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What changed in Spectral AI, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Spectral AI, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+268 added−250 removedSource: 10-K (2025-03-31) vs 10-K (2024-03-29)

Top changes in Spectral AI, Inc.'s 2024 10-K

268 paragraphs added · 250 removed · 187 edited across 4 sections

Item 1. Business

Business — how the company describes what it does

124 edited+19 added−33 removed541 unchanged
Biggest changeThe completion of any clinical trials of our DeepView System, or other studies that we may be required to undertake in the future, could be delayed, suspended or terminated for several reasons, including: ● we may fail to or be unable to conduct the clinical trials in accordance with regulatory requirements; ● selection and onboarding of clinical sites or a Contract Research Organization (“CRO”) may take longer than anticipated; ● sites participating in a clinical trial may drop out of the trial, which may require us to engage new sites for an expansion of the number of sites that are permitted to be involved in the trial; ● patients may not enroll in, remain in or complete, clinical trials at the rates we expect; ● adverse events or unexpected developments may occur that affect the patients’ safety; ● supply issues may prevent us from continuing to use our investigational devices in clinical evaluations; and ● clinical investigators may not perform our clinical trials on our anticipated schedule or consistent with the clinical trial protocol and good clinical practices. 14 In addition, the FDA, applicable foreign regulatory entities or notified body can delay, limit or deny clearance, approval, De Novo classification, with regards to the US, or certification of a device for many reasons, including: ● our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that our products are (i) substantially equivalent, in the case of a 510(k) clearance, (ii) safe or effective for their intended uses, in the case of a PMA, or (iii) that general controls alone or general and special controls together provide reasonable assurance of safety and effectiveness for the intended use, in the case of De Novo classification; ● the disagreement of the FDA or the applicable foreign regulatory body with the design or implementation of our clinical trials (including, for purposes of the EU, clinical investigations) or the interpretation of data from pre-clinical studies or clinical trials, as applicable and to the extent required to support marketing authorization or certification; ● our inability to demonstrate that the clinical and other benefits of the device outweigh the risks; ● the manufacturing process or facilities we use may not meet applicable requirements; ● unanticipated discovery of issues that relate to safety or effectiveness of the device during or after the regulatory review process; and ● the potential for policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data, as applicable, and/or regulatory filings insufficient for market authorization, De Novo classification, or certification.
Biggest changeIn addition, the FDA, applicable foreign regulatory entities or notified body can delay, limit or deny clearance, approval, De Novo classification, with regards to the US, or certification of a device for many reasons, including: ● our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that our products are (i) substantially equivalent, in the case of a 510(k) clearance, (ii) safe or effective for their intended uses, in the case of a PMA, or (iii) that general controls alone or general and special controls together provide reasonable assurance of safety and effectiveness for the intended use, in the case of De Novo classification; ● the disagreement of the FDA or the applicable foreign regulatory body with the design or implementation of our clinical trials (including, for purposes of the EU, clinical investigations) or the interpretation of data from pre-clinical studies or clinical trials, as applicable and to the extent required to support marketing authorization or certification; ● our inability to demonstrate that the clinical and other benefits of the device outweigh the risks; ● the manufacturing process or facilities we use may not meet applicable requirements; ● unanticipated discovery of issues that relate to safety or effectiveness of the device during or after the regulatory review process; and ● the potential for policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data, as applicable, and/or regulatory filings insufficient for market authorization, De Novo classification, or certification.
Doing business internationally involves a number of risks, including: ● difficulties in staffing and managing our international operations; ● multiple, conflicting and changing laws and regulations such as tax laws, privacy laws, export and import restrictions, employment laws, regulatory requirements and other governmental clearances, approvals, permits and licenses; ● reduced or varied protection for intellectual property rights in some countries; ● obtaining regulatory clearance, approval or certification where required for our products in various countries; 33 ● requirements to maintain data and the processing of that data on servers located within such countries; ● complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems; ● limits on our ability to penetrate international markets if we are required to manufacture our products locally; ● financial risks, such as longer payment cycles, difficulty collecting accounts receivable, foreign tax laws and complexities of foreign value-added tax systems, the effect of local and regional financial pressures on demand and payment for our products and exposure to foreign currency exchange rate fluctuations; ● restrictions on the site-of-service for use of our products and the economics related thereto for clinicians, providers and payors; ● natural disasters, political and economic instability, including wars, terrorism, political unrest, outbreak of disease, boycotts, curtailment of trade and other market restrictions; and ● regulatory and compliance risks that relate to maintaining accurate information and control over activities subject to regulation under the United States Foreign Corrupt Practices Act of 1977, or FCPA, U.K.
Doing business internationally involves a number of risks, including: ● difficulties in staffing and managing our international operations; ● multiple, conflicting and changing laws and regulations such as tax laws, privacy laws, export and import restrictions, employment laws, regulatory requirements and other governmental clearances, approvals, permits and licenses; ● reduced or varied protection for intellectual property rights in some countries; ● obtaining regulatory clearance, approval or certification where required for our products in various countries; ● requirements to maintain data and the processing of that data on servers located within such countries; ● complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems; ● limits on our ability to penetrate international markets if we are required to manufacture our products locally; ● financial risks, such as longer payment cycles, difficulty collecting accounts receivable, foreign tax laws and complexities of foreign value-added tax systems, the effect of local and regional financial pressures on demand and payment for our products and exposure to foreign currency exchange rate fluctuations; ● restrictions on the site-of-service for use of our products and the economics related thereto for clinicians, providers and payors; ● natural disasters, political and economic instability, including wars, terrorism, political unrest, outbreak of disease, boycotts, curtailment of trade and other market restrictions; and ● regulatory and compliance risks that relate to maintaining accurate information and control over activities subject to regulation under the United States Foreign Corrupt Practices Act of 1977, or FCPA, U.K.
There are also criminal penalties, including imprisonment and criminal fines, for making or presenting a false or fictitious or fraudulent claim or statement to the federal government; 19 ● criminal healthcare statutes that were added by the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and its implementing regulations, which impose criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for healthcare benefits, items or services by a healthcare benefit program, which includes both government and privately funded benefits programs; similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate them in order to have committed a violation; ● the Eliminating Kickbacks in Recovery Act (“EKRA”), 18 U.S.C. § 220, makes it a federal crime for anyone, with respect to services covered by a health care benefit program, to knowingly and willfully solicit or receive any remuneration in return for referring a patient or patronage to a recovery home, clinical treatment facility, or laboratory; or to pay or offer any remuneration to induce a referral of an individual to a recovery home, clinical treatment facility, or laboratory; or in exchange for an individual using the services of that recovery home, clinical treatment facility, or laboratory.
There are also criminal penalties, including imprisonment and criminal fines, for making or presenting a false or fictitious or fraudulent claim or statement to the federal government; ● criminal healthcare statutes that were added by the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and its implementing regulations, which impose criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for healthcare benefits, items or services by a healthcare benefit program, which includes both government and privately funded benefits programs; similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate them in order to have committed a violation; ● the Eliminating Kickbacks in Recovery Act (“EKRA”), 18 U.S.C. § 220, makes it a federal crime for anyone, with respect to services covered by a health care benefit program, to knowingly and willfully solicit or receive any remuneration in return for referring a patient or patronage to a recovery home, clinical treatment facility, or laboratory; or to pay or offer any remuneration to induce a referral of an individual to a recovery home, clinical treatment facility, or laboratory; or in exchange for an individual using the services of that recovery home, clinical treatment facility, or laboratory.
Beginning January 1, 2022, manufacturers will also be required to report payments and other transfers of value made during the prior calendar year to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and anesthesiology assistants; and ● foreign and state laws and regulations, including state payment reporting, anti-kickback and false claims laws, that may apply to items or services reimbursed by any third-party payor, including private insurers; foreign and state laws that require medical device companies to comply with the medical device industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government and other national governments, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; and foreign and state laws and regulations that require drug and device manufacturers to report information related to payments and other transfers of value to dental practitioners and other healthcare providers or marketing expenditures, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Beginning January 1, 2022, manufacturers will also be required to report payments and other transfers of value made during the prior calendar year to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and anesthesiology assistants; and 22 ● foreign and state laws and regulations, including state payment reporting, anti-kickback and false claims laws, that may apply to items or services reimbursed by any third-party payor, including private insurers; foreign and state laws that require medical device companies to comply with the medical device industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government and other national governments, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; and foreign and state laws and regulations that require drug and device manufacturers to report information related to payments and other transfers of value to dental practitioners and other healthcare providers or marketing expenditures, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Our future funding requirements will depend on many factors, including: ● the cost of our research and development activities; ● the scope, rate of progress and cost of our clinical studies; ● the cost and timing of additional regulatory clearances, approvals, De Novo classifications, or certifications; ● the degree and rate of market acceptance of our DeepView System, assuming we receive the necessary regulatory clearances, approvals, De Novo classifications, or certifications (each of which cannot be guaranteed and may take longer than planned); ● the scope and timing of investment in our sales force and expansion of our commercial organization; ● the costs associated with manufacturing our DeepView System at increased production levels; ● the terms and timing of any collaborative, licensing and other arrangements that we may establish; ● the costs associated with any product recall that may occur; ● the costs of attaining, defending and enforcing our intellectual property rights; ● the emergence of competing new products or technologies or other adverse market developments; and ● the impact on our business from the global COVID-19 pandemic or any other pandemic, epidemic or outbreak of an infectious disease.
Our future funding requirements will depend on many factors, including: ● the cost of our research and development activities; ● the scope, rate of progress and cost of our clinical studies; 13 ● the cost and timing of additional regulatory clearances, approvals, De Novo classifications, or certifications; ● the degree and rate of market acceptance of our DeepView System, assuming we receive the necessary regulatory clearances, approvals, De Novo classifications, or certifications (each of which cannot be guaranteed and may take longer than planned); ● the scope and timing of investment in our sales force and expansion of our commercial organization; ● the costs associated with manufacturing our DeepView System at increased production levels; ● the terms and timing of any collaborative, licensing and other arrangements that we may establish; ● the costs associated with any product recall that may occur; ● the costs of attaining, defending and enforcing our intellectual property rights; ● the emergence of competing new products or technologies or other adverse market developments; and ● the impact on our business from the global COVID-19 pandemic or any other pandemic, epidemic or outbreak of an infectious disease.
Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability; ● the U.S. federal civil False Claims Act, which prohibits any person from, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment of government funds; knowingly making, using or causing to be made or used, a false record or statement material to an obligation to pay money to the government or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the U.S. federal government.
Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability; 21 ● the U.S. federal civil False Claims Act, which prohibits any person from, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment of government funds; knowingly making, using or causing to be made or used, a false record or statement material to an obligation to pay money to the government or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the U.S. federal government.
If this were to occur, we could face significant material adverse consequences, including: ● a limited availability of market quotations for our securities; ● reduced liquidity for our securities; ● a determination that our Common Stock are a “penny stock” which will require brokers trading in our Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; ● a limited amount of news and analyst coverage; and ● a decreased ability to issue additional securities or obtain additional financing in the future.
If this were to occur, we could face significant material adverse consequences, including: ● a limited availability of market quotations for our securities; ● reduced liquidity for our securities; ● a determination that our Common Stock are a “penny stock” which will require brokers trading in our Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; 50 ● a limited amount of news and analyst coverage; and ● a decreased ability to issue additional securities or obtain additional financing in the future.
Any of the foregoing problems, including future product liability claims or recalls, regardless of their ultimate outcome, could harm our reputation and have a material adverse effect on our business, results of operations, financial condition and cash flows. 18 The FDA and other regulatory enforcement agencies actively enforce the laws and regulations prohibiting the promotion of off-label or unapproved uses.
Any of the foregoing problems, including future product liability claims or recalls, regardless of their ultimate outcome, could harm our reputation and have a material adverse effect on our business, results of operations, financial condition and cash flows. The FDA and other regulatory enforcement agencies actively enforce the laws and regulations prohibiting the promotion of off-label or unapproved uses.
If our software or technologies, individually or collectively, do not function reliably or fail to meet clinician or payor expectations of performance or outcomes, then clinicians may stop using our products and payors could attempt to cancel their contracts with us. Proprietary software development is time-consuming, expensive and complex, and may involve unforeseen difficulties.
If our software or technologies, individually or collectively, do not function reliably or fail to meet clinician or payor expectations of performance or outcomes, then clinicians may stop using our products and payors could attempt to cancel their contracts with us. 34 Proprietary software development is time-consuming, expensive and complex, and may involve unforeseen difficulties.
Any of the foregoing could materially and adversely affect our business, financial condition, prospects and results of operations. 40 Further, it is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology, and in such cases, we could not assert any trade secret rights against such parties.
Any of the foregoing could materially and adversely affect our business, financial condition, prospects and results of operations. Further, it is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology, and in such cases, we could not assert any trade secret rights against such parties.
Consequently, we may be unable to prevent our proprietary technology from being exploited abroad, which could affect our ability to expand to international markets or require costly efforts to protect our technology. To the extent our intellectual property or other proprietary information protection is incomplete, we are exposed to a greater risk of direct competition.
