |||||
Granted | 30,000 | 1.15 | ||||||
Vested | (215,000 | ) | 0.41 | |||||
Forfeited | 0 | 0 | ||||||
Nonvested at September 30, 2021 | 297,500 | $ | 1.13 | |||||
Nonvested at December 31, 2019 | 23,500 | $ | 0.17 | |||||
Granted | 0 | 0 | ||||||
Vested | (5,000 | ) | 0.21 | |||||
Forfeited | 0 | 0 | ||||||
Nonvested at March 31, 2020 | 18,500 | $ | 0.15 | |||||
Granted | 10,000 | 0.08 | ||||||
Vested | (15,500 | ) | 0.16 | |||||
Forfeited | 0 | 0 | ||||||
Nonvested at June 30, 2020 | 13,000 | $ | 0.09 | |||||
Granted | 210,000 | 0.37 | ||||||
Vested | (1,500 | ) | 0.12 | |||||
Forfeited | 0 | 0 | ||||||
Nonvested at September 30, 2020 | 221,500 | $ | 0.36 |
operations.
Note 9.Revolving Line of Credit and Notes Payable |
|
AtOn September 30, 2021,2022, the Company hadentered a revolving line of credit with Summit Community Bank (“Summit”) providingthat provided for on-demand or short-term borrowings of up to $1,000,000 at a variable interest rate equal to the prime rate as published in The Wall Street Journal, with a minimum rate of 3.99% and a maximum rate of 20.00%, and subject to a borrowing base calculated using outstanding accounts receivable,receivable. Borrowings under the line of credit are secured by the assets of the Company. As of September 30, 2022, there was no outstanding balance under this line of credit and there were no borrowings or repayments during the nine months ended September 30, 2022. As of September 30, 2022 there is $1,000,000 of borrowing availability under this line of credit.
On April 16, 2021, the Company entered a revolving line of credit with Summit Community Bank (“Summit”) that provided for on-demand or short-term borrowings of up to $1,000,000 at a variable interest rate equal to the greater of 3.25% or the prime rate as published in whichThe Wall Street Journal, and subject to a borrowing base calculated using outstanding accounts receivable. Borrowings under the bank has a collateral interest.line of credit are secured by the assets of the Company. The line expiresexpired on April 16, 2022. As of September 30,December 31 2021, $402,306there was no outstanding balance under this line of credit at a variable interest rate of 3.25% (Wall Street Journal prime plus 0% with a floor of 3.25%), and there was were no outstanding balance at borrowings or repayments during the December 31, 2020.nine months ended September 30, 2022.
WaveDancer, Inc. | Form 10-Q September 30, 2022 |
The Company previously had a revolving line of credit with another bank (“prior LOC”) providing for demand or short-term borrowings of up to $1,000,000.$1,000,000 at an interest rate of the greater of 4.0% or LIBOR +3.5%. The prior LOC originally was due to expire on July 31, 2021.2021 and was secured by the assets of the Company. The new Summit line of credit was used to pay off the prior LOC and it was closed on May 3, 2021.
On April 16, 2021,
|
|
Due towe entered into a $1 million term loan agreement with Summit Community Bank. The term of the coronavirus uncertainty and staffing and payroll cuts that were being considered in early 2020 due to liquidity constraints, the Company applied forloan was two years with monthly installments comprising a Paycheck Protection Program loan, guaranteed by the SBA. The Company was funded by its lender on April 20, 2020, in thefixed principal amount of $450,000. The loan accruesplus interest accruing at a fixed rate of 1% and has a term of two years. The first payment is deferred until the date the SBA remits the Company’s loan forgiveness amount to the lender, though interest accrues during the deferral period. The loan has been used exclusively to support maintaining employee payroll and benefits. The Company began making principal and interest payments in August 2021 while also continuing to pursue its application for loan forgiveness. On, October 6, 2021, the Company was notified that its lender had approved the full amount of $450,000 for forgiveness, and the forgiveness package had been submitted to the SBA for final approval. The SBA may take up to 90 days to complete their review of the submission. The Company expects its application for loan forgiveness to be resolved during the fourth quarter of 2021.
In conjunction with the Tellenger acquisition, on April 16, 2021, the Company and Tellenger jointly procured a $1 million term loan (“Term Loan”) with Summit Community Bank to assist with post-acquisition cash flow and integration costs. The loan is payable in monthly installments consisting of a fixed principal amount plus accrued interest over the course of two years at a fixed interest rate of 4.89%. The loan iswas collateralized by a security interest in substantially all the assets of both companies.the Company. On December 30, 2021, we fully repaid the outstanding balance of the loan.
To provide additional net working capital support, the Company borrowed $150,000 from the sellers of Tellenger for a period of 90 days from the closing date of April 7, 2021, without interest accumulation. The sellers were repaid in July 2021.
Note 10.Common Stock Purchase Agreement
On July 8, 2022, we entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) and a Registration Rights Agreement (the “Registration Rights Agreement”) with B. Riley Principal Capital II, LLC (“B. Riley”). Pursuant to the Purchase Agreement, subject to certain limitations and conditions, the Company has the right, but not the obligation, to sell to B. Riley up to $15,000,000 of shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), from time to time. Sales of Common Stock to B. Riley under the Purchase Agreement, and the timing of any such sales, are solely at the Company’s option, and the Company is under no obligation to sell any securities to B. Riley under the Purchase Agreement. Pursuant to the Registration Rights Agreement, the Company agreed to file a registration statement with the Securities Exchange Commission (the “SEC”) to register under the Securities Act of 1933, as amended (the “Securities Act”) the resale by B. Riley of up to 4,500,000 shares of Common Stock that the Company may issue or elect, in the Company’s sole discretion, to issue and sell to B. Riley, from time to time under the Purchase Agreement. We issued 89,835 common shares valued at $112,500 to B. Riley as a commitment fee. The following table represents note payable balances atcost of the shares is included in prepaid expenses and other current assets on the condensed consolidated balance sheet and will be charged to additional paid in capital as shares are sold under the ELOC. As of September 30, 20212022, and December 31, 2020:
September 30, | December 30, | |||||||
PPP loan | $ | 406,484 | $ | 450,000 | ||||
Term loan | 791,667 | 0 | ||||||
Total | 1,198,151 | 450,000 | ||||||
Less current portion | (797,295 | ) | (93,009 | ) | ||||
Non-current portion | $ | 400,856 | $ | 356,991 |
Notes Payable Payment Schedule | ||||||||||||
Term Loan | PPP Loan | Total | ||||||||||
Remainder of 2021 | $ | 125,000 | $ | 74,045 | $ | 199,045 | ||||||
2022 | 500,000 | 298,039 | 798,039 | |||||||||
2023 | 166,667 | 34,400 | 201,067 | |||||||||
Total payments | $ | 791,667 | $ | 406,484 | $ | 1,198,151 |
no shares have been sold to B. Riley under the Purchase Agreement.
