FIREFLY NEUROSCIENCE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

NOTE1: BUSINESS DESCRIPTION

Overview

Firefly Neuroscience, Inc. (formerly WaveDancer, Inc.), a Delaware corporation, and its wholly owned subsidiaries Firefly Neuroscience2023, Inc., a Delaware corporation (formerly known as Firefly Neuroscience, Inc.), Firefly Neuroscience Ltd., an Israeli corporation (formerly known as Elminda Ltd.), Elminda2022 Inc., a Delaware corporation (formerly known as Elminda Inc.), Firefly Neurosciences 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.

NOTE2: GOING CONCERN

As of* March 31, 2025,the Company had an accumulated deficit of $104,424 and negative cash flow from operating activities for thethree* months ended* March 31, 2025,of $2,511. Further, the Company has recurring losses with minimal revenue from operations and expects to continue generating losses and using cash for operations. On April 30, 2025,the Company paid $3,000 of cash for the acquisition of Evoke Neuroscience, Inc. ("Evoke") (Note16*). While the Company is attempting to raise funds for commercialization, its monthly cash requirements during thethree months ended* March 31, 2025,have been met through the sales of common stock and warrant exercises. 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 the normal course of business.

Management of the Company has a reasonable expectation that the Company can continue raising additional 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 beno assurance that the Company will be able to obtain additional funding on satisfactory terms or at all.

NOTE3: 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 accounting principles generally accepted in the Unites States of America (“U.S. GAAP”).

The results reported in these unaudited condensed consolidated financial statements shouldnot be regarded as necessarily indicative of results that* maybe 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, 2024,and the notes thereto included in the Company’s Form10*-K filed with the SEC on* April**3,* 2025. 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 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.

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Use of estimates in the preparation of consolidated financial statements

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 at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates and assumptions, and such differences could be material to the Company’s financial position and results of operations.

Significant accounting policies

There have beenno new or material changes to the significant accounting policies discussed in the Company’s audited consolidated financial statements for the year ended* December 31, 2024.*

Impact of recently issued accounting standards

In* December 2023,the FASB issued ASU2023*-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 the Company's fiscal year2025. The Company will include such disclosure in its Annual Report on Form10-K for the year ended* December 31, 2025.*

The Company has evaluated issued Accounting Standards Updates that havenot yet been adopted and believes the adoption of these standards willnot have a material impact on its condensed consolidated financial statements.

NOTE4: ACCOUNTS RECEIVABLE, NET

Details of accounts receivable balance is as follows:

NOTE5: PREPAID EXPENSES AND DEPOSITS

Details of prepaid expenses and deposits balance is as follows:

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NOTE6: EQUIPMENT, NET

Equipment balance is as follows:

Depreciation expense was $9 and$nil for thethree months ended* March 31, 2025,and2024,* respectively.

Medical equipment subject to operating leases includes hardware leased to customers as part of the Company's products and services offerings. During thethree months ended* March 31, 2025,*the Company entered into a contract with a customer which contains a lease component. Accordingly, the Company accounts for the monthly payments as lease revenue.

NOTE7: INTANGIBLE ASSETS, NET

The following tables summarize the composition of intangible assets as of* March 31, 2025:*

Amortization expense was $10 and$nil for thethree months ended* March 31, 2025,and2024,* respectively.

The estimated aggregate future amortization expense for intangible assets subject to amortization as of* March 31, 2025,*is summarized below:

NOTE8: CONVERTIBLE PROMISSORY NOTE

On* December 20, 2024,the Company issued a convertible promissory note of $2,400 and warrants to purchase up to 800,000 shares of common stock at an exercise price of $4.00 per share (“Convertible Promissory Note Warrants”). The note included a discount of $360, and the Company received gross proceeds of $2,040. The note is convertible at $3.00 per share, subject to adjustments (“Conversion Option”). The principal amount of $2,400 was scheduled to mature and become due and payable on December 20, 2025.The Company bifurcated the Conversion Option and accounted for it as a derivative liability due to the conversion featurenot* being clearly and closely related to the economic characteristics of the host contract.