Consequently, we may be unable to prevent our proprietary technology from being exploited abroad, which could affect our ability to expand to international markets or require costly efforts to protect our technology. 46 To the extent our intellectual property or other proprietary information protection is incomplete, we are exposed to a greater risk of direct competition.
In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on Nasdaq. 47 If securities analysts do not publish research or reports about us, or if they issue unfavorable commentary about us or our industry or downgrade our Common Stock, the price of our Common Stock could decline.
In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on Nasdaq. If securities analysts do not publish research or reports about us, or if they issue unfavorable commentary about us or our industry or downgrade our Common Stock, the price of our Common Stock could decline.
We believe we have the pre-eminent proprietary clinical wound database. The depth and quality of our proprietary data is critical to developing a leading wound assessment technology with demonstrated clinical need across burn, DFU and other indications with a positive impact on health economics and patient outcomes, while safeguarding patient data and privacy.
We believe we have the pre-eminent proprietary clinical wound database. The depth and quality of our proprietary data is critical to developing a leading wound assessment technology with demonstrated clinical need across burn and other indications with a positive impact on health economics and patient outcomes, while safeguarding patient data and privacy.
To manage third-party risk, we maintain a third-party risk management program, which is designed to assess the security controls of our third parties. The assessment methodology is based on risk and relies on the data, access, connectivity, and criticality of the services that the third-party offers. We maintain relationships with legal counsel to inform our cybersecurity and data privacy programs.
To manage third-party risk, we maintain a third-party risk management program,which is designed to assess the security controls of our third parties. The assessment methodology is based on risk and relies on the data, access, connectivity, and criticality of the services that the third-party offers. 56 We maintain relationships with legal counsel to inform our cybersecurity and data privacy programs.
If any of these events were to occur, our business, results of operations and financial condition could be materially adversely affected. We must comply with environmental and occupational safety laws. Our research and development programs as well as our manufacturing operations involve the controlled use of hazardous materials.
If any of these events were to occur, our business, results of operations and financial condition could be materially adversely affected. 26 We must comply with environmental and occupational safety laws. Our research and development programs as well as our manufacturing operations involve the controlled use of hazardous materials.
If the market for our DeepView System fails to develop or develops more slowly than expected, our business and operating results would be materially and adversely affected. 23 We believe that our DeepView System will allow clinicians to make more accurate and efficient treatment decisions in the wound care sector.
If the market for our DeepView System fails to develop or develops more slowly than expected, our business and operating results would be materially and adversely affected. We believe that our DeepView System will allow clinicians to make more accurate and efficient treatment decisions in the wound care sector.
Our efforts to enforce or protect our proprietary rights related to trademarks, trade names, and service marks may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our financial condition or results of operations. 41 Trademark litigation can be expensive, and the outcome can be highly uncertain.
Our efforts to enforce or protect our proprietary rights related to trademarks, trade names, and service marks may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our financial condition or results of operations. Trademark litigation can be expensive, and the outcome can be highly uncertain.
Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. Moreover, some of our patents and patent applications in the future may be jointly owned with third parties.
Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. 48 Moreover, some of our patents and patent applications in the future may be jointly owned with third parties.
As a result, the Company’s investors could lose confidence in its reported financial information, the market price of the Common Stock could decline and the Company could be subject to sanctions or investigations by the SEC or other regulatory authorities. 46 Our internal controls over financial reporting currently do not meet all of the standards contemplated by Section 404 of the Sarbanes-Oxley Act of 2002, as amended (“SOX”), and failure to achieve and maintain effective internal controls over financial reporting in accordance with Section 404 of SOX could impair our ability to produce timely and accurate financial statements or comply with applicable regulations and have a material adverse effect on our business.
As a result, the Company’s investors could lose confidence in its reported financial information, the market price of the Common Stock could decline and the Company could be subject to sanctions or investigations by the SEC or other regulatory authorities. 53 Our internal controls over financial reporting currently do not meet all of the standards contemplated by Section 404 of the Sarbanes-Oxley Act of 2002, as amended (“SOX”), and failure to achieve and maintain effective internal controls over financial reporting in accordance with Section 404 of SOX could impair our ability to produce timely and accurate financial statements or comply with applicable regulations and have a material adverse effect on our business.
Any inability to manage growth could delay the execution of our business plans or disrupt our operations. We are highly dependent on our senior management, directors and key personnel, and our business could be harmed if we are unable to attract and retain personnel necessary for our success.
Any inability to manage growth could delay the execution of our business plans or disrupt our operations. 33 We are highly dependent on our senior management, directors and key personnel, and our business could be harmed if we are unable to attract and retain personnel necessary for our success.
Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, suppliers, consultants, advisors and other third parties, any of these parties may breach such agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek and obtain patent protection. 34 We may choose not to seek patent protection for certain innovations and may choose not to pursue patent protection in certain jurisdictions, and under the laws of certain jurisdictions, patents or other intellectual property rights may be unavailable or limited in scope.
Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, suppliers, consultants, advisors and other third parties, any of these parties may breach such agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek and obtain patent protection. 39 We may choose not to seek patent protection for certain innovations and may choose not to pursue patent protection in certain jurisdictions, and under the laws of certain jurisdictions, patents or other intellectual property rights may be unavailable or limited in scope.
Bribery Act of 2010 and comparable laws and regulations in other countries. Any of these factors could significantly harm our future international expansion and operations and, consequently, have a material adverse effect on our business, financial condition and results of operations.
Bribery Act of 2010 and comparable laws and regulations in other countries. 38 Any of these factors could significantly harm our future international expansion and operations and, consequently, have a material adverse effect on our business, financial condition and results of operations.
Any of the foregoing could result in a material adverse effect on our business, financial condition, prospects and results of operations. 39 We may be subject to claims that our employees, consultants, advisors, or contractors have misappropriated the intellectual property of a third party, including trade secrets or know-how, or are in breach of a non-competition or non-solicitation agreement with our competitors, and third parties may claim an ownership interest in intellectual property we regard as our own.
Any of the foregoing could result in a material adverse effect on our business, financial condition, prospects and results of operations. 45 We may be subject to claims that our employees, consultants, advisors, or contractors have misappropriated the intellectual property of a third party, including trade secrets or know-how, or are in breach of a non-competition or non-solicitation agreement with our competitors, and third parties may claim an ownership interest in intellectual property we regard as our own.
Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we were the first to file any patent application related to our products or invent any of the inventions claimed in our patents or patent applications. 38 The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation.
Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we were the first to file any patent application related to our products or invent any of the inventions claimed in our patents or patent applications. 44 The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation.
Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives. 35 Our success will also depend, in part, on preserving our trade secrets, maintaining the security of our data and know-how, and obtaining and maintaining other intellectual property rights.
Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives. 40 Our success will also depend, in part, on preserving our trade secrets, maintaining the security of our data and know-how, and obtaining and maintaining other intellectual property rights.
Any of the foregoing consequences could seriously harm our business and our financial results. 20 Healthcare reform measures could hinder or prevent the commercial success of our DeepView System.
Any of the foregoing consequences could seriously harm our business and our financial results. Healthcare reform measures could hinder or prevent the commercial success of our DeepView System.
As of December 31, 2023, and through the date of this filing, we are not aware of any material cybersecurity incidents that have impacted the Company. We face risks of incidents, whether through cyber attacks or cyber intrusions through the Cloud, the Internet, phishing attempts, ransomware and other forms of malware, computer viruses, email attachments, extortion, and other scams.
As of December 31, 2024, and through the date of this filing, we are not aware of any material cybersecurity incidents that have impacted the Company. We face risks of incidents, whether through cyber attacks or cyber intrusions through the Cloud, the Internet, phishing attempts, ransomware and other forms of malware, computer viruses, email attachments, extortion, and other scams.
Factors affecting the trading price of the Company’s securities may include: ● actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us; ● changes in the market’s expectations about the Company’s operating results; ● success of competitors; ● the public’s reaction to our press releases, other public announcements and filings with the SEC, ● operating results failing to meet the expectations of securities analysts or investors in a particular period; 45 ● changes in financial estimates and recommendations by securities analysts concerning the Company or the industry in which the Company operates in general; ● operating and stock price performance of other companies that investors deem comparable to the Company; ● ability to market new and enhanced products and services on a timely basis; ● changes in laws and regulations affecting our business; ● commencement of, or involvement in, litigation involving the Company; ● changes in the Company’s capital structure, such as future issuances of securities or the incurrence of additional debt; ● the volume of shares of the Company’s common stock available for public sale; ● any major change in the Company’s board or management; ● sales of substantial amounts of the Company’s common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and ● general economic and political conditions such as recessions, changes in interest rates, changes in fuel prices, international currency fluctuations and acts of war or terrorism.
Factors affecting the trading price of the Company’s securities may include: ● actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us; ● changes in the market’s expectations about the Company’s operating results; ● success of competitors; ● the public’s reaction to our press releases, other public announcements and filings with the SEC, ● operating results failing to meet the expectations of securities analysts or investors in a particular period; ● changes in financial estimates and recommendations by securities analysts concerning the Company or the industry in which the Company operates in general; ● operating and stock price performance of other companies that investors deem comparable to the Company; ● ability to market new and enhanced products and services on a timely basis; ● changes in laws and regulations affecting our business; ● commencement of, or involvement in, litigation involving the Company; ● changes in the Company’s capital structure, such as future issuances of securities or the incurrence of additional debt; ● the volume of shares of the Company’s common stock available for public sale; ● any major change in the Company’s board or management; ● sales of substantial amounts of the Company’s common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and ● general economic and political conditions such as recessions, changes in interest rates, changes in fuel prices, international currency fluctuations and acts of war or terrorism. 52 Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance.
In addition, though we are currently focused on the DFU and burn applications for DeepView, there are other pipeline applications that we are considering for future commercialization. However, we may be unable to achieve these goals. Approval or clearance from the FDA and comparable regulatory bodies may never be obtained.
In addition, though we are currently focused on the burn application for DeepView, there are other pipeline applications that we are considering for future commercialization. However, we may be unable to achieve these goals. Approval or clearance from the FDA and comparable regulatory bodies may never be obtained.
For example: ● others may be able to make products that are similar to our products or utilize similar technology but that are not covered by the claims of our patents or that incorporate certain technology in our products that is in the public domain; ● we, or our future licensors or collaborators, might not have been the first to make the inventions covered by the applicable issued patent or pending patent application that we own now or may own or license in the future; ● we, or our future licensors or collaborators, might not have been the first to file patent applications covering certain of our or their inventions; ● we, or our future licensors or collaborators, may fail to meet our obligations to the U.S. government regarding any future patents and patent applications funded by U.S. government grants, leading to the loss or unenforceability of patent rights; ● others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; ● it is possible that our patents or patent applications omit individuals who should be listed as inventors or include individuals that should not be listed as inventors, which may cause these patents or patents issuing from these patent applications to be held invalid or unenforceable; ● claims of our patents or patent applications, if and when issued, may not cover our products or technologies or competitive products or technologies; ● the inventors of our patents or patent applications may become involved with competitors, develop products or processes that design around our patents, or become hostile to us or the patents or patent applications on which they are named as inventors; ● our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; ● we have engaged in scientific collaborations in the past and will continue to do so in the future and our collaborators may develop adjacent or competing products that are outside the scope of our patents; ● we may not develop additional proprietary technologies that are patentable; ● the patents of others may harm our business; or ● we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third-party may subsequently file a patent covering such intellectual property. 43 Any of the foregoing could harm our business, financial condition, prospects and results of operations.
For example: ● others may be able to make products that are similar to our products or utilize similar technology but that are not covered by the claims of our patents or that incorporate certain technology in our products that is in the public domain; ● we, or our future licensors or collaborators, might not have been the first to make the inventions covered by the applicable issued patent or pending patent application that we own now or may own or license in the future; ● we, or our future licensors or collaborators, might not have been the first to file patent applications covering certain of our or their inventions; ● we, or our future licensors or collaborators, may fail to meet our obligations to the U.S. government regarding any future patents and patent applications funded by U.S. government grants, leading to the loss or unenforceability of patent rights; ● others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; ● it is possible that our patents or patent applications omit individuals who should be listed as inventors or include individuals that should not be listed as inventors, which may cause these patents or patents issuing from these patent applications to be held invalid or unenforceable; 49 ● claims of our patents or patent applications, if and when issued, may not cover our products or technologies or competitive products or technologies; ● the inventors of our patents or patent applications may become involved with competitors, develop products or processes that design around our patents, or become hostile to us or the patents or patent applications on which they are named as inventors; ● our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; ● we have engaged in scientific collaborations in the past and will continue to do so in the future and our collaborators may develop adjacent or competing products that are outside the scope of our patents; ● we may not develop additional proprietary technologies that are patentable; ● the patents of others may harm our business; or ● we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third-party may subsequently file a patent covering such intellectual property.
In addition, the shares of our Common Stock reserved for future issuance under the Spectral AI, Inc. 2023 Equity Incentive Plan, which will be approved and adopted by the Company at its first annual meeting following the Business Combination (“Equity Incentive Plan”) will become eligible for sale in the public market once those shares are issued, subject to provisions relating to various vesting agreements, lock-up agreements and, in some cases, limitations on volume and manner of sale by affiliates under Rule 144, as applicable.
