UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2025 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: SPECTRAL AI, INC. (Exact Name of Registrant as Specified in Its Charter) (State or other jurisdiction of incorporation or organization ...

Financial Performance - Research & Development Revenue for FY 2024 was $29.6 million, a 63.5% increase from $18.1 million in FY 2023[12] - The net loss for FY 2024 was $(15.3) million, or $(0.85) per share, compared to a net loss of $(20.9) million, or $(1.48) per share, for FY 2023[17] - Gross profit for the year ended December 31, 2024, was $13,274,000, up 68% from $7,880,000 in 2023[31] - Operating loss decreased to $6,582,000 for the year ended December 31, 2024, compared to $12,984,000 in 2023, indicating improved operational efficiency[31] - Net loss for the year ended December 31, 2024, was $15,315,000, a reduction from $20,854,000 in 2023, reflecting a 27% improvement[31] - Basic and diluted net loss per share for 2024 was $0.85, down from $1.48 in 2023, showing a significant reduction in loss per share[31] - Total comprehensive loss for the year ended December 31, 2024, was $15,324,000, compared to $20,842,000 in 2023, reflecting a 27% decrease[31] - Cash used in operating activities for the year ended December 31, 2024, was $9,198,000, an improvement from $13,240,000 in 2023[33] - Net cash provided by financing activities in 2024 was $9,575,000, compared to $3,844,000 in 2023, indicating increased financing support[33] - The company ended 2024 with cash of $5,157,000, up from $4,790,000 at the beginning of the year[33] Revenue Projections - The Company expects to realize its first commercial product revenue in the second half of 2025, with a forecasted revenue of approximately $21.5 million for FY 2025[19] Research and Development - The Company has a multi-year, non-dilutive BARDA PBS contract valued at up to $150 million, with an initial award of approximately $54.9 million[4] - Research and development revenue for Q4 2024 was $7,604,000, a 44% increase from $5,287,000 in Q4 2023[31] - The Burn Validation Study involved 160 patients at 14 burn centers across the US, making it one of the largest burn studies conducted[9] - The Company plans to submit regulatory filings for the DeepView System for burns in the first half of 2025[3] Product Performance - The DeepView System achieved an image-wise sensitivity score of 86.6%, significantly outperforming burn physicians' clinical judgment annotation score of 40.8%[5] Contractual Agreements - The Company completed an equity financing and long-term debt transaction, raising $11.2 million to support its objectives[16] Margins - The gross margin for FY 2024 rose to 44.9% from 43.6%, reflecting the expansion of work under the BARDA PBS contract[13] Cash Position - As of December 31, 2024, cash was $5.2 million, with total current assets amounting to $10.1 million[29]

Regulatory Approvals and Compliance - The DeepView System has received UKCA marking for burn indications, with full registration completed on March 7, 2024, and anticipates FDA Class II designation via De Novo application[17]. - The DeepView System requires significant costs for obtaining market authorization and De Novo classification, with no guarantee of approval[92]. - Compliance with EU Medical Devices Regulation is necessary for selling devices in EU member states, which includes meeting general safety and performance requirements[94]. - The UK is amending its Medical Devices Regulations post-Brexit, with new regulations expected to apply from July 2024, potentially leading to divergent requirements from the EU[105]. - The regulatory review process for the DeepView technology is expensive and uncertain, with potential delays in obtaining necessary approvals[91]. - The FDA's review times have fluctuated due to various factors, including government funding and global health concerns, which could affect the timely approval of new products[107]. - The FDA and other regulatory authorities may change policies that could prevent or delay the approval of the DeepView System[103]. - Ongoing regulation will continue to apply even after market authorization is granted, affecting the company's commercial operations[112]. - The DeepView System requires a De Novo classification due to its novel approach to wound healing prediction, which has not been previously classified by the FDA[117]. - If the DeepView System is found to cause adverse medical events, it could negatively affect its market authorization and lead to regulatory enforcement actions[118]. - The FDA has the authority to require product recalls if there are material deficiencies or unacceptable risks to health, which could impact the company's operations[119]. - Sales of the DeepView System outside the United States will be subject to varying foreign regulatory requirements, which can be expensive and time-consuming to comply with[116]. Financial Performance and Funding - Approximately $281.5 million in funding has been awarded from U.S. government contracts since 2013, with $272.9 million from BARDA, supporting technology development and clinical trials[22]. - A new BARDA contract executed on September 27, 2023, provides up to $150 million, including an initial award of $54.9 million for clinical validation and FDA application support[22]. - For the year ended December 31, 2024, the company incurred a net loss of $15.3 million, compared to a net loss of $20.9 million for the year ended December 31, 2023[72]. - The company has an accumulated deficit of approximately $48.1 million as of December 31, 2024[72]. - The BARDA contract is the largest single source of revenue for the company, with a prior contract option valued at approximately $21.9 million being replaced by the new contract[78]. - The company has received $12.5 million in prepaid advances from Yorkville in the form of convertible promissory notes[84]. - The company expects its cash and cash equivalents, along with remaining funding, to be sufficient to meet capital requirements for at least the next 12 months[85]. - The company may need to seek additional capital to fund operations and product development, with no assurance of favorable terms[86]. Product Development and Technology - The DeepView System's proprietary database contains approximately 340 billion pixels of image data as of December 31, 2024, enhancing algorithm optimization and competitive positioning[30]. - The company has completed enrollment of 164 patients in its validation study for burn indications, including 49 pediatric subjects[28]. - The DeepView System significantly improves sensitivity and specificity in assessing burn wounds compared to traditional physician