Note 11. Private Offerings of Common Stock During August 2022 the Company sold 1,572,506 unregistered shares of its common stock in a private offering at a price of $1.20 per share from which it raised aggregate gross proceeds of $1,887,000. In March 2021, the Company sold 330,666 unregistered shares of its common stock in a private offering at a price of $1.50 per share from which it raised aggregate gross proceeds of $495,999. |
|
On August 26, 2021, the Company completed a private offering ofsold 1,400,000 units at a price of $2.00 per unit, each unit consisting of one unregistered share of common stock and one warrant exercisable at $3.00 for one share of common stock. No commissions were payablestock, in connection with this offering.a private offering from which it raised aggregate gross proceeds of $2,800,000. The warrants expire on August 31, 2026. 1,400,000 shares of common stock issuable upon exercise of warrants in connection with the offering have been reserved for issuance. The net proceeds of the transaction of $2,800,000 will be used for general corporate purposes.warrants are classified as equity.
The shares are unregistered and are subject toOn December 10, 2021, the Company sold 3,289,526 units at a six-month holding period under SEC Rule 144 before the securities can be soldprice of $3.04 in a private offering from which it raised $10,000,000 resulting in the public market.issuance of a like number of shares of common stock and Series A warrants exercisable for 657,933 shares of common stock. The warrants are also exercisable for unregistered shares and are freely transferable afterat a price of $4.50 per share, with the warrants exercisable from sixJanuary 1, 2023 months from their issuance. Thethrough December 31, 2026. If the shares underlying the warrants mustare not registered when the warrants become exercisable, the warrants can be held for a period of at least six months if exercised for cash. If exercised on a cashless basis, the shares can be freely traded once the holding period of the warrants and the shares is at least six months combined.basis. The warrants are freestanding securities thatsubject to mandatory exercise if, commencing January 1, 2024, the volume weighted average price per share for 10 consecutive trading days equals or exceeds $12.50. The warrants are separately exercisable and legally detachable from the common shares and have been classified as equity in accordance with ASC Topic 480,Distinguishing Liabilities from Equity. The proceeds from the offering were allocated using the relative fair value method as follows:equity.
Additional | ||||||||||||
Common | Paid-In | |||||||||||
Stock | Capital | Total | ||||||||||
Unregistered shares | $ | 14,000 | $ | 2,142,000 | $ | 2,156,000 | ||||||
Warrants | 0 | 644,000 | 644,000 | |||||||||
Total | $ | 14,000 | $ | 2,786,000 | $ | 2,800,000 |
The total offering costs associated with the sales of unregistered shares of common stock in 2022 and 2021 were not material.
Note 12. Income Taxes
During the three- and nine-month periods ended September 30, 2022, the Company’s effective tax rate was 2.2% and 13.6%, respectively. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate and the Company’s effective tax rate for the three- and nine-month periods ended September 30, 2022 were state taxes, changes in valuation allowance, and permanent items. A valuation allowance was recorded during the three-month period ended September 30, 2022 increasing the tax benefit by $54,592. During the three- and nine-month periods ended September 30, 2021, the Company’s effective tax rate was 0%. The primary factors contributing to the difference between the statutory tax rate and the effective tax rate for the three- and nine-month periods ended September 30, 2021, is primarily driven by the presence of a full valuation allowance in all jurisdictions.
Form |
Note 13. (Loss) Income Per Share |
|
Basic loss per share excludes dilution and is computed by dividing loss available to common shareholders by the weighted-average number of shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, except for periods when the Company reports a net loss because the inclusion of such items would be antidilutive. The antidilutive effect of 672,373437,352 shares from stock options and zero shares from warrants were excluded from diluted shares for the three months ended September 30, 2022, and the antidilutive effect of 570,090 shares from stock options and 150,000 shares from warrants were excluded from diluted shares for the nine months ended September 30, 2022. The dilutive effect of outstanding options and warrants is reflected in earnings per share by use of the treasury stock method. The antidilutive effect of 672,373 shares were excluded from diluted shares for the three months ended September 30, 2021.
