wavd20240930d

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2024

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

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.R.S. Employer Identification No.)

1100 Military Road, Kenmore, NY 14217

(Address of principal executive offices) (Zip code)

(888) 237-6412

(Registrant’s telephone number, including area code)

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001 per share		AIFF		Nasdaq Capital Market

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, 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

As of November 12, 2024, the registrant had 8,503,365 shares of common stock outstanding.

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EXPLANATORY NOTE

This is the Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 (the “Form 10-Q”), of Firefly Neuroscience, Inc. (“Firefly” or the “Company”), which was formerly known as WaveDancer, Inc. (“WaveDancer”) prior to the consummation of the Merger (as defined below) on August 12, 2024, as described below. Unless otherwise stated or the context otherwise requires, the terms “Firefly,” “we,” “us,” “our,” and the “Company” refer to Firefly Neuroscience, Inc. and its subsidiaries following the consummation of the Merger, references to “WaveDancer” refer to WaveDancer, Inc. prior to the consummation of the Merger, and references to “Private Firefly” refer to Firefly Neuroscience 2023, Inc. and its subsidiaries prior to the consummation of the Merger (formerly “Firefly Neuroscience, Inc.”).

On November 15, 2023, WaveDancer and its wholly owned subsidiary, FFN Merger Sub, Inc. (“FFN”), entered into an Agreement and Plan of Merger (as amended by that certain Amendment No. 1, dated as of January 12, 2024, and that certain Amendment No. 2, dated as of June 17, 2024, “Merger Agreement”) with Firefly Neuroscience, Inc. (“Private Firefly”). In accordance with the Merger Agreement, FFN merged with and into Private Firefly, with Private Firefly surviving as a wholly owned subsidiary of WaveDancer. On August 12, 2024, (i) pursuant to the Amended and Restated Certificate of Incorporation of WaveDancer, Inc., WaveDancer changed its name to Firefly Neuroscience, Inc., and (ii) pursuant to an amendment to its Certificate of Incorporation Firefly, Private Firefly changed its name to Firefly Neuroscience 2023, Inc. and (iii) Private Firefly and FFN filed the Certificate of Merger with the State of Delaware (the “Merger”). On August 12, 2024, the Merger closed (the “Closing” and such date, the “Closing Date”).

At the effective time of the Merger, each holder of outstanding shares of Private Firefly’s common stock, par value $0.00001 per share (the “Private Firefly Common Stock”) received the number of shares of common stock, par value $0.0001 per share, of the Company (the “New Firefly Common Stock”) equal to the number of shares of Private Firefly Common Stock such stockholders held multiplied by the exchange ratio (the “Exchange Ratio”) of 0.1040. Additionally, upon at the effective time of the Merger: (i) each outstanding option to purchase Private Firefly Common Stock that was not exercised prior to the Closing was assumed by the Company subject to certain terms contained in the Merger Agreement and became an option to purchase shares of New Firefly Common Stock, subject to adjustment to give effect to the Exchange Ratio, (ii) each outstanding Private Firefly restricted share unit outstanding immediately prior to the Closing vested pursuant to the terms thereof, and (iii) each outstanding warrant to purchase shares of Private Firefly Common Stock that was not exercised prior to the Closing was assumed by the Company, subject to certain terms contained in the Merger Agreement.

Immediately prior to the Closing of the Merger, effective as of 12:01 p.m. (New York time) on August 12, 2024, WaveDancer effected a reverse stock split of all of the then issued and outstanding shares of New Firefly Common Stock at a ratio of 1-for-3 (“Merger Reverse Stock Split”). As a result of the Merger Reverse Stock Split, every three (3) shares of the then issued and outstanding New Firefly Common Stock were automatically combined into one (1) issued and outstanding share of New Firefly Common Stock, without any change in the par value per share or the number of authorized shares of common stock.

Unless noted otherwise, all post-Merger share and per-share information presented in this Quarterly Report on Form 10-Q reflects the Merger Reverse Stock Split, however, certain of documents and information filed herewith or incorporated by reference into this Quarterly Report on Form 10-Q, do not give effect to the Merger Reverse Stock Split.

See Note 1 of the Unaudited Condensed Consolidated Financial Statements for additional information.

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FIREFLY NEUROSCIENCE, INC.

TABLE OF CONTENTS

	PART I. FINANCIAL INFORMATION	Page Number
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2024 and 2023 (Unaudited)	4
	Condensed Consolidated Statements of Equity (Deficit) for the Three and Nine Months Ended September 30, 2024 and 2023 (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	58
Item 4.	Mine Safety Disclosures	58
Item 5.	Other Information	58
Item 6.	Exhibits
	Signatures

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FIREFLY NEUROSCIENCE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2024 AND DECEMBER 31, 2023

(IN THOUSANDS, EXCEPT SHARE DATA)

	September 30,			December 31,
	2024			2023
	(Unaudited)
ASSETS
Current assets
Cash	$	1,230		$	2,143
Other receivables		86			84
Prepaid expenses		1,349			28
Total current assets		2,665			2,255
Non current assets
Prepaid expenses		1,465			-
Equipment, net		72			-
Intangible assets, net		1,109			386
Total non current assets		2,646			386
TOTAL ASSETS	$	5,311		$	2,641