assessments[29]. - The DeepView SnapShot M, a portable diagnostic tool, has received over $7.2 million in funding for development, primarily for military applications[32]. - The 3-D wound measurement technology is under development to provide accurate wound size measurements and will be integrated into the DeepView System[33]. - The DeepView System reduces decision time for burn wound assessments from 21 days to "Day One," with estimated cost savings of approximately $24,000 per hospital stay[41]. - The company has developed strategic partnerships with leading research hospitals and institutions in the U.S., UK, and Australia to support clinical validation studies and technology expansion[49]. - The company has developed strategic partnerships with multiple clinical and academic partners to access diverse wound data inputs, which is critical for improving its DeepView algorithms[204]. Market Strategy and Commercialization - The company plans to initiate commercialization in the U.S. in 2026, with FDA review submission for the burn application expected in 2025[27]. - The company anticipates commercial sales for the burn indication in the UK to commence in 2025, following receipt of the UKCA mark[56]. - The total addressable market for DeepView is estimated to include over 57,000 clinical care sites in the U.S. and over 20,000 sites across the UK and EU, with potential expansion into the Middle East[44]. - The DeepView System is expected to generate revenue through a SaaS model and a capital sale component, with a software licensing fee that includes maintenance and access to algorithm updates[55]. - The company plans to apply for NICE certification in the UK and CPT codes in the U.S. as clinical evidence develops and utilization increases over the next several years[57]. - The commercial success of the DeepView System will depend on market acceptance by clinicians, with risks of slow market development adversely affecting business results[149]. - The company aims to establish strong relationships with leading U.S. hospitals to promote the DeepView System, leveraging validation studies across the U.S. and EU[151]. - Third-party payor coverage and reimbursement are critical for the DeepView System's sales; lack of coverage could negatively impact business prospects[157]. Competition and Market Risks - The company faces significant competition from established manufacturers with greater resources, which may hinder market penetration[162]. - The DeepView System is the only AI-enabled wound imaging technology, but ongoing innovation is necessary to maintain competitive advantage[166]. - The company relies on third-party suppliers for critical components, making it vulnerable to supply shortages and price fluctuations[168]. - The company may encounter difficulties in managing growth, which could disrupt operations and increase net losses[186]. - The company’s proprietary AI algorithms and optical technology are key competitive advantages that must be maintained and protected to ensure ongoing success[210]. Legal and Compliance Risks - The company must comply with various healthcare laws, including the U.S. federal Anti-Kickback Statute, which could affect sales and marketing practices[124]. - Violations of the federal civil False Claims Act could result in significant penalties, including treble damages and mandatory penalties per false claim[125]. - The company may face substantial fines and imprisonment under the Eliminating Kickbacks in Recovery Act for improper financial arrangements related to healthcare services[125]. - The Physician Payments Sunshine Act requires the company to report certain payments and transfers of value to healthcare professionals, impacting compliance and operational practices[125]. - The company is exposed to significant risks related to compliance with foreign and state laws, which may complicate operations and lead to potential penalties[126]. - Legislative and regulatory changes in the U.S. healthcare system could negatively impact the demand and reimbursement for the DeepView System, affecting future revenues and profitability[127]. - The company cannot predict the impact of future healthcare policy changes, which may increase costs and disrupt commercialization efforts[128]. Operational Challenges - The company relies on third-party manufacturers for production, exposing it to risks related to product quality and compliance with regulatory standards[130]. - Regular inspections and quality checks are performed on the contract manufacturer to mitigate risks, but future pandemics could hinder these efforts[132]. - The company is dependent on senior management and key personnel, and their loss could adversely affect business operations[183]. - The company may face challenges in accurately forecasting demand for the DeepView System, impacting inventory management and financial results[181]. - The company plans to warrant each DeepView System against defects and provide supplemental services, which may increase operating expenses if warranty claims are high[175]. - The company is focused on maintaining strong product performance and reliability to achieve profitability objectives[176]. Intellectual Property - The company maintains 12 issued and allowed U.S. patents and 18 international patents, with 6 U.S. patent applications and 29 foreign applications pending, indicating a robust intellectual property portfolio[212]. - The company’s ability to protect its intellectual property is critical, as failure to do so could allow competitors to develop similar products, harming its market position[209]. - The ability to obtain and maintain valid patents is contingent on the differences between the company's inventions and prior art[215]. - Patent applications in the United States are typically not published until 18 months after filing, which may affect the company's ability to secure patent protection[215]. - Unauthorized parties may potentially obtain and use proprietary information despite the company's efforts to protect its rights[215]. - The issuance of a patent does not guarantee its inventorship, validity, or enforceability, and patents may be challenged in courts or patent offices[215]. - The company may face limitations in obtaining method patents outside the United States due to differing patent laws in foreign jurisdictions[215]. - Changes in patent laws or their interpretation could impact the company's ability to protect inventions and enforce intellectual property rights[215]. - The company cannot predict whether current patent applications will result in issued patents in any jurisdiction[215]. - The scope of issued patents may not provide sufficient protection against competitors or third parties[215].

