Financial Results - Firefly Neuroscience, Inc. reported financial results for Q3 2024, ending September 30, 2024[4]. - The financial results include key metrics that will be detailed in the press release, which is referenced as Exhibit 99.1[4]. Compliance and Regulations - The report is filed under Form 8-K, indicating compliance with the Securities Exchange Act of 1934[5]. - The company is not classified as an emerging growth company under the relevant regulations[3]. - The financial results and updates are not deemed "filed" under the Exchange Act, limiting liability under Section 18[5]. Company Information - The trading symbol for Firefly Neuroscience, Inc. is AIFF, listed on the Nasdaq Capital Market[2]. - The company’s principal executive offices are located at 1100 Military Road, Kenmore, NY 14217[1]. - Jon Olsen serves as the Chief Executive Officer, signing the report on November 14, 2024[7]. Press Release - The company issued a press release on November 14, 2024, detailing its stockholder update[4]. - The report includes an Interactive Data File formatted as Inline XBRL as part of its exhibits[6].

Core Viewpoint - Firefly Neuroscience, Inc. has successfully listed on Nasdaq under the symbol "AIFF" and is focused on improving brain health outcomes through innovative AI solutions for neurological and mental disorders [1][5]. Company Overview - Firefly is dedicated to enhancing outcomes for individuals with brain health issues by providing objective measurements of brain activity [2]. - The company has developed FDA-cleared Brain Network Analytics (BNA™) technology, which aims to revolutionize diagnostic and treatment monitoring methods for conditions such as depression, dementia, anxiety disorders, concussions, and ADHD [5][6]. Strategic Partnerships - Firefly is pursuing a dual go-to-market strategy by partnering with neuroscience pharmaceutical companies and supporting US neurologists [3]. - Collaborations with notable pharmaceutical companies such as Bright Minds, Novartis, and Takeda are expected to accelerate growth and enhance capabilities [3]. Recent Developments - In Q3 2024, Firefly announced several key collaborations, including a partnership with Bright Minds Bioscience for a Phase 2 trial of BMB-101 and the use of BNA™ technology in Arrivo BioVentures' Phase 1 study of SP-624 [4]. - The company has integrated BNA™ technology at Neurology Consultants of Dallas to improve early detection and disease management for cognitive disorders [4]. Financial Highlights - As of September 30, 2024, Firefly reported cash reserves of $1.2 million and had 8,503,365 shares of common stock outstanding as of November 12, 2024 [4].

Financial Performance - Revenue for the three months ended September 30, 2024, was $33,000, up 43% from $23,000 in the same period of 2023[13] - Operating loss for the nine months ended September 30, 2024, was $6,675,000, compared to a loss of $1,526,000 for the same period in 2023, indicating a significant increase in losses[13] - Net loss for the three months ended September 30, 2024, was $4,289,000, compared to a loss of $650,000 in the same period of 2023, representing a 558% increase in losses[13] - Basic and diluted loss per share for the three months ended September 30, 2024, was $(0.61), compared to $(0.18) for the same period in 2023[13] - For the nine months ended September 30, 2024, Firefly Neuroscience reported a net loss of $6,675,000, compared to a net loss of $1,526,000 for the same period in 2023, representing a significant increase in losses[18] - The net loss for the period ending September 30, 2024, is $(6,675,000), compared to a net loss of $(1,526,000) for the same period in 2023[15] - Total operating expenses for the three months ended September 30, 2024, were $4,301,000, up from $670,000 in the same period of 2023, indicating a significant increase of 541.6%[13] Assets and Liabilities - Total assets increased to $5,311,000 as of September 30, 2024, compared to $2,641,000 as of December 31, 2023, representing a growth of 101%[9] - Cash decreased to $1,230,000 as of September 30, 2024, from $2,143,000 as of December 31, 2023, a decline of 43%[9] - Total current liabilities remained stable at $2,535,000 as of September 30, 2024, compared to $2,532,000 as of December 31, 2023[9] - The company reported an accumulated deficit of $83,299,000 as of September 30, 2024, compared to $76,624,000 as of December 31, 2023[10] Expenses - Research and development expenses rose to $1,517,000 for the nine months ended September 30, 2024, compared to $712,000 in the same period of 2023, reflecting a 113% increase[13] - Selling and marketing expenses increased to $973,000 for the nine months ended September 30, 2024, compared to $399,000 in the same period of 2023, a rise of 144%[13] - General and administration expenses for the three months ended September 30, 2024, were $2,992,000, an increase of $2,809,000 or 1535% from $183,000 in the same period of 2023[13] Cash Flow - The company experienced negative cash flow from operating activities of $4,937,000 for the nine months ended September 30, 2024, compared to $1,662,000 for the same period in 2023, indicating a worsening cash burn situation[29] - Net cash used in investing activities for the nine months ended September 30, 2024, was $401,000, compared to no cash used in the same period in 2023, primarily due to investments in the next generation