What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-13 compared with 2023-08-11 · 520 added, 235 removed, 730 unchanged (51% of the section changed)

1 unchanged sentence

WaveDancer, Inc.

Form 10-Q June 30, 2023

Form 10-Q September 30, 2023

WAVEDANCER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2023

September 30, 2023

December 31, 2022

23 unchanged sentences

98,991  

Contingent consideration receivable

20,623  

Equity investment

79,305  

20,623  

79,305  

Assets held for sale

44 unchanged sentences

Common stock, $ 0.001 par value 100,000,000 shares authorized;

20,932,885 and 20,838,599 shares issued, 19,259,834 and 19,165,548 shares outstanding as of June 30, 2023 and December 31, 2022, respectively

20,933  

20,839  

2,148,291 and 2,083,860 shares issued, 1,980,986 and 1,916,555 shares outstanding as of September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

4 unchanged sentences

( 31,190,801 )

Treasury stock, 1,673,051 shares at cost, as of June 30, 2023 and December 31, 2022

Treasury stock, 167,305 shares at cost, as of September 30, 2023 and December 31, 2022

( 965,211 )  

7 unchanged sentences

WaveDancer, Inc.

Form 10-Q June 30, 2023

Form 10-Q September 30, 2023

WAVEDANCER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended June 30,

Three Months Ended September 30,

Professional fees

$ 1,921,300  

$ 2,114,012  

Software sales

45,977  

192,367  

Total revenues

1,967,277  

2,306,379  

Cost of revenues

Cost of professional fees

1,268,820  

1,467,065  

Cost of software sales

48,645  

100,718  

Total cost of revenues excluding depreciation and amortization

1,317,465  

1,567,783  

649,812  

738,596  

Selling, general and administrative expenses

Gain on settlement of litigation

1,166,657  

1,868,714  

Operating income (loss) from continuing operations

( 516,845 )  

( 1,130,118 )

Gain on sale of equity investment and settlement of contingent consideration receivable

382,525  

Other income (expense), net

Interest expense

Income (loss) from continuing operations before income taxes and equity in net loss of affiliate

( 18,725 )  

Income (loss) from continuing operations before income taxes

( 149,932 )  

( 1,147,367 )

Provision for income taxes

Net income (loss) from continuing operations before equity in net loss of affiliate

Equity in net loss of affiliate

23,000  

Net income (loss) from continuing operations

Income from discontinued operations

( 149,932 )  

( 1,170,367 )

Loss from discontinued operations

( 3,530,152 )

Net income (loss)

Income (loss) per share from continuing operations

Income per share from discontinued operations

Income (loss) per share

$ ( 149,932 )  

$ ( 4,700,519 )

Basic and diluted loss per share from continuing operations

$ ( 0.08 )  

Basic and diluted loss per share from discontinued operations

Basic and diluted net loss per share

$ ( 0.08 )  

Weighted average common shares outstanding

Basic and diluted

1,939,790  

1,838,213  

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

WaveDancer, Inc.

Form 10-Q June 30, 2023

Form 10-Q September 30, 2023

WAVEDANCER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

6 Months Ended June 30,

Nine Months Ended September 30,

Professional fees

$ 5,992,715  

$ 6,458,534  

Software sales

159,307  

2,593,877  

Total revenues

6,152,022  

9,052,411  

Cost of revenues

Cost of professional fees

3,979,059  

4,283,365  

Cost of software sales

161,340  

2,430,139  

Total cost of revenues excluding depreciation and amortization

4,140,399  

6,713,504  

2,011,623  

2,338,907  

Selling, general and administrative expenses

Gain on settlement of litigation

4,432,550  

6,745,357  

Gain on litigation settlement

( 1,442,468 )  

Operating loss from continuing operations

( 978,459 )  

( 4,406,450 )

Gain on sale of equity investment and settlement of contingent consideration receivable

382,525  

Other income, net

Interest expense

( 90,982 )  

Loss from continuing operations before income taxes and equity in net loss of affiliate

( 683,581 )  

( 4,462,047 )

Provision for income taxes

789,573  

Net loss from continuing operations before equity in net loss of affiliate

( 683,581 )  

( 5,251,620 )

Equity in net loss of affiliate

( 245,525 )  

Net loss from continuing operations

( 929,106 )  

( 5,251,620 )

Income (loss) from discontinued operations

( 335,993 )  

( 3,052,648 )

$ ( 1,265,099 )  

$ ( 8,304,268 )

Basic and diluted loss per share from continuing operations

Income (loss) per share from discontinued operations

Basic and diluted loss per share

$ ( 0.48 )  

Basic and diluted loss per share from discontinued operations

$ ( 0.17 )  

Basic and diluted net loss per share

$ ( 0.65 )  

Weighted average common shares outstanding

Basic and diluted

1,929,067  

1,768,853  

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

WaveDancer, Inc.

Form 10-Q June 30, 2023

Form 10-Q September 30, 2023

WAVEDANCER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

6 Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities

$ ( 1,265,099 )  

$ ( 8,304,268 )

Adjustments to reconcile net loss to net cash used in operating activities:

Loss (income) from discontinued operations

Loss from discontinued operations

335,993  

3,052,648  

Depreciation and amortization

164,471  

165,770  

Stock-based compensation

557,147  

1,187,552  

Deferred income tax expense

775,257  

Amortization of right-of-use assets

96,972  

136,441  

Accretion of deferred acquisition consideration

27,370  

59,467  

Gain on litigation settlement

( 1,442,468 )  

Gain on sale of equity investment and settlement of contingent consideration receivable

( 382,525 )  

Equity in loss of affiliate

245,525  

Changes in operating assets and liabilities:

Accounts receivable

149,779  

132,688  

Prepaid expenses and other current assets

61,925  

84,842  

58,682  

Accounts payable

( 77,894 )  

Contract liabilities

( 156,730 )  

Accrued payroll and related liabilities and other accrued liabilities

( 139,106 )  

653,786  

Operating lease liability

( 153,635 )  

Commissions payable

( 100,737 )  

Cash used in operating activities of continuing operations

( 2,020,330 )  

( 2,769,479 )

Cash used in operating activities of discontinued operations

( 693,106 )  

( 2,330,754 )

Net cash used in operating activities

( 2,713,436 )  

( 5,100,233 )

Cash flows from investing activities

Acquisition of property and equipment

Proceeds from sale of equity investment and settlement of contingent consideration receivable

1,400,000  

Proceeds from disposal of business

935,974  

Net cash provided by (used in) investing activities

2,335,974  

Cash flows from financing activities

Borrowing under revolving line of credit

Borrowings under revolving line of credit

575,000  

Repayments under revolving line of credit

( 500,000 )  

Premium financing borrowings

305,759  

Premium financing repayments

( 211,688 )  

Proceeds from issuance of stock

347,108  

1,887,000  

Proceeds from exercise of stock options

37,642  

Net cash provided by financing activities

Net decrease in cash and cash equivalents

523,579  

1,924,642  

Net increase (decrease) in cash and cash equivalents

146,117  

( 3,409,651 )

Cash and cash equivalents, beginning of period

731,081  

4,931,302  

Cash and cash equivalents, end of period

$ 877,198  

$ 1,521,651  

Supplemental cash flow Information

Interest paid

$ 18,356  

$ 1,002  

Non-cash investing and financing activities:

Non-cash proceeds on disposal of business

$ 1,263,000  

Value of common stock issued in connection with common stock purchase agreement

$ 112,500  

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

WaveDancer, Inc.

Form 10-Q June 30, 2023

Form 10-Q September 30, 2023

WAVEDANCER, INC.