In addition, the shares of our Common Stock reserved for future issuance under the Spectral AI, Inc. 2023 Equity Incentive Plan, which was approved and adopted by the Company at its first annual meeting following the Business Combination (“Equity Incentive Plan”) in May 2024, will become eligible for sale in the public market once those shares are issued, subject to provisions relating to various vesting agreements, lock-up agreements and, in some cases, limitations on volume and manner of sale by affiliates under Rule 144, as applicable.
The Company has enrolled subjects in its DFU studies in clinical and academic sites across the US and the EU across well-known medical facilities. The Company has also signed with international partners, including well-respected institutions in the field.
The Company has enrolled subjects in its validation studies in clinical and academic sites across the US and the EU across well-known medical facilities. The Company has also signed with international partners, including well-respected institutions in the field.
We will continue to primarily focus on protecting our intellectual property in the United States, UK and the EU as those are the first commercial markets for our products. We cannot assure you that our intellectual property position will not be challenged or that all patents for which we have applied will be granted.
We will continue to primarily focus on protecting our intellectual property in the United States, UK and the EU as those represent the first significant commercial markets for our products. We cannot assure you that our intellectual property position will not be challenged or that all patents for which we have applied will be granted.
Outstanding warrants to purchase an aggregate of 8,433,333 shares of Common Stock will become exercisable in accordance with the terms of the Warrant Agreement governing those securities. Each warrant entitles the registered holder to purchase one share of Common Stock at a price of $11.50 per full share.
Outstanding warrants to purchase an aggregate of 8,433,333 shares of Common Stock will become exercisable in accordance with the terms of the Warrant Agreement governing those securities. Each warrant originally entitled the registered holder to purchase one share of Common Stock at a price of $11.50 per full share.
Therefore, our future growth and prospects will depend on our ability to manage this growth. We expect to significantly increase the size of our organization over the next several years. As a result, we may encounter difficulties in managing our growth, which could disrupt our operations and/or increase our net losses. As of March 25, 2024, we had 80 employees.
Therefore, our future growth and prospects will depend on our ability to manage this growth. We expect to significantly increase the size of our organization over the next several years. As a result, we may encounter difficulties in managing our growth, which could disrupt our operations and/or increase our net losses. As of March 25, 2025, we had 76 employees.
We protect our DeepView System trademarks primarily in four classes: pre-recorded/downloadable software, surgical, medical apparatus, computer and scientific services and medical and healthcare services. As of December 31, 2023, we maintain a portfolio of 64 trademarks and nine trademark applications pending relating to our DeepView and SnapShot product offerings.
We protect our DeepView System trademarks primarily in four classes: pre-recorded/downloadable software, surgical, medical apparatus, computer and scientific services and medical and healthcare services. As of December 31, 2024, we maintain a portfolio of 68 trademarks and nine trademark applications pending relating to our DeepView and SnapShot product offerings.
Even if we can prove the effectiveness of our DeepView System through clinical trials, there may not be broad adoption and use of our device and clinicians may elect not to use our DeepView System for any number of reasons, including: ● lack of experience with our DeepView System and concerns that we are new to market; ● perceived liability risk generally associated with the use of our device; ● lack or perceived lack of (i) sufficient clinical evidence regarding our claims of superior diagnostic assessment and (ii) long-term data, supporting clinical benefits or the cost-effectiveness of our device over existing diagnostic alternatives; ● the failure of key opinion leaders to provide recommendations regarding our device, or to assure clinicians and healthcare payors of the benefits of our device as an attractive alternative to other diagnostic options; ● long-standing relationships with companies and distributors that sell other diagnostic products for wound care assessment; ● concerns over the capital investment required to purchase our DeepView System and perform the DeepView procedure; ● lack of availability of adequate third-party payor coverage or reimbursement; ● competitive response and negative selling efforts from providers of alternative technologies; ● failure to obtain favorable coverage decisions from payors, including, but not limited to, Medicare or Medicaid; and ● limitations or warnings contained in the labeling cleared or approved by the FDA, if approved, or approved or certified by other authorities or bodies.
Even if we can prove the effectiveness of our DeepView System through clinical trials, there may not be broad adoption and use of our device and clinicians may elect not to use our DeepView System for any number of reasons, including: ● lack of experience with our DeepView System and concerns that we are new to market; ● perceived liability risk generally associated with the use of our device; ● lack or perceived lack of (i) sufficient clinical evidence regarding our claims of superior diagnostic assessment and (ii) long-term data, supporting clinical benefits or the cost-effectiveness of our device over existing diagnostic alternatives; ● the failure of key opinion leaders to provide recommendations regarding our device, or to assure clinicians and healthcare payors of the benefits of our device as an attractive alternative to other diagnostic options; ● long-standing relationships with companies and distributors that sell other diagnostic products for wound care assessment; ● concerns over the capital investment required to purchase our DeepView System and perform the DeepView procedure; ● lack of availability of adequate third-party payor coverage or reimbursement; ● competitive response and negative selling efforts from providers of alternative technologies; ● failure to obtain favorable coverage decisions from payors, including, but not limited to, Medicare or Medicaid; and ● limitations or warnings contained in the labeling cleared or approved by the FDA, if approved, or approved or certified by other authorities or bodies. 27 We believe that educating notable industry key opinion leaders and clinicians about the merits and benefits of our DeepView System, including safety, performance, ease of use and efficiency will be critical for increasing the adoption of our device.
Also, there can be no assurance that we will be able to secure a supply of alternative components at reasonable prices without experiencing interruptions in our business operations. 27 Our dependence on third parties subjects us to a number of risks that could impact our ability to manufacture our products and harm our business, including: ● interruption of supply resulting from modifications to, or discontinuation of, a third party’s operations; ● delays in product shipments resulting from uncorrected defects or errors, reliability issues or a third party’s failure to produce components that consistently meet our quality specifications; ● price fluctuations due to a lack of long-term supply arrangements with our third parties for key components; ● inability to obtain adequate supply or services in a timely manner or on commercially reasonable terms; ● difficulty identifying and qualifying alternative third parties for the supply of components of our products in a timely manner; ● inability of third parties to comply with applicable provisions of the FDA’s QSR or other applicable laws or regulations enforced by the FDA, state, local and global regulatory authorities; ● inability to ensure the quality of products manufactured by third parties; ● shipping and manufacture delays and interruptions caused by the ongoing COVID-19 crisis that we are not able to address, prepare for, or prevent; ● production delays related to the evaluation and testing of products and services from alternative third parties and corresponding regulatory qualifications; ● trends towards consolidation within the medical device manufacturing supplier industry; and ● delays in delivery by our suppliers and service providers.
Our dependence on third parties subjects us to a number of risks that could impact our ability to manufacture our products and harm our business, including: ● interruption of supply resulting from modifications to, or discontinuation of, a third party’s operations; ● delays in product shipments resulting from uncorrected defects or errors, reliability issues or a third party’s failure to produce components that consistently meet our quality specifications; ● price fluctuations due to a lack of long-term supply arrangements with our third parties for key components; ● inability to obtain adequate supply or services in a timely manner or on commercially reasonable terms; ● difficulty identifying and qualifying alternative third parties for the supply of components of our products in a timely manner; ● inability of third parties to comply with applicable provisions of the FDA’s QSR or other applicable laws or regulations enforced by the FDA, state, local and global regulatory authorities; 31 ● inability to ensure the quality of products manufactured by third parties; ● shipping and manufacture delays and interruptions caused by the ongoing COVID-19 crisis that we are not able to address, prepare for, or prevent; ● production delays related to the evaluation and testing of products and services from alternative third parties and corresponding regulatory qualifications; ● trends towards consolidation within the medical device manufacturing supplier industry; and ● delays in delivery by our suppliers and service providers.
Accordingly, the initial registration statement on Form S-8 covered approximately 5,466,000 shares of our common stock. Warrants will become exercisable for Company common stock, which would increase the number of shares eligible for resale in the public market and result in dilution to our stockholders.
Form S-8 registration statements automatically become effective upon filing. Accordingly, the initial registration statement on Form S-8 covered approximately 5,466,000 shares of our common stock. Warrants will become exercisable for Company common stock, which would increase the number of shares eligible for resale in the public market and result in dilution to our stockholders.
Any significant uninsured liability may require us to pay substantial amounts, which would negatively affect our business, financial condition and results of operations. 32 The success of our algorithms depends on our significant repository of proprietary DFU and burn data.
Any significant uninsured liability may require us to pay substantial amounts, which would negatively affect our business, financial condition and results of operations. The success of our algorithms depends on our significant repository of proprietary image data.
As of December 31, 2023, approximately 340 billion pixels of proprietary DFU and burn data have been acquired and utilized for the deep learning algorithms training. We believe this presents a significant barrier to entry to would-be competitors in wound care healing assessments.
As of December 31, 2024, approximately 340 billion pixels of proprietary image data have been acquired and utilized for the deep learning algorithms training. We believe this presents a significant barrier to entry to would-be competitors in wound care healing assessments.
However, as the BARDA contract is critical to our business at this time, non-extension or termination of the BARDA contract would have a material adverse impact on our business, prospects, results of operations and financial condition. We received a contract from the DHA within the U.S.
However, as the BARDA contract is critical to our business at this time, non-extension or termination of the BARDA contract would have a material adverse impact on our business, prospects, results of operations and financial condition. 12 We receive funding from a contract by the DHA within the U.S.
Though we have never undertaken this level of growth, our management, including our Human Resources Manager have instituted a long-term hiring plan with key dates that ensure the individual is hired and trained months before the strategy must be executed. Furthermore, our ability to implement our strategy requires effective planning and management control systems.
Though we have never undertaken this level of growth, our management team has instituted a long-term hiring plan with key dates that ensure the individual is hired and trained months before the strategy must be executed. Furthermore, our ability to implement our strategy requires effective planning and management control systems.
Department of Defense, which enables us to research and develop a fully portable, handheld version of our DeepView solution and has been extended through the first quarter of 2024. We were previously awarded a $1.1 million, Sequential Phase II STTR contract by the DHA within the U.S.
Department of Defense, which enables us to research and develop a fully portable, handheld version of our DeepView System and has been extended through the second quarter of 2025. We were previously awarded a $1.1 million, Sequential Phase II STTR contract by the DHA within the U.S.
Changing customer requirements and the introduction of products or services or enhancements embodying new technology may render our existing DeepView System obsolete, unmarketable or competitively impaired and may exert downward pressures on the pricing of our device.
The markets for our products and services are characterized by changing technology and customer requirements. Changing customer requirements and the introduction of products or services or enhancements embodying new technology may render our existing DeepView System obsolete, unmarketable or competitively impaired and may exert downward pressures on the pricing of our device.
Any of the foregoing could harm our business, financial condition and results of operations. 42 Intellectual property rights do not necessarily address all potential threats, and limitations in intellectual property rights could harm our business, financial condition, prospects and results of operations.
Intellectual property rights do not necessarily address all potential threats, and limitations in intellectual property rights could harm our business, financial condition, prospects and results of operations.
These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers or indemnify our customers for any costs associated with their own initiation or defense of infringement claims, regardless of the merits of these claims.
In addition, third parties may assert infringement claims against our customers. These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers or indemnify our customers for any costs associated with their own initiation or defense of infringement claims, regardless of the merits of these claims.
We had an accumulated deficit of $32.8 million as of December 31, 2023. Our losses have resulted primarily from costs incurred in connection with our design, manufacturing and development activities, research and development activities, building our commercial infrastructure, legal, and general and administrative expenses associated with our operations.
We had an accumulated deficit of approximately $48.1 million as of December 31, 2024. Our losses have resulted primarily from costs incurred in connection with our design, manufacturing and development activities, research and development activities, building our commercial infrastructure, legal, and general and administrative expenses associated with our operations.
Our competitors, many of which have substantially greater resources and have made substantial investments in patent portfolios, trade secrets, trademarks, and competing technologies, may have applied for or obtained, or may in the future apply for or obtain, patents or trademarks that will prevent, limit or otherwise interfere with our ability to make, use, sell, import, and/or export our products (or components thereof) or to use our technologies or our product names.
Our competitors, many of which have substantially greater resources and have made substantial investments in patent portfolios, trade secrets, trademarks, and competing technologies, may have applied for or obtained, or may in the future apply for or obtain, patents or trademarks that will prevent, limit or otherwise interfere with our ability to make, use, sell, import, and/or export our products (or components thereof) or to use our technologies or our product names. 41 Third parties, including our competitors, may currently have patents or obtain patents in the future and claim that the manufacture, use or sale of our products infringes these patents.
We have incurred substantial net losses since our inception. For the year ended December 31, 2023 and the year ended December 31 2022, on a consolidated basis, we incurred a net loss of $20.9 million and $2.9 million, respectively, and on a consolidated basis our cash balance at December 31, 2023 was $4.8 million.
We have incurred substantial net losses since our inception. For the year ended December 31, 2024 and the year ended December 31, 2023, on a consolidated basis, we incurred a net loss of $15.3 million and $20.9 million, respectively, and on a consolidated basis our cash balance at December 31, 2024 was $5.2 million.
