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Item 9A. Controls and Procedures

2022-04-12 compared with 2021-03-31 · 1254 added, 355 removed, 27 unchanged (98% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Office and Chief Financial Officer, and people performing similar functions, has evaluated the effectiveness of the design and operation of our controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period reported in this annual report (the “Evaluation Date”).

Based upon this evaluation, our Chief Executive Office and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information required to be disclosed was accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure .

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.

Adaptations to preserve the separation of duties following the promotion of existing personnel within the organization to the roles of the principal executive and principal financial officers have been made wherever feasible.

Management ’ s Annual Report on Internal Control over Financial Reporting

The acquisitions of Tellenger and Gray Matters, along with our increased capital raising activity have increased both the volume and complexity of our transactions with a commensurate increase in the complexity of our financial reporting.

In order to maintain an effective system of internal controls over financial reporting the Company has made enhancements to its control environment.

These enhancements include creating a new Controller position, increasing our accounting staff, and augmenting our internal resources with external specialists in valuation, SEC reporting, and income taxes.

Management ’

s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our internal control over financial reporting as of the Evaluation Date, based on the criteria for effective internal control described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on its assessment, management concluded that our internal control over financial reporting was effective as of the Evaluation Date.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.

Management’s report was not subject to attestation by our independent registered public accounting firm.

This report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing of Information Analysis Incorporated, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Information Analysis Incorporated 2020 Annual Report on Form 10-K

Management’s report was not subject to attestation by our independent registered public accounting firm.

This report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Other Information

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Directors, Executive Officers and Corporate Governance

The following table sets forth the name, age (as of March 30, 2021) and position of each of our directors.

Name of director

Director since

Position with the

Chairman of the Board

Director, CEO & President

, 64, is the CEO and Managing Partner for Jack Johnson and Associates, a strategic consulting firm located in McLean, VA.

The firm specializes in providing business and risk consulting to clients domestically and internationally, particularly in the areas of business risk, pre and post-sale merger and acquisition support, business integration as well as in-depth security assessments.

Previously he was a Partner and Sector Leader with Guidehouse Consulting, and its legacy firm, PricewaterhouseCoopers (PwC).

In this capacity, he led the firm’s Defense Sector Practice, and his portfolio of responsibility includes all service components within the U.S.

Department of Defense;

Army, Navy, Air Force and Marine Corps;

the Office of the Secretary of Defense;

all Other Defense Organizations and Other Defense Agencies;

as well as the North Atlantic Treaty Organization, along with Commercial Aerospace and Defense.

Prior to assuming this role in 2014, he served as the sector leader for the Homeland Security and Law Enforcement sector, overseeing the Department of Homeland Security, Department of Justice and the Intelligence Community.

Before joining PwC in 2005, Mr.

Johnson served as the first Chief Security Officer (CSO) for the newly formed Department of Homeland Security (DHS).

In this capacity, he was directly involved in the establishment of DHS after 9/11 and integrating the 22 agencies that now comprise the Department.

He directed all security-related activities for DHS organizations and its over 200,000 employees, including physical, personnel, and information security, as well as counterintelligence and internal investigations.

He was designated as the Cognizant Security Authority (CSA) for the Department, having responsibility and authority over all classified programs and information, was the senior representative to the Intelligence Community, and served as the first DHS representative to the National Security Council.

His previous government service before his appointment at DHS consisted of over 20 years with the United States Secret Service, rising to the position of Deputy Assistant Director, and serving in a wide range of managerial and executive assignments of increasing responsibility and complexity.

His career included the full range of investigative, protective, and intelligence-related duties, both domestically and internationally, as well as assignments with various Presidents, Vice Presidents, Presidential candidates, and foreign heads of state.

Prior to being commissioned as a Secret Service Agent in 1983, he was a Police Officer and Detective for Fairfax County, Virginia Police Department, and also is a veteran of the United States Army.

Johnson received his Bachelor of Science degree from the University of Maryland, a Masters in Forensic Science degree from George Washington University and has completed additional post-graduate study at the University of Virginia and Johns Hopkins School of Management.

He has previously testified on multiple occasions before Congress on homeland security and national security-related issues and is a frequent speaker at many national and international conferences, seminars, and symposiums.

Additionally, he has also been featured on the CBS Morning Show, 60 Minutes, Forensic Files and The Today Show.

Information Analysis Incorporated 2020 Annual Report on Form 10-K

Krial , 63, has been serving as president of Marathon TS, Inc., an information technology and professional services company which serves the federal government and commercial markets, since 2009.

Prior to that, he served as president of Cornell Technical Services, an information technology firm, for 15 years.

He holds a B.S.

degree from Oklahoma A&M State University.

Krial has been a board member of IAI since 2016.

Krial offers over 30 years of achievement within information technology and computer-based disciplines.

His management approach emphasizes innovative techniques to achieve high performance, cost effective and profit enhancing solutions.

High level experience includes sales, marketing, business development and strategic planning capabilities.

, 83, has been serving as a national security and strategic business planning consultant for several years.

In 1992, he retired as a Lt.

General from the Air Force where he last served as Assistant Vice Chief of Staff, Headquarters US Air Force, Washington, D.C.

He is a graduate of the U.S.

Air Force Academy, where he once served as an Associate Professor of Political Science.

General May has also graduated from the NATO Defense College, has a Master’s degree in International Relations from Columbia University, and has completed the course work toward a Ph.D., and has completed the University of Pittsburgh’s Management Program for Executives.

General May brings a world of experience relating to strategic planning, the government as a customer, assessment of trends in national security, accountability, and stability to our Board.

Pickle , 71, is a government affairs/business development consultant with over 30 years of experience at senior levels within the federal government.

Since 2007, Mr.

Pickle has served as President of The Pickle Group, LLC, a Washington DC-based business development company.

Pickle served as the 37th Sergeant at Arms (SAA) of the United States Senate.

Pickle was nominated for this senior position by Senate Majority Leader Bill Frist and elected by the Senate in March 2003.

He was re-elected in January 2005.

In this position, Mr.

Pickle served as the Senate's Chief Operating Officer, Chief of Protocol, Chief of Security;

and managed over 950 Senate employees and an annual budget exceeding $200 million.

Pickle worked closely with Senators, Committees and senior Senate staff on a daily basis.

In addition, as the SAA, he served as Chairman of the U.S.

Capitol Police Board with direct oversight for a 2200 person police department with a budget of $300 million.

Prior to his Senate service, Mr.

Pickle served in several Senior Executive Service (SES) positions within the Executive Branch, which included being the first SES Director of the Transportation Security Administration and a Deputy Inspector General of the Department of Labor.

The bulk of Mr.

Pickle's career was spent with the United States Secret Service where he rose steadily through the ranks from Special Agent to Senior Executive.

Pickle served as Executive Assistant Director responsible for the Congressional and Legislative Affairs program of the Secret Service from 1991 to 1998.

Pickle is a decorated Vietnam Veteran who served with the 1st Cavalry Division in 1968-69.

Among his awards are the Bronze Star, Purple Heart, 7 Air Medals (2 for valor), 3 Army Commendation Medals, Vietnamese Cross of Gallantry, and the Combat Infantry Badge.

Pickle served on the President's Medal of Valor Award Committee and currently serves on numerous not-for-profit and corporate boards.

He was a member of the 2004 Presidential Election Advisory Committee.

Reese , 64, joined the Company in 1993.

Reese has been director since March 11, 2021, and Chief Executive Officer and President since February 17, 2021, after serving in interim capacities for those officer positions from January 1, 2021.

He previously served as Senior Vice President beginning in 1997 and Chief Operating Officer beginning in 1999.

From 1992 to 1993, he served as Vice President, Technical Services at Tomco Systems, Inc.

Prior to Tomco Systems, he served as Senior Program manager at ICF Information Technology, Inc.

Reese has over 35 years of experience managing and marketing large scale mainframe and PC-based applications.

Reese holds a B.A.

in History from George Mason University.

Information Analysis Incorporated 2020 Annual Report on Form 10-K

Wachtel , 65, is a principal of Wachtel & Co., Inc., a boutique investment firm based in Washington, D.C.

Wachtel has been a director of several local companies since joining her firm in 1984, and currently serves on the Board of VSE Corporation, a provider of engineering services to federal government clients, and ExOne Co., a global provider of 3D printing machines, products, and services to industrial clients.

Industry experience includes ten years (2006-2016) on the Hearing Panel for Nasdaq Listing Qualifications.

Ms Wachtel holds B.A.

degrees from the University of Chicago and a J.D.

from the University of Virginia.

She is a Certified Financial Analyst.

Wachtel is a trusted resource with regard to business strategy, public markets, merger and acquisition opportunities, corporate governance, regulatory compliance, and risk management.

Given her background and occupation, she is qualified to be the audit committee’s financial expert.

Executive Officers

The following table sets forth the name, age (as of March 29, 2019) and position of each of our executive officers.

Name of executive officer

Position with the Company

Chief Executive Officer and President

Chief Financial Officer

Reese , 64, joined the Company in 1993.

See description under directors above.

Sands , 50, joined the Company in 2002 as Controller.

Sands has been Chief Financial Officer since February 4, 2021, after serving in that position in an interim capacity beginning in April 2020.

Prior to joining the Company, he was director of finance at an international internet telephony development company.

Sands also has experience in the banking industry and in investment company accounting.

Sands is a graduate of University of Delaware with a Bachelor of Science degree in Accounting and a second major in Finance.

Family Relationships

There are no family relationships among any of our directors or executive officers.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company.

Officers, directors and greater than 10% stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.