LIABILITIES
Current liabilities
Trade payables	$	1,382		$	630
Accrued liabilities		1,153			1,902
Total current liabilities		2,535			2,532
TOTAL LIABILITIES		2,535			2,532

COMMITMENTS AND CONTINGENCIES (Note 9)

SHAREHOLDERS’ EQUITY (DEFICIT)
Preferred shares, $0.0001 par value: 1,000,000 stock authorized - 2024; 3,120,000 stock authorized - 2023; nil and 1,676,165 issued and outstanding at September 30, 2024 and December 31, 2023, respectively		-			-
Common shares, $0.0001 par value: 100,000,000 stock authorized; 8,476,202 and 3,678,550 issued and outstanding at September 30, 2024 and December 31, 2023, respectively		1			-
Additional Paid-in Capital		86,074			76,733
Accumulated deficit		(83,299	)		(76,624	)
TOTAL SHAREHOLDERS’ EQUITY		2,776			109
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,311		$	2,641

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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FIREFLY NEUROSCIENCE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

	Three months ended						Nine months ended
	September 30,						September 30,
	2024			2023			2024			2023

REVENUE	$	33		$	23		$	55		$	479

OPERATING EXPENSES:
Research and development expenses		878			392			1,517			712
Selling and marketing expenses		431			95			973			399
General and administration expenses		2,992			183			4,183			879
TOTAL OPERATING EXPENSES		4,301			670			6,673			1,990

OPERATING LOSS		(4,268	)		(647	)		(6,618	)		(1,511	)

OTHER INCOME (EXPENSE)
Interest and bank fees		(24	)		(3	)		(36	)		(13	)
Unrealized gain (loss) on foreign exchange		(2	)		-			1			-
Other (expense), net		5			-			(22	)		(2	)
LOSS BEFORE INCOME TAX		(4,289	)		(650	)		(6,675	)		(1,526	)

Income tax provision		-			-			-			-

NET LOSS AND COMPREHENSIVE LOSS	$	(4,289	)	$	(650	)	$	(6,675	)	$	(1,526	)

BASIC AND DILUTED LOSS PER SHARE	$	(0.61	)	$	(0.18	)	$	(1.15	)	$	(0.49	)

WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING, BASIC AND DILUTED		7,080,897			3,678,906			5,828,054			3,083,214

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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FIREFLY NEUROSCIENCE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

SEPTEMBER 30, 2024 AND 2023

(IN THOUSANDS, EXCEPT SHARE DATA)

	Preferred stock								Common stock
	Number of shares			Number of shares to be issued			Amount		Number of shares		Number of shares to be issued			Amount		Additional paid-in capital			Accumulated deficit			Total Shareholder’s equity (deficit)

BALANCE AT DECEMBER 31, 2023		1,676,165			(1,516,199	)	$	-		3,678,550		1,516,199		$	-	$	76,733		$	(76,624	)	$	109
Series B Preferred Stock conversion		(1,516,199	)		1,516,199			-		1,516,199		(1,516,199	)		-		-			-			-
Series C Preferred Stock Units offering		86,953			-			-		-		-			-		945			-			945
Share exchange: former shareholders of WaveDancer		-			-			-		802,142		-			1		(205	)					(205	)
Series C Preferred Stock Conversion		(246,919	)		-			-		596,145		-			-		-			-			-
Private Placement Net of Issuance Costs		-			-			-		319,207		-			-		3,448			-			3,448
Shares Issued for Debt		-			-			-		10,588		-			-		39			-			39
Shares Issued for Future Settlement of Debt		-			-			-		45,344		-			-		-			-			-
Shares Issues for Consulting Services		-			-			-		22,344		-			-		209			-			209
Shares Issued for Prepaid Services		-			-			-		433,360		-			-		2,440			-			2,440
Shares Issued – Stock Options, Warrants and RSU Exercises		-			-			-		494,438		-			-		32			-			32
Share-based compensation expense		-			-			-		-		-			-		2,433			-			2,433
Unvested shares issued to directors		-			-			-		557,885		-			-		-			-			-
Net loss		-			-			-		-		-			-		-			(6,675	)		(6,675	)
BALANCE AT SEPTEMBER 30, 2024		-			-		$	-		8,476,202		-		$	1		86,074		$	(83,299	)	$	2,776


BALANCE AT DECEMBER 31, 2022		-			-		$	-		265,485		-		$	-	$	71,795		$	(74,021	)	$	(2,226	)
Common Stock Private Placement		-			-			-		3,383,784		-					133						133
Series B Preferred Stock offering		-			1,251,706			-		-		-			-		2,214			-			2,214
Units Offering		-			12,187			-		-		-			-		150			-			150
Share-based compensation expense		-			-			-		29,636		-			-		227			-			227
Net loss		-			-			-		-		-			-		-			(1,526	)		(1,526	)
BALANCE AT SEPTEMBER 30, 2023		-			1,263,893		$	-		295,121		3,383,784		$	-	$	74,519		$	(75,547	)	$	(1,028	)

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	Preferred stock							Common stock
	Number of shares			Number of shares to be issued		Amount		Number of shares		Number of shares to be issued		Amount		Additional paid-in capital			Accumulated deficit			Total Shareholder’s equity (deficit)