In the United Kingdom (“UK”), post-Brexit, medical devices are regulated under the Medical Devices Regulations 2002 (“MDR 2002”), which implement the three EU Medical Devices Directives into UK law. The UK decided it would not give effect to the EU Medical Devices Regulation.
In addition, the landscape concerning medical devices in the EU has evolved in recent years. In the United Kingdom (“UK”), post-Brexit, medical devices are regulated under the Medical Devices Regulations 2002 (“MDR 2002”), which implement the three EU Medical Devices Directives into UK law. The UK decided it would not give effect to the EU Medical Devices Regulation.
As of the date of this annual report, we have 10 issued and allowed U.S. patents with five U.S. patent applications pending. We have 10 issued and allowed international patents with 29 foreign and international patent applications pending.
As of the date of this annual report, we have 12 issued and allowed U.S. patents with 6 U.S. patent applications pending. We have 18 issued and allowed international patents with 29 foreign and international patent applications pending.
To the extent that a claim or claims of a significant nature were made against us, we may be required to expend substantial management resources and litigation costs in defending such claim(s) and such claim(s), if successful, could reduce margins, harm our reputation in the market, and increase future insurance premiums, the occurrence of each of which could have an adverse impact on our business, prospects, results of operations and financial condition.
Product liability claims in excess of our insurance coverage would be paid out of cash reserves harming our financial condition and adversely affecting our results of operations. 36 To the extent that a claim or claims of a significant nature were made against us, we may be required to expend substantial management resources and litigation costs in defending such claim(s) and such claim(s), if successful, could reduce margins, harm our reputation in the market, and increase future insurance premiums, the occurrence of each of which could have an adverse impact on our business, prospects, results of operations and financial condition.
Alternatively, if a court were to find the choice of forum provision contained in the Charter to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition.
Alternatively, if a court were to find the choice of forum provision contained in the Charter to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition. 51 The failure of any bank in which we deposit our funds could have an adverse effect on our financial condition.
Individually identifiable health information is considered sensitive data that merits stronger safeguards. 21 In addition, certain state laws govern the privacy and security of health-related and other personal information in certain circumstances, some of which may be more stringent, broader in scope or offer greater individual rights with respect to protected health information than HIPAA, many of which may differ from each other, thus, complicating compliance efforts.
In addition, certain state laws govern the privacy and security of health-related and other personal information in certain circumstances, some of which may be more stringent, broader in scope or offer greater individual rights with respect to protected health information than HIPAA, many of which may differ from each other, thus, complicating compliance efforts.
The Company is subject to laws, regulations and rules enacted by national, regional and local governments and the Nasdaq. In particular, Company is required to comply with certain SEC, Nasdaq and other legal or regulatory requirements. Compliance with, and monitoring of, applicable laws, regulations and rules may be difficult, time consuming and costly.
In particular, Company is required to comply with certain SEC, Nasdaq and other legal or regulatory requirements. Compliance with, and monitoring of, applicable laws, regulations and rules may be difficult, time consuming and costly.
If any of these claims succeeds or settles, we may be forced to pay damages or settlement payments on behalf of our customers or may be required to obtain licenses for the products they use. If we cannot obtain all necessary licenses on commercially reasonable terms, our customers may be forced to stop using our products.
If any of these claims succeeds or settles, we may be forced to pay damages or settlement payments on behalf of our customers or may be required to obtain licenses for the products they use.
In addition, if the FDA or the competent authorities in the EU member states and EEA countries determine that our promotional materials or training constitute promotion of a use which is unapproved, not cleared, not covered by the De Novo classification order, not covered by a CE mark, or not in compliance with other regulatory authorities’ requirements, they could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, an injunction, product seizures, consent decrees, civil fines, criminal penalties, import detention, import refusals, or import alerts. 17 If our DeepView System is found to cause or contribute to adverse medical events, this could interrupt, delay, or prevent its continued development, or negatively affect the market authorization, De Novo classification, or certification.
In addition, if the FDA or the competent authorities in the EU member states and EEA countries determine that our promotional materials or training constitute promotion of a use which is unapproved, not cleared, not covered by the De Novo classification order, not covered by a CE mark, or not in compliance with other regulatory authorities’ requirements, they could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, an injunction, product seizures, consent decrees, civil fines, criminal penalties, import detention, import refusals, or import alerts.
If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing clearance, approval, or De Novo classification that we may have obtained and we may not achieve or sustain profitability. 15 In addition, the landscape concerning medical devices in the EU has evolved in recent years.
If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing clearance, approval, or De Novo classification that we may have obtained and we may not achieve or sustain profitability.
Misconduct by these persons could include intentional, reckless and/or negligent conduct or unauthorized activity that violates: ● FDA requirements, including those laws requiring the reporting of true, complete and accurate information to the FDA authorities, such as reporting of UADEs during clinical investigations; ● GCP that relate to clinical investigations, including financial disclosure, informed consent and protection of human subjects, and requirements that relate to investigational device exemptions; ● manufacturing standards, such as FDA’s Quality System Regulation (“QSR”) requirements; ● federal and state healthcare fraud and abuse laws and regulations; or ● laws that require the true, complete and accurate reporting of financial information or data. 22 In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices.
Misconduct by these persons could include intentional, reckless and/or negligent conduct or unauthorized activity that violates: ● FDA requirements, including those laws requiring the reporting of true, complete and accurate information to the FDA authorities, such as reporting of UADEs during clinical investigations; ● GCP that relate to clinical investigations, including financial disclosure, informed consent and protection of human subjects, and requirements that relate to investigational device exemptions; ● manufacturing standards, such as FDA’s Quality System Regulation (“QSR”) requirements; ● federal and state healthcare fraud and abuse laws and regulations; or ● laws that require the true, complete and accurate reporting of financial information or data.
The successful assertion of one or more large claims against us that exceeds available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results and reputation. 31 The use of artificial intelligence, including machine learning, in our analytics platforms may result in reputational harm or liability.
The successful assertion of one or more large claims against us that exceeds available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results and reputation.
Such theft could also lead to loss of intellectual property rights through our disclosure of our proprietary business information, and such loss may not be capable of remedying. We may also suffer reputational damage and loss of investor confidence. We could also be exposed to potential financial and reputational harm if we experience a cyber-attack.
Such theft could also lead to loss of intellectual property rights through our disclosure of our proprietary business information, and such loss may not be capable of remedying. We may also suffer reputational damage and loss of investor confidence.
The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities.
The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Individually identifiable health information is considered sensitive data that merits stronger safeguards.
Our employees, collaborators, independent contractors and consultants may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements. We are exposed to the risk that our employees, collaborators, independent contractors and consultants may engage in fraudulent or other illegal activity with respect to our business.
We are exposed to the risk that our employees, collaborators, independent contractors and consultants may engage in fraudulent or other illegal activity with respect to our business.
Additionally, any steps to stop counterfeits may not be successful and customers who purchase these counterfeit goods may experience product defects or failures, harming our reputation and brand and causing us to lose future sales.
Additionally, any steps to stop counterfeits may not be successful and customers who purchase these counterfeit goods may experience product defects or failures, harming our reputation and brand and causing us to lose future sales. Any of the foregoing could harm our business, financial condition and results of operations.
In addition, we may be forced to work with a partner, which could lower the economic value of our programs to us. 13 If we are unable to obtain adequate financing on terms satisfactory to us when we require it, we may be required to terminate or delay the development of our DeepView technology or any future products, delay clinical trials necessary to market our products, or delay establishment of sales and marketing capabilities or other activities necessary to commercialize our products.
If we are unable to obtain adequate financing on terms satisfactory to us when we require it, we may be required to terminate or delay the development of our DeepView technology or any future products, delay clinical trials necessary to market our products, or delay establishment of sales and marketing capabilities or other activities necessary to commercialize our products.
Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely affect the market price of the Common Stock.
Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely affect the market price of the Common Stock. Item 1.B. Unresolved Staff Comments. None. Item 1.C.
If our products do not perform, or are perceived to not have performed, as expected or favorably in comparison to competitive products, our operating results, reputation, and business will suffer, including due to the costs associated with replacing products and decreased demand for our product offering.
If our products do not perform, or are perceived to not have performed, as expected or favorably in comparison to competitive products, our operating results, reputation, and business will suffer, including due to the costs associated with replacing products and decreased demand for our product offering. 32 Any of the foregoing could have a material adverse effect on our business, financial condition, prospects and results of operations.
In addition, software and hardware incorporated into our DeepView System may contain errors or defects, especially when first introduced and while we have made efforts to test this software and hardware extensively, we cannot assure that the software and hardware, or software and hardware developed in the future, will not experience errors or performance problems. 28 Our reputation and the public image of our products, services and technologies may be impaired if our products or services fail to perform as expected.
In addition, software and hardware incorporated into our DeepView System may contain errors or defects, especially when first introduced and while we have made efforts to test this software and hardware extensively, we cannot assure that the software and hardware, or software and hardware developed in the future, will not experience errors or performance problems.
If we do not obtain necessary licenses, we may not be able to redesign our products to avoid infringement, and as such may need to stop selling the infringing products, which would have a significant adverse impact on our business, financial condition, prospects and results of operations.
If we do not obtain necessary licenses, we may not be able to redesign our products to avoid infringement, and as such may need to stop selling the infringing products, which would have a significant adverse impact on our business, financial condition, prospects and results of operations. 42 Similarly, interference, derivation, cancellation, and opposition proceedings provoked by third parties or brought by the U.S.
We will compete with manufacturers and suppliers of devices, instruments and other supplies used in connection with such conventional diagnoses. The market for these devices and instruments is highly fragmented with primary supply chains concentrated across a few larger manufacturers and distributors, such as Cobalt Product Solutions, Sanmina Corporation and Plexus Manufacturing.
The market for these devices and instruments is highly fragmented with primary supply chains concentrated across a few larger manufacturers and distributors, such as Cobalt Product Solutions, Sanmina Corporation and Plexus Manufacturing.
Our current or future registered and unregistered trademarks or trade names may be challenged, opposed, infringed, circumvented or declared generic or descriptive, determined to be not entitled to registration, or determined to be infringing other marks.
We rely on trademarks and trade names to build brand recognition and to promote, distinguish and market our products and services. Our current or future registered and unregistered trademarks or trade names may be challenged, opposed, infringed, circumvented or declared generic or descriptive, determined to be not entitled to registration, or determined to be infringing other marks.
In the event of such extensions, delays, suspensions or terminations, we may not be able to obtain market authorization, De Novo classification, certification or other required regulatory authorizations or certifications for, or successfully commercialize, our DeepView System on a timely basis, if at all, and our business, financial condition and results of operations may be adversely affected.
In the event of such extensions, delays, suspensions or terminations, we may not be able to obtain market authorization, De Novo classification, certification or other required regulatory authorizations or certifications for, or successfully commercialize, our DeepView System on a timely basis, if at all, and our business, financial condition and results of operations may be adversely affected. 16 New legislation and regulations and legislative and regulatory reforms may make it more difficult and costly for us to obtain regulatory clearance, approval, De Novo classification, or certification of our DeepView System, or to manufacture, market and distribute our device after clearance, approval, or classification is obtained.
Claims that we have violated individuals’ privacy rights, failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.
Claims that we have violated individuals’ privacy rights, failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business. 25 Our employees, collaborators, independent contractors and consultants may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
Even if we ultimately prevail, product liability claims could divert management’s attention from our core business and be expensive to defend. If we do not prevail, such claims may result in sizeable damages awards against us that may not be covered by insurance. We must comply with anti-kickback, fraud and abuse, false claims, transparency, and other healthcare laws and regulations.
If we do not prevail, such claims may result in sizeable damages awards against us that may not be covered by insurance. We must comply with anti-kickback, fraud and abuse, false claims, transparency, and other healthcare laws and regulations.
It may take several months or more before a sales representative is fully trained and productive. Our sales force may subject us to higher fixed costs than those of companies with competing products that can utilize independent third parties, placing us at a competitive disadvantage.
Our sales force may subject us to higher fixed costs than those of companies with competing products that can utilize independent third parties, placing us at a competitive disadvantage.
Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license. Finally, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws.
Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license.
Foreign data protection laws, including the General Data Protection Regulation (the “GDPR”), which went into effect in May 2018, may also apply to our processing of health-related and other personal data regardless of where the processing in question is carried out.
Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. 24 Foreign data protection laws, including the General Data Protection Regulation (the “GDPR”), which went into effect in May 2018, may also apply to our processing of health-related and other personal data regardless of where the processing in question is carried out.
Even after clearance, approval, or De Novo classification, under the FDCA and FDA regulations, the scope of marketing claims we can make about cleared or approved devices, or devices that were granted De Novo classification is limited to the indications that were previously reviewed and permitted by the FDA.
In the most extreme cases, criminal sanctions, administrative sanctions (e.g., seizure), injunctions, or closure of our manufacturing facilities are possible. 18 Even after clearance, approval, or De Novo classification, under the FDCA and FDA regulations, the scope of marketing claims we can make about cleared or approved devices, or devices that were granted De Novo classification is limited to the indications that were previously reviewed and permitted by the FDA.
