Firefly Neuroscience, Inc.(AIFF) - 2023 Q3 - Quarterly Report

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 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 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] - Total liabilities decreased by approximately $1.8 million, largely driven by a reduction in deferred acquisition consideration[6] - Stockholders' equity decreased by approximately $0.8 million, mainly due to the accumulated deficit[6] Condensed Consolidated Statements of Operations 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][98] - 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][101] - 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][103] - 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][107] Condensed Consolidated Statements of Cash Flows 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] - 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] - 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] Condensed Consolidated Statements of Changes in Stockholders' Equity 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] - 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] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1. Summary of Significant Accounting Policies 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] - On March 17, 2023, the Company sold 75.1% of its Gray Matters, Inc. (GMI) subsidiary, classifying GMI as a discontinued operation[17][18] - 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] - A one-for-ten reverse stock split was effected on October 18, 2023, retroactively adjusting all shares and per-share amounts[21] - The Company accounts for investments where it holds 20% to 50% equity or has significant influence using the equity method[26][27] | 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 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] - The Company recognized a gain of $100,615 on the sale of GMI in Q1 2023, included in net loss from discontinued operations[37] - 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] | 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] Note 3. Revenue from Contracts with Customers 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] - 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] - 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] | 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] Note 4. Leases 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] - As of September 30, 2023, the weighted average remaining lease term was 28 months, and the weighted average discount rate was 5.1%[60] | 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] Note 5. Fair Value Measurements 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] | 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] Note 6. Intangible Assets and Goodwill 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] | 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 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][69] - 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] - 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] Note 8. Settlement of Litigation 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][73] - 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] Note 9. Revolving Line of Credit and Notes Payable 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] - 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] - 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] Note 10. Sales of Shares Under Common Stock Purchase Agreement 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] - During the three months ended September 30, 2023, the Company sold 20,000 shares under the ELOC for net proceeds of $118,655[81] - A commitment fee of $150,000 in shares was issued to B. Riley, amortized to additional paid-in capital as shares are sold[80] Note 11. Income Taxes 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] Note 12. Earnings Per Share 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] - Diluted earnings (loss) per share reflects potential dilution from securities, except when the Company reports a net loss, as inclusion would be antidilutive[83] - Antidilutive effects of stock options and warrants were excluded from diluted shares for both the three and nine months ended September 30, 2022[83] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] Our Business 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] - 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] - 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][92][93] Our Strategy 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] - Organic growth focuses on bidding as a prime contractor on government proposals and expanding subcontracting opportunities with larger prime contractors[96] - 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] Results of Continuing Operations – Three Months Ended September 30, 2023 and 2022 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] - 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] | 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] Results of Discontinued Operations – Three Months Ended September 30, 2023 and 2022 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] | 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 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] - 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] | 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 $327,284 decrease in gross profit[107] Results of Discontinued Operations – Nine Months Ended September 30, 2023 and 2022 This section details the financial results of discontinued operations for the nine months ended September 30, 2023, reflecting reduced activity compared to the prior year - Discontinued operations for the nine months ended September 30, 2023, reflect approximately two fewer weeks of costs and expenses for GMI compared to 2022, with no activity in Q2 and Q3 2023[108] | Discontinued Operations (9M) | 2023 | 2022 | Change ($) | |:-----------------------------|:--------------|:--------------|:--------------| | 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 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] - 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] - 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] Liquidity and Capital Resources 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] - 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][117] - 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] Item 4. Controls and Procedures 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] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[121] - 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] PART II. OTHER INFORMATION This part provides additional information on legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings 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] - To the best of the Company's knowledge, no such actions are contemplated or threatened[124] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - The Company relied on Rule 506(b) of Regulation D for this issuance, and no placement fees or commissions were paid[125] - The proceeds are designated for general corporate purposes[125] Item 3. Defaults Upon Senior Securities This section confirms no reportable events regarding defaults on senior securities Item 4. Mine Safety Disclosures This section confirms no reportable events regarding mine safety disclosures Item 5. Other Information This section confirms no other material information to report Item 6. Exhibits 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] - 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] - Various Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbases, and Cover Page Interactive Data File) are included as exhibits[126] SIGNATURES This section contains the official signatures of the company's executive officers affirming the report submission 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] - The signing date for the report was November 13, 2023[129]