1 unchanged sentence

Balances at December 31, 2022

2,083,860  

$ 2,084  

$ 35,883,831  

$ ( 31,190,801 )  

$ ( 965,211 )  

$ 3,729,903  

( 1,349,952 )  

Stock option compensation

353,658  

Forfeiture of stock options on disposal of business (Note 2)

( 407,322 )  

56,259  

56,266  

Amortization of stock issue costs

( 18,635 )  

Issuance of stock from exercise of options

Balances at March 31, 2023

2,093,291  

35,875,189  

( 32,540,753 )  

( 965,211 )  

2,371,318  

234,785  

Stock option compensation

88,159  

Amortization of stock issue costs

( 76,673 )  

Balances at June 30, 2023

2,093,291  

35,886,675  

( 32,305,968 )  

( 965,211 )  

2,617,589  

( 149,932 )  

Stock option compensation

180,816  

55,000  

290,787  

290,842  

Amortization of stock issue costs

( 54,692 )  

Balances at September 30, 2023

2,148,291  

$ 2,148  

$ 36,303,586  

$ ( 32,455,900 )  

$ ( 965,211 )  

$ 2,884,623  

Balances at December 31, 2021

1,888,231  

$ 1,888  

$ 31,806,458  

$ ( 13,436,963 )  

$ ( 930,211 )  

$ 17,441,172  

( 2,078,307 )  

Stock option compensation

312,176  

Issuance of stock from exercise of options

10,500  

26,788  

26,799  

Balances at March 31, 2022

1,898,731  

32,145,422  

( 15,515,270 )  

( 930,211 )  

15,701,840  

( 1,525,442 )  

Stock option compensation

529,565  

Issuance of stock from exercise of options

Balances at June 30, 2022

1,903,931  

32,683,374  

( 17,040,712 )  

( 930,211 )  

14,714,355  

( 4,700,519 )  

Stock option compensation

614,094  

166,300  

1,999,334  

1,999,500  

Issuance of stock from exercise of options

10,700  

37,440  

( 35,000 )  

Balances at September 30, 2022

2,080,931  

$ 2,081  

$ 35,334,242  

$ ( 21,741,231 )  

$ ( 965,211 )  

$ 12,629,881  

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

WaveDancer, Inc.

Form 10-Q June 30, 2023

Form 10-Q September 30, 2023

WAVEDANCER, INC.

13 unchanged sentences

2023, we had two operating segments:

Tellenger and Blockchain SCM. Given the classification of GMI, which comprised all of the material operations of the Blockchain SCM segment, as a discontinued operation (see Note 2 ), the Company now manages its business as one reportable operating segment.

Tellenger and Blockchain SCM. Given the classification of GMI, which comprised all of the material operations of the Blockchain SCM segment, as a discontinued operation (see Note 2 ).

After March 17, 2023, the Company manages its business as one reportable operating segment.

Liquidity and Going Concern

During the six months ended June 30, 2023, the Company generated an operating loss from continuing operations of $ 461,614 .

As of June 30, 2023, the Company had a working capital deficit of $ 780,757 including cash and cash equivalents of $ 338,300 , and excluding $ 1,000,000 of borrowings outstanding under its line of credit facility with Summit Bank ("Summit").

We estimate that over the twelve months from the date of these financial statements our operating activities may use as much as approximately $ 1.0  million to $ 1.5  million of cash.  

During the nine months ended September 30, 2023 , the Company generated an operating loss from continuing operations of $ 978,459 .

As of September 30, 2023 , the Company had working capital of $ 537,375 including cash and cash equivalents of $ 877,198 .

We estimate that over the twelve months from the date of these financial statements our operating activities may use as much as $ 1.0 million to $ 1.5 million of cash. 

On August 2, 2023, the Company realized $ 118,655 of cash proceeds from the sale of 

200,000 shares of common stock, and on August 9, 2023, the Company received $ 1,400,000 of cash from the sale of its remaining equity interest in GMDC and its contingent consideration receivable from GMDC.

(See Note 13 for further information about these transactions).

20,000 shares of common stock, and on August 9, 2023, the Company received $ 1,400,000 of cash from the sale of its remaining equity interest in GMDC and its contingent consideration receivable from GMDC. 

On August 9, 2023, the Company repaid $ 500,000 on the Summit line of credit and has no further borrowing capacity thereunder.

We estimate that by the second quarter of 2024 the Company will need to raise additional capital to meet its ongoing operating cash flow requirements as well as to grow its business either organically or through acquisitions.

On September 29, 2023, the Company issued 35,000 shares of its common stock to its chairman and CEO for $ 175,000 of cash. The transaction was approved by the board of directors and was at a premium to the trading price on the date of the transaction.

We estimate that within twelve months from the issuance of these financial statements, the Company will need to raise additional capital to meet its ongoing operating cash flow requirements as well as to grow its business either organically or through acquisitions.

The Company is evaluating strategic alternatives which include the potential merger or sale of the Company.

There is no assurance that such activities will result in any transactions or provide additional capital, which creates substantial doubt about the Company’s ability to continue as a going concern for at least one year from the date that the accompanying unaudited condensed consolidated financial statements are issued.

There is no assurance that such activities will result in any transactions or provide additional capital.

Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern for at least one year from the date that the accompanying unaudited condensed consolidated financial statements are issued.

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business.

1 unchanged sentence

The Company’s unaudited condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.

Reverse Stock Split

On October 18, 2023, the Company effected a reverse stock split of its common stock, par value $ 0.001 per share, (the “Common Stock”) at a ratio of one -for- ten (the “Reverse Stock Split”).

The Reverse Stock split affected all issued common stock and options and warrants to acquire common stock.

No fractional shares were issued as a result of the reverse split and any fractional share otherwise issuable were rounded up to the nearest whole number.

All shares and per share amounts in the condensed consolidated financial statements and accompanying notes have been retroactively adjusted to give effect to the Reverse Stock Split.

Following the Reverse Stock Split, the Company’s issued and outstanding shares of Common Stock decreased from 19,809,834  pre-split shares to approximately 1,980,983 post-split shares, before finalizing the rounding of fractional shares.

As a result of the Reverse Stock Split, the exercise prices of the outstanding options and warrants were increased by a factor of ten. 

Unaudited Interim Condensed Consolidated Financial Statements

7 unchanged sentences

WaveDancer, Inc.

Form 10 -Q June 30, 2023

The unaudited condensed consolidated financial statements as of and for the three and six months ended June 30, 2023 include the accounts of WaveDancer and its condensed consolidated subsidiaries (collectively, the “Company”, “we”

Form 10 -Q September 30, 2023

The unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2023 include the accounts of WaveDancer and its condensed consolidated subsidiaries (collectively, the “Company”, “we”

or “our”).

1 unchanged sentence

Other than as discussed in “Equity Method Investments”

below, there have been no changes in the Company’s significant accounting policies as of June 30, 2023, as compared to the significant accounting policies disclosed in Note 1, "Summary of Significant Accounting Policies" in the Company's Annual Report.

below, there have been no changes in the Company’s significant accounting policies as of September 30, 2023 , as compared to the significant accounting policies disclosed in Note 1, "Summary of Significant Accounting Policies" in the Company's Annual Report.

Equity Method Investments

3 unchanged sentences

In connection with the sale of GMI to GMDC on March 17, 2023, ( the "Sale Date"), the Company received common stock in GMDC representing approximately 24.9 % of the equity of GMDC.

The Company accounts for its investment in GMDC in accordance with the equity method.

See Note 2 for further information about the sale transaction, the deconsolidation of GMI, and the treatment of GMI as a discontinued operation.

On August 9, 2023, the Company sold its remaining equity interest in GMDC (See Note 13 ).