The following is a reconciliation of the amounts used in calculating basic and diluted net (loss) income (loss) per common share:
Net income | Per share | |||||||||||
(loss) | Shares | amount | ||||||||||
Basic net loss per common share for the three months ended September 30, 2021: | ||||||||||||
Loss available to common shareholders | $ | (95,527 | ) | 12,596,126 | $ | (0.01 | ) | |||||
Effect of dilutive stock options | - | 0 | - | |||||||||
Diluted net loss per common share for the three months ended September 30, 2021 | $ | (95,527 | ) | 12,596,126 | $ | (0.01 | ) | |||||
Basic net income per common share for the three months ended September 30, 2020: | ||||||||||||
Income available to common shareholders | $ | 214,703 | 11,211,760 | $ | 0.02 | |||||||
Effect of dilutive stock options | - | 625,667 | - | |||||||||
Diluted net income per common share for the three months ended September 30, 2020: | $ | 214,703 | 11,837,427 | $ | 0.02 |
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net (loss) income | $ | (4,700,519 | ) | $ | (95,527 | ) | $ | (8,304,268 | ) | $ | 218,445 | |||||
Basic weighted average shares outstanding | 18,382,131 | 12,596,126 | 17,688,528 | 11,957,878 | ||||||||||||
Dilutive effect of warrants and/or options | - | - | - | 627,036 | ||||||||||||
Diluted weighted average shares outstanding | 18,382,131 | 12,596,126 | 17,688,528 | 12,584,914 | ||||||||||||
Basic (loss)/earnings per share | $ | (0.26 | ) | $ | (0.01 | ) | $ | (0.47 | ) | $ | 0.02 | |||||
Diluted (loss)/earnings per share | $ | (0.26 | ) | $ | (0.01 | ) | $ | (0.47 | ) | $ | 0.02 |
Net income | Per share | |||||||||||
(loss) | Shares | amount | ||||||||||
Basic net income per common share for the nine months ended September 30, 2021: | ||||||||||||
Income available to common shareholders | $ | 218,445 | 11,957,878 | $ | 0.02 | |||||||
Effect of dilutive stock options | - | 627,036 | - | |||||||||
Diluted net income per common share for the nine months ended September 30, 2021 | $ | 218,445 | 12,584,914 | $ | 0.02 | |||||||
Basic net income per common share for the nine months ended September 30, 2020: | ||||||||||||
Income available to common shareholders | $ | 53,745 | 11,211,760 | $ | 0 | |||||||
Effect of dilutive stock options | - | 598,632 | - | |||||||||
Diluted net income per common share for the nine months ended September 30, 2020 | $ | 53,745 | 11,810,392 | $ | 0 |
|
|
Lease Agreement
In October 2021, the Company executed a lease of office space in Annapolis, MD. The lease’s effective date was October 1, 2021. The lease term is 36 months with no renewal options and initial monthly rent of $12,713. Rent for the firstthree months of the lease term will be abated by 50% and the lease contains 2.5% rent escalations in its second and third years.
Form 10-Q September 30, |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Statements
This Form 10-Q contains forward-looking statements regarding our business, customer prospects, or other factors that may affect future earnings or financial results that are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties which could cause actual results to vary materially from those expressed in the forward-looking statements. Investors should read and understand the risk factors detailed in our Annual Report on Form 10-K for the fiscal year ended December 31, 20202021 (“2020 10-K”Annual Report”) and in other filings with the Securities and Exchange Commission.
We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. This list highlights some of the risks which may affect future operating results. These are the risks and uncertainties we believe are most important for you to consider. Additional risks and uncertainties, not presently known to us, which we currently deem immaterial, or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of the following risks or uncertainties actually occurs,occur, our business, financial condition and operating results would likely suffer. These risks include, among others, the following:
● | Our ability to successfully execute our |
● |
|
● |
|
● | Our operating history and recent and proposed changes to our business model make it difficult to evaluate our current business and prospects and may increase the |
● |
|
● | If the cybersecurity, Internet of Things (“IoT”), enterprise resource planning (“ERP”), command and control (“C2”), or supply chain management (“SCM”) markets are not receptive to our |
● | A portion of our |
● |
|
● |
|
● |
|
● |
|
● |
|
● |
|
● |
|
● | We are dependent on information technology, and disruptions, failures or security breaches of our |
● | We depend on computing infrastructure operated by Amazon Web Services (“AWS”), Microsoft, and other third parties to support some of our |
● | Failure to comply with governmental laws and regulations could harm our business. |
WaveDancer, Inc. | Form 10-Q September 30, 2022 |
● | We are subject to risks associated with our strategic investments, and impairments in the value of our investments could negatively impact our financial results. |
● | Our failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new products and subscriptions could reduce our ability to compete and could harm our business. |
● | The requirements of being a public company may |
● | If we are not able to maintain and enhance our brand and our reputation as a provider of high-quality security solutions and services, our business and results of operations may be |
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “intends,” “potential” and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks in greater detail under the heading “Risk Factors” in Item 1A of our 20202021 10-K. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as required by law, we assume no obligation to update any forward-looking statements after the date of this report.
Our Business
Founded in 1979 as Information Analysis Incorporated, which we refer to as IAI, the Company we or our,changed its name to WaveDancer, Inc. and converted from a Virginia corporation to a Delaware corporation in December 2021. The Company is anin the business of developing and maintaining information technology or(“IT”) systems, modernizing client information systems, and performing other IT-related professional services to government and commercial organizations.
The Company is an IT provider primarily for the benefit of federal government agencies. At present, we primarily apply our technology, services and experience to legacy software migration and modernization, developing web-based and mobile device solutions, including dynamic electronic forms development and conversion, data analytics, and we are in the process of acquiring talent and expertise in developing cybersecurity and cloud services practices. Our focus is on enterprise IT solutions primarily relating to system modernization, cloud-based solutions and cyber securitycybersecurity protection.
Since the Company’s inception, we have performed software development and conversion projects for over 100 commercial and government customers including, but not limited to, the Department of Agriculture, Department of Defense, Department of Education, Department of Homeland Security, Department of the Treasury, U.S. Small Business Administration, U.S. Army, U.S. Air Force, Department of Veterans Affairs, and General Dynamics Information Technology (formerly Computer Sciences Corporation, CSRA).
Modernization has been a core competency of IAIthe Company for over 20 years. We have modernized over 100 million lines of COBOL code for over 35 governmental and commercial customers. We maintain a pool of skilled COBOL programmers. This provides us with a competitive advantage as the labor pool of such programmers is shrinking as aging software professionals retire. Our business has also historically relied upon the reselling of applications, primarily for forms development.
Through our recent acquisition in April 2021 of Tellenger, Inc. (“Tellenger”), which is now a wholly-owned subsidiary of the Company, we acquired competencies in web-based solutions and cyber security.cybersecurity. Tellenger is a boutique IT consulting and software development firm specializing in modernization, software development, cybersecurity, cloud solutions, and data analytics. We believe combining web-based solutions with system modernization will provide us with the skill sets that are needed to migrate legacy systems to the cloud. We foresee this as a key component of our modernization growth since there are billions of lines of code, in both the governmental and commercial sectors, that eventually must be modernized. We see this as an expanding market since users eventually will need to substantially update their systems.
