iaic20220630

iaic20220630_10q.htm

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, 2022

☐	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. Employer Identification No.)
12015 Lee Jackson Memorial Highway, Suite 210
Fairfax, Virginia		22033
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (703) 383-3000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of each exchange on which registered
Common Stock, par value $0.001 per share		WAVD		The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☑

Smaller reporting company

☑

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

Number of shares outstanding by each class of common stock, as of August 12, 2022:

Common Stock, $0.001 par value – 19,125,603 shares outstanding

This document is also available through our website at http://ir.wavedancer.com/.

WaveDancer, Inc.

Form 10-Q June 30, 2022

WAVEDANCER, INC.

FORM 10-Q

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	Number

Item 1.	Condensed Consolidated Financial Statements (unaudited except for the balance sheet as of December 31, 2021)

	Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	3

	Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the three months ended June 30, 2022 and 2021	4

	Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the six months ended June 30, 2022 and 2021	5

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021	6

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20

Item 4.	Controls and Procedures	26

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 3.	Defaults Upon Senior Securities	27

Item 4.	Mine Safety Disclosures	27

Item 5.	Other Information	27

Item 6.	Exhibits	28

SIGNATURES		29

WaveDancer, Inc.

Form 10-Q June 30, 2022

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

WAVEDANCER, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30, 2022			December 31, 2021
ASSETS
Current assets
Cash and cash equivalents	$	578,982		$	4,931,302
Accounts receivable		3,583,136			1,664,862
Prepaid expenses and other current assets		298,179			276,990
Total current assets		4,460,297			6,873,154

Intangible assets, net of accumulated amortization of $900,818 and $201,032		7,349,182			8,048,968
Goodwill		7,585,269			7,585,269
Right-of-use operating lease asset		582,500			672,896
Property and equipment, net of accumulated depreciation and amortization of $374,185 and $347,886		109,990			105,256
Other assets		77,100			77,100
Total assets	$	20,164,338		$	23,362,643

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	1,546,945		$	650,499
Accrued payroll and related liabilities		721,927			524,055
Commissions payable		250,227			224,250
Other accrued liabilities		562,428			204,080
Contract liabilities		165,843			186,835
Operating lease liability - current		199,553			192,128
Total current liabilities		3,446,923			1,981,847

Operating lease liability - non-current		405,763			507,120
Deferred income taxes		223,160			1,167,504
Other liabilities		1,374,137			2,265,000
Total liabilities		5,449,983			5,921,471

Stockholders' equity
Common stock, $0.001 par value 100,000,000 shares authorized; 19,039,313 and 18,882,313 shares issued, 17,396,697 and 17,239,697 shares outstanding as of June 30, 2022 and December 31, 2021, respectively		19,039			18,882
Additional paid-in capital		32,666,239			31,789,464
Accumulated deficit		(17,040,712	)		(13,436,963	)
Treasury stock, 1,642,616 shares at cost		(930,211	)		(930,211	)
Total stockholders' equity		14,714,355			17,441,172
Total liabilities and stockholders' equity	$	20,164,338		$	23,362,643

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

WaveDancer, Inc.

Form 10-Q June 30, 2022

WAVEDANCER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE (LOSS) INCOME

(Unaudited)

	Three months ended June 30,
	2022			2021
Revenues
Professional fees	$	2,844,694		$	3,328,274
Software sales		1,472,688			1,403,687
Total revenues		4,317,382			4,731,961

Cost of revenues
Cost of professional fees		1,965,611			2,397,895
Cost of software sales		1,421,990			1,378,138
Total cost of revenues		3,387,601			3,776,033

Gross profit		929,781			955,928

Selling, general and administrative expenses		3,240,388			819,193
Acquisition costs		356,159			82,756
Change in fair value of contingent consideration		(942,609	)		-

(Loss) income from operations		(1,724,157	)		53,979

Other income (expense):
Interest expense		(19,818	)		(15,226	)
Other income (expense), net		195			4,404

(Loss) income before provision for income taxes		(1,743,780	)		43,157

Income tax benefit		218,338			-

Net (loss) income	$	(1,525,442	)	$	43,157

Comprehensive (loss) income	$	(1,525,442	)	$	43,157

Net (loss) income per common share - basic	$	(0.09	)	$	-
Net (loss) income per common share - diluted	$	(0.09	)	$	-

Weighted average common shares outstanding
Basic		17,376,697			11,980,397
Diluted		17,376,697			12,665,267

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

WaveDancer, Inc.