The Company accounted for its investment in GMDC in accordance with the equity method from March 17, 2023 through August 9, 2023.

On August 9, 2023, the Company sold its remaining equity interest in GMDC in exchange for $ 400,000 in cash, and recognized a gain on sale of $ 64,525 .

As of September 30, 2023 the Company has no equity investment in GMDC and any other equity exposure to the GMI business.

Use of Estimates

7 unchanged sentences

Concentration of Credit Risk

During the three months ended June 30, 2023, the Company’s prime contracts with U.S.

government agencies represented 10.2 % of revenue and subcontracts under federal procurements represented 89.7 % of revenue.

During the three months ended September 30, 2023 , the Company’s prime contracts with U.S.

government agencies represented 

8.3 % of revenue and subcontracts under federal procurements represented 90.6 % of revenue.

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

Three subcontracts under federal procurements represented 30.5 %, 19.3 %, and 17.5 % of revenue, respectively.

Revenue from one prime contractor under which the Company has multiple subcontracts represented 55.1 % of the Company’s revenue in aggregate.

During the three months ended June 30, 2022, the Company’s prime contracts with U.S.

government agencies represented 34.7 % of revenue and subcontracts under federal procurements represented 60.7 % of revenue.

Three subcontracts under federal procurements represented 29.3 %, 19.9 %, and 18.6 % of revenue, respectively.

Revenue from one prime contractor under which the Company has multiple subcontracts represented 56.6 % of the Company’s revenue in aggregate.

During the three months ended September 30, 2022 , the Company’s prime contracts with U.S.

government agencies represented 11.4 % of revenue and subcontracts under federal procurements represented 82.8 % of revenue.

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

Two subcontracts under federal procurements represented 25.7 % and 14.47 % of revenue, respectively.

Revenue from one prime contractor under which the Company has multiple subcontracts represented 37.1 % of the Company’s revenue in aggregate.

During the six months ended June 30, 2023, the Company’s subcontracts under federal procurements represented 88.7 % of revenue.

Three subcontracts under federal procurements represented 30.9 %, 

21.3 %, and 

13.0 % of revenue, respectively.

Revenue from one prime contractor under which the Company has multiple subcontracts represented 49.9 % of the Company’s revenue in aggregate.

During the nine months ended September 30, 2023 , the Company’s prime contracts with U.S.

government agencies represented 

9.1 % of revenue and subcontracts under federal procurements represented 

89.3 % of revenue.

The terms of these subcontracts vary from one to five years.

Three subcontracts under federal procurements represented 30.8 %, 21.7 %, and 15.6 % of revenue, respectively.

Revenue from one prime contractor under which the Company has multiple subcontracts represented 52.9 % of the Company’s revenue in aggregate.

During the six months ended June 30, 2022, the Company’s prime contracts with U.S.

government agencies represented 28.6 % of revenue and subcontracts under federal procurements represented 67.8 % of revenue.

Three subcontracts under federal procurements represented 30.3 %, 21.1 %, and 

16.6 % of revenue, respectively.

Revenue from one prime contractor under which the Company has multiple subcontracts represented 54.5 % of the Company’s revenue in aggregate.

During the nine months ended September 30, 2022 , the Company’s prime contracts with U.S.

government agencies represented 28.6 % of revenue and subcontracts under federal procurements represented 67.8 % of revenue.

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

Three subcontracts under federal procurements represented 27.4 %, 16.5 %, and 10.5 % of revenue, respectively.

Revenue from one prime contractor under which the Company has multiple subcontracts represented 41.4 % of the Company’s revenue in aggregate.

Three subcontracts under federal procurements represented 27.4 %, 16.5 %, and 10.5 % of revenue, respectively.

Revenue from one prime contractor under which the Company has multiple subcontracts represented 41.4 % of the Company’s revenue in aggregate.

WaveDancer, Inc.

Form 10 -Q June 30, 2023

The Company sold third -party software and maintenance contracts under agreements with one major supplier, accounting for 39.3 % and 35.4 % of total revenue during the three - and six -months ended June 30, 2022, respectively.

As of June 30, 2023, the Company’s accounts receivable included receivables from two subcontracts under federal procurements that represented 49.5 % and 20.7 % of the Company’s outstanding accounts receivable, respectively.

Receivables from one prime contractor under which the Company has multiple subcontracts represented 74.4 % of the Company’s outstanding accounts receivable in aggregate.

As of June 30, 2022, the Company’s accounts receivable included receivables from two prime contracts under federal procurements that represented 29.8 % and 14.0 % of the Company’s outstanding accounts receivable, respectively and one subcontract under a federal procurement that represented 26.9 % of the Company’s outstanding accounts receivable.

Form 10 -Q September 30, 2023

The Company sold third -party software and maintenance contracts under agreements with one major supplier, accounting for 9.7 % and 11.8 % of total revenue during the three - and nine -months ended September 30, 2022 , respectively.

As of September 30, 2023 , the Company’s accounts receivable included receivables from two subcontracts under federal procurements that represented 42.2 % and 17.2 % of the Company’s outstanding accounts receivable, respectively.

Receivables from one prime contractor under which the Company has multiple subcontracts represented 

69.8 % of the Company’s outstanding accounts receivable in aggregate.

As of September 30, 2022 , the Company’s accounts receivable included receivables from two subcontracts under federal procurements that represented 46.5 % and 13.6 % of the Company’s outstanding accounts receivable, respectively.

Receivables from one prime contractor under which the Company has multiple subcontracts represented 66.8 % of the Company’s outstanding accounts receivable in aggregate.

1 unchanged sentence

Sale and Deconsolidation of GMI and Discontinued Operations

On March 17, 2023, the Company entered into and closed a Stock Purchase Agreement with GMDC, a company newly formed by StealthPoint LLC, a San Francisco based venture fund, under which the Company sold all of the shares of its subsidiary, Gray Matters, Inc.

On March 17, 2023, the Company entered in and closed a Stock Purchase Agreement with GMDC, a company newly formed by StealthPoint LLC, a San Francisco based venture fund, under which the Company sold all of the shares of its subsidiary, Gray Matters, Inc.

In exchange for this sale, the Company received common shares of GMDC representing on a primary share basis, assuming the conversion of the Series A preferred stock referenced below, 24.9 % interest in the purchaser, cash consideration of $ 935,974 and contingent annual payments equal to five percent ( 5 %) of the purchaser’s GAAP based revenue through December 31, 2029 attributable to the purchaser’s blockchain-enabled digital supply chain management platform and associated technologies.

4 unchanged sentences

The value of these services is estimated to be $ 65,000 which was paid by GMDC at closing and is not subject to adjustment.

The $ 65,000 prepayment is included in other accrued liabilities on the unaudited condensed consolidated balance sheet as of March 31, 2023 and has been amortized as a reduction to selling, general and administrative expenses ratably over the three -month period ending June 30, 2023 after which time we anticipate that no further transition services will be provided.

The total cash received at closing was $ 1,000,974 .

The components of the consideration received and the methods for determining their fair values are as follows:

The Company also has the right to appoint a representative to GMDC’s board of directors and a right to co-invest in the anticipated Series B preferred stock financing round which GMDC intends to consummate in the future. The Company recognized a gain on the sale of GMI of $ 100,615 in the first quarter of 2023, which was included in net loss on discontinued operations in the unaudited condensed consolidated statement of operations, and immediately deconsolidated GMI upon its sale.

GMDC was not a related party of the Company at the time of its purchase of GMI.

Subsequent to our deconsolidation of GMI, GMI and GMDC are related parties of the Company due to our equity interest in GMDC.

The components of the consideration received and the methods for determining their fair values as of March 17, 2023 were as follows:

Consideration

15 unchanged sentences

$ 2,332,122  

The GMDC common stock is accounted for as an equity method investment (See Note 1 ).