To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company, there were no officers, directors and 10% beneficial owners who failed to file on a timely basis the forms required under Section 16(a) of the Exchange Act during our 2020 fiscal year.

Code of Business Conduct and Ethics

We have adopted a code of ethics that applies to our Chief Executive Office and all senior financial officers, including our Chief Financial Officer and Controller.

The code of ethics is available on our website at www.infoa.com on the Investors page under the Investor Relations heading.

Any amendments to the code, or any waivers of its requirements, will be disclosed on our website.

Information Analysis Incorporated 2020 Annual Report on Form 10-K

Procedures for Stockholder Nominations to the Board of Directors

There were no material changes to the procedures for nominating directors by our stockholders made in the year ended December 31, 2020.

Audit Committee

We have a separately-designated standing audit committee.

This committee currently has two members, Bonnie K.

Wachtel (Chairman) and Charles A.

Our Audit Committee has the authority to retain and terminate the services of our independent registered public accountants, reviews annual financial statements, considers matters relating to accounting policy and internal controls, and reviews the scope of annual audits.

All members of the Audit Committee satisfy the current independence standards promulgated by the SEC and by the NASDAQ Stock Market;

as such standards apply specifically to members of audit committees.

The Board has determined that Ms.

Wachtel is our “audit committee financial expert,” as the SEC has defined that term in Item 407 of Regulation S-K.

The current audit committee charter is available for viewing on our Web site at www.infoa.com on the Investors page under the Investor Relations heading.

The information required by this Item will be presented in, and is incorporated herein by reference to, an amendment to this Annual Report on Form 10-K/A, which will be filed with the SEC no later than 120 days after December 31, 2021.

Executive Compensation

The Summary Compensation Table below sets forth individual compensation information for the Chief Executive Officer and the other executive officers serving as executive officers as of December 31, 2020 (collectively “Named Executive Officers”):

Summary Compensation Table

Name and principal

Compensation 2

Sandor Rosenberg

Chairman of the Board and Chief Executive Officer through 12/31/2020

Chief Operating Officer

Executive Vice President and Chief Financial Officer through 04/19/2020

Acting Chief Financial Officer from 04/20/2020

1 Assumptions used to determine the fair value of option awards can be found in Note 11 to our financial statements.

2 References to All Other Compensation include employer matching contributions to each individual ’ s 401(k) defined contribution account under our company-wide 401(k) Pension and Profit Sharing Plan, routine payouts of excess vacation accruals, and employer payments for long-term care insurance under an executive carve-out.

Information Analysis Incorporated 2020 Annual Report on Form 10-K

The following table sets forth the outstanding equity awards for the named executive officers of the Company as of December 31, 2020:

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

OPTION AWARDS

unexercisable

Each Named Executive Officer is a salaried employee, without any guaranteed incentives.

Bonuses and stock option awards are at the discretion of the Compensation Committee of the Board of Directors.

Executive officers are eligible to participate in the Information Analysis Incorporated 401(k) Pension and Profit Sharing Plan under the same terms and matching percentages as other salaried employees.

Vacation accruals in excess of defined limits are automatically paid out to all salaried employees annually, and may be paid other times upon request.

Executive officers receive a perquisite benefit of no-cash-value long-term care insurance paid by the Company.

The Company has no outstanding stock awards to any executive officer.

Employment Contracts, Termination of Employment and Change-in-Control Arrangements

On September 30, 1997, the Company agreed in writing to provide to Stanley A.

Reese, Chief Executive Officer and President as of February 17, 2021, and formerly Senior Vice President and Chief Financial Officer, three months’ severance pay of his full-time base salary, payable in normal payroll increments, in the event of the termination of his employment other than for cause.

In the event of a change of control or the sale or transfer of substantially all of the Company’s assets, the Company agreed that in the event of Mr.

Reese’s termination or substantial reduction of duties, he will receive a six-month severance payment of base salary, payable in lump sum or monthly, at the Company’s discretion.

Had the event of termination or change-in-control occurred on December 31, 2020, Mr.

Reese’s compensation under the agreement would have been $43,750 or $87,500, respectively.

On September 2, 2020, the Company agreed in writing to provide to Matthew T.

Sands, Chief Financial Officer as of February 17, 2021, and formerly Controller and acting Chief Financial Officer, three months’ severance pay of his full-time base salary, payable in normal payroll increments, in the event of the termination of his employment other than for cause.

In the event of a change of control or the sale or transfer of substantially all of the Company’s assets, the Company agreed that in the event of Mr.

Reese’s termination or substantial reduction of duties, he will receive a three-month severance payment of base salary, payable in lump sum or monthly, at the Company’s discretion.

Had the event of termination or change-in-control occurred on December 31, 2020, Mr.

Sands’ compensation under the agreement would have been $35,375.

Information Analysis Incorporated 2020 Annual Report on Form 10-K

Retirement Plans

The Company has a Cash or Deferred Arrangement Agreement (CODA), which satisfies the requirements of section 401(k) of the Internal Revenue Code.

This defined contribution retirement plan covers substantially all employees.

Participants can elect to have up to the maximum percentage allowable of their salaries reduced and contributed to the plan.

The Company may make matching contributions equal to a discretionary percentage of the participants’ elective deferrals.

In 2020, the Company matched 25% of the first 6% of the participants’ elective deferrals.

The Company may also make additional contributions to all eligible employees at its discretion.

The Company did not make additional contributions during 2020.

Compensation of Directors

For the year ended December 31, 2020, the Company paid each non-employee director an annual fee of $2,000 to serve on the Board, payable quarterly.

Options to purchase shares of common stock may be issued in addition to the director’s annual fee.

Expenses incurred in attending Board of Director meetings and committee meetings may be reimbursed.

The following Table describes all compensation for each director for the year ended December 31, 2020.

Director Compensation

incentive plan compensation

All Other Compensation ($)

1 Had option awards for an aggregate amount of 10,000 shares outstanding at December 31, 2020.

2 Had option awards for an aggregate amount of 30,000 shares outstanding at December 31, 2020.

3 Had option awards for an aggregate amount of 20,000 shares outstanding at December 31, 2020.

4 Retired as a director effective March 10, 2021.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Equity Compensation Plan Information

The following table contains information regarding securities authorized and available for issuance under our equity compensation plans for certain employees, directors, and consultants, as of March 15, 2021.

Plan Category

Number of securities to

be issued upon

exercise of outstanding

options, warrants, and

Weighted average

exercise price of

outstanding options, warrants,

available for

future issuance

Equity compensation plans approved by security holders 1,2

Equity compensation plans not approved by security holders

1 The Company has a stock incentive plan, which became effective June 1, 2016, and expires April 4, 2026 (the “ 2016 Plan ” ).

The 2016 Plan provides for the granting of equity awards to employees and directors.

The maximum number of shares for which equity awards may be granted under the 2016 Plan is 1,000,000.

Options granted under the 2016 Plan expire no later than ten years from the date of grant or 90 days after employment ceases, whichever comes first, and vest over periods determined by the Board of Directors.

2 The Company had a stock incentive plan, which became effective May 18, 2006, and expired April 12, 2016 (the “ 2006 Plan ” ).

The 2006 Plan provided for the granting of equity awards to employees and directors.

Options granted under the 2006 Plan expire no later than ten years from the date of grant or 90 days after employment ceases, whichever comes first, and vest over periods determined by the Board of Directors.

Information Analysis Incorporated 2020 Annual Report on Form 10-K

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth the beneficial ownership of our common stock held as of March 25, 2021, by each person who is known by us based on Schedule 13G, Schedule 13D, and Section 16(a) filings to beneficially own more than 5% of the outstanding shares of our common stock, and as of March 25, 2021, by each current director and;

(2) each of the named executive officers listed in the Summary Compensation Table included in Part III Item 10 above;

and (3) by all current directors and executive officers as a group:

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

TITLE OF CLASS:

INFORMATION ANALYSIS INCORPORATED COMMON STOCK

Name and Address of

Beneficial Owner

Amount and Nature of

Beneficial Ownership

Palm Management (US) LLC

Traditions LP

Estate of Barry T.

SECURITY OWNERSHIP OF MANAGEMENT

TITLE OF CLASS:

INFORMATION ANALYSIS INCORPORATED COMMON STOCK

Beneficial Owner (6)

Amount and Nature of

Beneficial Ownership

Reese, Chief Executive Officer and President

Sands, Chief Financial Officer

Johnson, Jr., Director

Krial, Chairman of the Board

May, Jr., Director

Pickle, Director

Wachtel, Director

All directors and executive officers as a group

Beneficial Ownership represents less than 1% of the class of shares.

The address of Joseph P.

Daly is 497 Circle Freeway, Cincinnati, OH 45246.

This information was obtained solely from a Form 4 filed by Mr.

Daly on July 25, 2019.

Daly owns 450,000 shares directly and 1,183,500 through EssigPR Inc.

This information was obtained solely from a Schedule 13G filed with the SEC jointly by Palm Management (US) LLC, Palm Global Small Cap Master Fund LP, Bradley C.

Palmer, and Joshua Horowitz on February 17, 2021.

The address of Palm Management (US) LLC is 19 West Elm Street, Greenwich, CT 06830.

Total shares beneficially owned include 1,050,000 with shared voting power and 1,050,000 with shared dispositive power.

The address of record of Traditions LP is 924 Ridge Drive, McLean, VA 22101.

This information was obtained solely from a Schedule 13G filed with the SEC on February 2, 2021.

The address of the filers is 62 Longwoods Lane, East Hampton, NY 11937.

