Note 5 - The Merger |
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| Business Combination [Text Block] |
NOTE 4: BUSINESS COMBINATION
Evoke Neuroscience, Inc.
On April 30, 2025, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with Evoke Neuroscience, Inc. (“Evoke”) and stockholders of Evoke (the “Sellers”) to increase Firefly Neuroscience, Inc.’s capacity and expand its customer base. The Sellers sold and the Company purchased all of the issued and outstanding shares of Evoke, for a total purchase price consisting of: (i) $3,000 in cash (the “Cash Purchase Price”); (ii) shares of the Company’s common stock having an aggregate value of $3,000 priced at $3.50 per share (the “Shares”); and (iii) an earn-out payment in the form of additional shares of the Company’s common stock with an aggregate value of $500, contingent upon the achievement of specified revenue targets during a thirty-six (36) month earn-out period, all as further described in the Securities Purchase Agreement (the “Earn-Out Shares,” and collectively with the Cash Purchase Price and Share Consideration, the “Purchase Price”).
Each Seller agreed not to sell, transfer, or otherwise dispose of any Shares, or engage in any transaction that would transfer the economic benefits of the Shares during the Lock-Up Period (the “Lock-Up Period”) without the prior written consent of the Company. The Lock-Up Period began on the closing date and will end on the earlier of (a) six months after the closing date or (b) the effective date of a registration statement filed by the Company with the SEC covering the resale of the Shares. The Lock-Up Period expired on October 31, 2025.
The transactions contemplated under the Securities Purchase Agreement were closed on April 30, 2025, which were subject to customary closing conditions, including, without limitation, the completion of mutually satisfactory due diligence; compliance with applicable regulatory requirements; the Company entering into a satisfactory consulting agreement with the former CEO of Evoke; Evoke having no outstanding debt or liabilities in default; the receipt of any required shareholder approvals; and the delivery of evidence of debt payoff from the Company’s loan holders.
The aggregate purchase price was $6,221, which consisted of: (a) $3,000 in cash; (b) 857,142 shares of Company common stock with an acquisition date fair value of and (c) a liability associated with the Earn-Out Shares with an acquisition date fair value of $478, subject to the conditions described above.
The Company engaged a third-party independent valuation specialist to assist in the determination of fair values of intangible assets acquired and liabilities assumed for Evoke. The allocation of the purchase price was finalized during the year ended December 31, 2025.
In connection with the acquisition of Evoke, the Company acquired intangible assets in the form of developed technology, a trade name and non-compete agreements. The Company used the relief from royalty method when determining the fair value of the acquired trade name and developed technology. The fair value was determined by applying an estimated royalty rate to revenues, measuring the value the Company would pay in royalties to a market participant if it did not own the trade name and developed technology and had to license it from a third party. The trade name was assigned a useful life of years as the Company is expecting to transition the Evoke system under the Firefly product umbrella and the internally developed technology was assigned a useful life of years. The Company used the postulated loss of income method when determining the fair value of the non-compete agreements. The non-compete agreements were assigned a contractual useful life of years. Significant assumptions included a discount rate of 15%, royalty rates of 3.5% and an assumed income tax rate of 26.5%.
The fair value of working capital accounts was determined to be their carrying values due to the short-term nature of the assets and liabilities.
The contingent consideration associated with the Earn-Out Shares of $478 reflects the estimated fair value, at the acquisition date, of contingent future cash payments of up to $500 to the Sellers under an “earn-out” provision of the Securities Purchase Agreement. The Company determined the estimated acquisition date of fair value of the contingent consideration using a Monte Carlo simulation. Significant assumptions included a discount rate of 3.5% and an assumed income tax rate of 26.5% as well as projected net sales derived from internal forecasts and a three-month revenue volatility rate of 1.6%.
This contingent consideration liability will be remeasured at fair value each reporting period until the contingency is resolved, with changes in fair value recognized in operating expenses. During the year ended December 31, 2025, the Company did not recognize a loss on change in fair value of contingent consideration. Significant assumptions included a discount rate of 3.6% and an assumed income tax rate of 26.5% as well as projected net sales derived from internal forecasts and a three-month revenue volatility rate of 2.4%.
The components of working capital are as follows:
Goodwill was recorded based on the amount by which the purchase price exceeded the fair value of the net assets acquired and the amount is attributable to the reputation of the business acquired, the workforce in place and the synergies to be achieved from this acquisition. Goodwill of $5,175 from the acquisition of Evoke is not expected to be deductible for income tax purposes.
The consolidated financial statements of the Company include the results of operations of Evoke from April 30, 2025 to December 31, 2025 and do not include results of operations for periods prior to April 30, 2025. The results of operations of Evoke from April 30, 2025 to December 31, 2025 included revenues of $946 and a net loss of $157.
The following table presents the unaudited pro forma consolidated results of operations for the year ended December 31, 2025 and 2024 as if the acquisition of Evoke occurred at the beginning of fiscal year 2024. The pro forma information provided below is compiled from the preacquisition financial information of Evoke and includes pro forma adjustments to give effect to (i) amortization expense associated with the acquired intangible assets. The pro forma results are not necessarily indicative of (i) the results of operations that would have occurred had the operations of this acquisition actually been acquired at the beginning of fiscal year 2024 or (ii) future results of operations.
As of the date of the acquisition, the Company expected to collect all contractual cash flows related to receivables acquired in the acquisition. Acquisition-related costs of $50 were expensed as incurred and are recorded within general and administrative expenses on the consolidated statements of operations.
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| Business Combination [Text Block] |
NOTE 5: 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 year ended December 31, 2025:
The net working capital assumed from WaveDancer included $137 related to a pre-existing relationship, which was settled upon the Merger. The following table details the number of shares of common stock issued following the consummation of the Merger:
As of December 31, 2025, 55,784 shares of common stock owned by WaveDancer’s pre-Merger shareholders were in Company’s treasury.
In addition to the shares of common stock, WaveDancer’s shareholders retained:
As of December 31, 2024, all WaveDancer options expired. 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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