The contingent consideration receivable will be remeasured at fair value at the end of each reporting period with adjustments reported in the consolidated statement of operations until the receivable is settled.

The GMDC common stock was accounted for as an equity method investment from March 17, 2023 and through its sale on August 9, 2023.

During this period, a net loss of $ 245,525 in the equity investment was recorded. On August 9, 2023, the Company sold its remaining equity interest in GMDC in exchange for $ 400,000 in cash, and recognized a gain on sale of $ 64,525 .

The contingent consideration receivable of $ 682,000 was settled in cash for $ 1,000,000 and a gain of $ 318,000 was recognized during the three months ended September 30, 2023 ( see Note 5 ).

WaveDancer, Inc.

Form 10 -Q June 30, 2023

The Company recognized a gain on the sale of GMI of $ 100,615 , which is included in net loss on discontinued operations in the unaudited condensed consolidated statement of operations, and immediately deconsolidated GMI upon its sale.

GMDC was not a related party of the Company at the time of its purchase of GMI.

Subsequent to our deconsolidation of GMI, GMI and GMDC are related parties of the Company due to our equity interest in GMDC.

The following table sets forth details of net earnings from discontinued operations for the six months ended June 30, 2023 and 2022, which reflects the results of the Blockchain SCM operating segment (See Note 1 ).

Three Months Ended June 30,

Six Months Ended June 30,

$ 566,862  

Form 10 -Q September 30, 2023

The following table sets forth details of net earnings from discontinued operations for the nine months ended September 30, 2023 and 2022 , which reflects the results of the Blockchain SCM operating segment through the date our controlling financial interest in it was sold –

March 17, 2023 ( See Note 1 ).

Three Months Ended September 30,

Nine Months Ended September 30,

$ 566,862  

3 unchanged sentences

1,118,301  

Excess of contract costs over revenue

( 256,974 )  

20 unchanged sentences

Change in fair value of contingent consideration

Goodwill impairment

2,254,624  

Gain on disposal of business

7 unchanged sentences

1,788,509  

Net income (loss) on discontinued operations

$ 396,451  

Net loss on discontinued operations

$ ( 3,530,152 )  

$ ( 335,993 )  

During the six months ended June 30, 2023, there was a total of 715,000 unvested stock options forfeited by GMI employees, including 527,500 forfeited by employees who resigned from WaveDancer, on the Sale Date, and were offered employment by GMDC.

$ ( 3,052,648 )

During the nine months ended September 30, 2023 , there was a total of 715,000 unvested stock options forfeited by GMI employees, including 527,500 forfeited by employees who resigned from WaveDancer, on the Sale Date, and were offered employment by GMDC.

Stock-based compensation expense of $ 407,322 , previously recognized for these forfeited options, was taken back into income in March 2023.

15 unchanged sentences

WaveDancer, Inc.

Form 10 -Q June 30, 2023

Form 10 -Q September 30, 2023

Professional services are offered through several arrangements –

17 unchanged sentences

Disaggregation of Revenue from Contracts with Customers

Three months ended June 30,

Three Months Ended September 30,

Contract Type

2 unchanged sentences

87.2 %  

$ 1,896,829  

Services fixed price over time

12 unchanged sentences

44,804  

Incentive payments

88,487  

Total revenue

1 unchanged sentence

100.0 %  

$ 2,306,379  

WaveDancer, Inc.

Form 10 -Q June 30, 2023

Six months ended June 30,

Form 10 -Q September 30, 2023

Nine Months Ended September 30,

Contract Type

2 unchanged sentences

86.4 %  

$ 5,963,361  

Services fixed price over time

17 unchanged sentences

100.0 %  

$ 9,052,411  

Contract Balances

4 unchanged sentences

Accounts receivable deemed uncollectible are charged against the allowance for doubtful accounts when identified.

There were no such allowances recognized as of June 30, 2023 and December 31, 2022.

Accounts receivable as of June 30, 2023 and December 31, 2022, consist of the following:

June 30, 2023

There were no such allowances recognized as of 

September 30, 2023 and December 31, 2022 .

Accounts receivable as of 

September 30, 2023 and December 31, 2022 , consist of the following:

September 30, 2023

December 31, 2022

2 unchanged sentences

$ 1,573,407  

Billed commercial

Billed commercial and local government

22,000  

Unbilled receivables

56,152  

Unbilled receivables

Accounts receivable

4 unchanged sentences

Contract liabilities consist of amounts that have been invoiced and for which the Company has the right to bill, but that have not been recognized as revenue because the related goods or services have not been transferred.

Changes in contracts liabilities balances in the three and six months ended June 30, 2023 and 2022, are as follows:

Balance as of December 31, 2022

Changes in contracts liabilities balances are as follows:

Balance at December 31, 2022

$ 182,756  

Contract liabilities added  

Revenue recognized  

Balance as of March 31, 2023  

Contract liabilities added

Revenue recognized

Balance at March 31, 2023

127,091  

1 unchanged sentence

Revenue recognized

Balance as of June 30, 2023

Balance at June 30, 2023

72,003  

Balance as of December 31, 2021

Contract liabilities added

Revenue recognized

Balance at September 30, 2023

$ 26,026  

Contract liabilities added  

Balance at December 31, 2021

$ 186,835  

Revenue recognized  

Balance as of March 31, 2022  

Contract liabilities added

19,280  

Revenue recognized

Balance at March 31, 2022

149,692  

Contract liabilities added

3 unchanged sentences

165,843  

Revenues recognized during the three months ended June 30, 2023 and 2022, from the balances as of December 31, 2022 and 2021, were $ 55,088 and $ 55,168 , respectively.

Revenues recognized during the six months ended June 30, 2023 and 2022, from the balances as of December 31, 2022 and 2021, were $ 110,753 and $ 111,591 , respectively.

Contract liabilities added

Revenue recognized

Balance at September 30, 2022

$ 37,686  

Revenues recognized during the three months ended September 30, 2023 and 2022 , from the balances as of 

December 31, 2022 and 2021 , were $ 45,977  and $ 48,708 , respectively.

Revenues recognized during the nine months ended September 30, 2023 and 2022 , from the balances as of December 31, 2022 and 2021 , were $ 156,730 and $ 160,809 , respectively.

WaveDancer, Inc.

Form 10 -Q June 30, 2023

Form 10 -Q September 30, 2023

Deferred Costs of Revenue

2 unchanged sentences

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.

As of June 

30, 2023, and December 31, 2022 the Company had $ 0 of deferred costs of revenue.

Changes in deferred costs of revenue balances for the three and six months ended June 30, 2022, are as follows:

Balance as of December 31, 2021

As of September 30, 2023 , and December 31, 2022 the Company had $ 0 of deferred costs of revenue.

Changes in deferred costs of revenue balances for the 

nine months ended September 30, 2022, are as follows:

Balance at December 31, 2021

$ 154,218  

1 unchanged sentence

Deferred costs expensed

Balance as of March 31, 2022

Balance at March 31, 2022

101,656  

2 unchanged sentences

48,222  

Deferred costs expensed

Balance as of September 30, 2022

2 unchanged sentences

The Company determines if an arrangement is a lease at inception.

As of June 30, 2023 and December 31, 2022, the Company does not have any sales-type or direct financing leases.

September 30, 2023 and December 31, 2022 , the Company does not have any sales-type or direct financing leases.

Each of the Company’s operating lease assets represent its right to use an underlying asset for the lease term and the related lease liability represent its obligation to make lease payments arising from the lease.

8 unchanged sentences

The Company does not sublease any real estate to third parties.