Form 10-Q June 30, 2022

WAVEDANCER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE (LOSS) INCOME

(Unaudited)

	Six months ended June 30,
	2022			2021
Revenues
Professional fees	$	4,911,384		$	5,767,533
Software sales		2,401,510			2,384,008
Total revenues		7,312,894			8,151,541

Cost of revenues
Cost of professional fees		3,677,626			3,865,594
Cost of software sales		2,329,422			2,310,369
Total cost of revenues		6,007,048			6,175,963

Gross profit		1,305,846			1,975,578

Selling, general and administrative expenses		5,954,730			1,499,443
Acquisition costs		790,861			153,286
Change in fair value of contingent consideration		(930,000	)		-

(Loss) income from operations		(4,509,745	)		322,849

Other income (expense):
Interest expense		(39,137	)		(16,684	)
Other income (expense), net		789			7,807

(Loss) income before provision for income taxes		(4,548,093	)		313,972

Income tax benefit		944,344			-

Net (loss) income	$	(3,603,749	)	$	313,972

Comprehensive (loss) income	$	(3,603,749	)	$	313,972

Basic (loss)/earnings per share	$	(0.21	)	$	0.03
Diluted (loss)/earnings per share	$	(0.21	)	$	0.03

Weighted average common shares outstanding
Basic		17,335,979			11,633,464
Diluted		17,335,979			12,305,182

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

WaveDancer, Inc.

Form 10-Q June 30, 2022

WAVEDANCER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six months ended June 30,
	2022			2021
Cash flows from operating activities
Net (loss) income	$	(3,603,749	)	$	313,972
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		726,085			55,973
Stock-based compensation		841,741			139,573
Income tax benefit		(944,344	)		-
Amortization of right-of-use assets		90,396			246,215
Non-cash interest expense		39,137			-
Change in fair value of contingent consideration liability		(930,000	)		-
Changes in operating assets and liabilities:
Accounts receivable		(1,918,274	)		(43,819	)
Prepaid expenses and other current assets		(21,189	)		10,997
Contract assets		-			(266,580	)
Accounts payable		896,446			359,906
Contract liabilities		(20,992	)		(841,000	)
Accrued payroll and related liabilities and other accrued liabilities		556,220			80,504
Operating lease liability		(93,932	)		(246,319	)
Commissions payable		25,977			74,448
Net cash used in operating activities		(4,356,478	)		(116,130	)

Cash flows from investing activities
Acquisition of property and equipment		(31,033	)		(22,454	)
Acquisition of Tellenger, net of cash acquired		-			(2,233,884	)
Net cash used in investing activities		(31,033	)		(2,256,338	)

Cash flows from financing activities
Borrowing under revolving line of credit		-			402,306
Short-term borrowing - acquisition		-			150,000
Borrowing under long-term note		-			1,000,000
Repayments of long-term note		-			(83,333	)
Proceeds from issuance of stock		-			494,554
Proceeds from exercise of stock options		35,191			83,545
Net cash provided by financing activities		35,191			2,047,072

Net decrease in cash and cash equivalents		(4,352,320	)		(325,396	)

Cash and cash equivalents, beginning of year		4,931,302			1,858,160
Cash and cash equivalents, end of year	$	578,982		$	1,532,764

Supplemental cash flow Information
Interest paid	$	1,002		$	11,422
Non-cash investing and financing activities
Value of common stock issued in connection with the acquisition of Tellenger	$	-		$	200,000

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

WaveDancer, Inc.

Form 10-Q June 30, 2022

WAVEDANCER, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

	Six months ended June 30, 2022
			Additional
	Common		Paid-In		Accumulated			Treasury
	Stock		Capital		Deficit			Stock			Total
Balances at December 31, 2021	$	18,882	$	31,789,464	$	(13,436,963	)	$	(930,211	)		17,441,172
Net loss		-		-		(2,078,307	)		-			(2,078,307	)
Stock option compensation		-		312,176		-			-			312,176
Issuance of stock from exercise of options		105		26,694		-			-			26,799
Balances at March 31, 2022		18,987		32,128,334		(15,515,270	)		(930,211	)		15,701,840
Net loss		-		-		(1,525,442	)		-			(1,525,442	)
Stock option compensation		-		529,565		-			-			529,565
Issuance of stock from exercise of options		52		8,340		-			-			8,392
Balances at June 30, 2022	$	19,039	$	32,666,239	$	(17,040,712	)	$	(930,211	)	$	14,714,355