Funding and Government Contracts - The company has received approximately $281.0 million in funding awards from government contracts since 2013, primarily from BARDA, which accounts for $272.9 million[139]. - In September 2023, the company executed a multi-year Project BioShield agreement with BARDA valued at up to approximately $150.0 million, including an initial award of nearly $54.9 million[140]. - The company has not generated any product revenue to date, relying heavily on government contracts for funding[139]. - The company received a $4.0 million grant under the MTEC Agreement, which was increased to $4.9 million, for the development of a handheld version of the DeepView® System[182]. Financial Performance - Research and development revenue for the three months ended September 30, 2024, was $8.173 million, compared to $3.440 million for the same period in 2023, representing a 138% increase[149]. - Gross profit for the nine months ended September 30, 2024, was $9.926 million, up from $5.444 million in the same period in 2023, indicating an 82% increase[149]. - The company reported a net loss of $1.504 million for the three months ended September 30, 2024, significantly improved from a net loss of $10.629 million in the same period in 2023[149]. - The net loss for Q3 2024 was $1.5 million, compared to a net loss of $10.6 million in Q3 2023, and for the nine months ended September 30, 2024, the net loss was $7.6 million, down from $17.3 million in the same period last year[162]. - Adjusted EBITDA for the three months ended September 30, 2024, was $(711) thousand, compared to $(3,885) thousand for the same period in 2023, indicating a significant improvement[176]. Revenue and Cost Analysis - Cost of revenue for Q3 2024 was $4.5 million, representing a 129.0% increase from $2.0 million in Q3 2023, and for the nine months ended September 30, 2024, it was $12.1 million, up 64.5% from $7.3 million in the same period last year[165]. - Gross profit for Q3 2024 was $3.7 million, a 149.1% increase from $1.5 million in Q3 2023, and for the nine months ended September 30, 2024, it was $9.9 million, up 83.3% from $5.4 million in the same period last year[165]. - The gross margin for the three months ended September 30, 2024, was 44.9%, compared to 42.8% for the same period in 2023[149]. - The gross margin for Q3 2024 was 46.3%, an increase of 3.5% compared to Q3 2023, and for the nine months ended September 30, 2024, it was 45.7%, up 3.1% from the same period last year[166]. Operational Developments - The company initiated a pivotal clinical study in December 2023, seeking enrollment of 240 patients, with 169 patients enrolled by the end of Q3 2024[137]. - The DeepView System is expected to begin commercialization activities in the United Kingdom in the second half of 2024 following the receipt of the UKCA mark[136]. - The business combination completed in September 2023 resulted in the company being renamed Spectral AI, Inc., and its shares began trading on Nasdaq under the symbol "MDAI"[144]. Cash Flow and Financing - As of September 30, 2024, the company had approximately $3.7 million in cash and an accumulated deficit of approximately $40.3 million[177]. - Net cash used in operating activities for the nine months ended September 30, 2024, was $(9,668) thousand, a decrease from $(10,865) thousand in the same period in 2023[184]. - Net cash provided by financing activities increased by approximately $4.5 million for the nine months ended September 30, 2024, compared to the same period in 2023[186]. - The company entered into a Common Stock Purchase Agreement allowing it to sell up to $10.0 million in newly issued shares[178]. - The Standby Equity Purchase Agreement with Yorkville allows the company to sell up to $30.0 million of its shares, with a total of $12.5 million in convertible promissory notes already advanced[179]. Expenses and Liabilities - General and administrative expenses decreased by 19.2% to $4.6 million in Q3 2024 from $5.6 million in Q3 2023, and for the nine months ended September 30, 2024, it was $15.4 million, a slight decrease of 0.7% from $15.5 million in the same period last year[167]. - Other income (expense) for Q3 2024 was a net expense of $581,000, compared to a net expense of $6.5 million in Q3 2023, and for the nine months ended September 30, 2024, it was a net expense of $2.0 million, down from $7.2 million in the same period last year[168]. - Borrowing related costs increased by $1.1 million for Q3 2024 compared to Q3 2023, and by $2.1 million for the nine months ended September 30, 2024, due to debt issuance costs related to the Yorkville Convertible Notes[169]. - The change in fair value of warrant liability decreased by $0.7 million for Q3 2024 compared to Q3 2023, reflecting changes in the fair value of the Public Warrants issued in September 2023[170]. Company Status and Market Conditions - The company qualifies as an emerging growth company until the earliest of December 31, 2026, or when total annual gross revenues exceed $1.235 billion[195]. - The company maintains a significant amount of assets in cash, primarily in cash deposits, which are not significantly affected by interest rate changes due to their short-term nature[199]. - Revenue is primarily denominated in U.S. dollars, while expenses are incurred mainly in the U.S. and UK currencies[200]. - A major concentration of credit risk exists as one customer, a U.S. government agency, represents the majority of research and development revenue and accounts receivable[202]. - Recent inflation has increased research and development and operating costs, potentially affecting gross margins and cash flows[203].