As of June 30, 2023, our two operating leases had a weighted average remaining lease term of 29 months and a weighted average discount rate of 5.0 %.

Future lease payments under operating leases as of June 30, 2023, were as follows:

Remainder of 2023

As of September 30, 2023 , our two operating leases had a weighted average remaining lease term of 28 months and a weighted average discount rate of 5.1 %.

Future lease payments under operating leases as of September 30, 2023 , were as follows:

58,041  

6 unchanged sentences

$ 353,485  

The total expense incurred related to its operating leases was $ 38,053 and $ 54,460 for the three months ended June 

30, 2023 and 2022, respectively, and $ 76,106 and $ 110,720 for the six months ended June 

30, 2023 and 2022, respectively, and is included in selling, general and administrative expenses on the condensed consolidated statements of operations.

The total expense incurred related to its operating leases was $ 38,053 and $ 53,560 for the three months ended September 30, 2023 and 2022 , respectively, and $ 118,567 and $ 164,281 for the nine months ended September 30, 2023 and 2022 , respectively, and is included in selling, general and administrative expenses on the condensed consolidated statements of operations.

WaveDancer, Inc.

Form 10 -Q June 30, 2023

Form 10 -Q September 30, 2023

6 unchanged sentences

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 presents the fair value hierarchy for the Company’s financial instruments measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022:

June 30, 2023

The following table presents the fair value hierarchy for the Company’s financial instruments measured at fair value on a recurring basis as of 

September 30, 2023 and December 31, 2022 :

September 30, 2023

Cash equivalents:

2 unchanged sentences

$ 809,997  

Contingent consideration receivable

682,000  

December 31, 2022

5 unchanged sentences

The fair value of the contingent consideration was estimated based on GMDC’s forecast of revenue, the estimated after-tax payments to the Company, and the present value of the after-tax payments based on discount rate that reflects the risk of achieving the timing and amounts of forecasted payments.

The significant inputs utilized in estimating the fair value of contingent consideration include the forecast of revenues, the income tax rate of 27.0 percent, and the discount rate of 40.75 percent.

The following table is a roll-forward of the Level 3 fair value measurements.

The significant inputs utilized in estimating the fair value of contingent consideration include the forecast of revenues, the income tax rate of 27.0 percent, and the discount rate of 40.75 percent. On August 9, 2023, the Company and GMDC agreed to terminate all rights and obligations with respect to the calculation and payment of future contingent payments from GMDC to the Company in exchange for the payment of $ 1,000,000 cash by GMDC to the Company, resulting in a gain of $ 318,000 .

The following table is a roll-forward of the Level 3 fair value measurements, which are not considered financial instruments.

Fair value of contingent consideration:

5 unchanged sentences

682,000  

There were no unrealized gains or losses recognized in income for the three - or six -month periods ended June 30, 2023.

September 30, 2023

There were no unrealized gains or losses recognized in income for the three - or nine -month periods ended September 30, 2023 .

WaveDancer, Inc.

Form 10 -Q June 30, 2023

Form 10 -Q September 30, 2023

1 unchanged sentence

Information regarding our intangible assets is as follows:

December 31, 2022

June 30, 2023

Weighted Average Useful Life (Years)

Balance December 31, 2022

Balance September 30, 2023

Intangible assets with estimated useful lives

Customer relationships

$ 1,090,000  

Non-compete agreements

120,000  

Accumulated amortization

( 308,217 )  

( 132,183 )  

901,783  

( 132,183 )  

769,600  

Intangible assets with indefinite lives

280,000  

Net identifiable intangible assets

December 31, 2021

June 30, 2022

$ 1,181,783  

$ ( 132,183 )  

$ 1,049,600  

Weighted Average Useful Life (Years)

Balance December 31, 2021

Balance September 30, 2022

Intangible assets with estimated useful lives

Customer relationships

$ 1,090,000  

Non-compete agreements

120,000  

Accumulated amortization

( 131,973 )  

( 132,183 )  

1,078,027  

( 132,183 )  

945,844  

Intangible assets with indefinite lives

280,000  

Net identifiable intangible assets

As of June 30, 2023, expected amortization expense relating to purchased intangible assets for each of the next five years and thereafter is as follows:

Remainder of 2023

$ 1,358,027  

$ ( 132,183 )  

$ 1,225,844  

As of September 30, 2023 , expected amortization expense relating to purchased intangible assets for each of the next five years and thereafter is as follows:

$ 44,061  

146,307  

136,248  

170,488  

$ 769,600  

4 unchanged sentences

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 2021 Plan.

The Company recognizes compensation costs on a straight-line basis over the service period of the awards.

There were no option awards granted in the three and six months ended June 30, 2023 nor in the three months ended June 30, 2022.

Fair values of option awards granted in the six months ended June 30, 2022, were estimated using the Black-Scholes option pricing model under the following assumptions:

WaveDancer, Inc.

Form 10 -Q June 30, 2023

Form 10 -Q September 30, 2023

The Company recognizes compensation costs on a straight-line basis over the service period of the awards.

There were no option awards granted in the three and nine months ended September 30, 2023 .

Fair values of option awards granted in the three and nine months ended September 30, 2022 , were estimated using the Black-Scholes option pricing model under the following assumptions:

Three Months  

Nine Months  

Risk-free interest rate

3 unchanged sentences

Expected term (years)

3.25 - 6.00  

Expected volatility

45.9 % - 48.1 %  

45.8 % - 48.5 %  

Determining the assumptions for the expected term and volatility requires management to exercise significant judgment.

4 unchanged sentences

volatility was increased by a size adjustment premium of 30 % to compensate for the difference in size between the guideline companies and the Company in its calculation.

There were 912,000 options with grant date fair values totaling $ 2,074,670 granted during the six months ended June 

There were zero and 52,000 options exercised during the three months ended June 30, 2023, and 2022, respectively.

There were 20,000  and 157,000 options exercised during the six months ended June 30, 2023 

and 2022, respectively. 

As of June 30, 2023, there was $ 591,946 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the stock incentive plans;

There were 53,500 options with grant date fair values totaling $ 168,900 , and 131,200 options with grant date fair values totaling $ 1,639,870 , granted during the three and nine months ended September 30, 2022 , respectively.

There were zero and 10,700  options exercised during the three months ended September 30, 2023 and 2022 , respectively.

There were 2,000  and 26,400 options exercised during the nine months ended September 30, 2023 and 2022 , respectively. As of September 30, 2023 , there was $ 431,067  of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the stock incentive plans;

that cost is expected to be recognized over a weighted-average period of 11 months.

Total compensation expense related to these plans was $ 88,159 and $ 358,936 for the three months ended June 

30, 2023 and 2022, respectively, and $ 376,331 and $ 588,902 for the six months ended June 

30, 2023 and 2022, respectively, and is included in selling, general and administrative expenses on the condensed consolidated statements of operations.

Total compensation expense related to these plans was $ 180,816 and $ 398,319 for the three months ended September 30, 2023 and 2022 , respectively, and $ 557,146 and $ 971,777 for the nine months ended September 30, 2023 and 2022 , respectively, and is included in selling, general and administrative expenses on the condensed consolidated statements of operations.

2 unchanged sentences

On January 25, 2023, Gerald, as the result of the termination of his employment, filed a lawsuit against the Company for one year’s severance of $ 150,000 and benefits to which he claimed he was entitled under his employment agreement with the Company.

He had also claimed an anticipatory breach of the payment of $ 1,500,000 of deferred consideration otherwise due him on December 10, 2023, under the Stock Purchase Agreement between him and the Company and an anticipatory breach to release from escrow 436,481 shares of the Company’s common stock which are held in escrow for application against potential indemnity claims under the Stock Purchase Agreement.