of the BNA Platform[138] - Net cash provided from financing activities was $4,425,000 for the nine months ended September 30, 2024, representing an increase of $1,928,000 or 77% compared to $2,497,000 for the same period in 2023, mainly due to secured private financing related to the Merger[140] Shareholder Equity - Total shareholders' equity increased to $2,776,000 as of September 30, 2024, from $109,000 as of December 31, 2023[10] - The number of shares outstanding as of September 30, 2024, is 8,476,202[15] - The weighted average number of shares outstanding for basic and diluted was 7,080,897 as of September 30, 2024, compared to 3,678,906 for the same period in 2023, reflecting an increase of 92.5%[13] Mergers and Acquisitions - The merger with WaveDancer, completed on August 12, 2024, was treated as a reverse recapitalization, with Private Firefly deemed the accounting acquirer[25] - Following the merger, there were 7,472,555 shares of the New Firefly Common Stock outstanding as of August 12, 2024[27] - The merger between Private Firefly and WaveDancer was completed on August 12, 2024, with Private Firefly being treated as the accounting acquirer[39] Future Outlook - The company expects to continue incurring negative cash flows from operations over the next 12 months while investing in sales, marketing, and research and development[131] - The company anticipates significant costs for at least two to four years to commercialize and distribute its flagship product, the BNA Platform, requiring substantial capital to support ongoing operations[132] - Firefly Neuroscience is focused on negotiating further funding with existing and new investors to raise additional capital and has implemented cost control measures to reduce operational cash burn[29] - The company aims to commercialize its products to generate recurring sales as part of its strategy to strengthen liquidity[29] Product Development - Firefly Neuroscience's Brain Network Analytics (BNA) product received FDA clearance for marketing in the USA in July 2014 and CE approval for use in the European Union in September 2014, indicating ongoing product development and market presence[22] - The BNA Platform, developed over 15 years with an investment of approximately $60 million, aims to improve brain health outcomes for patients with mental illnesses and neurological disorders[105] - The BNA Platform is expected to be commercially launched in the first half of 2025, with no material additional development costs anticipated[106] - The BNA Platform utilizes AI and a proprietary database of over 17,000 patients to enhance diagnostic capabilities for mental illnesses and cognitive disorders[105]

Core Insights - Firefly Neuroscience, Inc. is participating in the Capital Event Management Conference from November 22-24, 2024, in Aventura, Florida [1] - The company specializes in developing AI solutions aimed at improving brain health outcomes for patients with neurological and mental disorders [4][5] Company Overview - Firefly is focused on innovative solutions that enhance diagnostic and treatment monitoring methods for conditions such as depression, dementia, anxiety disorders, concussions, and ADHD [4] - The company has developed the FDA-510(k) cleared Brain Network Analytics (BNA™) technology, which utilizes a proprietary database of brain wave tests and has secured patent protection [4][5] - BNA™ leverages artificial intelligence and machine learning on a database of standardized, high-definition longitudinal electroencephalograms (EEGs) from over 17,000 patients, providing comprehensive insights into brain function [5] Market Engagement - Firefly is launching BNA™ commercially, targeting pharmaceutical companies involved in drug research and clinical trials, as well as medical practitioners for clinical use [4] - The company aims to enhance clinicians' ability to accurately diagnose mental and cognitive disorders and evaluate optimal therapies for patients [5]

As filed with the Securities and Exchange Commission on September 26, 2024 Registration No. 333- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FIREFLY NEUROSCIENCE, INC. (Exact name of registrant as specified in its charter) | | ____________________ | | | --- | --- | --- | | Delaware | 7372 | 54-1167364 | | (State or other jurisdiction of | (Primary Standard Industrial | (IRS Employer | | incorporation or organization ...

As filed with the Securities and Exchange Commission on September 26, 2024 Registration No. 333- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FIREFLY NEUROSCIENCE, INC. (Exact name of registrant as specified in its charter) | | ____________________ | | | --- | --- | --- | | Delaware | 7372 | 54-1167364 | | (State or other jurisdiction of | (Primary Standard Industrial | (IRS Employer | | incorporation or organization ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2024 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-41092 FIREFLY NEUROSCIENCE, INC. (Exact name of registrant as specified in its charter) Delaware 54-1167364 (State or other jurisdiction of incorporation or organization) (I. ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2024 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 001-41092 WaveDancer, Inc. (Exact name of registrant as specified in its charter) Delaware 54-1167364 (State or other jurisdiction of incorporation or organization) (I.R.S. Empl ...