On* February 13, 2025,the convertible promissory note was converted to 800,000 shares of common stock at the conversion price of $3.00 per share. The derivative liability was recorded at its estimated fair value prior to its derecognition upon conversion of the associated convertible promissory notes, resulting in a loss of $9,369. The derecognition of the Conversion Option and host contract on February 13, 2025,and the corresponding issuance of 800,000 shares of common stock at a fair value of $12,368 resulted in an additional loss of $1,353 on the consolidated statement of operations for thethree* months ended* March 31, 2025.*The Company incurred $29 in transaction costs relating to the exercise of the conversion option.

The following table summarizes the amortized cost portion of the convertible promissory note:

The following table summarizes the fair value changes of the Conversion Option:

NOTE9: 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 Section14 of the Israeli Severance Compensation Act,1963, all the Company’s employees located in Israel 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 Section14 relieve the Company from any future severance payments in respect of those employees. In accordance with the Israeli Severance Compensation Act, payments were $11 and $14 for thethree months ended* March 31, 2025,and2024,* respectively, which are included in salary and employee benefits within research and development expenses.

NOTE10: 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 in2025 or2024. 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 isnot 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; henceno liability has been recognized as of* March 31, 2025,and December 31, 2024.The contingent liability amounts to $5,860 and $5,833 for March 31, 2025,and December 31, 2024,*respectively.

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

b. Equity Line of Credit

On* December 20, 2024,the Company entered into an equity line of credit agreement with an investor (the “Purchase Agreement”), allowing the Company to direct the investor purchase up to $10,000 in shares of common stock, subject to certain conditions, including filing a registration statement with the U.S. Securities and Exchange Commission (“SEC”). The Company has the right to submit an advance notice for the lower of (i) an amount equal to 40% of the average of the Daily Value Traded (as defined in the Purchase Agreement) of common stock on thefive* trading days immediately preceding an advance notice, or (ii) $2,000. The purchase price will be 88% of the daily VWAP on the trading day commencing on the date of the advance notice. In connection with the Purchase Agreement, the Company has paid a $300 commitment fee and recorded within non-current prepaid expenses and deposits. The Company incurred $36 of deferred offering costs associated with the Purchase Agreement and recorded within non-current prepaid expenses and deposits. Both the commitment fee and deferred offering costs will be charged against the gross proceeds of future sales of shares of common stock under the Purchase Agreement. The Company* may**not* issue shares to the counterparty if it would result in the counterparty owning more than 9.99% of the outstanding shares of common stock. As of* March 31, 2025,the Company didnot* issue any shares pursuant to the Purchase Agreement.

NOTE11: EQUITY

On* February 13, 2025,convertible promissory note (Note8*) was converted to 800,000 shares of common stock at the conversion price of $3.00 per share. Transaction costs incurred of $39 relating to the exercise of the conversion option are offset within additional paid-in capital.

On* March 28, 2025,the Company entered into a private placement transaction (the "PIPE2025"), pursuant to which the Company agreed to issue and sell (i)547,737 shares of common stock and (ii) warrants (the "PIPE2025* warrants") to purchase up to 547,737 shares of common stock, at a combined purchase price of $3.00 per unit. Each warrant entitles the purchasers to acquireone share of common stock at a price of $4.00 per share for a period ofthree years from the date of issue. The Company issued broker warrants to purchase up to 25,958 shares of common stock to the associated broker in connection with the offering. The aggregate gross proceeds from the PIPE2025 were $1,643. The Company incurred $179 of costs associated with the issuance. The PIPE2025 warrants and related broker warrants are equity classified instruments and are recorded as equity.

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During thethree months ended* March 31, 2025,certain warrant holders exercised their warrants (Note11.b*) and penny warrants (Note11.c) to purchase 2,186,595 shares of common stock for proceeds of $8,828 for the Company.