He had also claimed an anticipatory breach of the payment of $ 1,500,000 of deferred consideration otherwise due him on December 10, 2023, under the Stock Purchase Agreement between him and the Company and an anticipatory breach to release from escrow 43,648  shares of the Company’s common stock which are held in escrow for application against potential indemnity claims under the Stock Purchase Agreement.

The Company filed an answer denying Gerald’s claims.

2 unchanged sentences

All amounts due to Gerald related to the GMI acquisition, including the $ 1,500,000 of deferred consideration, were deemed satisfied and such obligations were extinguished;

The Company removed restrictions from 436,481 shares of the Company’s common stock;

The Company removed restrictions from 43,648  shares of the Company’s common stock;

The Company paid Gerald $ 25,000 as reimbursement for legal costs;

Gerald and the Company agreed to mutual general releases of one another.

As a result of the settlement, the Company recognized a gain, net of expenses, of $ 1,442,468 .

As a result of the settlement, the Company recognized a gain, net of expenses, of $ 1,442,468 in the second quarter of 2023.

2 unchanged sentences

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

As of June 

30, 2023, there was $ 1,000,000 outstanding under this line of credit.

There we no borrowings or repayments during the three months ended June 30, 2023, and there were $575,000 of borrowings and no repayments during the six months ended June 30, 2023.

As of June 

30, 2023, there is no borrowing availability under this line of credit.

On August 9, 2023 the Company repaid $ 500,000 on the line of credit.

(See Note 13.

) The line of credit expires on August 16, 2023.

There were no borrowings and $ 500,000 of repayments during the three months ended September 30, 2023 , and there were $575,000 of borrowings and $ 500,000 of repayments during the nine months ended September 30, 2023 .

This line of credit expired on August 16, 2023.

On September 11, 2023, the Company and Summit entered a new line of credit agreement with the same terms as the preceding agreement, except that the maximum availability under the new line was reduced from $ 1,000,000 to $ 500,000 .

As of September 30, 2023 , there was $ 500,000 outstanding and no borrowing availability under this line of credit.

The line of credit expires on January 16, 2024.

WaveDancer, Inc.

Form 10 -Q June 30, 2023

Form 10 -Q September 30, 2023

Premium Financing Note Payable

17 unchanged sentences

On August 11, 2022 and November 10, 2022, the Company issued to B.

Riley 89,835 and 29,945 shares, respectively, as a commitment fee in accordance with the Purchase Agreement.

The total value of the commitment fee shares was $ 150,000 and is included in prepaid expenses and other current assets on the unaudited consolidated condensed balance sheet as of December 

Riley 8,984  and 2,995 shares, respectively, as a commitment fee in accordance with the Purchase Agreement.

The total value of the commitment fee shares was $ 150,000 and is included in prepaid expenses and other current assets on the unaudited consolidated condensed balance sheet as of December 31, 2022 .

The commitment fee represents prepaid stock issuance cost and is being amortized to additional paid in capital as shares are sold under the Purchase Agreement.

For the three - and six -month periods ended June 

30, 2023, the Company amortized $ 76,673 and $ 92,495 of the commitment fee, respectively.

During the three months ended June 30, 2023, there were no shares of common stock sold under the Purchase Agreement.

During the six months ended June 30, 2023, the Company sold 74,286 shares of common stock to B.

Riley at an average price of $ 0.72 per share, net of fees of approximately $ 0.04 per share.

For the 

three and nine months ended September 30, 2023 , the Company amortized $ 54,692 and $ 150,000 of the commitment fee, respectively.

During the three months ended September 30, 2023 , the Company sold 20,000 shares of common stock under the ELOC at an average price of $ 5.90 per share, net of fees of $ 0.30 per share.

The net proceeds from this sale were $ 118,655 .

During the nine months ended September 30, 2023 , the Company sold 27,429  shares of common stock under the ELOC at an average price of $ 6.30 per share, net of fees of approximately $ 0.30 per share.

The net proceeds from these sales were $ 172,108 .

There were no sales under the Purchase Agreement during the three and six months ended June 

There were no sales under the Purchase Agreement during the three and nine months ended September 30, 2022 .

For the three - and six -month periods ended June 

30, 2023 and 2022, the Company’s effective tax rate was 0 %.

The difference between the statutory tax rate and the effective tax rate is primarily driven by the presence of a full valuation allowance in all taxing jurisdictions.

For the three and nine months ended September 30, 2022 , the Company’s effective tax rate was 0 %.

The difference between the statutory tax rate and the effective tax rate is primarily driven by the presence of a full valuation allowance against all deferred tax assets.

2 unchanged sentences

Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, except for periods when the Company reports a net loss because the inclusion of such items would be antidilutive.

The antidilutive effect of 195,100 shares from stock options were excluded from diluted shares for the six -month period ended June 

The antidilutive effect of 711,537 shares from stock options and 146,269 shares from warrants were excluded from diluted shares for the three months ended June 30, 2022, and the antidilutive effect of 713,035 shares from stock options and 239,779 shares from warrants were excluded from diluted shares for the six months ended June 30, 2022.

Subsequent Events

On August 2, 2023, the Company sold 200,000 shares of common stock under the ELOC at a price of $ 0.59 per share, net of fees of $ 0.03 per share.

The net proceeds from this sale were $ 118,655 .

On August 9, 2023, the Company and GMDC closed a rollover stock purchase agreement and an amendment agreement to the Stock Purchase agreement dated March 17, 2023, wherein the Company had sold effectively 75.1 % of the equity of GMI to GMDC (the "Agreement").

The rollover stock purchase agreement and the amendment agreement together provide for the following:

The termination of the rights and obligations under the Agreement with respect to the calculation and payment of future contingent payments from GMDC to the Company, in exchange for the payment of $ 1,000,000 cash by GMDC to the Company;

The sale by the Company, to certain of GMDC's investors, of all of its common stock of GMDC, in exchange for cash of $400,000;

The termination of various ongoing rights and obligations of the Company and GMDC established in the Agreement and ancillary agreements entered into in connection with the Agreement.

As a result of this transaction, the Company will recognize a gain of approximately $ 382,525 .

As of August 9, 2023 the Company has no remaining investment or financial interest in GMDC or GMI.

The antidilutive effects of 23,104 shares from stock options and zero shares from warrants, and 29,456 shares from stock options and zero shares from warrants, were excluded from diluted shares for the three and nine months ended September 30, 2022 , respectively.

The antidilutive effects of 43,735 shares from stock options and zero shares from warrants, and 57,009 shares from stock options and 15,000 shares from warrants, were excluded from diluted shares for the three and nine months ended September 30, 2022 , respectively.

WaveDancer, Inc.

Form 10 -Q June 30, 2023

Form 10 -Q September 30, 2023

3 unchanged sentences

Such statements involve risks and uncertainties which could cause actual results to vary materially from those expressed in the forward-looking statements.

Investors should read and understand the risk factors detailed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (“Annual Report”) and in other filings with the Securities and Exchange Commission.

Investors should read and understand the risk factors detailed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (“Annual Report”) and in other filings with the Securities and Exchange Commission.

We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control.

38 unchanged sentences

WaveDancer, Inc.

Form 10-Q June 30, 2023

Form 10-Q September 30, 2023

Founded in 1979 as Information Analysis Incorporated, the Company changed its name to WaveDancer, Inc.

3 unchanged sentences

subsidiary (“GMI”) to Gray Matters Data Corporation (“GMDC”).

The Company’s retained interest in GMI of 24.9% is accounted for as an equity method investment.

The Company’s retained interest in GMI of 24.9% was initially accounted for as an equity method investment.

