Firefly Neuroscience (AIFF) risk factors, FY2024 10-K

Other

1. 01Recent Sales of Unregistered Securities
2. 02MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
3. 03Reverse Merger with WaveDancer
4. 04The Convertible Promissory Note and Warrant Offering
5. 05The ELOC Purchase Agreement
6. 06Research and Development Expenses
7. 07other expenses incurred to advance our research and development activities
8. 08General and Administrative Expenses
9. 09Critical Accounting Estimates
10. 10Selling and Marketing Expenses
11. 11General and Administration Expenses
12. 12Impairment of Intangible Assets
13. 13For the next 12 months, we expect to continue to incur negative cash flows from operations as we continue to make targeted investments in sales and marketing and research and development of our next generation BNA Platform
14. 14Known Trends, Events, and Uncertainties
15. 15On October 29, 2024, the Audit Committee dismissed Turner, Stone & Company LLP (“Turner Stone”) as our independent registered public accounting firm, effective immediately
16. 16Off-Balance Sheet Arrangements
17. 17Recent Accounting Pronouncements
18. 18Evaluation of Disclosure Controls and Procedures
19. 19Management’s Annual Report on Internal Control over Financial Reporting
20. 20During our evaluations of internal controls, we concluded that material weaknesses exist in our internal controls over financial reporting as outlined below. These material weaknesses did not result in any identified misstatements and there were not changes to previously reported financial results
21. 21Remediation Plan for the Material Weaknesses
22. 22Remediation efforts include but are not limited to (a) developing, documenting and enhancing processes surrounding ITGCs, and (b) hiring / contracting additional resources to support the financial reporting process
23. 23Directors and Executive Officers
24. 24Involvement in Certain Legal Proceedings
25. 25Composition of the Board of Directors
26. 26The Class I directors consist of David DeCaprio and Greg Lipschitz, to serve until the annual meeting of stockholders to be held in 2027, or until each one’s respective successor has been duly elected and qualified
27. 27The Class III director consists of Arun Menawat, whose term will expire at the third annual meeting of stockholders to be held following the Filing Date
28. 28We are required to comply with Nasdaq’s rules in determining whether a director is independent. The Board undertook a review of the independence of the individuals named above and determined that each of the directors except Greg Lipschitz qualify as “independent” as defined under the applicable Nasdaq rules
29. 29Committees of the Board of Directors
30. 30Code of Ethics and Business Conduct
31. 31Compensation Committee Interlocks and Insider Participation
32. 32Limitation on Liability and Indemnification of Directors and Officers
33. 33Delinquent Section 16(a) Reports
34. 34Summary Compensation Table - Years Ended December 31, 2024 and 2023
35. 35$ 98,629 $ - $ - $ 56,333 (8) $ - $ 154,962
36. 36Management Employment and Consulting Agreements
37. 37Gil Issachar, Chief Technology Officer
38. 38Paul Krzywicki, Chief Financial Officer
39. 39Greg Lipschitz, Chief Executive Officer
40. 40Stephen Purcell, Former Chief Financial Officer
41. 41Other Elements of Compensation
42. 42Potential Payments Upon Termination of Employment or Change in Control
43. 43Outstanding Equity Awards at Fiscal Year-End
44. 44Stephen Purcell (former Chief Financial Officer)
45. 45Additional Narrative to Director Compensation
46. 46Consists of a grant of options to purchase 55,183 shares of Firefly Common Stock made to 2686255 Ontario Inc., an entity controlled by Mr. Lipschitz, on July 8, 2023, of which 27,694 are currently exercisable
47. 47Narrative Disclosure to Director Compensation Table
48. 48Firefly 2007 Incentive Plan
49. 49Authorized Shares. A total of 300,000 shares of Firefly Common Stock have been authorized for the grant of awards under the Firefly 2007 Incentive Plan
50. 50Firefly 2023 Incentive Plan
51. 51Authorized Shares. A total of 4,440,355 shares of Common Stock have been authorized for the grant of awards under the Firefly 2023 Incentive Plan
52. 52Firefly Neuroscience, Inc. 2024 Long-Term Incentive Plan
53. 53SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
54. 54Represents beneficial ownership of less than 1%
55. 55Consists of shares underlying options to purchase up to 5,850 shares of Common Stock that are currently exercisable or exercisable within 60 days of March 25, 2025
56. 56Securities Authorized for Issuance Under Equity Compensation Plans
57. 57Represents shares available for award grant purposes under the 2024 Plan
58. 58Transactions with Related Persons
59. 59WaveDancer Related Party Transactions
60. 60WaveDancer believes the terms obtained or consideration that WaveDancer paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions
61. 61Firefly Related Party Transactions
62. 62Indemnification Agreements
63. 63We have granted equity awards to certain of our executive officers. For a description of equity awards granted to our named executive officers, see the section titled “Executive Compensation” included elsewhere in this filing
64. 64Related Party Transactions Policy
65. 65any other persons whom the Board determines may be considered to be related persons as defined by Item 404 of Regulation S-K promulgated under the Securities Act
66. 66Nominating and Corporate Governance Committee
67. 67Disclosure Controls and Procedures Committee
68. 68Independent Auditors’ Fees
69. 69Pre-Approval Policies and Procedures