Merger and Acquisitions - The company entered into a merger agreement with Firefly Neuroscience, Inc. in an all-stock transaction, requiring the raising of $0.8 million to $1.1 million in additional capital[17] - The company plans to sell its Tellenger subsidiary to WaveTop Solutions, Inc. as part of the merger process[17] - If the merger does not close, the company will pursue organic growth and acquisitions, necessitating capital raising to fund these strategies[18] Business Operations and Services - The company aims to modernize legacy systems and cloud services, having provided solutions to over 40 government and private sector clients[25] - Tellenger's modernization services include cloud assessment and migration, utilizing platforms like Amazon Web Services and Microsoft Azure[26] - The cybersecurity market is a focus area, with Tellenger involved in significant initiatives for the U.S. Department of Homeland Security[27] Financial Performance - The company has incurred net losses of $2,034,435, $17,753,838, $1,131,449, and $717,246 during the years ended December 31, 2023, 2022, 2021, and 2019, respectively[57] - A significant portion of the company's revenues is derived from U.S. government contracting, with higher revenues typically experienced in the third and fourth fiscal quarters[58] - The company has faced operating losses in four of the last five years and may not achieve or maintain profitability in the future[56] Competition and Market Challenges - The company faces strong competition in the IT services market, particularly in conversion and modernization, from larger firms with more resources[36] - The company is subject to intense competition in software development and cloud services, which could negatively impact its operational results[80] - Changes in U.S. federal government funding priorities may materially and adversely affect the company's revenue and earnings[70] Risks and Liabilities - Future acquisitions may result in debt, contingent liabilities, and other expenses that could harm the company's financial condition[55] - The company must accurately estimate costs and timelines for contracts to maintain profitability, as inaccuracies could lead to adverse financial impacts[82] - The company frequently utilizes subcontractors, which may adversely affect contracts if they fail to perform, potentially leading to unintended expenses and loss of future contracts[85] Compliance and Regulatory Issues - The company must maintain effective internal controls over financial reporting to ensure accuracy; failure to do so could adversely affect business and stock price[95] - Compliance with public company regulations has increased legal and financial compliance costs, diverting management's attention and resources[118] Human Resources and Hiring - As of December 31, 2023, the company had 42 full-time and one part-time employees, with plans for future hiring to meet growth requirements[42] - The company faces intense competition for hiring qualified personnel, which is critical for its future success[121] Capital and Financing - The company does not intend to pay dividends for the foreseeable future, focusing instead on retaining earnings for business expansion[104] - The issuance of additional stock could dilute existing shareholders' investments, potentially leading to a decline in the market price of common stock[102] - The company may seek credit facilities to fund operations, which could expose it to additional risks associated with leverage and affect operational flexibility[111] Operational Variability and Risks - Variability in operational results is expected due to factors such as customer retention, seasonal buying patterns, and changes in market needs[126] - The company may face significant fluctuations in financial results, making historical performance unreliable for future expectations[127] - Legal proceedings and claims could result in substantial costs and divert management's attention, potentially harming the business[130] - The company is subject to risks from natural disasters and geopolitical unrest, which could disrupt supply chains and impact sales[132] Technological Adaptation - Rapid technological changes in the IT industry necessitate continuous development and adaptation of services to avoid negative impacts on operations[133]

PART I. FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Unaudited Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section presents WaveDancer, Inc.'s unaudited condensed consolidated financial statements for the periods ended September 30, 2023, and December 31, 2022, including balance sheets, statements of operations, cash flows, and changes in stockholders' equity. It also includes detailed notes on significant accounting policies, the sale of its GMI subsidiary, revenue recognition, leases, fair value measurements, intangible assets, stock-based compensation, litigation settlement, credit facilities, stock sales, income taxes, and earnings per share [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity | ASSETS | September 30, 2023 | December 31, 2022 | |:-------------------------------------------------------------------------------------------------------------------|:-------------------|:------------------| | Cash and cash equivalents | $ 877,198 | $ 731,081 | | Accounts receivable | 1,479,780 | 1,629,559 | | Prepaid expenses and other current assets | 363,668 | 442,445 | | Total current assets | 2,720,646 | 2,803,085 | | Intangible assets, net | 1,049,600 | 1,181,783 | | Goodwill | 1,125,101 | 1,125,101 | | Total assets | $ 5,261,805 | $ 7,981,214 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable | $ 495,895 | $ 573,789 | | Revolving line of credit | 500,000 | 425,000 | | Total current liabilities | 2,183,271 | 3,888,412 | | Total liabilities | 2,377,182 | 4,251,311 | | Total stockholders' equity | 2,884,623 | 3,729,903 | | Total liabilities and stockholders' equity | $ 5,261,805 | $ 7,981,214 | - Total assets decreased by approximately **$2.7 million** from December 31, 2022, to September 30, 2023, primarily due to the sale of assets held for sale (GMI subsidiary)[6](index=6&type=chunk) - Total liabilities decreased by approximately **$1.8 million**, largely driven by a reduction in deferred acquisition consideration[6](index=6&type=chunk) - Stockholders' equity decreased by approximately **$0.8 million**, mainly due to the accumulated