Funding and Government Contracts - The company has received approximately $280.2 million in funding awards from government contracts since 2013, primarily from BARDA, which accounts for $272.9 million[132]. - The company executed a multi-year Project BioShield agreement with BARDA in September 2023, valued at up to approximately $150.0 million, including an initial award of nearly $54.9 million[133]. - The Company secured a multi-year PBS BARDA Contract valued at approximately $150.0 million, with an initial award of nearly $54.9 million for clinical validation and FDA clearance of DeepView[174]. - The Company received a $4.0 million grant under the MTEC Agreement for developing a handheld version of the DeepView System, expected to be completed by April 2025[175]. Financial Performance - Research and development revenue for the three months ended June 30, 2024, was $7.5 million, compared to $4.3 million for the same period in 2023, representing a 76.5% increase[141]. - Gross profit for the three months ended June 30, 2024, was $3.3 million, with a gross margin of 44.3%, compared to a gross profit of $1.8 million and a gross margin of 42.1% in 2023[141]. - The company reported an operating loss of $2.4 million for the three months ended June 30, 2024, an improvement from a loss of $3.0 million in the same period of 2023[141]. - The company reported a net loss of $2.9 million for the three months ended June 30, 2024, compared to a net loss of $3.1 million in 2023; for the six months, the net loss was $6.1 million, down from $6.7 million in 2023[154]. - Adjusted EBITDA for the three months ended June 30, 2024, was $(2.0) million, an improvement from $(2.6) million in 2023; for the six months, it was $(3.9) million, compared to $(5.2) million in 2023[169]. - General and administrative expenses increased to $5.8 million for the three months ended June 30, 2024, a 20.4% rise from $4.8 million in 2023; for the six months, expenses were $10.8 million, up 10.0% from $9.9 million in 2023[159]. - Cash used in operating activities increased by approximately $2.5 million for the six months ended June 30, 2024, totaling $8.0 million compared to $5.5 million in the same period of 2023[178][179]. - Net cash provided by financing activities increased by approximately $10.6 million for the six months ended June 30, 2024, totaling $10.1 million compared to a net cash used of $0.5 million in 2023[180]. - The company had approximately $6.9 million in cash as of June 30, 2024, with notes payable of $8.0 million and no long-term debt[170]. Product Development and Commercialization - The company has not generated any product revenue to date, focusing on research and development for the DeepView System[132]. - The DeepView System is expected to begin commercialization activities in the UK in the second half of 2024 following the receipt of the UKCA mark[129]. - The company anticipates two revenue streams from the DeepView System: a software as a medical device model and an imaging device component[135]. Inflation and Economic Risks - Recent inflation has increased the cost of research and development as well as operating costs[198]. - Significant inflationary pressures may adversely affect the company's ability to maintain current levels of gross margin[198]. - The company may face challenges in managing selling, general, and administrative expenses due to inflation[198]. - Inability to respond quickly to inflation could harm the company's cash flows and operational results in the future[198]. Corporate Structure and Subsidiaries - The business combination with Rosecliff Acquisition Corp I was completed on September 11, 2023, resulting in the company being renamed Spectral AI, Inc.[136]. - The Company formed a new subsidiary, Spectral IP, to acquire AI intellectual property, receiving a $1.0 million investment from an affiliate of its largest shareholder[183]. Risk Factors - The company is highly dependent on U.S. governmental contract awards for revenue, which may lead to inconsistencies in operating results[146]. - The company is exposed to credit risk, with a significant portion of research and development revenue coming from a single U.S. government agency[197]. - The change in fair value of warrant liability increased by $0.4 million for the three and six months ended June 30, 2024, reflecting changes in the fair value of the Public Warrants issued in September 2023[163].