Shares beneficially owned include 378,847 shares with sole voting and sole dispositive power by Alan Gelband, 105,000 shares with sole voting and sole dispositive power by The Alan Gelband Company Defined Contribution Pension Plan and Trust, 440,550 shares with sole voting and sole dispositive power by Alan Gelband Roth IRA, and 10,000 shares with sole voting and sole dispositive power by The Alden Foundation.

This information was obtained solely from a Schedule 13G filed with the SEC on March 21, 2011.

The address of the filers as recorded was 3843 Jamestown Road, Springfield, OH 45502.

Current ownership status of the shares of Barry T.

Brooks is unknown following his death in 2014.

There has been no subsequent Schedule 13G reporting.

The address of all beneficial holders who are directors or management is in care of the Company.

Includes 525,000 shares issuable upon the exercise of options to purchase common stock.

Includes 200,000 shares issuable upon the exercise of options to purchase common stock.

Includes 30,000 shares issuable upon the exercise of options to purchase common stock.

Includes 25,000 shares issuable upon the exercise of options to purchase common stock.

Includes 840,000 shares issuable upon the exercise of options to purchase common stock.

Less than 1% ownership of class.

Information Analysis Incorporated 2020 Annual Report on Form 10-K

Certain Relationships and Related Transactions, and Director Independence

Transactions with Related Persons

A "Related Party Transaction" is any transaction directly or indirectly involving any related party that would need to be disclosed under Item 404(a) of Regulation S-K.

The Company has determined as a policy that any Related Party Transaction requires the approval by the Board of Directors.

For the year ended December 31, 2020, the Company determined that it had not engaged in related party transactions subject to reporting herein.

Our Board has determined that the following members of the Board qualify as independent under the definition promulgated by the NASDAQ Stock Market:

There are no family relationships between any directors or executive officers of the Company.

Principal Accounting Fees and Services

The following table presents fees for professional audit services rendered by CohnReznick LLP for the audits of the Company's annual financial statements for the years ended December 31, 2020 and 2019, respectively, and fees billed for other services rendered by our principal accountants during those periods.

Audit-Related Fees

All Other Fees

Total Fees and Services

The Audit Committee directly engages the Independent Registered Public Accountants as it relates to the audit of the Company’s fiscal year and the reviews of its fiscal quarters and the associated fees.

In accordance with its written charter, our Audit Committee pre-approves all audit and permissible non-audit services, including the scope of contemplated services and the related fees, that are to be performed by CohnReznick LLP, our independent registered public accounting firm, subject to the de minimis exceptions described in Section 10A(i)(1)(B) of the Exchange Act, which are approved by the Audit Committee prior to the completion of the audit.

The Audit Committee's pre-approval of non-audit services involves consideration of the impact of providing such services on CohnReznick LLP's independence.

All 2020 and 2019 non-audit services were pre-approved by the Audit Committee.

Information Analysis Incorporated 2020 Annual Report on Form 10-K

Principal Accounting Fees and Services ( CohnReznick LLP , Tysons, Virginia , PCAOB ID 596 )

Exhibits, Financial Statement Schedules

The following is an explanation of documents filed as part of this report:

Financial Statements .

(as presented in Item 8 of this Annual Report)

Reference is made to the Index to Consolidated Financial Statements on page F-1, where these documents are listed.

Financial Statement Schedules .

Financial statement schedules have been omitted because the required information is not applicable, or not present in amounts sufficient to require submission of the schedules, or because the information is included in the financial statements or notes thereto.

A list of exhibits required to be filed as a part of this Annual Report on Form 10-K is set forth in the Exhibit Index, which is presented elsewhere in this document and incorporated herein by reference.

Form 10-K Summary

WAVEDANCER, INC.

AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

(INCLUDING REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM)

Years Ended December 31, 2021 and 2020

Report of Independent Registered Public Accounting Firm 

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations and Comprehensive (Loss) Income for the years ended December 31, 2021 and 2020

Consolidated Statements of Changes in Stockholders’

Equity for the years ended December 31, 2021 and 2020

Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Balance Sheets as of December 31, 2020 and 2019

Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2020 and 2019

Statements of Changes in Stockholders' Equity for the years ended December 31, 2020 and 2019

Statements of Cash Flows for the years ended December 31, 2020 and 2019

Notes to Financial Statements

To the Board of Directors and Stockholders of WaveDancer, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of WaveDancer, Inc (formerly Information Analysis Incorporated) (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’

equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on these financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgements.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Acquisitions of Tellenger, Inc.

and Gray Matters, Inc.

(Note 7 to the Financial Statements)

As described in Note 7 to the financial statements, on April 7, 2021, the Company completed the acquisition of Tellenger, Inc.

for a total acquisition price of $2.2 million, and on December 10, 2021, the Company completed the acquisition of Gray Matters, Inc.

for a total acquisition price of $11.3 million.

The Company accounted for the acquisitions as business combinations under Accounting Standards Codification 805, Business Combinations .

Under this method, the Company allocated the fair value of purchase consideration transferred to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition, including customer relationships, non-compete agreements, trade names and developed technology intangible assets.

The fair values assigned are based on estimates and assumptions determined by management that were inherently uncertain.

Certain assumptions are forward-looking and could be affected by future economic and market conditions.

We identified the valuation of the customer relationships, non-compete agreements, trade names and developed technology intangible assets as a critical audit matter because of the significant assumptions made by management to determine the fair value for purposes of the purchase price allocation.

Those assumptions included revenue growth rates and EBITDA (together, the “forecasts”), as well as discount and customer attrition rates and estimates of the costs to continue to develop the technology.

Given these factors, the related audit effort in evaluating management’s judgments was challenging, subjective, and complex and required a high degree of auditor judgment, including the need to involve our fair value specialists. 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. 

These procedures included gaining an understanding of and evaluated the design and implementation of the Company’s controls that address the risk of material misstatement related to the valuation of intangible assets acquired in a business combination, evaluating management’s significant accounting policies related to accounting for business combinations and valuation of intangible assets for reasonableness and obtaining documentation prepared by management to understand the Company’s accounting for the acquisitions of Tellenger, Inc.

and Gray Matters, Inc. 

This included management’s review of the valuation models, the significant underlying assumptions used to develop estimates and the completeness and accuracy of the data used in the valuations. 

These procedures also included testing the estimated fair value of the acquired technology-related intangibles, customer relationships, non-compete agreements and trademarks, we evaluated (1) whether all material intangible assets were properly identified, (2) the significant assumptions discussed above that were used in valuing these intangible assets and (3) the completeness and accuracy of the underlying data used by the Company in its analyses.

Specifically, assessing the reasonableness of management’s forecasts of future cash flows by comparing the projections to historical results, and internal communications to management and board of directors. 

Professionals with valuation skill and knowledge were used to assist in the evaluation of the (1) valuation methodology (2) the discount and customer attrition rates utilized, testing the mathematical accuracy of the calculation, and developing a range of independent estimates and comparing those to the rates selected by management and (3) management’s estimates of the costs to develop the technology.

We also evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit.

Revenue recognition –

Gross Versus Net Recognition of Sales of Third-Party Software (Note 2 to the Financial Statements)

The Company is typically the principal in sales of third-party software.

Sales are recognized on a gross basis with the selling price to the customer recorded as sales and the acquisition cost of the product recognized as cost of sales.

The Company recognizes revenue from these sales at the point in time that control passes to the customer, which is typically after the software licenses have been implemented and the customer gains access to the software.

In instances where the Company is not required to provide implementation services, the Company is the agent and recognizes sales on a net basis at the point that their customer and vendor accept the terms and conditions of the arrangement.

The principal considerations for our determination that performing procedures relating to revenue recognition –

gross versus net considerations is a critical audit matter are (1) that there was judgment applied by management in assessing the indicators that the Company controls the promised service before it was transferred to the customer, including assessing whether the Company was primarily responsible for fulfilling the promised service and whether the Company had full discretion in establishing the prices for the promised service, and (2) the related audit effort in evaluating management’s judgments was challenging, subjective, and complex and required a high degree of auditor judgment.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements.

These procedures included, among others, obtaining documentation prepared by management to understand the Company’s process to evaluate gross versus net, evaluating the reasonableness of management’s judgments on whether the Company is acting as a principal or agent, after considering whether the Company is the primary obligation provider, its exposures to inventory risks and the discretion in establishing the prices by reviewing agreements with software provider and understanding the business substance and evaluating whether the Company’s conclusion is consistent with relevant accounting standards. 

For a selection of contracts, we inspected the customer contract to determine whether the sale represented a valid transaction, evaluated whether management’s conclusion of gross versus net revenue recognition was reasonable in the circumstance and agreed the amount of revenue recognized to source documents such as invoices, form of payments, and executed contract and related modifications, if any.

Stock-based Compensation (Note 12 to the Financial Statements)

The Company measures stock-based awards at fair value and recognizes compensation expense related to such awards over the respective vesting or service period.

The Company uses the Black-Scholes option pricing model to determine the

fair value of the awards.

Certain inputs in the model used for determination of fair value of the awards of the Company, such as the expected term, volatility, and fair value of stock, require management to make significant judgments.

We identified the computation of certain inputs, notably, volatility, in which the Company used a selection of guideline companies instead of the Company’s historical volatility as a critical audit matter because of the significant assumptions made by management to determine volatility for purposes of determining the fair value of stock options granted from the end of the first quarter of 2021 through December 31, 2021.

The calculation of expected volatility required the selection of guideline companies and, due to the size of the guideline companies chosen, required management to utilize a valuation specialist to determine a premium on the guideline companies’

volatility to increase the volatility used in the Company’s calculation in order to compensate for the size difference between the Company and the selected guideline companies. 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. 