Our acquisition of Tellenger was also premised upon gaining access to its professionals and service engagements in cyber security. Cyber security opportunities continue to grow. Given recent hacking incidents, it is increasingly clear, that every enterprise and governmental agency must devote resources to protect themselves. It is also our intention to better leverage our resources, largely gained through the acquisition of Tellenger, to take advantage of the growth in thisthe cybersecurity market.
In December 2021, we announced the reorganization of our entire professional services practice into Tellenger, and as a result, our professional services are contained in a single entity. Through Tellenger, we perform services such as business process re-engineering, cloud migrations, and Software-as-a-Service (“SaaS”) implementations on behalf of clients in the private and public sector with an aim to increase productivity, gain efficiencies, and achieve key performance indicators. Tellenger is appraised at Capability Maturity Model Integration (CMMI) Level 3.
WaveDancer, Inc. | Form 10-Q September 30, 2022 |
Through our acquisition of Gray Matters, Inc. and in connection with our business transformation strategy which we discuss below, in December 2021 we gained access to blockchain and encryption algorithm technology. Gray Matters specializes in the supply chain management (“SCM”) industry and in United States intelligence, national security and diplomatic organizations. Gray Matters uses a “Zero Trust” product and is designed to secure and monitor the lifecycle of manufacturing through destruction and recycling.
Our Strategy
Our strategy is to grow our business organically andas well as through acquisitions. Over
Through the last two decades, IAI hadacquisitions of Tellenger and Gray Matters in 2021, we began to reposition our legacy professional services business by allocating resources away from third-party product reselling and toward professional services, which management viewed as higher margin, including within the SCM sector. In assessing the Company’s repositioning, management observed cybersecurity practices as evolving toward a zero-trust approach, the integration of blockchain as enhancing SCM, and the proliferation of Internet of Things (“IoT”) devices that were taking organizational networks to the edge. Additionally, we have been resistantseeking to investing inpurchase other technology companies whose businesses complement the Company’s existing business development activities. Instead, it was inclinedand whose personnel would better enable us to rely upon a limited number of professional servicecompete for engagements to sustain itself and not risk capital to grow the business. With changes in our executive management teamfocus areas.
To grow organically, we have hired and in the composition of our board of directors, we are now focused on growing our business. As a public company, we are positionedplan to raise capitalcontinue to support our growth. We have also made our initial hires inhire, business development personnel to help grow our business. We alsoand intend to become more proactive in bidding as a prime contractor on government proposals and in expanding our outreach to larger prime contractors for subcontract and teaming opportunities.
As for acquisitions, we believe there are numerous small government contractors, such as IAIResults of Operations – Three Months Ended September 30, 2022 and Tellenger, who recognize that unless they undertake fundamental changes in their business and invest the necessary capital, their business prospects stall. The founders of these companies who are resistant to change and investment are often inclined to sell their businesses, but given their modest size, their ability to attract suitable buyers is limited. We believe we can be a potential buyer for these companies. As in the Tellenger transaction, the currency of our publicly traded shares allows us to provide sellers with a means of participating in the anticipated future growth of the combined companies. These acquisitions can also serve as a talent acquisition vehicle to better enable us to compete for engagements in our focus areas.2021
We have been taking steps to make it easier for investors to trade in our stock. In January, we upgraded IAI’s listing from the OTC pink sheets to the OTCQB. We currently have a pending application to list our shars on the NASDAQ Capital Market.Revenue
Concentration of Risk
Our greatest concentration of riskTotal revenue was $2,306,379 for us is that a material portion of our gross profits and our income is derived from a few material subcontracts for professional services. For the three months ended September 30, 2022, compared with $4,299,925 in the prior year quarter, a decrease of $1,993,546, or 46.4%. All of the decrease is from our Tellenger segment since we did not recognize revenue for Blockchain SCM this quarter and did not have the segment last year.
Tellenger
The decrease in revenue of $1,993,546 consists of lower professional services revenue totaling $684,093 and lower third-party software sales of $1,309,453. The decline in professional services revenue is driven primarily by one software modernization project where we had deployed more resources, and billed more overtime, in 2021 three subcontracts under government procurements represented 54.4%in order to achieve a particular milestone whereas in the third quarter of 2022 we had fewer resources and less overtime from those resources. The reduction in sales of third-party software is the result of our revenue and 87.9% of ourdecision to de-emphasize these sales since they generate gross profit, respectively. Formargins in the nine months ended September 30, 2021, these same subcontracts represented 50.4% of our revenue and 78.7% of our gross profit, respectively.low single digits.
Fluctuations in our revenue and concentrations of prime U.S. government contracts have ceased to be a material risk compared to our gross profits on professional fees contracts, as a large percentage of our sales under prime U.S. government contracts are software sales. The amount of such revenue does not have a material effect on gross profit.Gross Profit
At September 30, 2021, accounts receivable balances relatedGross profit decreased by $497,253 or 50.8%, to two professional services subcontracts under one prime contractor$481,622 for projects at one federal agency collectively represented 63% of our outstanding accounts receivable. One other subcontract under federal procurements represented 12.3% outstanding accounts receivable.
We sold third-party software and maintenance contracts under multiple agreements with one major supplier. These sales accounted for 34.8% and 55.6% of total revenue in the three months ended September 30, 2021 and 2020, respectively, and 30.8% and 67.3% of revenue2022 as compared to $978,875 in the nineprior year quarter.
Tellenger
The decrease in gross profit includes a decrease from professional services of 317,261, partially offset by an increase in margin on third-party software sales of $78,068. The reduced margin on professional services is driven by the reduced revenues discussed above as well as a change in the mix of contracts generating revenue and the related billing rates resulting in a reduction in our gross profit rate to 30.7% from 34.5%.
