WaveDancer (NASDAQ: WAVD), reported its results for the second quarter ended June 30, 2022, which was characterized by continued investment in its software development team and strategic efforts focused on maintaining and growing profitability in the Company’s professional services work. The Company recognized significant revenues after achieving substantial project milestones on their key United States government contract to bring a blockchain-enabled supply chain and logistics platform into full production.

WaveDancer CEO Jamie Benoit commented, “The various investments we have made in WaveDancer are helping establish a strong foundation for growth. Our revenue has increased 44% from first quarter levels, while our gross profit has increased by 147%, in part due to the significant revenue recognized by our United States Government contracts. As we drive aggressively toward Authority to Operate our supply chain platform with our government customer, we are simultaneously readying our Maverix product for the broader commercial markets.”

Mr. Benoit continued, “Our focus on higher margin professional service opportunities, which resulted in our second quarter gross margin expanding to 30.9%, will continue in following quarters and establish a strong foundation upon which we can continue with our long-term strategic transformation into a leading technology company. I am optimistic, based on the strong interest we are hearing from customers, that our blockchain offering meets a large demand in the marketplace and am likewise optimistic about acquisition opportunities that will be immediately accretive.”

WaveDancer CFO Tim Hannon added, “The increase in expenses this quarter, in comparison to last year, was driven in part by one-time professional fees and other costs to conduct due diligence related to our intended acquisition of Knowmadics. The dramatic change in market sentiment during the first half of 2022 that made closing the transaction impossible was unfortunate, but ultimately in the best interests of our shareholders. Our strategic focus on profitability and investment in product development will ultimately allow us to emerge stronger and better positioned for the massive growth we expect in the blockchain and zero trust sector.”

Second Quarter 2022 Key Financial Items (all comparisons to prior year period unless otherwise noted)

  • Total revenues decreased 8.8% to $4.3 million, compared with $4.7 million.
  • Professional fees decreased 14.5% to $2.8 million down from $3.3 million.
  • Gross profit decreased slightly to $0.93 million, compared with $0.96 million.
  • Gross margin expanded to 30.9%; higher-margin professional fees accounted for 65.9% of revenues.
  • Net loss of $(1.5) million, compared with net income of $0.04 million.
  • Adjusted EBITDA1 of ($1.4) million, compared with $0.6 million

Six Months 2022 Key Financial Items (all comparisons to prior year period unless otherwise noted)

  • Total revenues decreased to $7.3 million, compared with $8.2 million.
  • Professional fees decreased to $4.9 million down from $5.8 million
  • Gross margin improved significantly, increasing to 25.1%, compared with 24.2%; higher-margin professional fees accounted for 67.2% of revenues.
  • Net loss of ($3.6) million, compared with a net income of $0.3 million
  • Adjusted EBITDA of ($3.0) million, compared with $0.05 million.

About WaveDancerWaveDancer (www.wavedancer.com), headquartered in Fairfax, Virginia, is a provider of zero trust software solutions, specializing in secure blockchain supply chain management (SCM), asset tracking and security. Our technologies are deployed and being used to help organizations manage very complex supply chain challenges. Initially developed to secure a complex international supply chain for a global U.S. Government (USG) national security organization, the technology has matured to address multiple operational capabilities. Customers are using the WaveDancer platform to gain unprecedented levels of accountability, auditability, and predictability from their data, while giving insights to their partners and suppliers through a controlled, distributed ledger that is immutable and can be trusted by all parties. The sophisticated blockchain technology is now available to the entirety of the USG through GovCloud.

Additional information for investors This release may contain forward-looking statements regarding the Company's business, customer prospects, or other factors that may affect future earnings or financial results. Such statements involve risks and uncertainties which could cause actual results to vary materially from those expressed in the forward-looking statements. Investors should read and understand the risk factors detailed in the Company's 10-K for the fiscal year ended December 31, 2021 and in other filings with the Securities and Exchange Commission.

For additional information contact:Jeremy Hellman, CFAVice PresidentThe Equity Group(212) 836-9626jhellman@equityny.com

1 Please see non-GAAP reconciliation on page 6

WAVEDANCER, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOMEUnaudited

    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    
                 
Basic (loss)/earnings per share   $ (0.09 )     $ -    
Diluted (loss)/earnings per share   $ (0.09 )     $ -    
                 
Weighted average common shares outstanding                
Basic     17,376,697         11,980,397    
Diluted     17,376,697         12,665,267    

WAVEDANCER, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOMEUnaudited

    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    

WAVEDANCER, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS

    UnauditedJune 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 at $0.001 and $0.01 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 ofJune 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    

Non-GAAP Financial MeasuresIn assessing the performance of our business, management utilizes a variety of financial and performance measures. The key measure is Adjusted EBITDA, a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss) plus depreciation and amortization expense, net interest expense (income), and taxes, as further adjusted to eliminate the impact of, when applicable, expenses that are unusual or non-recurring that we believe do not reflect our core operating results. and non-cash stock-based compensation. We believe that Adjusted EBITDA is meaningful to our investors to enhance their understanding of our financial performance for the current period and our ability to generate cash flows from operations that are available for taxes, capital expenditures and debt service. We understand that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties as a measure of financial performance and to compare our performance with the performance of other companies that report Adjusted EBITDA. Our calculation of Adjusted EBITDA, however, may not be comparable to similarly titled measures reported by other companies. When assessing our operating performance, investors and others should not consider this data in isolation or as a substitute for net income (loss) calculated in accordance with GAAP. Further, the results presented by Adjusted EBITDA cannot be achieved without incurring the costs that the measure excludes. A reconciliation of net income (loss) to Adjusted EBITDA, the most comparable GAAP measure, is provided below.

Reconciliation of Net (loss) income to Adjusted EBITDA (Unaudited)        
  Three months ended Six months ended
(in thousands) June 30, June 30,
    2022       2021     2022       2021
Net (loss) income $ (1,525 )   $ 314   $ (3,604 )   $ 43
Adjustments:              
Interest expense (income), net   20       11     38       9
Income taxes   (218 )     -     (944 )     -
Depreciation   13       7     26       12
Amortization   350       -     700       44
EBITDA   (1,360 )     332     (3,784 )     108
Non-cash stock-based compensation   530       112     842       140
Acquisition Costs   356       71     791       153
Change in FV of earnout   (943 )     -     (930 )     -
Post-employment agreement   -       36     -       71
Moving expense   -       8     -       8
               
Adjusted EBITDA $ (1,417 )   $ 559   $ (3,081 )   $ 480
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