deficit[6](index=6&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance, including revenues, gross profit, and net income or loss for specified periods | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | |:------------------------------------------------------------------------------------------------------------------|:--------------------------------|:--------------------------------| | Total revenues | $ 1,967,277 | $ 2,306,379 | | Gross profit | 649,812 | 738,596 | | Operating income (loss) from continuing operations | (516,845) | (1,130,118) | | Net income (loss) from continuing operations | (149,932) | (1,170,367) | | Net income (loss) | (149,932) | (4,700,519) | | Basic and diluted net loss per share | $ (0.08) | $ (2.56) | | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:------------------------------------------------------------------------------------------------------------------|:-------------------------------|:-------------------------------| | Total revenues | $ 6,152,022 | $ 9,052,411 | | Gross profit | 2,011,623 | 2,338,907 | | Operating loss from continuing operations | (978,459) | (4,406,450) | | Net loss from continuing operations | (929,106) | (5,251,620) | | Net loss | $ (1,265,099) | $ (8,304,268) | | Basic and diluted net loss per share | $ (0.65) | $ (4.70) | - For the three months ended September 30, 2023, total revenues decreased by **14.7%** YoY, primarily due to a de-emphasis on third-party software sales and a decline in professional services revenue[8](index=8&type=chunk)[98](index=98&type=chunk) - Operating loss from continuing operations improved significantly by **54.3%** for the three months ended September 30, 2023, mainly due to a substantial decrease in Selling, General and Administrative (SG&A) expenses[8](index=8&type=chunk)[101](index=101&type=chunk) - For the nine months ended September 30, 2023, total revenues decreased by **32.0%** YoY, driven by reduced third-party software sales and professional services[9](index=9&type=chunk)[103](index=103&type=chunk) - Operating loss from continuing operations improved by **77.8%** for the nine months ended September 30, 2023, benefiting from a litigation settlement gain and lower SG&A expenses[9](index=9&type=chunk)[107](index=107&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash flow activities from operations, investing, and financing for the reporting periods | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | |:-------------------------------------------------|:-------------------------------|:-------------------------------| | Net cash used in operating activities | $ (2,713,436) | $ (5,100,233) | | Net cash provided by (used in) investing activities | 2,335,974 | (234,060) | | Net cash provided by financing activities | 523,579 | 1,924,642 | | Net increase (decrease) in cash and cash equivalents | 146,117 | (3,409,651) | | Cash and cash equivalents, end of period | $ 877,198 | $ 1,521,651 | - Net cash used in operating activities decreased by approximately **$2.4 million**, primarily due to adjustments reconciling net loss, including a gain on litigation settlement and a gain on sale of equity investment[11](index=11&type=chunk) - Investing activities provided **$2.3 million** in cash, a significant improvement from a net use of **$0.2 million** in the prior year, driven by proceeds from the sale of equity investment and disposal of business[11](index=11&type=chunk) - Financing activities provided **$0.5 million**, a decrease from **$1.9 million** in the prior year, mainly due to lower proceeds from stock issuance[11](index=11&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) This section details the changes in the company's stockholders' equity over the reporting period | Stockholders' Equity Component | Balance at Dec 31, 2022 | Balance at Sep 30, 2023 | |:-------------------------------|:------------------------|:------------------------| | Common Stock | $ 2,084 | $ 2,148 | | Additional Paid-In Capital | 35,883,831 | 36,303,586 | | Accumulated Deficit | (31,190,801) | (32,455,900) | | Treasury Stock | (965,211) | (965,211) | | Total Stockholders' Equity | $ 3,729,903 | $ 2,884,623 | - Total stockholders' equity decreased by **$845,280** from December 31, 2022, to September 30, 2023, primarily due to a net loss of **$1,349,952** and **$149,932** in subsequent quarters, partially offset by stock option compensation and stock issuance[13](index=13&type=chunk) - Additional paid-in capital increased by **$419,755**, reflecting stock option compensation and stock issuances, net of forfeiture and amortization of stock issue costs[13](index=13&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1. Summary of Significant Accounting Policies](index=11&type=section&id=Note%201.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's key accounting principles and practices, including business operations and going concern considerations - WaveDancer, Inc. (formerly Information Analysis Incorporated) develops and maintains IT systems and provides IT-related professional services to government and commercial organizations[16](index=16&type=chunk) - On March 17, 2023, the Company sold **75.1%** of its Gray Matters, Inc. (GMI) subsidiary, classifying GMI as a discontinued operation[17](index=17&type=chunk)[18](index=18&type=chunk) - The Company reported an operating loss of **$978,459** for the nine months ended September 30, 2023, and anticipates needing **$1.0 million** to **$1.5 million** in additional capital within the next twelve months, raising substantial doubt about its ability to continue as a going concern[19](index=19&type=chunk) - A one-for-ten reverse stock split was effected on October 18, 2023, retroactively adjusting all shares and per-share amounts[21](index=21&type=chunk) - The Company accounts for investments where it holds **20%** to **50%** equity or has significant influence using the equity method[26](index=26&type=chunk)[27](index=27&type=chunk) | Revenue Source (3 months ended Sep 30, 2023) | Percentage of Revenue | |:---------------------------------------------|:----------------------| | Prime contracts with U.S. government agencies | 8.3% | | Subcontracts under federal procurements | 90.6% | | Revenue Source (9 months ended Sep 30, 2023) | Percentage of Revenue | |:---------------------------------------------|:----------------------| | Prime contracts with U.S. government agencies | 9.1% | | Subcontracts under federal procurements | 89.3% | [Note 2. Sale and Deconsolidation of GMI and Discontinued Operations](index=15&type=section&id=Note%202.