Our senior management team, directors and employees are engaged with us on an ‘at will’ basis, meaning that both they and we are able to terminate the arrangement without notice.
Our senior management team, directors and employees are engaged with us on an ‘at will’ basis, meaning that both they and we are able to terminate the arrangement without notice. The loss of key personnel could have an adverse impact on our business, prospects, results of operations and financial condition.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeTo our knowledge, there is not any material legal proceeding threatened against any of our officers or directors in their corporate capacity. Item 4. Mine Safety Disclosures . None. 49 PART II.
Biggest changeTo our knowledge, there is not any material legal proceeding threatened against any of our officers or directors in their corporate capacity. Item 4. Mine Safety Disclosures . None. 57 PART II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

12 edited+18 added−6 removed5 unchanged
Biggest changeThe first Pre-Paid Advance was disbursed on March 20, 2024 in the amount of $5,000,000 with a fixed conversion price of $3.16, the second Pre-Paid Advance shall be in a principal amount of $5,000,000 and advanced after the earlier of the registration statement registering the resale of the shares of Common Stock issuable under the SEPA being declared effective and or shareholder approval to exceed the 19.99% threshold of the aggregate number of shares of Common Stock issued pursuant to the SEPA (the “Exchange Cap”) with a fixed conversion price equal to 120% of the average VWAP during the three trading days immediately prior to the issuance of the note (the “Second Pre-Advance Closing”), and the third Pre-Paid Advance shall be in a principal amount of $2,500,000 and advanced sixty days following the Second Pre-Advance Closing with a fixed conversion price equal to 120% of the average VWAP during the three trading days immediately prior to the issuance of the note.
Biggest changeThe third Pre-Paid Advance was disbursed on July 17, 2024 in the principal amount of $2,300,000, which is the $2,500,000 third Pre-Paid Advance net of the $200,000 of the 8% original issue discount, with a fixed conversion price equal to 120% of the average VWAP during the three trading days immediately prior to the issuance of the note.
In connection with the SEPA, and subject to the conditions set forth therein, Yorkville has agreed to advance to the Company in the form of convertible promissory notes (the “Convertible Notes”) an aggregate principal amount of up to $12,500,000 million (the “Pre-Paid Advance”), which will be paid in three tranches.
In connection with the SEPA, and subject to the conditions set forth therein, Yorkville had previously agreed to advance to the Company, in the form of convertible promissory notes (the “Convertible Notes”), an aggregate principal amount of up to $12,500,000 million (the “Pre-Paid Advance”), which was paid in three tranches.
Performance Graph The performance graph has been omitted as permitted under rules applicable to smaller reporting companies. 50 Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings Unregistered Securities Yorkville Standby Equity Purchase Agreement On March 20, 2024, the Company entered into the Standby Equity Purchase Agreement (“SEPA”) with YA II PN, LTD, a Cayman Islands exempt limited partnership (“Yorkville”) pursuant to which the Company has the right to sell to Yorkville up to $30,000,000 of its shares of Common Stock, subject to certain limitations and conditions set forth in the SEPA, from time to time during the term of the SEPA (such transaction, the “Yorkville Transaction”).
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings Unregistered Securities Yorkville Standby Equity Purchase Agreement On March 20, 2024, the Company entered into the Standby Equity Purchase Agreement (“SEPA”) with YA II PN, LTD, a Cayman Islands exempt limited partnership (“Yorkville”) pursuant to which the Company has the right to sell to Yorkville up to $30,000,000 of its shares of Common Stock, subject to certain limitations and conditions set forth in the SEPA, from time to time during the term of the SEPA (such transaction, the “Yorkville Transaction”).
Beginning on the forty-fifth (45th) day following the issuance date of Convertible Note issued in connection with the first Pre-Paid Advance, and continuing on the same day of each successive month thereafter, (each, an “Installment Date”), the Company shall repay a portion of the outstanding balance of the Pre-Paid Advance in an amount equal to (i) $1,750,000, provided however, in respect of any Installment Date prior to the closing of the second Pre-Paid Advance, $750,000 (the “Installment Principal Amount”), plus (ii) the a payment premium of 7% of such Installment Principal Amount, and (iii) accrued and unpaid interest hereunder as of each Installment Date.
The maturity date of the Convertible Note issue in connection with each Pre-Paid Advance was12 months after the issuance date of such Convertible Note. 59 Beginning on the forty-fifth (45th) day following the issuance date of the Convertible Note issued in connection with the first Pre-Paid Advance, and continuing on the same day of each successive month thereafter, (each, an “Installment Date”), the Company shall repay a portion of the outstanding balance of the Pre-Paid Advance in an amount equal to (i) $1,750,000, plus (ii) a payment premium of 7% of such Installment Principal Amount, and (iii) accrued and unpaid interest hereunder as of each Installment Date, if any.
Riley”), pursuant to which, upon the terms and subject to the satisfaction of the conditions contained in the Purchase Agreement, we have the right, in our sole discretion, to sell to B.
Riley Principal Capital II, LLC (“B. Riley”), pursuant to which, upon the terms and subject to the satisfaction of the conditions contained in the Purchase Agreement, we have the right, in our sole discretion, to sell to B.
Sales of Common Stock pursuant to the Purchase Agreement, and the timing of any sales, are solely at our option, and we are under no obligation to sell any securities to B. Riley under the Purchase Agreement (such transaction, the “B. Riley Transaction”).
Sales of Common Stock pursuant to the Purchase Agreement, and the timing of any sales, are solely at our option, and we are under no obligation to sell any securities to B. Riley under the Purchase Agreement (such transaction, the “B. Riley Transaction”). We have previously raised $2.7 million from share issuances under the B. Riley Transaction.
Holders As of March 25, 2024, there were at least 4,893 holders of record of 17,466,871 shares of our Common Stock and 25 holders of record of our redeemable warrants. Dividends We have not declared or paid any dividends on our capital stock to date.
Holders As of March 26, 2025, there were at least 1,600 holders of record of 25,317,196 shares of our Common Stock and 15 holders of record of our redeemable warrants. Dividends We have not declared or paid any dividends on our capital stock to date.
Sales of the shares of Common Stock to Yorkville under the SEPA, and the timing of any such sales, are at the Company’s option, and the Company is under no obligation to sell any shares of Common Stock to Yorkville under the SEPA except in connection with notices that may be submitted by Yorkville, as described in the SEPA.
Sales of the shares of Common Stock to Yorkville under the SEPA, and the timing of any such sales, are at the Company’s option, and the Company is under no obligation to sell any shares of Common Stock to Yorkville under the SEPA.
Under the 2022 Long Term Incentive Plan, 88,749 shares of common stock are issuable upon the exercise of outstanding options and 58,197 RSUs are issuable. As of December 31, 2023, 1,792,918 shares remain available for issuance through grants of future options.
As of December 31, 2024, under the 2023 Plan, 3,594,488 shares of common stock were issuable upon exercise of outstanding options and 169,400 restricted stock units (“RSUs”) were issuable. Under the 2023 Plan, 4,236,113 shares remain available for issuance through grants of future options.
B. Riley Committed Equity Facility On December 26, 2023, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with B. Riley Principal Capital II, LLC (“B.
The sales of the shares of Common Stock to Yorkville under the SEPA, and the timing of any such sales, are at the Company’s option. The Company paid no interest relating to the Convertible Notes. B. Riley Committed Equity Facility On December 26, 2023, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with B.
Riley Transaction or the Yorkville Transaction, as is described in the Company’s final prospectus (Registration No. 333-2764-6), as filed with the SEC on February 1, 2024. For a description of the use of the proceeds generated from the different financings, see “Item 1. Business.” Item 6. [Reserved] .
Riley transaction or the Yorkville SEPA, as is described in the Company’s final prospectuses related to the B. Riley Transaction (Registration No. 333-276406), as filed with the SEC on January 2, 2024, and the Yorkville Transaction (Registration No. 333-278610), as filed with the SEC on February 1, 2024.
In 2023, we awarded options to key employees (including our named executive officers) for retention, engagement and bonus compensation awards. These awards are designed to align a portion of our named executive officers’ compensation with the interests of our existing stockholders and to build retention value by incentivizing our named executive officers to remain in our service.
These awards are designed to align a portion of our named executive officers’ compensation with the interests of our existing stockholders and to build retention value by incentivizing our named executive officers to remain in our service. 2018 Long Term Incentive Plan On July 24, 2018, Legacy Spectral’s Board of Directors adopted the 2018 Long Term Incentive Plan (the “2018 Plan”) which permitted granting of incentive stock options (which must meet all statutory requirements), non-qualified stock options, stock appreciation rights, restricted stock, stock units, performance shares, performance units, incentive bonus awards, and other cash-based or stock-based awards.
Removed
Securities Authorized for Issuance Under Equity Compensation Plans We previously maintained the Spectral MD Holdings, Ltd. 2018 Long Term Incentive Plan (the “2018 Plan”), which provided for the discretionary grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, stock units, performance shares, performance units, incentive bonus awards and other cash-based or stock-based awards to our eligible employees, directors and consultants, including the named executive officers. 3,526,200 shares of our Common Stock are issuable upon the exercise of outstanding options under the 2018 Long Term Incentive Plan.
Added
Securities Authorized for Issuance Under Equity Compensation Plans In 2024, we awarded options and restricted stock units to key employees (including our named executive officers) for retention, engagement and bonus compensation awards.
Removed
We also previously maintained the Spectral MD Holdings, Ltd. 2022 Long Term Incentive Plan (the “2022 Plan”). The 2022 Plan provides for the discretionary grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, stock units, performance shares, performance units, incentive bonus awards and other cash-based or stock-based awards to our employees, directors and consultants.
Added
In May 2024, all awards outstanding under the 2018 Plan were replaced with corresponding awards to be issued pursuant to the 2023 Plan, as discussed below, and no new grants will be made under the 2018 Plan. 2022 Long Term Incentive Plan On September 27, 2022, Legacy Spectral’s stockholders approved the adoption of the 2022 Long Term Incentive Plan (the “2022 Plan”) which permitted granting of incentive stock options (they must meet all statutory requirements), non-qualified stock options, stock appreciation rights, restricted stock, stock units, performance shares, performance units, incentive bonus awards, and other cash-based or stock-based awards.
Removed
As part of the Business Combination Agreement, the outstanding securities issuable under the 2018 Plan and 2022 Plan will be exchanged for shares of the Company’s 2023 Long-Term Incentive Plan upon approval by the Company’s stockholders at the next annual meeting.
Added
In May 2024, all awards outstanding under the 2022 Plan were replaced with corresponding awards to be issued pursuant to the 2023 Plan, as discussed below, and no new grants will be made under the 2022 Plan. 58 2023 Long Term Incentive Plan On May 14, 2024, the Company’s shareholders approved the adoption of the 2023 Long Term Incentive Plan (the “2023 Plan”) which permits granting of incentive stock options (they must meet all statutory requirements), non-qualified stock options, stock appreciation rights, restricted stock, stock units, performance shares, performance units, incentive bonus awards, and other cash-based or stock-based awards.
Removed
Information related to this item will be contained in our 2024 Proxy Statement under the heading “Proposal 2 – Ratification of the 2023 Long Term Incentive Plan.
Added
The options, restricted stock units and other securities issued pursuant to the 2018 Plan and 2022 Plan have been replaced with a corresponding award to be issued pursuant to the 2023 Plan.
Removed
The maturity date of the Convertible Note issue in connection with each Pre-Paid Advance will be 12 months after the issuance date of such Convertible Note.
Added
No new grants will be made under the 2022 Plan and the 2018 Plan and all outstanding grants under the 2018 Plan and 2022 Plan will be assumed by the 2023 Plan. The maximum aggregate number of shares that may be issued under the Plan shall not exceed 8,000,000.
Removed
Use of Proceeds There has been no material change in the planned use of the proceeds from the Business Combination, as is described in the Company’s final prospectus (Registration No. 333-275218), as filed with the SEC on January 2, 2024. Additionally, there has been no material change in the planned use of proceeds from the B.
Added
The Board of Directors may increase the number of shares in the Plan by adding additional shares on January 1st of each year for a period of up to ten years, commencing on January 1, 2024 and ending on (and including) January 1, 2033, in an amount equal to the lesser of (i) five percent (5%) of the total number of shares of stock outstanding on December 31st of the preceding calendar year, and (ii) an amount determined by the Board of Directors.
Added
No new shares were added to the Plan in 2025. Pursuant to the 2023 Plan, stock options must expire within 10 years and must be granted with exercise prices of no less than the fair value of the common stock on the grant date, as determined by the Board of Directors.
Added
RSUs awarded under the 2023 Plan for the purchase of common stock will vest based on continued service which is generally three years or based on the achievement of market terms as set forth in the individual awards. The grant date fair value of the award will be recognized as compensation expense over the requisite service period.
Added
The fair value of the RSUs is estimated on the date of grant based on the fair value of the Company’s common stock.
Added
The 2023 Plan provides that the Compensation Committee shall determine the vesting conditions of awards granted under the 2023 Plan, and the Compensation Committee has, from time-to-time, approved vesting schedules for certain awards that deviate from the vesting conditions described in the previous sentence.