BALANCE AT JUNE 30, 2024		246,919			-	$	-		5,194,749		-	$	-	$	77,795		$	(79,010	)	$	(1,215)
Share Exchange: former shareholders of WaveDancer		-			-		-		802,142		-		1		(205	)					(205	)
Series C Preferred Stock Conversion		(246,919	)		-		-		596,145		-		-		-			-			-
Private Placement Net of Issuance Costs		-			-		-		319,207		-		-		3,448			-			3,448
Shares Issued for Debt		-			-		-		10,588		-		-		39			-			39
Shares Issued for Future Settlement of Debt		-			-		-		45,344		-		-		-			-			-
Shares Issues for Consulting Services		-			-		-		22,344		-		-		209			-			209
Shares Issued for Prepaid Services		-			-		-		433,360		-		-		2,440			-			2,440
Shares Issued – Stock Options, Warrants and RSU Exercises		-			-		-		494,438		-		-		32			-			32
Share-based compensation expense		-			-		-		-		-		-		2,316			-			2,316
Unvested shares issued to directors									557,885
Net loss		-			-		-		-		-		-		-			(4,289	)		(4,289	)
BALANCE AT SEPTEMBER 30, 2024		-			-	$	-		8,476,202		-	$	1		86,074		$	(83,299	)	$	2,776


BALANCE AT JUNE 30, 2023		-			613,385	$	-		295,121		3,383,784	$	-	$	73,168		$	(74,897	)	$	(1,729	)
Series B Preferred Stock offering		-			638,321		-		-		-		-		1,122			-			1,122
Series C Preferred Stock Units offering		-			12,187		-		-		-		-		150			-			150
Share-based compensation expense		-			-		-		-		-		-		79			-			79
Net loss		-			-		-		-		-		-		-			(650	)		(650	)
BALANCE AT SEPTEMBER 30, 2023		-			1,263,893	$	-		295,121		3,383,784	$	-	$	74,519		$	(75,547	)	$	(1,028	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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FIREFLY NEUROSCIENCE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

(IN THOUSANDS)

	Nine months ended September 30,
	2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(6,675	)	$	(1,526	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation		8			-
Share-based compensation expense		2,433			227
Shares and Warrants Issued for consulting services		209			-
Changes in operating assets and liabilities:
Change in other receivables		(139	)		(23	)
Change in prepaid expenses		(533	)		(6	)
Change in trade payables		574			12
Change in accrued liabilities		(814	)		104
Change in deferred revenue		-			(450	)
Net cash used in operating activities		(4,937	)		(1,662	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment		(68	)		-
Product enhancement – intangible asset		(408	)		-
Proceeds from recapitalization transaction		75			-
Net cash used in investing activities		(401	)		-

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of shares, net of issuance costs		945			2,497
Proceeds from exercise of warrants		32			-
Proceeds from private placement, net of issuance costs		3,448			-
Net cash provided by financing activities		4,425			2,497
(DECREASE) INCREASE IN CASH		(913	)		835
BALANCE OF CASH AT THE BEGINNING OF PERIOD		2,143			58
BALANCE OF CASH AT THE END OF PERIOD	$	1,230		$	893

Supplemental cash flow information
Cash paid for interest		11			-
Deemed Issuance of common shares to former shareholders’ of WaveDancer		195			-
Shares issued for Prepaid services		2,440			-
Shares issued for debt		39			-

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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FIREFLY NEUROSCIENCE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE 1: BUSINESS DESCRIPTION

Overview

Firefly Neuroscience, Inc. (formerly WaveDancer, Inc.), a Delaware corporation, and its wholly owned subsidiaries Firefly Neuroscience 2023, Inc., a Delaware corporation (formerly known as Firefly Neuroscience, Inc.), Firefly Neuroscience Ltd., an Israeli corporation (formerly known as Elminda Ltd.), Elminda 2022 Inc., a Delaware corporation (formerly known as Elminda Inc.), Firefly Neuroscience Canada Inc., a Canadian corporation, and Elminda Canada Inc., a Canadian corporation (collectively, the "Company"), are engaged in the development, marketing and distribution of medical devices and technology allowing high resolution visualization and evaluation of the complex neuro-physiological interconnections of the human brain.

Firefly Neuroscience Ltd. was initially incorporated and commenced its operations as a development company in 2006 under the laws of the State of Israel, and in May 2014, initiated its marketing and distribution activity in the United States through Elminda 2022 Inc.

In July 2014, the U.S. Food and Drug Administration (“FDA”) cleared Firefly Neuroscience Ltd.’s Brain Network Analytics (“BNA” ™) product for marketing in the USA. On September 11, 2014, the Company received the Conformity European (“CE”) approval for BNA™ allowing its use in the European Union.

On November 15, 2023, WaveDancer, Inc. (“WaveDancer”) and its wholly owned subsidiary, FFN Merger Sub, Inc. (“FFN”), entered into an Agreement and Plan of Merger (as amended by that certain Amendment No. 1, dated as of January 12, 2024, and that certain Amendment No. 2, dated as of June 17, 2024, “Merger Agreement”) with Firefly Neuroscience 2023, Inc. ("Private Firefly"). In accordance with the Merger Agreement, FFN merged with and into Private Firefly, with Private Firefly surviving as a wholly owned subsidiary of WaveDancer. On August 12, 2024, (i) pursuant to the Amended and Restated Certificate of Incorporation of WaveDancer, Inc., WaveDancer changed its name to Firefly Neuroscience, Inc., and (ii) pursuant to an amendment to its Certificate of Incorporation Firefly, Private Firefly changed its name to Firefly Neuroscience 2023, Inc. and (iii) Private Firefly and FFN filed the Certificate of Merger with the State of Delaware (the “Merger”). On August 12, 2024, the Merger closed (the “Closing” and such date, the “Closing Date”).