	Six months ended June 30, 2021
Balances at December 31, 2020	$	129,043	$	14,720,065	$	(12,305,514	)	$	(930,211	)	$	1,613,383
Net income		-		-		270,815			-			270,815
Stock option compensation		-		27,711		-			-			27,711
Stock issued		3,306		492,693		-			-			495,999
Issuance of stock from exercise of options		250		3,300		-			-			3,550
Balances at March 31, 2021		132,599		15,243,769		(12,034,699	)		(930,211	)		2,411,458
Net income		-		-		43,157			-			43,157
Stock option compensation		-		111,862		-			-			111,862
Stock issued		683		197,872		-			-			198,555
Issuance of stock from exercise of options		3,600		76,395		-			-			79,995
Balances at June 30, 2021	$	136,882	$	15,629,898	$	(11,991,542	)	$	(930,211	)	$	2,845,027

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

WaveDancer, Inc.

Form 10-Q June 30, 2022

WAVEDANCER, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.

Summary of Significant Accounting Policies

Organization and Business

WaveDancer, Inc. (“WaveDancer”), formerly known as Information Analysis Incorporated (“IAI”), is engaged in providing professional services to U.S. government agencies to modernize information technology services, in selling and supporting third-party software, primarily Adobe products, to U.S. government agencies, and, with our December, 2021 acquisition of Gray Matters, Inc. (“GMI” or “Gray Matters”), in providing a blockchain enabled supply chain management software solution. With the acquisition of GMI, we began implementing a strategy to expand our offerings well beyond systems modernization services and sales of third-party software. We manage our business as a single operating unit and in one reportable segment.

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business. The propriety of using the going-concern basis is dependent upon, among other things, the achievement of future profitable operations, the ability to generate sufficient cash from operations and potential other funding sources, in addition to cash on-hand, to meet its obligations as they become due. On June 30, 2022, the Company had working capital of approximately $1.0 million, including cash and cash equivalents of $0.6 million, generated operating losses in 2022 and at June 30, 2022 had an accumulated deficit of $17.0 million. The Company intends to continue to pursue organic growth in revenue and profitability, and, at least in the near term, growth via acquisition. To implement this strategy, we have hired staff and implemented processes that are needed to identify, execute, and integrate acquisitions, and manage the Company post-acquisition. In addition, Gray Matters is an early-stage company that has required investments in sales, marketing, and engineering. While we intend to prioritize acquisition targets that are immediately accretive to operating cash flow, the Company will require additional capital to support its strategy. As discussed in Note 12 below, in August, 2022 the Company sold 1,562,506 unregistered shares of its common stock in a private offering at a price of $1.20 per share from which it raised aggregate gross proceeds of $1,875,000 and on July 8, 2022, the Company entered into a Common Stock Purchase Agreement with B. Riley Principal Capital II, LLC, by which it intends to raise additional capital thhrough an equity line of credit. Management believes that these actions will enable the Company to continue as a going concern through at least 12 months from the date these unaudited condensed consolidated financial statements are available to be issued.

Unaudited Interim Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements (“financial statements”) have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial statements include all adjustments necessary (which are of a normal and recurring nature) for the fair and not misleading presentation of the results of the interim periods presented. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2021 included in the Annual Report on Form 10-K filed by the Company with the SEC on April 12, 2022 (the “Annual Report”), as amended. The accompanying December 31, 2021, balance sheet was derived from the audited financial statements included in the Annual Report. The results of operations for any interim periods are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.

The condensed consolidated financial statements as of June 30, 2022, and for the six-month period ended June 30, 2022 include the accounts of WaveDancer and its consolidated subsidiaries (collectively, the “Company”, “we” or “our”). All significant intercompany transactions and balances have been eliminated in consolidation.

There have been no changes in the Company’s significant accounting policies as of June 30, 2022, as compared to the significant accounting policies disclosed in Note 1, "Summary of Significant Accounting Policies" in the Company's Annual Report.

Use of Estimates

Preparation of condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates due to uncertainties, including the effects of COVID-19. On an ongoing basis, we evaluate our estimates, including those related to the allowance for credit losses; fair values of financial instruments, intangible assets, and goodwill; useful lives of intangible assets and property and equipment; the valuation of stock-based compensation, the valuation of deferred tax assets and liabilities; and contingent liabilities, among others. We base our estimates on assumptions, both historical and forward looking, that are believed to be reasonable, and the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Reclassification

Beginning with the three months ended March 31, 2022, our condensed consolidated statement of cash flows presents separately the amortization of the right-of-use operating lease asset as a non-cash adjustment from net income and the change in the operating lease liability due to cash payments as a change in operating assets and liabilities. Previously, the net of these amounts was reported as a change in operating assets and liabilities. Amounts on the condensed consolidated statement of cash flows for the six months ended June 30, 2021, have been reclassified to conform to the current year presentation.