Subsequent to the sale the Company discontinued consolidating GMI and the Company has reflected GMI as a discontinued operation in its consolidated statements of operations for all periods presented.

1 unchanged sentence

See Note 2 to the unaudited condensed consolidated financial statements for further information about the sale transaction, the deconsolidation of GMI, and treatment of GMI as a discontinued operation.

On August 9, 2023, the Company sold its remaining 24.9% interest in GMI to GMDC.

On August 9, 2023, the Company sold its remaining equity interest in GMDC in exchange for $400,000 in cash, and recognized a gain on sale of $64,525.

As of September 30, 2023 the Company has no equity method investment in GMDC and any other equity exposure to the GMI business.

The Company is an IT provider primarily for the benefit of federal government agencies.

17 unchanged sentences

Through Tellenger, we perform services such as business process re-engineering, cloud migrations, and Software-as-a-Service (“SaaS”) implementations on behalf of clients in the private and public sector with an aim to increase productivity, gain efficiencies, and achieve key performance indicators.

Tellenger is appraised at Capability Maturity Model Integration (CMMI) Level 3.

WaveDancer, Inc.

Form 10-Q June 30, 2023

Form 10-Q September 30, 2023

Our strategy is to grow our business organically as well as through acquisitions.

1 unchanged sentence

in 2021, we began to reposition our legacy professional services business by allocating resources away from third-party product reselling and toward professional services, which management viewed as higher margin.

To grow organically, we have hired and plan to continue to hire, business development personnel and intend to become more proactive in bidding as a prime contractor on government proposals and in expanding our outreach to larger prime contractors for subcontract and teaming opportunities.

To grow organically, we are focused on bidding as a prime contractor on government proposals and in expanding our outreach to larger prime contractors for subcontract and teaming opportunities.

As discussed below under ‘Liquidity and Capital Resources’, the Company will need to raise additional capital to grow its business either organically or through acquisition.

We are actively pursuing strategic alternatives which include the potential merger or sale of the Company.

Any such transaction, if consummated, could fundamentally alter the Company’s business.

Results of Continuing Operations –

Three Months Ended June  

30, 2023 and 2022

Total revenue was $2,024,622 for the three months ended June 30, 2023, compared with $3,750,520 in the prior year quarter, a decrease of $1,725,898, or 46.0%.

The decrease in revenue was driven by our de-emphasis of third-party software sales which accounted for just 2.8% of our sales in the second quarter of 2023 as compared to 39.3% in the prior year quarter.

Professional services revenue decrease by 13.6% to $1,967,957 in the second quarter of 2023 from $2,277,832 in the second quarter of 2022.

The decline in professional services revenue is driven primarily by one software modernization project where we had fewer resources deployed in the second quarter of 2023 as compared to the comparable prior year quarter based on current project deliverables.

Gross profit decreased by $198,828 or 22.0%, to $705,013 for the three months ended June 30, 2023 as compared to $903,841 in the prior year quarter.

The decrease in gross profit includes a decrease from professional services of $149,008 and from third-party software sales of $49,820.

Three Months Ended September 30, 2023 and 2022

Total revenue was $1,967,277 for the three months ended September 30, 2023, compared with $2,306,379 in the prior year quarter, a decrease of $339,102, or 14.7%.

The decrease in revenue was driven by our de-emphasis of third-party software sales which accounted for just 2.3% of our sales in the third quarter of 2023 as compared to 8.3% in the prior year quarter.

Professional services revenue decreased by $192,712, or 9.1%, to $1,921,300 in the third quarter of 2023 from $2,114,012 in the third quarter of 2022.

The decline in professional services revenue is driven primarily by one software modernization project where we had fewer resources deployed in the third quarter of 2023 as compared to the comparable prior year quarter based on current project deliverables.

Gross profit decreased by $88,784 or 12.0%, to $649,812 for the three months ended September 30, 2023 as compared to $738,596 in the prior year quarter.

The decrease in gross profit includes an increase from professional services of $5,533 and a decrease from third-party software sales of $94,317.

Professional services gross profit as a percent of revenue declined from 37.5% to 35.8% due to a change in the mix of contracts generating revenue and the related billing rates resulting as well as increases in our costs of labor that outpaced billing rate increases.

Selling, General and Administrative Expenses

The following table shows the major elements of SG&A expenses for the three months ended June 30, 2023 and 2022 and the changes between periods:

The following table shows the major elements of SG&A expenses for the three months ended September 30, 2023 and 2022 and the changes between periods:

Increase/ (Decrease)

Salaries and benefits

7 unchanged sentences

Operating Income from Continuing Operations

Our operating income from continuing operations was $493,116 in the second quarter of 2023 as compared to a loss of $1,599,270 in the corresponding quarter in 2022, an improvement of $2,092,386.

The increase in income from continuing operations is primarily the result of a gain on the settlement of litigation of $1,442,468 and the decrease in SG&A expenses of $848,746, as shown above, partially offset by the decrease in gross profit of $198,828.

Our operating loss from continuing operations was $516,845 in the third quarter of 2023 as compared to a loss of $1,130,118 in the corresponding quarter in 2022, an improvement of $613,273, or 54.3%.

The decrease in the operating loss from continuing operations is primarily the result of the decrease in SG&A expenses of $702,057, as shown above, partially offset by the decrease in gross profit of $88,784.

WaveDancer, Inc.

Form 10-Q June 30, 2023

Form 10-Q September 30, 2023

Results of Discontinued Operations –

Three Months Ended June  

30, 2023 and 2022

The sale of GMI to GMDC occurred on March 17, 2023, and as a result, there was no activity for GMI in the second quarter of 2023.

Following is the detail of discontinued operations for the second quarter of 2022:

Three Months Ended September 30, 2023 and 2022

The sale of GMI to GMDC occurred on March 17, 2023, and as a result, there was no activity for GMI in the third quarter of 2023.

Following is the detail of discontinued operations for the third quarter of 2022:

Cost of revenue

4 unchanged sentences

Other operating expenses

Change in fair value of contingent consideration

Gain on disposal of business

Goodwill impairment

Loss before income tax benefit

2 unchanged sentences

Results of Continuing Operations –

Six Months Ended June  

30, 2023 and 2022

Total revenue was $4,184,745 for the six months ended June 30, 2023, compared with $6,746,032 in the corresponding prior year period, a decrease of $2,561,287, or 38.0%.

The decrease in revenue was driven primarily by our de-emphasis of third-party software sales which accounted for just 2.7% of our sales in the six months ended June 30, 2023, as compared to 35.6% in the six months ended June 30, 2022.

Professional services revenue decreased by 6.3% to $4,071,415 for the six months ended June 30, 2023, from $4,344,522 in the corresponding six months of 2022.

The decline in professional services revenue arose in the second quarter and is driven primarily by one software modernization project where we had fewer resources deployed in the second quarter of 2023 as compared to the comparable prior year quarter based on current project deliverables.

Gross profit decreased by $238,500 or 14.9%, to $1,361,811 for the six months ended June 30, 2023, as compared to $1,600,311 in the prior year.

Nine Months Ended September 30, 2023 and 2022

Total revenue was $6,152,022 for the nine months ended September 30, 2023, compared with $9,052,411 in the corresponding prior year period, a decrease of $2,900,389, or 32.0%.

The decrease in revenue was driven primarily by our de-emphasis of third-party software sales which accounted for just 2.6% of our sales in the nine months ended September 30, 2023, as compared to 28.7% in the nine months ended September 30, 2022.

Professional services revenue decreased by $465,819 to $5,992,715 for the nine months ended September 30, 2023, from $6,458,534 in the corresponding nine months of 2022.