At the effective time of the Merger, each holder of outstanding shares of Private Firefly’s common stock, par value $0.00001 per share (the “Private Firefly Common Stock”) received the number of shares of common stock, par value $0.0001 per share, of the Company (the “New Firefly Common Stock”) equal to the number of shares of Private Firefly Common Stock such stockholders held multiplied by the exchange ratio(the “Exchange Ratio”) of 0.1040. Additionally, upon at the effective time of the Merger: (i) each outstanding option to purchase Private Firefly Common Stock that was not exercised prior to the Closing was assumed by the Company subject to certain terms contained in the Merger Agreement and became an option to purchase shares of New Firefly Common Stock, subject to adjustment to give effect to the Exchange Ratio, (ii) each outstanding Private Firefly restricted share unit outstanding immediately prior to the Closing vested pursuant to the terms thereof, and (iii) each outstanding warrant to purchase shares of Private Firefly Common Stock that was not exercised prior to the Closing was assumed by the Company, subject to certain terms contained in the Merger Agreement.

While WaveDancer was the legal acquirer of Private Firefly in the Merger, the Merger is treated as a reverse recapitalization under Generally Acceptance Accounting Principles in the United States of America (“U.S. GAAP”), whereby Private Firefly is deemed to be the accounting acquirer, WaveDancer was deemed to be the accounting acquiree and the historical financial statement of Private Firefly was carried forward for financial reporting purpose upon the closing of the merger. Accordingly, for accounting purposes, the Merger was treated as the equivalent of Private Firefly issuing stock for the net assets of WaveDancer, accompanied by a recapitalization. The net assets of WaveDancer were stated at carrying values, with no goodwill or other intangible assets recorded.

The combined entity operates under the name Firefly Neuroscience, Inc., and on August 13, 2024, the Company began trading on the Nasdaq Capital Market (NASDAQ Ticker Symbol: AIFF).

Immediately following the closing of the Merger, on August 12, 2024, there were 7,472,555 shares of the New Firefly Common Stock outstanding. In accordance with guidance applicable to these circumstances, the equity structure has been recast in all comparative periods up to the Closing to reflect the equity structure of the legal acquirer, WaveDancer. The shares and corresponding capital amounts and losses per share, prior to the Merger, have been retroactively restated based on shares reflecting the exchange ratio established in the Merger.

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NOTE 2: GOING CONCERN

As of September 30, 2024, the Company had an accumulated deficit of $83,299 ( December 31, 2023: $76,624) and negative cash flow from operating activities for the nine months ended September 30, 2024, of $4,937 ( September 30, 2023: $1,662). Further, the Company has recurring losses with minimal revenue from operations. While the Company is attempting to raise funds for commercialization, its monthly cash requirements during the nine months ended September 30, 2024, have been met through issuance of shares to new and existing stockholders. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Therefore, the Company may be unable to realize its assets and discharge its liabilities in normal course of business. To strengthen the Company’s liquidity in the foreseeable future, the Company has taken the following measures:

(i) negotiating further funding with existing and new investors to raise additional capital;

(ii) taking various cost control measures to reduce the operational cash burn; and

(iii) commercializing product to generate recurring sales.

Management of the Company has a reasonable expectation that the Company can continue raising additional equity capital to continue in operational existence for the foreseeable future. Ability to raise additional funds will depend on, among other factors, financial, economic and market conditions, many of which are outside of our control and there can be no assurance that we will be able to obtain additional funding on satisfactory terms or at all.

NOTE 3: BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The results reported in these unaudited condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for any subsequent period or for the entire period. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s annual audited consolidated financial statements for the year ended December 31, 2023 and the notes thereto included in the Company’s Form 8-K filed with the SEC on August 12, 2024. Certain information and footnote disclosures normally included in the audited consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in the accompanying unaudited condensed consolidated financial statements. All amounts are disclosed in thousands, except share and per share amounts. The accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, except as otherwise indicated, necessary for a fair statement of its consolidated financial position, results of operations, and cash flows of the Company for all periods presented.

Principles of consolidation

These unaudited consolidated financial statements include the financial information of the Company and its subsidiaries. The Company consolidates legal entities in which it holds a controlling financial interest. The Company has a two-tier consolidation model: one focused on voting rights (the voting interest model) and the second focused on a qualitative analysis of power over significant activities and exposure to potentially significant losses or benefits (the variable interest model). All entities are first evaluated to determine whether they are variable interest entities (“VIE”). If an entity is determined not to be a VIE, it is assessed on the basis of voting and other decision-making rights under the voting interest model. The accounts of the subsidiaries are prepared for the same reporting period using consistent accounting policies. All intercompany balances and transactions were eliminated on consolidation.

The consolidated assets, liabilities, and results of operations prior to the Merger are those of Private Firefly. In accordance with guidance applicable to these circumstances, the equity structure has been recast in all comparative periods up to the Closing to reflect the equity structure of the legal acquirer, WaveDancer. The shares and corresponding capital amounts and losses per share, prior to the Merger, have been retroactively restated based on shares reflecting the exchange ratio established in the Merger.