WaveDancer, Inc.

Form 10-Q June 30, 2022

Income Taxes

Deferred tax assets and liabilities are computed based on the difference between the financial statement and tax basis of assets and liabilities and are measured by applying enacted tax rates and laws for the taxable years in which those differences are expected to reverse. In addition, a valuation allowance is required to be recognized if it is believed more likely than not that a deferred tax asset will not be fully realized. Authoritative guidance prescribes a recognition threshold of more likely than not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those positions to be recognized in the financial statements. The Company has analyzed its income tax positions using the criteria required by GAAP and concluded that as of June 30, 2022, and December 31, 2021, it has no material uncertain tax positions and no interest or penalties have been accrued.

Concentration of Credit Risk

During the three months ended June 30, 2022, the Company’s prime contracts with U.S. government agencies represented 43.3% of revenue, subcontracts under federal procurements represented 52.7% of revenue and 81.3% of gross profit, and 4.0% of revenue came from commercial and local government contracts. The terms of these contracts and subcontracts vary from single transactions to five years. Two prime contracts with U.S. government agencies represented 24.8% and 13.1% of revenue, respectively, and two subcontracts under federal procurements represented 22.3%, and 12.2% of revenue, respectively. Revenue from one prime contractor under which the Company has multiple subcontracts represented 29.8% of the Company’s revenue and 50.5% of the Company’s gross profit in aggregate.

During the three months ended June 30, 2021, the Company’s prime contracts with U.S. government agencies represented 27.0% of revenue, subcontracts under federal procurements represented 69.0% of revenue and 95.0% of gross profit, and 4.0% of revenue came from commercial and local government contracts. The terms of these contracts and subcontracts vary from single transactions to five years. Within this group of prime contracts with U.S. government agencies, one software sales contract generated 19.1% of the Company’s revenue. Two subcontracts under federal procurements generated 28.8% and 10.5% of the Company’s revenue, respectively, and all subcontracts under one of those prime contractors collectively generated 37.0% of the Company’s revenue and 70.0% of its gross profit.

During the six months ended June 30, 2022, the Company’s prime contracts with U.S. government agencies represented 39.6% of revenue, subcontracts under federal procurements represented 57.8% of revenue, and 2.6% of revenue came from commercial and local government contracts. Two prime contracts with U.S. government agencies represented 14.6% and 11.4% of revenue, respectively, and two subcontracts under federal procurements represented 24.2%, and 13.8% of revenue, respectively. Revenue from one prime contractor under which the Company has multiple subcontracts represented 33.1% of the Company’s revenue and 65.8% of the Company’s gross profit in aggregate.

During the six months ended June 30, 2021, the Company’s prime contracts with U.S. government agencies represented 32.9% of revenue, subcontracts under federal procurements represented 64.2% of revenue, and 2.9% of revenue came from commercial and local government contracts. One prime contract with a U.S. government agency represented 11.1% of revenue and one subcontract under a federal procurement represented 33.4% of revenue. Revenue from one prime contractor under which the Company has multiple subcontracts represented 42.2% of the Company’s revenue and 66.5% of the Company’s gross profit in aggregate.

The Company sold third-party software and maintenance contracts under agreements with one major supplier, accounting for 34.1% and 79.9% of total revenue during the three months ended June 30, 2022 and 2021, respectively, and 32.6% and 28.7% of total revenue during the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, the Company’s accounts receivable included receivables from two prime contracts with U.S. government agencies 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. Receivables from one prime contractor under which the Company has multiple subcontracts represented 32.8% of the Company’s outstanding accounts receivable in aggregate.

As of June 30, 2021, the Company’s accounts receivable balances related to two subcontracts under federal procurements represented 17.2% and 13.0% of the Company’s outstanding accounts receivable, respectively, and additional receivables from one prime contractor under which the Company has multiple subcontracts represented 52.7% of the Company’s outstanding accounts receivable in aggregate.

WaveDancer, Inc.

Form 10-Q June 30, 2022

COVID-19 Update

While we have not experienced a significant adverse impact on our business from the pandemic as of June 30, 2022, the extent to which it will impact our business and operations will depend on future developments that are uncertain. We continue to monitor the impact of the COVID-19 pandemic on our customers, partners, employees and service providers.

Note 2.