These procedures included gaining an understanding of and evaluated the design and implementation of the Company’s controls that address the risk of material misstatement related to the selection of inputs into the valuation model used for determination of the fair value of the stock of the Company, evaluating management’s significant accounting policies related to accounting for stock compensation expense and the selection of inputs in the valuation model for reasonableness and obtaining documentation prepared by management to understand the Company’s accounting for stock compensation expense. 

This included management’s review of the inputs in the valuation models, the significant underlying assumptions used to develop estimates and the completeness and accuracy of the data used in the valuation models. 

These procedures also included testing the estimated fair value of the stock, we evaluated the significant assumptions used by management to calculate expected volatility including testing the source data, evaluating the selection of the guideline companies, recalculating volatility for the guideline companies and evaluating the adjustment to the guideline companies’

volatility to determine the expected volatility was reasonable.

Specifically, assessing the reasonableness of management’s calculation of expected volatility by evaluating historical volatility of guideline companies and management’s judgement in comparing the volatility of the guideline companies and applying a premium to determine the expected volatility of the Company.

Professionals with valuation skill and knowledge were used to assist in the evaluation of the (1) guideline companies selected by management (2) the volatility of the Company as using the historical volatility of the guideline companies (3) developing a range of independent estimates, including the related premium to be applied to the guideline companies’

historical volatilities and comparing those to management’s estimates of expected volatility of its stock.

We have served as the Company’s auditor since 2012.

/s/CohnReznick LLP

Tysons, Virginia

April 12, 2022

WAVEDANCER, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31,  

ASSETS  

Current assets  

Cash and cash equivalents  

$ 4,931,302  

$ 1,858,160  

Accounts receivable  

1,664,862  

1,442,231  

Prepaid expenses and other current assets  

276,990  

142,770  

Total current assets  

6,873,154  

3,443,161  

Intangible assets, net of accumulated amortization of $ 201,032 and $ 0  

8,048,968  

Goodwill  

7,585,269  

Contract assets - non-current  

210,688  

Right-of-use operating lease asset  

672,896  

51,405  

Property and equipment, net of accumulated depreciation and amortization of $ 347,886 and $ 312,320  

105,256  

62,166  

Other assets  

77,100  

Total assets  

$ 23,362,643  

$ 3,773,701  

LIABILITIES AND STOCKHOLDERS' EQUITY  

Current liabilities  

Accounts payable  

$ 650,499  

$ 103,646  

Notes payable - current  

93,009  

Accrued payroll and related liabilities  

524,055  

375,168  

Commissions payable  

224,250  

181,626  

Other accrued liabilities  

203,078  

54,274  

Contract liabilities  

186,835  

946,884  

Operating lease liability- current  

192,128  

45,595  

Interest payable  

Total current liabilities  

1,981,847  

1,803,327  

Note payable - non-current  

356,991  

Operating lease liability - non-current  

507,120  

Deferred income taxes  

1,167,504  

Other liabilities  

2,265,000  

Total liabilities  

5,921,471  

2,160,318  

Stockholders' equity  

Common stock at $ 0.001 and $ 0.01 par value;

100,000,000 and 30,000,000 shares authorized, 18,882,313 and 12,904,376 shares issued, 17,239,697 and 11,261,760 shares outstanding, as of December 31, 2021 and 2020, respectively  

18,882  

129,043  

Additional paid-in capital  

31,789,464  

14,720,065  

Accumulated deficit  

( 13,436,963 )  

( 12,305,514 )

Treasury stock, 1,642,616 shares at cost  

( 930,211 )  

Total stockholders' equity  

17,441,172  

1,613,383  

Total liabilities and stockholders' equity  

$ 23,362,643  

$ 3,773,701  

The accompanying notes are an integral part of the consolidated financial statements

WAVEDANCER, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

Year Ended December 31,  

Revenues  

Professional fees  

$ 10,592,278  

$ 5,527,139  

Software sales  

4,441,226  

8,375,932  

Total revenues  

15,033,504  

13,903,071  

Cost of revenues  

Cost of professional fees  

7,082,767  

3,566,229  

Cost of software sales  

4,335,121  

8,127,509  

Total cost of revenues  

11,417,888  

11,693,738  

Gross profit  

3,615,616  

2,209,333  

Selling, general and administrative expenses  

5,487,984  

1,797,485  

Acquisition costs  

754,781  

(Loss) income from operations  

( 2,627,149 )  

411,848  

Other income (expense):

Interest expense  

( 37,325 )  

Other income (expense), net  

12,171  

Gain on forgiveness of note payable  

450,000  

(Loss) income before provision for income taxes  

( 2,202,303 )  

413,379  

Income tax benefit  

1,070,854  

Net (loss) income  

$ ( 1,131,449 )  

$ 413,379  

Comprehensive (loss) income  

$ ( 1,131,449 )  

$ 413,379  

Basic (loss)/earnings per share  

$ ( 0.09 )  

$ 0.04  

Diluted (loss)/earnings per share  

$ ( 0.09 )  

$ 0.03  

Weighted average common shares outstanding  

12,574,016  

11,222,826  

Diluted  

12,574,016  

12,049,322  

The accompanying notes are an integral part of the consolidated financial statements

WAVEDANCER, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS ’

Balances at December 31, 2019  

12,854,376  

$ 128,543  

$ 14,682,937  

$ ( 12,718,893 )  

$ ( 930,211 )  

$ 1,162,376  

Net income  

413,379  

Stock option compensation  

27,628  

Issuance of stock from exercise of options  

50,000  

10,000  

Balances at December 31, 2020  

12,904,376  

129,043  

14,720,065  

( 12,305,514 )  

$ ( 930,211 )  

1,613,383  

Net loss  

( 1,131,449 )  

Stock option compensation  

1,868,897  

Stock and warrants issued  

5,524,937  

55,249  

14,939,305  

14,994,554  

Issuance of stock from exercise of options  

453,000  

91,257  

95,787  

Change in par value of common stock  

( 169,940 )  

169,940  

Balances at December 31, 2021  

18,882,313  

$ 18,882  

$ 31,789,464  

$ ( 13,436,963 )  

$ ( 930,211 )  

$ 17,441,172  

The accompanying notes are an integral part of the consolidated financial statements

WAVEDANCER, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,  

Cash flows from operating activities:

Net (loss) income  

$ ( 1,131,449 )  

$ 413,379  

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

Depreciation and amortization  

236,598  

12,062  

Stock-based compensation  

1,868,897  

27,628  

Gain on forgiveness of note payable  

( 450,000 )  

Income tax benefit  

( 1,070,854 )  

Changes in operating assets and liabilities:

Accounts receivable  

388,840  

Prepaid expenses and other current assets  

( 127,882 )  

357,393  

Contract assets  

210,688  

Other assets  

20,024  

Accounts payable  

( 111,797 )  

Contract liabilities  

( 760,049 )  

482,661  

Accrued payroll and related liabilities and other accrued liabilities  

149,345  

153,362  

Commissions payable  

42,624  

73,568  

Net cash (used in) provided by operating activities  

( 735,015 )  

423,265  

Cash flows from investing activities  

Acquisition of property and equipment  

( 69,754 )  

Acquisition of Gray Matters, net of cash acquired  

( 7,278,546 )  

Acquisition of Tellenger, net of cash acquired  

( 2,233,884 )  

Net cash used in investing activities  

( 9,582,184 )  

( 64,547  

Cash flows from financing activities  

Borrowing under revolving line of credit  

602,306  

Repayments under revolving line of credit  

( 602,306 )  

Borrowings under notes payable  

1,000,000  

450,000  

Repayments of notes payable  

( 1,000,000 )  

Net proceeds from issuance of stock  

13,294,554  

Proceeds from exercise of stock options  

95,787  

10,000  

Net cash provided by financing activities  

13,390,341  

460,000  

Net increase in cash and cash equivalents  

3,073,142  

818,718  

Cash and cash equivalents, beginning of year  

1,858,160  

1,039,442  

Cash and cash equivalents, end of year  

$ 4,931,302  

$ 1,858,160  

Supplemental cash flow Information  

Interest paid  

$ 35,202  

Non-cash investing and financing activities  

Forgiveness of note payable  

$ 450,000  

Deferred and contingent consideration in connection with the acquisition of Gray Matters, Inc.

$ 2,265,000  

Value of common stock issued in connection with:

The acquisition of Tellenger, Inc.

$ 200,000  

The acquisition of Gray Matters, Inc.

$ 1,500,000  

The accompanying notes are an integral part of the consolidated financial statements

WAVEDANCER, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

Founded in 1979 as Information Analysis Incorporated (“IAI”), IAI changed its name to WaveDancer, Inc.

(“WaveDancer”) and converted from a Virginia corporation to a Delaware corporation in December 2021.

The Company is in the business of developing and maintaining information technology (“IT”) systems, modernizing client information systems, and performing other IT-related professional services to government and commercial organizations.

With our acquisition of Gray Matters, Inc.

in 2021 we expanded our offerings to include licensing and implementation services for proprietary blockchain based Supply Chain Management (“SCM”) software.

Basis of Presentation and Consolidation

The accompanying consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding annual financial reporting.

The accompanying consolidated financial statements include the accounts of WaveDancer, Inc.

and its consolidated subsidiaries (collectively, the “Company”, “we”

or “our”).

All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

Preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes.

Actual results could differ materially from these estimates due to uncertainties, including the effects of COVID- 19.

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 goodwill;

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 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 Recognition

See Note 2 for a detailed description of our revenue recognition policy.

Segment Reporting

The Company reports segment information based on the “management”

The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.