Blockchain SCM
We recorded a negative gross profit of $258,060 in our Blockchain SCM operating segment. As noted above, we experienced delays in receiving approval from our government customer of certain milestone achievements specified in our contract with that customer. However, we continued to incur costs supporting the contract resulting in negative gross profit.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses have increased significantly since the second half of 2021 when we began to implement our transformative strategy described in the Our Strategy section above and in our Annual Report. The following table shows the major elements of SG&A expenses for the three months ended September 30, 2022 and 2021 and 2020, respectively.the increases between periods:
Three Months Ended September 30, | ||||||||||||
2022 | 2021 | Increase | ||||||||||
Personnel costs | $ | 1,076,928 | $ | 572,588 | $ | 504,340 | ||||||
Legal and professional fees | 445,163 | 142,766 | 302,397 | |||||||||
Intangibles amortization | 349,893 | 44,061 | 305,832 | |||||||||
Stock-based compensation | 614,094 | 80,882 | 533,212 | |||||||||
Governance and investor relations | 97,800 | 64,153 | 33,647 | |||||||||
IT and office expenses | 44,814 | 30,017 | 14,797 | |||||||||
Marketing expenses | 68,122 | 7,001 | 61,121 | |||||||||
All other | 229,429 | 82,429 | 147,000 | |||||||||
$ | 2,926,243 | $ | 1,023,897 | $ | 1,902,346 |
Form 10-Q September 30, |
Results of OperationsAcquisition Costs
Three Months Ended September 30, 2021 versus Three Months Ended September 30, 2020
Revenue
Total revenue was $4,299,925 forWe incurred acquisition expenses totaling $38,617 in the three months ended September 30, 2021,2022 as compared with $3,922,746to $39,245 in the corresponding quarter in 2021. These expenses include fees for legal, tax and audit professional services as well as other costs to conduct due diligence and finalize a transaction.
Goodwill Impairment
During the third quarter of 2022, our Gray Matters reporting unit, which is in our Blockchain SCM segment, experienced delays in receiving approval from its government customer of certain milestone achievements specified in our contract with that customer. This delay, in turn, results in a decline in the reporting unit’s estimated future cash flows. Accordingly, we performed an interim goodwill impairment test in accordance with the amended goodwill guidance for this reporting unit prior yearto our annual impairment test.
As a result of the test, the estimated fair value of this reporting unit was determined to be lower than the carrying value and we recorded a non-cash charge of $2,254,624 to impair the carrying value of this reporting unit’s goodwill.
(Loss) Income from Operations
Loss from operations was $4,737,862 in the third quarter of 2022 compared to a loss from operations of $84,267 in the corresponding quarter in 2021, an increase in the loss of $377,179, or 9.6%. Professional fees increased $1,217,421, or 77.0%, while software sales revenue decreased by $840,242, or 35.9%. Our acquisition$4,653,595. The increase in the loss from operations is primarily the result of Tellenger represents approximately two-thirdsthe decrease in gross profit of $497,253 and the increase in professional fees.SG&A expenses of $1,902,346, all as discussed above, and approximately $3.3 million of the increased loss is attributable to the Blockchain SCM operating segment that was acquired with GMI in December 2021.
Results of Operations – Nine Months Ended September 30, 2022 and 2021
Revenue
Total revenue was $9,619,273 for the nine months ended September 30, 2022, as compared to $12,451,467 in the comparable period in 2021, a decrease of $2,832,194, or 22.7%. The decrease includes $3,399,057 from the Tellenger operating segment, partially offset by the $566,862 of year-to-date revenue from the Blockchain SCM operating segment for which there is no prior year amount since this operating segment is the GMI business acquired in December 2021.
Tellenger
The $3,399,057 revenue decrease comprises a decrease in professional services revenue of $2,107,105 and a decrease in third-party software sales of $1,291,951. The professional services revenue decrease includes three primary declining items: 1) one contract for which much of 2021 included a greater number of resources deployed and more overtime billed in connection with meeting an accelerated milestone as compared to 2022 when we have not had as many resources deployed nor overtime billed ($1,635 thousand); 2) one contract that has transitioned to a maintenance phase where in 2021 we had revenues associated with systems conversion ($335 thousand); and 3) one contract that ended in 2021 ($563 thousand). These declining items were partially offset by increased revenues from having a full nine months of the Tellenger, Inc. acquisition in 2022 versus just over 6 months in 2021 ($421 thousand). The reduction in sales of third-party software is the same periodresult of our decision to de-emphasize these sales since they generate gross margins in 2020 is due to the non-recurring nature of software sales transactions, as well as the timing of recurring orders.low single digits.
Gross Profit
Gross profit increased by $364,548, or 59.3%,was $1,787,468 for the nine months ended September 30, 2022, as compared to $978,875,$2,954,453 in the third quartercomparable period in 2021, a decrease of $1,166,985 or 39.5%. The decrease includes $615,545 from the Tellenger operating segment and $551,440 of year-to-date negative gross margin from the Blockchain SCM operating segment for which there is no prior year amount since this operating segment is the GMI business acquired in December 2021.
Tellenger
The $615,545 gross profit decrease comprises a decrease in gross profit from professional services of $692,062, partially offset by increased gross profit from third-party software sales of $76,517. The decline in gross profit from professional services includes two primary declining items: 1) one contract for which much of 2021 over the third quarterincluded a greater number of 2020, dueresources deployed and more overtime billed in connection with meeting an accelerated milestone as compared to the increase2022 when we have not had as many resources deployed nor overtime billed ($706 thousand); and 2) one contract that has transitioned to a maintenance phase where in the revenue generated from professional fees. Overall2021 we had revenues associated with systems conversion ($209 thousand). These declining items were partially offset by increased gross profit margin was 22.8%from having a full nine months of the Tellenger acquisition in 2022 versus just over three months in 2021 up from 15.7% in 2020, due to the increase in professional fees revenue relative to software sales revenue. Gross profit percentage for professional fees in the third quarter of 2021 was 34.5%, while software sales generated a gross profit percentage of 0.9%($269 thousand). In 2021, we have added several new partnerships for software product lines that are expected to improve our gross profit margin.
WaveDancer, Inc. | Form 10-Q September 30, 2022 |
Selling, General and Administrative Expenses
Selling, general and administrative
SG&A expenses (SG&A)have increased by $658,102significantly since the second half of 2021 when we began to implement our transformative strategy described in the third quarter of 2021 over the prior year. Incorporating Tellenger’s administrative structure added $66,062 to our SG&A,Our Strategy section above and amortization of intangible assets (a non-cash expense) related to the Tellenger acquisition added another $44,061. Our efforts to attract and retain quality new members of our board of directors, the addition of an additional independent director, the increased use of share-based compensation (a non-cash expense) to attract and retain key employees and directors, management changes and administrative salaries, investor relations, a post-employment transition agreement with a retiring executive, increased legal expenses, and investment in our business resources, including our business development program and our accounting department, contributed toAnnual Report. The following table shows the increase in SG&A. Muchmajor elements of the increase in SG&A is associated with putting the resources in place necessary to position the Company for growth.
Acquisition Costs
We incurred legal, accounting, and other acquisition related expenses totaling $39,245 in the third quarter of 2021.
Income (Loss) from Operations
Loss from operations was $84,267 in the third quarter of 2021 compared to income from operations of $214,906 in 2020, a difference of $299,173. The decrease in income from operations is the net effect of increased gross profit of $364,548 being more than offset by increased SG&A costs of $658,102, as discussed above.
Nine Months Ended September 30, 2021 versus Nine Months Ended September 30, 2020
Revenue
Total revenue was $12,451,467 for the nine months ended September 30, 2022 and 2021 compared with $10,803,897 inand the prior year period, an increase of $1,647,570, or 15.2%. Professional fees increased $5,212,131, or 155.4%, while software sales revenue decreased by $3,564,561, or 47.8%. Our acquisition of Tellenger represents approximately one-third of the increase in professional fees. The decrease in our software revenue in the first nine months of 2021 versus the same period in 2020 is due to the non-recurring nature of many of our software sales transactions, including one software sales contract that expired after 2020 that contributed $1,931,692 to revenue each year, as well as the timing of recurring orders. Software sales are subject to considerable fluctuation from period to period, based on the product mix sold and referral fees earned.increases between periods:
Nine Months Ended September 30, | ||||||||||||
2022 | 2021 | Increase | ||||||||||
Personnel costs | $ | 3,383,189 | $ | 1,477,112 | $ | 1,906,077 | ||||||
Legal and professional fees | 1,511,578 | 236,110 | 1,275,468 | |||||||||
Intangibles amortization | 1,049,679 | 87,912 | 961,767 | |||||||||
Stock-based compensation | 1,455,835 | 220,455 | 1,235,380 | |||||||||
Governance and investor relations | 376,904 | 156,698 | 220,206 | |||||||||
IT and office expenses | 190,551 | 76,682 | 113,869 | |||||||||
Marketing expenses | 224,910 | 16,877 | 208,033 | |||||||||
All other | 688,327 | 251,494 | 436,833 | |||||||||
$ | 8,880,973 | $ | 2,523,340 | $ | 6,357,633 |
Acquisition Costs
Gross Profit
Gross profit increased by $1,672,282, or 130.4%, to $2,954,453,We incurred acquisition expenses totaling $829,478 for the nine months ended September 30, 2021 over the comparable period of 2020, due2022 as compared to the increase in the revenue generated from professional fees. Maintaining a certain level of professional fees revenue is necessary to generate sufficient gross profit to cover the cost of our operations. Overall gross profit margin was 23.7% in 2021, up from 11.9% in 2020, due to the increase in professional fees revenue relative to software sales revenue. Gross profit percentage for professional fees$192,530 for the nine months ended September 30, 2021 was 33.5%, while software sales generated2021. The current year's expenses were incurred primarily in connection with the terminated acquisition of Knowmadics. These expenses include fees for legal, tax and audit professional services as well as other costs to conduct due diligence and finalize a gross profit percentage of 2.2%. In 2021, we have added several new partnerships for software product lines that are expected to improve our gross profit margin. Our first sale under one of these new product lines, while a modest sale, produced a gross profit percentage of 19.3%.transaction.
Selling, GeneralChange in Fair Value of Contingent Consideration
Under the terms of the Gray Matters purchase agreement, the Seller is eligible to receive up to $4,000,000 of additional consideration, payable in cash, based on the amounts of revenue and Administrative Expensesgross profit achieved by GMI during the period from the acquisition date through December 31, 2022. In the purchase accounting for GMI in the fourth quarter of 2021, we recorded a contingent liability of $930,000 based on our estimate for GMI’s expected performance for 2022. Since that initial estimate there have been delays in the timing of realizing revenue that have pushed a material amount of the projected revenue and related gross profit outside of the one-year measurement period of the Seller’s earnout provision. As of September 30, 2022 we estimated that the contingent consideration was no longer probable of being realized by the seller and removed the contingent consideration liability. The result of writing down the contingent liability has been the recognition of non-cash operating income of $930,000 as discussed in Note 5.
Goodwill Impairment
SG&A increased by $1,296,919
During the third quarter of 2022, our Gray Matters reporting unit, which is the same as our Blockchain SCM operating segment, experienced delays in receiving approval from its government customer of certain milestone achievements specified in our contract with that customer. This delay, in turn, resulted in a decline in the reporting unit’s estimated future cash flows. Accordingly, we performed an interim goodwill impairment test as of September 30, 2022.
As a result of the test, the estimated fair value of this reporting unit was determined to be lower than the carrying value and we recorded a non-cash charge of $2,254,624 to impair the carrying value of this reporting unit’s goodwill.
(Loss) Income from Operations
Loss from operations was $9,247,607 for the nine months ended September 30, 2021 over the prior year. Incorporating Tellenger’s administrative structure added $146,8072022 compared to our SG&A, and amortization of intangible assets (a non-cash expense) related to the Tellenger acquisition added another $87,912. Our efforts to attract and retain quality new members of our board of directors, the addition of an additional independent director, the increased use of share-based compensation (a non-cash expense) to attract and retain key employees and directors, management changes and administrative salaries, investor relations, a post-employment transition agreement with a retiring executive, increased legal expenses, and investment in our business resources, including our business development program and our accounting department, contributed to the increase in SG&A. Much of the increase in SG&A is associated with putting the resources in place necessary to position the Company for growth.
Acquisition Costs
We incurred legal, accounting, and other expenses totaling $192,530 for the nine months ended September30, 2021, primarily related to the acquisition of Tellenger.
Income (Loss) from Operations
Incomeincome from operations wasof $238,583 for the nine months ended September 30, 2021, as compared to $52,850 for the comparable perioda decrease of 2020, an increase of $185,733, or 351.4%.$9,486,190. The increasedecrease in income from operations is the net effectresult of increasedthe decrease in gross profit of $1,672,282 being$1,166,985 and the increase in SG&A expenses and acquisition costs totaling $6,994,581, and the goodwill impairment of $2,254,624, partially offset by increased SG&A expensesthe income from the change in fair value of $1,296,919,contingent consideration recorded in connection with the Gray Matters acquisition of $930,000, all as discussed above. Approximately $4.1 million of the decrease in income from operations is attributable to the Blockchain SCM operating segment that was acquired with GMI in December 2021.
Critical Accounting Estimate
Our accounting policies are described in Note 1 of our consolidated financial statements – Organization and Summary of Significant Accounting Policies. We prepare our consolidated financial statements in conformity with US GAAP, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. We consider the following policies and estimates to be most critical in understanding the judgments involved in preparing our financial statements for the three and nine months ended September 30, 2022 and the uncertainties that could affect our results of operations, financial condition and cash flows.
Goodwill Impairment Testing
As discussed in Note 5 to our interim consolidated financial statements, during the third quarter of 2022, our Gray Matters reporting unit experienced delays in receiving approval from its government customer of certain milestone achievements specified in our contract with that customer. This delay, in turn, results in a decline in the reporting unit’s estimated future cash flows. Accordingly, we performed an interim goodwill impairment test as of September 30, 2022. As a result of the test, the estimated fair value of this reporting unit was determined to be lower than the carrying value and we recorded a non-cash charge of $2,254,624 to impair the carrying value of the Gray Matters reporting unit goodwill.
We believe that the Gray Matters reporting unit may be at risk of failing future quantitative impairment tests if it continues to experience declining estimated future cash flows. Impairment charges are non-cash in nature and, as with current impairment charges, any future impairment charges will not impact our cash needs or liquidity. The key assumptions in the September 30, 2022 goodwill impairment test for the Gray Matters reporting unit are as follows: the unit is expected to begin generating positive cash flows within the next several years, a discount rate of 22.5%, and a terminal cash flow growth rate of 3%.
The estimated fair value of our Tellenger reporting unit significantly exceeded its carrying value as of September 30, 2022.
Liquidity and Capital Resources
Our beginningOn September 30, 2022, the Company had working capital of approximately $1.3 million, including cash and cash equivalents balance, when combined with our cash flow from operationsof $1.5 million, generated operating losses in 2022 and proceeds from sales of common stock and exercise of stock options, was sufficient to provide financing for our operations. Our cash balance at September 30, 2021, was $3,682,613.
On August 26, 2021 we completed2022 had an accumulated deficit of $21.7 million. As discussed below, our ability to generate sufficient cash flows to meet our obligations for the twelve months following the issuance of these financial statements is dependent upon factors which are sufficiently outside of management’s control as to cast substantial doubt about our ability to continue as a private offering of 1,400,000 units at a price of $2.00 per unit, each unit consisting of one share of common stock and one warrant exercisable at $3.00 for one share of common stock. The warrants expire on August 31, 2026.going concern.
Form 10-Q September 30, |
On April 16,Beginning in August 2021 we secured financingembarked on a transformative strategy to reposition the Company as a leader in the Zero-Trust, blockchain and Secure Supply Chain marketplace. In December 2021 we acquired Gray Matters, Inc. (“GMI”) whose blockchain and encryption algorithm technology was built to solve real-world problems through purpose-built innovation in secure Supply Chain Management (SCM) in United States government organizations. After closing on the GMI acquisition, we focused on the second of our two intended foundational acquisitions, Knowmadics, Inc. (“KMI”), a leading Internet of Things (IoT) remote device management and monitoring platform company. After announcing a definitive agreement in March of 2022, we terminated the agreement on June 6, 2022 due to our inability to raise the funds required to complete the deal under its original terms. Beginning in late 2021 and through the third quarter of 2022 we have hired salespeople, marketers, and software engineers, developed and implemented sales and marketing programs, and expanded our compliance, governance, and administrative infrastructure to support our long-term strategy. At the same time, we have experienced delays in the adoption of our SCM platform by our primary government customer. The result has been a sharp increase in operating expenses, without growth in revenue and gross margins, and negative operating cash flows. In August 2022 we sold 1,572,506 unregistered shares of our common stock in a private offering at a price of $1.20 per share from which we raised aggregate gross proceeds of $1,887,000.
We intend to continue to invest in our SCM platform and to execute our strategy to become a leading zero trust, blockchain-enabled cybersecurity company and believe strongly in the long-term viability of our strategy. We do not have any material contractual obligations or capital expenditures that we are committed to expend over the next 12 months related to these or other activities. We have no outstanding debt that we are required to repay over the next 12 months and have no off-balance-sheet arrangements that are likely to have a material future effect on our financial condition, or changes in financial condition, liquidity or capital resources or expenditures. We used cash from operating activities of approximately $5 million through the first 9 months of 2022 and anticipate that our operating activities may use in excess of that amount over the next 12 months, including satisfying our current liabilities of approximately $2.1 million as of September 30, 2022 and our other typical operating expenses, including payroll for a $1 million 24-month term loanour workforce and a $1 million revolvingother costs. We may also pursue growth in revenue and profitability via acquisition or merger and we plan to implement measures to reduce our operating expense cost structure. We may consider asset sales and other actions to reshape our business.
However, the Company will require additional capital to support its strategy. Other sources of liquidity include our bank line of credit as joint borrowingswhich had $1 million of IAI and our subsidiary, Tellenger, Inc. The purpose of the term loan was to provide financing for the Tellenger acquisition, and the balance at September 30, 2021, was $791,667. The line of credit has a current balance of $402,306 and is limited to a borrowing base calculated based on our accounts receivable and expires on April 16, 2022. Asavailability as of September 30, 2021,2022, as well as the Common Stock Purchase Agreement we had borrowing availability of $597,694entered into with B. Riley Principal Capital II, LLC on July 8, 2022 (the “ELOC”), which will enable us to raise additional capital under thisan equity line of credit. In addition, we borrowed $150,000 from the sellers of Tellenger to provide additional net working capital support for the first ninety days following the transaction. The seller loan was repaid in July 2021.
In March 2021 we raised $495,999 in a private placement, and payments received from exercised stock options have added an additional $95,145 in 2021 through September 30.
Due to the coronavirus uncertainty, and pending staffing and payroll cuts due to liquidity constraints, the Company applied for a Paycheck Protection Program loan, guaranteed by the SBA. The Company was funded by its lender on April 20, 2020, inHowever, the amount of $450,000. The loan accrues interest atcapital we can raise under the ELOC is a fixed ratefunction of 1%our trading volume and has a termthe market price of two years. The first payment is deferred until the date the SBA remits the Company’s loan forgiveness amount to the lender, though interest accrues during the deferral period. The loan has been used exclusively to support maintaining employee payrollour common shares. Without an increase in our recent share price and benefits. We began making principal and interest payments in August 2021 while also continuing to pursue our application for loan forgiveness. On, October 6, 2021,trading volumes, we were notifieddo not anticipate that the bank had approved the full amount of $450,000 for forgiveness, and the forgiveness package had been submitted to the SBA for final approval. The SBA may take up to 90 days to complete their review of the submission. The Company expects its application for loan forgiveness to be fully resolved during the fourth quarter of 2021.
There was a financing component to one of our subcontracts under which we had accrued $545,152 through July 31, 2021. The full amount of the accrual was invoiced on September 8, 2021.
Based on our current cash position and operating plan, we anticipate that weELOC will be able to meaningfully support our capital needs. There can be no assurance that additional capital will be available on terms acceptable to us, or at all.
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business. The propriety of using the going-concern basis is dependent upon, among other things, the achievement of future profitable operations, the ability to generate sufficient cash from operations and potential other funding sources, in addition to cash on-hand, to meet our cash requirements for at least one yearits obligations as they become due. The Company’s unaudited consolidated financial statements do not include any adjustment that might result from the filing dateoutcome of this Quarterly Report on Form 10-Q.uncertainty.
We have no material commitments for capital expenditures.
Item 4.Controls and Procedures |
|
Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, and people performing similar functions, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of September 30, 20212022 (the “Evaluation Date”). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
In September 2021 the Company created the position of Senior Vice President & Corporate Controller which created an additional level of review for the Company's financial reporting. There were no other changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2021,2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Tellenger, Inc. had been privately held and utilized non-U.S.-GAAP financial reporting prior to being acquired. It had written procedures but insufficient and limited controls. The IAI accounting department reconstructed Tellenger’s prior years’ financial statements and assumed full control of Tellenger’s books. As such, Tellenger has now been fully integrated into the IAI systems of internal controls over financial reporting. Tellenger’s will be migrated into IAI’s primary accounting system by the start of the 2022 calendar year.
WaveDancer, Inc. | Form 10-Q September 30, 2022 |
Inherent Limitations on Effectiveness of Controls
Because of the inherent limitations in all control systems, no control system can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of a person, by collusion of two or more people or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. Notwithstanding these limitations, we believe that our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.
Form 10-Q September 30, |
PART II - OTHER INFORMATION
Item 1.Legal Proceedings |
|
None.
Item 1A.Risk Factors |
|
“Item 1A. Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2020,2021, as amended, includes a discussion of our risk factors. There have been no material changes from the risk factors described in our annual report on Form 10-K for the year ended December 31, 2020.2021.
|
|
Previously furnishedItem 2.Unregistered Sales of Equity Securities and Use of Proceeds
From August 11 through August 16, 2022, the Company sold 1,572,506 shares of common stock at a price of $1.20 per share in our Form 8-K dated August 26, 2021 and fileda private placement offering from which it raised aggregate gross proceeds of $1,887,000. The Company relied upon Rule 506(b) of Regulation D in issuing these shares. No placement fees or commissions were paid in connection with the SEC on August 30, 2021.offering. The proceeds are for use for general corporate purposes.
Item 3.Defaults Upon Senior Securities |
|
None.
Item 4.Mine Safety Disclosures |
|
Not applicable.
Item 5.Other Information |
|
None.
Form 10-Q September 30, |
Item 6.Exhibits |
|
| Incorporated by reference from the Registrant’s Form 8-K filed | ||
| Incorporated by reference from the Registrant’s Form 8-K filed | ||
|
|
| |
31.1 | Filed with this Form 10-Q | ||
31.2 | Filed with this Form 10-Q | ||
32.1 | Filed with this Form 10-Q | ||
32.2 | Filed with this Form 10-Q | ||
101.INS | Inline XBRL Instance Document | Filed with this Form 10-Q | |
101.SCH | Inline XBRL Taxonomy Extension Schema | ||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | ||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | ||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | ||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | ||
104 | Cover Page Interactive Data File |
Form 10-Q September 30, |
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| WaveDancer, Inc. | |||||
|
|
| ||||
| ||||||
| ||||||
Date: | November | By: | /s/ G. James Benoit, Jr. | |||
G. James Benoit, | ||||||
Chief Executive Officer | ||||||
Date: | November 21, 2022 | By: | /s/ Timothy G. Hannon | |||
Timothy G. Hannon, | ||||||
Chief Financial Officer |