Revenue from Contracts with Customers

Nature of Products and Services

We generate revenue from the sales of information technology professional services, sales of third-party software licenses and implementation and training services, sales of third-party support and maintenance contracts based on those software products, and incentive payments received from third-party software suppliers for facilitating sales directly between that supplier and a customer introduced by the Company. In addition, with the GMI acquisition, we expanded our offerings to include licensing and implementation services for proprietary blockchain-based SCM software. We sell through our direct relationships with end customers and under subcontractor arrangements.

Professional services are offered through several arrangements – through time and materials arrangements, fixed-price-per-unit arrangements, fixed-price arrangements, or combinations of these arrangements within individual contracts. Revenue under time and materials arrangements is recognized over time in the period the hours are worked or the expenses are incurred, as control of the benefits of the work is deemed to have passed to the customer as the work is performed. Revenue under fixed-price-per-unit arrangements is recognized at a point in time when delivery of units has occurred and units are accepted by the customer or are reasonably expected to be accepted. Generally, revenue under fixed-price arrangements and mixed arrangements is recognized either over time or at a point in time based on the allocation of transaction pricing to each identified performance obligation as control of each is transferred to the customer. For fixed-price arrangements under which documentary evidence of acceptance or receipt of deliverables is not present or withheld by the customer, the Company recognizes revenue when it has the right to invoice the customer. For fixed-price arrangements for which the Company is paid a fixed fee to make itself available to support a customer, with no predetermined deliverables to which transaction prices can be estimated or allocated, revenue is recognized ratably over time.

Third-party software licenses are classified as enterprise server-based software licenses or desktop software licenses, and desktop licenses are further classified by the type of customer and whether the licenses are bulk licenses or individual licenses. The Company’s obligations as the seller for each class differ based on its reseller agreements and whether its customers are government or non-government customers. Revenue from enterprise server-based sales to either government or non-government customers is usually recognized in full at a point in time based on when the customer gains use of the full benefit of the licenses, after the licenses are implemented. If the transaction prices of the performance obligations related to implementation and customer support for the individual contract is material, these obligations are recognized separately over time, as performed. Revenue for desktop software licenses for government customers is usually recognized on a gross basis at a point in time, based on when the customer’s administrative contact gains training in and beneficial use of the administrative portal. Revenue for bulk desktop software licenses for non-government customers is usually recognized on a gross basis at a point in time, based on when the customer’s administrative contact gains training in and beneficial use of the administrative portal. For desktop software licenses sold on an individual license basis to non-government customers, where the Company has no obligation to the customer after the third-party makes delivery of the licenses, the Company has determined it is acting as an agent, and the Company recognizes revenue upon delivery of the licenses only for the net of the selling price and its contract costs.

Third-party support and maintenance contracts for enterprise server-based software include a performance obligation under the Company’s reseller agreements for it to be the first line of support (direct support) and second line of support (intermediary between customer and manufacturer) to the customer. Because of the support performance obligations, and because the amount of support is not estimable, the Company recognizes revenue ratably over time as it makes itself available to provide the support.

Incentive payments are received under reseller agreements with software manufacturers and suppliers where the Company introduces and courts a customer, but the sale occurs directly between the customer and the supplier or between the customer and the manufacturer. Since the transfer of control of the licenses cannot be measured from outside of these transactions, revenue is recognized when payment from the manufacturer or supplier is received.

WaveDancer, Inc.

Form 10-Q June 30, 2022

Disaggregation of Revenue from Contracts with Customers

	Three months ended June 30,
	2022					2021
Contract Type	Amount		Percentage			Amount		Percentage
Services time & materials	$	2,153,537		49.9	%	$	2,847,962		60.2	%
Services fixed price over time		51,154		1.2	%		416,751		8.8	%
Firm fixed price		566,862		13.1	%		-		-
Services combination		21,080		0.5	%		49,401		1.1	%
Services fixed price per unit		52,061		1.2	%		14,160		0.3	%
Third-party software		1,423,770		33.0	%		1,317,514		27.8	%
Software support & maintenance		48,918		1.1	%		85,336		1.8	%
Incentive payments		-		0.0	%		837		0.0	%
Total revenue	$	4,317,382		100.0	%	$	4,731,961		100.0	%

	Six months ended June 30,
	2022					2021
Contract Type	Amount		Percentage			Amount		Percentage
Services time & materials	$	4,066,533		55.6	%	$	4,814,091		59.1	%
Services fixed price over time		102,308		1.4	%		433,551		5.3	%
Firm fixed price		566,862		7.8	%		-		-
Services combination		30,080

SEC Form 10-Q filed by WaveDancer Inc.