We manage our business as a single operating unit and have one reportable segment, providing software products and professional software programming and development services primarily to U.S.

government customers.

Cash and Cash Equivalents

We consider 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

Our payment terms for accounts receivable vary by the types of our customers and the products or services offered.

Typically, we invoice for services on a monthly basis, and we invoice for product sales upon delivery.

We maintain an allowance for credit losses for accounts receivable, which is recorded as an offset to accounts receivable, and changes in such are classified as general and administrative expense in the consolidated statements of operations.

We assess collectability on an individual customer basis.

In determining the amount of the allowance for credit losses, we consider historical collectability based on past due status and make judgments about the creditworthiness of customers based on ongoing credit evaluations.

Our allowance for doubtful accounts as of December 31, 2021 and 2020 was immaterial.

The accounts receivable balance as of December 31, 2020 did not include the amount invoiced but withheld from payment as a financing component under one contract with a customer.

The present value of the withheld amount was classified as a contract asset.

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

As of December 31, 2021, the Company had the stock-based compensation plans described in Note 12 below.

Total compensation expense related to these plans was $ 1,868,897 and $ 27,628 for the years ended December 31, 2021 and 2020, respectively, and is included in selling, general and administrative expenses on the consolidated statements of operations.

The Company estimates the fair value of options granted using a Black-Scholes valuation model to establish the expense.

When stock-based compensation is awarded to employees, the expense is recognized ratably over the vesting period.

When stock-based compensation is awarded to non-employees, the expense is recognized over the period of performance.

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.

(Loss) Income Per Share

The Company’s (loss) income per share calculations are based upon the weighted average number of shares 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 when the Company reports a net loss, in which case the inclusion of such equity instruments would be antidilutive.

Concentration of Credit Risk

During the year ended December 31, 2021, the Company’s prime contracts with U.S.

government agencies represented 31.7 % of revenue, subcontracts under federal procurements represented 66.4 % of revenue, and 1.9 % of revenue came from commercial contracts.

The terms of these contracts and subcontracts vary from single transactions to five years.

Three subcontracts under federal procurements represented 33.2 %, 10.0 % and 9.6 % of revenue, respectively.

During the year ended December 31, 2020, the Company’s prime contracts with U.S.

government agencies represented 58.3 % of revenue, subcontracts under federal procurements represented 40.6 % of revenue, and 1.1 % of revenue came from commercial contracts.

The terms of these contracts and subcontracts vary from single transactions to five years.

Within this group of prime contracts with U.S.

government agencies, one individual contract represented 13.9 % of revenue.

Three subcontracts under federal procurements represented 17.9 %, 10.3 % and 8.7 % of revenue, respectively.

One prime contractor under which the Company has multiple subcontracts represented 28.7 % of revenue in aggregate.

The Company sold third -party software and maintenance contracts under agreements with one major supplier in 2021 and 2020, accounting for 29.3 % and 58.4 % of total revenue, respectively.

As of December 31, 2021, the Company’s accounts receivable included receivables from two subcontracts under federal procurements that represented 52.6 % and 19.6 % of the Company’s outstanding accounts receivable, respectively.

Receivables from one prime contractor under which the Company has multiple subcontracts represented 72.2 % of the Company’s outstanding accounts receivable in aggregate.

As of December 31, 2020, the Company’s accounts receivable included receivables from prime contracts with one U.S.

government agency that represented 16.4 % of the Company’s outstanding accounts receivable, and receivables from two subcontracts under federal procurements that represented 56.8 % and 14.4 % of the Company’s outstanding accounts receivable, respectively.

Receivables from one prime contractor under which the Company has multiple subcontracts represented 71.2 % of the Company’s outstanding accounts receivable in aggregate.

Business Combinations

We include the results of operations of the businesses that we acquire as of the acquisition date.

We allocate the purchase price of the acquisitions to the assets acquired and liabilities assumed based on their estimated fair values.

The excess of the purchase price over the fair values of identifiable assets and liabilities is recorded as goodwill.

The Company amortizes identifiable intangible assets with finite lives over their respective estimate useful lives.

Identifiable intangible assets that are subject to amortization are evaluated for impairment and the Company will periodically reassess the carrying value, useful lives, and classifications of all identifiable intangible assets.

Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.

Determining fair value of assets acquired and liabilities assumed requires management’s judgment, the utilization of independent valuation experts, and involves significant estimates and assumptions with respect to the timing and amount of future cash flows, discount rates, market prices, and asset lives, among other items. 

The judgments made in the determination of the estimated fair value assigned to the assets acquired and liabilities assumed and any noncontrolling interests in the investee, as well as the estimated useful life of each asset can materially impact the consolidated financial statements in periods after acquisition, such as through depreciation and amortization.

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’

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 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.

Recently Issued Accounting Pronouncements

In October 2021, the FASB issued ASU No.

2021 - 08, Business Combinations (Topic 805 ):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers .

This ASU requires companies to measure contract assets and contract liabilities from contracts acquired in a business combination in accordance with ASC Topic 606 on the acquisition date.

We early adopted the ASU as of January 1, 2022 and will apply it prospectively to future acquisitions.

The impact of this accounting standard will depend on the contract assets and liabilities acquired in future business combinations.

COVID- 19 Update

While we have not experienced a significant adverse impact on our business from the pandemic as of December 31, 2021, the extent to which it will impact our business and operations will depend on future developments that are uncertain.

We continue to monitor the impact of the COVID- 19 pandemic on our customers, partners, employees and service providers.

Revenue Recognition

Revenue is recognized when all the following steps have been taken and criteria met for each contract:

Identification of the contract, or contracts, with a customer  - A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and the parties are committed to perform and, (iii) it determines that collection of substantially all consideration to which the Company will be entitled in exchange for goods or services that will be transferred is probable based on the customer’s intent and ability to pay the promised consideration.

Identification of the performance obligations in the contract  - Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.

To the extent a contract includes multiple promised goods or services, the Company applies judgment to determine whether promised goods or services are capable of being distinct in the context of the contract.

If these criteria are not met, the promised goods or services are accounted for as a combined performance obligation.

Determination of the transaction price - The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer adjusted for estimated variable consideration, if any.

The Company typically estimates the transaction price impact of discounts offered to the customers for early payments on receivables or rebates based on sales target achievements.

Constraints are applied when estimating variable considerations based on historical experience where applicable.

Allocation of the transaction price to the performance obligations in the contract - If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.

Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis.

The Company determines standalone selling price by considering available information such as historical selling prices of the performance obligation, geographic location, overall strategic pricing objective, market conditions and internally approved pricing guidelines related to the performance obligations.

Recognition of revenue when, or as, the Company satisfies performance obligations - The Company satisfies performance obligations either over time or at a point in time as discussed in further detail below.

Revenue is recognized at or over the time the related performance obligation is satisfied by transferring a promised good or service to a customer.

Nature of Products and Services

We 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.

In addition, with the GMI acquisition, we expanded our offerings to include licensing and implementation services for proprietary blockchain based SCM software.

We sell through our 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 has 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 customer, the Company recognizes revenue when it has the 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.

Disaggregation of Revenue from Contracts with Customers

Contract  

Year ended 12/31/21  

Year ended 12/31/20  

Amount  

Percentage  

Amount  

Percentage  

Services time & materials  

$ 9,383,810  

62.5 %  

$ 4,627,252  

Services fixed price over time  

634,036  

232,446  

Services firm fixed price  

367,229  

82,968  

Services combination  

92,940  

476,629  

Services fixed price per unit  

114,263  

107,845  

Third-party software  

4,245,730  

28.2 %  

7,697,940  

Software support & maintenance  

106,428  

545,991  

Incentive payments  

89,068  

132,000  

Total revenue  

$ 15,033,504  

100.0 %  

$ 13,903,071  

Contract Balances

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.

Changes in contract assets balances in 2021 and 2020 are as follows:

Balance at December 31, 2019  

Contract assets added  

210,688  

Balance at December 31, 2020  

210,688  

Contract assets added  

312,475  

Revenue billed  

Balance at December 31, 2021  

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 contract liabilities balances in 2021 and 2020 are as follows:

Balance at December 31, 2019  

$ 464,223  

Contract liabilities added  

1,465,299  

Revenue recognized  

Balance at December 31, 2020  

946,884  

Contract liabilities added  

359,896  

Revenue recognized  

( 1,119,945 )

Balance at December 31, 2021  

$ 186,835  

Revenue recognized during 2021 from the balance as of December 31, 2020 was $ 946,884 , and revenue recognized during 2020 from the balance as of December 31, 2019, was $ 464,223 .

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 as of December 31, 2021 and 2020.

When incurred, these costs are amortized ratably over the expected life of the customer.

Financing Components

In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that one of its subcontracts to a prime contractor included a significant financing component.

The subcontract was invoiced on a time and materials basis, under which 90 % of each invoice amount was 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, which occurred in 2021, resulting in the receipt of the deferred amount.

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 financing component cumulative balance is reflected in contract assets as of December 31, 2020.

Deferred Costs of Revenue

Deferred costs of revenue consist of the costs of third -party support and maintenance contracts for enterprise server-based software, as well direct costs associated with contract deliverables for which control of the work product has not passed to the customer and contract revenue has not been recognized.

These costs are reported under the prepaid expenses and other current assets caption on the Company’s 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 during 2021 and 2020 are as follows:

Balance at December 31, 2019  

$ 453,607  

Deferred costs added - maintenance  

66,624  

Deferred costs added - deliverables  

41,161  

Deferred costs expensed  

Balance at December 31, 2020  

$ 89,068  

Deferred costs added - maintenance  

228,010  

Deferred costs added - deliverables  

17,406  

Deferred costs expensed  

Balance at December 31, 2021  

$ 154,218  

The Company two significant operating leases, one for its headquarters offices in Fairfax, Virginia and one for additional office space in Annapolis, Maryland.