The following table summarizes the Company’s warrant activity for thethree months ended* March 31, 2025:*

During thethree months ended* March 31, 2025,the Company entered into a warrant inducement agreement (the "Inducement Agreement") with holders ("PIPE2024* warrant holders") of the Company's existing warrants ("PIPE2024 warrants"). Pursuant to the Inducement Agreement, PIPE2024 warrant holders agreed to exercise for cash PIPE2024 warrants to purchase up to 823,529 shares of common stock at an exercise price of $6.83. On* February 12, 2025,PIPE2024* warrants were exercised in full for cash proceeds of $5,625. The Company recorded a deemed dividend of $4,410 in relation to the Inducement Agreement as it is considered an inducement offer to exercise the PIPE2024 warrants. The Company recognized a corresponding liability of $4,410 for the shares to be issued. The fair value of a deemed dividend is estimated based on the fair value of the underlying share of common stock on the warrant exercise date. On* April 28, 2025,*the Company issued 340,000 shares of its common stock pursuant to the Inducement Agreement.

Further, the Company received proceeds of $3,200 from the exercise of Convertible Promissory Note Warrants (Note8).

Warrants exercisable for little orno consideration are fully vested warrants that allow 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 thethree months ended* March 31, 2025:*

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A summary of option activity under the Company's equity incentive plan as of* March 31, 2025,and changes during thethree*-month period ended, is presented below.

The share-based compensation expense related to options for thethree months ended* March 31, 2025,and2024,* was $86 and $59, respectively. The fair value of options granted for thethree months ended* March 31, 2025,and2024,* was $34 and$nil, respectively.

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.

A summary of the Company’s nonvested options as of* March 31, 2025,and changes during thethree*-month period ended, is presented below.

As of* March 31, 2025,* there was$225 of total unrecognized compensation cost related to nonvested options granted. That cost is expected to be recognized over a period of 2.50 years.

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On* March 10, 2025,the Company granted 10,000 RSUs to certain management and directors. RSUs shall vest ineight* equal instalments at each quarter over a period oftwo years.

A summary of RSU activity under the Company's equity incentive plan as of* March 31, 2025,*and changes during the period then ended is presented below.

The share-based compensation expense related to RSUs for thethree months ended* March 31, 2025,and2024* was $1 and$nil, respectively. The fair value of RSUs granted for thethree months ended* March 31, 2025,and2024,* was $31 and$nil, respectively.

The fair value of each RSU is estimated based on grant-date fair value of the underlying share of common stock.

A summary of the Company’s nonvested RSUs as of* March 31, 2025,and changes during thethree* months period ended, is presented below.

As of* March 31, 2025,* there was $30 of total unrecognized compensation cost related to nonvested RSUs granted. That cost is expected to be recognized over a weighted-average period of 1.94 years.

On* March 10, 2025,*the Company granted 66,668 DSUs to certain management and directors. An aggregate of 33,332 DSUs vested on the date of the grant, with the remaining DSUs vesting in equal instalments each quarter over a period oftwo quarters.

A summary of DSU activity under the Company's equity incentive plan as of* March 31, 2025,*and changes during the period then ended is presented below.

The share-based compensation expense related to DSUs for thethree months ended* March 31, 2025,and2024* was $117 and$nil, respectively. The fair value of DSUs granted for thethree months ended* March 31, 2025,and2024,* was $209 and$nil, respectively.

The fair value of each DSU is estimated based on grant-date fair value of the underlying share of common stock.

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A summary of the Company’s nonvested DSUs as of* March 31, 2025,and changes during thethree* months period ended, is presented below.

As of* March 31, 2025,* there was $92 of total unrecognized compensation cost related to nonvested DSUs granted. That cost is expected to be recognized over a weighted-average period of 0.45 years.

