FIREFLY NEUROSCIENCE, INC.

The accompanying consolidated financial statements have been prepared in accordance with Generally Acceptance Accounting Principles in the United States of America (“U.S. GAAP”).

These 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 atwo-tier consolidation model:one focused on voting rights (the voting interest model) and thesecond focused on a qualitative analysis of power over significant activities and exposure to potentially significant losses or benefits (the variable interest model). All entities arefirst evaluated to determine whether they are variable interest entities (“VIE”). If an entity is determinednot 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.

In connection with the preparation of the consolidated financial statements for year ended* December 31, 2023,we identified an immaterial error related to certain general and administration and research and development expenses in the consolidated financial statements for year ended December 31, 2022.In accordance with SABNo.* 99, “Materiality,” and SABNo. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” we evaluated the error and determined that the related impact wasnot material to our consolidated financial statements for any prior annual or interim period, but that correcting the cumulative impact of the error would be significant to our results of operations for the year ended* December 31, 2023.Accordingly, we have revised previously reported financial information for such immaterial error. A summary of revisions to certain previously reported financial information presented herein for comparative purposes is included in Note20.*

The preparation of 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 consolidated financial statements and reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.

i) Share based payments

In calculating share-based compensation expense, key estimates are used such as, the stock price of the Company, the rate of forfeiture of options granted, the expected life of the option, the volatility of the Company’s stock price, and the risk-free interest rate.

ii) Warrants

In calculating the fair value of warrants issued, the Company includes key estimates such as the stock price of the Company, the expected life of the warrant, the volatility of the Company’s stock price, and the risk-free interest rate.

The currency of the primary economic environment in which the operations of the Company is conducted is the U.S. dollar ("$" or "Dollar"). All of the Company's revenues and finance are denominated in U.S dollars. The reporting and the functional currency of the Company is the U.S Dollar.

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The dollar figures are determined as follows: transactions and balances originally denominated in dollars are presented at their original amounts. Balances in non-dollar currencies are translated into dollars using historical and current exchange rates for non-monetary and monetary balances, respectively.

The Company uses athree-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. Thethree tiers are defined as follows:

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The carrying amounts of cash and equivalents, accounts receivable, other receivables, long-term deposits, trade payables, balances to and from related party and convertible notes approximate their fair value due to the short-term maturity of such instruments. It is management’s opinion that the Company isnot exposed to any significant market or credit risks arising from these financial instruments.

Cash, other receivables, trade payables, related party payable and accrued liabilities are carried at amortized cost, which management believes approximates their respective fair value due to the short-term nature of these instruments.

Parties are related ifone party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence, and related parties* may*be individuals or corporate entities. A transaction is a related party transaction when there is a transfer of resources or obligations between related parties. The Company has disclosed its transactions with related parties.

The Company considers all highly liquid investments, which include short-term bank deposits that arenot restricted as to withdrawal or use and the period to maturity of which didnot exceedthree months at time of investment, to be cash.

Other receivables are recorded at net realizable value, which includes an allowance for expected credit losses. The allowance for expected credit losses (“allowance for doubtful receivables”) is based on the Company’s assessment of collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that* may*affect a customer’s ability to pay.

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Certain conditions* mayexist as of the date the consolidated financial statements are issued, that mayresult in a loss to the Company but that will only be resolved whenone* or more future events occur or fail to occur. Such losses are disclosed as contingent liabilities if it isnot both probable and reasonably estimable. The Company's management assesses such contingent liabilities and estimated legal fees, if any. Such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that* may*result in such proceedings, the Company's management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

The Company accounts for the warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and the applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)480, “Distinguishing Liabilities from Equity” (“ASC480”) ASC815, “Derivatives and Hedging” (“ASC815”), and ASC718, “Compensation—Stock Compensation” (“ASC718”). The assessment considers whether they are freestanding financial instruments pursuant to ASC480, meet the definition of a liability pursuant to ASC480 or meet all of the requirements for equity classification under ASC815, including whether the warrants are indexed to the Company’s own shares of common stock and whether the holders of the warrants could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of issuance of the warrants and as of each subsequent reporting date while the warrants are outstanding. For issued or modified warrants and that meet all of the criteria for equity classification, such warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that donot meet all the criteria for equity classification, such warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of liability-classified warrants are recognized as a non-cash gain or loss on the statements of operations.

The Company grants stock options to certain employees and directors through an established stock option plan. All stock option grants or changes to existing grants, are subject to board of directors’ approval. For employees and directors, the fair value of the award is measured on the grant date. For non-employees, as per ASC718, remeasurement isnot required. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Determining the appropriate fair value model and the related assumptions requires judgment. During the year ended* December 31, 2023and2022,* the fair value of each option grant was estimated using a Black-Scholes option-pricing model.