%20Sale%20and%20Deconsolidation%20of%20GMI%20and%20Discontinued%20Operations) This note details the sale of the GMI subsidiary and the financial impact of discontinued operations - On March 17, 2023, WaveDancer sold **75.1%** of its GMI subsidiary to Gray Matters Data Corporation (GMDC), receiving **24.9%** equity in GMDC, **$935,974** cash, and contingent annual payments[36](index=36&type=chunk) - The Company recognized a gain of **$100,615** on the sale of GMI in Q1 2023, included in net loss from discontinued operations[37](index=37&type=chunk) - On August 9, 2023, WaveDancer sold its remaining **24.9%** equity interest in GMDC for **$400,000** cash, recognizing a gain of **$64,525**[38](index=38&type=chunk) | Discontinued Operations (Nine Months Ended Sep 30) | 2023 | 2022 | |:---------------------------------------------------|:--------------|:--------------| | Revenue | $ - | $ 566,862 | | Cost of revenue | 74,223 | 1,118,301 | | Net loss on discontinued operations | $ (335,993) | $ (3,052,648) | - During the nine months ended September 30, 2023, **715,000** unvested stock options were forfeited by GMI employees, resulting in a **$407,322** reversal of previously recognized stock-based compensation expense[40](index=40&type=chunk) [Note 3. Revenue from Contracts with Customers](index=16&type=section&id=Note%203.%20Revenue%20from%20Contracts%20with%20Customers) This note describes the company's revenue recognition policies and disaggregates revenue by contract type - Revenue is generated from IT professional services, sales of third-party software licenses, implementation/training services, support/maintenance contracts, and incentive payments from software suppliers[43](index=43&type=chunk) - Professional services revenue is recognized over time for time and materials, at a point in time for fixed-price-per-unit, and either over time or at a point in time for fixed-price and mixed arrangements[45](index=45&type=chunk) - Third-party software license revenue recognition varies by license type (enterprise server-based vs. desktop) and customer type (government vs. non-government), generally recognized at a point in time when the customer gains full benefit or administrative portal access[46](index=46&type=chunk) | Contract Type (3 months ended Sep 30) | 2023 Amount | 2023 Percentage | 2022 Amount | 2022 Percentage | |:--------------------------------------|:--------------|:----------------|:--------------|:----------------| | Services time & materials | $ 1,714,509 | 87.2% | $ 1,896,829 | 82.2% | | Third-party software | 45,977 | 2.3% | 59,076 | 2.6% | | Total revenue | $ 1,967,277 | 100.0% | $ 2,306,379 | 100.0% | | Contract Type (9 months ended Sep 30) | 2023 Amount | 2023 Percentage | 2022 Amount | 2022 Percentage | |:--------------------------------------|:--------------|:----------------|:--------------|:----------------| | Services time & materials | $ 5,314,845 | 86.4% | $ 5,963,361 | 65.9% | | Third-party software | 159,307 | 2.6% | 2,345,884 | 25.9% | | Total revenue | $ 6,152,022 | 100.0% | $ 9,052,411 | 100.0% | | Accounts Receivable (as of) | Sep 30, 2023 | Dec 31, 2022 | |:----------------------------|:--------------|:--------------| | Billed federal government | $ 1,456,519 | $ 1,573,407 | | Total accounts receivable | $ 1,479,780 | $ 1,629,559 | - Contract liabilities, representing invoiced amounts not yet recognized as revenue, decreased from **$182,756** at December 31, 2022, to **$26,026** at September 30, 2023[52](index=52&type=chunk) [Note 4. Leases](index=20&type=section&id=Note%204.%20Leases) This note provides details on the company's operating leases, including lease terms and future payment obligations - The Company has two significant operating leases for its headquarters and additional office space, with terms ranging from **37** to **67 months** and annual rental rate escalations of approximately **2.5%**[57](index=57&type=chunk) - As of September 30, 2023, the weighted average remaining lease term was **28 months**, and the weighted average discount rate was **5.1%**[60](index=60&type=chunk) | Future Lease Payments (as of Sep 30, 2023) | Amount | |:-------------------------------------------|:------------| | 2023 | $ 58,041 | | 2024 | 174,721 | | 2025 | 74,804 | | 2026 | 70,220 | | Total lease payments | 377,786 | | Present value of lease liabilities | $ 353,485 | - Total lease expense for operating leases was **$38,053** for the three months ended September 30, 2023 (down from **$53,560** in 2022) and **$118,567** for the nine months ended September 30, 2023 (down from **$164,281** in 2022)[60](index=60&type=chunk) [Note 5. Fair Value Measurements](index=21&type=section&id=Note%205.%20Fair%20Value%20Measurements) This note describes the company's fair value measurements for financial instruments, categorized by input levels - Fair value is defined as the exit price in an orderly transaction between market participants, categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[61](index=61&type=chunk) | Cash Equivalents (Money Market Funds) | Sep 30, 2023 | Dec 31, 2022 | |:--------------------------------------|:-------------|:-------------| | Level 1 | $ 809,997 | $ 58,242 | | Total | $ 809,997 | $ 58,242 | - The contingent consideration received from the GMI sale, initially valued at **$682,000** (Level 3), was settled for **$1,000,000** cash on August 9, 2023, resulting in a gain of **$318,000**[62](index=62&type=chunk) [Note 6. Intangible Assets and Goodwill](index=21&type=section&id=Note%206.%20Intangible%20Assets%20and%20Goodwill) This note provides information on the company's intangible assets and goodwill, including amortization schedules | Intangible Assets (as of) | Dec 31, 2022 | Sep 30, 2023 | |:--------------------------|:--------------|:--------------| | Customer relationships | $ 1,090,000 | $ 1,090,000 | | Non-compete agreements | 120,000 | 120,000 | | Accumulated amortization | (308,217) | (440,400) | | Sub-total | 901,783 | 769,600 | | Trade names (indefinite) | 280,000 | 280,000 | | Total identifiable intangible assets | $ 1,181,783 | $ 1,049,600 | - Total identifiable intangible assets decreased by **$132,183** from December 31, 2022, to September 30, 2023, primarily due to accumulated amortization[65](index=65&type=chunk) | Expected Amortization Expense | Amount | |:------------------------------|:------------| | 2023 | $ 44,061 | | 2024 | 146,307 | | 2025 | 136,248 | | 2026 | 136,248 | | 2027 | 136,248 | | Thereafter | 170,488 | | Total | $ 769,600 | [Note 7. Stock-Based Compensation](index=22&type=section&id=Note%207.