Use of estimates in the preparation of consolidated financial statements

The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.

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Significant accounting policies

The following significant accounting policies should be read in conjunction with the Company’s annual audited consolidated financial statements for the year ended December 31, 2023, significant accounting policies and the notes therein.

i) Equipment

Equipment is stated at cost less accumulated depreciation. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets. The Company uses an estimated useful life of four years for medical equipment.

ii) Share based payments

For fully vested, nonforfeitable equity instruments that are granted at the date the Company enters into an agreement for goods or services with a nonemployee, the Company’s recognizes the fair value of the equity instruments on the grant date. The corresponding cost is recognized as an immediate expense or a prepaid asset and expensed over the service period depending on the specific facts and circumstances of the agreement with the nonemployee.

Impact of recently issued accounting standards

The Company has evaluated issued Accounting Standards Updates not yet adopted and believes the adoption of these standards will not have a material impact on its condensed consolidated financial statements.

NOTE 4: THE MERGER

On August 12, 2024, Private Firefly consummated the Merger. The Merger was treated as a reverse recapitalization, whereby Private Firefly was deemed to be the accounting acquirer, and the historical financial statement of Private Firefly became the historical financial statement of WaveDancer (renamed Firefly Neuroscience, Inc.) upon the closing of the Merger. Under this method of accounting, WaveDancer was treated as the acquiree and Private Firefly is treated as the acquirer for financial reporting purposes.

Accordingly, for accounting purposes, the Merger was treated as the equivalent of Private Firefly issuing stock for the net assets of WaveDancer, accompanied by a recapitalization. The net assets of WaveDancer were stated at carrying values, with no goodwill or other intangible assets recorded.

The following table reconciles the elements of the Merger to the consolidated statements of changes in shareholders’ equity for the nine months period ended September 30, 2024:

	Recapitalization
Cash	$	75
Prepaid expenses		62
Equipment		12
Non-cash net working capital assumed from WaveDancer		(354	)

Effect of the Merger, net of transaction costs		(205	)

The following table details the number of shares of common stock issued following the consummation of the Merger:

	Number of Shares
Shares of common stock owned by WaveDancer’s pre-Merger shareholders		802,142
Shares of common stock issued in exchange for Private Firefly shares of common stock		6,670,413
Total shares of common stock outstanding immediately after Merger		7,472,555

In addition to the shares of common stock, WaveDancer’s shareholders retained:

113,522 employee stock options;

warrants exercisable for up to 76,098 shares of common stock of the combined entity.

The consolidated assets, liabilities, and results of operations prior to the Merger are those of Private Firefly In accordance with guidance applicable to these circumstances, the equity structure has been recast in all comparative periods up to the Closing to reflect the equity structure of the legal acquirer, WaveDancer. The shares and corresponding capital amounts and losses per share, prior to the Merger, have been retroactively restated based on shares reflecting the Exchange Ratio of 0.1040 established in the Merger.

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NOTE 5: PREPAID EXPENSES

Detail of prepaid expenses balance is as follows:

	September 30,		December 31,
	2024		2023
Shares issued for prepaid services	$	603	$	-
Prepaid expenses		746		28
Total (current)	$	1,349	$	28

Shares issued for prepaid services	$	1,465	$	-
Total (non-current)	$	1,465	$	-

The Company entered into four standalone strategic investment agreements. Pursuant to these agreements, the Company agreed to issue 433,360 of shares of common stock in exchange for $2,925 of service credits that are to be consumed in future over a three-year period. Refer Note 10.a for further details.

NOTE 6: EQUIPMENT

Equipment balance is as follows:

	September 30,			December 31,
	2024			2023
Medical equipment, cost	$	80		$	-
Less – accumulated depreciation		(8	)		-
Equipment, net	$	72		$	-

NOTE 7: INTANGIBLE ASSETS

The following tables summarize the composition of intangible assets as of September 30, 2024:

	September 30, 2024
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Life
Unamortized intangible assets
BNA software	$	1,109	$	-	$	1,109		-
Total intangible assets	$	1,109	$	-	$	1,109		-

The BNA software enhancement project is in progress and amortization will begin once the project is substantially complete and the software is ready for its intended purpose. The software enhancement project is expected to be completed by the end of 2025 and have a useful life of five years.

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NOTE 8: LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT

Israeli labor law requires payment of severance pay upon dismissal of an employee or upon termination of employment in certain circumstances. Pursuant to Section 14 of the Israeli Severance Pay Law, 1963, all of the Company’s employees are entitled to monthly deposits, at a rate of 8.33% of their monthly salary, made in their name with insurance companies. Payments made in accordance with Section 14 relieve the Company from any future severance payments with respect to those employees. In accordance with the Israeli Severance Pay Law, 1963, severance payments, which are included in salary and employee benefits, were $10 and $35 for the three and nine months ended September 30, 2024, respectively, and $6 and $22 for the three and nine months ended September 30, 2023, respectively.