Funding and Contracts - The company has received approximately $280.2 million in funding awards from government contracts since 2013, with $272.9 million coming from BARDA[128]. - The company executed a multi-year Project BioShield agreement with BARDA in September 2023, valued at up to approximately $150.0 million, including an initial award of nearly $54.9 million[129]. - The PBS BARDA Contract, valued at up to $150.0 million, includes an initial award of nearly $54.9 million for the clinical validation and FDA clearance of the DeepView system[170]. - The company received a $4.0 million grant under the MTEC Agreement for developing a handheld version of the DeepView System, expected to be completed by April 2025[171]. Financial Performance - Research and development revenue for the three months ended March 31, 2024, was $6.3 million, an increase of $1.2 million from $5.1 million in the same period in 2023[138]. - Gross profit for the same period was $2.9 million, with a gross margin of 46.6%, up from 42.9% in 2023[138]. - The operating loss for the three months ended March 31, 2024, was $2.1 million, a decrease of $755,000 compared to a loss of $2.9 million in 2023[138]. - The net loss for the same period was $3.2 million, a reduction of $404,000 from a net loss of $3.6 million in 2023[138]. - Adjusted EBITDA for the three months ended March 31, 2024, was $(2.1) million, an improvement from $(2.6) million in 2023[165]. - Net cash used in operating activities decreased by approximately $1.1 million to $(2,680) thousand for the three months ended March 31, 2024, compared to $(3,755) thousand in the same period of 2023[175]. - Net cash provided by financing activities increased by approximately $8.2 million to $8,049 thousand for the three months ended March 31, 2024, compared to $(104) thousand in the same period of 2023[176]. Product Development and Commercialization - The company has not generated any product revenue to date, focusing on research and development for the DeepView System[128]. - The DeepView System is expected to begin commercialization in the UK in the second half of 2024 following the receipt of the UKCA mark[125]. - The company anticipates two revenue streams from the DeepView System: a software as a medical device model and an imaging device component[131]. Corporate Structure and Governance - The business combination completed in September 2023 resulted in the company being listed on the Nasdaq under the symbols "MDAI" and "MDAIW"[133]. - The Company formed a new subsidiary, Spectral IP, and received a $1.0 million investment for the development of its artificial intelligence intellectual property portfolio[180]. Capital and Financing - As of March 31, 2024, the company had approximately $10.2 million in cash and notes payable of $5.8 million, with no long-term debt[166]. - The company entered into a Common Stock Purchase Agreement with B. Riley to sell up to $10.0 million in newly issued shares and a Standby Equity Purchase Agreement with Yorkville to sell up to $30.0 million in shares[167][168]. - The Company entered into a SEPA allowing the sale of up to $30.0 million of its shares, with an initial Pre-Paid Advance of $5.0 million at a fixed conversion price of $3.16[178]. - The Insurance Note, entered into in September 2023, has an interest rate of 8.6% per annum, with a remaining balance of $0.2 million as of March 31, 2024[177]. Risks and Challenges - The Company is exposed to credit risk, with one U.S. government agency representing the majority of its research and development revenue and accounts receivable[194]. - Inflation has contributed to increased costs in research and development and operating expenses, potentially affecting gross margins and cash flows[195]. - The Company has not recognized any losses from credit risks on cash, which is primarily held in U.S. financial institutions[193]. - The Company maintains a large amount of cash, with fixed interest rates on current borrowings, making it less sensitive to interest rate changes[191]. - The Company is classified as an emerging growth company, allowing it to delay the adoption of certain accounting standards[185].

