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WaveDancer’s audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2023, as contained in the Form 10-K filed on March 20, 2024 with the U.S. Securities and Exchange Commission (SEC).

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WaveDancer’s unaudited condensed consolidated financial statements and accompanying notes as of and for the three months ended March 31, 2024 as contained in its Quarterly Report on Form 10-Q filed on May 14, 2024 with the SEC.

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Firefly’s audited financial statement as of and for the years ended December 31, 2023.

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Firefly’s unaudited consolidated financial statements as of and for the three months ended March 31, 2024.

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The other information contained in or incorporated by reference into this filing.

a)

Represents receipt of $1.5 million of cash consideration to be received for the Tellenger Sale Transaction.

b)

Tellenger’s assets and liabilities, except cash, will be transferred to Wavetop as part of the Tellenger Sale Transaction. The adjustments presented are made to remove the balances that are recorded on the Tellenger's accounting records and/or are directly related to the Tellenger operation and would be included in the Tellenger Sale Transaction.

c)

The Tellenger Sale Transaction results in a net loss which is recorded to accumulated deficit. The loss on sale is estimated as follows:

d)

The adjustment to cash represents the settlement of WaveDancer’s outstanding liabilities as of the effective date of the Merger. The adjustment excludes payments for fees and expenses related to the Merger such as legal and professional fees and severance costs. The adjustment is estimated as follows:

e)

Reflects the payment of WaveDancer liabilities that, under the terms of the Merger Agreement, are to be settled for cash on or prior to the closing of the Merger. The settlement of liabilities is reflected in adjustment (d).

f)

WaveDancer has two office leases accounted for under ASC 842: Annapolis, MD and Fairfax, VA. The Fairfax lease amounts are included in the Tellenger sale adjustment amounts. The Annapolis lease will remain in force after the Merger. The remaining lease term is less than one year from the assumed Merger date. This adjustment removes the right of use asset and related operating lease liability amounting to $50,154 and $78,778, respectively. The security deposit amounting to $12,713 for the Annapolis office is assumed to be carried over to Firefly.

g)

Represents full valuation allowance of deferred tax assets amounting to $231,021 of the Company after giving effect to the sale of Tellenger and the Merger.

h)

Reflects the repayment of the revolving line of credit balance at the closing of the Merger. The repayment is reflected in adjustment (d).

i)

Reflects elimination of the share capital, treasury stock and accumulated deficit of WaveDancer in connection with the reverse capitalization accounting and to reflect the recording on the common shares issued to Firefly stockholders.

j)

Represents the net assets to be conveyed from WaveDancer to Firefly and recorded as additional paid- in capital on the Company’s balance sheet.

k)

Represents the issuance of $3,500,000 in preferred stock referred to as Series A preferred stock. The Series A preferred stock are convertible to common stock any time by holder at $2.00 per share or if closing price less than the conversion price, the greater of the agreed floor price or 85% Volume Weighted Average Price of the common stock on the date immediately preceding the conversion date. Management has also issued 0.55 common stock purchase warrants for every Series A preferred stock issued. The exercise price of common stock purchase warrants is $2.50. Under ASC 480, Distinguishing Liabilities from Equity, management has assessed that the Series A preferred stock and the common stock purchase warrants are classified as equity.

l)

Concurrently with the Merger, the Company will issue 180,469 common shares for consulting services to be received by the Company in the future. 82,118 of such common shares amounting to $184,766 at a fair value of $2.25 vest immediately. The pro forma financial information reflects the adjustment as the transaction is directly attributable to the Merger. Management has recognized an impairment on the prepaid services amounting to $105,188.

m)

Represents issuance of common shares amounting to $750,000 at Merger close in exchange for $250,000 worth of annual software development services for each of three consecutive calendar years following the Merger. Management estimates to issue approximately 333,334 common shares based on current estimated valuation of $2.25 per share.

n)

Represents issuance of common shares amounting to $1,000,000 at Merger close in exchange $333,333 worth of annual financial administration and capital markets consulting services for each of three consecutive calendar years following the Merger. Management estimates to issue approximately 444,444 common shares based on current estimated valuation of $2.25 per share.

o)

Reflects an adjustment of $400,000 in anticipated transaction cost for both WaveDancer and Firefly relating to the Merger such as adviser fees, legal and accounting expenses that were not incurred as of March 31, 2024.

p)

