Firefly Neuroscience, Inc.(AIFF) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for Q2 2023 reflect decreased assets and equity, a $235,000 net income from continuing operations, driven by a $1.44 million litigation settlement gain, despite declining revenues Condensed Consolidated Balance Sheets As of June 30, 2023, total assets decreased to $6.25 million from $7.98 million, primarily due to the disposal of assets held for sale, leading to a decline in cash and stockholders' equity Balance Sheet Comparison (in thousands) | Account | June 30, 2023 | Dec 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $338.3 | $731.1 | -$392.8 | | Total current assets | $2,599.1 | $2,803.1 | -$204.0 | | Assets held for sale | $0.0 | $2,316.8 | -$2,316.8 | | Total assets | $6,247.3 | $7,981.2 | -$1,733.9 | | Liabilities & Equity | | | | | Revolving line of credit | $1,000.0 | $425.0 | +$575.0 | | Deferred acquisition consideration | $0.0 | $1,415.1 | -$1,415.1 | | Total liabilities | $3,629.7 | $4,251.3 | -$621.6 | | Total stockholders' equity | $2,617.6 | $3,729.9 | -$1,112.3 | Condensed Consolidated Statements of Operations Q2 2023 total revenues decreased 46% to $2.02 million due to lower software sales, yet operating income improved to $493,116 from a $1.6 million loss, driven by a $1.44 million litigation settlement gain, narrowing the H1 net loss Q2 2023 vs Q2 2022 (Three Months Ended June 30) | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $2,024,622 | $3,750,520 | -46.0% | | - Software Sales | $56,665 | $1,472,688 | -96.1% | | Gross Profit | $705,013 | $903,841 | -22.0% | | Gain on settlement of litigation | $1,442,468 | $0 | N/A | | Operating Income (Loss) | $493,116 | ($1,599,270) | +$2,092,386 | | Net Income (Loss) | $234,785 | ($1,525,442) | +$1,760,227 | | Diluted EPS | $0.01 | ($0.09) | +$0.10 | H1 2023 vs H1 2022 (Six Months Ended June 30) | Metric | H1 2023 | H1 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $4,184,745 | $6,746,032 | -38.0% | | Gross Profit | $1,361,811 | $1,600,311 | -14.9% | | Operating Loss | ($461,614) | ($3,276,332) | +85.9% | | Net Loss | ($1,115,167) | ($3,603,749) | +69.1% | | Diluted EPS | ($0.06) | ($0.21) | +$0.15 | Condensed Consolidated Statements of Cash Flows For H1 2023, net cash used in operating activities improved to $2.15 million, with investing activities providing $936,000 and financing activities $825,000, resulting in a $392,781 decrease in cash, ending at $338,300 Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($2,153,536) | ($4,356,478) | | Net cash provided by (used in) investing activities | $935,974 | ($31,033) | | Net cash provided by financing activities | $824,781 | $35,191 | | Net decrease in cash | ($392,781) | ($4,352,320) | | Cash at end of period | $338,300 | $578,982 | Notes to Condensed Consolidated Financial Statements Key notes include the GMI subsidiary sale as a discontinued operation, substantial doubt about going concern requiring capital by Q2 2024, a $1.44 million litigation settlement gain, and a post-quarter $1.4 million cash infusion from GMDC interest sale - The company has substantial doubt about its ability to continue as a going concern, estimating a need for additional capital by Q2 2024 to meet ongoing operating cash flow requirements[25][123] - On March 17, 2023, the company sold 75.1% of its GMI subsidiary to GMDC, resulting in deconsolidation and treatment as a discontinued operation, with consideration including cash, stock, and contingent payments[23][40] - On April 28, 2023, litigation with GMI's former owner was settled, extinguishing a $1.5 million deferred consideration liability and resulting in a net gain of $1,442,468[79][80][81] - Subsequent to quarter-end, on August 9, 2023, the company sold its remaining equity interest in GMDC for $1.4 million in cash, expecting a recognized gain of approximately $382,525[90][91][92] - The company has a high concentration of revenue from U.S. government contracts, with one prime contractor accounting for 55.1% of total revenue for Q2 2023[33] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 46% Q2 2023 revenue decline to strategic software de-emphasis, with operating income improving due to a $1.44 million litigation gain and reduced SG&A, while acknowledging going concern doubts, mitigated by a post-quarter $1.4 million cash infusion Results of Operations Q2 2023 revenue declined by $1.73 million (46%) due to reduced software sales, but operating income improved by $2.1 million to $493,000, driven by a $1.44 million litigation gain and $849,000 SG&A reduction, narrowing the H1 operating loss - The revenue decrease for Q2 and H1 2023 was primarily due to the company's de-emphasis of third-party software sales, which fell from 39.3% of revenue in Q2 2022 to 2.8% in Q2 2023[106][112] - Operating income for Q2 2023 improved by $2.1 million year-over-year, primarily due to a $1.44 million gain on litigation settlement and an $849,000 decrease in SG&A expenses[109] SG&A Expense Breakdown (Three Months Ended June 30) | Expense Category | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Salaries and benefits | $528,573 | $765,710 | ($237,137) | | Stock based compensation | $88,159 | $343,492 | ($255,333) | | Legal and professional fees | $343,042 | $424,866 | ($81,824) | | Total SG&A | $1,654,365 | $2,503,111 | ($848,746) | Liquidity and Capital Resources As of June 30, 2023, the company had a $780,357 working capital deficit and $338,300 cash, raising substantial doubt about its going concern, though a subsequent $1.4 million cash infusion from GMDC sale improved liquidity - The company had a working capital deficit of $780,357 and cash of $338,300 as of June 30, 2023[122] - Management states there is substantial doubt about the company's ability to continue as a going concern, estimating a need to raise capital by Q1 2024[123] - On August 9, 2023, the company received $1.4 million in cash from the sale of its GMDC common stock and subsequently repaid $500,000 on its line of credit[124] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 30, 2023, the company's disclosure controls and procedures are effective[125] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2023[126] PART II. OTHER INFORMATION Legal Proceedings A lawsuit filed by Jeffrey Gerald concerning severance and deferred consideration from the GMI acquisition was fully settled on April 28, 2023, with no other pending legal proceedings reported - A lawsuit filed by Jeffrey Gerald regarding severance pay and deferred consideration from the GMI acquisition was settled on April 28, 2023[130][131] Risk Factors No material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K have occurred - There have been no material changes to the risk factors disclosed in the company's 2022 Form 10-K[133] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[133]