Technology and Product Development - The DeepView System has achieved 92% accuracy in identifying non-healing burn regions in adult participants, significantly outperforming burn specialists who reported 70-80% accuracy[33]. - The AI diagnostic accuracy for DFU has improved to 86% as of 2023, with a goal to predict a 50% reduction in wound size by week four[36]. - The DeepView System's current clinical accuracy for DFUs is 86%, while for burn wounds, it is 92%, compared to physician accuracy rates of 50% to 75%[52]. - The DeepView System's imaging technology captures a wide range of wavelengths, providing data that enhances the AI model's predictive capabilities[21]. - The company is developing 3-D wound measurement technology that will enable accurate distance, area, and volume measurements with sub-millimetric accuracy[42]. - The DeepView technology is the only AI-enabled wound imaging technology that provides a binary result of "healing vs. non-healing"[66]. - The company plans to submit a De Novo application to the FDA for market authorization of the burn application in early 2025[45]. Funding and Financials - The company has received approximately $279.6 million in funding from government contracts since 2013, with $272.9 million from BARDA, supporting technology development and clinical trials[25]. - A new contract with BARDA executed on September 27, 2023, provides up to $150 million in funding, including an initial award of approximately $54.9 million for clinical validation and FDA De Novo status application[25]. - The company incurred a net loss of $20.9 million for the year ended December 31, 2023, compared to a net loss of $2.9 million for the year ended December 31, 2022, with an accumulated deficit of $32.8 million as of December 31, 2023[87]. - The company may need additional funding to finance operations and product development, with no guarantee of raising capital on favorable terms[102]. - The company has the right to sell up to $10 million of common stock to B. Riley and up to $30 million to Yorkville under respective agreements[100]. Regulatory and Compliance Challenges - The company is subject to extensive regulations for medical devices, which can delay or prevent market authorization for the DeepView System[107]. - The company must comply with EU and UK regulations to market its medical devices, which may impose additional costs and delays[110][111]. - The FDA's evolving regulations may impose additional costs and lengthen review times for the DeepView System, affecting market authorization[118]. - The company is subject to various data protection laws, including HIPAA, which imposes significant obligations and potential penalties for non-compliance[151]. - The General Data Protection Regulation (GDPR) could impose fines of up to €20 million or 4% of annual global revenues for breaches, affecting the company's operations in the European Economic Area[156]. - Compliance with various healthcare laws, including the Anti-Kickback Statute and the False Claims Act, is crucial, as violations could result in substantial penalties and operational disruptions[142][143]. Market Strategy and Sales - The DeepView System is expected to begin commercial sales in the UK for burn indications in the second half of 2024, following UKCA authorization[26]. - The company intends to expand its sales efforts to outpatient wound centers and podiatric clinics in the US and Europe, targeting a mature sales model[27]. - The company plans to utilize a SaaS model and an imaging device component for revenue generation, with the SaaS component including a software licensing fee for maintenance and updates[69]. - The company plans to engage strategic partnerships and key opinion leaders to facilitate the adoption of its DeepView technology[72]. - The company has established relationships with leading U.S. hospitals to promote the DeepView System and increase awareness among key opinion leaders[170]. Operational Risks and Challenges - The company relies heavily on government funding, with the BARDA contract being its largest single source of revenue, and any loss of this funding could adversely impact operations[92]. - The company faces risks of significant delays in clinical trials, which could impair product launch and increase development costs[113]. - The company relies on third parties for clinical trials and regulatory submissions, and failures by these parties could adversely affect market authorization[116]. - The company is highly dependent on senior management and key personnel, and losing them could adversely impact business operations[202]. - The company faces challenges in accurately forecasting demand for its products, which could lead to inventory write-downs or supply chain disruptions[200]. Competition and Market Acceptance - The company faces competition from larger firms with established relationships and resources, which may hinder market penetration[182]. - Potential barriers to adoption include perceived liability risks, insufficient clinical evidence, and competition from established diagnostic products[173]. - The success of the DeepView System depends on clinician adoption, which is influenced by factors such as safety, performance, and cost-effectiveness[169]. - The company lacks experience in marketing and selling the DeepView System, which could hinder its ability to grow sales and brand awareness[172]. Cybersecurity and Data Protection - The company has taken steps to protect its information technology systems, but there is no assurance that these measures will prevent security breaches[213]. - The company may face significant costs and reputational damage from cyber-attacks or data breaches, which could adversely affect its financial condition[210]. - The company is exposed to risks from employee misconduct, which could lead to regulatory sanctions and reputational harm[161]. Workforce and Employment - The company employs 78 full-time employees as of December 31, 2023, and anticipates hiring in operations, sales, marketing, and government contracts in 2024[81]. - As of March 25, 2024, the company had 80 employees and anticipates a substantial increase in workforce to support growth plans[205]. - The company is implementing a long-term hiring plan to support its European strategy, which includes hiring in the UK and Europe[204].