NOTE 9: COMMITMENTS AND CONTINGENCIES

a. Royalty Commitment - Israeli Innovation Authority (“IIA”)

The Company is committed to pay royalties to the State of Israel, through the Israel Innovation Authority (“IIA”), on proceeds from sales of products in which the IIA participated by way of grants for research and development. No grants were received in 2024 or 2023. Under the terms of the prior IIA grant agreements, the principal value of financial assistance received along with annual interest based on London Inter-Bank Offered Rate (“LIBOR”) is repayable in form of royalties at 3.0% of BNA™ sales. Since the elimination of LIBOR, the Secured Overnight Financing Rate (“SOFR”) subsequently replaced LIBOR as a reference rate of interest for IIA grant agreements. In the case of lack of commercial feasibility of the project that was financed using the grant, the Company is not obligated to pay any royalty. The Company cannot reasonably determine the outcome of the commercialization of the technology and considers the liability to be contingent upon generation of sales, hence no liability has been recognized as of September 30, 2024, and December 31, 2023. The contingent liability amounts to $5,702 (estimated) and $5,625 for September 30, 2024, and December 31, 2023 respectively.

Sale of the technology developed utilizing the grants from IIA is restricted and is subject to IIA’s approval.

b. Legal Proceedings

The Company is subject to various claims, complaints and legal actions in the normal course of business from time to time. After consulting with counsel, the Company is not aware of any currently pending litigation for which it believes the outcome could have a material adverse effect on its operations or financial position.

NOTE 10: EQUITY

Shares

On August 29, 2023, The Company offered up to 812,500 units (the “Series C Units”), with each Series C Unit consisting of one share of Series C Preferred Stock (the “Series C Preferred Stock”) and one warrant to purchase one share of common stock (the “Series C warrants”), at a combined purchase price of $12.31 per Series C Unit (the "Series C Offering").

During the nine months period ended September 30, 2024, the Company issued 86,953 Series C Units and received aggregate gross proceeds of $1,070 . The Company incurred $125 of costs associated with the issuance and issued broker warrants to purchase up to 4,163 shares of common stock to the associated broker in connection with the Series C Offering. The shares of Series C Preferred Stock issued are equity classified instruments and are recorded as equity. Each Series C Warrant entitles the purchasers to acquire one share of common stock at an exercise price of $24.62 per share for a period of three years from the date of issuance. See Note 10: Equity – b. Warrants. The conversion price of the Series C Preferred Stock was amended contemporaneously with the consummation of the Merger. As of August 12, 2024, the mandatory conversion feature of the Series C Preferred Stock was triggered upon the consummation of the Merger. Pursuant to the terms of Series C Preferred Stock, all issued and outstanding shares of the Series C Preferred Stock converted into 596,145 shares of common stock upon consummation of the Merger.

As of December 31, 2023, the mandatory conversion feature of the Series B Preferred Stock (the “Series B Preferred Stock”) was triggered, as the proceeds from the Series C Offering exceeded $1,000. As per the terms of Series B Preferred Stock, all preferred shares were converted into one share of common stock. During the period ended September 30, 2024, 1,516,199 of shares of Series B Preferred Stock converted into 1,516,199 shares of common stock.

On July 26, 2024, the Company entered into a private placement transaction (the “PIPE”), pursuant to which the Company agreed to issue and sell (i) 319,207 shares of common stock and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 504,324 shares of common stock, and (iii) warrants (the “PIPE Warrants”) to purchase up to 823,529 shares of common stock (as adjusted for the Exchange Ratio). The purchase price of each share of common stock and accompanying PIPE Warrant was $4.25 and the purchase price of each Pre-Funded Warrant and accompanying PIPE Warrant was $4.249. The PIPE closed on August 12, 2024, contemporaneously with the consummation of the Merger. The aggregate gross proceeds from the PIPE were approximately $3,500. The Company incurred $52 of costs associated with the issuance.

On July 27, 2024, the Company entered into four standalone strategic investment agreements. One of the service providers is owned by a director of the Company (Note 12). Pursuant to the strategic investment agreements, the Company agreed to issue 433,360 of shares of common stock. The shares are fully vested upon issuance and have been valued at $2,440. These shares were subject to regulatory lock-up restrictions. Of these shares, 140,749 are subject to a 12-month lock-up restriction and 292,611 shares are subject to a 6-month lock-up restriction. The restriction is a characteristic of the security, and therefore considered in the fair value measurements. The shares were measured at fair value, considering the effect of the post-vesting restrictions via accounting for discount for lack of marketability (“DLOM”), determined by Finnerty model. The shares were issued on August 12, 2024, contemporaneously with the consummation of the Merger. Pursuant to the terms of the strategic investment agreements, the service providers granted the Company $2,925 of service credits to perform business consulting and software development services that are to be consumed in future over a three-year period. Service credits were recognized as prepaid expenses in accordance with ASC 718. See Note 5 - Prepaid Expenses.

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On August 12, 2024, the Company issued 45,344 shares of common stock with the intention to settle accrued liabilities. As the Company did not reach a contractual agreement to settle the outstanding amount, the Company recognized a note receivable as contra-equity in return for shares of common stock issued.

On August 12, 2024, pursuant to the terms of the Consulting Agreement (as defined below) the Company issued 22,344 shares of common stock. These shares are subject to a 6-month lock-up restriction. The restriction is a characteristic of the security, and therefore considered in the fair value measurements. The shares were measured at fair value, considering the effect of the post-vesting restrictions via accounting for DLOM, determined by Finnerty model. The shares were fully vested upon issuance and were valued at $129. See Note 10: Equity – f. Consulting Agreement

On August 12, 2024, pursuant to the terms of the restricted share units (the “RSUs”), all issued and outstanding RSUs of the Company vested and the Company issued 59,264 shares of common stock and recognized $410 of share-based compensation expense. See Note 10: Equity - j. Restricted Share Units

On August 26, 2024, the Company issued 75,375 shares of common to WaveDancer’s pre-Merger shareholders for stockholders of the assumed convertible instruments of WaveDancer. See Note 4 - The Merger.