%20Stock-Based%20Compensation) This note details the company's stock-based compensation plans and related expenses - The Company has three stock-based compensation plans (2006, 2016, and 2021 Stock Incentive Plans)[67](index=67&type=chunk)[69](index=69&type=chunk) - Total compensation expense related to these plans was **$180,816** for the three months ended September 30, 2023 (down from **$398,319** in 2022) and **$557,146** for the nine months ended September 30, 2023 (down from **$971,777** in 2022)[71](index=71&type=chunk) - As of September 30, 2023, **$431,067** of total unrecognized compensation cost related to nonvested share-based compensation is expected to be recognized over a weighted-average period of **11 months**[70](index=70&type=chunk) [Note 8. Settlement of Litigation](index=23&type=section&id=Note%208.%20Settlement%20of%20Litigation) This note describes the settlement of litigation, including its financial impact on deferred consideration - On April 28, 2023, WaveDancer settled litigation with Jeffrey Gerald, extinguishing **$1,500,000** of deferred consideration related to the GMI acquisition and releasing **43,648 shares** of common stock from escrow[72](index=72&type=chunk)[73](index=73&type=chunk) - As a result of the settlement, the Company recognized a gain, net of expenses, of **$1,442,468** in the second quarter of 2023[74](index=74&type=chunk) [Note 9. Revolving Line of Credit and Notes Payable](index=23&type=section&id=Note%209.%20Revolving%20Line%20of%20Credit%20and%20Notes%20Payable) This note details the company's revolving line of credit and other notes payable, including terms and outstanding balances - The Company had a revolving line of credit with Summit Community Bank, which expired on August 16, 2023[75](index=75&type=chunk) - A new line of credit with Summit was entered on September 11, 2023, with a reduced maximum availability of **$500,000**, expiring on January 16, 2024[76](index=76&type=chunk) - A Premium Finance Agreement for **$305,759** at **8.75%** per annum was entered on March 7, 2023, to purchase a D&O insurance policy, requiring **ten** monthly payments of **$31,815**[78](index=78&type=chunk) [Note 10. Sales of Shares Under Common Stock Purchase Agreement](index=25&type=section&id=Note%2010.%20Sales%20of%20Shares%20Under%20Common%20Stock%20Purchase%20Agreement) This note describes the company's common stock purchase agreement and shares sold under the facility - On July 8, 2022, WaveDancer entered a Common Stock Purchase Agreement (ELOC) with B. Riley Principal Capital II, LLC, allowing the Company to sell up to **$15,000,000** of common stock at its option[79](index=79&type=chunk) - During the three months ended September 30, 2023, the Company sold **20,000 shares** under the ELOC for net proceeds of **$118,655**[81](index=81&type=chunk) - A commitment fee of **$150,000** in shares was issued to B. Riley, amortized to additional paid-in capital as shares are sold[80](index=80&type=chunk) [Note 11. Income Taxes](index=25&type=section&id=Note%2011.%20Income%20Taxes) This note provides information on the company's income tax position and effective tax rate - The Company's effective tax rate for the three and nine months ended September 30, 2022, was **0%**, primarily due to a full valuation allowance against all deferred tax assets[82](index=82&type=chunk) [Note 12. Earnings Per Share](index=25&type=section&id=Note%2012.%20Earnings%20Per%20Share) This note details the calculation of basic and diluted earnings per share for the reporting periods - Basic earnings (loss) per share is calculated by dividing loss available to common shareholders by the weighted-average shares outstanding[83](index=83&type=chunk) - Diluted earnings (loss) per share reflects potential dilution from securities, except when the Company reports a net loss, as inclusion would be antidilutive[83](index=83&type=chunk) - Antidilutive effects of stock options and warrants were excluded from diluted shares for both the three and nine months ended September 30, 2022[83](index=83&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on WaveDancer, Inc.'s financial condition and results of operations for the three and nine months ended September 30, 2023, compared to the prior year. It covers business overview, strategy, detailed analysis of revenues, gross profit, and operating expenses for both continuing and discontinued operations, critical accounting estimates, and liquidity and capital resources, highlighting the going concern uncertainty [Cautionary Statement Regarding Forward-Looking Statements](index=26&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This section highlights that the report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements subject to risks and uncertainties, which could cause actual results to differ materially[85](index=85&type=chunk) - Key risks include operating losses, reliance on government contracts, intense competition, dependence on key employees and customer contracts, IT infrastructure risks, regulatory compliance, strategic investment risks, and the need for additional capital[85](index=85&type=chunk) [Our Business](index=27&type=section&id=Our%20Business) This section describes WaveDancer, Inc.'s core business activities, including IT systems development, modernization, and professional services for government and commercial clients - WaveDancer, Inc. (formerly Information Analysis Incorporated) specializes in developing and maintaining IT systems, modernizing client information systems, and providing IT professional services to government and commercial organizations[88](index=88&type=chunk) - Following the sale of its GMI subsidiary on March 17, 2023, and the subsequent sale of its remaining equity interest in GMDC on August 9, 2023, the Company now operates as a single reportable segment focused on continuing operations[89](index=89&type=chunk) - The Company's core competencies include legacy software migration and modernization (e.g., COBOL code), web-based and mobile solutions, data analytics, and is expanding into cybersecurity and cloud