Funding and Government Contracts - The company has received approximately $279.0 million in funding commitments from government contracts since 2013, primarily from BARDA, which accounts for $271.9 million[116]. - In September 2023, the company executed a multi-year Project BioShield contract with BARDA valued at up to approximately $149 million, including an initial award of nearly $55.0 million for clinical validation and FDA clearance[118]. - The company is highly dependent on U.S. governmental contracts, with revenue growth reliant on the continuation of these awards[136]. - The company received $4.0 million in grants under the MTEC Agreement in April 2023, contributing to its liquidity[162]. Financial Performance - The company reported research and development revenue of $3,440,000 for the three months ended September 30, 2023, compared to $7,038,000 for the same period in 2022[130]. - The gross margin for the three months ended September 30, 2023, was 42.8%, compared to 45.9% for the same period in 2022[130]. - The net loss for the three months ended September 30, 2023, was $10,629,000, compared to a net loss of $380,000 for the same period in 2022[130]. - Research and development revenue for Q3 2023 was $3,440,000, a decrease of 51.1% compared to $7,038,000 in Q3 2022[146]. - Gross profit for Q3 2023 was $1,472,000, down 54.4% from $3,227,000 in Q3 2022, with a gross margin of 42.8%[148]. - General and administrative expenses increased by 62.1% to $5,638,000 in Q3 2023, compared to $3,478,000 in Q3 2022, primarily due to increased staffing[150]. - Revenue from BARDA decreased by 55.7% to $3,055,000 in Q3 2023, down from $6,903,000 in Q3 2022[147]. - Total operating costs and expenses for Q3 2023 were $5,638,000, significantly higher than $3,478,000 in Q3 2022[145]. - Cost of revenue for Q3 2023 was $1,968,000, a decrease of 48.4% from $3,811,000 in Q3 2022[148]. - Net interest income for the three months ended September 30, 2023, was $2,000, compared to $42,000 for the same period in 2022, reflecting a decrease of approximately 95.2%[151]. - Adjusted EBITDA for the three months ended September 30, 2023, was $(3.9 million), compared to $(4,000) in 2022, indicating a deterioration in performance[160]. Business Operations and Strategy - The DeepView System has achieved a burn wound assessment accuracy of 92% for adults and 88% for pediatrics, significantly higher than the current physician accuracy of 50% to 75%[115]. - The company anticipates two revenue streams from the DeepView System: a software as a medical device (SaMD) model and an imaging device component[120]. - Future revenue may be impacted by the need to lower pricing and incentives to accelerate adoption of the DeepView System[137]. - The company expects to incur substantial additional expenses related to public company requirements following the business combination[128]. Market Activity - The company began trading its shares on NASDAQ under the symbols "MDAI" and "MDAIW" on September 12, 2023, following the business combination[124]. - The business combination was treated as a reverse recapitalization, with Legacy Spectral being treated as the accounting acquirer[126]. - Net cash used in operating activities increased by approximately $10.0 million for the nine months ended September 30, 2023, compared to the same period in 2022[166]. - Net cash provided by financing activities increased by approximately $4.7 million for the nine months ended September 30, 2023, primarily due to proceeds from an equity raise[167]. - The company entered into a financing arrangement for insurance premiums amounting to approximately $0.6 million, with an interest rate of 8.6% per annum[168]. Other Financial Metrics - The change in fair value of warrant liability increased by approximately $1.0 million for both the three and nine months ended September 30, 2023, compared to the same periods in 2022[153]. - Foreign exchange transaction loss for the three months ended September 30, 2023, was $(51,000), an increase of approximately 112.5% compared to $(24,000) in 2022[155]. - Transaction costs for the three months ended September 30, 2023, were $(7.6 million), compared to $(8.3 million) for the same period in 2022[156]. - As of September 30, 2023, the company had approximately $7.3 million in cash and an accumulated deficit of approximately $29.2 million[161].