On September 9, 2024, the Company issued 10,588 shares of common stock with a fair value of $39 as a payment in settlement of the outstanding amounts due to its service provider. As a result of the transaction, management settled $45 of accrued liabilities. The Company realized $6 gain on extinguishment of liabilities.

On September 19, 2024, certain warrant holders of Tranche A warrants (the “Tranche A warrants”), Series A warrants (the “Series A warrants”) and, Series D warrants (the “Series D warrants”) exercised such warrants to purchase 435,174 shares of common stock for proceeds of $32 for the Company.

On September 27, 2024, the Company issued 557,885 shares of common stock to its Executive Chairman, pursuant to the terms of the employment agreement by and between the Company and its Executive Chairman. The shares granted are subject to vesting conditions having been valued at $1,674 using a grant date price of $3.00 per share. Under the terms of the restricted stock agreement by and between the Company and its Executive Chairman, one-half of the shares shall vest on each of the 6 and 12-month anniversaries of the grant date, provided that the Executive Chairman has not incurred a termination of service prior to the applicable vesting date. As of September 30, 2024, the vesting conditions were not met.

Warrants

The following table summarizes the Company’s warrant activity for the nine months ended September 30, 2024:

	Number of Warrants		Weighted Average Exercise Price		Weighted Average Remaining Life
Outstanding warrants, January 1, 2024		193,433	$	23.46		2.74
Series C Warrants (Note 10.a)		86,820		24.62
Broker warrants for Series C Offering (Note 10.a)		4,163		12.31
PIPE Warrants (Note 10.a)		823,529		6.83
WaveDancer legacy warrants (Note 4)		76,098		94.69
Outstanding warrants, September 30, 2024		1,184,043	$	16.51		4.06

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For the nine months period ended September 30, 2024, warrants to purchase up to 86,820 shares of common stock were issued pursuant to Series C Offering. Each Series C Warrant entitles the holder to acquire one share of common stock at a price of $24.62 per share for a period of three years from the date of issuance. In connection with the Series C Offering, the Company issued broker warrants to the associated broker to purchase up to 4,163 shares of common stock at an exercise price of $12.31 per share for a period of three years from the date of issuance. The warrants were determined to be a freestanding equity instrument.

On August 12, 2024, PIPE Warrants to purchase up to 823,529 shares of common stock were issued. Each PIPE Warrant entitles the holder to acquire one share of common stock at an exercise price of $6.83 per share for a period of five years from the date of issuance. The PIPE Warrants were determined to be a freestanding equity instrument. See Note 10: Equity - a. Shares.

On August 12, 2024, the Company assumed warrants to issue up to 76,098 shares of common stock upon consummation of the Merger. See Note 4 - The Merger.

Warrants exercisable for little or no consideration

Warrants exercisable for little or no consideration are fully vested warrants that allows the holders to acquire a specified number of the issuer’s shares at a nominal exercise price. The following table summarizes the Company’s penny warrant activity for the nine months ended September 30, 2024:

	Number of Warrants			Weighted Average Remaining Life
Outstanding warrants, January 1, 2024		54,782			1.51
Pre-funded warrants (Note 10.a)		504,324
Series A warrants (Note 10.d)		629,039
Series D warrants (Note 10.e)		92,798
Consulting agreement warrants (Note 10.f)		44,932
Exercised		(435,169	)
Outstanding warrants, September 30, 2024		890,706			3.48

On July 26, 2024, the Company entered into the PIPE and 504,324 Pre-Funded Warrants were issued. Each Pre-Funded Warrant entitles the holder to acquire one share of common stock at a price of $0.001 per share for a period of five years from the date of issue. Pre-Funded Warrants will expire when exercised in full. The Pre-Funded Warrants were determined to be an equity instrument.

On September 19, 2024, certain warrant holders of Tranche A warrants exercised their warrants to purchase an aggregate of 13,852 shares of common stock.

Series A warrants

On June 15, 2023, the Company granted Series A warrants to purchase up to an aggregate 629,039 shares of common stock to certain investors at a nominal exercise price for a period of five years from the issuance date. The exercisability of the Series A warrants was contingent upon meeting certain market capitalization or occurrence of a liquidity event. Upon the consummation of the Merger on August 12, 2024, the Series A warrants became fully vested. The Series A warrants were determined to be an equity instrument. The Company determined the fair value of the Series A warrants to be nominal based on the stock price established at grant date. On September 19, 2024, certain warrant holders of Series A warrants exercised their Series A warrants to purchase an aggregate of 359,451 shares of common stock..

Series D warrants

On June 7, 2024, the Company issued Series D warrants to purchase up to an aggregate 92,799 shares of common stock to certain investors at a nominal exercise price for a period of five years from the issuance date. The exercisability of the Series D warrants was contingent upon meeting certain market capitalization or the occurrence of a liquidity event. Upon the consummation of the Merger on August 12, 2024, the Series D warrants became fully vested. The Series D warrants were determined to be an equity instrument. The Company determined the fair value of the Series D warrants of $610 based on a stock price established on the grant date. On September 19, 2024, certain warrant holders of Series D warrants exercised their Series D warrants to purchase an aggregate of 61,866 shares of common stock.