Added
Performance Graph The performance graph has been omitted as permitted under rules applicable to smaller reporting companies.
Added
While the Convertible Notes were outstanding, Yorkville was able to issue share purchase notices, as described in the SEPA.
Added
The first Pre-Paid Advance was disbursed on March 20, 2024 in the amount of $5,000,000 with a fixed conversion price of $3.16. The Company received $4,600,000 in cash, net of the 8% original issue discount.
Added
On May 14, 2024, the shareholders voted to approve the reservation and issuance of shares to Yorkville if needed to exceed the beneficial ownership limitation and the second Pre-Paid Advance was disbursed on May 16, 2024 in the amount of $4,600,000, which was the $5,000,000 second Pre-Paid Advance net of $400,000 of the 8% original issue discount, with a fixed conversion price of $2.03.
Added
In October 2024, the Company and Yorkville agreed to amend the Installment Dates and the allocation of installment amounts to be paid pursuant to the Pre-Paid Advances, such that the outstanding balance of the Pre-Paid Advances was paid in full on February 17, 2025.
Added
As of December 31, 2024, $7,768,508 of the outstanding balance of the Pre-Paid Advances was paid in cash and $2,400,000 has been paid in shares of the Company issued under the SEPA. The Company still has access to the remaining funds under the SEPA.
Added
The Company maintained the right to raise up to $3,000,000 of shares of its Common Stock from the B. Riley transaction upon execution of the SEPA with Yorkville. Use of Proceeds There has been no material change in the planned use of the proceeds from the B.
Added
For a description of the use of the proceeds generated from the different financings, see “Item 1. Business.”

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations The following table summarizes of our results of operations for the years ended December 31, 2023 and 2022 (in thousands): Year Ended December 31, 2023 2022 Change Research and development revenue $ 18,056 $ 25,368 $ (7,312 ) Cost of revenue (10,176 ) (14,531 ) 4,355 Gross profit 7,880 10,837 (2,957 ) Operating costs and expenses: General and administrative 20,864 13,484 7,380 Total operating costs and expenses 20,864 13,484 7,380 Operating loss (12,984 ) (2,647 ) (10,337 ) Other income (expense): Net interest income 172 21 151 Change in fair value of warrant liability 335 57 278 Foreign exchange transaction loss (24 ) (237 ) 213 Transaction costs (8,342 ) - (8,342 ) Total other expense, net (7,859 ) (159 ) (7,700 ) Loss before income taxes (20,843 ) (2,806 ) (18,037 ) Income tax provision (11 ) (106 ) 95 Net loss $ (20,854 ) $ (2,912 ) $ (17,942 ) Research and development revenue Year Ended December 31, Change in 2023 2022 $ % Research and development revenue $ 18,056 $ 25,368 $ (7,312 ) (28.8 )% Research and development revenue was $18.1 million, for the year ended December 31, 2023, a decrease of 28.8% compared to the comparable period in 2022, reflecting less activity as we completed work under the BARDA Burn II contact.
Biggest changeResults of Operations The following table summarizes our results of operations for the years ended December 31, 2024 and 2023 (in thousands): Year Ended December 31, 2024 2023 Change Research and development revenue $ 29,581 $ 18,056 $ 11,525 Cost of revenue (16,307 ) (10,176 ) (6,131 ) Gross profit 13,274 7,880 5,394 Operating costs and expenses: General and administrative 19,856 20,864 (1,008 ) Total operating costs and expenses 19,856 20,864 (1,008 ) Operating loss (6,582 ) (12,984 ) 6,402 Other income (expense): Net interest income 14 172 (158 ) Borrowing related costs (2,965 ) - (2,965 ) Change in fair value of warrant liability (4,633 ) 335 (4,968 ) Change in fair value of notes payable (220 ) - (220 ) Foreign exchange transaction loss (43 ) (24 ) (19 ) Transaction costs (615 ) (8,342 ) 7,727 Total other expense, net (8,462 ) (7,859 ) (603 ) Loss before income taxes (15,044 ) (20,843 ) (5,799 ) Income tax provision (271 ) (11 ) (260 ) Net loss $ (15,315 ) $ (20,854 ) $ (5,539 ) Research and development revenue Year Ended December 31, Change in 2024 2023 $ % Research and development revenue $ 29,581 $ 18,056 $ 11,525 63.8 % 64 Research and development revenue was $29,581 for the year ended December 31, 2024, an increase of 63.8% compared to the comparable period in 2023, reflecting more activity as we completed work under the PBS BARDA Contract and in the awards and work performed under the Company’s other U.S. governmental contracts.
Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited consolidated financial statements in our Annual Report and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. Item 7.A. Quantitative and Qualitative Disclosures about Market Risk Not required for smaller reporting companies.
Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited consolidated financial statements in our Annual Report and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. Item 7.A. Quantitative and Qualitative Disclosures about Market Risk Not required.
This multi-year contract includes an initial award of nearly $54.9 million to support the clinical validation and FDA clearance of DeepView® for commercial marketing and distribution purposes, which we expect to continue through the first quarter of 2026. This grant funding is non-dilutive to our shareholders, and we believe it validates the important nature of our mission and technology.
This multi-year contract includes an initial award of nearly $54.9 million to support the clinical validation and FDA clearance of DeepView® for commercial marketing and distribution purposes, which we expect to continue through the first quarter of 2026. This contract funding is non-dilutive to our shareholders, and we believe it validates the important nature of our mission and technology.
We estimate the fair value of stock option awards granted using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and subjective assumptions we make, including the expected stock price volatility, the expected term of the award, the risk-free interest rate and expected dividends.
We estimate the fair value of stock option awards granted using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and subjective assumptions we make, including the expected stock price volatility, the risk-free interest rate and expected dividends, and the contractual term as the expected term of the award.
These provisions include: ● being permitted to present only two years of audited consolidated financial statements in addition to any required unaudited interim consolidated financial statements, with correspondingly reduced disclosure in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; ● an exception from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended; 59 ● reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; ● exemptions from the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements; and We may take advantage of these provisions until the last day of the fiscal year ending after the fifth anniversary of Rosecliff’s initial public offering or such earlier time that we no longer qualify as an emerging growth company.
These provisions include: ● being permitted to present only two years of audited consolidated financial statements in addition to any required unaudited interim consolidated financial statements, with correspondingly reduced disclosure in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; ● an exception from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended; ● reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; ● exemptions from the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements; and 71 We may take advantage of these provisions until the last day of the fiscal year ending after the fifth anniversary of our initial public offering or such earlier time that we no longer qualify as an emerging growth company.
Historic foreign exchange transaction loss primarily relates to changes in the exchange rate between the U.S. dollar, the Euro and the British pound sterling for our deposit accounts that are denominated in British pound sterling.
Historic foreign exchange transaction loss primarily relates to changes in the exchange rate between the U.S. dollar and the British pound sterling for our deposit accounts that are denominated in British pound sterling.
See Note 11 to our audited consolidated financial statements included elsewhere in this Annual Report for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted in the years ended December 31, 2023 and 2022.
See Note 11 to our audited consolidated financial statements included elsewhere in this Annual Report for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted in the years ended December 31, 2024 and 2023.
Our operating results may not be comparable between periods as the timing and amount of awards or procurements from the U.S. government may be inconsistent with the timing of prior awards and the phasing of the development study schedules may be different. Our revenues may continue to be almost exclusively dependent upon the terms of those awards. 54 Gross Margin.
Our operating results may not be comparable between periods as the timing and amount of awards or procurements from the U.S. government may be inconsistent with the timing of prior awards and the phasing of the development study schedules may be different. Our revenues may continue to be almost exclusively dependent upon the terms of those awards. 63 Gross Margin.
Foreign exchange transaction loss for year ended December 31, 2023 is immaterial due to lower balances in our deposit accounts and accounts payable denominated in British pound sterling and less fluctuation in the exchange rate between the U.S. dollar and the British pound sterling.
Foreign exchange transaction loss for the year ended December 31, 2024 is immaterial due to lower balances in our deposit accounts and accounts payable denominated in British pound sterling and less fluctuation in the exchange rate between the U.S. dollar and the British pound sterling.
Foreign exchange transaction loss for the year ended December 31, 2022 relates to the decreased exchange rate between the U.S. dollar and the British pound sterling during 2022 for our deposit accounts that are denominated in British pound sterling.
Foreign exchange transaction loss for the year ended December 31, 2023 relates to the decreased exchange rate between the U.S. dollar and the British pound sterling during 2023 for our deposit accounts that are denominated in British pound sterling.
Our management uses these metrics to make strategic decisions, pricing decisions, identifying areas for improvement, set targets for future performance and make informed decisions about how to allocate resources going forward.
Our management uses these metrics to make strategic decisions, pricing decisions, identify areas for improvement, set targets for future performance and make informed decisions about how to allocate resources going forward.
Given our recent receipt of the UKCA mark for burn indication on our DeepView System, we expect to begin commercialization activities in the United Kingdom in the second half of 2024. Our DeepView System uses proprietary algorithms to distinguish between damaged and healthy human tissue invisible to the naked eye, providing “Day One” healing assessments.
Given our recent receipt of the UKCA mark for burn indication on our DeepView System, we expect to begin commercialization activities in the United Kingdom in 2025. Our DeepView System uses proprietary algorithms to distinguish between damaged and healthy human tissue invisible to the naked eye, providing “Day One” healing assessments.
Transaction costs for the year ended December 31, 2023 primarily relate to non-recurring legal, accounting, and consulting costs expended for the Business Combination. 56 Non-GAAP Financial Measures We use Adjusted EBITDA as a non-GAAP metric when measuring performance, including when measuring current period results against prior periods’ Adjusted EBITDA.
Other income (expenses), including transaction costs for the year ended December 31, 2023 primarily relate to non-recurring legal, accounting, and consulting costs expended for the Business Combination. Non-GAAP Financial Measures We use Adjusted EBITDA as a non-GAAP metric when measuring performance, including when measuring current period results against prior periods’ Adjusted EBITDA.
As a result of many factors, including those factors set forth in the section titled “Risk Factors,” our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. 51 Overview We are an AI company focused on predictive medical diagnostics. We operate in one segment.
As a result of many factors, including those factors set forth in the section titled “Risk Factors,” our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview We are an artificial intelligence (“AI”) company focused on predictive medical diagnostics. We operate in one segment.
In addition to our BARDA contract, we received a $4.0 million grant award from the Medical Technology Enterprise Consortium (“MTEC”) in April 2023, which, building on prior awards from DHA, is to be used to support military battlefield burn evaluation via a handheld DeepView device (the “MTEC Agreement”).
In addition to our PBS BARDA Contract, we received a $4.0 million grant award from the Medical Technology Enterprise Consortium (“MTEC”) in April 2023, which, building on prior awards from DHA, is to be used to support military battlefield burn evaluation via a handheld version of the DeepView ® System (the “MTEC Agreement”).
In addition, this amount includes costs associated with buying British pound sterling for payment of our employees and vendors in the UK. 53 Key Operating and Financial Metrics We regularly review a number of metrics, including the following key operating and financial metrics, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions.
In addition, this amount includes costs associated with currency translation costs associated with purchasing British pound sterling for payment of our employees and vendors in the UK. 62 Key Operating and Financial Metrics We regularly review a number of metrics, including the following key operating and financial metrics, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions.
We utilize this method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. For grants to non-employees, ASU 2018-07 allows entities to use the expected term to measure non-employee options or elect to use the contractual term as the expected term, on an award-by-award basis.
We utilize this method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. For grants to non-employees, the relevant accounting literature allows entities to use the expected term to measure non-employee options or elect to use the contractual term as the expected term, on an award-by-award basis.
We have also received funding from the National Science Foundation (the “NSF”), the National Institute of Health (the “NIH”) and the Defense Health Agency (the “DHA”). Since 2013, we have received approximately $279.6 million in funding commitments from government contracts, primarily from BARDA, which accounts for $272.9 million.
We have also received funding from the National Science Foundation (the “NSF”), the National Institute of Health (the “NIH”) and the Defense Health Agency (the “DHA”). Since 2013, we have received approximately $281.9 million in funding awards from government contracts, primarily from BARDA, which accounts for $272.9 million.
Other Income (Expense) Other income (expense) primarily consists of transaction costs, primarily related to the Business Combination, net interest income, change in fair value of warrant liabilities and foreign exchange transaction gains/losses.
In 2023, other income (expense) consists of transaction costs related to the Business Combination, net interest income, change in fair value of warrant liabilities and foreign exchange transaction gain/losses.
On March 20, 2024, the Company also entered into a Standby Equity Purchase Agreement (“SEPA”) with YA II PN, LTD, a Cayman Islands exempt limited partnership (“Yorkville”) pursuant to which the Company has the right to sell to Yorkville up to $30.0 million of its shares of Common Stock, subject to certain limitations and conditions set forth in the SEPA.
Riley transaction upon execution of the SEPA with Yorkville, which is described in more detail below. 67 On March 20, 2024, the Company also entered into a Standby Equity Purchase Agreement (“SEPA”) with YA II PN, LTD, a Cayman Islands exempt limited partnership (“Yorkville”) pursuant to which the Company has the right to sell to Yorkville up to $30.0 million of its shares of Common Stock, subject to certain limitations and conditions set forth in the SEPA.