NOTE12: BASIC AND DILUTED NET LOSS PER SHARE

Basic net loss per common share is computed by dividing net loss attributable to holders of common stock by the weighted average number of shares of common stock outstanding during the period. Weighted average number of shares of common stock outstanding during the period computation includes shares of common stock to be contractually issued as of the period end date and warrants exercisable for little orno consideration in relation to the share price. Shares of common stock that were issued and are subject to vesting conditions arenot considered outstanding during the requisite service period.

Diluted net loss per common share is computed by giving effect to all potential dilutive shares of common stock that were outstanding during the period when the effect is dilutive. As of* March 31, 2025,potential dilutive shares of common stock consist of shares issuable upon exercise of stock options, warrants, RSUs and DSUs.No adjustments have been made to the weighted average outstanding shares of common stock figures for thethree* months ended* March 31, 2025,or2024,* as the assumed conversion would be anti-dilutive.

The following table summarizes the potential shares of common stock that were excluded from the computation of diluted net loss per share, as such shares would have had an anti-dilutive effect:

As of* March 31, 2024,*a total of 753,952 potential issuable shares of common stock, consisting of 335,214 potential issuable shares on warrants,134,333 potential issuable shares on options, and 284,405 potential issuable shares on Series C Preferred Stock, were excluded from the computation of diluted net loss per share, as such shares would have had an anti-dilutive effect.

For the purposes of the computation of basic and diluted net loss per share, an amount recognized as a deemed dividend reduced net loss available to common stockholders in a manner similar to the application of thetwo-class method. The net loss available to common stockholders was adjusted by the deemed dividend associated with the Inducement Agreement (Note11.b).

NOTE13: RELATED PARTY TRANSACTIONS

On* March 10, 2025,the Company issued stock options to an officer to purchase up to an aggregate of 15,000 shares of common stock and granted 66,668 DSUs and 10,000 RSUs to certain management and directors (Note11*). An aggregate stock-based compensation expense of $117 was recognized relating to these awards during thethree months ended* March 31, 2025.*

NOTE14: REVENUE

NOTE15: SEGMENT REPORTING

The Company hasone reportable segment managed on a consolidated basis: BNA platform. The Company derives revenue primarily in North America and manages the business activities on a consolidated basis. The technology used in the customer arrangements is based on a single software platform that is deployed to and implemented by customers in a similar manner. The service term for the software arrangements is variable. The Company doesnot have intra-entity sales or transfers.

The Company’s chief operating decision maker (“CODM”) is the Chief Executive Officer, who reviews financial information presented on a consolidated basis to allocate resources, evaluate financial performance and make overall operating decisions. The measure of segment profit or loss that is most consistent with the consolidated financial statements is consolidated net loss. The accounting policies of our single reportable segment are the same as those for the consolidated financial statements. The level of disaggregation and amounts of significant segment expenses that are regularly provided to the CODM are the same as those presented in the consolidated statements of operations. Likewise, the measure of segment assets is reported on the consolidated balance sheets as total assets.

NOTE16: SUBSEQUENT EVENTS

On* April 30,2025, the Company acquired all outstanding stock of Evoke Neuroscience, Inc. (“Evoke”), a privately held company which provides customers with a package of hardware and software to measure the electrical activity of the brain. The consideration transferred of approximately $6,000 consists of $3,000 in cash and 857,149 shares of the Company’s shares of common stock for consideration of $3,000. The Company mayalso be subject to payment of contingent consideration up to $500 based on earnout targets. Due to the timing of the closing of this transaction, the Company hasnot* yet completed its evaluation of the accounting for this transaction, and the identification and determination of fair value of certain assets and liabilities acquired in accordance with ASC805, Business Combinations. The Company is evaluating the potential effects of this acquisition on the financial statements. Accordingly, financial information hasnot been provided as such information isnot currently readily available.

On* April 28, 2025,the Company issued 340,000 shares of common stock pursuant to the Inducement Agreement (Note11*).

On* April 28, 2025,*the Company entered into a settlement agreement relating to the termination of a former employee of the Company. Pursuant to the settlement agreement, the Company has agreed to issue 21,000 shares of the Company's shares of common stock as full and final settlement compensation.

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