The decline in professional services revenue arose after the first quarter and is driven primarily by one software modernization project where we had fewer resources deployed in the second and third quarters of 2023 as compared to the comparable prior year quarters based on current project deliverables.

Gross profit decreased by $327,284 or 14.0%, to $2,011,623 for the nine months ended September 30, 2023, as compared to $2,338,907 in the prior year.

The decrease in gross profit includes a decrease from professional services of $161,513 and from third-party software sales of $165,771.

Professional services gross profit as a percent of revenue declined from 35.2% to 33.4% due to a change in the mix of contracts generating revenue and the related billing rates resulting as well as increases in our costs of labor that outpaced billing rate increases.

Professional services gross profit as a percent of revenue declined slightly from 33.7% to 33.6% due primary to changes in the mix of contracts generating revenue and the related billing rates.

WaveDancer, Inc.

Form 10-Q June 30, 2023

Form 10-Q September 30, 2023

Selling, General and Administrative Expenses

The following table shows the major elements of SG&A expenses for the six months ended June 30, 2023 and 2022 and the changes between periods:

The following table shows the major elements of SG&A expenses for the nine months ended September 30, 2023 and 2022 and the changes between periods:

Increase/ (Decrease)

Salaries and benefits

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Operating Loss from Continuing Operations

Our operating loss from continuing operations was $461,614 for the first half of 2023 as compared to $3,276,332 for the first half of 2022, a decrease in the loss of $2,814,718 or 85.9%.

The decrease in the loss from operations is primarily the result of the gain on litigation settlement of $1,442,468 along with the decrease in decrease in SG&A expenses of $1,610,750, as shown above, partially offset by the decrease in gross profit of $238,500.

Our operating loss from continuing operations was $978,459 for nine months ended September 30, 2023 as compared to $4,406,450 for the comparable prior year period, a decrease in the loss of $3,427,991 or 77.8%.

The decrease in the operating loss from continuing operations is primarily the result of the gain on litigation settlement of $1,442,468 along with the decrease in SG&A expenses of $2,312,807, as shown above, partially offset by the decrease in gross profit of $327,284.

Results of Discontinued Operations –

Six Months Ended June  

30, 2023 and 2022

The sale of GMI to GMDC occurred on March 17, 2023, and as a result we had approximately two fewer weeks of costs and expenses for GMI for the first quarter of 2023 as compared to the first quarter of 2022, and no activity for the second quarter of 2023 as compared to a full second quarter in 2022, as follows:

 Nine Months Ended September 30, 2023 and 2022

The sale of GMI to GMDC occurred on March 17, 2023, and as a result we had approximately two fewer weeks of costs and expenses for GMI for the first quarter of 2023 as compared to the first quarter of 2022, and no activity for the second and third quarters of 2023 as compared to full activity during the second and third quarters of 2022, as follows:

Operating expenses -

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Change in fair value of contingent consideration

Goodwill impairment

Gain on disposal of business

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WaveDancer, Inc.

Form 10-Q June 30, 2023

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates discussed in our Annual Report on Form 10-K for the year ended December 31, 2022 except for two new fair value measures for the first quarter of 2023:

Form 10-Q September 30, 2023

There have been no material changes to our critical accounting estimates as compared to the critical accounting estimates discussed in our Annual Report on Form 10-K for the year ended December 31, 2022 except for two new fair value measures for the first quarter of 2023:

1) the determination of the fair value of the contingent consideration receivable from GMDC, as discussed in Notes 2 and 5 to the accompanying consolidated financial statements, and

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Prior to closing the acquisition on March 17 and through March 31, 2023, GMDC raised $3,000,000 by issuing Series A preferred shares at $1.00 per share representing 57.2 percent of the fully diluted capitalization.

The Series A transaction was considered by the Company to be the most reliable indication of the fair value of total equity of GMDC. 

We utilized an option pricing model backsolve method (“OPM Backsolve”) to solve for the total equity value that results in a value of Series A equal to its issuance price, and to estimate the fair value of common shares.

The Series A transaction was considered by the Company to be the most reliable indication of the fair value of total equity of GMDC. We utilized an option pricing model backsolve method (“OPM Backsolve”) to solve for the total equity value that results in a value of Series A equal to its issuance price, and to estimate the fair value of common shares.

The significant inputs utilized in the OPM Backsolve include an estimated time to exit of four years, an estimated volatility of 75.0 percent, and a risk-free rate of 4.29 percent.

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Liquidity and Capital Resources

On June 30, 2023, the Company had a net working capital deficit of $780,357, including cash and cash equivalents of $338,300 and $1,000,000 outstanding under its line of credit with Summit bank.

For the six months ended June 30, 2023, we have generated a net loss from continuing operations of $779,174.

As discussed below, our ability to generate sufficient cash flows to meet our obligations for the twelve months following the issuance of these financial statements is dependent upon factors which are sufficiently outside of management’s control as to cast substantial doubt about our ability to continue as a going concern.

On September 30, 2023, the Company had a net working capital of $537,375, including cash and cash equivalents of $877,198 and $500,000 outstanding under its line of credit with Summit bank.

For the nine months ended September 30, 2023, we generated a net loss from continuing operations of $929,106.

Accordingly, there is substantial doubt about our ability to continue as a going concern.

The Company will need to raise additional capital to grow its business either organically or through acquisition.

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There is no assurance that our efforts will result in any transactions or provide additional capital, which creates substantial doubt about the Company’s ability to continue as a going concern for at least one year from the date that the accompanying financial statements are issued.

We estimate that by the first quarter of 2024, the Company will need to raise additional capital to meet its ongoing operating cash flow requirements.

We used cash for continuing operations of $389,177 during the second quarter of 2023 and anticipate that over the twelve months from the date of these financial statements our operating activities may use as much as approximately $1.0 million to $1.5 million.

On August 9, 2023, the Company received $1,400,000 of cash from GMDC as proceeds from the sale of the common stock of GMDC held by the Company and in satisfaction of the contingent consideration receivable due from GMDC to the Company.

We estimate that within twelve months from the date of issuing these financial statements, the Company will need to raise additional capital to meet its ongoing operating cash flow requirements.

We used cash from continuing operations of $2,020,330 during the nine months ended September 30, 2023 and anticipate that over the twelve months from the date of these financial statements our operating activities may use as much as $1.0 million to $1.5 million.

On August 9, 2023, the Company received $1,400,000 of cash from GMDC from:

1) the sale of the common stock of GMDC held by the Company;

and, 2) in satisfaction of the contingent consideration receivable due from GMDC to the Company.

On August 9, 2023, the Company repaid $500,000 on the Summit line of credit and has no further borrowing capacity thereunder.

The line of credit expires on August 16, 2023, and the Company and Summit are finalizing an extension of the expiration date to December 31, 2023, by which time the the remaining balance of $500,000 is due.

The line of credit expires on January 16, 2024.

The Company has no commitments for capital spending nor any plans for material capital expenditures.

WaveDancer, Inc.

Form 10-Q June 30, 2023

Form 10-Q September 30, 2023

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Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, and people performing similar functions, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of June 30, 2023 (the “Evaluation Date”).

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

Changes in Internal Controls over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

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WaveDancer, Inc.

Form 10-Q June 30, 2023

Form 10-Q September 30, 2023

PART II 

OTHER INFORMATION

Legal Proceedings

There are no pending legal proceedings to which we are a party or to which any of our property is subject and, to the best of our knowledge, no such actions against us are contemplated or threatened.

“Item 1A.

Risk Factors”

of our annual report on Form 10-K for the year ended December 31, 2022, as amended, includes a discussion of our risk factors.

There have been no material changes from the risk factors described in our annual report on Form 10-K for the year ended December 31, 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-Q

Item 1. Financial Statements