Currently, we are devoting substantially all of our efforts towards research and development of our DeepView System, an internally developed multi-spectral imaging (“MSI”) device that has FDA breakthrough device designation (“BDD”) status.
Currently, we are devoting substantially all of our efforts towards research and development of our DeepView ® System, an internally developed multi-spectral imaging device that has previously received FDA breakthrough device designation status for an earlier version.
Determination of the Fair Value of Equity-Based Awards We measure stock options and other stock-based awards granted to directors, employees, and non-employees based on their fair value on the date of the grant and recognize the corresponding compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award.
We periodically confirm the accuracy of the estimates with the service providers and make adjustments if necessary. 70 Determination of the Fair Value of Equity-Based Awards We measure stock options and other stock-based awards granted to directors, employees, and non-employees based on their fair value on the date of the grant and recognize the corresponding compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award.
Off-Balance Sheet Arrangements During the periods presented, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
For the year ended December 31, 2023, we did not have any transactions with related parties. Off-Balance Sheet Arrangements During the periods presented, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Cash Flows Provided by (Used in) Financing Activities Net cash provided by financing activities increased approximately $4.6 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Cash Flows Provided by Financing Activities Net cash provided by financing activities increased approximately $5.7 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Because of their non-standardized definitions, non-GAAP measures (unlike GAAP measures) may not be comparable to the calculation of similar measures of other companies. We caution investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions. Supplemental non-GAAP measures are presented solely to permit investors to more fully understand how Spectral AI’s management assesses underlying performance.
Because of their non-standardized definitions, non-GAAP measures (unlike GAAP measures) may not be comparable to the calculation of similar measures of other companies. We caution investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions.
The following table presents our Adjusted EBITDA for the years ended December 31, 2023 and 2022 (in thousands): Year Ended December 31, 2023 2022 Net loss $ (20,854 ) $ (2,912 ) Adjust: Depreciation expense 9 11 Provision for income taxes 13 106 Net interest income (172 ) (21 ) EBITDA (20,789 ) (2,816 ) Additional adjustments: Stock-based compensation 1,243 1,155 Change in fair value of warrant liability (335 ) (57 ) Foreign exchange transaction loss 24 237 Transaction costs 8,342 - Adjusted EBITDA $ (11,732 ) $ (1,481 ) Liquidity and Capital Resources Sources of Liquidity As of December 31, 2023 we had approximately $4.8 million in cash, notes payable of $0.4 million and no long-term debt.
The following table presents our Adjusted EBITDA for the years ended December 31, 2024 and 2023 (in thousands): Year Ended December 31, 2024 2023 Net loss $ (15,315 ) $ (20,854 ) Adjust: Depreciation expense 10 9 Provision for income taxes 271 11 Net interest expense (14 ) (172 ) EBITDA (15,048 ) (21,006 ) Additional adjustments: Stock-based compensation 1,032 1,243 Borrowing related costs 2,965 - Change in fair value of warrant liability 4,633 (335 ) Change in fair value of notes payable 220 - Foreign exchange transaction (gain) loss 43 24 Other (income) expenses, including transaction costs 615 8,342 Adjusted EBITDA $ (5,540 ) $ (11,732 ) Liquidity and Capital Resources Sources of Liquidity As of December 31, 2024, we had approximately $5.2 million in cash, notes payable of $2.8 million, and no long-term debt.
Our future capital requirements will depend on many factors, including the revenue growth rate, the success of future product development and capital investment required, and the timing and extent of spending to support further sales and marketing and research and development efforts. In addition, we expect to incur additional costs as a result of operating as a U.S. public company.
Our future capital requirements will depend on many factors, including the revenue growth rate, the success of future product development and capital investment required, and the timing and extent of spending to support further sales and marketing and research and development efforts.
Gross margin for the year ended December 31, 2023 was 43.6%, an increase of 0.9% as compared to the comparable period in 2022. The reimbursement rate under the BARDA PBS Contract, executed in September 2023, is higher than the rate in the BARDA Burn II contact.
Gross margin for the year ended December 31, 2024 was 44.9%, an increase from 43.6% as compared to the comparable period in 2023, due to more direct labor attributed to the PBS BARDA Contract as a component of the overall development activity and the higher reimbursement rate under the PBS BARDA Contract, executed in September 2023, than the rate in the BARDA Burn II contact.
We believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements. 58 Accrued Research and Development Expenses As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses as of each balance sheet date.
Accrued Research and Development Expenses As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses as of each balance sheet date.
Comparison of Years Ended December 31, 2023 and 2022 The following table summarizes these metrics for the years ended December 31, 2023 and 2022 (in thousands): Year Ended December 31, 2023 2022 Change Research and development revenue $ 18,056 $ 25,368 $ (7,312 ) Gross profit 7,880 10,837 (2,957 ) Gross margin 43.6 % 42.7 % 0.9 % Operating loss (12,984 ) (2,647 ) (10,337 ) Net loss (20,854 ) (2,912 ) (17,942 ) Adjusted EBITDA (11,732 ) (1,481 ) (10,251 ) See “Non-GAAP Financial Measures” below for a reconciliation of net loss to Adjusted EBITDA.
Comparison of Years Ended December 31, 2024 and 2023 The following table summarizes these metrics for the years ended December 31, 2024 and 2023 (in thousands): Year Ended December 31, 2024 2023 Change Research and development revenue $ 29,581 $ 18,056 $ 11,525 Gross profit 13,274 7,880 5,394 Gross margin 44.9 % 43.6 % 1.2 % Operating loss (6,582 ) (12,984 ) 6,402 Net loss (15,315 ) (20,854 ) 5,539 Adjusted EBITDA (5,540 ) (11,732 ) 6,192 See “Non-GAAP Financial Measures” below for a reconciliation of net loss to Adjusted EBITDA.
Change in fair value of warrant liability increased by approximately $0.3 million for the year ended December 31, 2023 as compared to the comparable period in 2022. The decrease reflects changes in the fair value of the Public Warrants from the closing of the Business Combination in September 2023.
Change in fair value of warrant liabilities decreased by approximately $5.0 million for the year ended December 31, 2024 as compared to the comparable period in 2023. The decrease reflects changes in the fair value of the Public Warrants, which were issued in September 2023 and repriced in December 2024.
We have only issued stock options, restricted stock awards and restricted stock units with time-based vesting conditions and record the expense for these awards using the ratable method. We determine the fair value of restricted stock awards granted based on the fair value of our common stock.
We have issued stock options, restricted stock awards and restricted stock units with time-based vesting conditions and record the expense for these awards using the ratable method. We have also issued restricted stock units that vest upon the achievement of certain market conditions.
General and Administrative Expense Year Ended December 31, Change in 2023 2022 $ % General and administrative expense $ 20,864 $ 13,484 $ 7,380 54.7 % General and administrative expense was $20.9 million, for the year ended December 31, 2023, an increase of 54.7% as compared to the comparable period in 2022.
General and Administrative Expense Year Ended December 31, Change in 2024 2023 $ % General and administrative expense $ 19,856 $ 20,864 $ (1,008 ) (4.8 )% General and administrative expense was $19.9 million, for the year ended December 31, 2024, a decrease of 4.8% as compared to the comparable period in 2023.
The SaMD model applies a SaaS (software as a service) treatment for the DeepView System which will feature a software licensing fee that includes maintenance, image hosting, and access to algorithm updates. The proprietary imaging device accesses artificial intelligence algorithms and is a universal platform to house multiple clinical applications.
Once commercialized, we anticipate that the DeepView System will have two revenue streams, a SaMD (software as a medical device) model, and an imaging device component. The SaMD model applies a SaaS (software as a service) treatment for the DeepView System which will feature a software licensing fee that includes maintenance, image hosting, and access to algorithm updates.
For the year ended December 31, 2023 and 2022, the Company’s revenues disaggregated by the major sources was as follows: Year Ended December 31, Change in 2023 2022 $ % BARDA $ 17,027 $ 24,827 $ (7,800 ) (31.4 )% Other U.S. governmental authorities 1,029 541 488 90.2 % Total research and development revenue $ 18,056 $ 25,368 $ (7,312 ) (28.8 )% 55 Cost of Revenues and Gross Profit Year Ended December 31, Change in 2023 2022 $ % Cost of revenue $ 10,176 $ 14,531 $ (4,355 ) (30.0 )% Gross profit 7,880 10,837 (2,957 ) (27.3 )% Gross margin 43.6 % 42.7 % Cost of revenue for the year ended December 31, 2023 was $10.2 million, a decrease of 30.0% compared to the comparable period in 2022, due to decreased activity to fulfill our U.S. governmental contracts, consistent with decreased research and development revenue.
For the year ended December 31, 2024 and 2023, the Company’s revenues disaggregated by the major sources was as follows: Year Ended December 31, Change in 2024 2023 $ % BARDA $ 27,903 $ 17,027 $ 10,876 63.9 % Other U.S. governmental authorities 1,678 1,029 649 63.1 % Total research and development revenue $ 29,581 $ 18,056 $ 11,525 63.8 % Cost of Revenues and Gross Profit Year Ended December 31, Change in 2024 2023 $ % Cost of revenue $ 16,307 $ 10,176 $ 6,131 60.2 % Gross profit 13,274 7,880 5,394 68.5 % Gross margin 44.9 % 43.6 % Cost of revenue for the year ended December 31, 2024 was $16.3 million, an increase of 60.2% compared to the comparable period in 2023, due to increased development activity to fulfill our U.S. governmental contracts, consistent with increased research and development revenue.
DeepView’s output is specifically engineered to allow the physician to make a more accurate, timely and informed decision regarding the treatment of the patient’s wound. Our focus from 2013 through 2021 was on the burn indication, which we expanded to also include the diabetic foot ulcer (“DFU”) indication in 2022.
DeepView’s output is specifically engineered to allow the physician to make a more accurate, timely and informed decision regarding the treatment of the patient’s wound. Our focus has been on the burn indication which is supported by the BARDA PBS contract.
Adjusted EBITDA We define Adjusted EBITDA as net loss excluding income taxes, depreciation of property and equipment, net interest income, stock compensation, transaction costs and any non-operating financial income and expense.
Supplemental non-GAAP measures are presented solely to permit investors to more fully understand how Spectral AI’s management assesses underlying performance. 66 Adjusted EBITDA We define Adjusted EBITDA as net loss excluding income taxes, depreciation of property and equipment, net interest income, stock compensation, transaction costs and any non-operating financial income and expense.
Through these studies, we were able to quantify the burn assessment accuracy in both surgical and non-surgical treatment. Beginning in 2023, we have initiated a pivotal clinical study seeking enrollment of 240 patients, including 180 adult and 60 pediatric patients through multiple sites across the United States. We have not generated any product revenue to date.
In December 2023, we initiated a pivotal clinical study seeking enrollment of 240 patients, including 180 adult and 60 pediatric patients through multiple sites across the United States in both burn center and emergency departments.
Currently, we are highly dependent upon the reimbursements from BARDA for the burn diagnostic testing of our DeepView System and other U.S. government awards.
Financial Operations Overview Research and Development Revenue To date we have not generated any revenues from the sale or license of our products. Our primary source of revenue is research and development revenue. Currently, we are highly dependent upon the reimbursements from BARDA for the burn diagnostic testing of our DeepView System and other U.S. government awards.
Our significant accounting policies are described in more detail in Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report.
Critical Accounting Policies Our significant accounting policies are described in Note 2 to our audited consolidated financial statements included elsewhere in this Annual Report. We believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Upon the terms and subject to the satisfaction of the conditions set forth in the Common Stock Purchase Agreement, the Company has the right, in our sole discretion, to sell to B. Riley Capital II up to $10.0 million in aggregate gross purchase price of newly issued shares of the Company’s Common Stock (the “ELOC”).
Riley up to $10.0 million in aggregate gross purchase price of newly issued shares of the Company’s Common Stock (the “ELOC”). The Company maintained the right to raise up to $3,000,000 of shares of its Common Stock from the B.
Other income (expense) Year Ended December 31, Change in 2023 2022 $ Net interest income $ 172 $ 21 $ 151 Change in fair value of warrant liability 335 57 278 Foreign exchange transaction loss (24 ) (237 ) 213 Transaction costs (8,342 ) - (8,342 ) Total other expense, net $ (7,859 ) $ (159 ) $ (7,700 ) Net interest income for the year ended December 31, 2023 primarily relates to cash interest received by us from our deposit accounts.
This expense also reflects the consistent headcount at the Company from the prior year. 65 Other income (expense) Year Ended December 31, Change in 2024 2023 $ Net interest income $ 14 $ 172 $ (158 ) Borrowing related costs (2,965 ) — (2,965 ) Change in fair value of warrant liabilities (4,633 ) 335 (4,968 ) Change in fair value of notes payable (220 ) — (220 ) Foreign exchange transaction loss, net (43 ) (24 ) (19 ) Other income (expenses), including transaction costs (615 ) (8,342 ) 7,727 Total other income (expense), net $ (8,462 ) $ (7,859 ) $ (603 ) Net interest income for the year ended December 31, 2024 primarily relates to cash interest received or (paid) by us from our deposit accounts.