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Consulting agreement

On March 15, 2024, the Company entered into a consulting agreement (the "Consulting Agreement") with a certain consultant of the company. Under the Consulting Agreement, the consultant will provide consulting services in return for Series A performance warrants (the "Series A performance warrants") to purchase up to 44,932 shares of common stock and 20,313 shares of common stock issued immediately upon execution of the agreement, and 24,375 shares of common stock to be issued in 12 equal installments at the end of each calendar month.

The Series A performance warrants are exercisable for nominal exercise price and expire on June 15, 2028. The exercisability of the Series A performance warrants was contingent upon meeting certain market capitalization or the occurrence of a liquidity event. Upon the consummation of the Merger on August 12, 2024, the Series A performance warrants became fully vested. The Company determined the fair value of the Series A performance warrants of $80 based on a stock price established on the grant date.

As of September 30, 2024, the Company issued 22,344 shares of common stock pursuant to the Consulting Agreement. The shares are fully vested upon issuance and have been valued at $129.

Employees stock option plan

A summary of option activity under the Company's equity incentive plan as of September 30, 2024, and changes during the period then ended is presented below.

	Number of Stock Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding Options, December 31, 2023		134,333	$	20.77		6.18	$	-
Options granted		335,728		5.18		-		-
WaveDancer options		113,522		82.25		-		-
Outstanding Options, September 30, 2024		583,583	$	23.77		3.43	$	-

The share-based compensation expense related to options for the three and nine months ended September 30, 2024, was $1,296 and $1,413, respectively, and $78 and $226 for the three and nine months ended September 30, 2023, respectively. The fair value of options granted for the nine months ended September 30, 2024 and 2023, was $1,600 and $nil, respectively. The intrinsic value of the options outstanding as of September 30, 2024, is $nil ( December 31, 2023: $nil).

The fair value of each option award is estimated on the date of grant using a Black Scholes pricing option valuation model that uses the assumptions noted in the following table.

	2024
Stock price		$6.91
Risk free rate	3.75%	-	3.82%
Dividend yield		0%
Expected volatility	86.50%	-	87.60%
Expected term (in years)	3.91	-	4.93

A summary of the Company’s nonvested options as of September 30, 2024, and changes during the nine months period ended, is presented below.

	Number of Stock Options			Weighted Average Grant-Date Fair Value
Non-Vested Options, December 31, 2023		90,988		$	4.77
Options granted		335,728			4.77
Options vested		(185,704	)		4.94
Non-Vested Options, September 30, 2024		241,012		$	4.63

As of September 30, 2024, there was $621 of total unrecognized compensation cost related to nonvested options granted under the Plan.

On August 12, 2024, the Company assumed 113,522 stock options upon the consummation of the Merger. See Note 4 - The Merger. None of WaveDancer’s employees continued employment with the Company or provided employment services post-Merger. Consequently, these stock options are subject to cancellation as the employment with WaveDancer was effectively terminated.

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Management options 2024

On April 2, 2024, the Company issued stock options to its officers to purchase up to an aggregate of 19,344 shares of common stock at an exercise price of $5.18 with a term of five years, where the exercise price is equal to a 25% discount to the issue price of Private Firefly’s equity securities in an initial public offering (an “IPO Transaction”), that results in the Company’s shares of common stock being listed on the Nasdaq Stock Market or another recognized securities exchange or traded on the over-the-counter market. Options to purchase up to 11,024 shares of common stock shall vest in 36 equal installments at the end of each calendar month over a period of three years beginning March 1, 2024. Options to purchase up to 8,320 shares of common stock shall vest in 36 equal installments at the end of each calendar month over a period of three years beginning on the date of the Merger. The vesting of management options was contingent upon the occurrence of a liquidity event. Upon the consummation of the Merger on August 12, 2024, the options were considered granted in accordance with ASC 718. The exercise price was determined to be $5.18 per share. The Company determined the fair value of the options of $99 using the Black-Scholes pricing model. The Company used graded-vesting method for the recognition of share-based compensation related to these management options.

Management options 2023

On July 8, 2023, the Company issued stock options to its employees, officers, directors and consultants to purchase up to an aggregate of 327,421 shares of common stock at an exercise price of $5.18 with a term of five years, where the exercise price is equal to a 25% discount to the issue price of the Company's equity securities in an initial public offering , that results in the Company’s shares of common stock being listed on the Nasdaq Stock Market or another recognized securities exchange or traded on the over-the-counter market. Options to purchase up to 37,709 shares of common stock shall vest immediately with the remaining options vesting in 36 equal installments at the end of each calendar month over a period of three years from July 8, 2023. The vesting of management options was contingent upon the occurrence of a liquidity event. Upon the consummation of the Merger on August 12, 2024, the options were considered granted in accordance with ASC 718. The exercise price was determined to be $5.18 per share. 11,037 options were forfeited before the Merger. The Company determined the fair value of the options of $1,501 using the Black-Scholes pricing model. The Company used graded-vesting method for the recognition of share-based compensation related to management options.