70. 70The Company’s principal accountant did not provide, and the Audit Committee or the board of directors of the Company did not approve, any services that would have been described under “—Tax Fees”, “—Audit-Related Fees”, or “—All Other Fees” above for either of the last two fiscal years
71. 71ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
72. 72Agreement and Plan of Merger, dated November 15, 2023, by and among WaveDancer, Inc., FFN Merger Sub, Inc., and Firefly Neuroscience, Inc. (incorporated herein by reference to Annex A-1 to the Company’s registration statement on Form S-4/A, filed with the SEC on February 2, 2024)
73. 73Stock Purchase Agreement between Registrant and Wavetop Solutions, Inc., dated November 15, 2023 (incorporated herein by reference to Annex F to the Company’s registration statement on Form S-4/A, filed with the SEC on February 2, 2024)
74. 7410.20† Employment Agreement, dated as of March 12, 2025, by and between Deel Canada Services, Inc. and Paul Krzywicki
75. 75Opinion on the Financial Statements
76. 76Explanatory Paragraph – Going Concern
77. 77Convertible Promissory Note
78. 78We examined the executed securities purchase agreement and analyzed the terms in the agreement, such as the conversion price and conversion price adjustments, events of default, and other terms of the convertible note, and evaluated management’s analysis, accounting memorandum and supporting schedules
79. 79Opinion on the Consolidated Financial Statements
80. 80Common Stock Private Placement
81. 81Share-based compensation expense
82. 82Share exchange: former shareholders’ of WaveDancer
83. 83Warrants issued for convertible promissory note
84. 84BALANCE AT DECEMBER 31, 2024
85. 85Change in related party payable
86. 86Firefly 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
87. 87The 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)
88. 88Principles of consolidation
89. 89Use of estimates in the preparation of consolidated financial statements
90. 90ii) Warrants and Derivative liability
91. 91Functional currency and foreign currency translations
92. 92Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions
93. 93Cash, accounts receivable, accounts payable, 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
94. 94Derivative financial instruments
95. 95Shares issued for services
96. 96Revenue consists of BNA testing, equipment rental and the undertaking of projects and clinical studies
97. 97recognize revenue when (or as) the entity satisfies a performance obligation
98. 98Software development costs
99. 99Disaggregation of Income Statement Expenses
100. 100Induced Conversions of Convertible Debt Instruments
101. 101Accordingly, 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
102. 102As of December 31, 2024, 55,784 shares of common stock owned by WaveDancer’s pre-Merger shareholders were in Company’s treasury
103. 103warrants exercisable for up to 76,098 shares of common stock of the combined entity
104. 104NOTE 5: ACCOUNTS RECEIVABLE, NET
105. 105NOTE 6: PREPAID EXPENSES AND DEPOSITS
106. 106NOTE 8: INTANGIBLE ASSETS, NET
107. 107During the fourth quarter of 2024, management performed the assessment and determined that one of the capitalized upgrades was no longer expected to be utilized. Consequently, the upgrade was deemed fully impaired, resulting in the Company recording an impairment charge of $874
108. 108The Company bifurcated the Conversion Option and accounted for it as a derivative liability due to the conversion feature not being clearly and closely related to the economic characteristics of the host contract
109. 109NOTE 10: LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT
110. 110a. Royalty Commitment - Israeli Innovation Authority (“IIA”)
111. 111On February 16, 2023, the Company sold 3,383,784 shares of common stock at a price per share of $0.0041. The Company received aggregate gross proceeds from the offering of $133
112. 112On 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
113. 113Warrants exercisable for little or no consideration
114. 114Employees stock option plan
115. 115Restricted share units (“RSUs”)
116. 116Upon the consummation of the Merger on August 12, 2024, RSUs vested and the Company issued 59,264 shares of common stock and recognized $410 of share-based compensation expense
117. 117NOTE 13: BASIC AND DILUTED NET LOSS PER SHARE
118. 118On July 8, 2023, the Company granted options to its employees, officers, directors and consultants to purchase an aggregate of 327,421 shares of common stock in the capital of the Company (Note 12.e), 288,794 of these options were granted to related parties
119. 119NOTE 16: SEGMENT REPORTING
120. 120Nondeductible option expenses
121. 121The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities and certain carry-forward balances
122. 122The net deferred tax assets have been offset by a valuation allowance because it is not more likely than not the Company will realize the benefit of these deferred tax assets. The Company does not have any unrecognized tax benefits as of December 31, 2024 and 2023
123. 123$ 17 $ 17,733 $ 6,081 $ 67,706
124. 124In Canada, the taxation years of 2021-2024 remain open to assessment by the Canadian tax authority, which the tax authority can reassess within four years of the date it sent the original notice of assessment for the tax year given the Company is not a Canadian-controlled private corporation
125. 125NOTE 18: SUBSEQUENT EVENTS
126. 126On February 19, 2025, Convertible Promissory Note Warrants (Note 9) to purchase up to 800,000 warrants were exercised and 800,000 shares of common stock were issued. The Company received aggregate gross proceeds of $3,200
127. 127(Principal Financial and Accounting Officer)