Additionally, non-revenue generating research and development activities, primarily related to salaries and related costs and consulting fees, have increased by approximately $3.3 million for the year ended December 31, 2023 compared to the comparable period in 2022.
Non-revenue generating research and development activities have decreased by approximately $2.1 million for the year ended December 31, 2024 compared to the comparable period in 2023 due to an overall increase in the percentage of work performed on the PBS BARDA Contract in 2024.
In addition, this amount includes costs associated with buying British pound sterling for payment of our employees and vendors in the UK.
In addition, this amount includes costs associated with buying British pound sterling for payment of our employees and vendors in the UK. Other income (expenses), including transaction costs for the year ended December 31, 2024 primarily relate to legal, professional, and service fees incurred in connection with the Yorkville transaction and B. Riley purchase agreement.
We had an accumulated deficit of approximately $32.8 million. Additionally, on December 26, 2023, we entered into a Common Stock Purchase Agreement and related Registration Rights Agreement with B. Riley Principal Capital II, LLC.
On December 26, 2023, we entered into a Common Stock Purchase Agreement and related Registration Rights Agreement with B. Riley Principal Capital II, LLC (“B. Riley”). Upon the terms and subject to the satisfaction of the conditions set forth in the Common Stock Purchase Agreement, the Company has the right, in our sole discretion, to sell to B.
We have historically funded our operations through the issuance of notes and the sale of preferred stock and common stock, along with payments under governmental contracts for research and development activity. 57 The new PBS BARDA Contract, executed in September 2023, has a total value of up to approximately $150.0 million if all future options are executed.
The sales of the shares of Common Stock to Yorkville under the SEPA, and the timing of any such sales, are at the Company’s option. We have historically funded our operations through the issuance of notes and the sale of common stock, along with payments under governmental contracts for research and development activity.
Carter, MD, FACS, et.al., https://clinicaltrials.gov/ct2/show/NCT05023135 . 52 On September 12, 2023, the Company began trading its shares of the Company Common Stock and the Public Warrants on the Nasdaq Global Market (the “Nasdaq”) under the symbols “MDAI” and “MDAIW”, respectively. The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP.
Pricing for these components will be evaluated and strategically set per country and site-of-service for heightened customer adoption. 61 Business Combination On September 12, 2023, following completion of the Business Combination, the Company began trading its shares of the Company Common Stock and the Public Warrants on the Nasdaq Global Market (the “Nasdaq”) under the symbols “MDAI” and “MDAIW”, respectively.
Cash Flows The following table summarizes our cash flows for the year ended December 31, 2023 and 2022 (in thousands): Year Ended December 31, 2023 2022 Net cash used in operating activities $ (13,240 ) $ (1,162 ) Net cash provided by (used in) financing activities 3,844 (785 ) Cash Flows Used in Operating Activities Net cash used in operating activities increased by approximately $12.1 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022 primarily driven by (a) increased spending on general and administrative expenses of approximately $3.6 million for our increased staff and approximately $3.3 million for our higher non-revenue generating research and development costs, (b) decreased gross profit of approximately $2.7 million from less research and development work performed pursuant to the BARDA Burn II contract as clinical trials under this contract were nearing completion, partially offset by cash receipts in excess of cash payments, and (c) cash paid for transaction costs for the Business Combination of $0.8 million.
Cash Flows The following table summarizes our cash flows for the years ended December 31, 2024 and 2023 (in thousands): Year Ended December 31, 2024 2023 Net cash used in operating activities $ (9,199 ) $ (13,240 ) Net cash provided by financing activities 9,575 3,844 68 Cash Flows Used in Operating Activities Net cash used in operating activities decreased by approximately $4.0 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023 primarily driven by changes in operating liabilities including accrued expenses and deferred revenue, partially offset by a decrease in net loss.
The first Pre-Paid Advance was disbursed on March 20, 2024 in the amount of $5.0 million with a fixed conversion price of $3.16, the second Pre-Paid Advance shall be in a principal amount of $5.0 million and advanced after the earlier of the registration statement registering the resale of the shares of Common Stock issuable under the SEPA being declared effective and or shareholder approval to exceed the 19.99% threshold of the aggregate number of shares of Common Stock issued pursuant to the SEPA (the “Exchange Cap”) (the “Second Pre-Advance Closing”), and the third Pre-Paid Advance shall be in a principal amount of $2.5 million and advanced sixty days following the Second Pre-Advance Closing.
On May 14, 2024, the shareholders voted to approve the reservation and issuance of shares to Yorkville to exceed the 19.99% of the shares of Common stock outstanding immediately prior to the execution of the SEPA (the “Exchange Cap”) and the second Pre-Paid Advance was disbursed on May 16, 2024 in the amount of $4.6 million, which is the $5.0 million second Pre-Paid Advance net of $0.4 million of the 8% original issue discount, with a fixed conversion price of $2.03.
See “ Research and Development Revenue ” above. With the PBS BARDA Contract, the ELOC and funding available through the SEPA, the Company believes it will have sufficient working capital to fund operations for at least one year beyond the release date of the consolidated financial statements.
Riley ELOC, and the Yorkville Transaction, will be sufficient to fund operations for at least one year beyond the release date of these consolidated financial statements. We have based this determination on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.
Removed
In the case of DFUs, our DeepView System provides an assessment in seconds as to the non-healing portions of a DFU.
Added
We have conducted three large clinical studies with multiple sites across the United States, enrolling 413 burn patients, including 329 adult and 84 pediatric patients. Through these studies, we were able to quantify the burn assessment accuracy in patients undergoing both surgical and non-surgical treatment.
Removed
The non-healing assessment would provide the physician with an objective assessment to use an advanced wound care therapy on “Day One” as opposed to the current approach that involves waiting up to 30 days to see how the wound develops before making such clinical assessment.
Added
By the end of 2024, the Company had completed the enrollment of the pivotal clinical study with 267 patients, including 146 at burn centers, 121 at emergency departments across 22 sites across the United States.
Removed
DeepView’s current accuracy for burn wounds is 92% for adults and 88% for pediatrics, compared with current physician accuracy in evaluation of all burn wounds of 50% to 75%, respectively, at best, according to industry literature. 1 In addition, in head-to-head clinical trial evaluations, our DeepView System provided higher accuracy to “ground truth” on burn wound analysis than the accuracy of burn specialists, who reported 70-80% accuracy, or non-burn specialist physicians, who reported 50-60% accuracy. 2 We have conducted three large clinical studies with multiple sites across the United States, enrolling 413 burn patients, including 329 adult and 84 pediatric patients.
Added
As part of the total 267 patients enrolled, 42 pediatric patients were included from burn centers and another 42 pediatric patients were included from emergency departments. We have not generated any product revenue to date.
Removed
The MTEC Agreement is currently intended to run through April 2025 with funding dependent on various milestones. Once commercialized, we anticipate that the DeepView System will have two revenue streams, a SaMD (software as a medical device) model, and an imaging device component.
Added
In August 2024, the MTEC award was increased to $4.9 million and is currently intended to run through December 2025 with funding dependent on various milestones. In March 2024, we received an additional $0.5 million award from the DHA to further this development, for a total contract value of approximately $2.8 million.
Removed
Pricing for these components will be evaluated and strategically set per country and site-of-service for heightened customer adoption.
Added
The proprietary imaging device accesses artificial intelligence algorithms and is a universal platform to house multiple clinical applications.
Removed
Business Combination On September 11, 2023, we consummated a business combination, pursuant to the business combination agreement dated April 11, 2023 (the “Business Combination Agreement”) by and among the Company (previously, Rosecliff Acquisition Corp I (“Rosecliff”)), Ghost Merger Sub I (a wholly owned subsidiary of Rosecliff), Ghost Merger Sub II (a wholly owned subsidiary of Rosecliff) and Spectral MD Holdings, Ltd.
Added
Other Income (Expense) In 2024, other income (expense) consists of fees incurred in connection with the Yorkville transaction and B.
Removed
Upon the closing of the Business Combination (the “Closing”), in sequential order: (a) Ghost Merger Sub I merged with and into Legacy Spectral, with Legacy Spectral continuing as the surviving company as our wholly owned subsidiary (the “Spectral Merger”) and then, (b) Legacy Spectral merged with and into Ghost Merger Sub II (the “SPAC Merger”, together with the Spectral Merger (the “Business Combination”)), with Ghost Merger Sub II (renamed Spectral MD Holdings LLC) surviving the SPAC Merger as our direct wholly-owned subsidiary.
Added
Riley purchase agreement, net interest income, borrowing related costs related to the Yorkville convertible notes, including the 8% original issue discount and 7% repayment premium as may be applicable per each Pre-Paid Advance, change in fair value of notes payable, change in fair value of warrant liabilities, changes in fair value of derivatives, and foreign exchange transaction gains/losses.
Removed
Upon the Closing, we changed our name from Rosecliff Acquisition Corp I to Spectral AI, Inc .
Added
The reduction was offset by an increase of approximately $1.1 million related to other administrative expenses for the year ended December 31, 2024, compared to the comparable period in 2023.
Removed
In addition to our Common Stock, we currently have 8,433,333 redeemable warrants (the “Public Warrants”) and 73,978 warrants (“Angel Warrants”) to SP Angel Corporate Finance LLP (“SP Angel”) remaining outstanding. 1 Henk Hoeksema, Karlien Van de Sijpe, Thiery Tondu, Moustapha Hamdi, Koenraad Van Landuyt, Phillip Blondeel, Stan Monstrey, Accuracy of early burn depth assessment by laser Doppler imaging on different days post burn, Burns, Volume 35, Issue 1, 2009, Pages 36-45, ISSN 0305-4179.
Added
Borrowing related costs increased $3.0 million for the year ended December 31, 2024, as compared to the comparable period in 2023 due to debt issuance costs and payments of the discount and premium related to the Yorkville Convertible Notes that were expensed during fiscal year 2024.
Removed
The above article was exploring laser doppler imaging as an objective technique to determine the depth of a burn wound and states “as has been demonstrated in several studies, a purely clinical, bedside evaluation of the burn depth in dermal burns is accurate only in about 50-75% of the cases.” 2 Rise of the (Learning) Machines: An Interim Analysis Assessing Burn Wound Healing; Jeffrey E.
Added
Change in fair value of notes payable decreased by approximately $0.2 million for the year ended December 31, 2024, as compared to the comparable period in 2023, which reflects the total change in the fair value of the Yorkville notes issued in 2024.
Removed
Under the guidance in Accounting Standards Codification (“ASC”) 805, Business Combinations, Rosecliff, which is the legal acquirer, has been treated as the “acquired” company for financial reporting purposes and the Company has been treated as the accounting acquirer.
Added
We had an accumulated deficit of approximately $48.1 million. The Company incurred a net loss of $15.3 million during the year ended December 31, 2024 and had working capital (current assets less current liabilities) of approximately ($7.5) million as of December 31, 2024. Net cash used in operating activities was $9.1 million for the year ended December 31, 2024.
Removed
This determination was primarily based on the following: (i) Legacy Spectral’s former shareholders maintained a majority of the voting power of the Company; (ii) Legacy Spectral’s senior management comprises all of the senior management of the Company; (iii) Legacy Spectral selected five of the six of the directors for the Board of Directors of the Company; (iv) Legacy Spectral’s relative size of assets and operations compared to Rosecliff; and (v) Legacy Spectral’s operations comprised the ongoing operations of the Company.
Added
In November and December 2024, the Company issued 3,896,781 shares for gross proceeds of approximately $4.5 million to certain institutional investors through at-the market equity issuances, stock option exercises and the conversion of the Company’s wholly-owned subsidiary, Spectral IP, Inc. (“Spectral IP”), convertible promissory note into shares of the Company’s common stock.
Removed
Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of a capital transaction in which Legacy Spectral issued stock for the net assets of Rosecliff prior to the Closing. Upon the Closing, the net assets of Rosecliff are stated at fair value, with no goodwill or other intangible assets recorded.
Added
The first Pre-Paid Advance was disbursed on March 20, 2024 in the amount of $5.0 million with a fixed conversion price of $3.16. The Company received $4.6 million in cash, net of the 8% original issue discount.
Removed
All historical financial information presented in the consolidated financial statements represents the accounts of Legacy Spectral at their historical cost as if Legacy Spectral is the predecessor to the Company. Upon consummation of the Business Combination, Spectral AI has continued as an SEC-registered and Nasdaq-listed company.
Added
The third Pre-Paid Advance was disbursed on July 17, 2024 in the principal amount of $2.3 million, which is the $2.5 million third Pre-Paid Advance net of the $0.2 million of the 8% original issue discount.
Removed
The consolidated financial statements following the Closing reflect the results of the Combined Company’s operations. Financial Operations Overview Research and Development Revenue To date we have not generated any revenues from the sale or license of our products. Our primary source of revenue is research and development revenue.
Added
As of December 31, 2024, $7.8 million of the outstanding balance of the Pre-Paid Advances was paid in cash and $2.4 million was paid in shares of the Company issued under the SEPA. The Company still has access to the remaining funds under the SEPA.

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