Revenue is recognized in accordance with ASC606, “Revenue from Contracts with Customers” (“ASC606”). The Company performs the followingfive steps:

The Company applies thisfive-step model to arrangements that meet the definition of a contract under ASC606, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC606, the Company evaluates the goods or services promised within each contract, related performance obligation and assesses whether each promised good or service is distinct. The Company recognizes as revenue, the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied at a point in time.

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The Company’s revenues are measured based on the consideration specified in the contract with each customer, net of any sales incentives and taxes collected from customers that are remitted to government authorities. For multiple-element arrangements, revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are based on observable prices at which the Company separately sells the products or services. The Company regularly reviews standalone selling prices and updates these estimates, as necessary.

Deferred revenue consists of payments received from customers in advance of satisfying a performance obligation identified in accordance with ASC606. The change in the deferred revenue balance for the years ended* December 31, 2023,and2022* was driven by payments from customers in advance of satisfying the performance obligations, offset by revenue recognized as performance obligations were completed.

Research and development expenses are expensed as incurred and consist primarily of personnel, facilities, equipment and supplies related to the Company’s research and development activities.

The Company capitalizes the cost of developing internal-use software, consisting primarily of personnel, facilities, equipment and supplies andthird parties who devote time to their respective projects. Internal-use software costs are capitalized during the application development stage – when the research stage is complete, and management has committed to a project to develop software that will be used for its intended purpose. Any costs incurred during subsequent efforts to significantly upgrade and enhance the functionality of the software are also capitalized. Capitalized software costs are included in intangible assets, net on the consolidated balance sheets. Amortization of internal-use software costs are recorded on a straight-line basis over their estimated useful life and begin once the project is substantially complete and the software is ready for its intended purpose.

Income taxes are accounted for using the asset/liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. In estimating future tax consequences, all expected future events are considered other than enactment of changes in the tax law or rates.

The Company adopted ASC740 “Income Taxes” (“ASC740”), which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. Under ASC740, the Company* mayrecognize the tax benefit from an uncertain tax position only if it is more likely thannot* that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

At the inception of the contract, the Company assesses whether the contract contains a lease in accordance with ASU2016-02, “Leases” (“ASC842”). The Company determines whether an arrangement is a lease by establishing if the contract conveys the right to control the use of an identified asset, for a period of time in exchange for consideration. Leases are classified either as operating lease or finance lease. The Company electsnot to apply the recognition requirements of ASC842 to short-term leases. Short term leases are contracts that have a lease term of12 months or less and doesnot include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. The Company doesnot have any lease with a lease term longer than12 months.

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Short-term employee benefits are benefits for which full settlement is expected withintwelve months of the end of the financial year in which the members of staff rendered the corresponding services. These benefits include, paid annual leave, paid sick leave, health and governmental social security contributions which are expensed as the services are rendered. A liability for a cash bonus or plan profit-sharing is recognized when the Company has a legal or implied obligation to make such payments because of past services rendered by a member of staff, and it is possible to make a reasonable estimate of the amount.

For post-employment the Company has a defined contribution plan pursuant to section14 to the Israeli Severance Compensation Act,1963 under which the Company pays fixed contributions and will haveno legal or constructive obligation to pay further contributions if the fund doesnot hold enough to pay all employee benefits relating to employee service in the current and prior periods. Contributions to the defined contribution plan in respect of severance or retirement pay are recognized as an expense when contributed monthly, concurrently with performance of the employee’s services.

Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company operates and manages its business asone operating segment.

The Company has operations in Canada, the United States of America and Israel. The revenues and non-current assets of the Company are generated and located in the following locations:

In* December 2023,the FASB issued Accounting Standards Update (“ASU”)2023-09 “Income Taxes (Topics740*): Improvements to Income Tax Disclosures” to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU2023-09 is effective for annual periods beginning* January 1, 2025,with early adoption permitted. The Company hasnot* adopted this standard early and is currently evaluating the potential effect that the updated standard will have on its consolidated financial statements disclosures.

In* November 2023,the FASB issued ASU2023*-07, “Segment Reporting (Topic280): Improvements to Reportable Segment Disclosures” which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses.

The expanded annual disclosures are effective for the Company's year ending* December 31, 2024,and the expanded interim disclosures are effective in2025* and will be applied retrospectively to all prior periods presented.

The Company is currently evaluating the impact that ASU2023-07 will have on its consolidated financial statements.

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NOTE4: OTHER RECEIVABLES

Detail of other receivables balance is as follows:

NOTE5: LONG TERM DEPOSITS

Long term deposits consisted of rental deposits for month-to-month shared office lease. The balances as of* December 31, 2023and2022* were$nil and $52, respectively.

NOTE6: INTANGIBLE ASSETS

The following tables summarize the composition of intangible assets as of* December 31, 2023:*

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 is expected to be completed byQ3 2024 and have a useful life offive years.

There wereno intangible assets as of* December 31, 2022.*

NOTE7: CONVERTIBLE NOTES