The leases both commenced in 2021 and have original lease terms ranging from 37 to 67 months and 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 consolidated balance sheets as of December 31, 2021 and 2020.

The Company previously had an operating lease for its headquarters offices which expired on June 30, 2021 at the end of its 49 -month fixed term.

As of December 31, 2021 and 2020, the Company does not have any sales-type or direct financing leases.

The Company’s 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.

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.

As of December 31, 2021, our two operating leases had a weighted average remaining lease term of 45 months and a weighted average discount rate of 4.9 %.

Future lease payments under operating leases as of December 31, 2021 were as follows.

$ 223,299  

228,862  

174,721  

74,804  

70,220  

Total lease payments  

771,906  

discount  

Present value of lease liabilities  

$ 699,248  

The total expense incurred related to the operating leases was $ 129,709 and $ 104,487 for the years ended December 31, 2021 and 2020, respectively, and is included in selling, general and administrative expenses on the consolidated statements of operations.

Accounts receivable as of December 31, 2021 and 2020, consist of the following:

December 31,  

Billed federal government  

$ 1,594,473  

$ 1,425,217  

Unbilled receivables  

70,389  

17,014  

Accounts receivable  

$ 1,664,862  

$ 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.

Unbilled receivables include short-term contract assets where billing cycles differ from calendar months, or a monthly fixed billing amount does not reflect the revenue earned in a given month.

The accounts receivable balance as of December 31, 2019, was $ 668,712 .

Fair Value Measurements

The Company defines 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 minimize the use of unobservable inputs.

The standard describes a fair value hierarchy based on three levels of inputs, of which the first two 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;

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 December 31, 2021 and 2020:

December 31, 2021

Money market funds

$ 1,600,663  

Fair value of contingent consideration  

930,000  

$ 1,600,663  

$ 930,000  

December 31, 2020

Money market funds

$ 1,343,370  

Money market funds are highly liquid investments and are included in cash and cash equivalents on the consolidated balance sheet.

The pricing information on these investment instruments are readily available and can be independently validated as of the measurement date.

This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

See Note 7 for a discussion of the fair value of contingent consideration which is included in other liabilities on the consolidated balance sheet.

The carrying amounts of financial instruments such as accounts receivable and accounts payable approximate the related fair value due to the short-term maturities of these instruments.

Property and Equipment

Property and equipment consist of the following:

Computer equipment and software

$ 328,397  

$ 291,925  

Furniture and equipment

117,307  

75,747  

Leasehold improvements

Property and equipment, gross

453,142  

374,486  

Accumulated depreciation

( 347,886 )  

Property and equipment, net

$ 105,256  

$ 62,166  

Depreciation and amortization expense related to property and equipment for the years ended December 31, 2021 and 2020, was $ 35,566 and $ 12,062 , respectively.

Tellenger, Inc.

On April 7, 2021, the Company purchased all of the issued and outstanding shares of stock of Tellenger, Inc.

(“Tellenger”).

Tellenger is primarily engaged in providing professional services related to cybersecurity, cloud computing, and data analytics.

Tellenger’s customers include U.S.

government agencies, either as a prime contractor or sub-contractor, as well as several national not -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 $ 200,000 as of the transaction closing date.

The value of the shares was determined by the closing price as of the transaction date.

The Company incurred $ 165,827 of legal, valuation and other fees related to the Tellenger acquisition, and these costs are included in acquisition costs in the consolidated statement of operations.

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 intangible assets that are amortizable 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 for tax purposes.

The consolidated statement of operations includes $ 2,446,607 of revenues and $ 167,721 of net income from April 7 through December 31, 2021.

The purchase price for Tellenger has been allocated as follows:

Valuation Methodology

$ 81,473  

Accounts receivable

611,471  

Other current assets

Intangible assets with estimated useful lives:

Customer relationships

1,090,000  

Replacement cost and relief from royalty

Non-compete agreements

120,000  

Multi-period excess earnings

Intangible assets with indefinite lives:

280,000  

785,000  

Total assets acquired

2,974,282  

Current liabilities

( 458,925 )  

Net assets acquired

$ 2,515,357  

Supplemental Pro Forma Information

The following unaudited pro forma financial information presents combined results of operations for the periods presented as if the acquisition of Tellenger had been completed on January 1, 2020.

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.

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 acquisition of Tellenger occurred on January 1, 2020, 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.

Pro forma results have been adjusted to exclude $ 167,462 of legal, valuation and other transaction expenses directly related to the acquisition that are not expected to be recurring.

$ 16,259,467  

$ 18,352,184  

Net (loss) income

$ ( 905,114 )  

$ 421,012  

Gray Matters, Inc.

On December 10, 2021 the Company purchased all the issued and outstanding shares of Gray Matters, Inc.

(“GMI”

or “Gray Matters”).

GMI 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  

Present value of deferred consideration

1,335,000  

Fair value of contingent consideration

930,000  

$ 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 selling 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 unsecured status of the deferred consideration liability.

Accretion of the liability will be recorded as interest expense.

Contingent consideration has been estimated 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.

Accretion of the liability will be recorded as interest expense.

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 have calculated a final adjustment to net working capital due from the Seller, who is now an executive of WaveDancer, in the amount of $ 58,681 and have reflected that amount in other assets on the consolidated balance sheet as of December 31, 2021.

The deferred consideration and contingent consideration liabilities which total $ 2,265,000 are classified as other liabilities on the consolidated balance sheet as of December 31, 2021.

The Company incurred $ 246,045 of legal, valuation, accounting, consulting and other fees related to the GMI acquisition, and these costs are included in acquisition costs in the consolidated statement of operations.

Goodwill also arises from recognizing deferred tax liabilities from recording in the purchase accounting intangible assets that are amortizable for financial reporting but not for income tax purposes.

The transaction did not result in a step-up in tax basis and the 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.

The consolidated statement of operations includes no revenues and $ 165,633 net loss from December 10 through December 31, 2021 related to the GMI acquisition.

The purchase price for GMI has been allocated as follows:

Valuation Methodology

$ 20,235  

Intangible assets with estimated useful lives:

2,900,000  

Replacement cost and relief from royalty

Customer relationships

3,860,000  

Multi-period excess earnings

4,560,099  

Total assets acquired

11,349,236  

Current liabilities

( 344,136 )  

Net assets acquired

$ 11,005,100  

Supplemental Pro Forma Information

The following unaudited pro forma financial information presents combined results of operations for the periods presented as if the acquisition of Gray Matters had been completed on January 1, 2020.

The pro forma information includes adjustments to amortization expense for the intangible assets 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 acquisition of Gray Matters occurred on January 1, 2020, 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.

Pro forma results have been adjusted to exclude $ 328,565 of legal, valuation and other transaction expenses directly related to the acquisition that are not expected to be recurring.

$ 15,563,323  

$ 16,220,071  

Net (loss) income

$ ( 3,238,517 )  

$ ( 186,976 )

Supplemental Combined Pro Forma Information

The following unaudited pro forma financial information presents combined results of operations for the periods presented as if the acquisitions of both Tellenger and Gray Matters had been completed on January 1, 2020.

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 Tellenger acquisition.

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 acquisitions of both Tellenger and Gray Matters occurred on January 1, 2020, 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.

Pro forma results have been adjusted to exclude $ 496,027 of legal, valuation and other transaction expenses directly related to the acquisitions.

$ 16,789,286  

$ 20,669,184  

Net income (loss)

$ ( 3,012,182 )  

$ ( 179,343 )

Summary of Intangible Assets and Goodwill

December 31, 2021

Average Useful

Intangible assets with estimated useful lives

$ 2,900,000  

Customer relationships

4,950,000  

Non-compete agreements

120,000  

Intangible assets with indefinite lives

280,000  

Gross identified intangible assets

8,250,000  

Accumulated amortization

Net identifiable intangible assets

8,048,968  

7,585,269  

Intangible assets and goodwill

$ 15,634,237  

The intangible assets subject to amortization acquired in connection with the Tellenger and GMI acquisitions are not deductible for tax purposes and, as such, the Company recorded a deferred tax liability and offsetting charge to goodwill of $ 2,240,171 .

As of December 31, 2021, expected amortization expense relating to purchased intangible assets for each of the next five years and thereafter is as follows:

$ 1,399,577  

1,399,577  

1,369,640  

1,359,581  

1,326,839  

913,754  

$ 7,768,968  

The changes in the carrying amount of the goodwill are as follows:

Balance as of December 31, 2020  

Acquired goodwill  

7,585,269  

Balance as of December 31, 2021  

$ 7,585,269  

There was no impairment charge to goodwill recorded for the years ended December 31, 2021 and 2020.

Revolving Lines of Credit

On April 16, 2021 the Company entered into a revolving line of credit with Summit Community Bank (“Summit”) that provides 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 The Wall Street Journal , and subject to a borrowing base calculated using outstanding accounts receivable.

Borrowings under the line of credit are secured by the assets of the Company.

The line expires on April 16, 2022.

As of December 31, 2021, there was no outstanding balance under this line of credit.

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 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 and was secured by the assets of the Company.

The Summit line of credit was used to pay off the prior LOC and it was closed on May 3, 2021.

There was no outstanding balance under the prior LOC as of December 31, 2020 and no borrowings or repayments during 2020.

Notes Payable

Paycheck Protection Program ( “

On April 20, 2020 we were granted a PPP loan in the amount of $ 450,000 .