services, primarily for federal government agencies[90](index=90&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) [Our Strategy](index=28&type=section&id=Our%20Strategy) This section outlines WaveDancer's strategy for growth, focusing on organic expansion, acquisitions, and repositioning its professional services business - WaveDancer's strategy is to grow organically and through acquisitions, repositioning its legacy professional services business towards higher-margin professional services and away from third-party product reselling[96](index=96&type=chunk) - Organic growth focuses on bidding as a prime contractor on government proposals and expanding subcontracting opportunities with larger prime contractors[96](index=96&type=chunk) - The Company is actively pursuing strategic alternatives, including potential merger or sale, due to the need for additional capital to fund growth and ongoing operations[97](index=97&type=chunk) [Results of Continuing Operations – Three Months Ended September 30, 2023 and 2022](index=28&type=section&id=Results%20of%20Continuing%20Operations%20%E2%80%93%20Three%20Months%20Ended%20September%2030%2C%202023%20and%202022) This section analyzes the financial performance of continuing operations for the three months ended September 30, 2023, compared to the same period in 2022 | Metric | Q3 2023 | Q3 2022 | Change ($) | Change (%) | |:----------------------------------------|:--------------|:--------------|:--------------|:--------------| | Total Revenue | $ 1,967,277 | $ 2,306,379 | $ (339,102) | (14.7%) | | Professional Services Revenue | 1,921,300 | 2,114,012 | (192,712) | (9.1%) | | Gross Profit | 649,812 | 738,596 | (88,784) | (12.0%) | | Operating Income (Loss) | (516,845) | (1,130,118) | 613,273 | 54.3% | - The decrease in revenue was primarily due to a de-emphasis on third-party software sales (**2.3%** of Q3 2023 sales vs. **8.3%** in Q3 2022) and a decline in professional services revenue from one software modernization project[98](index=98&type=chunk) - Professional services gross profit as a percentage of revenue declined from **37.5%** to **35.8%** due to changes in contract mix and labor costs outpacing billing rate increases[99](index=99&type=chunk) | SG&A Expense Category | Q3 2023 | Q3 2022 | Change ($) | |:--------------------------------|:------------|:------------|:------------| | Salaries and benefits | $ 500,301 | $ 611,053 | $ (110,752) | | Stock based compensation | 180,816 | 398,319 | (217,503) | | Legal and professional fees | 84,671 | 444,547 | (359,876) | | Total SG&A | $ 1,166,657 | $ 1,868,714 | $ (702,057) | - The significant improvement in operating loss was primarily driven by a **$702,057** decrease in SG&A expenses, partially offset by the **$88,784** decrease in gross profit[101](index=101&type=chunk) [Results of Discontinued Operations – Three Months Ended September 30, 2023 and 2022](index=29&type=section&id=Results%20of%20Discontinued%20Operations%20%E2%80%93%20Three%20Months%20Ended%20September%2030%2C%202023%20and%202022) This section reports no activity for GMI in the third quarter of 2023 due to its sale, contrasting with prior year's discontinued operations - There was no activity for GMI in the third quarter of 2023 due to its sale on March 17, 2023[102](index=102&type=chunk) | Discontinued Operations (Q3 2022) | Amount | |:----------------------------------|:--------------| | Revenue | $ - | | Cost of revenue | 256,974 | | Gross profit | (256,974) | | Goodwill impairment | 2,254,624 | | Net income on discontinued operations | $ (3,530,152) | [Results of Continuing Operations – Nine Months Ended September 30, 2023 and 2022](index=29&type=section&id=Results%20of%20Continuing%20Operations%20%E2%80%93%20Nine%20Months%20Ended%20September%2030%2C%202023%20and%202022) This section analyzes the financial performance of continuing operations for the nine months ended September 30, 2023, compared to the same period in 2022 | Metric | 9M 2023 | 9M 2022 | Change ($) | Change (%) | |:----------------------------------------|:--------------|:--------------|:--------------|:--------------| | Total Revenue | $ 6,152,022 | $ 9,052,411 | $ (2,900,389) | (32.0%) | | Professional Services Revenue | 5,992,715 | 6,458,534 | (465,819) | (7.2%) | | Gross Profit | 2,011,623 | 2,338,907 | (327,284) | (14.0%) | | Operating Loss | (978,459) | (4,406,450) | 3,427,991 | 77.8% | - The revenue decrease was primarily due to a de-emphasis on third-party software sales (**2.6%** of 9M 2023 sales vs. **28.7%** in 9M 2022) and reduced resources on a software modernization project in Q2 and Q3 2023[103](index=103&type=chunk) - Professional services gross profit as a percentage of revenue slightly declined from **33.7%** to **33.6%** due to changes in contract mix and billing rates[104](index=104&type=chunk) | SG&A Expense Category | 9M 2023 | 9M 2022 | Change ($) | |:--------------------------------|:--------------|:--------------|:--------------| | Salaries and benefits | $ 1,595,216 | $ 2,022,252 | $ (427,036) | | Stock based compensation | 557,146 | 971,777 | (414,631) | | Legal and professional fees | 672,582 | 1,467,736 | (795,154) | | Acquisition costs | 512,975 | 829,478 | (316,503) | | Total SG&A | $ 4,432,550 | $ 6,745,357 | $ (2,312,807) | - The significant reduction in operating loss was primarily due to a **$1,442,468** gain on litigation settlement and a **$2,312,807** decrease in SG&A expenses, partially offset by the **$327,284** decrease in gross profit[107](index=107&type=chunk) [Results of Discontinued Operations – Nine Months Ended September 30, 2023 and 2022](index=30&type=section&id=Results%20of%20Discontinued%20Operations%20%E2%80%93%20Nine%20Months%20Ended%20September%2030%2C%202023%20and%202022) This section details the financial results of discontinued operations for the nine months ended September 30, 2023, reflecting reduced activity compared to the prior year - Discontinued operations for the nine months ended September 30, 2023, reflect approximately two fewer weeks of costs and expenses for GMI compared to 2022, with no activity in Q2 and Q3 2023[108](index=108&type=chunk) | Discontinued Operations (9M) | 2023 | 2022 | Change ($) | |:-----------------------------|:--------------|:--------------|:--------------| | Revenue | $ - | $ 566,862 | $ (566,862) | | Cost revenue | 74,223 | 1,118,301 | (1,044,078) | | Gross profit | (74,223) | (551,439) | 477,216 | | Goodwill