Nasdaq Compliance - The Company received a notice from Nasdaq on January 22, 2023, indicating non-compliance with Listing Rule 5550(a)(4) due to failing to meet the minimum requirement of 500,000 publicly held shares[130] - On March 9, 2023, the Company submitted a compliance plan to Nasdaq, which was accepted on May 8, 2023[130] - The Company received another notice on April 3, 2023, for failing to meet the minimum $35 million Market Value of Listed Securities (MVLS) requirement[131] - The Company has until October 2, 2023, to regain compliance with the Nasdaq MVLS requirement[131] Business Combination - The Business Combination Agreement with Spectral MD was entered into on April 11, 2023, involving a merger where Spectral MD will become a wholly owned subsidiary of the Company[133] - The Business Combination is subject to customary closing conditions, including stockholder approvals and regulatory clearances[135] - The Company will be renamed to New Spectral MD following the completion of the mergers[137] - The Business Combination Agreement includes covenants requiring both parties to conduct their businesses in the ordinary course until closing[138] - The Sponsor agreed to vote in favor of the Business Combination and not to redeem any of its equity securities[144] - The Company is expected to incur significant costs in pursuing its acquisition plans, with no assurance of successful completion of the Business Combination[129] Financial Performance - For the three months ended June 30, 2023, the company reported a net loss of $1,033,276, consisting of formation and operating costs of $1,475,615 and provision for income taxes of $10,458, offset by a change in fair value of warrant liabilities of $394,200 and interest earned on investments held in the Trust Account of $58,597[148] - For the six months ended June 30, 2023, the company had a net loss of $2,315,374, which included formation and operating costs of $2,002,997 and provision for income taxes of $17,551, offset by interest earned on investments held in the Trust Account of $99,374[149] - As of June 30, 2023, the company had a working capital deficit of $4,577,162, indicating liquidity challenges[156] - The company has not generated any operating revenues to date and does not expect to do so until after the completion of its Business Combination[147] - The company has incurred monthly fees of $10,000 for office space and administrative services since February 11, 2021, which will continue until the completion of the Business Combination or liquidation[162] Trust Account and Use of Funds - As of June 30, 2023, the company had U.S. Treasury Funds held in the Trust Account amounting to $4,725,481, consisting of fixed income securities[155] - The company intends to use substantially all funds held in the Trust Account to complete its Business Combination, with any remaining proceeds to be used for working capital and growth strategies[155] - The company generated gross proceeds of $253,000,000 from its Initial Public Offering of 25,300,000 Units at $10.00 per Unit[152] - The underwriters are entitled to a deferred fee of $0.35 per Unit, totaling $8,855,000, which will only be payable if the company completes a Business Combination[163] Going Concern - The company has until the Expiration Date to consummate a Business Combination, with substantial doubt raised about its ability to continue as a going concern if it fails to do so[158] Accounting Standards - The Company is currently assessing the impact of ASU 2020-06 on its financial position, results of operations, or cash flows, with the standard effective for fiscal years beginning after December 15, 2023[170] - ASU 2022-03 clarifies that contractual sales restrictions are not considered in measuring equity securities at fair value, effective for fiscal years beginning after December 15, 2024[171] - The Company is evaluating the impact of ASU 2022-03 on its condensed consolidated financial statements[171] - Management does not believe that any other recently issued accounting standards would have a material effect on the unaudited condensed consolidated financial statements[172]

Nasdaq Compliance - The Company received a notice from Nasdaq on January 22, 2023, indicating non-compliance with Listing Rule 5550(a)(4) due to failing to meet the minimum requirement of 500,000 publicly held shares[151]. - On March 9, 2023, the Company submitted a compliance plan to Nasdaq, which was accepted on May 8, 2023[151]. - The Company received another notice on April 3, 2023, for failing to meet the minimum $35 million Market Value of Listed Securities (MVLS) requirement[152]. - The Company has until October 2, 2023, to regain compliance with the Nasdaq MVLS listing requirement[152]. Business Combination - The Business Combination Agreement with Spectral MD was entered into on April 11, 2023, involving a merger where Spectral MD will become a wholly owned subsidiary of the Company[153]. - The Business Combination is subject to customary closing conditions, including stockholder approvals and regulatory clearances[155]. - The Company will be renamed to New Spectral MD following the completion of the mergers[158]. - The Business Combination Agreement includes covenants requiring both parties to conduct their businesses in the ordinary course until closing[157]. - The Sponsor agreed to vote in favor of the Business Combination and not to redeem any of its equity securities[164]. - The Business Combination Agreement may be terminated under certain conditions, including failure to meet closing conditions or regulatory issues[160]. Financial Performance - For the three months ended March 31, 2023, the company reported a net loss of $1,282,098, which includes a change in fair value of warrant liabilities of $788,400 and operating costs of $527,382[168]. - As of March 31, 2023, the company had U.S. Treasury Funds held in the Trust Account amounting to $4,666,884, which consists of fixed income securities[174]. - The company generated gross proceeds of $253,000,000 from the Initial Public Offering of 25,300,000 Units at $10.00 per Unit on February 17, 2021[171]. - The company incurred cash used in operating activities of $243,197 for the three months ended March 31, 2023[172]. - As of March 31, 2023, the company had a working capital deficit of $3,287,624[175]. - The company intends to use substantially all funds held in the Trust Account to complete its Business Combination[174]. - The company has no long-term debt or capital lease obligations, with a monthly fee of $10,000 for office space and support services[181]. - The company has until the Expiration Date to consummate a Business Combination, raising substantial doubt about its ability to continue as a going concern[177]. - The company recognized 8,433,333 Public Warrants and 4,706,667 Private Placement Warrants as liabilities at fair value[185]. - The underwriters are entitled to a deferred fee of $0.35 per Unit, totaling $8,855,000, payable only if the company completes a Business Combination[182]. - No quantitative and qualitative disclosures about market risk are required for smaller reporting companies[191].