During 2021 we applied for forgiveness of the full amount of the loan including interest and on October 13, 2021 our application for forgiveness was approved.

The loan forgiveness is included in the ‘Other income (expense)’

section of the consolidated statements of operations and comprehensive (loss) income as ‘Gain on forgiveness of note payable’.

The following table sets forth notes payable balances as of December 31, 2021 and 2020:

$ 450,000  

Less current portion

Non-current portion

$ 356,991  

Total notes payable

$ 450,000  

Summit Community Bank Loan

On April 16, 2021, we entered into a $ 1 million term loan agreement with Summit Community Bank.

The term of the loan was two years with monthly installments comprising a fixed principal amount plus interest accruing at a fixed rate of 4.89 %.

The loan was collateralized by a security interest in substantially all the assets of the Company.

On December 30, 2021, we fully repaid the outstanding balance of the loan.

The provision for income taxes is at an effective rate different from the federal statutory rate due principally to the following:

Income (loss) before taxes

$ ( 2,202,303 )  

$ 413,379  

Income tax benefit (expense) at federal statutory rate

$ 462,484  

State income tax benefit (expense), net of federal benefit

97,318  

Permanent Differences

( 111,237 )  

19,485  

Net Operating Loss ("NOL") expirations

Change in federal valuation allowance

602,804  

180,500  

Income tax benefit

$ 1,070,854  

Income tax expense for the years ended December 31, 2021 and 2020 consists of the following:

Current income tax (expense) benefit

State & Local

( 1,813 )  

Deferred income tax (expense) benefit

973,918  

State & Local

98,749  

1,072,667  

Income tax benefit

$ 1,070,854  

Deferred Income Taxes

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of our deferred tax assets and liabilities were as follows:

Deferred tax assets

Net operating losses

$ 547,035  

$ 691,000  

Stock-based compensation

428,072  

Accrued commissions

50,047  

39,600  

Accrued vacations

41,331  

37,600  

Deferred tax assets before valuation allowance

1,066,485  

770,600  

Valuation allowance

Net deferred tax assets

1,066,485  

24,500  

Deferred tax liabilities

Intangible Assets

( 2,185,281 )  

( 3,434 )  

( 45,274 )  

Deferred tax liabilities

( 2,233,989 )  

Net deferred assets (liabilities)

$ ( 1,167,504 )  

The Company has net operating loss carryforwards of approximately $ 2.6 million, of which $ 1.3 million will expire, if unused, between the years 2022 and 2036.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.

As of December 31, 2021, in part because of deferred tax liabilities from the acquisitions referenced in Note 7, management determined that there is sufficient positive evidence to conclude that it is more likely than not that the Company's deferred tax assets are realizable.

It therefore reduced the valuation allowance accordingly.

The Company has analyzed its income tax positions using the criteria required by U.S.

GAAP and concluded that, as of December 31, 2021 and 2020, it has no material uncertain tax positions and no interest and penalties have been accrued.

The Company has elected to recognize any estimated penalties and interest on its income tax liabilities as a component of its provision for income taxes.

Our income tax returns are subject to examination by income taxing authorities in all jurisdictions for which we file tax returns, generally for three years after each return was filed, but extending to years from which net operating loss carryforwards are utilized to reduce current year taxes.

We are not currently under audit in any jurisdiction.

401 (k) Plans

We have two 401 (k) Savings Plans that qualify as deferred salary arrangements under Section 401 (k) of the Internal Revenue Code.

Under these 401 (k) Plans, matching contributions are based upon the amount of the employees’

contributions subject to certain limitations.

We recognized expense of $ 85,199 and $ 40,741 for the years ended December 31, 2021 and 2020, respectively, which is included in cost of professional fees and selling, general and administrative expenses on the consolidated statements of operations.

Stock-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.

The 2016 Stock Incentive Plan ( “2016 Plan”) was adopted in 2016 ( “2016 Plan”) and had 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 December 2, 2021, our shareholders approved the plan.

The Company recognizes compensation costs for those shares expected to vest on a straight-line basis over the requisite service period of the awards.

The fair values of option awards granted in 2021 and 2020 were estimated using the Black-Sholes option pricing model under the following assumptions:

Risk-free interest rate

0.46 - 1.26 %  

0.26 - 0.39 %  

Dividend yield

Expected term (years)

2.5 - 5  

Expected volatility

46.0 - 92.0 %  

65.8 - 90.3 %  

Given the limited public market for the Company’s stock, the Company has elected to estimate its expected volatility by benchmarking its volatility of several public company issuers that operate within its market segment.

The guideline companies’

volatility was increased by a size adjustment premium to compensate for the difference in size between the guideline companies and the Company in its calculation.

The first issuance for which this benchmarking was applied was effective with options granted on March 31, 2021.

2021 Stock Incentive Plan

The 2021 Plan became effective October 11, 2021 and expires October 11, 2031.

The 2021 Plan provides for the granting of equity awards to key employees, including officers and directors.

The maximum number of shares for which equity awards may be granted under the 2021 Plan is 5,000,000 .

Options under the 2021 Plan expire no later than ten years from the date of grant or after prescribed periods of time after employment ceases, whichever comes first, and vest over periods determined by the Board of Directors.

The minimum exercise price of each option is the fair market value of the Company’s stock on the date of grant.

Under the Plan, fair market value means the average of the reported high and low sale prices of our common stock on the Nasdaq Stock Market.

As of December 31, 2021 there were 1,590,000 outstanding unexpired options issued under the 2021 Plan, of which 1,000,000 were exercisable, and there were 3,410,000 options available to be granted.

2016 Stock Incentive Plan

The 2016 Plan became effective June 1, 2016 and expires April 4, 2026.

The 2016 Plan provides for the granting of equity awards to key employees, including officers 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 after prescribed periods of time after employment ceases, 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.

As of December 31, 2021 and 2020, there were 940,500 and 606,000 options, respectively, of outstanding unexpired options under the 2016 Plan, of which 578,000 and 371,000 were exercisable, respectively.

No additional options may be granted under the 2016 Plan.

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.

The maximum number of shares for which equity awards could be granted under the 2006 Plan was 1,950,000 .

Options under the 2006 Plan expire no later than ten years from the date of grant or after prescribed periods of time after employment ceases, whichever comes first, and vested over periods determined by the Board of Directors.

There were 374,000 and 789,000 outstanding unexpired options remaining from the 2006 Plan as of December 31, 2021 and 2020, respectively, all of which were exercisable.

The status of the options issued under the foregoing option plans as of December 31, 2021 and 2020, and changes during the years ended December 31, 2021 and 2020, were as follows:

Options outstanding

Weighted average

exercise price

contractual term

Outstanding at December 31, 2019

1,349,000  

$ 0.23  

Options granted

235,000  

Options exercised

( 50,000 )  

Options expired

( 99,000 )  

Options forfeited

( 40,000 )  

Outstanding at December 31, 2020

1,395,000  

4 years, 5 months

$ 1,591,223  

Options granted

1,982,500  

Options exercised

( 453,000 )  

Options expired

( 20,000 )  

Options forfeited

Outstanding at December 31, 2021

2,904,500  

$ 3.17  

4 years, 11 months

$ 5,159,253  

Exercisable at December 31, 2021

1,952,000  

$ 2.73  

4 years, 7 months

$ 4,326,073  

Nonvested stock option awards as of December 31, 2021 and 2020, and changes during the years ended December 31, 2021 and 2020, were as follows:

Weighted average

Nonvested at December 31, 2019

23,500  

$ 0.17  

235,000  

( 23,500 )  

Nonvested at December 31, 2020

235,000  

$ 0.36  

1,982,500  

( 1,265,000 )  

Nonvested at December 31, 2021

952,500  

$ 1.51  

As of December 31, 2021, unrecognized compensation cost associated with non-vested share-based employee and non-employee compensation totaled $ 1,200,704 , which is expected to be recognized over a weighted average period of ten months.

Private Offerings of Common Stock

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 sold 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, in 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.

On December 10, 2021, the Company sold 3,289,526 units at a price of $ 3.04 in a private offering from which it raised $ 10,000,000 resulting in the 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 exercisable at a price of $ 4.50 per share, with the warrants exercisable from January 1, 2023 through December 31, 2026.

If the shares underlying the warrants are not registered when the warrants become exercisable, the warrants can be exercised on a cashless basis.

The warrants are subject 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 total offering costs associated with the sales of unregistered shares of common stock in 2021 were not material.

The shares in the private offering transactions on August 26 and December 10, 2021 are unregistered and are subject to a six -month holding period under SEC Rule 144 before the securities can be sold in the public market.

The warrants are also exercisable for unregistered shares and are freely transferable after six months from their issuance.

The shares underlying the warrants must 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.

The warrants are freestanding securities that 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 offerings on August 26 and December 10, 2021 were allocated using the relative fair value method as follows:

August 26, 2021

Unregistered shares

$ 14,000  

$ 2,142,000  

$ 2,156,000  

644,000  

$ 14,000  

$ 2,786,000  

$ 2,800,000  

December 10, 2021

Unregistered shares

$ 32,895  

$ 9,295,105  

$ 9,328,000  

672,000  

$ 32,895  

$ 9,967,105  

$ 10,000,000  

(Loss) Income Per Share

Basic (loss) income per share excludes dilution and is computed by dividing (loss) income available to common shareholders by the weighted-average number of shares outstanding for the period.

Diluted (loss) income 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 692,312 shares from stock options and 39,847 shares from warrants were excluded from diluted shares for the year ended December 31, 2021.

No shares were excluded from diluted shares for the year ended December 31, 2020.