Concurrently with the Merger, the Company will issue approximately 61,320 common shares of the Company with an estimated fair value of $2.25 per share in settlement of payable to the employees and a related party of the Company amounting to $112,408. The pro forma financial information reflects the adjustment as the transaction is directly attributable to the Merger. Difference in the fair value of shares issued and debt settled is accounted as additional paid in capital and accumulated losses amounting to $2,442 for a related party and employees, respectively.

q)

Concurrently with the Merger, the Company will modify the exercise price of options issued an officer of the Company to $0.01 per share against full settlement of debt payable to the officer amounting to $45,000. The pro forma financial information reflects the adjustment as the transaction is directly attributable to the Merger. The difference between the debt settled and impact of modification of the option is accounted as additional paid in capital as the officer is a related party of the Company.

r)

Relates to restricted share units issued to two officers of Firefly under the Company’s restricted share units plan amounting to $400,000. The restricted share units vest on the effective date of the Merger. The vesting of the restricted share units is expected to result in the issuance of 177,778 common shares of the Company.

s)

Relates to 152,332 options issued to two officers of the Company. The options vest on the effective date of the Merger and the total fair value of the options is estimated at $341,834 based on the Black- Scholes model. Key assumptions include the share price of $2.25, risk free rate of 4.35%, 0% dividend yield, expected volatility of 270%, and expected life of 5 years.

t)

Represents issuance of common shares amounting to $225,000 at Merger close in exchange for $75,000 worth of annual business development & consulting services for each of three consecutive calendar years following the Merger. Management estimates to issue approximately 100,000 common shares based on current estimated valuation of $2.25 per share.

u)

Represents issuance of common shares amounting to $950,000 at Merger close in exchange for $316,667 worth of annual business development & consulting services for each of three consecutive calendar years following the Merger. Management estimates to issue approximately 422,222 common shares based on current estimated valuation of $2.25 per share.

a)

Reflects reversal of WaveDancer's corporate net expenses incurred during the three months ended March 31, 2024 amounting to $1,018,183 that would not be incurred from the Merger date.

b)

Reflects reversal of transactions related to Tellenger that will be transferred to Wavetop as part of the Tellenger Sale Transaction amounting to a net income of $344,233.

c)

Relates to 97,524 options issued by the Company in prior period that vest upon a liquidity event such as the Merger, resulting in $218,857 of expense. The pro forma financial information reflects the adjustment as the transaction is directly attributable to the Merger. The fair value of the options is estimated based on the Black-Scholes option-pricing model. Key assumptions include the share price of $2.25, risk free rate of 4.35%, 0% dividend yield, expected volatility of 270%, and expected life of 5 years.

a)

Reflects an adjustment of $400,000 in anticipated transaction cost for both WaveDancer and Firefly relating to the Merger such as adviser fees, legal and accounting expenses.

b)

Reflects reversal of WaveDancer's corporate net expenses incurred during the year ended December 31, 2023 amounting to $2,792,403 that would not be incurred from the Merger date. These costs include reversal of gain on litigation settlement, sale of equity investment and settlement of contingent consideration receivable, the equity in the net loss of affiliate, and other income.

c)

Reflects reversal of transactions related to Tellenger that will be transferred to Wavetop as part of the Tellenger Sale Transaction amounting to a net income of $757,968.

d)

Relates to restricted share units issued to two officers of Firefly under the Company’s restricted share units plan amounting to $400,000. The restricted share units vest on the effective date of the Merger. The vesting of the restricted share units is expected to result in the issuance of 177,778 common shares of the Company.

e)

Relates to 347,373 options issued by the Company in prior period that vests upon a liquidity event such as the Merger, resulting in $779,548 of expense. The fair value of the options is estimated based on the Black-Scholes option-pricing model. Key assumptions include the share price of $2.25, risk free rate of 4.35%, 0% dividend yield, expected volatility of 270%, and expected life of 5 years.

f)

Concurrently with the Merger, the Company will issue approximately 45,829 common shares of the Company with an estimated fair value of $2.25 per share in settlement of payable to the employees amounting to $105,556. Difference in the fair value of shares of issued to employees and the debt settled is accounted as expense. The pro forma financial information reflects the adjustment as the transaction is directly attributable to the Merger.

g)

Relates to recognition of impairment on the prepaid services amounting to $326,906 calculated as the excess of the fair value of 180,660 shares issued for services to be received in the future over the value of the agreed service of $ 79,578. Fair value of each share is assumed to be $2.25.