impairment | - | 2,254,624 | (2,254,624) | | Gain on disposal of business | (100,615) | - | (100,615) | | Net income (loss) on discontinued operations | $ (335,993) | $ (3,052,648) | $ 2,716,655 | [Critical Accounting Estimates](index=30&type=section&id=Critical%20Accounting%20Estimates) This section discusses the company's critical accounting estimates, including new fair value measures related to the GMI sale - No material changes to critical accounting estimates were reported, except for two new fair value measures in Q1 2023: the contingent consideration receivable from GMDC and the initial fair value of the equity method investment in GMDC[112](index=112&type=chunk) - The fair value of contingent consideration is a recurring Level 3 measurement, involving significant unobservable judgmental inputs, where changes in assumptions could materially impact reported fair value[113](index=113&type=chunk) - The initial fair value of the equity method investment in GMDC was determined using an Option Pricing Model Backsolve method, with inputs including an estimated time to exit of **four years**, **75.0%** volatility, **4.29%** risk-free rate, and a **23.5%** minority interest discount[114](index=114&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses WaveDancer's liquidity and capital resources, highlighting its net loss, cash needs, and going concern uncertainty | Liquidity Metric (as of Sep 30, 2023) | Amount | |:--------------------------------------|:------------| | Net working capital | $ 537,375 | | Cash and cash equivalents | $ 877,198 | | Outstanding line of credit | $ 500,000 | - The Company generated a net loss from continuing operations of **$929,106** for the nine months ended September 30, 2023[115](index=115&type=chunk) - WaveDancer anticipates using **$1.0 million** to **$1.5 million** in cash from operating activities over the next twelve months and needs to raise additional capital to meet ongoing operating cash flow requirements and fund growth, creating substantial doubt about its ability to continue as a going concern[116](index=116&type=chunk)[117](index=117&type=chunk) - On August 9, 2023, the Company received **$1,400,000** cash from GMDC from the sale of common stock and settlement of contingent consideration, and subsequently repaid **$500,000** on its Summit line of credit, which now has no further borrowing capacity[118](index=118&type=chunk) [Item 4. Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the Company's disclosure controls and procedures, confirming their effectiveness as of September 30, 2023. It also states that there were no material changes in internal controls over financial reporting during the quarter and acknowledges the inherent limitations of all control systems - Management, with CEO and CFO participation, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2023, concluding they are effective[120](index=120&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[121](index=121&type=chunk) - The Company acknowledges inherent limitations in control systems, where judgments can be faulty, breakdowns can occur due to error, or controls can be circumvented by individual acts, collusion, or management override[122](index=122&type=chunk) PART II. OTHER INFORMATION This part provides additional information on legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) This section states that WaveDancer, Inc. is not currently a party to any pending legal proceedings, nor is it aware of any contemplated or threatened actions against it - There are no pending legal proceedings to which WaveDancer, Inc. is a party or to which any of its property is subject[124](index=124&type=chunk) - To the best of the Company's knowledge, no such actions are contemplated or threatened[124](index=124&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the risk factors discussed in the Company's annual report on Form 10-K for the year ended December 31, 2022, and confirms that there have been no material changes to these risks - No material changes have occurred from the risk factors described in the Company's annual report on Form 10-K for the year ended December 31, 2022[125](index=125&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports an unregistered sale of common stock by the Company, detailing the number of shares, price, gross proceeds, and the rule under which the sale was conducted - On September 27, 2023, the Company sold **35,000 shares** of common stock at **$5.00 per share** in a private offering, raising aggregate gross proceeds of **$175,000**[125](index=125&type=chunk) - The Company relied on Rule 506(b) of Regulation D for this issuance, and no placement fees or commissions were paid[125](index=125&type=chunk) - The proceeds are designated for general corporate purposes[125](index=125&type=chunk) [Item 3. Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms no reportable events regarding defaults on senior securities [Item 4. Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section confirms no reportable events regarding mine safety disclosures [Item 5. Other Information](index=34&type=section&id=Item%205.%20Other%20Information) This section confirms no other material information to report [Item 6. Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, certifications pursuant to the Sarbanes-Oxley Act, and various Inline XBRL documents - The report includes certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934[126](index=126&type=chunk) - Certifications pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, are also filed[126](index=126&type=chunk) - Various Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbases, and Cover Page Interactive Data File) are included as exhibits[126](index=126&type=chunk) SIGNATURES This section contains the official signatures of the company's executive officers affirming the report submission [SIGNATURES](index=36&type=section&id=SIGNATURES) This section contains the official signatures of WaveDancer, Inc.'s Chief Executive Officer, G. James Benoit, Jr., and Chief Financial Officer, Timothy G. Hannon, affirming the submission of the Form 10-Q report on November 13, 2023 - The report was signed on behalf of WaveDancer, Inc. by G. James Benoit, Jr., Chief Executive Officer, and Timothy G. Hannon, Chief Financial Officer[129](index=129&type=chunk) - The signing date for the report was November 13, 2023[129](index=129&type=chunk)