The following is a reconciliation of the amounts used in calculating basic and diluted net (loss) income per common share.

Net (loss) income

$ ( 1,131,449 )  

$ 413,379  

Basic weighted average shares outstanding

12,574,016  

11,222,826  

Dilutive effect of warrants and/or options

826,496  

Diluted weighted average shares outstanding

12,574,016  

12,049,322  

Basic (loss)/earnings per share

$ ( 0.09 )  

$ 0.04  

Diluted (loss)/earnings per share

$ ( 0.09 )  

$ 0.03  

Financial Statement Captions

The following table summarizes the Company’s prepaid expenses and other current assets as of December 31, 2021 and 2020:

Deferred costs of software sales

$ 154,218  

$ 47,907  

Deferred direct cost of pending deliverables

41,161  

Licenses and subscriptions

43,146  

22,840  

Prepaid insurance

72,800  

26,072  

$ 276,990  

$ 142,770  

The following table summarizes the Company’s other current liabilities as of December 31, 2021 and 2020:

Legal and professional fees

$ 144,486  

Cost of software sales

46,078  

50,940  

$ 203,078  

$ 54,274  

Subsequent Events

On March 18, 2022 the Company entered into a Stock and Warrant Purchase Agreement to purchase all the issued and outstanding common stock and warrants of Knowmadics, Inc., a Virginia corporation.

The acquisition is conditioned upon the approval of the Company’s shareholders, financing, and other customary closing conditions.

The purchase price is $ 90 million payable in cash of approximately $ 56.5  million and WaveDancer common stock of approximately $ 33.5  million.

Subject to shareholder approval, we intend to raise approximately $ 66.5  million in a private offering of common shares to provide the cash consideration for the transaction and related fees and expenses and to provide additional operating liquidity.

The transaction is expected to close in the second quarter of 2022.

WAVEDANCER, INC.

CONSOLIDATED BALANCE SHEETS

EXHIBIT INDEX

Amended and Restated Articles of Incorporation effective March 18, 1997

Incorporated by reference from the Registrant’s Form 10-KSB/A for the fiscal year ending December 31, 1996 and filed on July 3, 1997

Articles of Amendment to the Articles of Incorporation

Incorporated by reference from the Registrant’s Form 10-KSB for the fiscal year ending December 31, 1997 and filed on March 31, 1998

Amended By-Laws of the Company

Incorporated by reference from the Registrant’s Form S-18 dated November 20, 1986

(Commission File No.

Copy of Stock Certificate

Incorporated by reference from the Registrant’s Form 10-KSB for the fiscal year ending December 31, 1997 and filed on March 31, 1998

Office Lease for 18,280 square feet at 11240 Waples Mill Road, Fairfax, Virginia 22030.

Incorporated by reference from the Registrant’s Form 10-KSB/A for the fiscal year ending December 31, 1996 and filed on July 3, 1997

Company’s 401(k) Profit Sharing Plan through Aetna Life Insurance and Annuity Company (now VOYA).

Incorporated by reference from the Registrant’s Form 10-KSB/A for the fiscal year ending December 31, 1996 and filed on July 3, 1997

Second Modification of Lease, dated February 10, 2004, to 4,434 square feet at 11240 Waples Mill Road, Fairfax, Virginia 22030

Incorporated by reference from the Registrant’s Form 10-KSB for the period ended December 31, 2003, and filed on March 30, 2004

Termination and/or change in control arrangement for Richard S.

DeRose dated June 18, 1997

Incorporated by reference from the Registrant’s Form 10-KSB for the year ended December 31, 2004, and filed on March 30, 2005

Line of Credit Agreement with TD Bank, N.A.

(formerly Commerce Bank, N.A.)

Incorporated by reference from the Registrant’s Form 10-KSB for the year ended December 31, 2005, and filed on March 31, 2006

Information Analysis Incorporated 2006 Stock Incentive Plan

Incorporated by reference from the Registrant’s definitive proxy statement on Schedule 14A filed on April 19, 2006

Information Analysis Incorporated 2020 Annual Report on Form 10-K

Modification Agreement regarding Line of Credit Agreement with TD Bank, N.A., successor to Commerce Bank, N.A., dated July 18, 2008.

Incorporated by reference from the Registrant’s Form 10-K for the period ended December 31, 2008, and filed on March 31, 2009

Information Analysis Incorporated 2016 Stock Incentive Plan

Incorporated by reference from the Registrant’s definitive proxy statement on Schedule 14A filed on April 11, 2016

Sixth Modification of Lease, dated December 9, 2016, to extend term of lease four years.

Incorporated by reference from the Registrant’s Form 10-K for the year ended December 31, 2016, and filed on March 31, 2017

Modification Agreement regarding Line of Credit Agreement with TD Bank, N.A., successor to Commerce Bank, N.A., dated May 28, 2017.

Incorporated by reference from the Registrant’s Form 10-Q for the period ended June 30, 2017, and filed on August 14, 2017

Modification Agreement regarding Line of Credit Agreement with TD Bank, N.A., successor to Commerce Bank, N.A., dated August 13,2020.

Incorporated by reference from the Registrant’s Form 10-Q for the period ended June 30, 2020, and filed on August 14, 2020

Plan of Domestication (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed on December 16, 2021)

Stock Purchase Agreement, dated April 7, 2021, among the Company, David and Heather Tortorelli and Tellenger, Inc.

(incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed on April 14, 2021)

Stock Purchase Agreement, dated November 12, 2021, among Jeffrey P.

Gerald, Gray Matters, Inc.

and the Company (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on December 16, 2021)

Stock and Warrant Purchase Agreement, dated as of March 18, 2022, by and among the Company, Knowmadics, Inc., the sellers party thereto, and Shareholder Representative Services LLC as Sellers’ Representative (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 24, 2022)

Certificate of Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on December 16, 2021)

Bylaws (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed on December 16, 2021)

Description of Securities

Executive Employment Agreement, by and between the Company and G.

James Benoit, Jr.

(incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on August 30, 2021)

Executive Employment Agreement, by and between the Company and Timothy G.

Hannon (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on March 24, 2022)

Form of Warrant (Incorporated by reference to Exhibit 4.1 to Form 8-K filed on August 30, 2021)

Commercial Line of Credit, dated April 16, 2021, by and between the Company, Tellenger, Inc.

and Summit Community Bank (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on April 22, 2021)

Business Loan Agreement, dated April 16, 2021, by and between the Company, Tellenger, Inc.

and Summit Community Bank (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed on April 22, 2021)

Commercial Security Agreement, dated April 16, 2021, by and between the Company, Tellenger, Inc.

and Summit Community Bank (incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed on April 22, 2021)

2006 Stock Incentive Plan (incorporated by reference to Appendix A of the Company’s definitive proxy statement on Schedule 14A filed on April 19, 2006)

2016 Stock Incentive Plan (incorporated by reference to Exhibit A of the Company’s definitive proxy statement filed on April 11, 2016)

2021 Stock Incentive Plan (incorporated by reference to Appendix 4 of the Company’s definitive proxy statement filed on October 26, 2021)

Form of Series A Warrant (Incorporated by reference to Exhibit 4.1 to Form 8-K filed on December 16, 2021)

Subsidiaries of the Company

Consent of Independent Registered Public Accounting Firm, CohnReznick LLP

Filed with this Form 10-K

Power of Attorney (included as part of the signature page of this Annual Report on Form 10-K)

Rule 13a-14(a) / 15a-14(a) Certification by Chief Executive Officer

Filed with this Form 10-K

Rule 13a-14(a) / 15a-14(a) Certification by Chief Financial Officer

Filed with this Form 10-K

Certification by Chief Executive Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed with this Form 10-K

Certification by Chief Financial Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed with this Form 10-K

XBRL Instance

XBRL Taxonomy Extension Schema

XBRL Taxonomy Extension Calculation

XBRL Taxonomy Extension Definition

XBRL Taxonomy Extension Labels

XBRL Taxonomy Extension Presentation

Filed with this Form 10-K

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 and 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

Information Analysis Incorporated 2020 Annual Report on Form 10-K

1350 Certifications of Chief Executive Officer and Chief Financial Officer

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS)

+ Management contract, compensatory plan or arrangement.

* Filed herewith.

** Furnished herewith.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INFORMATION ANALYSIS INCORPORATED

/s/ Stanley A.

Reese, President

March 31, 2021

WaveDancer, Inc.

James Benoit, Jr.

James Benoit, Jr., Chief Executive Officer

April 12, 2022

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stanley A.

Reese and Matthew T.

Sands, jointly and severally, his attorney-in-fact, each with the full power of substitution, for such person, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might do or could do in person hereby ratifying and confirming all that each of said attorneys-in-fact and agents, or his substitute, may do or cause to be done by virtue hereof.

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints G.

James Benoit, Jr.

and Timothy G.

Hannon, jointly and severally, his attorney-in-fact, each with the full power of substitution, for such person, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might do or could do in person hereby ratifying and confirming all that each of said attorneys-in-fact and agents, or his substitute, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Stanley A.

James Benoit, Jr.

Chief Executive Officer

March 31, 2021

President, and Director

Chairman of the Board

March 31, 2021

/s/ Charles A.

March 31, 2021

April 12, 2022

James Benoit, Jr.

/s/ Timothy G.

Chief Financial Officer

April 12, 2022

/s/ William Pickle

March 31, 2021

April 12, 2022

William Pickle

/s/ Donald J.

April 12, 2022

/s/ Bonnie K.

March 31, 2021

/s/ Matthew T.

Chief Financial Officer,

March 31, 2021

Secretary and Treasurer

April 12, 2022

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures