UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
September 11, 2023
SPECTRAL
AI, INC.
(Exact name of registrant as specified in its charter)
Delaware | | 001-40058 | | 85-3987148 |
(State or other jurisdiction
of incorporation) | | (Commission File Number) | | (I.R.S. Employer
Identification No.) |
2515 McKinney Avenue, Suite 1000 Dallas, Texas | | 75201 |
(Address of principal executive offices) | | (Zip Code) |
(972) 499-4934
(Registrant’s telephone number, including
area code)
Rosecliff Acquisition Corp I
767
Fifth Avenue, 34th Floor
New York, NY 10153
(Former name or former address, if changed since
last report)
Check the appropriate box below if the Form 8-K
is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communication pursuant
to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to
Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications
pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencements communications
pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | | Trading Symbols | | Name of each exchange on which registered |
Common Stock, par value $0.0001 per share | | MDAI | | The Nasdaq Stock Market LLC |
Redeemable Warrants, each whole warrant exercisable for one share of Common Stock, at an exercise price of $11.50 per share | | MDAIW | | The Nasdaq Stock Market LLC |
Indicate by check mark
whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter)
or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging
growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Introductory Note
As previously
disclosed, on April 11, 2023, Rosecliff Acquisition Corp I, a Delaware corporation (“RCLF”), Ghost Merger Sub I Inc., a Delaware
corporation and a wholly-owned subsidiary of RCLF (“Merger Sub I”), Ghost Merger Sub II LLC, a Delaware limited liability
company and wholly owned subsidiary of RCLF (“Merger Sub II”), and Spectral MD Holdings, Ltd., a Delaware corporation (“Spectral”),
entered into Business Combination Agreement, (the “Business Combination Agreement”),
pursuant to which, among other transactions, on September 11, 2023 (the “Closing Date”), Merger Sub I merged with and into
Spectral (the “First Merger”), with Spectral surviving the Merger as a wholly-owned
subsidiary of RCLF, and, immediately following the First Merger, Spectral merged with and into Merger Sub II, with Merger Sub II surviving
the Second Merger as a direct, wholly-owned subsidiary of RCLF (the “Second Merger” and, together with the First Merger and
other transactions described in the Business Combination Agreement, the “Business Combination”).
In connection with the closing of the Business Combination (the “Closing”), RCLF changed its name to “Spectral AI, Inc.”
(sometimes referred to herein as “Combined Company”).
On September
6, 2023, RCLF held a special meeting of its stockholders (the “Special Meeting”) in connection with the Business Combination.
At the Special Meeting, RCLF stockholders voted to approve the Business Combination with Spectral and the other related proposals. After
giving effect to redemption reversals, a total of 178,231 shares of common stock, par value $0.0001, of RCLF (“RCLF common stock”)
were presented for redemption for cash at a price of approximately $10.38 per share in connection with the Special Meeting.
Under the terms of the Business Combination Agreement,
at the effective time of the First Merger (the “First Effective Time”), each share of Spectral common stock issued and outstanding
immediately prior to the First Effective Time (excluding shares issued and outstanding immediately prior to the First Effective Time
held by a Spectral stockholder who has not voted in favor of adoption of the Business Combination Agreement or consented thereto in writing
and who is entitled to demand and has properly exercised appraisal rights of such shares in accordance with Section 262 of the Delaware
General Corporation Law (“DGCL”) and otherwise complied with all of the provisions of the DGCL relevant to the exercise and
perfection of dissenters’ rights (the “dissenting shares”) and each 10.31 shares of Spectral common stock subject to
Spectral Awards (as defined below)) were cancelled and converted into the right to receive 1 share of common stock, par value $0.0001
per share, of the Combined Company (the “Common Stock”) with any fractional shares rounded down to the nearest whole share.
At the Effective Time, each outstanding
Spectral stock option (each, a “Spectral Option”), whether vested or unvested, was converted into an option to purchase
that number of shares of the Common Stock equal to the quotient of (x) the number of shares of Spectral common stock underlying such
Spectral Option immediately prior to the Closing divided by (y) 10.31, at an exercise price per share equal to (A) the exercise price per
share of Spectral common stock underlying such Spectral Option immediately prior to the Closing multiplied by (B) 10.31 with any fractional Spectral Option rounded to the nearest
whole Spectral Option.
At the Effective Time, after giving effect to
the warrant exercise, each outstanding Spectral warrant to purchase Spectral common stock (each a “Spectral Warrant”), whether
or not exercisable, was converted into a warrant to purchase that number of shares of Common Stock equal to the quotient of (x) the number
of shares of Spectral common stock underlying such Spectral Warrant immediately prior to the Closing divided by (y) 10.31, at an exercise price
per share equal to (A) the exercise price per share of Spectral common stock underlying such Spectral Warrant immediately prior to the
Closing multiplied by (B) 10.31 with any fractional share of Spectral common stock underlying
such Warrant rounded down to the nearest whole share.
At the Effective Time, each Spectral
restricted stock unit (whether to be settled in cash or shares) outstanding immediately prior to the First Effective Time (each, a
“Spectral RSU” and, collectively, the “Spectral RSUs,” and, together with the Spectral options and Spectral
warrants, the “Spectral Awards”) was converted into the right to receive a restricted stock unit of the Combined Company
based on shares of the Combined Company common stock (each, a “New RSU,” and, collectively, the “New RSUs”)
with substantially the same terms and conditions as were applicable to such Spectral RSU immediately prior to the First Effective
Time (including with respect to vesting and termination-related provisions), except that such New RSU relates to such number of
shares of RCLF common stock equal to the quotient of (i) the number of shares of Spectral common stock subject to such Spectral RSU
immediately prior to the First Effective Time, divided by (ii) 10.31, with any fractional shares rounded down to the
nearest whole share.
Immediately after giving effect to the Business
Combination, there were 15,688,268 issued and outstanding shares of Common Stock. RCLF’s public units separated into their component
securities upon consummation of the Business Combination and, as a result, no longer trade as a separate security and were delisted from
the Nasdaq Stock Market LLC (“Nasdaq”). As of the Closing Date, our post-Closing directors and executive officers and their
respective affiliated entities beneficially owned approximately 11.54% of the outstanding shares of Common Stock, and the securityholders
of RCLF immediately prior to the Closing (which includes the Sponsors and their affiliates) beneficially owned post-Closing approximately
5.8% of the outstanding shares of Common Stock.
The Combined
Company’s Common Stock and Warrants commenced trading on Nasdaq under the symbols “MDAI” and “MDAIW”, respectively,
on September 12, 2023.
The foregoing description of the Business Combination
Agreement and the Business Combination does not purport to be complete and is qualified in its entirety by the full text of the Business
Combination Agreement, a copy of which is attached hereto as Exhibit 2.1 and is incorporated herein by reference.
Unless context otherwise requires, “we,”
“us,” “our” and the “Company” refer to the Combined Company and its subsidiaries following
the Closing. All references herein to the “Board” refer to the board of directors of the Combined Company.
Item 1.01. Entry into a Material Definitive
Agreement.
Indemnification Agreements
On September 11, 2023, in connection with the
consummation of the Business Combination, the Company entered into separate indemnification agreements with each of its directors and
executive officers. These indemnification agreements provide the directors and executive officers with contractual rights to indemnification
and the advancement of certain expenses incurred by each such director or executive officer in any action or proceeding arising out of
his or her services as one of the Company’s directors or executive officers.
The foregoing description of the indemnification
agreements does not purport to be complete and is qualified in its entirety by the full text of the form of indemnification agreement,
a copy of which is attached hereto as Exhibit 10.1 and is incorporated herein by reference.
Registration Rights and Lock-Up Agreement
On September 11, 2023, in connection with the
consummation of the Business Combination and as contemplated by the Business Combination Agreement, the Company entered into an amended
and restated registration rights agreement (the “Registration Rights Agreement”) with Rosecliff Acquisition Sponsor I LLC,
a Delaware limited liability company (the “Sponsor”), certain former stockholders of Spectral, set forth on Schedule 1 thereto
(such stockholders, the “Target Holders”), and Frank S. Edmonds and Heather Bellini (together with Michael P. Murphy and Brian
Radecki, (collectively, the “Director Holders” and, collectively with the Sponsor, the Target Holders and any person or entity
who thereafter becomes a party to the Registration Rights Agreement, the “Holders” and each, a “Holder”). Pursuant
to the Registration Rights Agreement, among other things, the Company agreed to undertake certain shelf registration obligations in accordance
with the Securities Act of 1933, as amended (the “Securities Act”), and certain subsequent related transactions and obligations,
including, among other things, undertaking certain registration obligations, and the preparation and filing of required documents.
In addition, the Registration Rights Agreement
contained lock-up provisions, pursuant to which the Holders agreed, among other things, that their shares received as merger consideration
may not be transferred until the date on which the last reported sale price of the Common Stock equals or exceeds $12.50 per share for
any ten (10) trading days within any thirty (30)-trading day period commencing after the Closing Date or, if earlier, the date that is
180 days after the Closing Date. The material terms of the Registration Rights Agreement are described beginning on page 44 of the Proxy
Statement/Prospectus in the section entitled “Amended and Restated Registration Rights & Lock-Up Agreement.”
The foregoing description of the Registration
Rights Agreement does not purport to be complete and is qualified in its entirety by the full text of the form of Registration Rights
Agreement, a copy of which is attached hereto as Exhibit 10.2 and is incorporated herein by reference.
Pre-Closing Financing
Prior to the Closing, Spectral entered into Subscription
Agreements with certain “qualified institutional buyers” (as defined in Rule 144A under
the Securities Act and accredited investors (together, the “Spectral Investors”), pursuant to which the Spectral Investors
subscribed for and purchased, and Spectral issued and sold to the Spectral Investors, shares of Spectral
common stock that converted into shares of Common Stock at the applicable exchange ratio under the Business Combination Agreement, for
aggregate gross proceeds of $3,351,000 (the “Pre-Closing Financing”).
Item 2.01. Completion of Acquisition or Disposition
of Assets.
Reference is made to the disclosure described
in the “Introductory Note” of this Current Report on Form 8-K (this “Current Report”), which is incorporated herein
by reference.
FORM 10 INFORMATION
Item 2.01(f) of Form 8-K states that if the predecessor
registrant was a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)), as RCLF was immediately before the Business Combination, then the registrant must disclose the information
that would be required if the registrant were filing a general form for registration of securities on Form 10. As a result of the consummation
of the Business Combination, and as discussed below in Item 5.06 of this Current Report, the Company has ceased to be a shell company.
Accordingly, the Company is providing the information below that would be included in a Form 10 if the Company were to file a Form 10.
Please note that the information provided below relates to the Company as the Combined Company after the consummation of the Business
Combination, unless otherwise specifically indicated or the context otherwise requires.
Forward-Looking Statements
This Current Report contains statements that are
forward-looking and as such are not historical facts. This includes, without limitation, statements regarding the financial position,
business strategy and the plans and objectives of management for future operations. These statements constitute projections, forecasts
and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not
relate strictly to historical or current facts. When used in this Current Report, words such as “anticipate,” “believe,”
“continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,”
“plan,” “possible,” “potential,” “predict,” “project,” “should,”
“strive,” “would” and similar expressions may identify forward-looking statements, but the absence of these words
does not mean that a statement is not forward-looking. When we discuss our strategies or plans, we are making projections, forecasts or
forward-looking statements. Such statements are based on the beliefs of, as well as assumptions made by and information currently available
to, our management.
Forward-looking statements in this Current Report
may include, for example, statements about:
| ● | our
ability to recognize the anticipated benefits of the Business Combination; |
| ● | pro
forma information and estimated values; |
| ● | our
ability to maintain the listing of our securities on Nasdaq; |
| ● | our
ability to develop and sell our product offerings and services; |
| ● | the
potential liquidity and trading of our securities; |
| ● | our
ability to acquire and protect intellectual property; |
| ● | our
future and pending U.S. patent applications and foreign and international patent applications |
| ● | responses
to market, regulatory, political, operation, financial and economic risks associated in international markets to which we expand or otherwise
operate in; |
| ● | our
ability to enhance future operating and financial results; |
| ● | anticipated
target markets for burn wound and diabetic foot ulcers; |
| ● | our
regulatory pathway for and timing of FDA, CE and UKCA regulatory submissions and proceeds; |
| ● | our
U.S. government contracts and future awards; |
| ● | the
effects of increased competition; |
| ● | maintaining
and upgrading information technology systems; |
| ● | defending
litigation or administrative proceedings |
| ● | our
ability to meet future liquidity requirements, which may require us to raise financing in the future; |
| ● | our
ability to attract, train, and retain effective officers, key employees or directors; |
| ● | potential
future indications and applications for DeepView and areas of interest supported by BARDA; |
| ● | our
ability to implement and maintain effective internal controls; and |
| ● | factors
relating to our business, operations and financial performance, including: |
| o | our
ability to comply with laws and regulations applicable to our business; |
| o | market
conditions and global and economic factors beyond our control; |
| o | our
ability to enter into, successfully maintain and manage key strategic relationships; |
| o | investments
in other businesses, patents, technologies, products or services to grow our business and realize the anticipated benefits therefrom. |
We caution you that the foregoing list may not
contain all of the forward-looking statements made in this Current Report. These forward-looking statements are only predictions based
on our current expectations and projections about future events and are subject to a number of risks, uncertainties and assumptions, including
those described in the section entitled “Risk Factors” and elsewhere in this Current Report. It is not possible for the management
of the Company to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.
In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Current Report
may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements
in this Current Report.
The forward-looking statements included in this
Current Report are made only as of the date hereof. You should not rely upon forward-looking statements as predictions of future events.
Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that the future
results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur.
We do not undertake any obligation to update publicly any forward-looking statements for any reason after the date of this Current Report
to conform these statements to actual results or to changes in expectations, except as required by law. You should read this Current Report
and the documents that have been filed as exhibits hereto with the understanding that the actual future results, levels of activity, performance,
events and circumstances of the Company may be materially different from what is expected.
Business
Reference is made to the disclosure contained
in the Proxy Statement/Prospectus in the sections entitled “Information about RCLF” and “Information about
Spectral,” beginning on pages 144 and 165 of the Proxy Statement/Prospectus, respectively, all of which is incorporated herein
by reference.
Risk Factors
Reference is made to the sections of the Proxy
Statement/Prospectus entitled “Summary - Summary Risk Factors” and “Risk Factors,” beginning on
pages 47 and 52 of the Proxy Statement/Prospectus, respectively, which is incorporated herein by reference.
Financial Information
Reference is made to the disclosure set forth
in Item 9.01 of this Current Report on Form 8-K concerning the financial information of RCLF and Spectral.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
The Management’s Discussion and
Analysis of Financial Condition and Results of Operations of Spectral as of and for the three and six months ended June 30, 2023 and
2022 are set forth herein as Exhibit 99.1 and are incorporated herein by reference.
The Management’s Discussion and
Analysis of Financial Condition and Results of Operations of RCLF as of and for the three and six months ended June 30, 2023 and
2022 is set forth in the Quarterly Report on Form 10-Q filed with the SEC on August 14, 2023 in the section titled
“Management’s Discussion and Analysis of Financial Condition and Results of Operation” beginning on page
23, which is incorporated herein by reference. The Management’s Discussion and Analysis of Financial Condition and Results of
Operations of RCLF for the years ended December 31, 2022 and 2021 are included in the Proxy Statement/Prospectus in the section
titled “RCLF Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on
page 157 of the Proxy Statement/Prospectus, which is incorporated herein by reference.
Security Ownership of Certain Beneficial
Owners and Management
The following table sets forth information regarding
the beneficial ownership of shares of our Common Stock as of the Closing Date, after giving effect to the Business Combination, by:
| ● | each
person known by us to be the beneficial owner of more than 5% of our Common Stock; |
| ● | each
person who is an executive officer or director of the Company; and |
| ● | all
executive officers and directors of the Company, as a group. |
Beneficial ownership
is determined in accordance with the rules and regulations of the SEC. A person is a “beneficial owner” of a security if that
person has or shares “voting power,” which includes the power to vote or to direct the voting of the security, or “investment
power,” which includes the power to dispose of or to direct the disposition of the security or has the right to acquire such powers
within 60 days of the Closing Date.
The beneficial ownership
of shares of common stock is calculated based on 15,688,268 shares of Common Stock outstanding after giving effect to the Business Combination.
Unless otherwise noted in the footnotes to the
following table, and subject to applicable community property laws, the persons and entities named in the table have sole voting and investment
power with respect to their beneficially owned common stock.
Name and Address of Beneficial Owner(1)(2) | |
Number of Shares Beneficially Owned | | |
% | |
Directors and Named Executive Officers of the Company | |
| | |
| |
Wensheng Fan(5) | |
| 519,733 | | |
| 3.31 | % |
Cynthia Cai | |
| - | | |
| | |
Richard Cotton | |
| 32,879 | | |
| * | |
Martin Mellish | |
| - | | |
| | |
Michael P. Murphy(3)(4) | |
| 848,333 | | |
| 5.41 | % |
Deepak Sadagopan | |
| - | | |
| * | |
Niko Pagoulatos, Ph.D.(6) | |
| 32,007 | | |
| * | |
Nils Windler(7) | |
| 32,007 | | |
| * | |
Jeffrey Thatcher, Ph.D.(8) | |
| 833,413 | | |
| 5.31 | % |
Vincent Capone(9) | |
| 32,104 | | |
| * | |
All Directors and Executive Officers of the Company as a Group (10 Individuals)(10) | |
| 1,810,743 | | |
| 11.54 | % |
| |
| | | |
| | |
Five Percent Holders | |
| | | |
| | |
ELS 1960 Family, L.P.(11) | |
| 4,158,557 | | |
| 26.51 | % |
John Michael DiMaio(12) | |
| 2,477,855 | | |
| 15.79 | % |
Board of Regents of the University of Texas System for the Benefit of the University of Texas Southwestern Medical Center(13) | |
| 862,269 | | |
| 5.50 | % |
Octopus Investments plc(14) | |
| 960,211 | | |
| 6.12 | % |
| (1) | Unless otherwise noted, the business address of each of the
following individuals is c/o Spectral Holdings MD, Ltd., 2515 McKinney Avenue, Suite 1000, Dallas, Texas 75201. |
| (2) | Excludes shares issuable pursuant to warrants issued in connection
with the IPO, as such warrants are not exercisable until 30 days after the Closing. |
| (3) | Shares of Common Stock following the conversion of Class B common
stock upon the Closing on a one-for-one basis, subject to adjustment, as described in the section entitled “Description of Securities”
in our prospectus filed with the SEC pursuant to Rule 424(b)(4) (File No. 333-252478). |
| (4) | Rosecliff Acquisition Sponsor I LLC, the Sponsor, is the record
holder of 848,333 shares of Common Stock following the conversion of Class B common stock upon the Closing and has a principal place
of business in New York. Michael P. Murphy is the managing member of Rosecliff Credit Opportunity Fund I GP, LLC, a Delaware limited
liability company, which is the general partner of Rosecliff Credit Opportunity Fund I, L.P., a Delaware limited partnership, which is
the managing member of our Sponsor. Each of Rosecliff Credit Opportunity Fund I GP, LLC and Rosecliff Credit Opportunity Fund I, L.P.
has a principal place of business in New York. Mr. Murphy is a U.S. person living in New York. |
| (5) | Includes 519,733 shares issuable upon exercise of stock options
of the Combined Company which are exercisable within 60 days of the Closing Date. |
| (6) | Consists of 32,007 shares issuable upon exercise of stock options
of the Combined Company which are exercisable within 60 days of the Closing Date. |
| (7) | Consists of 32,007 shares issuable upon exercise of stock options
of the Combined Company which are exercisable within 60 days of the Closing Date. |
| (8) | Includes 810,135 shares issuable upon exercise of stock options
of the Combined Company which are exercisable within 60 days of the Closing Date. |
| (9) | Includes 22,405 shares issuable upon exercise of stock options
of the Combined Company which are exercisable within 60 days of the Closing Date. |
| (10) | Includes 1,416,287 shares issuable upon exercise of stock options
of the Combined Company which are exercisable within 60 days of the Closing Date. |
| (11) | The business address of ELS 1960 Family, L.P. is 241 Navajo
Street, Miami, Florida 33166. ELS 1960 Family, L.P. is a limited partnership that was established in 2017 for the benefit of Mr. Erich
Spangenberg and his heirs. Mr. Spangenberg is currently the majority limited partner of ELS 1960 Family, L.P. and the co-managing partner
of ELS 1960 Family GP, LLC which also holds an interest in ELS 1960 Family, L.P. |
| (12) | The business address for Mr. Dimaio is 4708 Alliance Blvd.,
Pavilion I, Suite 540, Plano, Texas 75093. |
| (13) | The business address for Board of Regents of the University
of Texas System for the Benefit of the University of Texas Southwestern Medical Center is UT Southwestern Medical Center, 5323 Harry
Hines Blvd., Dallas, Texas 75390 |
| (14) | The business address for Octopus Investments plc is PO Box 10847,
Chelmsford CM99 2BU. Octopus Investments is a United Kingdom based financial services company managing more than £12.9 billion
on behalf of over 63,000 investors while employing over 750 employees. It is the United Kingdom’s largest provider of venture capital
trust (VCT), Enterprise Investment Scheme (EIS) and Business Property Relief (BPR)-qualified investments. VCT, EIS and BPR programs are
large UK government-sponsored programs to provide tax and other incentives for institutional and individual investments in areas such
as venture capital and commercial real estate transactions. |
Directors and Executive Officers
Reference is made to the disclosure in the subsections
entitled “Board of Directors” and “Executive Officers” in Item 5.02 of this Current Report, which are incorporated
herein by reference. Further reference is made to the section of the Proxy Statement/Prospectus entitled “Management of the Combined
Company Following the Business Combination,” beginning on page 215 of the Proxy Statement/Prospectus, which is incorporated
herein by reference.
Information with respect to the independence of
the Company’s directors is set forth in the Proxy Statement/Prospectus in the section entitled “Management of the Combined
Company Following the Business Combination - Independence of our Board of Directors,” beginning on page 218 of the Proxy Statement/Prospectus,
which is incorporated herein by reference.
Committees of the Board of Directors
Reference is made to the disclosure in the subsections
entitled “Board of Directors” in Item 5.02 of this Current Report, which is incorporated herein by reference. Further reference
is made to the section of the Proxy Statement/Prospectus entitled “Management of the Combined Company Following the Business
Combination - Board Committees,” on page 218 of the Proxy Statement/Prospectus, which is incorporated herein by reference.
Executive Compensation
A description of the compensation of the named
executive officers of Spectral prior to the consummation of the Business Combination is set forth in the section of the Proxy Statement/Prospectus
entitled “Spectral Executive Officer and Director Compensation,” beginning on page 222 of the Proxy Statement/Prospectus,
which is incorporated herein by reference.
RCLF and Spectral waived the requirement in the
Business Combination Agreement that RCLF approve and adopt an equity incentive plan to be effective in connection with the Business Combination.
Instead, the Combined Company will seek to approve and adopt a new equity incentive plan at its first annual meeting following the Business
Combination, pursuant to the terms of the Business Combination Agreement, which shall provide for an aggregate share reserve thereunder
equal to (a) such number of shares of Common Stock sufficient to satisfy all Spectral Options plus (b) no more than 15% of the Combined
Company’s fully-diluted outstanding stock immediately after the Business Combination. The equity incentive plan shall also
include a customary 5% evergreen provision.
Director Compensation
A description of the compensation of the directors
of Spectral prior to the consummation of the Business Combination is set forth in the section of the Proxy Statement/Prospectus entitled
“Spectral Executive Officer and Director Compensation - Non-Employee Director Compensation,” on page 225 of the Proxy
Statement/Prospectus, which is incorporated herein by reference.
Employment Agreements
Reference is made to the sections of the Proxy
Statement/Prospectus entitled “Management of the Combined Company Following the Business Combination - Compensation of the Combined
Company Executive Officers and Directors” and “Spectral Executive Officer and Director Compensation - Executive Officer
and Director Compensation Arrangements to Be Adopted in Connection with the Business Combination” and beginning on pages 220
and 225, respectively, which are incorporated herein by reference.
Certain Relationships and Related Transactions,
and Director Independence
Reference is made to the sections of the Proxy
Statement/Prospectus entitled “Management of the Combined Company Following the Business Combination - Independence of our Board
of Directors” and “Certain Relationships and Related Party Transactions,” beginning on pages 218 and 299
of the Proxy Statement/Prospectus, respectively, which are incorporated herein by reference.
Compensation Committee Interlocks and Insider
Participation
None of our officers currently serves, or in the
past year has served, as a member of the compensation committee of any entity that has one or more officers serving on our board of directors.
Legal Proceedings
Reference is made to the section of the Proxy
Statement/Prospectus entitled “Information about Spectral - Legal Proceedings,” on page 199 of the Proxy Statement/Prospectus,
which is incorporated herein by reference.
Market Price of and Dividends on the Registrant’s
Common Equity and Related Stockholder Matters
Prior to the Closing Date, RCLF’s publicly
traded common stock, public warrants and units were listed on the Nasdaq Capital Market under the symbols “RCLF,” “RCLFW”
and “RCLFU,” respectively. Upon the consummation of the Business Combination, the Common Stock and the Company’s warrants
began trading on Nasdaq under the symbols “MDAI” and “MDAIW,” respectively. RCLF’s publicly traded units
automatically separated into their component securities upon the Closing, and as a result, no longer trade as a separate security and
will be delisted from Nasdaq.
The Combined Company has not paid any cash dividends
on shares of its Common Stock to date. The payment of any cash dividends in the future will be within the discretion of the Board. The
payment of cash dividends in the future will be contingent upon the Combined Company’s revenues and earnings, if any, capital requirements,
and general financial condition. It is the present intention of Board to retain all earnings, if any, for use in business operations,
and accordingly, the Board does not anticipate declaring any dividends in the foreseeable future.
Recent Sales of Securities
On September 11, 2023, RCLF and the Sponsor entered
into a letter agreement (the “Letter Agreement”) confirming that, with respect to the $310,000 administrative services fee
owed by RCLF to Sponsor pursuant to the Administrative Agreement, dated February 11, 2021, by and between RCLF and Sponsor, RCLF would
pay such administrative services fee by issuing to 33,333 shares of Common Stock to Sponsor on the Closing Date (the “Administrative
Services Shares”. On the Closing Date, RCLF issued such Administrative Services Shares to Sponsor.
Description of Registrant’s Securities
to be Registered
Reference is made to the section of the Proxy
Statement/Prospectus entitled “Description of Capital Stock of the Combined Company,” beginning on page 291 of the
Proxy Statement/Prospectus, which is incorporated herein by reference.
Indemnification of Directors and Officers
Reference is made to the disclosure under the
subheading “Indemnification Agreements” in Item 1.01 of this Current Report, which is incorporated herein by reference.
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Not applicable.
Financial Statements, Exhibits and Supplementary
Data
Reference is made to the disclosure in Item 9.01
of this Current Report, which is incorporated herein by reference.
Item 3.03. Material Modifications to Rights
of Security Holders.
In connection with the consummation of the Business
Combination, the Company changed its name to “Spectral AI, Inc.,” filed a Second Amended and Restated Certificate of Incorporation
(the “Charter”) with the Delaware Secretary of State on September 11, 2023, and adopted the Amended and Restated Bylaws (the
“Bylaws”). Reference is made to the sections of the Proxy Statement/Prospectus entitled “Proposal No. 3 – The
Charter Proposal,” “Proposal No. 4 – The Governance Proposal,” “Comparison of Stockholders’
Rights” and “Description of Capital Stock of the Combined Company,” beginning on pages 138, 140, 273 and
291 of the Proxy Statement/Prospectus, respectively, which are incorporated herein by reference.
This summary is qualified in its entirety by reference
to the text of the Charter and the Bylaws, which are attached as Exhibits 3.1 and 3.2 hereto, respectively, and are incorporated herein
by reference.
Item 4.01. Changes in Registrant’s Certifying Accountant.
(a) Dismissal of independent registered
public accounting firm.
On September 11, 2023, the audit committee of
the Board (the “Audit Committee”) approved the dismissal of WithumSmith+Brown, PC (“Withum”), RCLF’s
independent registered public accounting firm prior to the Business Combination, which dismissal became effective in connection with the Business Combination.
Withum’s report on the financial statements of RCLF (the Company’s
legal predecessor), as of December 31, 2022 and 2021 did not contain an adverse opinion or a disclaimer of opinion,
and was not qualified or modified as to uncertainties, audit scope or accounting principles.
During the period from RCLF’s inception
to December 31, 2022, and the subsequent interim periods, there was a single “reportable event” (as defined in Item 304(a)(1)(v) of Regulation
S-K under the Exchange Act), whereby Withum advised RCLF of the following material weakness: a deficiency in RCLF’s internal
control over financial reporting existed relating to the Company’s accounting for complex financial instruments as of and for the
year ended December 31, 2021.
(b) Disclosures regarding the new independent
auditor.
On September 11, 2023, the Board approved
the engagement of KPMG LLP (“KPMG”) and appointed KPMG as the
Company’s independent registered public accounting firm to audit the Company’s consolidated financial statements for the
year ending December 31, 2023. KPMG served as independent registered public accounting firm of Spectral and its subsidiaries prior
to the Business Combination. During the period from RCLF’s inception to December 31, 2022, and the subsequent period
through September 11, 2023, neither the Company nor anyone on the Company’s behalf consulted with KPMG with respect to (i) the
application of accounting principles to a specified transaction, either completed or proposed, the type of audit opinion that might
be rendered on our financial statements, and neither a written report nor oral advice was provided to us that KPMG concluded was an
important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue, or (ii) any
other matter that was the subject of a disagreement or a reportable event (each as defined above).
Item 5.01. Changes in Control of Registrant.
Reference is made to the sections of the Proxy
Statement/Prospectus entitled “Proposal No. 1 – The Business Combination Proposal” and “The Business
Combination Agreement,” beginning on pages 135 and 246, respectively, of the Proxy Statement/Prospectus, which is incorporated
herein by reference. Further reference is made to disclosure in the section entitled “Introductory Note” and in Item 2.01
of this Current Report, each of which is incorporated herein by reference.
Item 5.02. Departure of Directors or Certain
Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Board of Directors
Upon the consummation of the Business Combination,
each director of RCLF, except for Michael P. Murphy, and each executive officer of RCLF ceased serving in such capacities. On the Closing
Date, and in accordance with the terms of the Business Combination Agreement, the Board became comprised of six individuals: Michael P.
Murphy, Wensheng Fan, Cynthia Cai, Richard Cotton, Martin Mellish and Deepak Sadagopan, with an additional member to be determined by
Spectral.
On the Closing Date, the Audit Committee
consisted of Martin Mellish, Richard Cotton and Deepak Sadagopan, with Martin Mellish serving as the chair of the committee. The
Board determined that each member of the Audit Committee qualifies as an independent director under the independence requirements of
the Sarbanes-Oxley Act of 2002, as amended, Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and the applicable Nasdaq listing requirements and that Mr. Mellish qualifies as an “audit committee financial
expert,” as defined in Item 407(d)(5) of Regulation S-K, and which member or members possess financial sophistication, as
defined under the rules of Nasdaq.
On the Closing Date, the Company’s compensation
committee consisted of Cynthia Cai and Martin Mellish, with Cynthia Cai serving as the chair of the committee. The Board determined that
each member of the compensation committee is “independent” as defined under the applicable Nasdaq requirements and U.S. Securities
and Exchange SEC rules and regulations.
On the Closing Date, the Company’s nominating
and corporate governance committee consisted of Richard Cotton and Cynthia Cai, with Richard Cotton serving as chair of the committee.
The Board determined that each member of the nominating and corporate governance committee is “independent” as defined under
the applicable Nasdaq requirements and SEC rules and regulations.
Executive Officers
Upon the consummation of the Business Combination,
the following individuals were appointed to serve as executive officers of the Company:
Name |
|
Position |
Wensheng Fan |
|
Chief Executive Officer and Director |
Niko Pagoulatos, Ph.D. |
|
Chief Operating Officer |
Nils Windler |
|
Chief Financial Officer |
Jeffrey Thatcher, Ph.D. |
|
Chief Scientist |
Vincent Capone |
|
General Counsel and Corporate Secretary |
The disclosure set forth in Item 2.01 of this
Current Report on Form 8-K under the headings “Executive Compensation,” “Director Compensation,” “Employment
Agreements,” “Certain Relationships and Related Party Transactions, and Director Independence” and “Indemnification
of Directors and Officers” is incorporated in this Item 5.02 by reference.
Item 5.03. Amendments to Articles of Incorporation
or Bylaws; Change in Fiscal Year.
Reference is made to the disclosure set forth
in Item 3.03 of this Current Report, which is incorporated into this Item 5.03 by reference.
Item 5.05 Amendments to the Registrant’s
Code of Ethics, or Waiver of a Provision of the Code of Ethics
On September 11, 2023, the Board adopted a new
Code of Business Conduct and Ethics that applies to all of its employees, officers and directors, including its Chief Executive Officer,
Chief Financial Officer and other executive and senior financial officers. The above description of the Code of Business Conduct and Ethics
does not purport to be complete and is qualified in its entirety by reference to the full text of the Code of Business Conduct and Ethics,
a copy of which is filed as Exhibit 14.1 hereto and incorporated herein by reference.
A copy of the Company’s Code of Business
Conduct and Ethics is also available on our website at https://investors.spectral-ai.com/. The information on the Company’s website
does not constitute part of this Current Report and is not incorporated herein by reference.
Item 5.06. Change in Shell Company Status.
As a result of the Business Combination, RCLF
ceased to be a shell company upon the Closing. The material terms of the Business Combination are described in the section of the Proxy
Statement/Prospectus entitled “Proposal No. 1 - The Business Combination Proposal,” beginning on page 135 of the Proxy
Statement/Prospectus, and are incorporated herein by reference.
Item 7.01. Regulation FD Disclosure.
On September 11, 2023, the Company issued a press
release announcing the Closing. Reference is made to such press release, which is furnished as Exhibit 99.2 hereto and is incorporated
herein by reference. The foregoing (including Exhibit 99.2) is being furnished pursuant to Item 7.01 and will not be deemed to be filed
for purposes of Section 18 of the Exchange Act, or otherwise be subject to the liabilities of that section, nor will it be deemed to be
incorporated by reference in any filing under the Securities Act or the Exchange Act.
Item 9.01. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
The audited financial statements of RCLF as
of and for the years ended December 31, 2022 and 2021 are included in the Proxy Statement/Prospectus on pages F-2 through F-23, and
are incorporated herein by reference. The unaudited financial statements of RCLF as of and for the three and six months ended June
30, 2023 and 2022 are included in RCLF’s Quarterly Report on Form 10-Q filed with the SEC on August 14, 2023, and are
incorporated herein by reference.
The audited consolidated financial
statements of Spectral as of and for the years ended December 31, 2022 and 2021 are included in the in the Proxy
Statement/Prospectus on pages F-49 through F-69, and are incorporated herein by reference. The unaudited consolidated financial
statements of Spectral as of and for the three and six months ended June 30, 2023 and 2022 are set forth herein as Exhibit 99.3, and
are incorporated herein by reference.
(b) Pro forma
financial information.
The unaudited pro forma condensed combined
financial information of the Company as of and for the three and six months ended June 30, 2023 and for the year ended December 31,
2022 is set forth herein as Exhibit 99.4, and is incorporated herein by reference.
(d) Exhibits.
Exhibit Index
Exhibit Number |
|
Description |
2.1†* |
|
Business Combination Agreement, by and among Rosecliff Acquisition Corp I, Merger Sub I, Merger Sub II and Spectral MD Holdings, Ltd., dated as of April 11, 2023 (incorporated by reference to Annex A of the proxy statement/prospectus). |
3.1 |
|
Second Amended and Restated Certificate of Incorporation of Spectral AI, Inc. |
3.2 |
|
Amended and Restated Bylaws of Spectral AI, Inc. |
4.1* |
|
Warrant Agreement, dated February 11, 2021, between the Company and Continental Stock Transfer & Trust Company, as warrant agent (incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on February 17, 2021). |
4.2* |
|
Description of the Registrant’s securities (Incorporated by reference to the proxy statement/prospectus). |
10.1 |
|
Form of Indemnification Agreement. |
10.2 |
|
Amended and Restated Registration Rights & Lock-Up Agreement, dated September 11, 2023 by and between the Company, the Sponsor, and each Holder listed thereto. |
10.7* |
|
Sponsor Letter Agreement, dated April 11, 2023, by and among Rosecliff Acquisition I Sponsor LLC, Spectral MD Holdings, Ltd., and Rosecliff Acquisition Corp I (incorporated by reference to Annex F of the proxy statement/prospectus). |
14.1 |
|
Code of Business Conduct and Ethics. |
16.1 |
|
Withum resignation letter, dated September 15, 2023.
|
99.1 |
|
Management’s Discussion
and Analysis of Financial Condition and Results of Operations of Spectral Holdings, Ltd. as of and for the three
and six months ended June 30, 2023 and 2022 and for the years ended December 31, 2022 and 2021. |
99.2 |
|
Press release, dated September
11, 2023, announcing the Closing of the Business Combination. |
99.4 |
|
Unaudited pro forma condensed combined financial information. |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document). |
| † | Schedules to this Exhibit have been omitted pursuant to Regulation
S-K Item 601(a)(5) promulgated under the Exchange Act. The Registrant agrees to furnish supplementally a copy of any omitted schedule
to the SEC upon request. |
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: September 15, 2023
SPECTRAL AI, INC. |
|
|
|
By: |
/s/ Wensheng Fan |
|
Name: |
Wensheng Fan |
|
Title: |
Chief Executive Officer |
|
15
Exhibit 3.1
FORM OF SECOND AMENDED
AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ROSECLIFF ACQUISITION
CORP I
The
present name of the corporation is “Rosecliff Acquisition Corp I.” The original certificate of incorporation of the corporation
was filed with the Secretary of State of the State of Delaware on November 17, 2020 (the “Original Certificate of Incorporation”).
The Original Certificate of Incorporation was amended by a certificate of amendment filed by the corporation with the Secretary of State
of the State of Delaware on December 22, 2022, and was amended and restated in its entirety by the filing of an amended and restated certificate
of incorporation with the Secretary of State of the State of Delaware on February 11, 2021 (the “Amended and Restated Certificate
of Incorporation”). This Second Amended and Restated Certificate of Incorporation of the Corporation (this “Certificate
of Incorporation”), which restates and integrates and also further amends the provisions of the Amended and Restated Certificate
of Incorporation, was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State
of Delaware (the “DGCL”). The Amended and Restated Certificate of Incorporation is hereby amended, integrated and restated
to read in its entirety as follows:
ARTICLE I.
NAME
The
name of the corporation is Spectral AI, Inc. (the “Corporation”).
ARTICLE II.
REGISTERED OFFICE AND AGENT
The
address of the Corporation’s registered office in the State of Delaware is 251 Little Falls Drive, Wilmington, Delaware 19808 in
the County of New Castle. The name of its registered agent at such address is Corporation Service Company.
ARTICLE III.
PURPOSE AND DURATION
The
purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the DGCL. The Corporation
is to have a perpetual existence.
ARTICLE IV.
CAPITAL STOCK
Immediately
upon the filing of this Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Effective Time”),
automatically and without further action on the part of holders of capital stock of the Corporation, each share of the Corporation’s
Common Stock outstanding or held by the Corporation as treasury stock as of immediately prior to the Effective Time (the “Old Common
Stock”) shall be reclassified as, and become, one (1) share of Common Stock (the “Reclassification”). The Reclassification
shall occur automatically as of the Effective Time without any further action by the holders of the shares affected thereby and whether
or not any certificates representing such shares are surrendered to the Corporation. Upon the Effective Time, each certificate that as
of immediately prior to the Effective Time represented shares of Old Common Stock shall be deemed to represent an equivalent number of
shares of Common Stock. The Reclassification shall also apply to any outstanding securities or rights convertible into, or exchangeable
or exercisable for, Old Common Stock of the Corporation. All share and per share amounts set forth in this Certificate of Incorporation
have been revised to reflect the Reclassification.
The
total number of shares of all classes of stock that the Corporation shall have authority to issue is 81,000,000, which shall be divided
into two classes as follows:
80,000,000
shares of common stock, par value $0.0001 per share (“Common Stock”); and
1,000,000
shares of preferred stock, par value $0.0001 per share (“Preferred Stock”).
Section
1. Subject to the rights of the holders of any series of Preferred Stock, the number of authorized
shares of any of the Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding)
by the affirmative vote of the holders of a majority in voting power of the outstanding stock of the Corporation entitled to vote thereon
irrespective of the provisions of Section 242(b)(2) of the DGCL or any successor provision thereof, and no vote of the holders of any
of the Common Stock or Preferred Stock voting separately as a class shall be required therefor.
Section
2. Shares of Preferred Stock may be issued from time to time in one or more series. The Board
of Directors of the Corporation (the “Board”) is hereby authorized to provide from time to time by resolution or resolutions
for the creation and issuance, out of the authorized and unissued shares of Preferred Stock, of one or more series of Preferred Stock
by filing a certificate (a “Certificate of Designation”) pursuant to the DGCL, setting forth such resolution and, with
respect to each such series, establishing the designation of such series and the number of shares to be included in such series and fixing
the voting powers (full or limited, or no voting power), preferences and relative, participating, optional or other special rights, and
the qualifications, limitations and restrictions thereof, of the shares of each such series, including, without limitation, thereof, dividend
rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all
to the fullest extent now or hereafter permitted by the DGCL. Without limiting the generality of the foregoing, the resolution or resolutions
providing for the establishment of any series of Preferred Stock may, to the extent permitted by law, provide that such series shall be
superior to, rank equally with or be junior to the Preferred Stock of any other series. The powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations or restrictions thereof, of each series of Preferred Stock may
be different from those of any and all other series at any time outstanding. Except as otherwise expressly provided in this Certificate
of Incorporation (including any Certificate of Designation relating to any series of Preferred Stock), no vote of the holders of shares
of Preferred Stock or Common Stock shall be a prerequisite to the issuance of any shares of any series of the Preferred Stock so authorized
in accordance with this Certificate of Incorporation. Except as otherwise required by law, holders of Common Stock shall not be entitled
to vote on any amendment to this Certificate of Incorporation (including any Certificate of Designation relating to any series of Preferred
Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are
entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Certificate
of Incorporation (including any Certificate of Designation relating to any series of Preferred Stock) or pursuant to the DGCL. Unless
otherwise provided in the Certificate of Designation establishing a series of Preferred Stock, the Board may, by resolution or resolutions,
increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of such series and, if
the number of shares of such series shall be so decreased, the shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of shares of such series.
Section
3. Each holder of record of Common Stock, as such, shall have one vote for each share of
Common Stock which is outstanding in his, her or its name on the books of the Corporation on all matters on which stockholders are entitled
to vote generally. Except as otherwise required by law, holders of any series of Preferred Stock shall be entitled to only such voting
rights, if any, as shall expressly be granted thereto by this Certificate of Incorporation (including any Certificate of Designation relating
to such series of Preferred Stock).
ARTICLE V.
BOARD OF DIRECTORS
For
the management of the business and for the conduct of the affairs of the Corporation it is further provided that:
Section
1. Except as otherwise provided in this Certificate of Incorporation and the DGCL, the business
and affairs of the Corporation shall be managed by or under the direction of the Board.
Section
2. Except as otherwise provided in this Certificate of Incorporation, the number of directors
which shall constitute the whole Board shall be fixed exclusively by one or more resolutions adopted from time to time by the Board. Beginning
with the Corporation’s first annual meeting of stockholders, the directors, including any of those elected by the holders of any
series of Preferred Stock, shall be elected to hold office for a term expiring at the next annual meeting of the stockholders of the Corporation
and until his or her successor shall be elected and qualified, or until his or her earlier death, resignation, retirement, disqualification
or removal from office.
Section
3. Subject to the special rights of the holders of one or more series of Preferred Stock
to elect directors, any director may be removed from office at any time, but only for cause and only by the affirmative vote of the holders
of at least a majority of the voting power of the outstanding shares of stock of the Corporation entitled to vote on the election of such
director, voting together as a single class.
Section
4. Except as otherwise expressly required by law, and subject to the special rights of the
holders of one or more series of Preferred Stock to elect directors, any vacancies on the Board resulting from death, resignation, disqualification,
retirement, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall be
filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by a sole remaining
director, and shall not be filled by the stockholders. Any director appointed in accordance with the preceding sentence shall hold office
for a term that shall coincide with the remaining term of the class to which the director shall have been appointed and until such director’s
successor shall have been elected and qualified or until his or her earlier death, resignation, disqualification, retirement or removal.
A vacancy in the Board shall be deemed to exist under this Certificate of Incorporation in the case of the death, removal, resignation
or disqualification of any director.
Section
5. During any period when the holders of any series of Preferred Stock have the special right
to elect additional directors, then upon commencement and for the duration of the period during which such right continues: (i) the then
otherwise total authorized number of directors of the Corporation shall automatically be increased by such specified number of directors,
and the holders of such series of Preferred Stock shall be entitled to elect the additional directors so provided for or fixed pursuant
to said provisions, and (ii) each such additional director shall serve until such director’s successor shall have been duly elected
and qualified, or until such director’s right to hold such office terminates pursuant to said provisions, whichever occurs earlier,
subject to his or her earlier death, resignation, retirement, disqualification or removal. Except as otherwise provided by this Certificate
of Incorporation (including any Certificate of Designation establishing any series of Preferred Stock), whenever the holders of any series
of Preferred Stock having the special right to elect additional directors are divested of such right pursuant to this Certificate of Incorporation
(including any such Certificate of Designation), the terms of office of all such additional directors elected by the holders of such series,
or elected to fill any vacancies resulting from the death, resignation, disqualification or removal of such additional directors, shall
forthwith terminate and each such director shall cease to be qualified as (and shall cease to be) a director, and the total authorized
number of directors of the Corporation shall be reduced accordingly.
Section
6. The directors of the Corporation need not be elected by written ballot unless the Bylaws
so provide.
Section
7. Except as may otherwise be set forth in the resolution or resolutions of the Board providing
for the issuance of one or more series of Preferred Stock, and then only with respect to such series of Preferred Stock, cumulative voting
in the election of directors is specifically denied.
ARTICLE VI.
STOCKHOLDERS
Section
1. Any action required or permitted to be taken by the stockholders of the Corporation must
be effected at a duly called annual or special meeting of the stockholders of the Corporation (and may not be taken by consent of the
stockholders in lieu of a meeting); provided, however, that any action required or permitted to be taken by the
holders of Preferred Stock, voting separately as a series or separately as a class with one or more other such series, may be taken without
a meeting, without prior notice and without a vote, to the extent expressly so provided by the applicable Certificate of Designation relating
to such series of Preferred Stock.
Section
2. Subject to the special rights of the holders of one or more series of Preferred Stock,
special meetings of the stockholders of the Corporation may be called, for any purpose or purposes, at any time by the chairperson of
the Board or a resolution adopted by the affirmative vote of the majority of the then-serving members of the Board, but such special meetings
may not be called by stockholders or any other Person or Persons.
Section
3. Advance notice of stockholder nominations for the election of directors and of other business
proposed to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided
in the Bylaws of the Corporation.
ARTICLE VII.
LIABILITY AND INDEMNIFICATION
Section
1. To the fullest extent permitted by the DGCL, as the same exists or as may hereafter be
amended, a director or officer of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director or officer. If the DGCL is hereafter amended to authorize corporate action further eliminating
or limiting the personal liability of directors or officers, then the liability of a director or officer of the Corporation shall be eliminated
or limited to the fullest extent permitted by the DGCL as so amended, automatically and without further action, upon the date of such
amendment.
Section
2. The Corporation, to the fullest extent permitted by law, may indemnify and advance expenses
to any Person made or threatened to be made a party to an action, suit or proceeding, whether criminal, civil, administrative or investigative,
by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation or any predecessor of the Corporation
or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise.
Section
3. Neither any amendment nor repeal of this Article VII, nor the adoption by
amendment of this Certificate of Incorporation of any provision inconsistent with this Article VII, shall eliminate or reduce
the effect of this Article VII in respect of any matter occurring, or any action or proceeding accruing or arising (or
that, but for this Article VII, would accrue or arise) prior to such amendment or repeal or adoption of an inconsistent provision.
ARTICLE VIII.
EXCLUSIVE FORUM
Section
1. Unless the Corporation consents in writing to the selection of an alternative forum, the
Court of Chancery of the State of Delaware (the “Chancery Court”) shall be the sole and exclusive forum for any stockholder
(including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action,
suit or proceeding asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or other employee,
agent or stockholder of the Corporation to the Corporation or to the Corporation’s stockholders, (iii) any action, suit or proceeding
asserting a claim against the Corporation, its current or former directors, officers, or employees, agents or stockholders arising pursuant
to any provision of the DGCL or this Certificate of Incorporation or the Bylaws, or (iv) any action, suit or proceeding asserting a claim
against the Corporation, its current or former directors, officers, or employees, agents or stockholders governed by the internal affairs
doctrine. If any action the subject matter of which is within the scope of this Section 1 of this Article VIII is
filed in a court other than the Chancery Court (a “Foreign Action”) by any stockholder (including any beneficial owner),
to the fullest extent permitted by law, such stockholder shall be deemed to have consented to: (a) the personal jurisdiction of the Chancery
Court in connection with any action brought in any such court to enforce this Section 1 of this Article VIII;
and (b) having service of process made upon such stockholder in any such action by service upon such stockholder’s counsel in the
Foreign Action as agent for such stockholder.
Section
2. The exclusive forum provision set forth in Section 1 above of this Article
VIII does not apply to, and does not preclude or contract the scope of, either (i) exclusive federal jurisdiction pursuant to Section
27 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for claims seeking to enforce any liability
or duty created by the Exchange Act or the rules and regulations thereunder, or any other claim for which the U.S. federal courts have
exclusive jurisdiction, or (ii) concurrent jurisdiction under Section 22 of the Securities Act of 1933, as amended (the “Securities
Act”), for federal and state courts over all claims seeking to enforce any liability or duty created by the Securities Act or
the rules and regulations thereunder.
To
the fullest extent permitted by law, any person or entity purchasing or otherwise acquiring any interest in any security of the Corporation
shall be deemed to have notice of and consented to the provisions of this Article VIII.
ARTICLE IX.
CERTAIN STOCKHOLDER RELATIONSHIPS
Section
1. In recognition and anticipation that members of the Board who are not employees of the
Corporation or a majority owned subsidiary thereof (“Non-Employee Directors”) and their respective Affiliates may now
engage and may continue to engage in the same or similar activities or related lines of business as those in which the Corporation, directly
or indirectly, may engage and/or other business activities that overlap with or compete with those in which the Corporation, directly
or indirectly, may engage, the provisions of this Article IX are set forth to regulate and define the conduct of certain
affairs of the Corporation with respect to certain classes or categories of business opportunities as they may involve any of the Non-Employee
Directors or their respective Affiliates and the powers, rights, duties and liabilities of the Corporation and its directors, officers
and stockholders in connection therewith.
Section
2. No Non-Employee Director (including any Non-Employee Director who serves as an officer
of the Corporation in both his or her director and officer capacities) or his or her Affiliates (the Persons (as defined below) being
referred to, collectively, as “Identified Persons” and, individually, as an “Identified Person”)
shall, to the fullest extent permitted by law, have any duty to refrain from directly or indirectly (1) engaging in the same or similar
business activities or lines of business in which the Corporation or any of its Affiliates now engages or proposes to engage or (2) otherwise
competing with the Corporation or any of its Affiliates, and, to the fullest extent permitted by law, no Identified Person shall be liable
to the Corporation or its stockholders or to any Affiliate of the Corporation for breach of any fiduciary duty solely by reason of the
fact that such Identified Person engages in any such activities. To the fullest extent permitted by law, the Corporation hereby renounces
any interest or expectancy in, or right to be offered an opportunity to participate in, any business opportunity which may be a corporate
opportunity for an Identified Person and the Corporation or any of its Affiliates, except as provided in Section 3 of
this Article IX. Subject to Section 3 of this Article IX, in the event that any Identified Person
acquires knowledge of a potential transaction or other business opportunity which may be a corporate opportunity for itself, herself or
himself and the Corporation or any of its Affiliates, such Identified Person shall, to the fullest extent permitted by law, have no duty
to communicate or offer such transaction or other business opportunity to the Corporation or any of its Affiliates and, to the fullest
extent permitted by law, shall not be liable to the Corporation or its stockholders or to any Affiliate of the Corporation for breach
of any fiduciary duty as a stockholder, director or officer of the Corporation solely by reason of the fact that such Identified Person
pursues or acquires such corporate opportunity for itself, herself or himself, offers or directs such corporate opportunity to another
Person, or does not communicate information regarding such corporate opportunity to the Corporation or any Affiliate of the Corporation.
Section
3. The Corporation does not renounce its interest in any corporate opportunity offered to
any Non-Employee Director (including any Non-Employee Director who serves as an officer of the Corporation in both his or her director
and officer capacities) if such opportunity is expressly offered to such Person solely in his or her capacity as a director or officer
of the Corporation, and the provisions of Section 2 of this Article IX shall not apply to any such corporate
opportunity.
Section
4. In addition to and notwithstanding the foregoing provisions of this Article IX,
a corporate opportunity shall not be deemed to be a potential corporate opportunity for the Corporation if it is a business opportunity
that (i) the Corporation is neither financially or legally able, nor contractually permitted, to undertake, (ii) from its nature, is not
in the line of the Corporation’s business or is of no practical advantage to the Corporation or (iii) is one in which the Corporation
has no interest or reasonable expectancy. The Board shall have final and conclusive authority to determine if a corporate opportunity
shall be deemed a potential corporate opportunity for the Corporation.
Section
5. Solely for purposes of this Article IX, “Affiliate” shall
mean (a) in respect of a Non-Employee Director, any Person that, directly or indirectly, is controlled by such Non-Employee Director (other
than the Corporation and any entity that is controlled by the Corporation) and (b) in respect of the Corporation, any Person that, directly
or indirectly, is controlled by the Corporation.
Section
6. To the fullest extent permitted by law, any Person purchasing or otherwise acquiring or
holding any interest in any shares of capital stock of the Corporation shall be deemed to have notice of and to have consented to the
provisions of this Article IX.
ARTICLE X.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
Section
1. The Corporation reserves the right to amend, alter, change or repeal any provision contained
in this Certificate of Incorporation in the manner now or hereafter prescribed by this Certificate of Incorporation and the DGCL, and
all rights, preferences and privileges herein conferred upon stockholders, directors or any other persons herein are granted by and pursuant
to this Certificate of Incorporation in its current form or as hereafter amended are granted subject to the right reserved in this Article
X. Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit
a lesser vote or no vote, but in addition to anyaffirmative vote of the holders of any particular class or series of capital stock of
the Corporation required by law or by this Certificate of Incorporation or any Certificate of Designation filed with respect to a series
of Preferred Stock, the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding stock
of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter,
amend or repeal Article V, Article VI, Article VII, Article VIII, and this Article
X.
Section
2. The Board is expressly authorized to make, repeal, alter, amend and rescind, in whole
or in part, the Bylaws without the assent or vote of the stockholders in any manner not inconsistent with the laws of the State of Delaware
or this Certificate of Incorporation. The stockholders may also make, repeal, alter, amend or rescind, in whole or in part, the Bylaws; provided, however,
that notwithstanding any other provisions of this Certificate of Incorporation, the Bylaws or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of capital stock of the Corporation or any particular
class or series thereof required by this Certificate of Incorporation (including any Certificate of Designation in respect of one or more
series of Preferred Stock), the Bylaws or applicable law, the affirmative vote of the holders of at least a majority of the voting power
of the outstanding shares of stock entitled to vote at an election of directors, voting together as a single class, shall be required
in order for the stockholders of the Corporation to alter, amend or repeal, in whole or in part, any provision of the Bylaws or to adopt
any provision inconsistent therewith.
ARTICLE XI.
SEVERABILITY
If
any provision or provisions of this Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any
circumstance for any reason whatsoever, the validity, legality and enforceability of such provisions in any other circumstance and of
the remaining provisions of this Certificate of Incorporation (including, without limitation, each portion of any section or paragraph
of this Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held
to be invalid, illegal or unenforceable) shall not, to the fullest extent permitted by applicable law, in any way be affected or impaired
thereby.
ARTICLE XII.
DEFINITIONS
As
used in this Certificate of Incorporation, except as otherwise expressly provided herein and unless the context requires otherwise, the
following terms shall have the following meanings:
“Exchange
Act” means the Securities Exchange Act of 1934, as amended.
“Person”
means any individual, general partnership, limited partnership, limited liability company, corporation, trust, business trust, joint stock
company, joint venture, unincorporated association, cooperative or association or any other legal entity or organization of whatever nature,
and shall include any successor (by merger, consolidation, division or otherwise) of such entity.
“Securities
Act” means the Securities Act of 1933, as amended.
* * * *
IN
WITNESS WHEREOF, Rosecliff Acquisition Corp I has caused this Certificate of Incorporation to be executed by its duly authorized officer
on this 11th day of September, 2023.
|
SPECTRAL AI, INC. |
|
|
|
By: |
/s/ Wensheng Fan |
|
Name: |
Wensheng Fan |
|
Title: |
Chief Executive Officer |
8
Exhibit 3.2
FINAL FORM
AMENDED AND RESTATED
BYLAWS
OF
SPECTRAL AI, INC.
(A DELAWARE CORPORATION)
Amended and Restated
Bylaws
of
Spectral MD, Inc.
TABLE OF CONTENTS
|
Page |
Article I - Corporate Offices |
1 |
|
|
|
1.1 |
Registered Office |
1 |
|
1.2 |
Other Offices |
1 |
|
|
|
|
Article II - Meetings of Stockholders |
1 |
|
|
2.1 |
Place of Meetings |
1 |
|
2.2 |
Annual Meeting |
1 |
|
2.3 |
Special Meeting |
1 |
|
2.4 |
Advance Notice Procedures for Business Brought before a Meeting |
2 |
|
2.5 |
Advance Notice Procedures for Nominations of Directors |
6 |
|
2.6 |
Notice of Stockholders’ Meetings |
11 |
|
2.7 |
Manner of Giving Notice; Affidavit of Notice |
11 |
|
2.8 |
Quorum |
11 |
|
2.9 |
Adjourned Meeting; Notice |
12 |
|
2.10 |
Conduct of Business |
12 |
|
2.11 |
Voting |
13 |
|
2.12 |
Record Date for Stockholder Meetings and Other Purposes |
13 |
|
2.13 |
Proxies |
14 |
|
2.14 |
List of Stockholders Entitled to Vote |
14 |
|
2.15 |
Inspectors of Election |
15 |
|
2.16 |
Virtual Meeting |
15 |
|
2.17 |
Delivery to the Corporation |
16 |
|
|
|
|
Article III - Directors |
16 |
|
|
|
3.1 |
Powers |
16 |
|
3.2 |
Number of Directors |
16 |
|
3.3 |
Election, Qualification and Term of Office of Directors |
16 |
|
3.4 |
Resignation and Vacancies |
17 |
|
3.5 |
Place of Meetings; Meetings by Telephone |
17 |
|
3.6 |
Regular Meetings |
17 |
|
3.7 |
Special Meetings; Notice |
17 |
|
3.8 |
Quorum |
18 |
|
3.9 |
Action by Unanimous Consent Without a Meeting |
18 |
|
3.10 |
Fees and Compensation of Directors |
18 |
|
3.11 |
Removal |
18 |
|
3.12 |
Chairperson, Vice Chairperson |
19 |
Article IV - Committees |
19 |
|
|
|
4.1 |
Committees of Directors |
19 |
|
4.2 |
Committee Minutes |
19 |
|
4.3 |
Meetings and Actions of Committees |
19 |
|
|
|
|
Article V - Officers |
20 |
|
|
|
5.1 |
Officers |
20 |
|
5.2 |
Appointment of Officers |
21 |
|
5.3 |
Subordinate Officers |
21 |
|
5.4 |
Removal and Resignation of Officers |
21 |
|
5.5 |
Vacancies in Offices |
21 |
|
5.6 |
Representation of Securities of Other Entities |
21 |
|
5.7 |
Tenure, Authority and Duties of Officers |
22 |
|
|
|
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Article VI - Records |
22 |
|
|
Article VII - General Matters |
22 |
|
|
|
7.1 |
Execution of Corporate Contracts and Instruments |
22 |
|
7.2 |
Stock Certificates |
23 |
|
7.3 |
Lost Certificates |
23 |
|
7.4 |
Shares Without Certificates |
23 |
|
7.5 |
Dividends |
23 |
|
7.6 |
Fiscal Year |
23 |
|
7.7 |
Seal |
24 |
|
7.8 |
Transfer of Stock |
24 |
|
7.9 |
Stock Transfer Agreements |
24 |
|
7.10 |
Registered Stockholders |
24 |
|
7.11 |
Waiver of Notice |
24 |
|
|
|
|
Article VIII - Notice by Electronic Transmission |
25 |
|
|
|
8.1 |
Notice by Electronic Transmission |
25 |
|
8.2 |
Definition of Electronic Transmission |
26 |
|
|
|
|
Article IX - Indemnification |
26 |
|
|
|
9.1 |
Indemnification of Directors and Officers |
26 |
|
9.2 |
Indemnification of Others |
27 |
|
9.3 |
Prepayment of Expenses |
27 |
|
9.4 |
Determination; Claim |
28 |
|
9.5 |
Non-Exclusivity of Rights |
28 |
|
9.6 |
Insurance |
28 |
|
9.7 |
Other Indemnification |
28 |
|
9.8 |
Continuation of Indemnification |
28 |
|
9.9 |
Amendment or Repeal; Interpretation |
29 |
|
|
|
|
Article X - Definitions |
39 |
Article
I - Corporate Offices
The address of
the registered office of Spectral MD, Inc. (the “Corporation”) in the State of Delaware, and the name of its registered
agent at such address, shall be as set forth in the Corporation’s second amended and restated certificate of incorporation, as the
same may be amended and/or restated from time to time (the “Certificate of Incorporation”).
The Corporation
may have additional offices at any place or places, within or outside the State of Delaware, as the Corporation’s board of directors
(the “Board”) may from time to time establish or as the business of the Corporation may require.
Article
II - Meetings of Stockholders
Meetings of stockholders
shall be held at such place, if any, within or outside the State of Delaware, designated by the Board. The Board may, in its sole discretion,
determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication
as authorized by Section 211(a)(2) of the General Corporation Law of the State of Delaware (the “DGCL”). In the absence
of any such designation or determination, stockholders’ meetings shall be held at the Corporation’s principal executive offices.
The Board shall
designate the date and time of the annual meeting. At the annual meeting, directors shall be elected and other proper business properly
brought before the meeting in accordance with Section 2.4 may be transacted. The Board may postpone, reschedule or cancel any annual
meeting of stockholders previously scheduled by the Board.
Special meetings
of the stockholders may be called only by such Persons and only in such manner as set forth in the Certificate of Incorporation. The Board
may postpone, reschedule or cancel any special meeting of stockholders previously scheduled by the Board.
No business may
be transacted at any special meeting of stockholders other than the business specified in the notice of such meeting.
2.4 | Advance Notice Procedures for Business Brought before a Meeting. |
(i) At
an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, business must be (a) specified in a notice of meeting (or any supplement thereto) given
by or at the direction of the Board, (b) if not specified in a notice of meeting, otherwise properly brought before the meeting by or
at the direction of the Board or the chairperson of the meeting, or (c) otherwise properly brought before the meeting by a stockholder
present in person who (1) was a stockholder of record of the Corporation both at the time of giving the notice provided for in this Section
2.4 and at the time of the meeting, (2) is entitled to vote at the meeting and (3) has complied with this Section 2.4. The
foregoing clause (c) shall be the exclusive means for a stockholder to propose business to be brought before an annual meeting of the
stockholders. For purposes of this Section 2.4 and Section 2.5 of these bylaws, “present in person” shall mean
that the stockholder proposing that the business be brought before the annual meeting of the Corporation, or, if the proposing stockholder
is not an individual, a qualified representative of such proposing stockholder, appear at such annual meeting, and a “qualified
representative” of such proposing stockholder shall be, if such proposing stockholder is (x) a general or limited partnership, any
general partner or Person who functions as a general partner of the general or limited partnership or who controls the general or limited
partnership, (y) a corporation or a limited liability company, any officer or Person who functions as an officer of the corporation or
limited liability company or any officer, director, general partner or Person who functions as an officer, director or general partner
of any entity ultimately in control of the corporation or limited liability company or (z) a trust, any trustee of such trust. This Section
2.4 shall apply to any business that may be brought before an annual meeting of stockholders other than nominations for election to
the Board at an annual meeting, which shall be governed by Section 2.5 of these bylaws. Stockholders seeking to nominate Persons
for election to the Board must comply with Section 2.5 of these bylaws, and this Section 2.4 shall not be applicable to
nominations for election to the Board except as expressly provided in Section 2.5 of these bylaws.
(ii) The
only matters that may be brought before a special meeting are those matters specified in the Corporation’s notice of meeting given
by or at the direction of the Person calling the meeting pursuant to the Certificate of Incorporation and Section 2.3 of these
bylaws.
(iii) Without
qualification, for business to be properly brought before an annual meeting by a stockholder, the stockholder must (a) provide
Timely Notice (as defined below) thereof in writing and in proper form to the secretary of the Corporation and (b) provide any
updates or supplements to such notice at the times and in the forms required by this Section 2.4. To be timely, a
stockholder’s notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation not
later than the close of business on the ninetieth (90th) day and not earlier than the close of business on the one hundred twentieth
day (120th) day, in each case, prior to the one-year anniversary of the preceding year’s annual meeting (which date shall, for
purposes of the Corporation’s annual meeting of stockholders in the year of the closing of the business combination
contemplated by that certain Business Combination Agreement, dated as of April 11, 2023 (the “Business Combination
Agreement”), by and among Rosecliff Acquisition Corp. I, Ghost Merger Sub I Inc., Ghost Merger Sub II LLC and Spectral MD
Holdings, Ltd., be deemed to have occurred on September 11, 2023); provided, however, that if the date of the annual meeting
is more than thirty (30) days before or more than seventy (70) days after such anniversary date, or if no annual meeting was held in
the preceding year, notice by the stockholder to be timely must be so delivered, or mailed and received, not later than the close of
business on the later of: (1) the ninetieth (90th) day prior to such annual meeting or (2) on the tenth (10th) day following the day
on which public disclosure of the date of such annual meeting was first made, (such notice within such time periods, “Timely
Notice”). In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new
time period (or extend any time period) for the giving of Timely Notice as described above.
(iv) To
be in proper form for purposes of this Section 2.4, a stockholder’s notice to the secretary shall set forth:
(a) As
to each Proposing Person (as defined below), (A) the name and address of such Proposing Person (including, if applicable, the name and
address that appear on the Corporation’s books and records); and (B) the number of shares of each class or series of stock of the
Corporation that are, directly or indirectly, owned of record or beneficially owned (within the meaning of Rule 13d-3 under the Exchange
Act) by such Proposing Person or any of its affiliates or associates (for purposes of these bylaws, as such terms are defined in Rule
12b-2 promulgated under the Exchange Act), except that such Proposing Person shall in all events be deemed to beneficially own any shares
of any class or series of stock of the Corporation as to which such Proposing Person or any of its affiliates or associates has a right
to acquire beneficial ownership at any time in the future (the disclosures to be made pursuant to the foregoing clauses (A) and (B) are
referred to as “Stockholder Information”);
(b) As
to each Proposing Person, (A) the full notional amount of any securities that, directly or indirectly, underlie any
“derivative security” (as such term is defined in Rule 16a- 1(c) under the Exchange Act) that constitutes a “call
equivalent position” (as such term is defined in Rule 16a-1(b) under the Exchange Act) (“Synthetic Equity
Position”) and that is, directly or indirectly, held or maintained by such Proposing Person with respect to any shares of
any class or series of stock of the Corporation; provided that, for the purposes of the definition of “Synthetic Equity
Position,” the term “derivative security” shall also include any security or instrument that would not otherwise
constitute a “derivative security” as a result of any feature that would make any conversion, exercise or similar right
or privilege of such security or instrument becoming determinable only at some future date or upon the happening of a future
occurrence (including, without limitation, any derivative, swap, hedge, repurchase or so-called “stock borrowing”
agreement or arrangement, the purpose or effect of which is to, directly or indirectly (a) give a Person economic benefit and/or
risk similar to ownership of shares of any class or series of capital stock of the Corporation, in whole or in part, including due
to the fact that such transaction, agreement or arrangement provides, directly or indirectly, the opportunity to profit or avoid a
loss from any increase or decrease in the value of any shares of any class or series of capital stock of the Corporation, (b)
mitigate loss to, reduce the economic risk of or manage the risk of share price changes for, any Person with respect to any shares
of any class or series of capital stock of the Corporation, (c) otherwise provide in any manner the opportunity to profit or avoid a
loss from any decrease in the value of any shares of any class or series of capital stock of the Corporation, or (d) increase or
decrease the voting power of any Person with respect to any shares of any class or series of capital stock of the Corporation) in
which case the determination of the amount of securities into which such security or instrument would be convertible or exercisable
shall be made assuming that such security or instrument is immediately convertible or exercisable at the time of such determination;
and, provided, further, that any Proposing Person satisfying the requirements of Rule 13d-1(b)(1) under the Exchange
Act (other than a Proposing Person that so satisfies Rule 13d-1(b)(1) under the Exchange Act solely by reason of Rule
13d-1(b)(1)(ii)(E)) shall not be deemed to hold or maintain the notional amount of any securities that underlie a Synthetic Equity
Position held by such Proposing Person as a hedge with respect to a bona fide derivatives trade or position of such Proposing Person
arising in the ordinary course of such Proposing Person’s business as a derivatives dealer, (B) any performance-related fee
(other than an asset-based fee) that such Proposing Person, directly or indirectly, is entitled to receive that is based on any
increase or decrease in the value of shares of any class or series of capital stock of the Corporation or any Synthetic Equity
Position, (C) any rights to dividends or distributions on the shares of any class or series of stock of the Corporation owned
beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation, (D) any
material pending or threatened legal proceeding in which such Proposing Person is a party or material participant involving the
Corporation or any of its officers or directors, or any affiliate of the Corporation, (E) any other material relationship between
such Proposing Person, on the one hand, and the Corporation or any affiliate of the Corporation, on the other hand, (F) any direct
or indirect material interest in any material contract or agreement of such Proposing Person with the Corporation or any affiliate
of the Corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement),
(G) any proxy (other than a revocable proxy given in response to a public proxy solicitation made pursuant to, and in accordance
with, Section 14(a) of the Exchange Act by way of a solicitation statement filed on Schedule 14A), agreement, arrangement,
understanding or relationship pursuant to which such Proposing Person has or shares a right to, directly or indirectly, vote any
shares of any class or series of capital stock of the Corporation and (H) any other information relating to such Proposing Person
that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of
proxies or consents by such Proposing Person in support of the business proposed to be brought before the meeting pursuant to
Section 14(a) of the Exchange Act (the disclosures to be made pursuant to the foregoing clauses (A) through (G) are referred to as
“Disclosable Interests”); provided, however, that Disclosable Interests shall not include any such
disclosures with respect to the ordinary course business activities of any broker, dealer, commercial bank, trust company or other
nominee who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by
these bylaws on behalf of a beneficial owner;
(c) As
to each item of business that the stockholder proposes to bring before the annual meeting, (A) a brief description of the business
desired to be brought before the annual meeting, the reasons for conducting such business at the annual meeting and any material
interest in such business of each Proposing Person, (B) the text of the proposal or business (including the text of any resolutions
proposed for consideration and, if such business includes a proposal to amend these bylaws or the Certificate of Incorporation, the
text of such proposed amendment), (C) a reasonably detailed description of all agreements, arrangements and understandings (x)
between or among any of the Proposing Persons or (y) between or among any Proposing Person and any other Person (including their
names) in connection with the proposal of such business by such Proposing Person or in connection with acquiring, holding, disposing
or voting of any shares of any class or series of capital stock of the Corporation, (D) identification of the names and addresses of
other stockholders (including beneficial owners) known by any of the Proposing Persons to support such nominations or other business
proposal(s), and to the extent known, the class and number of all shares of the Corporation’s capital stock owned of record or
beneficially by such other stockholder(s) or other beneficial owner(s) and (E) any other information relating to such item of
business that would be required to be disclosed in a proxy statement or other filing required to be made in connection with
solicitations of proxies in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the
Exchange Act; provided, however, that the disclosures required by this Section 2.4(iv) shall not include any
disclosures with respect to any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as
a result of being the stockholder directed to prepare and submit the notice required by these bylaws on behalf of a beneficial
owner;
(d) An
acknowledgement that if such stockholder giving the notice (or such stockholder’s qualified representative) does not appear at such
meeting (including virtually in the case of a meeting held solely by means of remote communication) to present the proposed business the
Corporation need not present such proposed business for a vote at such meeting, notwithstanding that proxies in respect of such vote may
have been received by the Corporation;
(e) A
representation as to whether or not the Proposing Person intends (or is part of a group that intends) to (1) deliver a proxy statement
and form of proxy to holders of at least the percentage of the Corporation’s voting shares required under the DGCL, the Certificate
of Incorporation and these bylaws to carry the proposal (an affirmative statement of such intent being a “Solicitation Notice”)
or (2) otherwise engage in a solicitation (within the meaning of Rule 14a-1(l) under the Exchange Act) with respect to the proposal, and
if so, the name of each participant (as defined in Item 4 of Schedule 14A under the Exchange Act) in such solicitation; and
(f) Such
written consent of the Proposing Person to the public disclosure of information provided to the Corporation pursuant to this Section
2.4.
(v) For
purposes of this Section 2.4, the term “Proposing Person” shall mean (a) the stockholder providing the notice
of business proposed to be brought before an annual meeting, (b) the beneficial owner or beneficial owners, if different, on whose behalf
the notice of the business proposed to be brought before the annual meeting is made, or (c) any participant (as defined in paragraphs
(a)(ii)-(vi) of Instruction 3 to Item 4 of Schedule 14A) with such stockholder in such solicitation.
(vi) A
Proposing Person shall update and supplement its notice to the Corporation of its intent to propose business at an annual meeting,
if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.4 shall
be true and correct as of the record date for notice of the meeting and as of the date that is ten (10) business days prior to the
meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by,
the secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for
notice of the meeting (in the case of the update and supplement required to be made as of such record date), and not later than
eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not
practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of
the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement
thereof). If the Proposing Person has provided the Corporation with a Solicitation Notice, such Proposing Person must have delivered
a proxy statement and form of proxy to holders of at least the percentage of the Corporation’s voting shares required under
the DGCL, the Certificate of Incorporation and these bylaws to carry any such proposal and must have included in such materials the
Solicitation Notice. If no Solicitation Notice relating thereto has been timely provided pursuant to this Section 2.4, the
Proposing Person must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice
under this Section 2.4. Notwithstanding the foregoing provisions of this Section 2.4, unless otherwise required by
law, if the stockholder giving the notice required by this Section 2.4 (or such stockholder’s qualified representative)
does not appear at the annual or special meeting of stockholders of the Corporation to present the proposed item of business, such
proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the
Corporation.
(vii) Notwithstanding
anything in these bylaws to the contrary, no business shall be conducted at an annual meeting that is not properly brought before the
meeting in accordance with this Section 2.4. The Board or a designated committee thereof shall have the power to determine whether
business proposed to be brought before the annual meeting was made in accordance with the provisions of these bylaws. If neither the Board
nor such designated committee makes a determination as to whether any nomination was made in accordance with the provisions of these bylaws,
the chairperson of the meeting shall, if the facts warrant, determine that the business was not properly brought before the meeting in
accordance with this Section 2.4, and if he or she should so determine, he or she shall so declare to the meeting. If the Board
or a designated committee thereof or the chairperson of the meeting, as applicable, determines that any stockholder proposal was not made
in accordance with the provisions of this Section 2.4, any such business not properly brought before the meeting shall not be transacted.
(viii) In
addition to the requirements of this Section 2.4 with respect to any business proposed to be brought before an annual meeting,
each Proposing Person shall comply with all applicable requirements of the Exchange Act with respect to any such business. Nothing in
this Section 2.4 shall be deemed to affect the rights of stockholders to request inclusion of proposals in the Corporation’s
proxy statement pursuant to Rule 14a-8 under the Exchange Act or the holders of any series of Preferred Stock (as defined in the Certificate
of Incorporation).
(ix) For
purposes of these bylaws, (i) “public disclosure” shall mean disclosure in a press release reported by a national
news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission (the “SEC”)
pursuant to Sections 13, 14 or 15(d) of the Exchange Act and (ii) “qualified representative” shall mean (1) a duly
authorized officer, manager or partner of the stockholder giving the notice required by this Section 2.4 or Section
2.5 of these bylaws or (2) a person authorized by a writing executed by such stockholder (or a reliable reproduction or
electronic transmission of such a writing) delivered by such stockholder to the Secretary of the Corporation at the principal
executive offices of the Corporation prior to the making of any nomination or proposal at a stockholder meeting stating that such
person is authorized to act for such stockholder as proxy at the meeting of stockholders, which writing or electronic transmission,
or a reliable reproduction of the writing or electronic transmission, must be produced at least 24 hours prior to the meeting of
stockholders.
2.5 | Advance Notice Procedures for Nominations of Directors. |
(i) Annual Meeting of Stockholders.
Nominations of any person for election to the Board in the case of an annual meeting may be made at such meeting only (1) by or at the
direction of the Board, including by any committee or Persons authorized to do so by the Board or these bylaws, or (2) by a stockholder
present in person (as defined in Section 2.4) who (i) was a record owner of shares of the Corporation both at the time of giving
the notice provided for in this Section 2.5 and at the time of the meeting, (ii) is entitled to vote at the meeting and (iii)
has complied with this Section 2.5 as to such notice and nomination.
(a) The
foregoing clause (2) shall be the exclusive means for a stockholder to make any nomination of a Person or Persons for election to the
Board at any annual meeting of stockholders.
(b) Without
qualification, for a stockholder to make any nomination of a person or persons for election to the Board at an annual meeting pursuant
to Section 2.5(i)(2), the stockholder must (A) provide Timely Notice (as defined in Section 2.4(iii) of these bylaws) thereof
in writing and in proper form to the secretary of the Corporation, (B) provide the information, agreements and questionnaires with respect
to such stockholder and its candidate for nomination as required to be set forth by this Section 2.5, and (C) provide any updates
or supplements to such notice at the times and in the forms required by this Section 2.5. In no event shall any adjournment or
postponement of an annual meeting or the announcement thereof commence a new time period (or extend any time period) for the giving of
a stockholder’s notice as described above. The number of nominees a Nominating Person may nominate for election at the annual meeting
pursuant to Section 2.5(i)(2) of these bylaws shall not exceed the number of directors to be elected at such annual meeting.
(c) To
be in proper form for purposes of Section 2.5(i)(2), a stockholder’s notice to the secretary shall set forth:
(A) As
to each Nominating Person (as defined below), the Stockholder Information (as defined in Section 2.4(iv)(a) of these bylaws) except
that for purposes of this Section 2.5, the term “Nominating Person” shall be substituted for the term “Proposing
Person” in all places it appears in Section 2.4(iv)(a);
(B) As
to each Nominating Person, any Disclosable Interests (as defined in Section 2.4(iv)(b), except that for purposes of this Section
2.5 the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it
appears in Section 2.4(iv)(b) and the disclosure with respect to the business to be brought before the meeting in Section
2.4(iv)(c) shall be made with respect to nomination of each Person for election as a director at the meeting);
(C) As
to each candidate whom a Nominating Person proposes to nominate for election as a director, (1) all information with respect to such candidate
for nomination that would be required to be set forth in a stockholder’s notice pursuant to this Section 2.5 if such candidate
for nomination were a Nominating Person, (2) all information relating to such candidate for nomination that is required to be disclosed
in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested
election pursuant to Section 14(a) under the Exchange Act (including such candidate’s written consent to being named in the proxy
statement as a nominee and to serving as a director if elected), (3) a description of any direct or indirect material interest in any
material contract or agreement between or among any Nominating Person, on the one hand, and each candidate for nomination or any other
participants in such solicitation, on the other hand, including, without limitation, all information that would be required to be disclosed
pursuant to Item 404 under Regulation S-K if such Nominating Person were the “registrant” for purposes of such rule and the
candidate for nomination were a director or executive officer of such registrant (the disclosures to be made pursuant to the foregoing
clauses (1) through (3) are referred to as “Nominee Information”), and (4) a completed and signed questionnaire, representation
and agreement as provided in Section 2.5(e);
(D) An
acknowledgement that if the stockholder giving the notice (or such stockholder’s qualified representative) does not appear at such
meeting (including virtually in the case of a meeting held solely by means of remote communication) to present the stockholder’s
proposed nominee for election, the Corporation need not present such nominee for election, notwithstanding that proxies in respect of
such vote may have been received by the Corporation;
(E) A
representation as to whether or not the Nominating Person intends (or is part of a group that intends) to (1) deliver a proxy statement
and form of proxy to at least sixty-seven percent (67%) of voting power of all of the shares of capital stock of the Corporation (an affirmative
statement of such intent being a “Nominee Solicitation Notice”) or (2) otherwise engage in a solicitation (within the
meaning of Rule 14a-1(l) under the Exchange Act) with respect to the nomination, and if so, the name of each participant (as defined in
Item 4 of Schedule 14A under the Exchange Act) in such solicitation; and
(F) Any
other information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be
made in connection with the solicitation of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules
and regulations promulgated thereunder.
(d) A
stockholder providing notice of any nomination proposed to be made at the applicable meeting of stockholders shall further update and
supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section
2.5 shall be true and correct as of the record date for notice of the meeting and as of the date that is ten (10) business days prior
to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received
by, the secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for
notice of the meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight
(8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable,
on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement
required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof). If the Nominating Person
has provided the Corporation with a Nominee Solicitation Notice, such stockholder or beneficial owner must have delivered a proxy statement
and form of proxy to holders of at least sixty-seven percent (67%) of the Corporation’s voting shares, and must have included in
such materials the Nominee Solicitation Notice. If no Nominee Solicitation Notice relating thereto has been timely provided, the Nominating
Person proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such
a Nominee Solicitation Notice. Notwithstanding the foregoing provisions of this Section 2.5, unless otherwise required by law,
if the stockholder giving the notice required by this Section 2.5 (or such stockholder’s qualified representative) does not
appear at the meeting of stockholders of the Corporation to present its nomination, such nomination shall be disregarded, notwithstanding
that proxies in respect of such vote may have been received by the Corporation.
(e) To
be eligible to be a candidate for election as a director of the Corporation at the applicable meeting of stockholders, a candidate
must be nominated in the manner prescribed in this Section 2.5 and the candidate for nomination, whether nominated by the
Board or by a stockholder of record, must have previously delivered (in accordance with the time period prescribed for delivery in a
notice to such candidate given by or on behalf of the Board), to the secretary at the principal executive offices of the
Corporation, (1) a completed written questionnaire (in the form provided by the Corporation) with respect to the background,
qualifications, stock ownership and independence of such candidate for nomination and (2) upon request of the Corporation, a written
representation and agreement (in the form provided by the Corporation) that such candidate for nomination (A) is not, and will not
become a party to, any agreement, arrangement or understanding with any Person other than the Corporation with respect to any direct
or indirect compensation or reimbursement for service as a director of the Corporation that has not been disclosed therein, (B)
understands his or her duties as a director under the DCGL, the Certificate of Incorporation, and the policies and guidelines of the
Corporation applicable to all directors and agrees to act in accordance with those duties while serving as a director, (C) is not or
will not become a party to any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any
Person as to how such nominee, if elected as a director, will act or vote as a director on any issue or question to be decided by
the Board, in any case, to the extent that such arrangement, understanding, commitment or assurance (i) could limit or interfere
with his or her ability to comply, if elected as director of the Corporation, with his or her fiduciary duties under the DGCL, the
Certificate of Incorporation, and with policies and guidelines of the Corporation applicable to all directors or (ii) has not been
disclosed to the Corporation prior to or concurrently with the Nominating Person’s submission of the nomination, and (D) if
elected as a director of the Corporation, will comply with all applicable corporate governance, conflict of interest,
confidentiality, stock ownership and trading and other policies and guidelines of the Corporation applicable to all directors and in
effect during such Person’s term in office as a director (and, if requested by any candidate for nomination, the secretary of
the Corporation shall provide to such candidate for nomination all such policies and guidelines then in effect).
(f) The
Board may also require any proposed candidate for nomination as a Director to furnish such other information as may reasonably be requested
by the Board in writing prior to the applicable meeting of stockholders at which such candidate’s nomination is to be acted upon
in order for the Board to determine the eligibility of such candidate for nomination to be an independent director of the Corporation
in accordance with the Corporation’s Corporate Governance Guidelines, if any.
(ii) Special
Meetings of Stockholders. No business may be transacted at any special meeting of stockholders other than the business specified in
the notice of such meeting. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation’s notice of meeting (1) by or at the direction of the Board, including by
any committee or Persons authorized to do so by the Board or these bylaws or (2) provided that the Board has determined that directors
shall be elected at such meeting, by a stockholder present in person (as defined in Section 2.4) who (i) was a record owner of
shares of the Corporation both at the time of giving the notice provided for in this Section 2.5 and at the time of the meeting,
(ii) is entitled to vote at the meeting and (iii) has complied with this Section 2.5 as to such notice and nomination. The foregoing
clause (2) shall be the exclusive means for a stockholder to make any nomination of a Person or Persons for election to the Board at any
special meeting of stockholders. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one
or more directors to the Board, any such stockholder entitled to vote in such election of directors may nominate a person or persons (as
the case may be) for election to such position(s) as specified in the Corporation’s notice of meeting if the stockholder’s
notice as required by and meeting the requirements of paragraphs 2.5(i)(b), 2.5(i)(c), 2.5(i)(d), 2.5(i)(e)
and 2.5(i)(f) of this Section 2.5 shall be delivered to the secretary of the Corporation at the principal executive offices
of the Corporation not earlier than the close of business on the one hundred twentieth (120th) day prior to such special meeting and not
later than the close of business on the later of the ninetieth (90th) day prior to such special meeting or the tenth (10th) day following
the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be
elected at such meeting. In no event shall any adjournment or postponement of a special meeting or the announcement thereof commence a
new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
(iii)
General.
(a)
For purposes of this Section 2.5, the term “Nominating Person” shall mean (A) the stockholder providing
the notice of the nomination proposed to be made at the meeting, (B) the beneficial owner or beneficial owners, if different, on
whose behalf the notice of the nomination proposed to be made at the meeting is made, and (C) any other participant in such
solicitation.
(b) Notwithstanding
anything in these bylaws to the contrary, no candidate for nomination shall be eligible to be seated as a director of the Corporation
unless nominated and elected in accordance with this Section 2.5.
(c) In
addition to the requirements of this Section 2.5 with respect to any nomination proposed to be made at a meeting, each Nominating
Person shall comply with all applicable requirements of the Exchange Act with respect to any such nominations.
(d) No
candidate shall be eligible for nomination as a director of the Corporation unless such candidate for nomination and the Nominating Person
seeking to place such candidate’s name in nomination has complied with this Section 2.5, as applicable. The Board or a designated
committee thereof shall have the power to determine whether a nomination before the applicable meeting of stockholders was made in accordance
with the provisions of these bylaws. If neither the Board nor such designated committee makes a determination as to whether any nomination
was made in accordance with the provisions of these bylaws, the chairperson of the meeting shall, if the facts warrant, determine that
a nomination was not properly made in accordance with this Section 2.5, and if he or she should so determine, he or she shall so
declare such determination to the meeting; provided, however, that nothing herein shall limit the power and authority of the Board
or such designated committee to make any such determination in advance of such meeting. If the Board or a designated committee thereof
or the chairperson of the meeting, as applicable, determines that any nomination was not made in accordance with the provisions of this
Section 2.5, the defective nomination shall be disregarded and any ballots cast for the candidate in question (but in the case
of any form of ballot listing other qualified nominees, only the ballots cast for the nominee in question) shall be void and of no force
or effect.
(e) If
the stockholder, or the beneficial owner on whose behalf any such nomination is made, has provided the Corporation with a Nominee Solicitation
Notice, such stockholder or beneficial owner must have delivered a proxy statement and form of proxy to holders of sixty-seven percent
(67%) of the Corporation’s voting shares, and must have included in such materials the Nominee Solicitation Notice. If no Nominee
Solicitation Notice relating thereto has been timely provided pursuant to this Section 2.5, the stockholder or beneficial owner
proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Nominee
Solicitation Notice under this Section 2.5. Notwithstanding the foregoing provisions of this Section 2.5, unless otherwise
required by law, if the stockholder giving the notice required by this Section 2.5 (or such stockholder’s qualified representative)
does not appear at the meeting of stockholders of the Corporation to present a nomination, such nomination shall be disregarded, notwithstanding
that proxies in respect of such vote may have been received by the Corporation.
(f) Notwithstanding
the foregoing provisions of this Section 2.5, unless otherwise required by law, if any Nominating Person giving notice provided
by this Section 2.5 provides notice pursuant to Rule 14a-19(b) promulgated under the Exchange Act and subsequently fails to comply
with the requirements of Rule 14a-19(a)(2) and Rule 14a-19(a)(3) promulgated under the Exchange Act, then the Corporation shall disregard
any proxies or votes solicited for the Nominating Person’s nominee. Upon request by the Corporation, if any Nominating Person provides
notice pursuant to Rule 14a-19(b) promulgated under the Exchange Act, such Nominating Person shall deliver to the Corporation, no later
than five (5) business days prior to the applicable meeting, reasonable evidence that it has met the requirements of Rule 14a-19(a)(3)
promulgated under the Exchange Act.
2.6 | Notice of Stockholders’ Meetings. |
Unless otherwise provided by law,
the Certificate of Incorporation or these bylaws, the notice of any meeting of stockholders shall be sent or otherwise given in accordance
with either Section 2.7 or Section 8.1 of these bylaws not less than ten (10) nor more than sixty (60) days before the date
of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, if any, date and hour of the
meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and
vote at such meeting the record date for determining the stockholders entitled to vote at the meeting, if such date is different from
the record date for determining stockholders entitled to notice of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called.
2.7 | Manner of Giving Notice; Affidavit of Notice. |
Notice of any meeting of stockholders shall be deemed given:
(i) if
mailed, when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on
the Corporation’s records;
(ii) if
delivered by courier service, at the earlier of when the notice is received or left at such stockholder’s address; or
(iii)
if electronically transmitted as provided in Section 8.1 of these bylaws.
An affidavit of the secretary or
an assistant secretary of the Corporation or of the transfer agent or any other agent of the Corporation that the notice has been given
shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
Unless otherwise provided by law, the
Certificate of Incorporation or these bylaws, the holders of a majority in voting power of the stock issued and outstanding and
entitled to vote, present in person, or by remote communication, if applicable, or represented by proxy, shall constitute a quorum
for the transaction of business at all meetings of the stockholders. If, however, a quorum is not present or represented at any
meeting of the stockholders, then either (i) the chairperson of the meeting or (ii) a majority in voting power of the stockholders
entitled to vote at the meeting, present in person, or by remote communication, if applicable, or represented by proxy, shall have
power to adjourn the meeting from time to time in the manner provided in Section 2.9 of these bylaws until a quorum is
present or represented.
2.9 | Adjourned Meeting; Notice. |
When a meeting is adjourned to another
time or place (including, without limitation, in the case of an adjournment taken to address a technical failure to convene or continue
a meeting using remote communication), if any, notice need not be given of the adjourned meeting if the time, place, if any, thereof,
and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote
at such adjourned meeting are (i) announced at the meeting at which the adjournment is taken, (ii) displayed, during the time scheduled
for the meeting, on the same electronic network used to enable stockholders and proxy holders to participate in the meeting by means of
remote communication or (iii) set forth in the notice of meeting given in accordance with these bylaws. At any adjourned meeting, the
Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty
(30) days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the
adjournment a new record date for determination of stockholders entitled to vote is fixed for the adjourned meeting, the Board shall fix
as the record date for determining stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed
for determination of stockholders entitled to vote at the adjourned meeting, and shall give notice of the adjourned meeting to each stockholder
of record as of the record date so fixed for notice of such adjourned meeting.
The date and time of the opening and the
closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the
chairperson of the meeting. The Board may adopt by resolution such rules and regulations for the conduct of the meeting of
stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the
Board, the chairperson of any meeting of stockholders shall have the right and authority to convene and (for any or no reason) to
recess and/or adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment
of such chairperson, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board or prescribed by the chairperson of the meeting, may include, without limitation, the following: (i) the establishment
of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of
those present; (iii) limitations on attendance at or participation in the meeting to stockholders entitled to vote at the meeting,
their duly authorized and constituted proxies or such other Persons as the chairperson of the meeting shall determine; (iv)
restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to
questions or comments by participants. Unless and to the extent determined by the Board or the chairperson of the meeting, meetings
of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
Except as may be otherwise provided
in the Certificate of Incorporation, these bylaws or the DGCL, each stockholder shall be entitled to one (1) vote for each share of capital
stock held by such stockholder.
Except as otherwise provided by the
Certificate of Incorporation, at all duly called or convened meetings of stockholders at which a quorum is present, for the election of
directors, a plurality of the votes cast shall be sufficient to elect a director. Except as otherwise provided by the Certificate of Incorporation,
these bylaws, the rules or regulations of any stock exchange applicable to the Corporation, or applicable law, or pursuant to any regulation
applicable to the Corporation or its securities, each other matter presented to the stockholders at a duly called or convened meeting
at which a quorum is present shall be decided by the affirmative vote of the holders of a majority of the votes cast (excluding abstentions
and broker non-votes) on such matter.
2.12 | Record Date for Stockholder Meetings and Other Purposes. |
(i) In
order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof,
the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted
by the Board, and which record date shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting.
If the Board so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting
unless the Board determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the
date for making such determination. If no record date is fixed by the Board, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be the close of business on the next day preceding the day on which notice is
first given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned meeting; and in such case shall also fix as the record
date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders
entitled to vote in accordance herewith at the adjourned meeting.
(ii) If
stockholder action by consent in lieu of a meeting is not prohibited by the Certificate of Incorporation, in order that the
Corporation may determine the stockholders entitled to express consent to corporate action in lieu of a meeting, the Board may fix a
record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board,
and which record date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is
adopted by the Board. If no record date for determining stockholders entitled to express consent to corporate action in lieu of a
meeting is fixed by the Board, (a) when no prior action of the Board is required by law, the record date for such purpose shall be
the first date on which a signed consent setting forth the action taken or proposed to be taken is delivered to the Corporation in
accordance with applicable law, and (b) if prior action by the Board is required by law, the record date for such purpose shall be
at the close of business on the day on which the Board adopts the resolution taking such prior action.
(iii) In
order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment
or any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of capital stock, or
for the purposes of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If
no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day
on which the Board adopts the resolution relating thereto.
Each stockholder entitled to vote
at a meeting of stockholders may authorize another Person or Persons to act for such stockholder by proxy authorized by an instrument
in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but, no such proxy
shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law
to support an irrevocable power. The authorization of a Person to act as a proxy may be documented, signed and delivered in accordance
with Section 116 of the DGCL, provided that such authorization shall set forth, or be delivered with information enabling the Corporation
to determine, the identity of the stockholder granting such authorization.
2.14 | List of Stockholders Entitled to Vote. |
The Corporation shall prepare, no later than
the tenth (10th) day before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting
(provided, however, that if the record date for determining the stockholders entitled to vote is less than ten (10) days before the
date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date), arranged
in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each
stockholder. The Corporation shall not be required to include electronic mail addresses or other electronic contact information on
such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of ten
(10) days ending on the day prior to the meeting date: (i) on a reasonably accessible electronic network, provided that the
information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours,
at the Corporation’s principal executive offices. In the event that the Corporation determines to make the list available on
an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders
of the Corporation. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the
number of shares held by each of them. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who
are the stockholders entitled to examine the list of stockholders required by this Section 2.14 or to vote in Person or by
proxy at any meeting of stockholders.
2.15 | Inspectors of Election. |
Before any meeting of stockholders,
the Corporation shall appoint an inspector or inspectors of election to act at the meeting or its adjournment and make a written report
thereof. The Corporation may designate one or more Persons as alternate inspectors to replace any inspector who fails to act. If any Person
appointed as inspector or any alternate fails to appear or fails or refuses to act, then the chairperson of the meeting shall appoint
a Person to fill that vacancy.
Such inspectors shall:
(i) determine
the number of shares outstanding and the voting power of each, the number of shares represented at the meeting and the validity of any
proxies and ballots;
(ii)
count all votes or ballots;
(iii)
count and tabulate all votes;
(iv) determine
and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspector(s); and
(v) certify
its or their determination of the number of shares represented at the meeting and its or their count of all votes and ballots.
Each inspector, before entering upon
the discharge of the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspection with strict impartiality
and according to the best of such inspector’s ability. Any report or certificate made by the inspectors of election is prima facie
evidence of the facts stated therein. The inspectors of election may appoint such Persons to assist them in performing their duties as
they determine. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the Corporation,
the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for an office at an election
may serve as an inspector at such election.
The Board may, in its sole discretion,
determine that stockholder meetings shall not be held at any place, but may instead be held solely by means of remote communication
in accordance with Section 211(a)(2) of the DGCL. If authorized by the Board in its sole discretion, and subject to such guidelines
and procedures as the Board may adopt, stockholders and proxy holders not physically present at a meeting of stockholders may, by
means of remote communication (i) participate in a meeting of stockholders; and (ii) be deemed present in person and vote at a
meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication,
provided that (a) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to
vote at the meeting by means of remote communication is a stockholder or proxy holder; (b) the Corporation shall implement
reasonable measures to provide such stockholders and proxy holders a reasonable opportunity to participate in the meeting and to
vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially
concurrently with such proceedings; and (c) if any stockholder or proxy holder votes or takes other action at the meeting by means
of remote communication, a record of such vote or other action shall be maintained by the Corporation.
2.17 | Delivery to the Corporation. |
Whenever this Article II requires
one or more Persons (including a record or beneficial owner of stock) to deliver a document or information to the Corporation or any officer,
employee or agent thereof (including any notice, request, questionnaire, revocation, representation or other document or agreement), unless
the Corporation otherwise provides, such document or information shall be in writing exclusively (and not in an electronic transmission)
and shall be delivered exclusively by hand (including, without limitation, overnight courier service) or by certified or registered mail,
return receipt requested, and the Corporation shall not be required to accept delivery of any document not in such written form or so
delivered.
Article III - Directors
Except as otherwise provided by the
Certificate of Incorporation or the DGCL, the business and affairs of the Corporation shall be managed by or under the direction of the
Board.
Subject to the Certificate of Incorporation,
the total number of directors constituting the Board shall be determined from time to time by resolution of the Board. No reduction of
the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.
3.3 | Election, Qualification and Term of Office of Directors. |
Beginning with the Corporation’s
first annual meeting of stockholders, the directors, including any of those elected by the holders of any series of Preferred Stock (as
defined in the Certificate of Incorporation), shall be elected to hold office for a term expiring at the next annual meeting of the stockholders
of the Corporation and until his or her successor shall be elected and qualified, or until his or her earlier death, resignation, retirement,
disqualification or removal from office. Directors need not be stockholders. The Certificate of Incorporation or these bylaws may prescribe
qualifications for directors.
3.4 | Resignation and Vacancies. |
Any director may resign at any time
upon notice given in writing or by electronic transmission to the Board or to the chairperson of the Board. The resignation shall take
effect at the time specified therein or upon the happening of an event specified therein, and if no time or event is specified, at the
time of its receipt. When one or more directors so resigns and the resignation is effective at a future date or upon the happening of
an event to occur on a future date, a majority of the directors then in office, including those who have so resigned but whose resignations
have not yet become effective, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation
or resignations shall become effective, and each director so chosen shall hold office as provided in this Section 3.4 in the filling
of other vacancies.
Vacancies and newly created directorships
resulting from any increase in the authorized number of directors shall be filled only in the manner provided in the Certificate of Incorporation
and applicable law.
3.5 | Place of Meetings; Meetings by Telephone. |
The Board may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the
Certificate of Incorporation or these bylaws, members of the Board, or any committee designated by the Board, may participate in a meeting
of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating
in the meeting can hear each other, and such participation in a meeting pursuant to this bylaw shall constitute presence in person at
the meeting.
Regular meetings of the Board may
be held without notice at such time and at such place as shall from time to time be determined by the Board.
3.7 | Special Meetings; Notice. |
Special meetings of the Board for
any purpose or purposes may be called at any time by the chairperson of the Board, the chief executive officer, the president, the secretary
or a majority of the total number of directors constituting the Board.
Notice of the time and place of special meetings shall
be:
(i)
delivered personally by hand or by courier;
(ii)
sent by United States first-class mail, postage prepaid;
(iii)
sent by facsimile or electronic mail; or
(iv)
sent by other means of electronic transmission, directed to each director at that director’s address, facsimile number or electronic
mail address, or other address for electronic transmission, as the case may be, as shown on the Corporation’s records.
If the notice is (i) delivered personally
by hand or by courier, (ii) sent by facsimile or electronic mail, or (iii) sent by other means of electronic transmission, it shall be
delivered or sent at least twelve (12) hours before the time of the holding of the meeting. If the notice is sent by mail, it shall be
deposited in the mail at least one (1) day before the time of the holding of the meeting. The notice need not specify the place of the
meeting (if the meeting is to be held at the Corporation’s principal executive office) nor the purpose of the meeting.
Unless otherwise provided by the
Certificate of Incorporation, a majority of the total number of directors then in office shall constitute a quorum for the transaction
of business at all meetings of the Board. The vote of a majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board, except as may be otherwise specifically provided by the DGCL, the Certificate of Incorporation or these
bylaws. If a quorum is not present at any meeting of the Board, then the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is present.
3.9 | Action by Unanimous Consent Without a Meeting. |
Unless otherwise restricted by the
Certificate of Incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee
thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by
electronic transmission and any consent may be documented, signed and delivered in any manner permitted by Section 116 of the DGCL. After
an action is taken, the consent or consents relating thereto shall be filed with the minutes of proceedings of the Board or committee,
as applicable, and such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the
minutes are maintained in electronic form.
3.10 | Fees and Compensation of Directors. |
Unless otherwise restricted by the
Certificate of Incorporation or these bylaws, the Board shall have the authority to fix the compensation, including fees and reimbursement
of expenses, of directors for services to the Corporation in any capacity.
Directors may be removed from office
only in the manner provided in the Certificate of Incorporation and applicable law.
3.12 | Chairperson, Vice Chairperson. |
The Board may appoint a chairperson
of the Board from its members, who shall have all the customary duties and responsibilities of such office. The chairperson may be (but
shall not be required to be) the chief executive officer or another executive officer of the Corporation. The Board also may appoint a
vice chairperson of the Board from its members and prescribe his or her powers and duties. The chairperson shall preside over all meetings
of the Board and of the Corporation’s stockholders and shall exercise such powers and perform such duties as shall be assigned to
or required of the chairperson of the Board from time to time by the Board or these bylaws. If the chairperson is unable to so preside
over any meetings of the Board or the Corporation’s stockholders, or is absent, then the vice chairperson of the Board, if one is
appointed, shall preside over all meetings of the Board. If the chairperson of the Board, and the vice chairperson of the Board, if one
is appointed, are unable to preside or are absent, the Board shall designate an alternate representative to preside over a meeting of
the Board.
Article
IV - Committees
4.1 | Committees of Directors. |
The Board may designate one (1) or
more committees, each committee to consist of one (1) or more of the directors of the Corporation. The Board may designate one (1) or
more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified
from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at
the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the
Board or in these bylaws, shall have and may exercise all the powers and authority of the Board in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such
committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter expressly
required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the Corporation.
Each committee shall keep regular
minutes of its meetings and report the same to the Board when required.
4.3 | Meetings and Actions of Committees. |
Meetings and actions of committees
shall be governed by, and held and taken in accordance with, the provisions of:
(i)
Section 3.5 (place of meetings and meetings by telephone);
(ii)
Section 3.6 (regular meetings);
(iii)
Section 3.7 (special meetings and notice);
(iv)
Section 3.9 (action by unanimous consent without a meeting);
(v)
Section 3.12 (chairperson, vice chairperson); and
(vi)
Section 7.11 (waiver of notice),
with such changes in the context of those
bylaws as are necessary to substitute the committee and its members for the Board and its members. However:
(vii) the
time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee; and
(viii) special
meetings of committees may also be called by resolution of the Board or by the chairperson of the applicable committee.
A majority of the directors then
serving on a committee of the Board or on a subcommittee of a committee shall constitute a quorum for the transaction of business by the
committee or subcommittee, unless the Certificate of Incorporation or a resolution of the Board (or a resolution of the committee that
created the subcommittee) requires a greater or lesser number (provided that in no case shall a quorum be less than one-third of the directors
then serving on the committee or subcommittee). The vote of a majority of the members of the committee or subcommittee present at any
meeting at which a quorum is present shall be the act of such committee or subcommittee, unless the Certificate of Incorporation or a
resolution of the Board (or a resolution of the committee that created the subcommittee) requires a greater number. If a quorum is not
present at any meeting of the committee, then the directors present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present.
The Board may adopt rules for the
governance of any committee to override the provisions that would otherwise apply to the committee pursuant to this Section 4.3,
provided that such rules do not violate the provisions of the Certificate of Incorporation or applicable law.
Article
V - Officers
The officers of the Corporation shall
include a chief executive officer and a secretary. The Corporation may also have, at the discretion of the Board, a president, a chief
financial officer, a treasurer, one (1) or more vice presidents, one (1) or more assistant vice presidents, one (1) or more assistant
treasurers, one (1) or more assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of
these bylaws. Any number of offices may be held by the same Person.
5.2 | Appointment of Officers. |
The Board shall appoint the officers
of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws.
In the event of the absence or disability of any officer, the Board may designate another officer to act temporarily in place of such
absent or disabled officer.
The Board may appoint, or empower
the chief executive officer or, in the absence of a chief executive officer, the president (where the president and chief executive officer
are not the same individual), to appoint, such other officers and agents as the business of the Corporation may require. Each of such
officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or
as the Board or an authorized officer (as applicable), may from time to time determine.
5.4 | Removal and Resignation of Officers. |
Subject to the rights, if any, of
an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board or, except in the
case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board.
Any officer may resign at any time
by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later
time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which
the officer is a party.
Any vacancy occurring in any office
of the Corporation shall be filled by the Board or as provided in Sections 5.2 and 5.3, as applicable.
5.6 | Representation of Securities of Other Entities. |
The chairperson of the Board, the
chief executive officer and the secretary, or, if appointed pursuant to Article V of these bylaws, the president, any vice president,
the treasurer and any assistant secretary of this Corporation, or any other Person authorized by the Board, the chief executive officer,
the president or a vice president, is authorized to vote, represent and exercise on behalf of this Corporation all rights incident to
any and all securities of any other entity standing in the name of this Corporation. The authority granted herein may be exercised either
by such Person directly or by any other Person authorized to do so by proxy or power of attorney duly executed by such Person having the
authority.
5.7 | Tenure, Authority and Duties of Officers. |
Except as provided in Section
5.3, all officers of the Corporation shall hold such office, respectively have such authority and perform such duties in the management
of the business of the Corporation as may be provided herein or designated from time to time by the Board and, to the extent not so provided,
as generally pertain to their respective offices, subject to the control of the Board.
Article
VI - Records
A stock ledger consisting of one or
more records in which the names of all of the Corporation’s stockholders of record, the address and number of shares registered
in the name of each such stockholder, and all issuances and transfers of stock of the corporation are recorded in accordance with Section
224 of the DGCL shall be administered by or on behalf of the Corporation. Any records administered by or on behalf of the Corporation
in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or by means of,
or be in the form of, any information storage device, or method, or one or more electronic networks or databases (including one or more
distributed electronic networks or databases), provided that the records so kept can be converted into clearly legible paper form within
a reasonable time and, with respect to the stock ledger, that the records so kept (i) can be used to prepare the list of stockholders
specified in Sections 219 and 220 of the DGCL, (ii) record the information specified in Sections 156, 159, 217(a) and 218 of the DGCL,
and (iii) record transfers of stock as governed by Article 8 of the Uniform Commercial Code.
Each director and each member of
any committee designated by the Board shall, in the performance of his or her duties, be fully protected in relying in good faith upon
the books and records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any
of its officers, agents or employees, or committees of the Board so designated, or by any other Person as to matters which such director
or committee member reasonably believes are within such other Person’s professional or expert competence and that has been selected
with reasonable care by or on behalf of the Corporation.
Article
VII - General Matters
7.1 | Execution of Corporate Contracts and Instruments. |
The Board may authorize any officer
or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation;
such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board or within the agency power
of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any amount.
The shares of the Corporation shall be
uncertificated, provided that the Board by resolution may provide that some or all of the shares of any class or series of stock of
the Corporation shall be represented by certificates. Certificates for the shares of stock, if any, shall be in such form as is
consistent with the Certificate of Incorporation and applicable law. Every holder of stock represented by a certificate shall be
entitled to have a certificate signed by, or in the name of the Corporation by, any two (2) officers authorized to sign stock
certificates representing the number of shares registered in certificate form. The chairperson or vice chairperson of the Board, the
president, vice president, the treasurer, any assistant treasurer, the secretary or any assistant secretary of the Corporation shall
be specifically authorized to sign stock certificates. Any or all of the signatures on the certificate may be electronic. In case
any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased
to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same
effect as if he or she were such officer, transfer agent or registrar at the date of issue.
The Corporation may issue a new certificate
of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed,
and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to
give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft
or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
7.4 | Shares Without Certificates |
The Corporation may adopt a system
of issuance, recordation and transfer of its shares of stock by electronic or other means not involving the issuance of certificates,
provided the use of such system by the Corporation is permitted in accordance with applicable law.
The Board, subject to any restrictions
contained in either (i) the DGCL or (ii) the Certificate of Incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property or in shares of the Corporation’s capital stock.
The Board may set apart out of any
of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve.
Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and
meeting contingencies.
The fiscal year of the Corporation
shall be fixed by resolution of the Board and may be changed by the Board. Unless otherwise fixed by the Board, the fiscal year of the
Corporation shall consist of the twelve (12) month period ending on December 31.
The Corporation may adopt a corporate
seal, which shall be adopted and which may be altered by the Board. The Corporation may use the corporate seal by causing it or a facsimile
thereof to be impressed or affixed or in any other manner reproduced.
Shares of the Corporation shall be
transferable in the manner prescribed by law and in these bylaws. Shares of stock of the Corporation shall be transferred on the books
of the Corporation only by the holder of record thereof or by such holder’s attorney duly authorized in writing, upon surrender
to the Corporation of the certificate or certificates representing such shares endorsed by the appropriate Person or Persons (if such
shares are represented by certificates) or by delivery of duly executed instructions (if such shares are uncertificated), with such evidence
of the authenticity of such endorsement or execution, transfer, authorization and other matters as the Corporation may reasonably require,
and accompanied by all necessary stock transfer stamps. No transfer of stock shall be valid as against the Corporation for any purpose
until it shall have been entered in the stock records of the Corporation by an entry showing the names of the Persons from and to whom
it was transferred.
7.9 | Stock Transfer Agreements. |
The Corporation shall have power
to enter into and perform any agreement with any number of stockholders of any one or more classes or series of stock of the Corporation
to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not
prohibited by the DGCL.
7.10 | Registered Stockholders. |
The Corporation:
(i) shall
be entitled to recognize the exclusive right of a Person registered on its books as the owner of shares to receive dividends, subject
to any restrictions included in the DGCL or the Certificate of Incorporation, and to vote as such owner; and
(ii) shall
not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another Person, whether or
not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware.
Whenever notice is required to be given under
any provision of the DGCL, the Certificate of Incorporation or these bylaws, a written waiver of such notice, signed by the Person
entitled to notice, or a waiver by electronic transmission by the Person entitled to notice, whether before or after the time of the
event for which notice is to be given, shall be deemed equivalent to such required notice. Attendance of a Person at a meeting shall
constitute a waiver of notice of such meeting, except when the Person attends a meeting for the express purpose of objecting at the
beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any
written waiver of notice or any waiver by electronic transmission unless so required by the Certificate of Incorporation or these
bylaws.
Article
VIII - Notice by Electronic Transmission
8.1 | Notice by Electronic Transmission. |
Except as otherwise specifically required
in these bylaws or by applicable law, all notices required to be given pursuant to these bylaws may in every instance in connection with
any delivery to a member of the Board, be effectively given by hand delivery (including use of a delivery service), by depositing such
notice in the mail, postage prepaid, or by sending such notice by overnight express courier, facsimile, electronic mail or other form
of electronic transmission. Whenever, by applicable law, the Certificate of Incorporation or these bylaws, notice is required to be given
to any stockholder, such notice may be given in writing directed to such stockholder’s mailing address or by electronic transmission
directed to such stockholder’s electronic mail address, as applicable, as it appears on the records of the Corporation or by such
other form of electronic transmission consented to by the stockholder. A notice to a stockholder shall be deemed given as follows: (a)
if mailed, when the notice is deposited in the United States mail, postage prepaid, (b) if delivered by courier service, the earlier of
when the notice is received or left at such stockholder’s address, (c) if given by electronic mail, when directed to such stockholder’s
electronic mail address unless the stockholder has notified the corporation in writing or by electronic transmission of an objection to
receiving notice by electronic mail or such notice is prohibited by Section 232(e) of the DGCL, and (d) if given by a form of electronic
transmission (other than electronic mail) consented to by the stockholder to whom the notice is given, (i) if by facsimile transmission,
when directed to a number at which such stockholder has consented to receive notice, (ii) if by a posting on an electronic network together
with separate notice to the stockholder of such specified posting, upon the later of (A) such posting and (B) the giving of such separate
notice, and (iii) if by any other form of electronic transmission (other than electronic mail), when directed to such stockholder. A stockholder
may revoke such stockholder’s consent to receiving notice by means of electronic transmission by giving written notice or by electronic
transmission of such revocation to the Corporation. A notice may not be given by an electronic transmission from and after the time that
(x) the Corporation is unable to deliver by such electronic transmission two (2) consecutive notices and (y) such inability becomes known
to the secretary or to the transfer agent, or other person responsible for the giving of notice; provided, however, the inadvertent
failure to discover such inability shall not invalidate any meeting or other action. Any notice given by electronic mail must include
a prominent legend that the communication is an important notice regarding the Corporation.
An affidavit of the secretary or
an assistant secretary or of the transfer agent or other agent of the Corporation that the notice has been given by electronic mail or
by another form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
8.2 | Definition of Electronic Transmission. |
An “electronic transmission”
means any form of communication, not directly involving the physical transmission of paper, including the use of, or participation in,
one or more electronic networks or databases (including one or more distributed electronic networks or databases), that creates a record
that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient
through an automated process.
Article
IX - Indemnification
9.1 | Indemnification of Directors and Officers. |
The Corporation shall indemnify and
hold harmless, to the fullest extent permitted by the DGCL as it presently exists or may hereafter be amended, any person who was or is
made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative
or investigative (a “Proceeding”) by reason of the fact that he or she, or a person for whom he or she is the legal
representative, is or was a director or officer of the Corporation or, while serving as a director or officer of the Corporation, is or
was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint
venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss
suffered and expenses (including, without limitation, attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred by such person in connection with any such Proceeding.
Subject to the requirements in this
Article X and the DGCL, the Corporation shall not be obligated to indemnify any person pursuant to this Article X in connection
with any Proceeding (or any part of any Proceeding):
(a) for
which payment has actually been made to and received by or on behalf of such person under any statute, insurance policy, indemnity provision,
vote or otherwise, except with respect to any excess beyond the amount paid;
(b) for
an accounting or disgorgement of profits pursuant to Section 16(b) of the Exchange Act, or similar provisions of federal, state or local
statutory law or common law, if such person is held liable therefor (including pursuant to any settlement arrangements);
(c) for
any reimbursement of the Corporation by such person of any bonus or other incentive-based or equity-based compensation or of any profits
realized by such person from the sale of securities of the Corporation, as required in each case under the Exchange Act (including any
such reimbursements that arise from an accounting restatement of the Corporation pursuant to Section 304 of the Sarbanes-Oxley Act of
2002 (the “Sarbanes-Oxley Act”), the payment to the Corporation of profits arising from the purchase and sale by such
person of securities in violation of Section 306 of the Sarbanes-Oxley Act), if such person is held liable therefor (including pursuant
to any settlement arrangements), or any other remuneration paid to such person if it shall be determined by a final judgment or other
final adjudication that such remuneration was in violation of law;
(d) initiated
by such person, including any Proceeding (or any part of any Proceeding) initiated by such person against the Corporation, any legal entity
which it controls, any director or officer thereof or any third party, unless (i) the Board has consented to the initiation of such Proceeding
or part thereof, (ii) the Corporation provides the indemnification, in its sole discretion, pursuant to the powers vested in the Corporation
under applicable law (provided, however, that this Section 9.1 shall not apply to counterclaims or affirmative defenses asserted
by such person in an action brought against such person), (iii) otherwise required to be made under Section 9.4 or (iv) otherwise
required by applicable law; or
(e) if
prohibited by applicable law; provided, however, that if any provision or provisions of this Article X shall be held to
be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality and enforceability of the remaining provisions
of this Article X (including, without limitation, each portion of any paragraph or clause containing any such provision held to
be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected
or impaired thereby; and (ii) to the fullest extent possible, the provisions of this Article X (including, without limitation,
each such portion of any paragraph or clause containing any such provision held to be invalid, illegal or unenforceable) shall be construed
so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
9.2 | Indemnification of Others. |
The Corporation shall have the power
to indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended,
any person who was or is made or is threatened to be made a party or is otherwise involved in any Proceeding by reason of the fact that
he or she, or a person for whom he or she is the legal representative, is or was an employee or agent of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint
venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss
suffered and expenses reasonably incurred by such person in connection with any such Proceeding.
9.3 | Prepayment of Expenses. |
The Corporation shall, to the fullest
extent not prohibited by applicable law, pay the expenses (including, without limitation, attorneys’ fees) incurred by any current
or former officer or director of the Corporation in defending any Proceeding in advance of its final disposition; provided, however,
that, to the extent required by law, such payment of expenses in advance of the final disposition of the Proceeding shall be made only
upon receipt of an undertaking by the person to repay all amounts advanced if it should be ultimately determined that the person is not
entitled to be indemnified under this Article X or otherwise.
If a claim for indemnification (following
the final disposition of such Proceeding) under this Article X is not paid in full within sixty (60) days, or a claim for advancement
of expenses under this Article X is not paid in full within thirty (30) days after a written claim therefor has been received by
the Corporation, the claimant may thereafter (but not before) file suit to recover the unpaid amount of such claim and, if successful
in whole or in part, shall be entitled to be paid the expense of prosecuting such claim to the fullest extent permitted by law. In any
such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment
of expenses under applicable law.
9.5 | Non-Exclusivity of Rights. |
The rights conferred on any Person
by this Article X shall not be exclusive of any other rights which such Person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, these bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
The Corporation may purchase and maintain
insurance on behalf of any Person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust enterprise
or non-profit entity against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out
of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under
the provisions of the DGCL.
9.7 | Other Indemnification. |
The Corporation’s obligation,
if any, to indemnify or advance expenses to any Person who was or is serving at its request as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust, enterprise or non-profit entity shall be reduced by any amount such Person
may collect as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or
non-profit enterprise.
9.8 | Continuation of Indemnification. |
Subject to the terms of any provision
of the Certificate of Incorporation or agreement between the Corporation and any director, officer, employee or agent respecting indemnification
and advancement of expenses, the rights to indemnification and to prepayment of expenses provided by, or granted pursuant to, this Article
X shall continue notwithstanding that the Person has ceased to be a director, officer, employee or agent of the Corporation and shall
inure to the benefit of the estate, heirs, executors, administrators, legatees and distributees of such Person.
9.9 | Amendment or Repeal; Interpretation. |
Any repeal or modification of this
Article X shall not adversely affect any right or protection (i) hereunder of any Person in respect of any act or omission occurring
prior to the time of such repeal or modification or (ii) under any agreement providing for indemnification or advancement of expenses
to an officer or director of the Corporation in effect prior to the time of such repeal or modification.
Any reference to an officer of the
Corporation in this Article X shall be deemed to refer exclusively to a chief executive officer, a chief financial officer, a secretary
or a treasurer appointed pursuant to Article V of these bylaws, and to any president, vice president, assistant secretary, assistant
treasurer, or other officer of the Corporation appointed by (x) the Board pursuant to Article V of these bylaws or (y) an officer
to whom the Board has delegated the power to appoint officers pursuant to Article V of these bylaws, and any reference to an officer
of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be deemed to refer exclusively
to an officer appointed by the board of directors (or equivalent governing body) of such other entity pursuant to the certificate of incorporation
and bylaws (or equivalent organizational documents) of such other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise. The fact that any person who is or was an employee of the Corporation or an employee of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise has been given or has used the title of “vice president” or
any other title that could be construed to suggest or imply that such person is or may be an officer of the Corporation or of such other
corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall not result in such person being constituted
as, or being deemed to be, an officer of the Corporation or of such other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise for purposes of this Article X.
Article
X - Definitions
As used in these bylaws, unless
the context otherwise requires, the term:
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Person”
means any individual, corporation, limited liability company, limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization or other entity, whether domestic or foreign.
- 29 -
Exhibit 10.1
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (“Agreement”),
dated as of September [●], 2023, is by and between Spectral AI, Inc., a Delaware corporation (the “Company”)
and [NAME OF DIRECTOR/OFFICER] (the “Indemnitee”).
WHEREAS, Indemnitee is [a
director/an officer] of the Company;
WHEREAS, both the Company
and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors and officers of public companies;
WHEREAS, the board of directors of the Company (the “Board”)
has determined that enhancing the ability of the Company to retain and attract as directors and officers the most capable persons is in
the best interests of the Company and that the Company therefore should seek to assure such persons that indemnification and insurance
coverage is available; and
WHEREAS, in recognition of
the need to provide Indemnitee with substantial protection against personal liability, in order to procure Indemnitee’s service
as a [director/officer] of the Company and to enhance Indemnitee’s ability to serve the Company in an effective manner, and in order
to provide such protection pursuant to express contract rights (intended to be enforceable irrespective of, among other things, any amendment
to the Company’s amended and restated certificate of incorporation or bylaws (collectively, the “Constituent Documents”),
any change in the composition of the Board or any change in control or business combination transaction relating to the Company), the
Company wishes to provide in this Agreement for the indemnification of, and the advancement of Expenses (as defined in Section 1(f)
below) to, Indemnitee as set forth in this Agreement and to the extent insurance is maintained for the coverage of Indemnitee under the
Company’s directors’ and officers’ liability insurance policies.
NOW, THEREFORE, in consideration
of the foregoing and the Indemnitee’s agreement to provide services to the Company, the parties agree as follows:
1.
Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
(a)
“Beneficial Owner” has the meaning given to the term “beneficial owner” in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”).
(b)
“Change in Control” means the occurrence after the date of this Agreement of any of the following events:
(i)
any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 50% or more of
the Company’s then outstanding Voting Securities;
(ii)
the consummation of a reorganization, merger or consolidation, unless immediately following such reorganization, merger or consolidation,
all of the Beneficial Owners of the Voting Securities of the Company immediately prior to such transaction beneficially own, directly
or indirectly, more than 50% of the combined voting power of the outstanding Voting Securities of the entity resulting from such transaction;
(iii)
during any period of two consecutive years, not including any period prior to the execution of this Agreement, individuals who
at the beginning of such period constituted the Board (including for this purpose any new directors whose election by the Board or nomination
for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of the period or whose election or nomination for election was previously so approved) cease
for any reason to constitute at least a majority of the Board; or
(iv)
the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or an agreement for the sale
or disposition by the Company of all or substantially all of the Company’s assets.
(c)
“Claim” means:
(i)
any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, arbitrative, investigative or other, and whether made pursuant to federal, state or other law; or
(ii)
any inquiry, hearing or investigation that the Indemnitee determines might lead to the institution of any such action, suit, proceeding
or alternative dispute resolution mechanism.
(d)
“Delaware Court” shall have the meaning ascribed to it in Section 9(e) below.
(e)
“Disinterested Director” means a director of the Company who is not and was not a party to the Claim in respect
of which indemnification is sought by Indemnitee.
(f)
“Expenses” means any and all expenses, including attorneys’ and experts’ fees, court costs, transcript
costs, travel expenses, duplicating, printing and binding costs, telephone charges, and all other costs and expenses incurred in connection
with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness or participate
in, any Claim. Expenses also shall include (i) Expenses incurred in connection with any appeal resulting from any Claim, including without
limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent,
and (ii) for purposes of Section 5 only, Expenses incurred by Indemnitee in connection with the interpretation, enforcement or
defense of Indemnitee’s rights under this Agreement, by litigation or otherwise. Expenses, however, shall not include amounts paid
in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
(g)
“Expense Advance” means any payment of Expenses advanced to Indemnitee by the Company pursuant to Section
4 or Section 5 hereof.
(h)
“Indemnifiable Event” means any event or occurrence, whether occurring on or after the date of this Agreement,
related to the fact that Indemnitee is or was a director, officer, employee or agent of the Company or any subsidiary of the Company,
or is or was serving at the request of the Company as a director, officer, employee, member, manager, trustee or agent of any other corporation,
limited liability company, partnership, joint venture, trust or other entity or enterprise (collectively with the Company, “Enterprise”)
or by reason of an action or inaction by Indemnitee in any such capacity (whether or not serving in such capacity at the time any Loss
is incurred for which indemnification can be provided under this Agreement).
(i)
“Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation
law and neither presently performs, nor in the past five years has performed, services for either: (i) the Company or Indemnitee (other
than in connection with matters concerning Indemnitee under this Agreement or of other indemnitees under similar agreements) or (ii) any
other party to the Claim giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent
Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.
(j)
“Losses” means any and all Expenses, damages, losses, liabilities, judgments, fines, penalties (whether civil,
criminal or other), ERISA excise taxes, amounts paid or payable in settlement, including any interest, assessments and all other charges
paid or payable in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing
to defend, be a witness or participate in, any Claim.
(k)
“Person” means any individual, corporation, firm, partnership, joint venture, limited liability company, estate,
trust, business association, organization, governmental entity or other entity and includes the meaning set forth in Sections 13(d) and
14(d) of the Exchange Act.
(l)
“Standard of Conduct Determination” shall have the meaning ascribed to it in Section 9(b) below.
(m)
“Voting Securities” means any securities of the Company that vote generally in the election of directors.
2.
Services to the Company. Indemnitee agrees to serve as a director or officer of the Company for so long as Indemnitee is
duly elected or appointed or until Indemnitee tenders his or her resignation or is no longer serving in such capacity. This Agreement
shall not be deemed an employment agreement between the Company (or any of its subsidiaries or Enterprise) and Indemnitee. Indemnitee
specifically acknowledges that his or her service to the Company or any of its subsidiaries or Enterprise is at will and the Indemnitee
may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment agreement
between Indemnitee and the Company (or any of its subsidiaries or Enterprise), other applicable formal severance policies duly adopted
by the Board or, with respect to service as a director or officer of the Company, by the Company’s Constituent Documents or Delaware
law.
3.
Indemnification. Subject to Section 9 and Section 10 of this Agreement, the Company shall indemnify Indemnitee,
to the fullest extent permitted by the laws of the State of Delaware in effect on the date hereof, or as such laws may from time to time
hereafter be amended to increase the scope of such permitted indemnification, against any and all Losses if Indemnitee was or is or becomes
a party to or participant in, or is threatened to be made a party to or participant in, any Claim by reason of or arising in part out
of an Indemnifiable Event, including, without limitation, Claims brought by or in the right of the Company, Claims brought by third parties,
and Claims in which the Indemnitee is solely a witness.
4.
Advancement of Expenses. Indemnitee shall have the right to advancement by the Company, prior to the final disposition of
any Claim by final adjudication to which there are no further rights of appeal, of any and all Expenses actually and reasonably paid or
incurred by Indemnitee in connection with any Claim arising out of an Indemnifiable Event. Indemnitee’s right to such advancement
is not subject to the satisfaction of any standard of conduct. Without limiting the generality or effect of the foregoing, within 45 days
after any request by Indemnitee, the Company shall, in accordance with such request, (a) pay such Expenses on behalf of Indemnitee, (b)
advance to Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for such Expenses. In connection
with any request for Expense Advances, Indemnitee shall not be required to provide any documentation or information to the extent that
the provision thereof would undermine or otherwise jeopardize attorney-client privilege. Indemnitee’s obligation to reimburse the
Company for Expense Advances shall be unsecured and no interest shall be charged thereon.
5.
Indemnification for Expenses in Enforcing Rights. To the fullest extent allowable under applicable law, the Company shall
also indemnify against, and, if requested by Indemnitee, shall advance to Indemnitee subject to and in accordance with Section 4,
any Expenses actually and reasonably paid or incurred by Indemnitee in connection with any action or proceeding by Indemnitee for (a)
indemnification or reimbursement or advance payment of Expenses by the Company under any provision of this Agreement, or under any other
agreement or provision of the Constituent Documents now or hereafter in effect relating to Claims relating to Indemnifiable Events, and/or
(b) recovery under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether
Indemnitee ultimately is determined to be entitled to such indemnification or insurance recovery, as the case may be. However, in the
event that Indemnitee is ultimately determined not to be entitled to such indemnification or insurance recovery, as the case may be, then
all amounts advanced under this Section 5 shall be repaid. Indemnitee shall be required to reimburse the Company in the event that
a final judicial determination is made that such action brought by Indemnitee was frivolous or not made in good faith.
6.
Partial Indemnity. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for
a portion of any Losses in respect of a Claim related to an Indemnifiable Event but not for the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
7.
Notification and Defense of Claims.
(a)
Notification of Claims. Indemnitee shall notify the Company in writing as soon as practicable of any Claim which could relate
to an Indemnifiable Event or for which Indemnitee could seek Expense Advances, including a brief description (based upon information then
available to Indemnitee) of the nature of, and the facts underlying, such Claim. The failure by Indemnitee to timely notify the Company
hereunder shall not relieve the Company from any liability hereunder unless the Company’s ability to participate in the defense
of such claim was materially and adversely affected by such failure. If at the time of the receipt of such notice, the Company has directors’
and officers’ liability insurance in effect under which coverage for Claims related to Indemnifiable Events is potentially available,
the Company shall give prompt written notice to the applicable insurers in accordance with the procedures set forth in the applicable
policies. The Company shall provide to Indemnitee a copy of such notice delivered to the applicable insurers, and copies of all subsequent
correspondence between the Company and such insurers regarding the Claim, in each case substantially concurrently with the delivery or
receipt thereof by the Company.
(b)
Defense of Claims. The Company shall be entitled to participate in the defense of any Claim relating to an Indemnifiable
Event at its own expense and, except as otherwise provided below, to the extent the Company so wishes, it may assume the defense thereof
with counsel reasonably satisfactory to Indemnitee. After notice from the Company to Indemnitee of its election to assume the defense
of any such Claim, the Company shall not be liable to Indemnitee under this Agreement or otherwise for any Expenses subsequently directly
incurred by Indemnitee in connection with Indemnitee’s defense of such Claim other than reasonable costs of investigation or as
otherwise provided below. Indemnitee shall have the right to employ its own legal counsel in such Claim, but all Expenses related to such
counsel incurred after notice from the Company of its assumption of the defense shall be at Indemnitee’s own expense; provided,
however, that if (i) Indemnitee’s employment of its own legal counsel has been authorized by the Company, (ii) Indemnitee has reasonably
determined that there may be a conflict of interest between Indemnitee and the Company in the defense of such Claim, (iii) after a Change
in Control, Indemnitee’s employment of its own counsel has been approved by the Independent Counsel or (iv) the Company shall not
in fact have employed counsel to assume the defense of such Claim, then Indemnitee shall be entitled to retain its own separate counsel
(but not more than one law firm plus, if applicable, local counsel in respect of any such Claim) and all Expenses related to such separate
counsel shall be borne by the Company.
8.
Procedure upon Application for Indemnification. In order to obtain indemnification pursuant to this Agreement, Indemnitee
shall submit to the Company a written request therefor, including in such request such documentation and information as is reasonably
available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification
following the final disposition of the Claim. Indemnification shall be made insofar as the Company determines Indemnitee is entitled to
indemnification in accordance with Section 9 below.
9.
Determination of Right to Indemnification.
(a)
Mandatory Indemnification; Indemnification as a Witness.
(i)
To the extent that Indemnitee shall have been successful on the merits or otherwise in defense of any Claim relating to an Indemnifiable
Event or any portion thereof or in defense of any issue or matter therein, including without limitation dismissal without prejudice, Indemnitee
shall be indemnified against all Losses relating to such Claim in accordance with Section 3 to the fullest extent allowable by
law.
(ii)
To the extent that Indemnitee’s involvement in a Claim relating to an Indemnifiable Event is to prepare to serve and serve
as a witness, and not as a party, the Indemnitee shall be indemnified against all Losses incurred in connection therewith to the fullest
extent allowable by law.
(b)
Standard of Conduct. To the extent that the provisions of Section 9(a) are inapplicable to a Claim related to an
Indemnifiable Event that shall have been finally disposed of, any determination of whether Indemnitee has satisfied any applicable standard
of conduct under Delaware law that is a legally required condition to indemnification of Indemnitee hereunder against Losses relating
to such Claim and any determination that Expense Advances must be repaid to the Company (a “Standard of Conduct Determination”)
shall be made as follows:
(i)
if no Change in Control has occurred, (A) by a majority vote of the Disinterested Directors, even if less than a quorum of the
Board, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than
a quorum or (C) if there are no such Disinterested Directors, by Independent Counsel in a written opinion addressed to the Board, a copy
of which shall be delivered to Indemnitee; and
(ii)
if a Change in Control shall have occurred, (A) if the Indemnitee so requests in writing, by a majority vote of the Disinterested
Directors, even if less than a quorum of the Board or (B) otherwise, by Independent Counsel in a written opinion addressed to the Board,
a copy of which shall be delivered to Indemnitee.
The Company shall indemnify
and hold harmless Indemnitee against and, if requested by Indemnitee, shall reimburse Indemnitee for, or advance to Indemnitee, within
30 days of such request, any and all Expenses incurred by Indemnitee in cooperating with the person or persons making such Standard of
Conduct Determination.
(c)
Making the Standard of Conduct Determination. The Company shall use its reasonable best efforts to cause any Standard of
Conduct Determination required under Section 9(b) to be made as promptly as practicable. If the person or persons designated to
make the Standard of Conduct Determination under Section 9(b) shall not have made a determination within 30 days after the later
of (A) receipt by the Company of a written request from Indemnitee for indemnification pursuant to Section 8 (the date of such
receipt being the “Notification Date”) and (B) the selection of an Independent Counsel, if such determination is to
be made by Independent Counsel, then Indemnitee shall be deemed to have satisfied the applicable standard of conduct; provided that such
30-day period may be extended for a reasonable time, not to exceed an additional 30 days, if the person or persons making such determination
in good faith requires such additional time to obtain or evaluate information relating thereto. Notwithstanding anything in this Agreement
to the contrary, no determination as to entitlement of Indemnitee to indemnification under this Agreement shall be required to be made
prior to the final disposition of any Claim.
(d)
Payment of Indemnification. If, in regard to any Losses:
(i)
Indemnitee shall be entitled to indemnification pursuant to Section 9(a);
(ii)
no Standard Conduct Determination is legally required as a condition to indemnification of Indemnitee hereunder; or
(iii)
Indemnitee has been determined or deemed pursuant to Section 9(b) or Section 9(c) to have satisfied the Standard
of Conduct Determination,
then the Company shall
pay to Indemnitee, within five days after the later of (A) the Notification Date or (B) the earliest date on which the applicable criterion
specified in clause (i), (ii) or (iii) is satisfied, an amount equal to such Losses.
(e)
Selection of Independent Counsel for Standard of Conduct Determination. If a Standard of Conduct Determination is to be
made by Independent Counsel pursuant to Section 9.1(b)(i), the Independent Counsel shall be selected by the Board of Directors,
and the Company shall give written notice to Indemnitee advising him or her of the identity of the Independent Counsel so selected. If
a Standard of Conduct Determination is to be made by Independent Counsel pursuant to Section 9.1(b)(ii), the Independent Counsel
shall be selected by Indemnitee, and Indemnitee shall give written notice to the Company advising it of the identity of the Independent
Counsel so selected. In either case, Indemnitee or the Company, as applicable, may, within five days after receiving written notice of
selection from the other, deliver to the other a written objection to such selection; provided, however, that such objection may be asserted
only on the ground that the Independent Counsel so selected does not satisfy the criteria set forth in the definition of “Independent
Counsel” in Section 1(i), and the objection shall set forth with particularity the factual basis of such assertion. Absent
a proper and timely objection, the person or firm so selected shall act as Independent Counsel. If such written objection is properly
and timely made and substantiated, (i) the Independent Counsel so selected may not serve as Independent Counsel unless and until such
objection is withdrawn or a court has determined that such objection is without merit; and (ii) the non-objecting party may, at its option,
select an alternative Independent Counsel and give written notice to the other party advising such other party of the identity of the
alternative Independent Counsel so selected, in which case the provisions of the two immediately preceding sentences, the introductory
clause of this sentence and numbered clause (i) of this sentence shall apply to such subsequent selection and notice. If applicable, the
provisions of clause (ii) of the immediately preceding sentence shall apply to successive alternative selections. If no Independent Counsel
that is permitted under the foregoing provisions of this Section 9(e) to make the Standard of Conduct Determination shall have
been selected within 20 days after the Company gives its initial notice pursuant to the first sentence of this Section 9(e) or
Indemnitee gives its initial notice pursuant to the second sentence of this Section 9(e), as the case may be, either the Company
or Indemnitee may petition the Court of Chancery of the State of Delaware (“Delaware Court”) to resolve any objection
which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or to appoint as Independent
Counsel a person to be selected by the Court or such other person as the Court shall designate, and the person or firm with respect to
whom all objections are so resolved or the person or firm so appointed will act as Independent Counsel. In all events, the Company shall
pay all of the reasonable fees and expenses of the Independent Counsel incurred in connection with the Independent Counsel’s determination
pursuant to Section 9(b).
(f)
Presumptions and Defenses.
(i)
Indemnitee’s Entitlement to Indemnification. In making any Standard of Conduct Determination, the person or persons
making such determination shall presume that Indemnitee has satisfied the applicable standard of conduct and is entitled to indemnification,
and the Company shall have the burden of proof to overcome that presumption and establish that Indemnitee is not so entitled. Any Standard
of Conduct Determination that is adverse to Indemnitee may be challenged by the Indemnitee in the Delaware Court. No determination by
the Company (including by its directors or any Independent Counsel) that Indemnitee has not satisfied any applicable standard of conduct
may be used as a defense to any legal proceedings brought by Indemnitee to secure indemnification or reimbursement or advance payment
of Expenses by the Company hereunder or create a presumption that Indemnitee has not met any applicable standard of conduct.
(ii)
Reliance as a Safe Harbor. For purposes of this Agreement, and without creating any presumption as to a lack of good faith
if the following circumstances do not exist, Indemnitee shall be deemed to have acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Company if Indemnitee’s actions or omissions to act are taken in good
faith reliance upon the records of the Company, including its financial statements, or upon information, opinions, reports or statements
furnished to Indemnitee by the officers or employees of the Company or any of its subsidiaries in the course of their duties, or by committees
of the Board or by any other Person (including legal counsel, accountants and financial advisors) as to matters Indemnitee reasonably
believes are within such other Person’s professional or expert competence and who has been selected with reasonable care by or on
behalf of the Company. In addition, the knowledge and/or actions, or failures to act, of any director, officer, agent or employee of the
Company shall not be imputed to Indemnitee for purposes of determining the right to indemnity hereunder.
(iii)
No Other Presumptions. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, will not create a presumption that
Indemnitee did not meet any applicable standard of conduct or have any particular belief, or that indemnification hereunder is otherwise
not permitted.
(iv)
Defense to Indemnification and Burden of Proof. It shall be a defense to any action brought by Indemnitee against the Company
to enforce this Agreement (other than an action brought to enforce a claim for Losses incurred in defending against a Claim related to
an Indemnifiable Event in advance of its final disposition) that it is not permissible under applicable law for the Company to indemnify
Indemnitee for the amount claimed. In connection with any such action or any related Standard of Conduct Determination, the burden of
proving such a defense or that the Indemnitee did not satisfy the applicable standard of conduct shall be on the Company.
(v)
Resolution of Claims. The Company acknowledges that a settlement or other disposition short of final judgment may be successful
on the merits or otherwise for purposes of Section 9.1(a)(i) if it permits a party to avoid expense, delay, distraction, disruption
and uncertainty. In the event that any Claim relating to an Indemnifiable Event to which Indemnitee is a party is resolved in any manner
other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with
our without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise
for purposes of Section 9.1(a)(i). The Company shall have the burden of proof to overcome this presumption.
10.
Exclusions from Indemnification. Notwithstanding anything in this Agreement to the contrary, the Company shall not be obligated
to:
(a)
indemnify or advance funds to Indemnitee for Expenses or Losses with respect to proceedings initiated by Indemnitee, including
any proceedings against the Company or its directors, officers, employees or other indemnitees and not by way of defense, except:
(i)
proceedings referenced in Section 5 above (unless a court of competent jurisdiction determines that each of the material
assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous); or
(ii)
where the Company has joined in or the Board has consented to the initiation of such proceedings.
(b)
indemnify Indemnitee if a final decision by a court of competent jurisdiction determines that such indemnification is prohibited
by applicable law.
(c)
indemnify Indemnitee for the disgorgement of profits arising from the purchase or sale by Indemnitee of securities of the Company
in violation of Section 16(b) of the Exchange Act, or any similar successor statute.
(d)
indemnify or advance funds to Indemnitee for Indemnitee’s reimbursement to the Company of any bonus or other incentive-based
or equity-based compensation previously received by Indemnitee, or payment of any profits realized by Indemnitee from the sale of securities
of the Company, as required in each case under the Exchange Act (including any such reimbursements under Section 304 of the Sarbanes-Oxley
Act of 2002 in connection with an accounting restatement of the Company or under the Company’s clawback policy under Rule 10D-1
under the Exchange Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the payment to the
Company of profits arising from the purchase or sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act).
11.
Settlement of Claims. The Company shall not be liable to Indemnitee under this Agreement for any amounts paid in settlement
of any threatened or pending Claim related to an Indemnifiable Event effected without the Company’s prior written consent, which
shall not be unreasonably withheld. The Company shall not settle any Claim related to an Indemnifiable Event in any manner that would
impose any Losses on the Indemnitee without the Indemnitee’s prior written consent.
12.
Duration. All agreements and obligations of the Company contained herein shall continue during the period that Indemnitee
is a director or officer of the Company (or is serving at the request of the Company as a director, officer, employee, member, trustee
or agent of another Enterprise) and shall continue thereafter (i) so long as Indemnitee may be subject to any possible Claim relating
to an Indemnifiable Event (including any rights of appeal thereto) and (ii) throughout the pendency of any proceeding (including any rights
of appeal thereto) commenced by Indemnitee to enforce or interpret his or her rights under this Agreement, even if, in either case, he
or she may have ceased to serve in such capacity at the time of any such Claim or proceeding.
13.
Non-Exclusivity. The rights of Indemnitee hereunder will be in addition to any other rights Indemnitee may have under the
Constituent Documents, the General Corporation Law of the State of Delaware, any other contract or otherwise (collectively, “Other
Indemnity Provisions”); provided, however, that (a) to the extent that Indemnitee otherwise would have any greater right to
indemnification under any Other Indemnity Provision, Indemnitee will be deemed to have such greater right hereunder and (b) to the extent
that any change is made to any Other Indemnity Provision which permits any greater right to indemnification than that provided under this
Agreement as of the date hereof, Indemnitee will be deemed to have such greater right hereunder.
14.
Liability Insurance. For the duration of Indemnitee’s service as a [director/officer] of the Company, and thereafter
for so long as Indemnitee shall be subject to any pending Claim relating to an Indemnifiable Event, the Company shall use commercially
reasonable efforts (taking into account the scope and amount of coverage available relative to the cost thereof) to continue to maintain
in effect policies of directors’ and officers’ liability insurance providing coverage that is at least substantially comparable
in scope and amount to that provided by the Company’s current policies of directors’ and officers’ liability insurance.
In all policies of directors’ and officers’ liability insurance maintained by the Company, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company’s
directors, if Indemnitee is a director, or of the Company’s officers, if Indemnitee is an officer (and not a director) by such policy.
Upon request, the Company will provide to Indemnitee copies of all directors’ and officers’ liability insurance applications,
binders, policies, declarations, endorsements and other related materials.
15.
No Duplication of Payments. The Company shall not be liable under this Agreement
to make any payment to Indemnitee in respect of any Losses to the extent Indemnitee has otherwise received payment under any insurance
policy, the Constituent Documents, Other Indemnity Provisions or otherwise of the amounts otherwise indemnifiable by the Company hereunder.
16.
Subrogation. In the event of payment to Indemnitee under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee. Indemnitee shall execute all
papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary
to enable the Company effectively to bring suit to enforce such rights.
17.
Amendments. No supplement, modification or amendment of this Agreement shall
be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be binding
unless in the form of a writing signed by the party against whom enforcement of the waiver is sought, and no such waiver shall operate
as a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. Except as specifically
provided herein, no failure to exercise or any delay in exercising any right or remedy hereunder shall constitute a waiver thereof.
18.
Binding Effect. This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger,
consolidation or otherwise to all or substantially all of the business and/or assets of the Company), assigns, spouses, heirs and personal
and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation
or otherwise) to all, substantially all or a substantial part of the business and/or assets of the Company, by written agreement in form
and substances satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had taken place.
19.
Severability. If any provision or provisions of this Agreement is held to be
invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions
of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be
invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) will not in any way be affected or impaired thereby
and remain enforceable to the fullest extent permitted by law; (b) such provision or provisions will be deemed reformed to the extent
necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) will be construed so
as to give effect to the intent manifested thereby.
20.
Notices. All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by hand, against receipt, or mailed, by postage prepaid,
certified or registered mail:
(a)
if to Indemnitee, to the address set forth on the signature page hereto.
(b)
if to the Company, to:
Spectral AI, Inc.
2515 McKinney Avenue,
Suite 1000
Dallas, Texas 75201
Attn: Vincent Capone
Notice of change of address
shall be effective only when given in accordance with this Section 20. All notices complying with this Section 20 shall
be deemed to have been received on the date of hand delivery or on the third business day after mailing.
21.
Governing Law and Forum. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without
giving effect to its principles of conflicts of laws. The Company and Indemnitee hereby irrevocably and unconditionally: (a) agree that
any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court and not in any
other state or federal court in the United States, (b) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes
of any action or proceeding arising out of or in connection with this Agreement and (c) waive, and agree not to plead or make, any claim
that the Delaware Court lacks venue or that any such action or proceeding brought in the Delaware Court has been brought in an improper
or inconvenient forum.
22.
Headings. The headings of the sections and paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation
thereof.
23.
Counterparts. This Agreement may be executed in one or more counterparts, each
of which shall for all purposes be deemed to be an original, but all of which together shall constitute one and the same Agreement.
[signature page follows]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
SPECTRAL AI, INC. |
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Exhibit 10.2
EXECUTION VERSION
AMENDED
AND RESTATED
REGISTRATION RIGHTS AGREEMENT
by and
among
SPECTRAL AI, INC.,
ROSECLIFF ACQUISITION SPONSOR
I LLC,
TARGET HOLDERS,
AND
DIRECTOR HOLDERS
Dated as of September 11,
2023
THIS AMENDED AND RESTATED REGISTRATION RIGHTS
AGREEMENT (this “Agreement”), dated as of September 11, 2023, is made and entered into by and among
Spectral AI, Inc., a Delaware corporation (the “Company”) (formerly known as Rosecliff Acquisition Corp I,
a Delaware corporation), Rosecliff Acquisition Sponsor I LLC, a Delaware limited liability company (the
“Sponsor”), certain former stockholders of Spectral MD Holdings Ltd., a Delaware corporation
(“Target”), set forth on Schedule 1 hereto (such stockholders, the “Target
Holders”), Frank S. Edmonds and Heather Bellini (together with Michael P. Murphy and Brian Radecki, (collectively, the
“Director Holders” and collectively with the Sponsor and the Target Holders and any person or entity who
hereafter becomes a party to this Agreement pursuant to Section 6.2 or Section 6.10 of this Agreement, the
“Holders” and each, a “Holder”).
RECITALS
WHEREAS,
the Company, the Sponsor and the Director Holders are party to that certain Registration Rights Agreement, dated as of February 11, 2021
(the “Original RRA”);
WHEREAS,
the Company has entered into that certain Business Combination Agreement, dated as of April 11, 2023 (as it may be amended, supplemented
or otherwise modified from time to time, the “Merger Agreement”), by and among the Company, Ghost Merger Sub
I Inc., a Delaware corporation and a direct, wholly owned subsidiary of the Company (“Merger Sub I”), Ghost
Merger Sub II LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of the Company (“Merger Sub
II”) and the Target, pursuant to which, first, Merger Sub I merged with and into the Target (the “First Merger”),
with the Target surviving the First Merger as a wholly owned subsidiary of the Company, and, second, the Target merged with and into Merger
Sub II (the “Second Merger”), with Merger Sub II surviving the Second Merger as a wholly owned subsidiary of
the Company.
WHEREAS,
on the date hereof, pursuant to the Merger Agreement, the Target Holders received shares of the Company’s Class A common stock,
par value $0.0001 per share (the “Common Stock”);
WHEREAS,
pursuant to Section 5.6 of the Original RRA, the provisions, covenants and conditions set forth therein may be amended or modified upon
the written consent of the Company and the Holders (as defined in the Original RRA) of at least a majority-in-interest of the Registrable
Securities (as defined in the Original RRA) at the time in question, and the Sponsor and the Director Holders are Holders in the aggregate
of at least a majority-in-interest of the Registrable Securities as of the date hereof; and
WHEREAS,
the Company, the Sponsor and the Director Holders desire to amend and restate the Original RRA in its entirety and enter into this Agreement,
pursuant to which the Company shall grant the Holders certain registration rights with respect to certain securities of the Company, as
set forth in this Agreement.
NOW, THEREFORE,
in consideration of the representations, covenants and agreements contained herein, and certain other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE
I
DEFINITIONS
1.1 Definitions.
The terms defined in this Article I shall, for all purposes of this Agreement, have the respective meanings set forth
below:
“Additional Holder”
shall have the meaning given in Section 6.10.
“Additional Holder
Common Stock” shall have the meaning given in Section 6.10.
“Administrative
Shares” shall mean the issuance, prior to the consummation of the transactions contemplated by the Business Combination
Agreement, of 33,333 shares of Common Stock to Sponsor, pursuant to that certain Letter Agreement, dated September 11, 2023, by and between
the Company and Sponsor.
“Adverse
Disclosure” shall mean any public disclosure of material non-public information, which disclosure, in the good faith
judgment of the Chief Executive Officer or the Chief Financial Officer of the Company, after consultation with counsel to the
Company, (a) would be required to be made in any Registration Statement or Prospectus in order for the applicable Registration
Statement or Prospectus not to contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements contained therein (in the case of any prospectus and any preliminary prospectus, in the light of the circumstances
under which they were made) not misleading, (b) would not be required to be made at such time if the Registration Statement were not
being filed, declared effective or used, as the case may be, and (c) the Company has a bona fide business purpose for not making
such information public.
“Agreement” shall have
the meaning given in the Preamble hereto.
“Block Trade” shall have the meaning given in Section 2.4.1.
“Board” shall mean the Board of Directors of the Company.
“Closing” shall have the
meaning given in the Merger Agreement.
“Closing Date” shall have
the meaning given in the Merger Agreement.
“Commission” shall mean the Securities and Exchange Commission.
“Common
Stock” shall have the meaning given in the Recitals hereto.
“Company”
shall have the meaning given in the Preamble hereto and includes the Company’s successors by recapitalization, merger, consolidation,
spin-off, reorganization or similar transaction.
“Competing Registration Rights”
shall have the meaning given in Section 6.7.
“Demanding Holder” shall have the meaning given in Section
2.1.4.
“Director Holders” shall have the meaning given in the Preamble hereto.
“Exchange Act”
shall mean the Securities Exchange Act of 1934, as it may be amended from time to time.
“First Merger” shall have
the meaning given in the Recitals hereto.
“Form S-1 Shelf” shall have the meaning given in Section 2.1.1.
“Form S-3 Shelf” shall have the meaning given in Section 2.1.1.
“Holder Information”
shall have the meaning given in Section 4.1.2.
“Holders”
shall have the meaning given in the Preamble hereto, for so long as such person or entity holds any Registrable Securities.
“Insider Letter”
shall mean that certain letter agreement, dated as of February 11, 2021, by and among the Company, the Sponsor and each of the other parties
thereto.
“Joinder” shall have the
meaning given in Section 6.10.
“Lock-up” shall have the meaning
given in Section 5.1.
“Lock-up Parties”
shall mean Sponsor and the Target Holders and their respective Permitted Transferees.
“Lock-up
Period” shall mean, for 100% of the Lock-up Shares held by each Lock-up Party and their respective Permitted Transferees,
the period beginning on the Closing Date and ending on the date on which the last reported sale price of the Common Stock equals or exceeds
$12.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any ten (10) trading
days within any thirty (30)-trading day period commencing after the Closing Date. For the avoidance of doubt, the Lock-up Period for any
Lock-up Shares for which the Lock-up Period has not ended on the date that is 180 days after the Closing Date shall end on such 180th
day after the Closing Date.
“Lock-up
Shares” shall mean with respect to (i) the Sponsor and its Permitted Transferees, the shares of Common Stock held by the
Sponsor immediately following the Closing (other than the Administrative Shares and the shares of Common Stock acquired in the public
market) and (ii) the Target Holders and their respective Permitted Transferees, the shares of Common Stock, Equity Awards and any other
equity securities convertible into or exercisable or exchangeable for shares of Common Stock held by the Target Holders immediately following
the Closing or shares of Common Stock issued with respect to or in exchange for Equity Awards on or after the Closing as permitted by
this Agreement (other than shares of Common Stock acquired in the public market).
“Maximum Number of Securities”
shall have the meaning given in Section 2.1.5.
“Merger Agreement” shall have the meaning given in the
Recitals hereto.
“Merger Sub I” shall have the meaning given in the Recitals hereto.
“Merger Sub II” shall have the
meaning given in the Recitals hereto.
“Minimum Takedown Threshold”
shall have the meaning given in Section 2.1.4.
“Misstatement”
shall mean an untrue statement of a material fact or an omission to state a material fact required to be stated in a Registration
Statement or Prospectus or necessary to make the statements in a Registration Statement or Prospectus (in the case of a Prospectus,
in the light of the circumstances under which they were made) not misleading.
“Original RRA” shall have the
meaning given in the Recitals hereto.
“Other Coordinated Offering”
shall have the meaning given in Section 2.4.1.
“Permitted
Transferees” shall mean (a) with respect to the Sponsor and its respective Permitted Transferees, (i) prior to the expiration
of the Lock-up Period, any person or entity to whom such Holder is permitted to transfer such Registrable Securities prior to the expiration
of the Lock-up Period pursuant to Section 5.2 and any other applicable agreement between such Holder and/or their respective Permitted
Transferees and the Company and any transferee thereafter and (ii) after the expiration of the Lock-up Period, any person or entity to
whom such Holder is permitted to transfer such Registrable Securities, subject to and in accordance with any applicable agreement between
such Holder and/or their respective Permitted Transferees and the Company and any transferee thereafter; (b) with respect to the Target
Holders and their respective Permitted Transferees, (i) prior to the expiration of the Lock-up Period, any person or entity to whom such
Holder is permitted to transfer such Registrable Securities prior to the expiration of the Lock-up Period pursuant to Section 5.2
and (ii) after the expiration of the Lock-up Period, any person or entity to whom such Holder is permitted to transfer such Registrable
Securities, subject to and in accordance with any applicable agreement between such Holder and/or their respective Permitted Transferees
and the Company and any transferee thereafter; and (c) with respect to all other Holders and their respective Permitted Transferees, any
person or entity to whom such Holder of Registrable Securities is permitted to transfer such Registrable Securities, subject to and in
accordance with any applicable agreement between such Holder and/or their respective Permitted Transferees and the Company and any transferee
thereafter.
“Piggyback Registration” shall
have the meaning given in Section 2.2.1.
“Prospectus”
shall mean the prospectus included in any Registration Statement, as supplemented by any and all prospectus supplements and as amended
by any and all post-effective amendments and including all material incorporated by reference in such prospectus.
“Registrable
Security” shall mean (a) any outstanding shares of Common Stock and any other equity security of the Company held by a
Holder immediately following the Closing (including any securities distributable pursuant to the Merger Agreement); (b) any
outstanding shares of Common Stock or any other equity security (including warrants to purchase shares of Common Stock and shares of
Common Stock issued or issuable upon the exercise of any other equity security) of the Company acquired by a Holder following the
date hereof to the extent that such securities are “restricted securities” (as defined in Rule 144) or are otherwise
held by an “affiliate” (as defined in Rule 144) of the Company; (c) any Additional Holder Common Stock; and (d) any
other equity security of the Company or any of its subsidiaries issued or issuable with respect to any securities referenced in
clause (a), (b) or (c) above by way of a stock dividend or stock split or in connection with a recapitalization, merger,
consolidation, spin-off, reorganization or similar transaction; provided, however, that, as to any particular
Registrable Security, such securities shall cease to be Registrable Securities upon the earliest to occur of: (A) a Registration
Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall
have been sold, transferred, disposed of or exchanged in accordance with such Registration Statement by the applicable Holder;
(B)(i) such securities shall have been otherwise transferred, (ii) new certificates for such securities not bearing (or book entry
positions not subject to) a legend restricting further transfer shall have been delivered by the Company and (iii) subsequent public
distribution of such securities shall not require registration under the Securities Act; (C) such securities shall have ceased to be
outstanding; (D) such securities may be sold without registration pursuant to Rule 144 or any successor rule promulgated under the
Securities Act (but with no volume or other restrictions or limitations including as to manner or timing of sale); and (E) such
securities have been sold to, or through, a broker, dealer or underwriter in a public distribution or other public securities
transaction.
“Registration”
shall mean a registration, including any related Shelf Takedown, effected by preparing and filing a registration statement, Prospectus
or similar document in compliance with the requirements of the Securities Act, and the applicable rules and regulations promulgated thereunder,
and such registration statement becoming effective.
“Registration
Expenses” shall mean the documented, out-of-pocket expenses of a Registration, including, without limitation, the following:
(A)
all registration and filing fees (including fees with respect to filings required to be made with the Financial Industry Regulatory
Authority, Inc.) and any national securities exchange on which the Common Stock is then listed;
(B)
fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of outside counsel
for the Underwriters in connection with blue sky qualifications of Registrable Securities);
(C)
printing, messenger, telephone and delivery expenses;
(D)
reasonable fees and disbursements of counsel for the Company;
(E)
reasonable fees and disbursements of all independent registered public accountants of the Company incurred specifically in connection
with such Registration; and
(F)
in an Underwritten Offering or Other Coordinated Offering, reasonable fees and expenses of one (1) legal counsel selected by the
majority-in-interest of the Demanding Holders.
“Registration
Statement” shall mean any registration statement that covers Registrable Securities pursuant to the provisions of this Agreement,
including the Prospectus included in such registration statement, amendments (including post-effective amendments) and supplements to
such registration statement, and all exhibits to and all material incorporated by reference in such registration statement.
“Requesting Holders” shall
have the meaning given in Section 2.1.5. “Second Merger” shall have the meaning given in the Recitals
hereto.
“Securities Act” shall mean the
Securities Act of 1933, as amended from time to time.
“Shelf”
shall mean the Form S-1 Shelf, the Form S-3 Shelf or any Subsequent Shelf Registration Statement, as the case may be.
“Shelf
Registration” shall mean a registration of securities pursuant to a registration statement filed with the Commission in
accordance with and pursuant to Rule 415 promulgated under the Securities Act (or any successor rule then in effect).
“Shelf
Takedown” shall mean an Underwritten Shelf Takedown or any proposed transfer or sale using a Registration Statement, including
a Piggyback Registration.
“Sponsor” shall have the meaning
given in the Preamble hereto.
“Sponsor
Member” shall mean a member of Sponsor who becomes party to this Agreement as a Permitted Transferee of Sponsor.
“Sponsor
Managers” shall mean the managing members of Sponsor, including after the dissolution of Sponsor.
“Subsequent Shelf Registration Statement”
shall have the meaning given in Section 2.1.2. “Target” shall have the meaning given in the Preamble
hereto.
“Target Holders” shall have the
meaning given in the Preamble hereto.
“Transfer” shall mean the
(a) sale or assignment of, offer to sell, contract or agreement to sell, hypothecate, pledge, grant of any option to purchase or
otherwise dispose of or agreement to dispose of, directly or indirectly, or establishment or increase of a put equivalent position
or liquidation with respect to or decrease of a call equivalent position within the meaning of Section 16 of the Exchange Act with
respect to, any security, (b) entry into any swap or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of any security, whether any such transaction is to be settled by delivery of such securities, in
cash or otherwise, or (c) public announcement of any intention to effect any transaction specified in clause (a) or (b).
“Underwriter”
shall mean a securities dealer who purchases any Registrable Securities as principal in an Underwritten Offering and not as part of such
dealer’s market-making activities.
“Underwritten Offering”
shall mean a Registration in which securities of the Company are sold to an Underwriter in a firm commitment underwriting for distribution
to the public.
“Underwritten Shelf Takedown”
shall have the meaning given in Section 2.1.4. “Withdrawal Notice” shall have the meaning given in Section
2.1.6.
ARTICLE
II
REGISTRATIONS AND OFFERINGS
2.1
Shelf Registration.
2.1.1 Filing. As
soon as practicable but no later than forty-five (45) calendar days following the Closing Date, the Company shall submit to or file
with the Commission a Registration Statement for a Shelf Registration on Form S-1 (the “Form S-1 Shelf”)
or a Registration Statement for a Shelf Registration on Form S-3 (the “Form S-3 Shelf”), if the Company is
then eligible to use a Form S-3 Shelf, in each case, covering the resale of all the Registrable Securities (determined as of two (2)
business days prior to such submission or filing) on a delayed or continuous basis and shall use its commercially reasonable efforts
to have such Shelf declared effective as soon as practicable after the filing thereof, but no later than the earlier of (a) the
ninetieth (90th) calendar day following the filing date thereof if the Commission notifies the Company that it will
“review” the Registration Statement and (b) the tenth (10th) business day after the date the Company is
notified (orally or in writing, whichever is earlier) by the Commission that the Registration Statement will not be
“reviewed” or will not be subject to further review. Such Shelf shall provide for the resale of the Registrable
Securities included therein pursuant to any method or combination of methods legally available to, and requested by, any Holder
named therein. The Company shall maintain a Shelf in accordance with the terms hereof, and shall prepare and file with the
Commission such amendments, including post-effective amendments, and supplements as may be necessary to keep a Shelf continuously
effective, available for use to permit the Holders named therein to sell their Registrable Securities included therein and in
compliance with the provisions of the Securities Act until such time as there are no longer any Registrable Securities. In the event
the Company files a Form S-1 Shelf, the Company shall use its commercially reasonable efforts to convert the Form S-1 Shelf (and any
Subsequent Shelf Registration Statement) to a Form S-3 Shelf as soon as practicable after the Company is eligible to use Form S-3.
The Company’s obligation under this Section 2.1.1, shall, for the avoidance of doubt, be subject to Section 3.4.
2.1.2
Subsequent Shelf Registration. If any Shelf ceases to be effective under the Securities Act for any reason at any time while
Registrable Securities are still outstanding, the Company shall, subject to Section 3.4, use its commercially reasonable efforts
to as promptly as is reasonably practicable cause such Shelf to again become effective under the Securities Act (including using its commercially
reasonable efforts to obtain the prompt withdrawal of any order suspending the effectiveness of such Shelf), and shall use its commercially
reasonable efforts to as promptly as is reasonably practicable amend such Shelf in a manner reasonably expected to result in the withdrawal
of any order suspending the effectiveness of such Shelf or file an additional registration statement as a Shelf Registration (a “Subsequent
Shelf Registration Statement”) registering the resale of all Registrable Securities (determined as of two (2) business days
prior to such filing), and pursuant to any method or combination of methods legally available to, and requested by, any Holder named therein.
If a Subsequent Shelf Registration Statement is filed, the Company shall use its commercially reasonable efforts to (i) cause such Subsequent
Shelf Registration Statement to become effective under the Securities Act as promptly as is reasonably practicable after the filing thereof
(it being agreed that the Subsequent Shelf Registration Statement shall be an automatic shelf registration statement (as defined in Rule
405 promulgated under the Securities Act) if the Company is a well-known seasoned issuer (as defined in Rule 405 promulgated under the
Securities Act) at the most recent applicable eligibility determination date) and (ii) keep such Subsequent Shelf Registration Statement
continuously effective, available for use to permit the Holders named therein to sell their Registrable Securities included therein and
in compliance with the provisions of the Securities Act until such time as there are no longer any Registrable Securities. Any such Subsequent
Shelf Registration Statement shall be on Form S-3 to the extent that the Company is eligible to use such form. Otherwise, such Subsequent
Shelf Registration Statement shall be on another appropriate form. The Company’s obligation under this Section 2.1.2, shall,
for the avoidance of doubt, be subject to Section 3.4.
2.1.3
Additional Registrable Securities. Subject to Section 3.4, in the event that any Holder holds Registrable Securities
that are not registered for resale on a delayed or continuous basis, the Company, upon written request of such Holder, shall promptly
use its commercially reasonable efforts to cause the resale of such Registrable Securities to be covered by either, at the Company’s
option, any then available Shelf (including by means of a post-effective amendment) or by filing a Subsequent Shelf Registration Statement
and cause the same to become effective as soon as practicable after such filing and such Shelf or Subsequent Shelf Registration Statement
shall be subject to the terms hereof; provided, however, that the Company shall only be required to cause such additional
Registrable Securities to be so covered twice per calendar year for each of the Sponsor, the Target Holders and the Director Holders.
2.1.4 Requests
for Underwritten Shelf Takedowns. Subject to Section 3.4, at any time and from time to time when an effective Shelf is on
file with the Commission, the Sponsor or a Target Holder (any of the Sponsor or a Target Holder being in such case, a
“Demanding Holder”) may request to sell all or any portion of its Registrable Securities in an
Underwritten Offering that is registered pursuant to the Shelf (each, an “Underwritten Shelf Takedown”); provided
that the Company shall only be obligated to effect an Underwritten Shelf Takedown if such offering shall include Registrable
Securities proposed to be sold by the Demanding Holder, either individually or together with other Demanding Holders, with a total
offering price reasonably expected to exceed, in the aggregate, $10 million (the “Minimum Takedown
Threshold”). All requests for Underwritten Shelf Takedowns shall be made by giving written notice to the Company,
which shall specify the approximate number of Registrable Securities proposed to be sold in the Underwritten Shelf Takedown. Subject
to Section 2.4.4, the Company shall have the right to select the Underwriters for such offering (which shall consist of one
or more reputable nationally recognized investment banks), subject to the initial Demanding Holder’s prior approval (which
shall not be unreasonably withheld, conditioned or delayed). The Sponsor and the Target Holders may each demand not more than two
(2) Underwritten Shelf Takedowns pursuant to this Section 2.1.4 in any twelve (12) month period, for an aggregate of not more
than six (6) Underwritten Shelf Takedowns pursuant to this Section 2.1.4 in any twelve (12) month period. Notwithstanding
anything to the contrary in this Agreement, the Company may effect any Underwritten Offering pursuant to any then effective
Registration Statement, including a Form S- 3, that is then available for such offering.
2.1.5 Reduction of
Underwritten Offering. If the managing Underwriter or Underwriters in an Underwritten Shelf Takedown, in good faith, advises the
Company, the Demanding Holders and the Holders requesting piggy back rights pursuant to this Agreement with respect to such
Underwritten Shelf Takedown (the “Requesting Holders”) (if any) in writing that the dollar amount or
number of Registrable Securities that the Demanding Holders and the Requesting Holders (if any) desire to sell, taken together with
all other shares of Common Stock or other equity securities that the Company desires to sell and all other shares of Common Stock or
other equity securities, if any, that have been requested to be sold in such Underwritten Offering pursuant to separate written
contractual piggy-back registration rights held by any other stockholders, exceeds the maximum dollar amount or maximum number of
equity securities that can be sold in the Underwritten Offering without adversely affecting the proposed offering price, the timing,
the distribution method, or the probability of success of such offering (such maximum dollar amount or maximum number of such
securities, as applicable, the “Maximum Number of Securities”), then the Company shall include in such
Underwritten Offering, before including any shares of Common Stock or other equity securities proposed to be sold by Company or by
other holders of Common Stock or other equity securities, the Registrable Securities of (i) first, the Demanding Holders that can be
sold without exceeding the Maximum Number of Securities (pro rata based on the respective number of Registrable Securities that each
Demanding Holder has requested be included in such Underwritten Shelf Takedown and the aggregate number of Registrable Securities
that all of the Demanding Holders have requested be included in such Underwritten Shelf Takedown) and (ii) second, to the extent
that the Maximum Number of Securities has not been reached under the foregoing clause (i), the Requesting Holders (if any) (pro rata
based on the respective number of Registrable Securities that each Requesting Holder (if any) has requested be included in such
Underwritten Shelf Takedown and the aggregate number of Registrable Securities that all of the Requesting Holders have requested be
included in such Underwritten Shelf Takedown) that can be sold without exceeding the Maximum Number of Securities.
2.1.6
Withdrawal. Prior to the filing of the applicable “red herring” prospectus or prospectus supplement used for
marketing such Underwritten Shelf Takedown, a majority-in- interest of the Demanding Holders initiating an Underwritten Shelf Takedown
shall have the right to withdraw from such Underwritten Shelf Takedown for any or no reason whatsoever upon written notification (a “Withdrawal
Notice”) to the Company and the Underwriter or Underwriters (if any) of their intention to withdraw from such Underwritten
Shelf Takedown; provided that the Sponsor or a Target Holder may elect to have the Company continue an Underwritten Shelf Takedown
if the Minimum Takedown Threshold would still be satisfied by the Registrable Securities proposed to be sold in the Underwritten Shelf
Takedown by the Sponsor, the Target Holders or any of their respective Permitted Transferees, as applicable. If withdrawn, a demand for
an Underwritten Shelf Takedown shall constitute a demand for an Underwritten Shelf Takedown by the withdrawing Demanding Holder for purposes
of Section 2.1.4, unless either (i) such Demanding Holder has not previously withdrawn any Underwritten Shelf Takedown or (ii)
such Demanding Holder reimburses the Company for all Registration Expenses with respect to such Underwritten Shelf Takedown (or, if there
is more than one Demanding Holder, a pro rata portion of such Registration Expenses based on the respective number of Registrable Securities
that each Demanding Holder has requested be included in such Underwritten Shelf Takedown); provided that, if the Sponsor or a Target
Holder elects to continue an Underwritten Shelf Takedown pursuant to the proviso in the immediately preceding sentence, such Underwritten
Shelf Takedown shall instead count as an Underwritten Shelf Takedown demanded by the Sponsor, or such Target Holder for purposes of Section
2.1.4. Following the receipt of any Withdrawal Notice, the Company shall promptly forward such Withdrawal Notice to any other Holders
that had elected to participate in such Shelf Takedown. Notwithstanding anything to the contrary in this Agreement, the Company shall
be responsible for the Registration Expenses incurred in connection with a Shelf Takedown prior to its withdrawal under this Section
2.1.6, other than if a Demanding Holder elects to pay such Registration Expenses pursuant to clause (ii) of the second sentence of this
Section 2.1.6.
2.2
Piggyback Registration.
2.2.1 Piggyback
Rights. Subject to Section 2.4.3, if the Company or any Holder proposes to conduct a registered offering of, or if the
Company proposes to file a Registration Statement under the Securities Act with respect to the Registration of, equity securities,
or securities or other obligations exercisable or exchangeable for, or convertible into equity securities, for its own account or
for the account of stockholders of the Company (or by the Company and by the stockholders of the Company including, without
limitation, an Underwritten Shelf Takedown pursuant to Section 2.1), other than a Registration Statement (or any registered
offering with respect thereto) (i) filed in connection with any employee stock option or other benefit plan, (ii) pursuant to a
Registration Statement on Form S-4 (or similar form that relates to a transaction subject to Rule 145 under the Securities Act or
any successor rule thereto), (iii) for an offering of debt that is convertible into equity securities of the Company, (iv) for a
dividend reinvestment plan, (v) a Block Trade or (vi) an Other Coordinated Offering, then the Company shall give written notice of
such proposed offering to all of the Holders of Registrable Securities as soon as practicable but not less than ten (10) days before
the anticipated filing date of such Registration Statement or, in the case of an Underwritten Offering pursuant to a Shelf
Registration, the applicable “red herring” prospectus or prospectus supplement used for marketing such offering, which
notice shall (A) describe the amount and type of securities to be included in such offering, the intended method(s) of distribution,
and the name of the proposed managing Underwriter or Underwriters, if any, in such offering, and (B) offer to all of the Holders of
Registrable Securities the opportunity to include in such registered offering such number of Registrable Securities as such Holders
may request in writing within five (5) days after receipt of such written notice (such registered offering, a “Piggyback
Registration”). Subject to Section 2.2.2, the Company shall, in good faith, cause such Registrable Securities
to be included in such Piggyback Registration and, if applicable, shall use its commercially reasonable efforts to cause the
managing Underwriter or Underwriters of such Piggyback Registration to permit the Registrable Securities requested by the Holders
pursuant to this Section 2.2.1 to be included therein on the same terms and conditions as any similar securities of the
Company included in such registered offering and to permit the sale or other disposition of such Registrable Securities in
accordance with the intended method(s) of distribution thereof. The inclusion of any Holder’s Registrable Securities in a
Piggyback Registration shall be subject to such Holder agreement to enter into an underwriting agreement in customary form with the
Underwriter(s) selected for such Underwritten Offering.
2.2.2
Reduction of Piggyback Registration. If the managing Underwriter or Underwriters in an Underwritten Offering that is to
be a Piggyback Registration, in good faith, advises the Company and the Holders of Registrable Securities participating in the Piggyback
Registration in writing that the dollar amount or number of shares of Common Stock or other equity securities that the Company desires
to sell, taken together with (i) the shares of Common Stock or other equity securities, if any, as to which Registration or a registered
offering has been demanded pursuant to separate written contractual arrangements with persons or entities other than the Holders of Registrable
Securities hereunder, (ii) the Registrable Securities as to which registration has been requested pursuant to Section 2.2 hereof,
and (iii) the shares of Common Stock or other equity securities, if any, as to which Registration or a registered offering has been requested
pursuant to separate written contractual piggy-back registration rights of persons or entities other than the Holders of Registrable Securities
hereunder, exceeds the Maximum Number of Securities, then:
(a) if the
Registration or registered offering is undertaken for the Company’s account, the Company shall include in any such
Registration or registered offering (A) first, the shares of Common Stock or other equity securities that the Company desires to
sell, which can be sold without exceeding the Maximum Number of Securities; (B) second, to the extent that the Maximum Number of
Securities has not been reached under the foregoing clause (A), the Registrable Securities of Holders exercising their rights to
register their Registrable Securities pursuant to Section 2.2.1, pro rata, based on the respective number of Registrable
Securities that each Holder has requested be included in such Underwritten Offering and the aggregate number of Registrable
Securities that the Holders have requested to be included in such Underwritten Offering, which can be sold without exceeding the
Maximum Number of Securities; and (C) third, to the extent that the Maximum Number of Securities has not been reached under the
foregoing clauses (A) and (B), the shares of Common Stock or other equity securities, if any, as to which Registration or a
registered offering has been requested pursuant to separate written contractual piggy-back registration rights of persons or
entities other than the Holders of Registrable Securities hereunder, which can be sold without exceeding the Maximum Number of
Securities;
(b) if the
Registration or registered offering is pursuant to a demand by persons or entities other than the Holders of Registrable Securities,
then the Company shall include in any such Registration or registered offering (A) first, the shares of Common Stock or other equity
securities, if any, of such requesting persons or entities, other than the Holders of Registrable Securities, which can be sold
without exceeding the Maximum Number of Securities; (B) second, to the extent that the Maximum Number of Securities has not been
reached under the foregoing clause (A), the Registrable Securities of Holders exercising their rights to register their Registrable
Securities pursuant to Section 2.2.1, pro rata, based on the respective number of Registrable Securities that each Holder has
requested be included in such Underwritten Offering and the aggregate number of Registrable Securities that the Holders have
requested to be included in such Underwritten Offering, which can be sold without exceeding the Maximum Number of Securities; (C)
third, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses (A) and (B), the shares
of Common Stock or other equity securities that the Company desires to sell, which can be sold without exceeding the Maximum Number
of Securities; and (D) fourth, to the extent that the Maximum Number of Securities has not been reached under the foregoing clauses
(A), (B) and (C), the shares of Common Stock or other equity securities, if any, as to which Registration or a registered offering
has been requested pursuant to separate written contractual piggy-back registration rights of persons or entities other than the
Holders of Registrable Securities hereunder, which can be sold without exceeding the Maximum Number of Securities; and
(c)
if the Registration or registered offering and Underwritten Shelf Takedown is pursuant to a request by Holder(s) of Registrable
Securities pursuant to Section 2.1 hereof, then the Company shall include in any such Registration or registered offering securities
in the priority set forth in Section 2.1.5.
2.2.3
Piggyback Registration Withdrawal. Any Holder of Registrable Securities (other than a Demanding Holder, whose right to withdraw
from an Underwritten Shelf Takedown, and related obligations, shall be governed by Section 2.1.6) shall have the right to withdraw
from a Piggyback Registration for any or no reason whatsoever upon written notification to the Company and the Underwriter or Underwriters
(if any) of his, her or its intention to withdraw from such Piggyback Registration prior to the effectiveness of the Registration Statement
filed with the Commission with respect to such Piggyback Registration or, in the case of a Piggyback Registration pursuant to a Shelf
Registration, the filing of the applicable “red herring” prospectus or prospectus supplement with respect to such Piggyback
Registration used for marketing such transaction. The Company (whether on its own good faith determination or as the result of a request
for withdrawal by persons or entities pursuant to separate written contractual obligations) may withdraw a Registration Statement filed
with the Commission in connection with a Piggyback Registration (which, in no circumstance, shall include a Shelf) at any time prior to
the effectiveness of such Registration Statement. Notwithstanding anything to the contrary in this Agreement (other than Section 2.1.6),
the Company shall be responsible for the Registration Expenses incurred in connection with the Piggyback Registration prior to its withdrawal
under this Section 2.2.3.
2.2.4
Unlimited Piggyback Registration Rights. For purposes of clarity, subject to Section 2.1.6, any Piggyback Registration
effected pursuant to Section 2.2 hereof shall not be counted as a demand for an Underwritten Shelf Takedown under Section 2.1.4
hereof.
2.3
Market Stand-off. In connection with any Underwritten Offering of equity securities of the Company (other than a Block Trade
or Other Coordinated Offering), if requested by the managing Underwriters, each Holder that is (a) an executive officer, (b) a director
or (c) Holder in excess of five percent (5%) of the outstanding Common Stock (and for which it is customary for such a Holder to agree
to a lock-up) agrees that it shall not Transfer any shares of Common Stock or other equity securities of the Company (other than those
included in such offering pursuant to this Agreement), without the prior written consent of the Company, during the ninety (90)-day period
(or such shorter time agreed to by the managing Underwriters) beginning on the date of pricing of such offering, except as expressly permitted
by such lock-up agreement or in the event the managing Underwriters otherwise agree by written consent. Each such Holder agrees to execute
a customary lock-up agreement in favor of the Underwriters to such effect (in each case on substantially the same terms and conditions
as all such Holders).
2.4
Block Trades; Other Coordinated Offerings.
2.4.1
Notwithstanding any other provision of this Article II, but subject to Section 3.4, at any time and from time to time
when an effective Shelf is on file with the Commission, if a Demanding Holder wishes to engage in (a) an underwritten registered
offering not involving a “roadshow,” an offer commonly known as a “block trade” (a “Block
Trade”), or (b) an “at the market” or similar registered offering through a broker, sales agent or
distribution agent, whether as agent or principal (an “Other Coordinated Offering”), in each case, (x)
with a total offering price reasonably expected to exceed $10 million in the aggregate or (y) with respect to all remaining
Registrable Securities held by the Demanding Holder, then such Demanding Holder only needs to notify the Company of the Block Trade
or Other Coordinated Offering at least five (5) business days prior to the day such offering is to commence and the Company shall
use its commercially reasonable efforts to facilitate such Block Trade or Other Coordinated Offering; provided that the
Demanding Holders representing a majority of the Registrable Securities wishing to engage in the Block Trade or Other Coordinated
Offering shall use commercially reasonable efforts to work with the Company and any Underwriters, brokers, sales agents or placement
agents prior to making such request in order to facilitate preparation of the registration statement, prospectus and other offering
documentation related to the Block Trade or Other Coordinated Offering.
2.4.2
Prior to the filing of the applicable “red herring” prospectus or prospectus supplement used in connection with a Block
Trade or Other Coordinated Offering, a majority-in- interest of the Demanding Holders initiating such Block Trade or Other Coordinated
Offering shall have the right to submit a Withdrawal Notice to the Company, the Underwriter or Underwriters (if any) and any brokers,
sales agents or placement agents (if any) of their intention to withdraw from such Block Trade or Other Coordinated Offering. Notwithstanding
anything to the contrary in this Agreement, the Company shall be responsible for the Registration Expenses incurred in connection with
a Block Trade or Other Coordinated Offering prior to its withdrawal under this Section 2.4.2.
2.4.3
Notwithstanding anything to the contrary in this Agreement, Section 2.2 shall not apply to a Block Trade or Other Coordinated
Offering initiated by a Demanding Holder pursuant to this Agreement.
2.4.4
The Demanding Holder in a Block Trade or Other Coordinated Offering shall have the right to select the Underwriters and any brokers,
sales agents or placement agents (if any) for such Block Trade or Other Coordinated Offering (in each case, which shall consist of one
or more reputable nationally recognized investment banks).
2.4.5
A Demanding Holder in the aggregate may demand no more than two (2) Block Trades or Other Coordinated Offerings pursuant to this
Section 2.4 in any twelve (12) month period. For the avoidance of doubt, any Block Trade or Other Coordinated Offering effected
pursuant to this Section 2.4 shall not be counted as a demand for an Underwritten Shelf Takedown pursuant to Section 2.1.4
hereof.
2.5
Restrictions on Registration Rights. If the Demanding Holders have requested an Underwritten Offering pursuant to this Agreement
and in the good faith judgment of the majority of the Board such Underwritten Offering would be seriously detrimental to the Company and
the majority of the Board concludes as a result that it is essential to defer the undertaking of such Underwritten Offering at such time,
then in each case the Company shall furnish to such Holders a certificate signed by the Chairman of the Board stating that in the good
faith judgment of the Board it would be seriously detrimental to the Company to undertake such Underwritten Offering in the near future
and that it is therefore essential to defer the undertaking of such Underwritten Offering. In such event, the Company shall have the right
to defer such offering for a period of not more than thirty (30) days; provided, however, that the Company shall not defer its obligations
in this manner more than once in any twelve (12) month period.
ARTICLE
III
COMPANY PROCEDURES
3.1 General
Procedures. In connection with any Shelf and/or Shelf Takedown, the Company shall use its commercially reasonable efforts to
effect such Registration to permit the sale of such Registrable Securities in accordance with the intended plan of distribution
thereof, and pursuant thereto the Company shall:
3.1.1
prepare and file with the Commission as soon as practicable a Registration Statement with respect to such Registrable Securities
and use its commercially reasonable efforts to cause such Registration Statement to become effective and remain effective until all Registrable
Securities covered by such Registration Statement are sold in accordance with the intended plan of distribution set forth in such Registration
Statement or have ceased to be Registrable Securities;
3.1.2 prepare and file
with the Commission such amendments and post-effective amendments to the Registration Statement, and such supplements to the
Prospectus, as may be reasonably requested by any Holder that holds at least five percent (5%) of the Registrable Securities
registered on such Registration Statement or any Underwriter of Registrable Securities or as may be required by the rules,
regulations or instructions applicable to the registration form used by the Company or by the Securities Act or rules and
regulations thereunder to keep the Registration Statement effective until all Registrable Securities covered by such Registration
Statement are sold in accordance with the intended plan of distribution set forth in such Registration Statement or supplement to
the Prospectus or have ceased to be Registrable Securities;
3.1.3 prior
to filing a Registration Statement or Prospectus, or any amendment or supplement thereto, furnish without charge to the Underwriters,
if any, and the Holders of Registrable Securities included in such Registration, and such Holders’ legal counsel, copies of such
Registration Statement as proposed to be filed, each amendment and supplement to such Registration Statement (in each case including all
exhibits thereto and documents incorporated by reference therein), the Prospectus included in such Registration Statement (including each
preliminary Prospectus), and such other documents as the Underwriters and the Holders of Registrable Securities included in such Registration
or the legal counsel for any such Holders may reasonably request in order to facilitate the disposition of the Registrable Securities
owned by such Holders; provided that the Company shall have no obligation to furnish any documents publicly filed or furnished
with the Commission pursuant to the Electronic Data Gathering, Analysis and Retrieval System (“EDGAR”);
3.1.4 prior
to any public offering of Registrable Securities, use its commercially reasonable efforts to (i) register or qualify the Registrable Securities
covered by the Registration Statement under such securities or “blue sky” laws of such jurisdictions in the United States
as the Holders of Registrable Securities included in such Registration Statement (in light of their intended plan of distribution) may
request (or provide evidence satisfactory to such Holders that the Registrable Securities are exempt from such registration or qualification)
and (ii) take such action necessary to cause such Registrable Securities covered by the Registration Statement to be registered with or
approved by such other governmental authorities as may be necessary by virtue of the business and operations of the Company and do any
and all other acts and things that may be necessary or advisable to enable the Holders of Registrable Securities included in such Registration
Statement to consummate the disposition of such Registrable Securities in such jurisdictions; provided, however, that the
Company shall not be required to qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify
or take any action to which it would be subject to general service of process or taxation in any such jurisdiction where it is not then
otherwise so subject;
3.1.5 cause
all such Registrable Securities to be listed on each national securities exchange on which similar securities issued by the Company are
then listed;
3.1.6 provide
a transfer agent or warrant agent, as applicable, and registrar for all such Registrable Securities no later than the effective date of
such Registration Statement;
3.1.7 advise
each seller of such Registrable Securities, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any
stop order by the Commission suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceeding
for such purpose and promptly use its commercially reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal
if such stop order should be issued;
3.1.8 at
least five (5) days prior to the filing of any Registration Statement or Prospectus or any amendment or supplement to such Registration
Statement or Prospectus (or such shorter period of time as may be (a) necessary in order to comply with the Securities Act, the Exchange
Act, and the rules and regulations promulgated under the Securities Act or Exchange Act, as applicable or (b) advisable in order to reduce
the number of days that sales are suspended pursuant to Section 3.4), furnish a copy thereof to each seller of such Registrable
Securities or its counsel (excluding any exhibits thereto and any filing made under the Exchange Act that is to be incorporated by reference
therein);
3.1.9 notify
the Holders at any time when a Prospectus relating to such Registration Statement is required to be delivered under the Securities Act,
of the happening of any event as a result of which the Prospectus included in such Registration Statement, as then in effect, includes
a Misstatement, and then to correct such Misstatement as set forth in Section 3.4;
3.1.10 in
the event of an Underwritten Offering, a Block Trade, an Other Coordinated Offering, or sale by a broker, placement agent or sales agent
pursuant to such Registration, in each of the following cases to the extent customary for a transaction of its type, permit a representative
of the Holders, the Underwriters or other financial institutions facilitating such Underwritten Offering, Block Trade, Other Coordinated
Offering or other sale pursuant to such Registration, if any, and any attorney, consultant or accountant retained by such Holders or Underwriter
to participate, at each such person’s or entity’s own expense, in the preparation of the Registration Statement, and cause
the Company’s officers, directors and employees to supply all information reasonably requested by any such representative, Underwriter,
financial institution, attorney, consultant or accountant in connection with the Registration; provided, however, that such
representatives, Underwriters or financial institutions agree to confidentiality arrangements in form and substance reasonably satisfactory
to the Company, prior to the release or disclosure of any such information;
3.1.11 obtain
a “cold comfort” letter from the Company’s independent registered public accountants in the event of an Underwritten
Offering, a Block Trade, an Other Coordinated Offering or sale by a broker, placement agent or sales agent pursuant to such Registration
(subject to such broker, placement agent or sales agent providing such certification or representation reasonably requested by the Company’s
independent registered public accountants and the Company’s counsel) in customary form and covering such matters of the type customarily
covered by “cold comfort” letters for a transaction of its type as the managing Underwriter may reasonably request, and reasonably
satisfactory to a majority-in-interest of the participating Holders;
3.1.12 in
the event of an Underwritten Offering, a Block Trade, an Other Coordinated Offering or sale by a broker, placement agent or sales agent
pursuant to such Registration, on the date the Registrable Securities are delivered for sale pursuant to such Registration, to the extent
customary for a transaction of its type, obtain an opinion, dated such date, of counsel representing the Company for the purposes of such
Registration, addressed to the participating Holders, the broker, placement agents or sales agent, if any, and the Underwriters, if any,
covering such legal matters with respect to the Registration in respect of which such opinion is being given as the participating Holders,
broker, placement agent, sales agent or Underwriter may reasonably request and as are customarily included in such opinions and negative
assurance letters;
3.1.13 in
the event of any Underwritten Offering, a Block Trade, an Other Coordinated Offering or sale by a broker, placement agent or sales agent
pursuant to such Registration, enter into and perform its obligations under an underwriting or other purchase or sales agreement, in usual
and customary form, with the managing Underwriter or the broker, placement agent or sales agent of such offering or sale;
3.1.14 make
available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve (12)
months beginning with the first day of the Company’s first full calendar quarter after the effective date of the Registration Statement
which satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any successor rule then in effect);
3.1.15 with
respect to an Underwritten Offering pursuant to Section 2.1.4, use its commercially reasonable efforts to make available senior
executives of the Company to participate in customary “road show” presentations that may be reasonably requested by the Underwriter
in such Underwritten Offering; and
3.1.16 otherwise,
in good faith, cooperate reasonably with, and take such customary actions as may reasonably be requested by the participating Holders,
consistent with the terms of this Agreement, in connection with such Registration.
Notwithstanding the foregoing, the Company
shall not be required to provide any documents or information to an Underwriter, broker, sales agent or placement agent if such Underwriter,
broker, sales agent or placement agent has not then been named with respect to the applicable Underwritten Offering or other offering
involving a registration as an Underwriter, broker, sales agent or placement agent, as applicable.
3.2 Registration
Expenses. The Registration Expenses of all Registrations shall be borne by the Company. It is acknowledged by the Holders that the
Holders shall bear all incremental selling expenses relating to the sale of Registrable Securities, such as Underwriters’ commissions
and discounts, brokerage fees and, other than as set forth in the definition of “Registration Expenses,” all fees and expenses
of any legal counsel representing the Holders.
3.3 Requirements
for Participation in Registration Statement in Offerings. Notwithstanding anything in this Agreement to the contrary, if any Holder
does not provide the Company with its requested Holder Information, the Company may exclude such Holder’s Registrable Securities
from the applicable Registration Statement or Prospectus if the Company determines, based on the advice of counsel, that it is necessary
or advisable to include such information in the applicable Registration Statement or Prospectus and such Holder continues thereafter to
withhold such information. In addition, no person or entity may participate in any Underwritten Offering or other offering for equity
securities of the Company pursuant to a Registration initiated by the Company hereunder unless such person or entity (i) agrees to sell
such person’s or entity’s securities on the basis provided in any underwriting, sales, distribution or placement arrangements
approved by the Company and (ii) completes and executes all customary questionnaires, powers of attorney, indemnities, lock-up agreements,
underwriting or other agreements and other customary documents as may be reasonably required under the terms of such underwriting, sales,
distribution or placement arrangements. For the avoidance of doubt, the exclusion of a Holder’s Registrable Securities as a result
of this Section 3.3 shall not affect the registration of the other Registrable Securities to be included in such Registration.
3.4
Suspension of Sales; Adverse Disclosure; Restrictions on Registration Rights.
3.4.1 Upon
receipt of written notice from the Company that a Registration Statement or Prospectus contains a Misstatement, each of the Holders shall
forthwith discontinue disposition of Registrable Securities until it has received copies of a supplemented or amended Prospectus correcting
the Misstatement (it being understood that the Company hereby covenants to prepare and file such supplement or amendment as soon as reasonably
practicable after the time of such notice), or until it is advised in writing by the Company that the use of the Prospectus may be resumed.
3.4.2 Subject
to Section 3.4.4, if the filing, initial effectiveness or continued use of a Registration Statement in respect of any Registration
at any time would (a) require the Company to make an Adverse Disclosure, (b) require the inclusion in such Registration Statement of financial
statements that are unavailable to the Company for reasons beyond the Company’s control, or (c) in the good faith judgment of the
majority of the Board such Registration, be seriously detrimental to the Company and the majority of the Board concludes as a result that
it is essential to defer such filing, initial effectiveness or continued use at such time, the Company may, upon giving prompt written
notice of such action to the Holders (which notice shall not specify the nature of the event giving rise to such delay or suspension),
delay the filing or initial effectiveness of, or suspend use of, such Registration Statement for the shortest period of time determined
in good faith by the Company to be necessary for such purpose. In the event the Company exercises its rights under this Section
3.4.2, the Holders agree to suspend, immediately upon their receipt of the notice referred to above, their use of the Prospectus relating
to any Registration in connection with any sale or offer to sell Registrable Securities until such Holder receives written notice from
the Company that such sales or offers of Registrable Securities may be resumed, and in each case maintain the confidentiality of such
notice and its contents.
3.4.3
Subject to Section 3.4.4, (a) during the period starting with the date sixty (60) days prior to the Company’s good
faith estimate of the date of the filing of, and ending on a date one hundred and twenty (120) days after the effective date of, a
Company-initiated Registration and provided that the Company continues to actively employ, in good faith, all commercially
reasonable efforts to maintain the effectiveness of the applicable Shelf Registration Statement, or (b) if, pursuant to Section 2.1.4,
Holders have requested an Underwritten Shelf Takedown and the Company and Holders are unable to obtain the commitment of
underwriters to firmly underwrite such offering, the Company may, upon giving prompt written notice of such action to the Holders,
delay any other registered offering pursuant to Section 2.1.4 or 2.4.
3.4.4 The
right to delay or suspend any filing, initial effectiveness or continued use of a Registration Statement pursuant to Section 3.4.2
or a registered offering pursuant to Section 3.4.3 shall be exercised by the Company, in the aggregate (taking into account any
period of deferral pursuant to Section 2.5), for not more than ninety (90) consecutive calendar days or more than one hundred and twenty
(120) total calendar days in each case, during any twelve (12)- month period.
3.5 Reporting
Obligations. As long as any Holder shall own Registrable Securities, the Company, at all times while it shall be a reporting company
under the Exchange Act, covenants to file timely (or obtain extensions in respect thereof and file within the applicable grace period)
all reports required to be filed by the Company after the date hereof pursuant to Sections 13(a) or 15(d) of the Exchange Act and to promptly
furnish the Holders with true and complete copies of all such filings; provided that any documents publicly filed or furnished
with the Commission pursuant to EDGAR shall be deemed to have been furnished or delivered to the Holders pursuant to this Section 3.5.
The Company further covenants that it shall take such further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Holder to sell shares of Common Stock held by such Holder without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act (or any successor rule then in effect).
Upon the request of any Holder, the Company shall deliver to such Holder a written certification of a duly authorized officer as to whether
it has complied with such requirements.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
4.1
Indemnification.
4.1.1 The
Company agrees to indemnify, to the extent permitted by law, each Holder of Registrable Securities, its officers, directors and agents
and each person or entity who controls such Holder (within the meaning of the Securities Act), against all losses, claims, damages, liabilities
and out-of-pocket expenses (including, without limitation, reasonable and documented outside attorneys’ fees) resulting from any
untrue or alleged untrue statement of material fact contained in or incorporated by reference in any Registration Statement, Prospectus
or preliminary Prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained
in any information or affidavit so furnished in writing to the Company by such Holder expressly for use therein. The Company shall indemnify
the Underwriters, their officers and directors and each person or entity to controls such Underwriters (within the meaning of the Securities
Act) to the same extent as provided in the foregoing with respect to the indemnification of the Holder.
4.1.2 In connection
with any Registration Statement in which a Holder of Registrable Securities is participating, such Holder shall furnish (or cause to
be furnished) to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with
any such Registration Statement or Prospectus (the “Holder Information”) and, to the extent permitted by law,
shall indemnify the Company, its directors, officers and agents and each person or entity who controls the Company (within the meaning
of the Securities Act) against all losses, claims, damages, liabilities and out-of-pocket expenses (including, without limitation, reasonable
and documented outside attorneys’ fees) resulting from any untrue or alleged untrue statement of material fact contained or incorporated
by reference in any Registration Statement, Prospectus or preliminary Prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading,
but only to the extent that such untrue statement is contained in (or not contained in, in the case of an omission) any information or
affidavit so furnished in writing by or on behalf of such Holder expressly for use therein; provided, however, that the obligation
to indemnify shall be several, not joint and several, among such Holders of Registrable Securities, and the liability of each such Holder
of Registrable Securities shall be in proportion to and limited to the net proceeds received by such Holder from the sale of Registrable
Securities pursuant to such Registration Statement. The Holders of Registrable Securities shall indemnify the Underwriters, their officers,
directors and each person or entity who controls such Underwriters (within the meaning of the Securities Act) to the same extent as provided
in the foregoing with respect to indemnification of the Company.
4.1.3 Any
person or entity entitled to indemnification herein shall (i) give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any person’s or entity’s
right to indemnification hereunder to the extent such failure has not materially prejudiced the indemnifying party) and (ii) unless in
such indemnified party’s reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist
with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to
the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled
to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party
a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim.
No indemnifying party shall, without the consent of the indemnified party, consent to the entry of any judgment or enter into any settlement
which cannot be settled in all respects by the payment of money (and such money is so paid by the indemnifying party pursuant to the terms
of such settlement) or which settlement includes a statement or admission of fault and culpability on the part of such indemnified party
or which settlement does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation.
4.1.4 The
indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling person or entity of such indemnified party and shall survive the
transfer of securities. The Company and each Holder of Registrable Securities participating in an offering also agrees to make such provisions
as are reasonably requested by any indemnified party for contribution to such party in the event the Company’s or such Holder’s
indemnification is unavailable for any reason.
4.1.5 If the indemnification
provided under Section 4.1 from the indemnifying party is unavailable or insufficient to hold harmless an indemnified party in
respect of any losses, claims, damages, liabilities and out-of-pocket expenses referred to herein, then the indemnifying party, in lieu
of indemnifying the indemnified party, shall contribute to the amount paid or payable by the indemnified party as a result of such losses,
claims, damages, liabilities and out-of-pocket expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying
party and the indemnified party, as well as any other relevant equitable considerations. The relative fault of the indemnifying party
and indemnified party shall be determined by reference to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to state a material fact, was made by (or not made by, in
the case of an omission), or relates to information supplied by (or not supplied by in the case of an omission), such indemnifying party
or indemnified party, and the indemnifying party’s and indemnified party’s relative intent, knowledge, access to information
and opportunity to correct or prevent such action; provided, however, that the liability of any Holder under this Section
4.1.5 shall be limited to the amount of the net proceeds received by such Holder in such offering giving rise to such liability.
The amount paid or payable by a party as a result of the losses or other liabilities referred to above shall be deemed to include, subject
to the limitations set forth in Sections 4.1.1, 4.1.2 and 4.1.3 above, any legal or other fees, charges or out-of-pocket expenses
reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 4.1.5 were determined by pro rata allocation or by any other method of
allocation, which does not take account of the equitable considerations referred to in this Section 4.1.5. No person or entity
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution
pursuant to this Section 4.1.5 from any person or entity who was not guilty of such fraudulent misrepresentation.
ARTICLE V
LOCK-UP
5.1 Lock-Up.
Subject to Section 5.2, each Lock-up Party agrees that it shall not Transfer any Lock-up Shares prior to the end of the
Lock-up Period (the “Lock-up”).
5.2 Permitted
Transferees. Notwithstanding the provisions set forth in Section 5.1, each Lock-up Party may Transfer the Lock-up Shares
during the Lock-up Period (a) to (i) the Company’s officers or directors, (ii) any affiliates or family members of the
Company’s officers or directors, (iii) any direct or indirect partners, members or equity holders of such Lock-up Party, or
any related investment funds or vehicles controlled or managed by such persons or entities or their respective affiliates, or (iv)
any other Lock-up Party or any direct or indirect partners, members or equity holders of such other Lock-up Party, any affiliates of
such other Lock-up Party or any related investment funds or vehicles controlled or managed by such persons or entities or their
respective affiliates; (b) in the case of an individual, by gift to a member of the individual’s immediate family or to a
trust, the beneficiary of which is a member of the individual’s immediate family or an affiliate of such person or entity, or
to a charitable organization; (c) in the case of an individual, by virtue of laws of descent and distribution upon death of the
individual; (d) in the case of an individual, pursuant to a qualified domestic relations order; (e) to the partners, members or
equity holders of such Lock-up Party by virtue of the Lock-up Party’s organizational documents, as amended, upon dissolution
of the Lock-up Party; (f) in connection with any bona fide mortgage, encumbrance or pledge to a financial institution in connection
with any bona fide loan or debt transaction or enforcement thereunder; (g) to the Company; or (h) in connection with a liquidation,
merger, stock exchange, reorganization, tender offer approved by the Board or a duly authorized committee thereof or other similar
transaction which results in all of the Company’s stockholders having the right to exchange their shares of Common Stock for
cash, securities or other property subsequent to the Closing Date. The parties acknowledge and agree that any Permitted Transferee
of a Lock-up Party shall be subject to the transfer restrictions set forth in this ARTICLE V with respect to the Lock-Up
Shares upon and after acquiring such Lock-Up Shares.
5.3 Termination
of Existing Lock-Up. The lock-up provisions in this ARTICLE V shall supersede the lock-up provisions contained in Section 7
of the Insider Letter, which provisions in Section 7 of the Insider Letter shall be of no further force or effect as of the date of this
Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Notices.
Any notice or communication under this Agreement must be in writing and given by (i) deposit in the United States mail, addressed to
the party to be notified, postage prepaid and registered or certified with return receipt requested, (ii) delivery in person or by
courier service providing evidence of delivery, or (iii) transmission by hand delivery, electronic mail or facsimile. Each notice or
communication that is mailed, delivered, or transmitted in the manner described above shall be deemed sufficiently given, served,
sent, and received, in the case of mailed notices, on the third business day following the date on which it is mailed and, in the
case of notices delivered by courier service, hand delivery, electronic mail or facsimile, at such time as it is delivered to the
addressee (with the delivery receipt or the affidavit of messenger) or at such time as delivery is refused by the addressee upon
presentation. Any notice or communication under this Agreement must be addressed, if to the Company, to: Spectral MD Holdings, Ltd.,
2515 McKinney Avenue, Suite 1000, Dallas, TX 75204, Attention: Vincent S. Capone or by email: capone@spectralmd.com, and, if to any
Holder, at such Holder’s address, electronic mail address or facsimile number as set forth in the Company’s books and
records. Any party may change its address for notice at any time and from time to time by written notice to the other parties
hereto, and such change of address shall become effective thirty (30) days after delivery of such notice as provided in this Section 6.1.
6.2
Assignment; No Third Party Beneficiaries.
6.2.1 This
Agreement and the rights, duties and obligations of the Company hereunder may not be assigned or delegated by the Company in whole or
in part.
6.2.2 Subject
to Section 6.2.4 and Section 6.2.5, this Agreement and the rights, duties and obligations of a Holder hereunder may be assigned
in whole or in part to such Holder’s Permitted Transferees to which it transfers Registrable Securities; provided that with
respect to the Target Holders and the Sponsor, the rights hereunder that are personal to such Holders may not be assigned or delegated
in whole or in part, except that (i) each of the Target Holders shall be permitted to transfer its rights hereunder as the Target Holders
to one or more affiliates or any direct or indirect partners, members or equity holders of such Target Holder (it being understood that
no such transfer shall reduce or multiply any rights of such Target Holder or such transferees), and (ii) the Sponsor shall be
permitted to transfer its rights hereunder as the Sponsor to one or more affiliates or any direct or indirect partners, members or equity
holders of the Sponsor (including the Sponsor Members), which, for the avoidance of doubt, shall include a transfer of its rights in connection
with a distribution of any Registrable Securities held by Sponsor to its members (it being understood that no such transfer shall reduce
or multiply any rights of the Sponsor or such transferees). Upon a transfer by the Sponsor pursuant to subsection (ii) to the Sponsor
Members, the rights that are personal to the Sponsor shall be exercised by the Sponsor Members only with the consent of the Sponsor Managers.
6.2.3 This
Agreement and the provisions hereof shall be binding upon and shall inure to the benefit of each of the parties and its successors and
the permitted assigns of the Holders, which shall include Permitted Transferees.
6.2.4 This
Agreement shall not confer any rights or benefits on any persons or entities that are not parties hereto, other than as expressly set
forth in this Agreement and Section 6.2.
6.2.5 No
assignment by any party hereto of such party’s rights, duties and obligations hereunder shall be binding upon or obligate the Company
unless and until the Company shall have received (i) written notice of such assignment as provided in Section 6.1 hereof and (ii)
the written agreement of the assignee, in a form reasonably satisfactory to the Company, to be bound by the terms and provisions of this
Agreement (which may be accomplished by an addendum or certificate of joinder to this Agreement, including the joinder in the form of
Exhibit A attached hereto). Any transfer or assignment made other than as provided in this Section 6.2 shall be null and
void.
6.3 Counterparts.
This Agreement may be executed in multiple counterparts (including facsimile or PDF counterparts), each of which shall be deemed an original,
and all of which together shall constitute the same instrument, but only one of which need be produced.
6.4 Governing
Law; Venue. NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE
THAT (1) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK AND (2) THE VENUE FOR ANY ACTION TAKEN
WITH RESPECT TO THIS AGREEMENT SHALL BE ANY STATE OR FEDERAL COURT IN NEW YORK COUNTY IN THE STATE OF NEW YORK
6.5 TRIAL
BY JURY. EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND, THEREFORE, EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY ACTION DIRECTLY OR INDIRECTLY ARISING
OUT OF, UNDER OR IN CONNECTION WITH OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
6.6 Amendments
and Modifications. Upon the written consent of (a) the Company and (b) the Holders of a majority of the total Registrable
Securities, compliance with any of the provisions, covenants and conditions set forth in this Agreement may be waived, or any of
such provisions, covenants or conditions may be amended or modified; provided, however, that notwithstanding the
foregoing, any amendment hereto or waiver hereof shall also require the written consent of the Sponsor so long as the Sponsor and
its affiliates hold, in the aggregate, at least three percent (3%) of the outstanding shares of Common Stock of the Company; provided, further,
that notwithstanding the foregoing, any amendment hereto or waiver hereof shall also require the written consent of each Target
Holder so long as such Target Holder and its respective affiliates hold, in the aggregate, at least three percent (3%) of the
outstanding shares of Common Stock of the Company; and provided, further, that any amendment hereto or waiver hereof
that adversely affects one Holder, solely in its capacity as a holder of the shares of capital stock of the Company, in a manner
that is materially different from the other Holders (in such capacity) shall require the consent of the Holder so affected. No
course of dealing between any Holder or the Company and any other party hereto or any failure or delay on the part of a Holder or
the Company in exercising any rights or remedies under this Agreement shall operate as a waiver of any rights or remedies of any
Holder or the Company. No single or partial exercise of any rights or remedies under this Agreement by a party shall operate as a
waiver or preclude the exercise of any other rights or remedies hereunder or thereunder by such party.
6.7 Other
Registration Rights. Other than as provided in the Warrant Agreement, dated as of February 11, 2021 between the Company and Continental
Stock Transfer & Trust Company, the Company represents and warrants that no person or entity, other than a Holder of Registrable Securities,
has any right to require the Company to register any securities of the Company for sale or to include such securities of the Company in
any Registration Statement filed by the Company for the sale of securities for its own account or for the account of any other person
or entity. The Company hereby agrees and covenants that it will not grant rights to register any Common Stock (or securities convertible
into or exchangeable for Common Stock) pursuant to the Securities Act that are more favorable, pari passu or senior to those granted to
the Holders hereunder without (a) the prior written consent of (i) the Sponsor, for so long as the Sponsor and its affiliates hold, in
the aggregate, at least three percent (3%) of the outstanding shares of Common Stock of the Company and (ii) a Target Holder, for
so long as such Target Holder and its affiliates hold, in the aggregate, at least three percent (3%) of the outstanding shares of Common
Stock of the Company; or (b) granting economically and legally equivalent rights to the Holders hereunder such that the Holders shall
receive the benefit of such more favorable or senior terms and/or conditions. Further, the Company represents and warrants that this Agreement
supersedes any other registration rights agreement or agreement with similar terms and conditions and in the event of a conflict between
any such agreement or agreements and this Agreement, the terms of this Agreement shall prevail.
6.8 Term.
This Agreement shall terminate on the earlier of (a) the tenth (10th) anniversary of the date of this Agreement and (b) with
respect to any Holder, on the date that such Holder no longer holds any Registrable Securities. The provisions of Section 3.5 and
Article IV shall survive any termination.
6.9 Holder
Information. Each Holder agrees, if requested in writing, to represent to the Company the total number of Registrable Securities held
by such Holder in order for the Company to make determinations hereunder.
6.10 Additional
Holders; Joinder. In addition to persons or entities who may become Holders pursuant to Section 6.2 hereof, subject to the
prior written consent of each of the Sponsor and each Target Holder (so long as such Holder and its affiliates hold, in the aggregate,
at least three percent (3%) of the outstanding shares of Common Stock of the Company), the Company may make any person or entity who acquires
Common Stock or rights to acquire Common Stock after the date hereof a party to this Agreement (each such person or entity, an “Additional
Holder”) by obtaining an executed joinder to this Agreement from such Additional Holder in the form of Exhibit A attached
hereto (a “Joinder”). Such Joinder shall specify the rights and obligations of the applicable Additional Holder
under this Agreement. Upon the execution and delivery and subject to the terms of a Joinder by such Additional Holder, the Common Stock
then owned, or underlying any rights then owned, by such Additional Holder (the “Additional Holder Common Stock”)
shall be Registrable Securities to the extent provided herein and therein and such Additional Holder shall be a Holder under this Agreement
with respect to such Additional Holder Common Stock.
6.11 Severability.
It is the desire and intent of the parties that the provisions of this Agreement be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision,
as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity
or enforceability of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding
the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction,
it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting
the validity or enforceability of such provision in any other jurisdiction.
6.12 Entire
Agreement; Restatement. This Agreement constitutes the full and entire agreement and understanding between the parties with respect
to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. Upon the Closing,
the Original RRA shall no longer be of any force or effect.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the undersigned have
caused this Agreement to be executed as of the date first written above.
|
COMPANY: |
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Spectral AI, Inc. |
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a Delaware corporation |
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By: |
/s/ Wensheng Fan |
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Name: |
Wensheng Fan |
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Title: |
Chief Executive Officer |
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HOLDERS: |
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Rosecliff Acquisition Sponsor I LLC |
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By: Rosecliff Credit Opportunity Fund I, L.P., its Managing Member |
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|
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By: Rosecliff Credit Opportunity Fund I GP, LLC, its General Partner |
|
By: |
/s/ Michael P. Murphy |
|
|
Name: |
Michael P. Murphy |
|
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Title: |
Managing Member |
|
/s/ Brian Radecki |
|
Brian Radecki |
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/s/ Franklin S. Edmonds, Jr. |
|
Franklin S. Edmonds, Jr. |
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/s/ Heather Bellini |
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Heather Bellini |
[Signature Page to Amended
and Restated Registration Rights Agreement]
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TARGET HOLDERS |
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ELS 1960 Family, L.P. |
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a Texas limited partnership |
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|
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By: |
/s/ Erich Spangenberg |
|
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Name: |
Erich Spangenberg |
|
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Title: |
Majority Limited Partner |
|
/s/ Erich Spangenberg |
|
Erich Spangenberg |
|
/s/ Wensheng Fan |
|
Wensheng Fan |
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/s/ Richard John Cotton |
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Richard John Cotton |
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/s/ Jeffrey Thatcher |
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Jeffrey Thatcher |
|
/s/ John Michael DiMaio |
|
John Michael DiMaio |
[Signature Page to Amended
and Restated Registration Rights Agreement]
Schedule 1
Target
Holders
Erich Spangenberg
ELS 1960 Family, L.P.
Wensheng Fan
Richard John Cotton
Jeffrey Thatcher
John Michael DiMaio
Exhibit A
REGISTRATION RIGHTS AGREEMENT
JOINDER
The undersigned is
executing and delivering this joinder (this “Joinder”) pursuant to the Amended and Restated Registration Rights
Agreement, dated as of September 11, 2023 (as the same may hereafter be amended, the “Registration Rights Agreement”),
among Spectral AI, Inc., a Delaware corporation (the “Company”), and the other persons or entities named as
parties therein. Capitalized terms used but not otherwise defined herein shall have the meanings provided in the Registration Rights Agreement.
By executing and delivering
this Joinder to the Company, and upon acceptance hereof by the Company upon the execution of a counterpart hereof, the undersigned hereby
agrees to become a party to, to be bound by, and to comply with the Registration Rights Agreement as a Holder of Registrable Securities
in the same manner as if the undersigned were an original signatory to the Registration Rights Agreement, and the undersigned’s
shares of Common Stock shall be included as Registrable Securities under the Registration Rights Agreement to the extent provided therein.
Accordingly, the undersigned
has executed and delivered this Joinder as of the day of , 20 .
|
|
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Signature of Stockholder |
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Print Name of Stockholder |
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Its: |
|
|
|
Address: |
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|
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Agreed and Accepted as of
__________, 20__ |
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[●] |
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By: |
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Name: |
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Its: |
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|
Exhibit 14.1
SPECTRAL AI, INC.
CODE OF ETHICS AND BUSINESS CONDUCT
Effective: September11, 2023
The board of directors (the
“Board”) of Spectral AI, Inc., a Delaware corporation (the “Company”) has adopted
this Code of Ethics and Business Conduct (the “Code”) in order to:
| 1. | promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of
interest; |
| 2. | promote full, fair, accurate, timely and understandable disclosure in reports and documents that the Company
files with, or submits to, the Securities and Exchange Commission (the “SEC”) and in other public communications
made by the Company; |
| 3. | promote compliance with applicable governmental laws, rules and regulations; |
| 4. | promote the protection of Company assets, including corporate opportunities and confidential information; |
| 5. | promote fair dealing practices; |
| 7. | ensure accountability for adherence to the Code. |
All directors, officers and
employees are required to be familiar with the Code, comply with its provisions and report any suspected violations as described below
in Section X, Reporting and Enforcement.
| II. | Honest
and Ethical Conduct |
| 1. | The Company’s policy is to promote high standards of integrity by conducting its affairs honestly
and ethically. |
| 2. | Each director, officer and employee must act with integrity and observe the highest ethical standards
of business conduct in their dealings with the Company’s customers, suppliers, partners, service providers, competitors, employees
and anyone else with whom they have contact in the course of performing their job. |
| III. | Conflicts
of Interest |
| 1. | A conflict of interest occurs when an individual’s private interest (or the interest of a member
of their family) interferes, or even appears to interfere, with the interests of the Company as a whole. A conflict of interest can arise
when an employee, officer or director (or a member of their family) takes actions or has interests that may make it difficult to perform
their work for the Company objectively and effectively. Conflicts of interest also arise when an employee, officer or director (or a member
of their family) receives improper personal benefits as a result of their position in the Company. |
| 2. | Loans by the Company to, or guarantees by the Company of obligations of, employees or their family members
are of special concern and could constitute improper personal benefits to the recipients of such loans or guarantees, depending on the
facts and circumstances. Loans by the Company to, or guarantees by the Company of obligations of, any director or executive officer or
their family members are expressly prohibited. |
| 3. | Whether or not a conflict of interest exists or will exist can be unclear. Conflicts of interest should
be avoided unless specifically authorized as described in Section III.4. |
| 4. | Persons other than directors and executive officers who have questions about a potential conflict of interest
or who become aware of an actual or potential conflict should discuss the matter with, and seek a determination and prior authorization
or approval from, their supervisor or the Legal Department. A supervisor may not authorize or approve conflict of interest matters or
make determinations as to whether a problematic conflict of interest exists without first providing the Chief Compliance Officer with
a written description of the activity and seeking the Legal Department’s written approval. If the supervisor/ is themself involved
in the potential or actual conflict, the matter should instead be discussed directly with the Legal Department. |
| 5. | Directors and executive officers must seek determinations and prior authorizations or approvals of potential
conflicts of interest exclusively from the Audit Committee. |
| 1. | Employees, officers and directors should comply,
both in letter and spirit, with all applicable laws, rules and regulations in the cities, states and countries in which the Company operates. |
| 2. | Although not all employees, officers and directors are expected to know the details of all applicable
laws, rules and regulations, it is important to know enough to determine when to seek advice from appropriate personnel. Questions about
compliance should be addressed to the Legal Department. |
| 3. | No director, officer or employee may purchase or sell any Company securities while in possession of material
nonpublic information regarding the Company, nor may any director, officer or employee purchase or sell another company’s securities
while in possession of material nonpublic information regarding that company. It is against Company policies and illegal for any director,
officer or employee to use material nonpublic information regarding the Company or any other company to (1) obtain profit for himself
or herself or (2) directly or indirectly “tip” others who might make an investment decision on the basis of that information. |
| 1. | The Company’s periodic reports and other documents filed with the Securities Exchange Commission
(the “SEC”), including all financial statements and other financial information, must comply with applicable
federal securities laws and SEC rules. |
| 2. | Each director, officer and employee who contributes in any
way to the preparation or verification of the Company’s financial statements and other financial information must ensure that the
Company’s books, records and accounts are accurately maintained. Each director, officer and employee must cooperate fully with
the Company’s accounting and internal audit departments, as well as the Company’s independent public accountants and counsel. |
| 3. | Each director, officer and employee who is involved in the
Company’s disclosure process must: |
| (a) | be familiar with and comply with the Company’s disclosure controls and procedures and its internal
control over financial reporting; and |
| (b) | take all necessary steps to ensure that all filings with the SEC and all other public communications about
the financial and business condition of the Company provide full, fair, accurate, timely and understandable disclosure. |
| VI. | Protection
and Proper Use of Company Assets |
| 1. | All directors, officers and employees should protect the
Company’s assets and ensure their efficient use. Theft, carelessness and waste have a direct impact on the Company’s profitability
and are prohibited. |
| 2. | All Company assets should be used only for legitimate business
purposes, though incidental personal use may be permitted. Any suspected incident of fraud or theft should be reported for investigation
immediately. |
| 3. | The obligation to protect Company assets includes the Company’s
proprietary information. Proprietary information includes intellectual property such as trade secrets, patents, trademarks, and copyrights,
as well as business and marketing plans, engineering and manufacturing ideas, designs, databases, records and any nonpublic financial
data or reports. Unauthorized use or distribution of this information is prohibited and could also be illegal and result in civil or
criminal penalties. |
| VII. | Corporate
Opportunities |
All directors, officers and
employees owe a duty to the Company to advance its interests when the opportunity arises. Directors, officers and employees are prohibited
from taking for themselves personally (or for the benefit of friends or family members) opportunities that are discovered through the
use of Company assets, property, information or position. Directors, officers and employees may not use Company assets, property, information
or position for personal gain (including gain of friends or family members). In addition, no director, officer or employee may compete
with the Company.
Directors, officers and employees
should maintain the confidentiality of information entrusted to them by the Company or by its customers, suppliers or partners, except
when disclosure is expressly authorized or is required or permitted by law. Confidential information includes all nonpublic information
(regardless of its source) that might be of use to the Company’s competitors or harmful to the Company or its customers, suppliers
or partners if disclosed.
Each director, officer and
employee must deal fairly with the Company’s customers, suppliers, partners, service providers, competitors, employees and anyone
else with whom they have contact in the course of performing their job. No director, officer or employee may take unfair advantage of
anyone through manipulation, concealment, abuse of privileged information, misrepresentation of facts or any other unfair dealing practice.
| X. | Reporting
and Enforcement |
Reporting and Investigation
of Violations
| 1. | Actions prohibited by this Code involving directors or executive officers must be reported to the Audit
Committee. |
| 2. | Actions prohibited by this Code involving anyone other than a director or executive officer must be reported
to the reporting person’s supervisor or the Legal Department. |
| 3. | After receiving a report of an alleged prohibited action, the Audit Committee, the relevant supervisor
or the Legal Department must promptly take all appropriate actions necessary to investigate. |
| 4. | All directors, officers and employees are expected to cooperate in any internal investigation of misconduct. |
Enforcement
| 1. | The Company must ensure prompt and consistent action against violations of this Code. |
| 2. | If, after investigating a report of an alleged prohibited action by a director or executive officer, the
Audit Committee determines that a violation of this Code has occurred, the Audit Committee will report such determination to the Board. |
| 3. | If, after investigating a report of an alleged prohibited action by any other person, the relevant supervisor
or the Legal Department determines that a violation of this Code has occurred, the supervisor or the Legal Department will report such
determination to the General Counsel. |
| 4. | Upon receipt of a determination that there has been a violation of this Code, the Board or the General
Counsel will take such preventative or disciplinary action as it deems appropriate, including, but not limited to, reassignment, demotion,
dismissal and, in the event of criminal conduct or other serious violations of the law, notification of appropriate governmental authorities. |
Waivers
| 1. | Each of the Board or the Company’s other independent committees (in the case of a violation by a
director or executive officer) and the General Counsel (in the case of a violation by any other person) may, in its discretion, waive
any violation of this Code. |
| 2. | Any waiver for a director or an executive officer shall be disclosed as required by Securities Exchange
Commission and Nasdaq Stock Market LLC’s rules. |
Prohibition on Retaliation
| 1. | The Company does not tolerate acts of retaliation against any director, officer or employee who makes
a good faith report of known or suspected acts of misconduct or other violations of this Code. |
Adopted: |
September 11, 2023 |
5
Exhibit
16.1
September
15, 2023
Office
of the Chief Accountant
Securities
and Exchange Commission
100
F Street, NE
Washington,
DC 20549
United
States of America
Ladies
and Gentlemen:
We
have read the statements made by Spectral AI, Inc. (formerly Rosecliff Acquisition Corp. I) under Item 4.01(a) of its Form 8-K dated
September 15, 2023 and are in agreement with the statements concerning our Firm contained therein; we are not in a position to agree
or disagree with other statements contained in any other section in the Form 8-K.
Very
truly yours,
/s/
WithumSmith+Brown, PC
New
York, New York
Exhibit 99.1
SPECTRAL’S MANAGEMENT’S DISCUSSION
AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless
otherwise indicated or the context otherwise requires, references in this section to “we,” “our,” “us”
or other similar terms refer to the business and operations of Legacy Spectral
MD Holdings, Ltd., and its subsidiaries prior to the business combination
with Rosecliff Acquisition Corp I (“Rosecliff”). The following discussion
and analysis of our financial condition and results of operations should be read in conjunction with our unaudited quarterly condensed
financial statements and related notes included elsewhere in this Form 8-K, as well as our audited annual consolidated financial statements
and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as of and for the years ended
December 31, 2022 and 2021 included in Rosecliff’s final prospectus,
as amended, on form S-4/A filed with the Securities and Exchange Commission
(“SEC”) on August 10, 2023 (the ‘Prospectus”).
In addition to historical data, this discussion contains forward-looking statements about our business, results of operations, cash
flows, financial condition and prospects based on current expectations that involve risks, uncertainties and assumptions. Our actual results
could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include,
but are not limited to, those identified below and those discussed in the sections titled “Risk Factors” and “Cautionary
Note Regarding Forward-Looking Statements” included in the Prospectus. Additionally, our historical results are not necessarily
indicative of the results that may be expected for any period in the future.
Overview
We are an AI company focused
on predictive medical diagnostics. We operate in one segment. We are devoting substantially all of our efforts towards research and development
of our DeepView System, an internally developed MSI device which has designated FDA BDD status. Our DeepView System uses proprietary algorithms
to distinguish between damaged and healthy human tissue invisible to the naked eye, providing “Day One” healing assessments.
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. In 2022 and 2023, we expanded
our focus to include the diabetic foot ulcer (“DFU”) indication.
In the case of DFUs, a non-healing assessment
would provide the physician with the appropriate justifications to use an advanced wound care therapy on “Day One”, in seconds,
as opposed to the current approach that involves waiting up to 30 days to see how the wound develops before making such clinical assessment.
For
burn wounds, a non-healing assessment could aid the clinician in making an immediate and objective determination for appropriate
candidates for surgery as well as determining what specific areas of the burn wound will require excision and skin grafting. DeepView’s
current accuracy for burn wounds is 92% for adults and 88% for pediatrics, compared with current physician accuracy 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, reporting
at 70-80% accuracy, and non-burn specialist physicians, reporting at 50-60% accuracy.2 We have conducted three large
clinical studies with multiple sites across the United States, enrolling 413 patients, including 329 adult burn patients and 84 pediatric
patients. Through these studies, we were able to identify the burn assessment accuracy in both surgery and non-surgical treatment.
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. 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. Carter, MD, FACS, et.al., https://clinicaltrials.gov/ct2/show/NCT05023135. |
We have not generated any product
revenue to date. We have received substantial support from the U.S. government for our DeepView System’s application for burn
wounds, including from agencies such as BARDA, which is part of the HHS Office of the Assistant Secretary for Preparedness and Response
in the United States, established to aid in securing the United States from chemical, biological, radiological, and nuclear
threats, as well as from pandemic influenza and emerging infectious diseases. We have also received funding from the NSF, NIH and the
DHA. Since 2013, we have received approximately $130.0 million in funding from government contracts, primarily from BARDA, which
accounts for $122.9 million. This has allowed us to develop our technology and further our clinical trials. We are currently in our
second contract with BARDA, referred to as BARDA Burn II, which was signed in July 2019 and is due to be completed in July 2024.
Under this contract, we expect to further the DeepView System design, develop the AI algorithm, and take the necessary steps to obtain
FDA approval for our DeepView GEN 3 System. However, approval from the FDA or other regulatory agencies, foreign or domestic, cannot be
guaranteed and may take longer than planned. In August 2022, we also received the Option 1B extension of the BARDA Burn II contract,
which is valued at an additional $8.2 million, bringing the total funding received from Option 1 of the BARDA Burn II contract to
a total of $47.6 million from July 2021 under Option 1A and 1B (including modification), to execute the adult and pediatric multi-center clinical
training study. This grant funding is non-dilutive to our shareholders, and we believe it validates the important nature of its mission
and technology.
In April 2023, we received
a $4.0 million grant award from the Medical Technology Enterprise Consortium (“MTEC”), which, building on prior awards
from DHA, is to be used to support military battlefield burn evaluation via a handheld DeepView. The MTEC Agreement extends the DHA Phase
II contract for the development of the handheld device of the DeepView System. Under the terms of the MTEC Agreement, MTEC will pay us
a firm fixed fee based upon our achievement of certain milestones described in the agreement through April 5, 2025. The milestone
payment schedule is based on a three phased approach to the development of our handheld device. Phase 1 of the MTEC Agreement began in
April 2023 and is scheduled to extend through at least July 2023 and is focused on the planning, design and testing of the handheld device
for its intended applications. Phase 1 has a funding budget of $1,170,000. Once Phase 1 is completed, Phase 2 is intended to run through
October 2024 and encompasses the development, design modification and build-out of the handheld device to the U.S. government standards
as identified in the design and commercialization plans for the device. Phase 2 has a funding budget of $1,558,000. Phase 3 of the MTEC
Agreement addresses the complete manufacturing of the device, the process validation of the production and completion of up to thirty
handheld devices. Phase 3 begins following completion of Phase 2 and is intended to run through April 2024 with a funding budget of approximately
$1,272,000.
We anticipate that the DeepView System will have
two revenue streams, a SaMD (software as a medical device), and an imaging device component. The SaMD model applies a SaaS 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.
Pricing for these components will be evaluated and strategically set per country and site-of-service for heightened customer adoption.
Business Combination
On April 11, 2023, we
entered into the Business Combination Agreement with Rosecliff Acquisition Corp I (“RCLF”), Ghost Merger Sub I Inc.
(“Merger Sub I”) and Ghost Merger Sub II LLC (“Merger Sub II”), which was consummated on September
11, 2023 (the “Closing”). Pursuant to the Business Combination Agreement, on the Closing, in sequential order: (a) Ghost
Merger Sub I merged with and into Spectral, with Spectral continuing as the surviving company and a wholly owned subsidiary of Spectral
(the “Spectral Merger”) and then, (b) Spectral merged with and into Ghost Merger Sub II (the “SPAC Merger”, together
with the Spectral Merger (the “Mergers”)), with Ghost Merger Sub II surviving the SPAC Merger as a direct wholly-owned subsidiary
of Rosecliff. Rosecliff was renamed Spectral AI, Inc. (“Spectral AI” or the “Combined Company”), (the “Business
Combination”). On September 12, 2023, Spectral AI began trading its shares on the NASDAQ stock exchange under the ticker symbol
“MDAI” after delisting its shares from the AIM market of the London Stock Exchange on September 7, 2023.
In September 2023, prior to
the closing of the Business Combination, the Company issued 7,679,198 shares of common stock for $3.4 million (the “Equity Issuance”).
The Business Combination is
expected to be accounted for as a reverse recapitalization in accordance with GAAP. Under the guidance in Accounting Standards Codification
(“ASC”) 805, Business Combinations, RCLF, which is the legal acquirer, will be treated as the “acquired”
company for financial reporting purposes and Spectral will be treated as the accounting acquirer. This determination was primarily based
on the following:
| (i) | Spectral expecting to have a majority of the voting power of
the Combined Company; |
| (ii) | Spectral’s senior management comprising all of the senior
management of the Combined Company; |
| (iii) | Spectral is expected to select six of the seven of the directors
for the Board of Directors of the Combined Company; |
| (iv) | Spectral’s relative size of assets and operations compared
to RCLF; and |
| (v) | Spectral’s operations comprising
the ongoing operations of the post-combination company. |
Accordingly, for accounting
purposes, the Business Combination will be treated as the equivalent of a capital transaction in which we are issuing stock for the net
assets of RCLF. The net assets of RCLF will be stated at historical cost, with no goodwill or other intangible assets recorded. Historical
operations presented in future financial statements, prior to the Business Combination will be ours.
The most significant changes
in our future reported financial position and results are expected to be a net decrease in cash (as compared to our consolidated balance
sheet as of June 30, 2023) of approximately $0.3 million.
Public Company Costs
Upon
consummation of the Business Combination, the Combined Company has continued as an SEC-registered and
Nasdaq-listed company. We expect to hire additional staff and implement new processes and procedures
to address public company requirements in anticipation of and following the completion of the Business Combination. We also expect to
incur substantial additional expenses for, among other things, directors’ and officers’ liability insurance, director fees,
internal control compliance, and additional costs for investor relations, accounting, audit, legal and other functions.
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 believe the operating and financial metrics presented
are useful in evaluating our operating performance, as they are similar to measures by our public competitors and are regularly used by
security analysts, institutional investors, and other interested parties in analyzing operating performance and prospects. Adjusted EBITDA
is a non-GAAP measure, as it is not a financial measure calculated in accordance with GAAP and should not be considered as a substitute
for net (loss) income, calculated in accordance with GAAP. See “— Non-GAAP Financial Measures” for additional
information on adopted non-GAAP financial measures and a reconciliation of these non-GAAP measures to the most comparable GAAP
measures.
The
following table sets forth these metrics for the three and six months ended June 30, 2023 and
2022:
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
(In thousands) | |
Research and development revenue | |
$ | 4,251 | | |
$ | 6,390 | | |
$ | 9,329 | | |
$ | 12,234 | |
Gross Profit | |
| 1,791 | | |
| 2,712 | | |
| 3,972 | | |
| 5,102 | |
Gross margin | |
| 42.1 | % | |
| 42.4 | % | |
| 42.6 | % | |
| 41.7 | % |
Operating loss | |
| (2,990 | ) | |
| (6 | ) | |
| (5,889 | ) | |
| (627 | ) |
Net loss | |
| (3,070 | ) | |
| (265 | ) | |
| (6,679 | ) | |
| (793 | ) |
Adjusted EBITDA | |
| (2,591 | ) | |
| 290 | | |
| (5,188 | ) | |
| 6 | |
See “Non-GAAP Financial Measures”
below for a reconciliation of net loss to Adjusted EBITDA.
Research and development revenue
We define research and development
revenue as revenue generated from the research, testing and development of the DeepView System as utilized in connection with our burn
indication. This research and development revenue reflects applied research and experimental development costs relating to our burn application
as developed in connection with our BARDA and DHA contracts.
Gross Profit and Gross Margin
We define gross profit as research
and development revenue, less cost of revenue, and define gross margin, expressed as a percentage, as the ratio of gross profit to revenue.
Gross profit and margin can be used to understand our financial performance and efficiency and allows investors to evaluate our pricing
strategy and compare against our competitors. 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.
Adjusted EBITDA
We define adjusted earnings
before interest, tax, depreciation and amortization (“Adjusted EBITDA”) as net loss excluding income taxes, depreciation of
property, plant and equipment (including any related impairment charges), amortization of intangible assets (including any related impairment
charges), interest expense, stock compensation, any non-operating financial income and expense. See “— Non-GAAP Financial
Measures” for a reconciliation of GAAP net loss to Adjusted EBITDA.
Key Factors that May Influence Future Results
of Operations
Our financial results of operations
may not be comparable from period to period due to several factors. Key factors affecting our results of operations are summarized below.
Revenue Sources. As
a pre-commercialization company, we currently generate revenue almost exclusively from two U.S. governmental agencies. We
are highly dependent upon the continuation of the existing U.S. governmental contract awards as well as future governmental
procurement or other awards. 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. In addition, it is possible that,
depending on the outcome of our SSN application to BARDA, we may receive additional and potentially significant U.S. government
awards. Our revenues may continue to be almost exclusively dependent upon the terms of those awards.
Gross Margin. As
we begin commercial sales of the DeepView System, we may need to adjust our pricing and incentives to accelerate adoption and implementation
of the DeepView System, which may negatively impact future revenue and gross margin percentages.
Managing our Supply
Chain. We are reliant on contract manufacturers and suppliers to produce our components. While we have not been subject to any
disruptions in our current production, there remain global supply chain challenges and logistics constraints, including component
shortages, which may cause delays in critical components and inventory, longer lead times, increased costs and delays in product
shipments. Our ability to grow depends, in part, on the ability of our contract manufacturers and suppliers to provide high quality
services and deliver components and finished products on time and at reasonable costs. While we do not maintain
sole-source suppliers, there is a concentration of suppliers which could lead to supply shortages, long lead times for
components and supply changes. In the event we are unable to mitigate the impact of delays and/or price increases in raw materials,
electronic components and freight, it could delay the manufacturing and installation of our products, which would adversely impact
our cash flows and results of operations, including revenue and gross margin.
Components of Consolidated Statements of Operations
Research and Development Revenue
Our primary source of revenue
is research and development revenue. Currently, we are highly dependent upon the reimbursement from BARDA for the burn diagnostic testing
of our DeepView System. Our research and development revenue is affected by the amount of research and development that is expended each
month with respect to our contract with BARDA. Our revenue growth is dependent on a number of factors including expanding the research
and development expense under the BARDA contract, research and development reimbursed expenses relating to other contract awards from
U.S. governmental agencies and the intended future commercial sales of our DeepView System.
Cost of Revenue
Our cost of revenues consists
primarily of direct and indirect costs associated with the research and development expenses relating to the BARDA contract. Our revenue
costs are affected by the extent of research and development expenses as well as expansion of work on other U.S. governmental projects
and the expanded applications for our DeepView System.
Gross Profit
Gross profit may vary from
period-to-period and is primarily affected by the current reimbursement rates under the BARDA contract and other U.S. governmental
contract awards. These reimbursement rates are fixed under each contact award. Our gross profit represents this reimbursement rate plus
a variable component relating to non-reimbursed expenses incurred in connection with the work completed on these contracts.
Operating Costs and Expenses
Operating costs and expenses
consist of general and administrative expenses. These expenses relate to our operating expenses that are not reimbursed as part of the
research and development revenue and reflect our organization’s support and operations staff. General and administrative expense
consist primarily of salaries and benefits for this group of our employees and has increased from prior three months based on the
increase in our personnel in these functions.
Other income (expense)
Other income (expense) primarily
consists of interest expense, change in fair value of warrant liabilities and foreign exchange transaction gains/losses. Historic foreign
exchange transaction loss primarily relates to the reduced exchange rate between the U.S. dollar and the British pound sterling for
our deposit accounts that are denominated in British pound sterling. In addition, this amount includes costs associated with buying British
pound sterling for payment of our employees and vendors in the UK.
Results of Operations
The following table sets forth
a summary of our consolidated statements of operations for the periods presented:
| |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
(In thousands) | |
Research and development revenue | |
| 4,251 | | |
| 6,390 | | |
| 9,329 | | |
| 12,234 | |
Cost of revenue | |
| (2,460 | ) | |
| (3,678 | ) | |
| (5,357 | ) | |
| (7,132 | ) |
Gross profit | |
| 1,791 | | |
| 2,712 | | |
| 3,972 | | |
| 5,102 | |
| |
| | | |
| | | |
| | | |
| | |
Operating costs and expenses: | |
| | | |
| | | |
| | | |
| | |
General and administrative | |
| 4,781 | | |
| 2,718 | | |
| 9,861 | | |
| 5,729 | |
Total operating costs and expenses | |
| 4,781 | | |
| 2,718 | | |
| 9,861 | | |
| 5,729 | |
Operating loss | |
| (2,990 | ) | |
| (6 | ) | |
| (5,889 | ) | |
| (627 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Net interest income (expenses) | |
| 41 | | |
| 3 | | |
| 86 | | |
| (1 | ) |
Change in fair value of warrant liability | |
| (81 | ) | |
| (38 | ) | |
| (65 | ) | |
| 28 | |
Foreign exchange transaction gain (loss) | |
| - | | |
| (232 | ) | |
| 13 | | |
| (204 | ) |
Transaction costs | |
| - | | |
| - | | |
| (738 | ) | |
| - | |
Other income | |
| - | | |
| 19 | | |
| - | | |
| 17 | |
Total other expense | |
| (40 | ) | |
| (248 | ) | |
| (704 | ) | |
| (160 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss before income taxes | |
| (3,030 | ) | |
| (254 | ) | |
| (6,593 | ) | |
| (787 | ) |
Provision for income taxes | |
| (40 | ) | |
| (11 | ) | |
| (86 | ) | |
| (6 | ) |
Net loss | |
| (3,070 | ) | |
| (265 | ) | |
| (6,679 | ) | |
| (793 | ) |
Research and development revenue
| |
Three Months Ended June 30, | | |
Change in | | |
Six Months Ended June 30, | | |
Change in | |
| |
2023 | | |
2022 | | |
$ | | |
% | | |
2023 | | |
2022 | | |
$ | | |
% | |
| |
(In thousands, except percentages) | |
Research and development revenue | |
$ | 4,251 | | |
$ | 6,390 | | |
$ | (2,139 | ) | |
| (33.5 | )% | |
$ | 9,329 | | |
$ | 12,234 | | |
$ | (2,905 | ) | |
| (23.7 | )% |
Research and development revenue
decreased by 33.5% and 23.7%, respectively, or approximately $2.1 million and $2.9 million, respectively, for the three and six months
ended June 30, 2023, as compared to the comparable periods in 2022, primarily due to decreased research and development work performed
pursuant to the BARDA Burn II contract. New patient enrollments in our BARDA clinical study decreased in the three months ended June 30,
2023 compared to the three months ended June 30, 2022 as the Company is completing enrollment and transitioning to the closeout phase
of the study.
For the three and six months
ended June 30, 2023 and 2022, the Company’s revenues disaggregated by the major sources was as follows:
| |
Three Months Ended June 30, | | |
Change in | | |
Six Months Ended June 30, | | |
Change in | |
| |
2023 | | |
2022 | | |
$ | | |
% | | |
2023 | | |
2022 | | |
$ | | |
% | |
| |
(In thousands, except percentages) | |
BARDA | |
$ | 4,020 | | |
$ | 6,255 | | |
$ | (2,235 | ) | |
| (35.7 | )% | |
$ | 8,963 | | |
$ | 11,963 | | |
$ | (3,000 | ) | |
| (25.1 | )% |
Other U.S. governmental authorities | |
| 231 | | |
| 135 | | |
| 96 | | |
| 71.1 | % | |
| 366 | | |
| 271 | | |
| 95 | | |
| 35.1 | % |
Total research and development revenue | |
$ | 4,251 | | |
$ | 6,390 | | |
$ | (2,139 | ) | |
| (33.5 | )% | |
$ | 9,329 | | |
$ | 12,234 | | |
$ | (2,905 | ) | |
| (23.7 | )% |
Cost of Revenues and Gross Profit
| |
Three Months Ended June 30, | | |
Change in | | |
Six Months Ended June 30, | | |
Change in | |
| |
2023 | | |
2022 | | |
$ | | |
% | | |
2023 | | |
2022 | | |
$ | | |
% | |
| |
(In thousands, except percentages) | |
Cost of revenue | |
$ | 2,460 | | |
$ | 3,678 | | |
$ | (1,218 | ) | |
| (33.1 | )% | |
$ | 5,357 | | |
$ | 7,132 | | |
$ | (1,775 | ) | |
| (24.9 | )% |
Gross profit | |
| 1,791 | | |
| 2,712 | | |
| (921 | ) | |
| (34.0 | )% | |
| 3,972 | | |
| 5,102 | | |
| (1,130 | ) | |
| (22.1 | )% |
Gross margin | |
| 42.1 | % | |
| 42.4 | % | |
| | | |
| | | |
| 42.6 | % | |
| 41.7 | % | |
| | | |
| | |
Cost of revenue for the three
and six months ended June 30, 2023 compared to the comparable periods in 2022 decreased by 33.1% and 24.9% respectively, or approximately
$1.2 million and $1.8 million, respectively, primarily due to decreased activity to fulfill our U.S. governmental contracts, which
is consistent with decreased research and development revenue.
Gross margin was relatively
consistent for the three and six months ended June 30, 2023, as compared to the comparable periods in 2022.
General and Administrative
| |
Three Months Ended June 30, | | |
Change in | | |
Six Months Ended June 30, | | |
Change in | |
| |
2023 | | |
2022 | | |
$ | | |
% | | |
2023 | | |
2022 | | |
$ | | |
% | |
| |
(In thousands, except percentages) | |
General and administrative | |
$ | 4,781 | | |
$ | 2,718 | | |
$ | 2,063 | | |
| 75.9 | % | |
$ | 9,861 | | |
$ | 5,729 | | |
$ | 4,132 | | |
| 72.1 | % |
Percentage of revenue, net | |
| 112.5 | % | |
| 42.5 | % | |
| | | |
| | | |
| 105.7 | % | |
| 46.8 | % | |
| | | |
| | |
General
and administrative expense increased by 75.9% and 72.1%, respectively, or approximately $2.1 million
and $4.1 million, respectively, for the three and six months ended June 30, 2023, as compared
to the comparable periods in 2022. The increase was primarily due to an increase in our administrative staffing since 2022. Our headcount
grew from 63 employees as of June 30, 2022 to 80 full-time employees
as of June 30, 2023 resulting in an increase in general and administrative expense of approximately
$0.7 million and $1.4 million, respectively, for the three and six months ended June 30, 2023. Additionally, R&D activities outside
of BARDA have increased by approximately $0.9 million and $1.6 million, respectively, in the three and six months ended June 30,
2023 compared to the comparable periods in 2022.
Other income (expense)
| |
Three Months Ended June 30, | | |
Change in | | |
Six Months Ended June 30, | | |
Change in | |
| |
2023 | | |
2022 | | |
$ | | |
2023 | | |
2022 | | |
$ | |
| |
(In thousands, except percentages) | |
Net interest income (expense) | |
$ | 41 | | |
$ | 3 | | |
$ | 38 | | |
$ | 86 | | |
$ | (1 | ) | |
$ | 87 | |
Change in fair value of warrant liability | |
| (81 | ) | |
| (38 | ) | |
| (43 | ) | |
| (65 | ) | |
| 28 | | |
| (93 | ) |
Foreign exchange transaction (loss) gain | |
| - | | |
| (232 | ) | |
| 232 | | |
| 13 | | |
| (204 | ) | |
| 217 | |
Transaction costs | |
| - | | |
| - | | |
| - | | |
| (738 | ) | |
| - | | |
| (738 | ) |
Other income | |
| - | | |
| 19 | | |
| (19 | ) | |
| - | | |
| 17 | | |
| (17 | ) |
Total other expense | |
$ | (40 | ) | |
$ | (248 | ) | |
$ | 208 | | |
$ | (704 | ) | |
$ | (160 | ) | |
$ | (544 | ) |
Net interest income for the
three and six months ended June 30, 2023 primarily relates to cash interest received by us from our deposit accounts.
Change in the fair value of
warrant liability decreased by approximately $43,000 and $93,000, respectively, for the three and six months ended June 30, 2023,
as compared to the comparable period in 2022. The loss during the three and six months ended June 30, 2023, was primarily due to
the increased present value calculation of the warrants issued to SP Angel Corporate Finance LLP (“SP Angel”) as part of the
Offering (defined below) in 2021. In conjunction with the closing of the Offering, we issued 762,712 warrants, with a strike price of
$0.89 per share and a five-year life, to SP Angel, who acts as our nominated advisor (“NOMAD”) and joint broker. As of
June 30, 2023, the strike price of the warrants was $0.75 per share as comparted to $0.72 as of June 30, 2022. The change in the
strike price is due to the change in exchange rates, as the warrants will settle in shares denominated in British pound sterling. As our
stock price had a greater increase for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022,
the fair value of the warrants correspondingly had a greater increase in the three months ended June 30, 2023. As our stock price
had an increase for the six months ended June 30, 2023 as compared to a decrease for the six months ended June 30, 2022, the
fair value of the warrants correspondingly had an increase for the six months ended June 30, 2023 as compared to a decrease for the
six months ended June 30, 2022.
Foreign exchange transaction
loss for the three and six months ended June 30, 2022 relates to the decreased exchange rate between the U.S. dollar and the
British pound sterling during the second quarter of 2022 for our deposit accounts that are denominated in British pound sterling. In addition,
this amount includes costs associated with buying British pound sterling for payment of our employees and vendors in the UK. Foreign exchange
transaction loss for the three and six months ended June 30, 2023 is immaterial due to much 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.
Transaction costs for the six
months ended June 30, 2023 relate to non-recurring legal, accounting and consulting costs expended for potential business combinations
that did not occur.
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. This
non-GAAP financial measure should be considered in addition to results prepared in accordance with GAAP and should not be considered as
a substitute for, or superior to, GAAP results. In addition, Adjusted EBITDA should not be construed as an indicator of our operating
performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors or
trends that it fails to address.
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 management assesses underlying performance.
Adjusted EBITDA
We define Adjusted EBITDA as
net income/(loss) excluding income taxes, depreciation of property, plant and equipment (including any related impairment charges), amortization
of intangible assets (including any related impairment charges), interest expense, stock compensation, any non-operating financial income
and expense.
The following table presents
our Adjusted EBITDA for the three and six months ended June 30, 2023 and 2022:
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
(In thousands) | |
Net loss | |
$ | (3,070 | ) | |
$ | (265 | ) | |
$ | (6,679 | ) | |
$ | (793 | ) |
Adjust: | |
| | | |
| | | |
| | | |
| | |
Depreciation expense | |
| 3 | | |
| 2 | | |
| 5 | | |
| 6 | |
Provision for income taxes | |
| 40 | | |
| 11 | | |
| 86 | | |
| 6 | |
Net interest (income) expense | |
| (41 | ) | |
| (3 | ) | |
| (86 | ) | |
| 1 | |
EBITDA | |
| (3,068 | ) | |
| (255 | ) | |
| (6,674 | ) | |
| (780 | ) |
Additional adjustments: | |
| | | |
| | | |
| | | |
| | |
Stock-based compensation | |
| 396 | | |
| 294 | | |
| 696 | | |
| 627 | |
Change in fair value of warrant liability | |
| 81 | | |
| 38 | | |
| 65 | | |
| (28 | ) |
Foreign exchange transaction loss (gain) | |
| - | | |
| 232 | | |
| (13 | ) | |
| 204 | |
Transaction costs | |
| - | | |
| - | | |
| 738 | | |
| - | |
Other income | |
| - | | |
| (19 | ) | |
| - | | |
| (17 | ) |
Adjusted EBITDA | |
| (2,591 | ) | |
| 290 | | |
| (5,188 | ) | |
| 6 | |
Liquidity and Capital Resources
Sources of Liquidity
As of June 30, 2023 we had
approximately $8.2 million in cash, and an accumulated deficit of approximately $18.6 million.
Prior to our initial public
offering (the “Offering”) on the AIM Market of the London Stock Exchange in June, 2021, we historically funded our operations
through the issuance of notes and the sale of preferred stock and common stock. We raised approximately $17.0 million from the oversubscribed
Offering on the AIM market to fund the development of the DFU indication for our Deepview System. During 2022, we were awarded additional
funding of $8.2 million associated with option 1B of our contract with BARDA. During 2021, we executed Options 1A and 1B of
the contract with BARDA for funding of $39.4 million and during 2022 we were awarded additional funding of $8.2 million associated
with option 1B of the BARDA contract, resulting in aggregate funding for Options 1A and 1B of $47.6 million, of which $4.1 million
remains as of June 30, 2023. The purpose of the BARDA contract funding is to execute the clinical training study of our DeepView System
for burn wound healing assessment. See “Research and Development Revenue” above. With the proceeds from closing of
our Offering during 2021 and the remaining funding under the BARDA contract, we believe that with the remaining proceeds from the Offering
and the remaining funding under the BARDA contract we have sufficient working capital to fund operations for at least 12 months beyond
the release date of the consolidated financial statements. Additionally, our contract with BARDA has a potential funding of up to $96.9 million,
in the aggregate, for Option 1A, 1B and 2, if all future options are executed.
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. We believe that the $4.5 million in the trust assets
of RCLF will remain in RCLF through the Business Combination. In addition, we are seeking to raise up to an additional $30.0 million
in funding through the issuance of equity securities in a PIPE transaction in connection with the Business Combination. If we are unable
to secure additional capital through the PIPE transaction, we may seek alternative financing arrangements to support our future growth.
There can be no assurance that we will be successful in raising any additional capital. If additional financing is required from outside
sources, we cannot be sure that any additional financing will be available to us on acceptable terms, if at all. If we are unable to raise
additional capital when desired, our business, operating results, and financial condition could be adversely affected.
Cash Flows
The following table summarizes
our cash flows for the six months ended June 30, 2023 and 2022:
| |
Six Months Ended June 30, | |
| |
2023 | | |
2022 | |
| |
(In thousands) | |
Net cash (used in) provided by operating activities | |
$ | (5,527 | ) | |
$ | 38 | |
Net cash used in financing activities | |
| (481 | ) | |
| (583 | ) |
Cash Flows (Used in) Provided by Operating
Activities
Net cash used in operating
activities increased by approximately $5.6 million for the six months ended June 30, 2023, as compared to the six months ended June
30, 2022 resulting primarily from a decrease in net income, adjusted for non-cash items, of approximately $5.6 million. This decrease
is primarily driven by decreased research and development activity for the BARDA contract. The decrease is partially offset by a net increase
of $0.1 million cash flows from changes in operating assets and liabilities primarily driven by accounts receivable collections in excess
of payments of accounts payable.
Cash Flows Used in Financing Activities
Net cash used in financing
activities decreased approximately $0.1 million for the six months ended June 30, 2023 compared to the six months ended June 30,
2022. This was primarily attributable to repayment of $0.4 million for the Company’s Paycheck Protection Program Loan during the
six months ended June 30, 2022, partially offset by payments of $0.3 million of offering costs related to the Business Combination that
have been deferred until the closing of the Business Combination.
Current Indebtedness
As of June 30, 2023, we
do not have any debt. In June 2022, we entered into a financing arrangement for a portion of our insurance premium for approximately
$0.4 million (the “Note”). The Note bears interest at 6.7% per annum and is payable in equal monthly payments of principal
and interest, maturing in May 2023. By June 30, 2023 the balance of this note has been fully paid.
Related Party Transactions
For the six months ended
June 30, 2023 and 2022 and the years ended December 31, 2022 and 2021, 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.
Critical Accounting Policies
There have been no material
changes to the Company’s critical accounting policies and estimates discussed in our Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Critical Accounting Policies for the years ended December 31, 2022 and 2021 included in the Prospectus.
Recent Accounting Pronouncements
See Note 2, Summary of Significant
Accounting Policies, of the notes to our consolidated financial statements included elsewhere in this Form 8-K for recently adopted accounting
standards and recently issued accounting standards as of the dates of the statement of financial position included in this Form 8-K.
Emerging Growth Company
We are an emerging growth company,
as defined in the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period
for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some
accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition
period under the JOBS Act for the adoption of certain accounting standards until the earlier of the date we (i) are no longer an
emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.
As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as
of public company effective dates.
Quantitative and Qualitative Disclosures About
Market Risk
We are exposed to market risks
in the ordinary course of our business. These risks primarily include interest rate, foreign exchange, credit and inflation risks.
Interest Rate Sensitivity
We maintain a large amount
of our assets in cash and cash equivalents. Our cash and cash equivalents are held primarily in cash deposits. The fair value of our cash
and cash equivalents would not be significantly affected by either an increase or decrease in interest rates due mainly to the short-term
nature of these instruments. Additionally, changes to interest rates will impact on the cost of our future borrowings. With respect to
our current “borrowings”, the interest rate on the Note for insurance premiums is fixed. Changes in prevailing interest rates
could have a material impact on our results of operations.
Foreign Currency Risk
Our revenue is denominated
in U.S. dollars. Our expenses are generally denominated in the currencies in which our operations are located, which is primarily
in the United States and UK, with an insignificant portion of expenses incurred in our wholly owned subsidiaries in the UK and denominated
in British pound sterling.
Credit Risk
Financial instruments that
subject us to concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivable. The vast majority of
our cash and cash equivalents are held in U.S. financial institutions which, at times, exceed federally insured limits. We have not
recognized any losses from credit risks on such accounts. We believe we are not exposed to significant credit risk on cash and cash equivalents.
Additional credit risk is related
to our concentration of receivables and revenues. One customer (which is a U.S. government agency) represents the majority of our
research and development revenue and accounts receivable.
Inflation Risk
The recent increase in inflation partially contributed to
the increase in the cost of our research and development as well as operating costs. If the cost of our products, employee costs, or other
costs continue to be subject to significant inflationary pressures, such inflationary pressure may have an adverse effect on our ability
to maintain current levels of gross margin and selling, general and administrative expenses. Further, we may not be able to offset these
increased costs through price increases. As a result, our inability to quickly respond to inflation could harm its cash flows and results
of operations in the future.
Spectral MD Holdings,
Ltd.
Unaudited Condensed Consolidated Financial Statements
As of and for the Three and Six Months Ended June 30, 2023 and 2022
Spectral MD Holdings, Ltd.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
| |
June 30, | | |
December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Assets | |
| | |
| |
Current assets: | |
| | |
| |
Cash and cash equivalents | |
$ | 8,166 | | |
$ | 14,174 | |
Accounts receivable, net | |
| 1,520 | | |
| 2,294 | |
Unbilled revenue | |
| 91 | | |
| 618 | |
Prepaid expenses | |
| 342 | | |
| 331 | |
Deferred offering costs | |
| 1,124 | | |
| - | |
Other current assets | |
| 598 | | |
| 270 | |
Total current assets | |
| 11,841 | | |
| 17,687 | |
| |
| | | |
| | |
Non-current assets: | |
| | | |
| | |
Property and equipment, net | |
| 16 | | |
| 21 | |
Right-of-use assets | |
| 1,141 | | |
| 1,008 | |
Total Assets | |
$ | 12,998 | | |
$ | 18,716 | |
| |
| | | |
| | |
Commitments and contingencies (Note 7) | |
| | | |
| | |
| |
| | | |
| | |
Liabilities and Stockholders’ Equity | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 2,657 | | |
$ | 2,759 | |
Accrued expenses | |
| 2,394 | | |
| 2,631 | |
Deferred revenue | |
| 509 | | |
| - | |
Lease liabilities, short-term | |
| 773 | | |
| 680 | |
Notes payable | |
| - | | |
| 175 | |
Warrant liability | |
| 194 | | |
| 129 | |
Total current liabilities | |
| 6,527 | | |
| 6,374 | |
Lease liabilities, long-term | |
| 452 | | |
| 346 | |
Total Liabilities | |
| 6,979 | | |
| 6,720 | |
| |
| | | |
| | |
Stockholders’ Equity | |
| | | |
| | |
Common stock ($0.001 par value); 400,000,000 shares authorized; 136,261,515 and 135,409,564 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively | |
| 136 | | |
| 135 | |
Additional paid-in capital | |
| 24,496 | | |
| 23,795 | |
Accumulated deficit | |
| (18,613 | ) | |
| (11,934 | ) |
Total stockholders’ equity | |
| 6,019 | | |
| 11,996 | |
Total Liabilities and Stockholders’ Equity | |
$ | 12,998 | | |
$ | 18,716 | |
See accompanying notes to the condensed consolidated
financial statements
Spectral MD Holdings, Ltd.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
| |
Three Months Ended June 30, | | |
Six Months Ended June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
Research and development revenue | |
$ | 4,251 | | |
$ | 6,390 | | |
$ | 9,329 | | |
$ | 12,234 | |
Cost of revenue | |
| (2,460 | ) | |
| (3,678 | ) | |
| (5,357 | ) | |
| (7,132 | ) |
Gross profit | |
| 1,791 | | |
| 2,712 | | |
| 3,972 | | |
| 5,102 | |
| |
| | | |
| | | |
| | | |
| | |
Operating costs and expenses: | |
| | | |
| | | |
| | | |
| | |
General and administrative | |
| 4,781 | | |
| 2,718 | | |
| 9,861 | | |
| 5,729 | |
Total operating costs and expenses | |
| 4,781 | | |
| 2,718 | | |
| 9,861 | | |
| 5,729 | |
Operating loss | |
| (2,990 | ) | |
| (6 | ) | |
| (5,889 | ) | |
| (627 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Net interest income (expense) | |
| 41 | | |
| 3 | | |
| 86 | | |
| (1 | ) |
Change in fair value of warrant liability | |
| (81 | ) | |
| (38 | ) | |
| (65 | ) | |
| 28 | |
Foreign exchange transaction gain (loss) | |
| - | | |
| (232 | ) | |
| 13 | | |
| (204 | ) |
Transaction costs | |
| - | | |
| - | | |
| (738 | ) | |
| - | |
Other income | |
| - | | |
| 19 | | |
| - | | |
| 17 | |
Total other income (expense) | |
| (40 | ) | |
| (248 | ) | |
| (704 | ) | |
| (160 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss before income taxes | |
| (3,030 | ) | |
| (254 | ) | |
| (6,593 | ) | |
| (787 | ) |
Provision for income taxes | |
| (40 | ) | |
| (11 | ) | |
| (86 | ) | |
| (6 | ) |
Net loss | |
$ | (3,070 | ) | |
$ | (265 | ) | |
$ | (6,679 | ) | |
$ | (793 | ) |
Net loss per share of common stock | |
| | | |
| | | |
| | | |
| | |
Basic and Diluted | |
$ | (0.02 | ) | |
$ | (0.00 | ) | |
$ | (0.05 | ) | |
$ | (0.01 | ) |
Weighted average common shares outstanding | |
| | | |
| | | |
| | | |
| | |
Basic and Diluted | |
| 136,198,713 | | |
| 135,347,064 | | |
| 136,097,641 | | |
| 135,323,279 | |
See accompanying notes to the condensed consolidated
financial statements
Spectral MD Holdings, Ltd.
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except share data)
| |
| | |
| | |
Additional | | |
| | |
Total | |
| |
Common Stock | | |
Paid-in | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
Balance at December 31, 2022 | |
| 135,409,564 | | |
$ | 135 | | |
$ | 23,795 | | |
$ | (11,934 | ) | |
$ | 11,996 | |
Stock-based compensation | |
| 562,500 | | |
| 1 | | |
| 299 | | |
| - | | |
| 300 | |
Stock option exercises | |
| 104,451 | | |
| - | | |
| - | | |
| - | | |
| - | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (3,609 | ) | |
| (3,609 | ) |
Balance at March 31, 2023 | |
| 136,076,515 | | |
$ | 136 | | |
$ | 24,094 | | |
$ | (15,543 | ) | |
$ | 8,687 | |
Stock-based compensation | |
| 125,000 | | |
| - | | |
| 396 | | |
| - | | |
| 396 | |
Stock options exercise | |
| 60,000 | | |
| - | | |
| 6 | | |
| - | | |
| 6 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (3,070 | ) | |
| (3,070 | ) |
Balance at June 30, 2023 | |
| 136,261,515 | | |
$ | 136 | | |
$ | 24,496 | | |
$ | (18,613 | ) | |
$ | 6,019 | |
| |
| | |
| | |
Additional | | |
| | |
Total | |
| |
Common Stock | | |
Paid-in | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
Balance at December 31, 2021 | |
| 135,034,564 | | |
$ | 135 | | |
$ | 22,640 | | |
$ | (9,022 | ) | |
$ | 13,753 | |
Stock-based compensation | |
| 187,500 | | |
| - | | |
| 333 | | |
| - | | |
| 333 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (528 | ) | |
| (528 | ) |
Balance at March 31, 2022 | |
| 135,222,064 | | |
$ | 135 | | |
$ | 22,973 | | |
$ | (9,550 | ) | |
$ | 13,558 | |
Stock option exercises | |
| 150,000 | | |
| - | | |
| - | | |
| - | | |
| - | |
Stock-based compensation | |
| 187,500 | | |
| 1 | | |
| 293 | | |
| - | | |
| 294 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (265 | ) | |
| (265 | ) |
Balance at June 30, 2022 | |
| 135,559,564 | | |
$ | 136 | | |
$ | 23,266 | | |
$ | (9,815 | ) | |
$ | 13,587 | |
See accompanying notes to the condensed consolidated
financial statements
Spectral MD Holdings, Ltd.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
| |
Six Months Ended June 30, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Cash flows from operating activities: | |
| | |
| |
Net loss | |
$ | (6,679 | ) | |
$ | (793 | ) |
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities: | |
| | | |
| | |
Depreciation expense | |
| 5 | | |
| 6 | |
Stock-based compensation | |
| 696 | | |
| 627 | |
Amortization of right-of-use assets | |
| 350 | | |
| 251 | |
Change in fair value of warrant liability | |
| 65 | | |
| (28 | ) |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 774 | | |
| (431 | ) |
Unbilled revenue | |
| 527 | | |
| (681 | ) |
Prepaid expenses | |
| (11 | ) | |
| 415 | |
Other current assets | |
| (322 | ) | |
| (107 | ) |
Other assets | |
| - | | |
| 40 | |
Accounts payable | |
| (752 | ) | |
| 1,587 | |
Accrued expenses | |
| (405 | ) | |
| (548 | ) |
Deferred revenue | |
| 509 | | |
| - | |
Lease liabilities | |
| (284 | ) | |
| (300 | ) |
Net cash (used in) provided by operating activities | |
| (5,527 | ) | |
| 38 | |
Cash flows from financing activities: | |
| | | |
| | |
Payments of deferred offering costs | |
| (306 | ) | |
| - | |
Payments for notes payable | |
| (175 | ) | |
| (583 | ) |
Net cash used in financing activities | |
| (481 | ) | |
| (583 | ) |
Net decrease in cash and cash equivalents | |
| (6,008 | ) | |
| (545 | ) |
Cash and cash equivalents, beginning of period | |
| 14,174 | | |
| 16,121 | |
Cash and cash equivalents, end of period | |
$ | 8,166 | | |
$ | 15,576 | |
| |
| | | |
| | |
Supplemental cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | 3 | | |
$ | 11 | |
| |
| | | |
| | |
Noncash operating and financing activities disclosure: | |
| | | |
| | |
Recognition of Right-of-use assets and related lease
liabilities upon adoption of ASC 842 | |
$ | - | | |
$ | 624 | |
Recognition of Right-of-use assets and related lease liabilities upon lease amendment | |
$ | 483 | | |
$ | - | |
Unpaid deferred offering costs | |
$ | 818 | | |
$ | - | |
Broker receivable for stock option exercises | |
$ | 6 | | |
$ | - | |
See accompanying notes to the condensed consolidated
financial statements
Spectral MD Holdings, Ltd.
Notes to Unaudited
Financial Statements
1. ORGANIZATION, NATURE OF BUSINESS AND LIQUIDITY
Spectral MD Holdings, Ltd,
(the “Company”), headquartered in Dallas, Texas, was incorporated in Delaware on March 9, 2009. The Company currently trades
on the AIM market of the London Stock Exchange (the “AIM”).
The Company is devoting substantially
all of its efforts towards research and development of its DeepView® Wound Imaging System. The Company has not generated any product
revenue to date. The Company currently generates revenue from contract development and research services by providing such services to
governmental agencies, primarily to the Biomedical Advanced Research and Development Authority (“BARDA”). The Company operates
in one segment.
On April 11, 2023, the
Company entered into a Business Combination Agreement (as it may be amended, supplemented or otherwise modified from time to time),
by and among Rosecliff Acquisition Corp I (“Rosecliff”), Rosecliff Ghost Merger Sub I Inc. and Ghost Merger Sub II LLC,
whereby all of the Company’s shares were exchanged with Rosecliff for 17,000,000 ordinary shares of Rosecliff with an
aggregate equity value of $170.0 million (the “Business Combination”).
Pursuant to the Business Combination
Agreement, on the Closing, in sequential order: (a) Ghost Merger Sub I will merge with and into the Company, with the Company continuing
as the surviving company as a wholly owned subsidiary of Rosecliff (the “Spectral Merger”) and then, (b) the Company will
merge with and into Ghost Merger Sub II (the “SPAC Merger”, together with the Spectral Merger (the “Merger”)),
with Ghost Merger Sub II surviving the SPAC Merger as a direct wholly-owned subsidiary of Rosecliff. Ghost Merger Sub II will be renamed
Spectral AI, Inc. (the “Combined Company”).
Liquidity
As of June 30, 2023 and
December 31, 2022, the Company had approximately $8.2 million and $14.2 million, respectively, in cash, and an accumulated deficit
of $18.6 million and $11.9 million, respectively. The Company has historically funded its operations through the issuance of notes
and the sale of preferred stock and common stock. During 2022, the Company was awarded additional funding of $8.2 million associated
with option 1B of the contract with BARDA. During 2021, the Company executed Options 1A and 1B of the contract with BARDA for
funding of $39.4 million and during 2022 was awarded additional funding of $8.2 million associated with option 1B, resulting in
aggregated funding for Options 1A and 1B of $47.6 million, of which $4.1 million is remaining as of June 30, 2023. The BARDA
contract funding is to execute the clinical training study of DeepView® Wound Imaging System (“DeepView
System”) for burn wound healing assessment. In April, 2023, the Company received a $4.0 million grant from Medical Technology
Enterprise Consortium (“MTEC”) for a project that is expected to be completed by April 2024. The MTEC project is for the
development of a handheld device for the DeepView System. See Research and Development Revenue below. In September 2023, the Company
issued 7,679,198 shares of common stock for $3.4 million (the “Equity Raise”). With the remaining funding under the
BARDA contract, the MTEC funding and the Equity Raise, the Company believes it will have sufficient working capital to fund
operations for at least one year beyond the release date of the condensed consolidated financial statements. Additionally, the
contract with BARDA has a potential funding of up to $96.9 million, in aggregate for Option 1A, 1B and 2, if all future options are
executed.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s condensed
consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”)
as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).
The accompanying condensed
consolidated balance sheet as of June 30, 2023, the condensed consolidated statements of operations and stockholders’ equity for
the three and six months ended June 30, 2023 and 2022, and statements of cash flows for the six months ended June 30, 2023 and 2022 are
unaudited. The interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated
financial statements and, in management’s opinion, include all adjustments consisting of only normal recurring adjustments necessary
for the fair statement of the Company’s financial position as of June 30, 2023 and its results of operations and cash flows for
the three and six months ended June 30, 2023 and 2022. The results of operations for the three and six months ended June 30, 2023 and
2022 are not necessarily indicative of the results to be expected for the full fiscal year or any other period.
Spectral MD Holdings, Ltd.
Notes to Unaudited
Financial Statements
These interim condensed consolidated
financial statements should be read in conjunction with the Company’s annual consolidated financial statements for the year ended
December 31, 2022.
Certain reclassifications have
been made to prior year financial statements to conform with current year presentation.
Principles of Consolidation
The condensed consolidated
financial statements include the accounts of the Company and its wholly owned subsidiaries, Spectral MD, Inc. and Spectral MD UK. Significant
inter-company transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of these condensed
consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts
reported in the condensed consolidated financial statements and accompanying notes. The Company bases its estimates and judgments on historical
experience and on various other assumptions that it believes are reasonable under the circumstances. The amounts of assets and liabilities
reported in the Company’s balance sheets and the amounts of expenses reported for each of the periods presented are affected by
estimates and assumptions, which are used for, but not limited to, revenue recognition, warrant liability, stock-based compensation expense,
and income tax valuation allowances. Actual results could differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly
liquid investments with an original maturity of three months or less when purchased to be cash equivalents. All cash and cash equivalents
are held in US financial institutions.
Accounts Receivable, Net and Unbilled Revenue
Accounts receivable represent
amounts due from US government agencies pursuant to research and development contracts associated with the Company’s DeepView®
Wound Imaging System. Accounts receivable amounted to approximately $1.5 million and $2.3 million as of June 30, 2023 and December 31,
2022, respectively.
The Company evaluates the collectability
of its receivables based on a variety of factors, including the length of time the receivables are past due, the financial health of its
customers and historical experience. Based upon the review of these factors, the Company recorded no allowance for doubtful accounts as
of June 30, 2023 and December 31, 2022.
The Company records unbilled
revenue when revenue is recognized prior to billing customers. Unbilled revenue amounted to approximately $0.1 million and $0.6 million
as of June 30, 2023 and December 31, 2022, respectively.
Concentrations of Credit Risk
Financial instruments which
potentially subject the Company to credit risk consist principally of cash and cash equivalents and accounts receivable. Primarily all
cash and cash equivalents are held in US financial institutions which, at times, exceed federally insured limits. The Company has not
recognized any losses from credit risks on such accounts. The Company believes it is not exposed to significant credit risk on cash and
cash equivalents.
Additional credit risk is related
to the Company’s concentration of receivables. As of June 30, 2023 and December 31, 2022, receivables were concentrated from one
customer (which is a US. government agency) representing 71% and 96% of total net receivables, respectively. No allowance for doubtful
accounts were recorded as of June 30, 2023 and December 31, 2022.
One customer (which is a U.S.
government agency) accounted for 95% and 96% for the three and six months ended June 30, 2023, respectively, and 87% and 92%, for the
three and six months ended June 30, 2022, respectively, of the recognized research and development revenue.
Spectral MD Holdings, Ltd.
Notes to Unaudited
Financial Statements
Deferred offering costs
Deferred offering costs consist
of legal, accounting and other direct expenses incurred through the balance sheet date that are directly related to the Business Combination
and that will be charged to stockholders’ equity upon the completion of the Business Combination. Should the Business Combination
prove to be unsuccessful these deferred costs, as well as additional expenses to be incurred, will be charged to other expense. Offering
costs in excess of proceeds from the Business Combination, if any, will be charged to other expense. As of June 30, 2023, the Company
recorded $1.1 million of deferred offering costs, of which $0.8 million are unpaid.
Fair Value
Fair value is defined as the
exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities
that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair
value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs
used to measure fair value are as follows:
Level 1 - |
Unadjusted quoted prices in active markets that are assessable at the measurement date for identical, unrestricted assets or liabilities. |
Level 2 - |
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and |
Level 3 - |
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
Fair Value of Financial Instruments
Financial instruments, which
include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at cost, which management
believes approximates fair value due to the short-term nature of these instruments.
Foreign Currency
The reporting currency for
the condensed consolidated financial statements of the Company is the US dollar. The functional currency of the Company and its wholly
owned subsidiary Spectral MD, Inc. is the US dollar. The functional currency of Spectral MD UK is its local currency, the British pound.
The assets and liabilities of Spectral MD UK is translated into US. dollars at exchange rates in effect at the end of each reporting period,
and the revenues and expenses are translated at average exchange rates in effect during the applicable period. Translation adjustments
are included in accumulated other comprehensive income as a component of stockholders’ equity. As of June 30, 2023 and December
31, 2022, the Company’s translation adjustments are not material.
Monetary assets and liabilities
denominated in currencies other than the functional currency are translated at exchange rates in effect at the balance sheet date. Resulting
unrealized gains and losses are included in other income, net in the condensed consolidated statements of operations. For the three and
six months ended June 30, 2023 the Company recorded approximately $0 and $13,000, respectively, of foreign exchange transaction gain.
For the three and six months ended June 30, 2022, the Company recorded approximately $0.2 million foreign exchange transaction loss for
both periods, primarily related to the Company’s bank account denominated in British Pounds and accounts payable denominated in
British Pounds, included in foreign exchange transaction loss in the condensed consolidated statements of operations.
Spectral MD Holdings, Ltd.
Notes to Unaudited
Financial Statements
Leases
The Company accounts for its
leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing
leases and are recorded in the condensed consolidated balance sheets as both a right of use asset and a lease liability, calculated by
discounting fixed lease payments at the rate implicit in the lease or the Company’s incremental borrowing rate factoring the term
of the lease. The incremental borrowing rate used by the Company is an estimate of the interest rate the Company would incur to borrow
an amount equal to the lease payments on a collateralized basis over the term of the lease. Because the Company does not generally borrow
on a collateralized basis, it uses the interest rate it pays on its noncollateralized borrowings as an input to deriving an appropriate
incremental borrowing rate, adjusted for the amount of lease payments, the lease term and the effect on that rate of designating specific
collateral with a value equal to the unpaid lease payments for that lease. Lease liabilities are increased by interest and reduced by
payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability
and the amortization of the right of use asset results in straight-line rent expense over the lease term. Variable lease expenses are
recorded when incurred. In calculating the right of use assets and lease liabilities, the Company elects to combine lease and non-lease
components. The Company excludes short-term leases having initial terms of 12 months or less from the requirement to capitalize right
of use assets and liabilities as an accounting policy election.
For the three and six months
ended June 30, 2023 and 2022, the Company did not have any finance leases.
Warrant Liability
On June 22, 2021, in conjunction
with the closing of the Company’s IPO, the Company issued 762,712 warrants, with strike price of $0.89 and a five-year life, to
SP Angel Corporate Finance LLP (“SP Angel”), who acts as nominated adviser and broker to the Company for the purposes of the
AIM Rules. As of June 30, 2023, there are 762,712 warrants outstanding with an exchange rate adjusted exercise price of $0.75.
The Company accounts for its
warrants issued to SP Angel as derivative liabilities in accordance with ASC 815, Derivatives and Hedging (“ASC 815”). Accordingly,
the Company recognizes the instruments as liabilities at fair value, determined using the Black-Scholes option-pricing model, and adjusts
the instruments to fair value at the end of each reporting pferiod. The liabilities are subject to re-measurement at each balance sheet
date until exercised, and any change in fair value is recognized in the Company’s condensed consolidated statements of operations.
Research and Development Revenue
The Company recognizes revenue
when the Company’s customers obtain control of promised goods or services, in an amount that reflects the consideration which the
Company expects to receive in exchange for those goods or services by analyzing the following five steps: (1) identify the contract with
a customer(s); (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction
price to the performance obligations in the contract; and (5) recognize revenue when (or as) the Company satisfies a performance obligation.
In order to transfer control to the customer for contract development and manufacturing services, the Company must have a present right
to payment, legal title must have passed to the customer, and the customer must have the significant risks and rewards of ownership. Research
and development revenue contracts are generally recognized based upon the cost-to-cost measure of progress, provided that the Company
meets the criteria associated with transferring control of the good or service over time.
The Company generates research
and development revenue primarily from cost-plus-fee contracts associated with development of certain product candidates. Revenues from
reimbursable contracts are recognized as costs are incurred, generally based on allowable costs incurred during the period, plus any recognizable
earned fee. The Company uses this input method to measure progress as the customer has the benefit of access to the development research
under these projects and therefore benefits from the Company’s performance incrementally as research and development activities
occur under each project. We consider fixed fees under cost-plus-fee contracts to be earned in proportion to the allowable costs incurred
in performance of the contract. Revenue for long-term development contracts is considered variable consideration because the deliverable
is dependent on the successful completion of development and is generally recognized based upon the cost-to-cost measure of progress,
provided that the Company meets the criteria associated with satisfying the performance obligation over time. The Company was awarded
multiyear contracts in 2019 and 2021 (modified for additional funding in 2022) by BARDA for the development of the Company’s DeepView®
Wound Imaging Solution. BARDA may award contracts that are less than 12 months depending on the scope of work and deliverables.
Payments from customers are
generally received within 30 days of when the invoice is sent.
Because the Company’s
contracts have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not
disclose information about its remaining performance obligations.
Spectral MD Holdings, Ltd.
Notes to Unaudited
Financial Statements
Research and Development Expense
The Company expenses research and development
costs as operating expenses as incurred. These expenses include salaries for research and development personnel, consulting fees, product
development, pre-clinical studies, clinical trial costs, and other fees and costs related to the development of the technology. For the
three months ended June 30, 2023 and 2022, research and development expense was $3.7 million and $4.0 million, respectively,
of which $2.5 million and $3.7 million, respectively, is related to the BARDA contract and included in cost of revenue and $1.2 million
and $0.3 million, respectively, is included in general and administrative expenses. For the six months ended June 30, 2023 and 2022, research
and development expense was $7.7 million and $7.9 million, respectively, of which $5.4 million and $7.1 million, respectively,
is related to the BARDA contract and included in cost of revenue and $2.3 million and $0.8 million, respectively, is included in general
and administrative expenses.
Stock-Based Compensation
The Company accounts for all
stock-based payments to employees and non-employees, including grants of stock options, restricted stock units (“RSUs”), restricted
stock awards (“RSAs”) and stock options with non-market performance conditions (“PSOs”) to be recognized in the
condensed consolidated financial statements, based on their respective grant date fair values. The Company estimates the fair value of
stock option grants and PSOs using the Black-Scholes option pricing model. The RSUs and RSAs are valued based on the fair value of the
Company’s common stock on the date of grant. The assumptions used in calculating the fair value of the Company’s stock and
stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s
judgment. The Company expenses stock-based compensation related to stock options, RSUs and RSAs over the requisite service period. As
the PSOs have performance conditions, compensation expense is recognized for each award if and when the Company’s management deems
it probable that the performance conditions will be satisfied. Forfeitures are recorded as they occur. Compensation previously recorded
for unvested equity awards that are forfeited is reversed upon forfeiture. The Company expenses stock-based compensation to employees
over the requisite service period, on a straight-line basis, based on the estimated grant-date fair value of the awards.
Income Taxes
Income taxes are recorded in
accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach.
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included
in the condensed consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences
are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not
that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain
tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit
of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The
determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position
as well as consideration of the available facts and circumstances. The Company has no uncertain tax positions as of June 30, 2023 and
December 31, 2022 that qualify for either recognition or disclosure in the condensed consolidated financial statements under this guidance.
The Company’s policy
is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses
in the condensed consolidated statements of operations. There were no amounts accrued for interest or penalties for the three and six
months ended June 30, 2023 and 2022.
Comprehensive Loss
Comprehensive loss is equal
to net loss as presented in the condensed consolidated statements of operations, as the Company did not have any material other comprehensive
income or loss for the periods presented.
Spectral MD Holdings, Ltd.
Notes to Unaudited
Financial Statements
Net Loss per Share of Common Stock
Basic net loss share of common
stock is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock
outstanding during the period. Diluted net loss per share of common stock adjusts basic earnings per share for the potentially dilutive
impact of unvested restricted stock, stock options and warrants. Dilutive securities having an anti-dilutive effect on diluted net earnings
per share are excluded from the calculation. The dilutive effect of the unvested restricted stock and stock options is calculated using
the treasury stock method. For warrants that are liability-classified, during periods when the impact is dilutive, the Company assumes
share settlement of the instruments as of the beginning of the reporting period and adjusts the numerator to remove the change in fair
value of the warrant liability and adjusts the denominator to include the dilutive shares calculated using the treasury stock method.
Recently Adopted Accounting Standards
In June 2016, the FASB issued
ASU No. 2016-13, Financial Instruments - Credit Losses, which was subsequently amended by ASU 2018-19 and ASU 2019-10. This standard requires
the measurement of expected credit losses for financial instruments carried at amortized cost held at the reporting date based on historical
experience, current conditions and reasonable forecasts. The updated guidance also amends the current other-than-temporary impairment
model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance
account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In
addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit
loss exists. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected
credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The Company
adopted this standard on January 1, 2023, with no impact on its condensed consolidated financial statements and related disclosures.
Recently Issued Accounting Standards
In June 2022, the FASB issued
ASU 2022-03, ASC Subtopic 820 “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. The
FASB is issuing this update (1) to clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity
security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example,
and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair
value in accordance with Topic 820. The amendments in this update are effective for the Company on January 1, 2025. Early adoption is
permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company is
still evaluating the impact of this pronouncement on the condensed consolidated financial statements.
3. FAIR VALUE MEASUREMENTS
The following table presents
information about the Company’s financial liabilities that are measured at fair value on a recurring basis as of June 30, 2023 and
December 31, 2022, by level within the fair value hierarchy (in thousands):
| |
Fair value measured as of June 30, 2023 | |
| |
| | |
Quoted prices in | | |
Significant
other | | |
Significant | |
| |
Fair value at June 30, | | |
active markets | | |
observable inputs | | |
unobservable inputs | |
| |
2023 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Warrant liability | |
$ | 194 | | |
$ | - | | |
$ | - | | |
$ | 194 | |
| |
Fair value measured as of December 31, 2022 | |
| |
| | |
Quoted prices in | | |
Significant other | | |
Significant | |
| |
Fair value at December 31, | | |
active markets | | |
observable inputs | | |
unobservable inputs | |
| |
2022 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Warrant liability | |
$ | 129 | | |
$ | - | | |
$ | - | | |
$ | 129 | |
Spectral MD Holdings, Ltd.
Notes to Unaudited
Financial Statements
There were no transfers between
Level 1, 2 or 3 during the three and six months ended June 30, 2023 and 2022.
The following table presents
changes in Level 3 liabilities measured at fair value for the three and six months ended June 30, 2023 and 2022 (in thousands).
Balance - January 1, 2023 | |
$ | 129 | |
Change in fair value | |
| (16 | ) |
Balance - March 31, 2023 | |
$ | 113 | |
Change in fair value | |
| 81 | |
Balance - June 30, 2023 | |
$ | 194 | |
| |
| | |
Balance - January 1, 2022 | |
$ | 186 | |
Change in fair value | |
| (66 | ) |
Balance - March 31, 2022 | |
$ | 120 | |
Change in fair value | |
| 38 | |
Balance - June 30, 2022 | |
$ | 158 | |
Both observable and unobservable
inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains
and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable
(e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs.
The following table provides
quantitative information regarding Level 3 fair value measurements inputs at their measurement:
| |
June 30, | | |
December 31, | |
| |
2023 | | |
2022 | |
Strike price (per share) | |
$ | 0.75 | | |
$ | 0.71 | |
Contractual term (years) | |
| 4.0 | | |
| 4.5 | |
Volatility (annual) | |
| 71.2 | % | |
| 72.6 | % |
Risk-free rate | |
| 4.1 | % | |
| 4.0 | % |
Dividend yield (per share) | |
| 0.0 | % | |
| 0.0 | % |
4. RESEARCH AND DEVELOPMENT REVENUE
For the three and six months
ended June 30, 2023 and 2022, the Company’s revenues disaggregated by the major sources was as follows (in thousands):
| |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
BARDA | |
$ | 4,020 | | |
$ | 6,255 | | |
$ | 8,963 | | |
$ | 11,963 | |
Other U.S governmental authorities | |
| 231 | | |
| 135 | | |
| 366 | | |
| 271 | |
Total revenue | |
$ | 4,251 | | |
$ | 6,390 | | |
$ | 9,329 | | |
$ | 12,234 | |
Spectral MD Holdings, Ltd.
Notes to Unaudited
Financial Statements
5. ACCRUED EXPENSES
Accrued expenses consist of
the following as of June 30, 2023 and December 31, 2022 (in thousands):
| |
June 30, | | |
December 31, | |
| |
2023 | | |
2022 | |
Salary and wages | |
$ | 1,106 | | |
$ | 1,135 | |
Provision operating expenses | |
| 414 | | |
| 736 | |
Benefits | |
| 790 | | |
| 650 | |
Franchise tax | |
| 84 | | |
| 110 | |
Total accrued expenses | |
$ | 2,394 | | |
$ | 2,631 | |
6. NOTES PAYABLE
Insurance Note
In June 2022 and 2021, the
Company entered into financing agreements for a portion of its insurance premium for approximately $0.4 million (the “2022 Insurance
Note”) and $0.5 million (the “2021 Insurance Note”), respectively. The 2022 Insurance Note and 2021 Insurance Note bear
interest at 6.7% per annum and 5.7% per annum, respectively, and are each payable in equal monthly payments of principal and interest
maturing in May 2023 and February 2022, respectively. The Company determined that the carrying amounts of the 2022 Insurance Note and
2021 Insurance Note approximate fair value due to the short-term nature of borrowings and current market rates interest rates.
During the six months ended
June 30, 2023, the Company repaid the remaining balance of approximately $0.2 million of principal and interest for the 2022 Insurance
Note. As of December 31, 2022, the Company had an outstanding balance of $0.2 million, respectively, for the 2022 Insurance Note.
During the six months ended
June 30, 2022, the Company repaid the remaining balance of approximately $0.2 million, respectively, for the 2021 Insurance Note. There
was no outstanding balance for the 2021 Insurance Note as of December 31, 2022.
PPP Loan
On April 13, 2020, the Company
entered into a promissory note with JPMorgan Chase Bank, N.A., as lender, pursuant to the Paycheck Protection Program (“PPP”)
of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) for $768,575 (the “PPP Loan”). The PPP
Loan, which matured on April 13, 2022 and bears interest at 1% per annum, can be prepaid at any time prior to maturity with no prepayment
penalties. The Company could defer interest and principal payments until September 13, 2021. Beginning on September 13, 2021, the Company
was required to make equal monthly payments of principal and interest until the loan maturity on April 13, 2022. The PPP Loan is subject
to customary terms for payment defaults and breaches of representations and warranties. The Company did not request the PPP Loan to be
forgiven. During the six months ended June 30, 2022, the Company repaid the remaining $0.4 million of principal and interest for the PPP
Loan. There was no outstanding balance for the PPP Loan as of December 31, 2022.
Spectral MD Holdings, Ltd.
Notes to Unaudited
Financial Statements
7.
Commitments and Contingencies
Legal Matters
The Company is not a party
to any material legal proceedings and is not aware of any pending or threatened claims. From time to time, the Company may be subject
to various legal proceedings and claims that arise in the ordinary course of its business activities.
8.
Leases
The Company leases office space
for its principal office in Dallas, Texas, which was extended during 2022 to expire in May 2024. This lease was extended again in 2023
to expire in December 2024. During 2022, the Company entered into a lease for office space in the United Kingdom under a lease that expires
in May 2023.
During 2023, the Company entered
into a lease for office space in the United Kingdom for annual payments of $0.1 million under a lease that expires in March 2024. The
lease has been excluded from the tables below as the term is twelve months.
The following table summarizes
quantitative information about the Company’s operating leases for the three and six months ended June 30, 2023 and 2022 (dollars
in thousands):
| |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Operating cash flows from operating leases | |
$ | 212 | | |
$ | 158 | | |
$ | 327 | | |
$ | 313 | |
Right-of-use assets exchanged for operating lease liabilities | |
$ | 483 | | |
$ | 15 | | |
$ | 483 | | |
$ | 624 | |
Weighted average remaining lease term – operating leases (in years) | |
| 1.5 | | |
| 0.7 | | |
| 1.5 | | |
| 0.7 | |
Weighted average discount rate – operating leases | |
| 8.5 | % | |
| 6.7 | % | |
| 8.5 | % | |
| 6.7 | % |
The following table provides
the components of the Company’s lease cost included in general and administrative expense in the condensed consolidated statement
of operations (in thousands):
| |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
Operating leases | |
| | | |
| | | |
| | | |
| | |
Operating lease cost | |
$ | 198 | | |
$ | 132 | | |
$ | 392 | | |
$ | 264 | |
Variable lease cost | |
| 133 | | |
| 49 | | |
| 192 | | |
| 93 | |
Total rent expense | |
$ | 331 | | |
$ | 181 | | |
$ | 584 | | |
$ | 357 | |
Variable lease cost is primarily
attributable to amounts paid to lessors for utility charges and property taxes under an office space lease.
As of June 30, 2023, future
minimum payments under the non-cancelable operating leases under ASC 842 were as follows (in thousands):
Six months ending December 31, 2023 | |
$ | 417 | |
Year ending December 31, 2024 | |
| 894 | |
Total | |
| 1,311 | |
Less: imputed interest | |
| (86 | ) |
Operating lease liabilities | |
$ | 1,225 | |
9.
Stockholders’ Equity
The Company was authorized
to issue 400,000,000 shares of common stock, par value $0.001 per share as of June 30, 2023 and December 31, 2022. The Company had 136,261,515
and 135,409,564 shares of common stock issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.
Spectral MD Holdings, Ltd.
Notes to Unaudited
Financial Statements
10.
Stock-based Compensation
2018 Long Term Incentive Plan
On July 24, 2018, the Company’s
Board adopted the 2018 Long Term Incentive Plan (the “2018 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. In June 2021, in connection with the IPO,
the 2018 Plan was amended so that stock issued pursuant to the 2018 Plan would be the common stock of the Company. Pursuant to the 2018
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. As of June 30, 2023, 38,354,118 shares of common stock were authorized
for issuance under the 2018 Plan, of which 584,952 remain available for issuance.
2022 Long Term Incentive Plan
On September 27, 2022, the
Company’s stockholders approved the adoption of the 2022 Long Term Incentive Plan (the “2022 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. Pursuant
to the 2022 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. As of June 30, 2023, 20,000,000 shares of common stock were
authorized for issuance under the 2022 Plan, of which 18,485,000 remain available for issuance.
Restricted Stock Awards
The RSAs generally vest over
four years. A summary of RSA activities for the six months ended June 30, 2023 are presented below:
| | |
Number of Shares | | |
Weighted Average Grant Date Fair Value per
Share
US$ | |
Nonvested as of January 1, 2023 | | |
| 312,502 | | |
$ | 0.10 | |
Vested | | |
| (312,502 | ) | |
$ | 0.10 | |
Nonvested as of June 30, 2023 | | |
| - | | |
$ | - | |
Restricted Stock Units
The RSUs generally vest over
three years. A summary of RSU activities for the six months ended June 30, 2023 are presented below:
| | |
Number of Shares | | |
Weighted
Average
Grant
Date
Fair
Value
per
Share
US$ | |
Nonvested as of January 1, 2023 | | |
| - | | |
$ | - | |
Granted | | |
| 600,000 | | |
$ | 0.45 | |
Nonvested as of June 30, 2023 | | |
| 600,000 | | |
$ | 0.45 | |
Spectral MD Holdings, Ltd.
Notes to Unaudited
Financial Statements
Stock Options
The fair value of each employee
and non-employee stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company’s
common stock became publicly traded on July 22, 2021 and lacks company-specific historical and implied volatility information. Therefore,
it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies. Due to the lack
of historical exercise history, the expected term of the Company’s stock options for employees has been determined utilizing the
simplified method by taking an average of the vesting periods and the original contractual terms for each award. The expected term of
stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined
by reference to the US. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected
term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect
to pay any cash dividends in the foreseeable future.
In applying the Black Scholes
option pricing model, the Company used the following assumptions for stock options granted in the six months ended June 30, 2023:
| |
Six Months Ended | |
| |
June 30, 2023 | |
Exercise price (per share) | |
$ | 0.44 | |
Expected term (years) | |
| 6.0 | |
Volatility (annual) | |
| 72 | % |
Risk-free rate | |
| 3.5 | % |
Dividend yield (per share) | |
| 0 | % |
A summary of stock options
activity for the six months ended June 30, 2023 is presented below:
| |
Stock Options | | |
Weighted Average Exercise Price US$ | | |
Weighted Average Remaining Contractual
Life (in years) | | |
Aggregate Intrinsic
Value (in
thousands) | |
Outstanding at January 1, 2023 | |
| 36,124,000 | | |
$ | 0.20 | | |
| 7.3 | | |
$ | 6,831 | |
Options granted | |
| 2,511,000 | | |
$ | 0.44 | | |
| | | |
| | |
Options forfeited | |
| (163,334 | ) | |
$ | 0.35 | | |
| | | |
| | |
Options exercised | |
| (220,000 | ) | |
$ | 0.17 | | |
| | | |
| | |
Options cancelled | |
| (210,000 | ) | |
$ | 0.19 | | |
| | | |
| | |
Outstanding as of June 30, 2023 | |
| 38,041,666 | | |
$ | 0.21 | | |
| 7.0 | | |
$ | 12,426 | |
Options vested and exercisable as of June 30, 2023 | |
| 30,265,209 | | |
$ | 0.17 | | |
| 6.6 | | |
$ | 11,244 | |
The Company recorded
stock-based compensation expense for stock options and restricted stock of $0.3 million and $0.7 million for the three and six
months ended June 30, 2023, respectively, and $0.3 million and $0.6 million for the three and six months ended June 30, 2022,
respectively, in general and administrative expenses in the condensed consolidated statements of operations.
As of June 30, 2023, there
was approximately $1.7 million and $0.2 million of unrecognized stock-based compensation related to stock option grants and restricted
stock unit grants, respectively, that will be amortized over a weighted average period of 1.2 years and 1.3 years, respectively.
During the year ended December
31, 2018, the Company granted of 10,039,926 stock options to investors (the “Investor Options”) that were approved by the
Board of Directors outside of the 2018 Plan. As of June 30, 2023, 9,681,354 Investor Options are outstanding and will expire in November
2023. The Investor Options have an exercise price of $0.20 per share. As of June 30, 2023, there is no unrecognized stock-based compensation
expense related to the Investor Options.
Spectral MD Holdings, Ltd.
Notes to Unaudited
Financial Statements
As of June 30, 2023, the Company
has outstanding stock options, issued to an investor, to purchase 210,000 shares of the Company’s common stock (the “ASC 815
Options”) at a price of $0.19 per share that expire in December 2023. The ASC 815 Options have a grant date fair value of $0.21
per share and are equity-classified stock options in accordance with ASC 815.
11. INCOME TAXES
The Company recorded a provision
for income taxes of approximately $40,000 and $86,000 for the three and six months ended June 30, 2023, respectively, and $11,000 and
$6,000 for the three and six months ended June 30, 2022, respectively. The effective tax rate was 1.3% for the three and six months ended
June 30, 2023, and 4.3% and 0.8% for the three and six months ended June 30, 2022, respectively.
The tax provision for interim
periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items arising in that
quarter. The Company’s effective tax rate differs from the U.S. statutory tax rate in the three and six months ended June 30, 2023
primarily due to changes in valuation allowances on deferred tax assets as it is more likely than not that some or all of the Company’s
deferred tax assets will not be realized.
The Company evaluates its tax
positions on a quarterly basis and revises its estimate accordingly. The Company recorded immaterial interest and penalties during the
three and six months ended June 30, 2023.
12. NET LOSS PER COMMON SHARE
Basic and diluted net loss
per common share attributable to common stockholders are the same for the three and six months ended June 30, 2023 and 2022, since the
inclusion of all potential shares of common stock outstanding would have been anti-dilutive due to the Company’s net loss.
The table below summarizes
potentially dilutive securities that were excluded from the computation of net loss per common share as of the periods presented because
including them would be anti-dilutive.
| |
2023 | | |
2022 | |
Common stock options | |
| 47,933,020 | | |
| 46,163,926 | |
Common stock warrants | |
| 762,712 | | |
| 762,712 | |
Unvested restricted stock units | |
| 600,000 | | |
| - | |
Unvested restricted stock | |
| - | | |
| 687,502 | |
Potentially dilutive securities | |
| 49,295,732 | | |
| 47,614,140 | |
13. RELATED PARTY TRANSACTIONS
For the three and six months
ended June 30, 2023 and 2022, the Company did not have any transactions with related parties.
14. SUBSEQUENT EVENTS
Share Issuances and Business Combination
In September 2023, prior to
the closing of the Business Combination, the Company completed the Equity Raise.
Spectral MD Holdings, Ltd.
Notes to Unaudited
Financial Statements
On September 11, 2023 (the
“Closing”), the Company consummated the Business Combination with Rosecliff, whereby all of the Company’s 137,701,673
shares of common stock and the Equity Issuance common stock were exchanged by Rosecliff for 13,316,464 and 744,667, respectively, ordinary
shares of Rosecliff, at an exchange ratio of 10.31.
Pursuant to the Business
Combination Agreement, on the Closing, in sequential order: (a) Ghost Merger Sub I merged with and into the Company, with the Company
continuing as the surviving company as a wholly owned subsidiary of Rosecliff (the “Spectral Merger”) and then, (b) the Company
merged with and into Ghost Merger Sub II (the “SPAC Merger”, together with the Spectral Merger (the “Merger”)),
with Ghost Merger Sub II surviving the SPAC Merger as a direct wholly-owned subsidiary of Rosecliff. Rosecliff was renamed Spectral AI,
Inc. (“Spectral AI” or the “Combined Company”).
In conjunction with the closing, options to purchase 46,592,862 shares of the Company’s common stock and 600,000 RSUs were exchanged for options
to purchase 4,519,191 shares of Spectral AI’s ordinary shares and 58,196 RSUs of Spectral AI. Additionally, the warrants to purchase
762,712 of the Company’s common stock were exchanged for warrants to purchase 73,978 ordinary shares
of Spectral AI’s common stock.
On September 12, 2023,
Spectral AI began trading its shares on the NASDAQ stock exchange after delisting its shares from the AIM market of the London Stock Exchange
on September 7, 2023.
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Exhibit
99.2
Artificial
Intelligence-Driven Predictive Medical Diagnostics Company
Spectral
MD Announces Closing of Business Combination
Company
Renamed “Spectral AI, Ltd.” and Will Commence Trading on
Nasdaq Global Market Under the Symbol “MDAI” Effective
September 12, 2023
Overview:
| ● | Spectral
AI is the Only Publicly Listed, AI-Driven Predictive Medical Diagnostic Company Developing
Technology that is Specifically Engineered to Provide Clinicians with an Objective and Immediate
Assessment of a Wound’s Healing Potential |
| ● | The
Company is Building on $130+ Million to Date of U.S. Government Contracts Supporting the
Development of Proprietary Wound Healing Assessment Technology for the Burn Indication and
to Expand its AI Technology Platform into Diabetic Foot Ulcers and Multiple Other Clinical
Indications |
| ● | Company
has Submitted its Response to U.S. Government’s Request for Proposal (RFP) for the
Burn Wound Imaging Technology Contract that is Expected to be Awarded in 2023 |
| ● | U.S.
Listing Expected to Advance Commercialization Initiatives |
DALLAS,
TX – September 11, 2023 -- Spectral AI, Inc. (Nasdaq: MDAI; MDAIW) (“Spectral AI” or the “Company”),
an artificial intelligence (AI) company focused on medical diagnostics for faster and more accurate treatment decisions in wound care,
announced today that it will commence trading on the Nasdaq Global Market on September 12, 2023 under the ticker “MDAI” following
the closing of its previously announced business combination with Rosecliff Acquisition Corp I (“Rosecliff”).
Anchored
by its internally developed DeepView® System, Spectral AI’s AI-based digital wound healing assessment in predictive
medical diagnostics provides clinicians with an objective and immediate assessment of a wound’s healing potential. Spectral AI
has received over $130 million of U.S. Government contracts, including under the U.S. federal mass casualty countermeasures program.
The Company has used this funding to develop its burn indication and to expand into diabetic foot ulcers (“DFU”) and anticipated
multiple other clinical indications.
“Spectral
AI’s debut on the Nasdaq Global Market is a pivotal moment in our journey to address a large and growing unmet medical need in
the area of AI-driven wound healing assessment,” said Wensheng Fan, CEO of Spectral AI. “We are making significant strides
towards commercializing our DeepView System for burn and DFU - which includes planned FDA, CE Mark, and UKCA submissions beginning in
2023 - while managing a promising pipeline of potential new AI-based diagnostic applications. We believe that our Nasdaq listing will
be of significant benefit to our pursuit of these objectives and are more confident than ever in our ability to deploy a technology that
plays a pivotal role in transforming patient care and delivers measurable benefits across the healthcare system. We are leveraging MDAI’s
profile to retain and attract a seasoned leadership team led by me and includes our Chief Operating Officer Niko Pagoulatos, Ph.D. and
General Counsel Vincent Capone.”
“On
behalf of the team at Rosecliff, I am thrilled to announce the closing of this transaction,” said Mike Murphy, CEO of Rosecliff
and a newly appointed director of Spectral AI. “Wensheng and his team have created a disruptive, scalable, and difficult-to-duplicate
AI-based approach to wound healing assessment with demonstrated efficacy. We are excited with the pace of development at Spectral AI
and optimistic that the Company’s proprietary and predictive medical diagnostic technology will give rise to a suite of AI-platform
indications that deliver value both across the healthcare continuum and to investors.”
AI-Driven
DeepView System: Seeing What the Naked Eye Cannot
Spectral
AI’s DeepView System integrates proprietary optical technology with AI-enabled algorithms to see deep below the skin surface to
provide a healing potential assessment in seconds by clearly defining healing versus non-healing tissue invisible to the naked eye. DeepView’s
output is specifically engineered to allow the physician to make a more accurate, timely and informed decision regarding next step treatment
plan for a patient’s wounds.
Highlights
| ● | History
of U.S. Government Support: To date, Spectral AI has received over $130 million of U.S. Government contracts for burn wound healing
assessment, including under the U.S. federal mass casualty countermeasures program. |
| ● | Potential
Government Procurement Contract: The Company has responded to the RFP solicitation for a novel burn wound imaging technology contract
from the U.S. Government which is expected to be awarded in 2023. |
| ● | FDA
Breakthrough Designation: The DeepView System received Breakthrough Device Status for its Burn Indication in 2017. |
| ● | Large
and Growing Markets: Initial target markets of burn wounds and DFU represent aggregate total addressable markets of ~$14.7 billion
by 2028. |
| ● | Commercialization
Roadmap: |
| o | Additional
FDA, CE (Conformite Europeenne), and UKCA (United Kingdom Conformity Assessment) regulatory submissions expected to commence in 2023
and continue through 2025 building on positive ongoing clinical studies. Spectral’s DeepView SnapShot System is UKCA marked for
use in the United Kingdom. |
| o | Spectral
AI has developed strategic partnerships with multiple clinical and academic partners in the United States and Europe, along with key
external manufacturing and development relationships. |
| o | In
August 2023, the Company received ISO 13485 certification for the manufacture and distribution of its DeepView System. |
| ● | Significant
Barriers to Entry: Spectral AI’s artificial intelligence models are trained and tested against a growing proprietary and clinically
validated database of over 263 billion data points only available to DeepView users, developed over more than eight years of clinical
studies across the U.S. and Europe. Spectral AI’s IP portfolio includes 20 issued US and international patents and 34 active US
and international patent applications protecting its core current and anticipated future lines of business. |
| ● | DeepView
Expected to Deliver Systemwide Benefits: The DeepView System is intended to reduce healthcare costs, provide healthcare providers
objective, standardized wound measurement and healing prediction, and reduce length of stay, while favorably impacting the patient care
journey. |
| ● | Applications:
Initially targeting burn wounds, Spectral AI expanded its focus to DFU in 2020. The Company expects to leverage its DeepView platform
to expand to multiple clinical indications, including 3D wound measurement (POC ready), Digital Guided Therapy, Venous Leg Ulcers, cosmetics,
Critical Limb Ischemia, Amputation, Debridement, and others. |
The
Company’s Board of Directors and Strategic Advisory Board are comprised of healthcare and financial industry veterans, with specialties
in AI, healthcare technology, population health management, value-based care, clinical care and patient outcomes, life sciences, research,
audit and investing.
The
transaction was approved at a General Meeting of the stockholders of Spectral MD Holdings, Ltd. (“Spectral MD”) on August
31, 2023 and a Special Meeting of Rosecliff’s stockholders on September 6, 2023. The Company’s warrants will also commence
trading on September 12, 2023 under the symbol “MDAIW.”
Advisors
Reed
Smith LLP served as a legal advisor to Spectral AI. Skadden, Arps, Slate, Meagher & Flom, LLP served as a legal advisor to Rosecliff.
Cantor Fitzgerald, L.P. and BTIG, LLC served as Spectral AI’s capital markets advisors.
About
Spectral AI
Spectral
AI is a predictive AI company focused on medical diagnostics for faster and more accurate treatment decisions in wound care for burn,
DFU, and future clinical applications. At Spectral AI, we are a dedicated team of forward-thinkers striving to revolutionize the management
of wound care by “Seeing the Unknown”® with our DeepView® Wound
Diagnostics System. The Company’s DeepView® platform is a predictive diagnostic device that offers clinicians an objective
and immediate assessment of a wound’s healing potential prior to treatment or other medical intervention. With algorithm-driven
results that have a goal of substantially exceeding the current standard of care in the future, Spectral MD’s diagnostic platform
is expected to provide faster and more accurate treatment insight and improve patient care while reducing healthcare costs. For more
information, visit the Company at: www.spectral-ai.com
Forward
Looking Statements
Certain
statements made in this release are “forward looking statements” within the meaning of the “safe harbor” provisions
of the United States Private Securities Litigation Reform Act of 1995, including statements regarding the Company’s strategy, plans,
objectives, initiatives and financial outlook. When used in this press release, the words “estimates,” “projected,”
“expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,”
“seeks,” “may,” “will,” “should,” “future,” “propose” and variations
of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking
statements.
These
forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown
risks, uncertainties, assumptions and other important factors, many of which are outside Company’s control, that could cause actual
results or outcomes to differ materially from those discussed in the forward-looking statements. As such, readers are cautioned not to
place undue reliance on any forward-looking statements.
Investors
should carefully consider the foregoing factors and the other risks and uncertainties described in the “Risk Factors” sections
of the Company’s filings with the SEC, including the Registration Statement and the other documents filed by Rosecliff. These filings
identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those
contained in the forward-looking statements.
Contact
Spectral
AI, Ltd.
Christine
Marks, VP of Marketing and Commercialization
The Equity Group |
|
Devin Sullivan |
Conor Rodriguez |
Managing Director |
Analyst |
dsullivan@equityny.com |
crodriguez@equityny.com |
3
Exhibit 99.4
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
Defined
terms included below and not otherwise defined in this Exhibit [ ] have the same meaning as terms defined and included elsewhere in this
Current Report on Form 8-K (the “Form 8-K”) filed with the Securities and Exchange Commission (the “SEC”) on September
15, 2023. Unless the context otherwise requires, the “Combined Company” refers to Spectral AI, Inc. (f/k/a Rosecliff Acquisition
Corp I, a Delaware corporation) and its consolidated subsidiaries after the Closing, “Spectral” refers to Spectral MD Holdings,
Ltd., a Delaware corporation, and “Rosecliff” refers to Rosecliff Acquisition Corp I prior to the Closing.
The
following unaudited pro forma condensed combined financial information presents the combination of the financial information of Spectral
and Rosecliff adjusted to give effect to the Business Combination and the other events contemplated by the Business Combination Agreement.
The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X.
The
unaudited pro forma condensed combined balance sheet as of June 30, 2023 combines the historical balance sheet of Rosecliff and the historical
balance sheet of Spectral, as adjusted for the Pre-Closing Financing further described in Note 2 to the unaudited pro forma condensed
combined financial information, on a pro forma basis as if the Business Combination and the other events contemplated by the Business
Combination Agreement had been consummated on June 30, 2023. The unaudited pro forma condensed combined statement of operations for the
six months ended June 30, 2023 and the year ended December 31, 2022, combines the historical statement of operations of Rosecliff
and Spectral, as adjusted for the Pre-Closing Financing further described in Note 2 to the unaudited pro forma condensed combined financial
information, for such periods on a pro forma basis as if the Business Combination and the other events contemplated by the Business Combination
Agreement had been consummated on January 1, 2022, the beginning of the earliest period presented.
The
pro forma condensed combined financial information may not be useful in predicting the future financial condition and results of operations
of the Combined Company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected
herein due to a variety of factors.
Prior
to the closing of the Business Combination, Rosecliff public shareholders were offered the opportunity to redeem all or a portion of such
shareholder’s public shares for cash equal to their pro rata share of the aggregate amount on deposit (as of two business days prior
to the Closing) in the Rosecliff trust account. The unaudited condensed combined pro forma financial information reflects actual redemptions
of 178,231 shares of Rosecliff’s Common Stock at approximately $10.39 per share, or $1.85 million in the aggregate.
The
following summarizes the pro forma ownership interest in the Combined Company immediately after the Business Combination on a fully diluted
basis:
| |
Shares | | |
% | |
RCLF Public shareholders | |
| 280,485 | | |
| 1.0 | % |
RCLF Founders | |
| 880,000 | | |
| 3.0 | % |
Spectral common shareholders | |
| 14,961,131 | | |
| 51.2 | % |
Other Spectral equityholders | |
| 4,651,365 | | |
| 15.9 | % |
RCLF Public Warrants | |
| 8,433,333 | | |
| 28.9 | % |
Fully diluted shares outstanding | |
| 29,206,314 | | |
| 100.0 | % |
The
Business Combination was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Rosecliff
was treated as the acquired company and Spectral was treated as the acquirer for financial reporting purposes. Accordingly, for accounting
purposes, the financial statements of the Combined Company will represent a continuation of the financial statements of Spectral, with
the Business Combination treated as the equivalent of Spectral issuing stock for the net assets of Rosecliff, accompanied by a recapitalization.
The net assets of Rosecliff will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior
to the Business Combination will be those of Spectral. Spectral was determined to be the accounting acquirer based on an evaluation of
the following facts and circumstances:
| ● | Spectral’s existing shareholders have a majority of
the voting power of the Combined Company; |
| ● | the Combined Company’s board will consist of seven
directors, six of whom were designated by Spectral and one of whom was designated by Rosecliff; |
| ● | all of Spectral’s existing management will continue
in their key positions in the management team of the Combined Company; |
| ● | Spectral’s relative size of assets and operations compared to Rosecliff; and |
| ● | Spectral’s operations prior to the Business Combination
comprise the ongoing operations. |
Assumptions
and estimates underlying the unaudited pro forma adjustments set forth in the unaudited pro forma condensed combined financial information
are described in the accompanying notes. The unaudited pro forma condensed combined financial information has been presented for illustrative
purposes only and is not necessarily indicative of the operating results and financial position that would have been achieved had the
Business Combination occurred on the dates indicated, and does not reflect adjustments for any anticipated synergies, operating efficiencies,
tax savings or cost savings. Further, the unaudited pro forma condensed combined financial information does not purport to project the
future operating results or financial position of the Combined Company following the consummation of the Business Combination. The unaudited
pro forma adjustments represent management’s estimates based on information available as of the date of the unaudited pro forma
condensed combined financial information and are subject to change as additional information becomes available and analyses are performed.
Rosecliff and Spectral have not had any historical relationship prior to the transactions discussed in this Form 8-K. Accordingly, no
pro forma adjustments were required to eliminate activities between the companies.
UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2023
(In Thousands)
| |
| | |
Transaction | | |
| | |
| | |
Transaction | | |
| |
| |
| |
| | |
Accounting | | |
| | |
| | |
Accounting | | |
| |
| |
| |
| | |
Adjustments: | | |
| | |
| | |
Adjustments: | | |
| |
| |
| |
| | |
Pre-Closing | | |
| | |
| | |
Business | | |
| |
| |
| |
Spectral | | |
Financing | | |
Spectral | | |
RCLF | | |
Combination | | |
| |
Pro Forma | |
| |
(Historical) | | |
(Note 2) | | |
(Adjusted) | | |
(Historical) | | |
(Note 3) | | |
| |
Combined | |
ASSETS | |
| | |
| | |
| | |
| | |
| | |
| |
| |
Current assets | |
| | |
| | |
| | |
| | |
| | |
| |
| |
Cash and cash equivalents | |
$ | 8,166 | | |
$ | 3,351 | | |
$ | 11,517 | | |
$ | 409 | | |
$ | 2,874 | | |
(a) | |
$ | 7,855 | |
| |
| | | |
| | | |
| | | |
| | | |
| (750 | ) | |
(c) | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| (3,614 | ) | |
(d) | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| (2,581 | ) | |
(d) | |
| | |
Accounts receivable, net | |
| 1,520 | | |
| - | | |
| 1,520 | | |
| - | | |
| - | | |
| |
| 1,520 | |
Unbilled revenue | |
| 91 | | |
| - | | |
| 91 | | |
| - | | |
| - | | |
| |
| 91 | |
Deferred offering costs | |
| 1,124 | | |
| - | | |
| 1,124 | | |
| - | | |
| (1,124 | ) | |
(d) | |
| - | |
Prepaid expenses and other current assets | |
| 940 | | |
| - | | |
| 940 | | |
| 170 | | |
| - | | |
| |
| 1,110 | |
Total current assets | |
| 11,841 | | |
| 3,351 | | |
| 15,192 | | |
| 579 | | |
| (5,195 | ) | |
| |
| 10,576 | |
Property and equipment, net | |
| 16 | | |
| - | | |
| 16 | | |
| - | | |
| - | | |
| |
| 16 | |
Right-of-use assets | |
| 1,141 | | |
| - | | |
| 1,141 | | |
| - | | |
| - | | |
| |
| 1,141 | |
Investments held in Trust Account | |
| - | | |
| - | | |
| - | | |
| 4,725 | | |
| (1,851 | ) | |
(i) | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| (2,874 | ) | |
(a) | |
| | |
Total assets | |
$ | 12,998 | | |
$ | 3,351 | | |
$ | 16,349 | | |
$ | 5,304 | | |
$ | (9,920 | ) | |
| |
$ | 11,733 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Current liabilities | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Accounts payable | |
$ | 2,657 | | |
$ | - | | |
$ | 2,657 | | |
$ | - | | |
$ | (650 | ) | |
(d) | |
$ | 2,007 | |
Accrued expenses | |
| 2,394 | | |
| - | | |
| 2,394 | | |
| 4,995 | | |
| (168 | ) | |
(d) | |
| 4,307 | |
| |
| | | |
| | | |
| | | |
| | | |
| (2,914 | ) | |
(d) | |
| | |
Deferred revenue | |
| 509 | | |
| - | | |
| 509 | | |
| - | | |
| - | | |
| |
| 509 | |
Lease liabilities, short-term | |
| 773 | | |
| - | | |
| 773 | | |
| - | | |
| - | | |
| |
| 773 | |
Income taxes payable | |
| - | | |
| - | | |
| - | | |
| 273 | | |
| - | | |
| |
| 273 | |
Due to Sponsor | |
| - | | |
| - | | |
| - | | |
| 16 | | |
| - | | |
| |
| 16 | |
Warrant liability | |
| 194 | | |
| - | | |
| 194 | | |
| - | | |
| - | | |
| |
| 194 | |
Total current liabilities | |
| 6,527 | | |
| - | | |
| 6,527 | | |
| 5,284 | | |
| (3,732 | ) | |
| |
| 8,079 | |
Lease liabilities, long-term | |
| 452 | | |
| - | | |
| 452 | | |
| - | | |
| - | | |
| |
| 452 | |
Deferred underwriting fees payable | |
| - | | |
| - | | |
| - | | |
| 8,855 | | |
| (8,105 | ) | |
(c) | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| (750 | ) | |
(c) | |
| | |
Derivative liabilities | |
| - | | |
| - | | |
| - | | |
| 788 | | |
| (282 | ) | |
(g) | |
| 506 | |
Total liabilities | |
| 6,979 | | |
| - | | |
| 6,979 | | |
| 14,927 | | |
| (12,869 | ) | |
| |
| 9,037 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Commitments and contingencies | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Class A ordinary shares subject to possible redemption | |
| - | | |
| - | | |
| - | | |
| 4,854 | | |
| (1,851 | ) | |
(i) | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| (3,003 | ) | |
(b) | |
| | |
Stockholders’ equity (deficit) | |
| | | |
| | | |
| - | | |
| | | |
| | | |
| |
| | |
Common stock | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
(b) | |
| 1 | |
| |
| | | |
| | | |
| | | |
| | | |
| - | | |
(d) | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| - | | |
(d) | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| - | | |
(h) | |
| | |
| |
| | | |
| | | |
| - | | |
| | | |
| 1 | | |
(f) | |
| | |
Class B common stock | |
| - | | |
| - | | |
| - | | |
| 1 | | |
| (1 | ) | |
(h) | |
| - | |
Common stock, Spectral | |
| 136 | | |
| 8 | | |
| 144 | | |
| - | | |
| (144 | ) | |
(f) | |
| - | |
Additional paid-in capital | |
| 24,496 | | |
| 3,343 | | |
| 27,839 | | |
| - | | |
| 3,003 | | |
(b) | |
| 31,021 | |
| |
| | | |
| | | |
| | | |
| | | |
| 8,105 | | |
(c) | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| (2,874 | ) | |
(d) | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| 8,667 | | |
(d) | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| 333 | | |
(d) | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| (14,478 | ) | |
(e) | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| 1 | | |
(h) | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| 143 | | |
(f) | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| 282 | | |
(g) | |
| | |
Accumulated deficit | |
| (18,613 | ) | |
| - | | |
| (18,613 | ) | |
| (14,478 | ) | |
| (9,713 | ) | |
(d) | |
| (28,326 | ) |
| |
| | | |
| | | |
| - | | |
| | | |
| 14,478 | | |
(e) | |
| | |
Total stockholders equity (deficit) | |
| 6,019 | | |
| 3,351 | | |
| 9,370 | | |
| (14,477 | ) | |
| 7,803 | | |
| |
| 2,696 | |
Total liabilities and stockholders’ equity (deficit) | |
$ | 12,998 | | |
$ | 3,351 | | |
$ | 16,349 | | |
$ | 5,304 | | |
$ | (9,920 | ) | |
| |
$ | 11,733 | |
UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2023
(In Thousands, Except Share and Per Share Amounts)
| |
| | |
Accounting | | |
| | |
| | |
| | |
| |
| |
| |
| | |
Adjustments: | | |
| | |
| | |
| | |
| |
| |
| |
| | |
Pre-Closing | | |
| | |
| | |
Transaction | | |
| |
| |
| |
| | |
Financing | | |
| | |
| | |
Accounting | | |
| |
| |
| |
Spectral | | |
(Note 2) | | |
Spectral | | |
RCLF | | |
Adjustments | | |
| |
Pro Forma | |
| |
(Historical) | | |
(Historical) | | |
(Adjusted) | | |
(Historical) | | |
(Note 3) | | |
| |
Combined | |
| |
| | |
| | |
| | |
| | |
| | |
| |
| |
Research and development revenue | |
$ | 9,329 | | |
$ | - | | |
$ | 9,329 | | |
$ | - | | |
$ | - | | |
| |
$ | 9,329 | |
Cost of revenue | |
| (5,357 | ) | |
| - | | |
| (5,357 | ) | |
| - | | |
| - | | |
| |
| (5,357 | ) |
Gross Profit | |
| 3,972 | | |
| - | | |
| 3,972 | | |
| - | | |
| - | | |
| |
| 3,972 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Operating costs and expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
General and administrative | |
| 9,861 | | |
| - | | |
| 9,861 | | |
| 2,003 | | |
| (60 | ) | |
(aa) | |
| 11,804 | |
Total costs and expenses | |
| 9,861 | | |
| - | | |
| 9,861 | | |
| 2,003 | | |
| (60 | ) | |
| |
| 11,804 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Operating loss | |
| (5,889 | ) | |
| - | | |
| (5,889 | ) | |
| (2,003 | ) | |
| 60 | | |
| |
| (7,832 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Other income (expense) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Interest income on investments held in Trust Account | |
| - | | |
| - | | |
| - | | |
| 99 | | |
| (99 | ) | |
(bb) | |
| - | |
Change in fair value of derivative warrant liabilities | |
| (65 | ) | |
| - | | |
| (65 | ) | |
| (394 | ) | |
| 141 | | |
(cc) | |
| (318 | ) |
Interest expense | |
| 86 | | |
| - | | |
| 86 | | |
| - | | |
| - | | |
| |
| 86 | |
Foreign exchange transaction loss | |
| 13 | | |
| - | | |
| 13 | | |
| - | | |
| - | | |
| |
| 13 | |
Transaction costs | |
| (738 | ) | |
| - | | |
| (738 | ) | |
| - | | |
| - | | |
| |
| (738 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Total other income (expense) | |
| (704 | ) | |
| - | | |
| (704 | ) | |
| (295 | ) | |
| 42 | | |
| |
| (957 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Income (loss) before provision for income taxes | |
| (6,593 | ) | |
| - | | |
| (6,593 | ) | |
| (2,298 | ) | |
| 102 | | |
| |
| (8,789 | ) |
Provision for income taxes | |
| 86 | | |
| - | | |
| 86 | | |
| 18 | | |
| - | | |
| |
| 104 | |
Net income (loss) | |
$ | (6,679 | ) | |
$ | - | | |
$ | (6,679 | ) | |
$ | (2,316 | ) | |
$ | 102 | | |
| |
$ | (8,893 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Weighted average Spectral common stock outstanding, basic and diluted | |
| 136,097,641 | | |
| 7,679,198 | | |
| 143,776,839 | | |
| | | |
| | | |
| |
| | |
Basic and diluted net loss per Spectral common stock | |
$ | (0.05 | ) | |
| | | |
$ | (0.05 | ) | |
| | | |
| | | |
| |
| | |
Weighted average Common Stock outstanding, basic and diluted | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| 16,121,616 | |
Basic and diluted net loss per Common Stock share | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
$ | (0.55 | ) |
Weighted average Class A common stock outstanding, basic and diluted | |
| | | |
| | | |
| | | |
| 458,716 | | |
| | | |
| |
| | |
Basic and diluted net loss per Class A common stock share | |
| | | |
| | | |
| | | |
$ | (0.34 | ) | |
| | | |
| |
| | |
Weighted average Class B common stock outstanding, basic and diluted | |
| | | |
| | | |
| | | |
| 6,325,000 | | |
| | | |
| |
| | |
Basic and diluted net loss per Class B common stock share | |
| | | |
| | | |
| | | |
$ | (0.34 | ) | |
| | | |
| |
| | |
UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2022
(In Thousands, Except Share and Per Share Amounts)
| |
| | |
Transaction | | |
| | |
| | |
| | |
| |
| |
| |
| | |
Accounting | | |
| | |
| | |
| | |
| |
| |
| |
| | |
Adjustments: | | |
| | |
| | |
| | |
| |
| |
| |
| | |
Pre-Closing | | |
| | |
| | |
Transaction | | |
| |
| |
| |
| | |
Financing | | |
| | |
| | |
Accounting | | |
| |
| |
| |
Spectral | | |
(Note 2) | | |
Spectral | | |
RCLF | | |
Adjustments | | |
| |
Pro Forma | |
| |
(Historical) | | |
(Historical) | | |
(Adjusted) | | |
(Historical) | | |
(Note 3) | | |
| |
Combined | |
| |
| | |
| | |
| | |
| | |
| | |
| |
| |
Research and development revenue | |
$ | 25,368 | | |
$ | - | | |
$ | 25,368 | | |
$ | - | | |
$ | - | | |
| |
$ | 25,368 | |
Cost of revenue | |
| (14,531 | ) | |
| - | | |
| (14,531 | ) | |
| - | | |
| - | | |
| |
| (14,531 | ) |
Gross Profit | |
| 10,837 | | |
| - | | |
| 10,837 | | |
| - | | |
| - | | |
| |
| 10,837 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Operating costs and expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
General and administrative | |
| 13,484 | | |
| - | | |
| 13,484 | | |
| 1,251 | | |
| (120 | ) | |
(aa) | |
| 14,615 | |
Total costs and expenses | |
| 13,484 | | |
| - | | |
| 13,484 | | |
| 1,251 | | |
| (120 | ) | |
| |
| 14,615 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Operating loss | |
| (2,647 | ) | |
| - | | |
| (2,647 | ) | |
| (1,251 | ) | |
| 120 | | |
| |
| (3,778 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Other income (expense) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Interest income on investments held in Trust Account | |
| - | | |
| - | | |
| - | | |
| 3,156 | | |
| (3,156 | ) | |
(bb) | |
| - | |
Change in fair value of derivative warrant liabilities | |
| 57 | | |
| - | | |
| 57 | | |
| 9,748 | | |
| (3,508 | ) | |
(cc) | |
| 6,297 | |
Net interest income | |
| 21 | | |
| - | | |
| 21 | | |
| - | | |
| - | | |
| |
| 21 | |
Foreign exchange transaction loss | |
| (253 | ) | |
| - | | |
| (253 | ) | |
| - | | |
| - | | |
| |
| (253 | ) |
Other income (expense) | |
| 16 | | |
| - | | |
| 16 | | |
| - | | |
| (9,713 | ) | |
(dd) | |
| (9,697 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Total other income (expense) | |
| (159 | ) | |
| - | | |
| (159 | ) | |
| 12,904 | | |
| (16,377 | ) | |
| |
| (3,632 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Income (loss) before provision for income taxes | |
| (2,806 | ) | |
| - | | |
| (2,806 | ) | |
| 11,653 | | |
| (16,257 | ) | |
| |
| (7,410 | ) |
Provision for income taxes | |
| 106 | | |
| - | | |
| 106 | | |
| 614 | | |
| - | | |
| |
| 720 | |
Net income (loss) | |
$ | (2,912 | ) | |
$ | - | | |
$ | (2,912 | ) | |
$ | 11,039 | | |
$ | (16,257 | ) | |
| |
$ | (8,130 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| | |
Weighted average Spectral comon stock outstanding, basic and diluted | |
| 135,442,441 | | |
| 7,679,198 | | |
| 143,121,639 | | |
| | | |
| | | |
| |
| | |
Basic and diluted net loss per Spectral common stock | |
$ | (0.02 | ) | |
| | | |
$ | (0.02 | ) | |
| | | |
| | | |
| |
| | |
Weighted average Class Comon Stock outstanding, basic and diluted | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
| 16,121,616 | |
Basic and diluted net loss per Common Stock share | |
| | | |
| | | |
| | | |
| | | |
| | | |
| |
$ | (0.50 | ) |
Weighted average Class A comon stock outstanding, basic and diluted | |
| | | |
| | | |
| | | |
| 25,095,264 | | |
| | | |
| |
| | |
Basic and diluted net income per Class A common stock share | |
| | | |
| | | |
| | | |
$ | 0.35 | | |
| | | |
| |
| | |
Weighted average Class B common stock outstanding, basic and diluted | |
| | | |
| | | |
| | | |
| 6,325,000 | | |
| | | |
| |
| | |
Basic and diluted net income per Class B common stock share | |
| | | |
| | | |
| | | |
$ | 0.35 | | |
| | | |
| |
| | |
NOTES TO UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The
Business Combination was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Rosecliff
was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the financial
statements of the Combined Company will represent a continuation of the financial statements of Spectral, and the Business Combination
was treated as the equivalent of Spectral issuing stock for the net assets of Rosecliff, accompanied by a recapitalization. The net assets
of Rosecliff will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business
Combination will be those of Spectral.
The
unaudited pro forma condensed combined balance sheet as of June 30, 2023 gives pro forma effect to the Business Combination and other
events contemplated by the Business Combination Agreement as if they had been consummated on June 30, 2023. The unaudited pro forma condensed
combined statements of operations for the six months ended June 30, 2023 and for the year ended December 31, 2022, give pro forma
effect to the Business Combination and the other events contemplated by the Business Combination Agreement as if they had been consummated
on January 1, 2022.
The
unaudited pro forma condensed combined financial information and accompanying notes have been derived from and should be read in conjunction
with:
| ● | the historical audited financial statements of Rosecliff
as of and for the year ended December 31, 2022 and the related notes, which are included in Rosecliff’s Annual Report on Form 10-K filed
with the Securities and Exchange Commission (“SEC”) on March 31, 2023 (the “Rosecliff 2022 10-K”); |
| ● | the historical unaudited financial statements of Rosecliff
as of and for the six months ended June 30, 2023 and the related notes, which are included in Rosecliff’s Quarterly Report on Form 10-Q filed
with the SEC on August 14, 2023 (the “Rosecliff 2023 10-Q”); |
| ● | the historical audited financial statements of Spectral as
of and for the year ended December 31, 2022 and the related notes, which are included in the Proxy Statement/ Prospectus; and |
| ● | the historical unaudited financial statements of Spectral
as of and for the six months ended June 30, 2023 and the related notes, which are included elsewhere in this Form 8-K. |
Management has made significant estimates and assumptions in its determination
of the pro forma adjustments. As the unaudited pro forma condensed combined financial information has been prepared based on these preliminary
estimates, the final amounts recorded when accounting for the Business Combination may differ materially from the information presented.
The
unaudited pro forma condensed combined financial information does not give effect to any synergies, operating efficiencies, tax savings
or cost savings that may be associated with the Business Combination.
The pro forma adjustments reflecting the consummation of the Business
Combination are based on currently available information as of the date of this Form 8-K and certain assumptions and methodologies that
management believes are reasonable under the circumstances. The unaudited condensed pro forma adjustments, which are described in these
notes, may be revised when accounting for the Business Combination as additional information becomes available and is evaluated. Therefore,
the actual adjustments may materially differ from the pro forma adjustments that appear in this Form 8-K. The unaudited pro forma condensed
combined financial information does not reflect the income tax effects of the pro forma adjustments as based on the statutory rate in
effect for the historical periods presented, as management believes income tax adjustments to not be meaningful given the combined entity
incurred significant losses during the historical periods presented. Management considers this basis of presentation to be reasonable
under the circumstances.
2. | Transaction Accounting Adjustments to Unaudited Pro Forma
Condensed Combined Financial Information Related to the Pre-Closing Financing |
Prior
to the closing of the Business Combination Agreement, Spectral entered into Subscription Agreements (the “Subscription
Agreements”) with certain “qualified institutional buyers” (as defined in Rule 144A under
the Securities Act of 1933, as amended (the “Securities Act”)) and accredited investors (together, the
“Spectral Investors”), pursuant to which the Spectral Investors subscribed for and purchased, and Spectral issued and
sold to the Spectral Investors, an aggregate of 7,679,198 shares of Spectral common stock that converted into shares of Common
Stock at the applicable exchange ratio under the Business Combination Agreement, for aggregate gross proceeds of $3,351,000 (the
“Pre-Closing Financing”). The offer and sale of the shares of Spectral common stock issued in the Pre-Closing Financing
pursuant to the Subscription Agreements have not been registered under the Securities Act in reliance upon the exemption
provided in Section 4(a)(2) of the Securities Act. Spectral granted the Spectral Investors certain registration rights in connection
with the Pre-Closing Financing.
3. | Transaction Accounting Adjustments to Unaudited Pro Forma
Condensed Combined Financial Information Related to the Business Combination |
Transaction Accounting
Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet
The
transaction accounting adjustments related to the Business Combination included in the unaudited pro forma condensed combined balance
sheet as of June 30, 2023 are as follows:
| (a) | Reflects the liquidation and reclassification of cash and
investments held in the Trust Account. |
| (b) | Reflects the transfer of Rosecliff’s Class A common
shares subject to possible redemptions to permanent equity. |
| (c) | Reflects the settlement of $0.8 million of deferred underwriting
fee payable and the reversal of $8.1 million in deferred underwriting fees as the underwriters have agreed to waive this portion
of the fees. The reversal of the deferred underwriting fees was reflected as an increase to additional paid-in capital. |
| (d) | Represents transaction costs incurred by Spectral and Rosecliff
of $12.6 million and $2.9 million, respectively, for legal, financial advisory and other professional fees. Rosecliff’s transaction
costs exclude the deferred underwriting fees as described in Note 3(c) above. |
For the Spectral
transaction costs:
| ● | $0.7 million and $0.2 million were capitalized in deferred
offering costs and accrued in accounts payable and accrued expenses, respectively, as of June 30, 2023; |
| ● | $0.3 million was capitalized in deferred offering costs and
paid as of June 30, 2023; |
| ● | $3.6 million was reflected as a reduction of cash, which
represents Spectral’s transaction costs less amounts previously paid by Spectral as of June 30, 2023 and amounts settled in Common
Stock; |
| ● | $8.7 million was settled through the issuance of 866,667 shares of Common Stock and reflected
as an increase of Common Stock and additional paid-in capital; |
| ● | $2.9 million was capitalized and offset against the
proceeds of the Business Combination and reflected as a reduction to additional paid in capital; and |
| ● | $9.7 million was not capitalized as part of the Business
Combination and reflected as an increase in accumulated deficit. The costs expensed through accumulated deficit, which are in excess
of the proceeds of the transaction and are included in the unaudited pro forma condensed combined statement of operations for the year
ended December 31, 2022 as discussed in Note (dd) below. |
For the Rosecliff
transaction costs:
| ● | $2.6 million was reflected as a reduction of cash and
the settlement of amounts previously expensed and accrued by Rosecliff as of June 30, 2023; and |
| ● | $0.3 million was reflected as an issuance of 33,333
shares of Common stock and the settlement of amounts previously expensed and accrued by Rosecliff as of June 30, 2023. |
| (e) | Reflects the elimination of Rosecliff’s accumulated
deficit after recording the transaction costs incurred by Rosecliff as described in Note 3(d) above. |
| (f) | Reflects the recapitalization of Spectral’s equity
as a result of the Business Combination for the issuance of 14,494,964 shares of Common Stock. |
| (g) | Reflects the forfeiture of 4,706,667 Private Placement Warrants
held by the Sponsor immediately prior to the Business Combination pursuant to the Sponsor Letter Agreement. |
| (h) | Reflects the forfeiture of 5,445,000 Class B shares,
with a par value of $0.0001, held by the Sponsor immediately prior to the Business Combination in accordance with the Sponsor Agreement,
and the conversion of the remaining 880,000 Class B common stock to Common Stock. |
| (i) | Reflects the actual redemptions prior to the Closing of 178,231
shares of Rosecliff’s Common Stock at $10.39 per share, or $1.9 million in the aggregate. |
Transaction Accounting
Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations
The
transaction accounting adjustments related to the Business Combination are included in the unaudited pro forma condensed combined statement
of operations for the six months ended June 30, 2023 and the year ended December 31, 2022 are as follows:
| (aa) | Represents pro forma adjustment to eliminate historical expenses
related to Rosecliff’s administrative service agreement with the Sponsor, which was terminated upon consummation of the Business
Combination. |
| (bb) | Reflects an adjustment to eliminate interest and investment
income related to the Rosecliff trust account. |
| (cc) | Reflects the change in fair value of $0.1 million for
the six months ended June 30, 2023 and $3.5 million for the year ended December 31, 2022 related to the Private Placement Warrants
that were forfeited by the Sponsor upon the consummation of the Business Combination. |
| (dd) | Represents Spectral transaction costs expensed as part of
the Business Combination, which includes transaction costs in excess of the proceeds received in the Business Combination and amounts
allocated to the Rosecliff Public Warrants assumed as part of the Business Combination. These costs are reflected as if incurred on January
1, 2022, the date the Business Combination is deemed to have occurred for the purposes of the unaudited pro forma condensed combined
statements of operations. This is a non-recurring item. |
The
computation of the pro forma net tangible assets is as follows:
Stockholders’ deficit | |
$ | 2.696 | |
Proforma net tangible assets | |
$ | 2,696 | |
Although
net tangible assets are less than the $5,000,001 threshold, the Company completed the Business Combination.
Represents
the net loss per share calculated using the historical basic and diluted weighted average shares of Spectral exchanged common shares
outstanding, and the issuance of additional shares in connection with the Business Combination and other related events, assuming
the shares were outstanding since January 1, 2022. As the Business Combination and other related events are being reflected as
if they had occurred at the beginning of the period presented, the calculation of weighted average shares outstanding for basic and
diluted net loss per share assumes that the shares issuable in connection with the Business Combination have been outstanding for
the entire period presented. No warrants stock options or unvested restricted stock units were included in the earnings per share
calculation as they would be anti-dilutive.
| |
Six Months Ended | | |
Year Ended | |
| |
June 30,
2023 | | |
December 31,
2022 | |
Numerator | |
| | | |
| | |
Pro forma net loss | |
$ | (8,893 | ) | |
$ | (8,130 | ) |
| |
| | | |
| | |
Denominator | |
| | | |
| | |
Pro forma weighted-average Common Stock outstanding - basic and
diluted | |
| 16,121,616 | | |
| 16,121,616 | |
| |
| | | |
| | |
Basic and diluted net loss per share of Common Stock | |
$ | (0.55 | ) | |
$ | (0.50 | ) |
Basic
and diluted loss per share are the same for both the six months ended June 30, 2023 and the year ended December 31, 2022 as the Combined
Company had a loss for those periods.
The
following outstanding shares of common stock equivalents are excluded from the computation of pro forma diluted net loss per share
for all the periods and scenarios presented because including them would have an anti-dilutive effect.
| |
Six Months Ended | | |
Year Ended | |
| |
June 30,
2023 | | |
December 31,
2022 | |
Rosecliff public warrants | |
| 8,433,333 | | |
| 8,433,333 | |
Spectral warrants | |
| 73,978 | | |
| 73,978 | |
Spectral stock options | |
| 4,519,191 | | |
| 4,519,191 | |
Spectral unvested restricted stock units | |
| 58,196 | | |
| 58,196 | |
Total | |
| 13,084,698 | | |
| 13,084,698 | |
9
v3.23.2
Document And Entity Information
|
Sep. 11, 2023 |
Document Information Line Items |
|
Entity Registrant Name |
SPECTRAL
AI, INC.
|
Document Type |
8-K
|
Current Fiscal Year End Date |
--12-31
|
Amendment Flag |
false
|
Entity Central Index Key |
0001833498
|
Document Period End Date |
Sep. 11, 2023
|
Entity Emerging Growth Company |
true
|
Entity Ex Transition Period |
false
|
Entity Incorporation, State or Country Code |
DE
|
Entity File Number |
001-40058
|
Entity Tax Identification Number |
85-3987148
|
Entity Address, Address Line One |
2515 McKinney Avenue
|
Entity Address, Address Line Two |
Suite 1000
|
Entity Address, City or Town |
Dallas
|
Entity Address, State or Province |
TX
|
Entity Address, Postal Zip Code |
75201
|
City Area Code |
(972)
|
Local Phone Number |
499-4934
|
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|
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|
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|
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|
Common Stock, par value $0.0001 per share |
|
Document Information Line Items |
|
Trading Symbol |
MDAI
|
Title of 12(b) Security |
Common Stock, par value $0.0001 per share
|
Security Exchange Name |
NASDAQ
|
Redeemable Warrants, each whole warrant exercisable for one share of Common Stock, at an exercise price of $11.50 per share |
|
Document Information Line Items |
|
Trading Symbol |
MDAIW
|
Title of 12(b) Security |
Redeemable Warrants, each whole warrant exercisable for one share of Common Stock, at an exercise price of $11.50 per share
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v3.23.2
Unaudited Condensed Consolidated Balance Sheets - USD ($) $ in Thousands |
Jun. 30, 2023 |
Dec. 31, 2022 |
Current assets: |
|
|
Cash and cash equivalents |
$ 8,166
|
$ 14,174
|
Accounts receivable, net |
1,520
|
2,294
|
Unbilled revenue |
91
|
618
|
Prepaid expenses |
342
|
331
|
Deferred offering costs |
1,124
|
|
Other current assets |
598
|
270
|
Total current assets |
11,841
|
17,687
|
Non-current assets: |
|
|
Property and equipment, net |
16
|
21
|
Right-of-use assets |
1,141
|
1,008
|
Total Assets |
12,998
|
18,716
|
Commitments and contingencies (Note 7) |
|
|
Current liabilities: |
|
|
Accounts payable |
2,657
|
2,759
|
Accrued expenses |
2,394
|
2,631
|
Deferred revenue |
509
|
|
Lease liabilities, short-term |
773
|
680
|
Notes payable |
|
175
|
Warrant liability |
194
|
129
|
Total current liabilities |
6,527
|
6,374
|
Lease liabilities, long-term |
452
|
346
|
Total Liabilities |
6,979
|
6,720
|
Stockholders’ Equity |
|
|
Common stock ($0.001 par value); 400,000,000 shares authorized; 136,261,515 and 135,409,564 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively |
136
|
135
|
Additional paid-in capital |
24,496
|
23,795
|
Accumulated deficit |
(18,613)
|
(11,934)
|
Total stockholders’ equity |
6,019
|
11,996
|
Total Liabilities and Stockholders’ Equity |
$ 12,998
|
$ 18,716
|
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v3.23.2
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|
Jun. 30, 2023 |
Dec. 31, 2022 |
Statement of Financial Position [Abstract] |
|
|
Common stock, par value (in Dollars per share) |
$ 0.001
|
$ 0.001
|
Common stock, shares authorized |
400,000,000
|
400,000,000
|
Common stock, shares issued |
136,261,515
|
136,261,515
|
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135,409,564
|
135,409,564
|
X |
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v3.23.2
Unaudited Condensed Consolidated Statements of Operations - USD ($) $ in Thousands |
3 Months Ended |
6 Months Ended |
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Income Statement [Abstract] |
|
|
|
|
Research and development revenue |
$ 4,251
|
$ 6,390
|
$ 9,329
|
$ 12,234
|
Cost of revenue |
(2,460)
|
(3,678)
|
(5,357)
|
(7,132)
|
Gross profit |
1,791
|
2,712
|
3,972
|
5,102
|
Operating costs and expenses: |
|
|
|
|
General and administrative |
4,781
|
2,718
|
9,861
|
5,729
|
Total operating costs and expenses |
4,781
|
2,718
|
9,861
|
5,729
|
Operating loss |
(2,990)
|
(6)
|
(5,889)
|
(627)
|
Other income (expense): |
|
|
|
|
Net interest income (expense) |
41
|
3
|
86
|
(1)
|
Change in fair value of warrant liability |
(81)
|
(38)
|
(65)
|
28
|
Foreign exchange transaction gain (loss) |
|
(232)
|
13
|
(204)
|
Transaction costs |
|
|
(738)
|
|
Other income |
|
19
|
|
17
|
Total other income (expense) |
(40)
|
(248)
|
(704)
|
(160)
|
Loss before income taxes |
(3,030)
|
(254)
|
(6,593)
|
(787)
|
Provision for income taxes |
(40)
|
(11)
|
(86)
|
(6)
|
Net loss |
$ (3,070)
|
$ (265)
|
$ (6,679)
|
$ (793)
|
Net loss per share of common stock |
|
|
|
|
Net loss per share of common stock basic (in Dollars per share) |
$ (0.02)
|
$ 0
|
$ (0.05)
|
$ (0.01)
|
Weighted average common shares outstanding |
|
|
|
|
Weighted average common shares outstanding basic (in Shares) |
136,198,713
|
135,347,064
|
136,097,641
|
135,323,279
|
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v3.23.2
Unaudited Condensed Consolidated Statements of Operations (Parentheticals) - $ / shares
|
3 Months Ended |
6 Months Ended |
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Income Statement [Abstract] |
|
|
|
|
Net loss per share of common stock diluted |
$ (0.02)
|
$ 0.00
|
$ (0.05)
|
$ (0.01)
|
Weighted average common shares outstanding diluted |
136,198,713
|
135,347,064
|
136,097,641
|
135,323,279
|
X |
- DefinitionThe amount of net income (loss) for the period available to each share of common stock or common unit outstanding during the reporting period and to each share or unit that would have been outstanding assuming the issuance of common shares or units for all dilutive potential common shares or units outstanding during the reporting period.
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v3.23.2
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity - USD ($) $ in Thousands |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Total |
Balance at Dec. 31, 2021 |
$ 135
|
$ 22,640
|
$ (9,022)
|
$ 13,753
|
Balance (in Shares) at Dec. 31, 2021 |
135,034,564
|
|
|
|
Stock-based compensation |
|
333
|
|
333
|
Stock-based compensation (in Shares) |
187,500
|
|
|
|
Net loss |
|
|
(528)
|
(528)
|
Balance at Mar. 31, 2022 |
$ 135
|
22,973
|
(9,550)
|
13,558
|
Balance (in Shares) at Mar. 31, 2022 |
135,222,064
|
|
|
|
Balance at Dec. 31, 2021 |
$ 135
|
22,640
|
(9,022)
|
13,753
|
Balance (in Shares) at Dec. 31, 2021 |
135,034,564
|
|
|
|
Net loss |
|
|
|
(793)
|
Balance at Jun. 30, 2022 |
$ 136
|
23,266
|
(9,815)
|
13,587
|
Balance (in Shares) at Jun. 30, 2022 |
135,559,564
|
|
|
|
Balance at Mar. 31, 2022 |
$ 135
|
22,973
|
(9,550)
|
13,558
|
Balance (in Shares) at Mar. 31, 2022 |
135,222,064
|
|
|
|
Stock-based compensation |
$ 1
|
293
|
|
294
|
Stock-based compensation (in Shares) |
187,500
|
|
|
|
Stock option exercises |
|
|
|
|
Stock option exercises (in Shares) |
150,000
|
|
|
|
Net loss |
|
|
(265)
|
(265)
|
Balance at Jun. 30, 2022 |
$ 136
|
23,266
|
(9,815)
|
13,587
|
Balance (in Shares) at Jun. 30, 2022 |
135,559,564
|
|
|
|
Balance at Dec. 31, 2022 |
$ 135
|
23,795
|
(11,934)
|
$ 11,996
|
Balance (in Shares) at Dec. 31, 2022 |
135,409,564
|
|
|
135,409,564
|
Stock-based compensation |
$ 1
|
299
|
|
$ 300
|
Stock-based compensation (in Shares) |
562,500
|
|
|
|
Stock option exercises |
|
|
|
|
Stock option exercises (in Shares) |
104,451
|
|
|
|
Net loss |
|
|
(3,609)
|
(3,609)
|
Balance at Mar. 31, 2023 |
$ 136
|
24,094
|
(15,543)
|
8,687
|
Balance (in Shares) at Mar. 31, 2023 |
136,076,515
|
|
|
|
Balance at Dec. 31, 2022 |
$ 135
|
23,795
|
(11,934)
|
$ 11,996
|
Balance (in Shares) at Dec. 31, 2022 |
135,409,564
|
|
|
135,409,564
|
Stock option exercises (in Shares) |
|
|
|
220,000
|
Net loss |
|
|
|
$ (6,679)
|
Balance at Jun. 30, 2023 |
$ 136
|
24,496
|
(18,613)
|
$ 6,019
|
Balance (in Shares) at Jun. 30, 2023 |
136,261,515
|
|
|
135,409,564
|
Balance at Mar. 31, 2023 |
$ 136
|
24,094
|
(15,543)
|
$ 8,687
|
Balance (in Shares) at Mar. 31, 2023 |
136,076,515
|
|
|
|
Stock-based compensation |
|
396
|
|
396
|
Stock-based compensation (in Shares) |
125,000
|
|
|
|
Stock option exercises |
|
6
|
|
6
|
Stock option exercises (in Shares) |
60,000
|
|
|
|
Net loss |
|
|
(3,070)
|
(3,070)
|
Balance at Jun. 30, 2023 |
$ 136
|
$ 24,496
|
$ (18,613)
|
$ 6,019
|
Balance (in Shares) at Jun. 30, 2023 |
136,261,515
|
|
|
135,409,564
|
X |
- DefinitionNumber of shares of common stock outstanding. Common stock represent the ownership interest in a corporation.
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v3.23.2
Unaudited Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands |
6 Months Ended |
Jun. 30, 2023 |
Jun. 30, 2022 |
Cash flows from operating activities: |
|
|
Net loss |
$ (6,679)
|
$ (793)
|
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
|
|
Depreciation expense |
5
|
6
|
Stock-based compensation |
696
|
627
|
Amortization of right-of-use assets |
350
|
251
|
Change in fair value of warrant liability |
65
|
(28)
|
Changes in operating assets and liabilities: |
|
|
Accounts receivable |
774
|
(431)
|
Unbilled revenue |
527
|
(681)
|
Prepaid expenses |
(11)
|
415
|
Other current assets |
(322)
|
(107)
|
Other assets |
|
40
|
Accounts payable |
(752)
|
1,587
|
Accrued expenses |
(405)
|
(548)
|
Deferred revenue |
509
|
|
Lease liabilities |
(284)
|
(300)
|
Net cash (used in) provided by operating activities |
(5,527)
|
38
|
Cash flows from financing activities: |
|
|
Payments of deferred offering costs |
(306)
|
|
Payments for notes payable |
(175)
|
(583)
|
Net cash used in financing activities |
(481)
|
(583)
|
Net decrease in cash and cash equivalents |
(6,008)
|
(545)
|
Cash and cash equivalents, beginning of period |
14,174
|
16,121
|
Cash and cash equivalents, end of period |
8,166
|
15,576
|
Supplemental cash flow information: |
|
|
Cash paid for interest |
3
|
11
|
Noncash operating and financing activities disclosure: |
|
|
Recognition of Right-of-use assets and related lease liabilities upon adoption of ASC 842 |
|
624
|
Recognition of Right-of-use assets and related lease liabilities upon lease amendment |
483
|
|
Unpaid deferred offering costs |
818
|
|
Broker receivable for stock option exercises |
$ 6
|
|
X |
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v3.23.2
Organization, Nature of Business and Liquidity
|
6 Months Ended |
Jun. 30, 2023 |
Organization, Nature of Business and Liquidity [Abstract] |
|
ORGANIZATION, NATURE OF BUSINESS AND LIQUIDITY |
1. ORGANIZATION, NATURE OF BUSINESS AND LIQUIDITY
Spectral MD Holdings, Ltd,
(the “Company”), headquartered in Dallas, Texas, was incorporated in Delaware on March 9, 2009. The Company currently trades
on the AIM market of the London Stock Exchange (the “AIM”).
The Company is devoting substantially
all of its efforts towards research and development of its DeepView® Wound Imaging System. The Company has not generated any product
revenue to date. The Company currently generates revenue from contract development and research services by providing such services to
governmental agencies, primarily to the Biomedical Advanced Research and Development Authority (“BARDA”). The Company operates
in one segment.
On April 11, 2023, the
Company entered into a Business Combination Agreement (as it may be amended, supplemented or otherwise modified from time to time),
by and among Rosecliff Acquisition Corp I (“Rosecliff”), Rosecliff Ghost Merger Sub I Inc. and Ghost Merger Sub II LLC,
whereby all of the Company’s shares were exchanged with Rosecliff for 17,000,000 ordinary shares of Rosecliff with an
aggregate equity value of $170.0 million (the “Business Combination”).
Pursuant to the Business Combination
Agreement, on the Closing, in sequential order: (a) Ghost Merger Sub I will merge with and into the Company, with the Company continuing
as the surviving company as a wholly owned subsidiary of Rosecliff (the “Spectral Merger”) and then, (b) the Company will
merge with and into Ghost Merger Sub II (the “SPAC Merger”, together with the Spectral Merger (the “Merger”)),
with Ghost Merger Sub II surviving the SPAC Merger as a direct wholly-owned subsidiary of Rosecliff. Ghost Merger Sub II will be renamed
Spectral AI, Inc. (the “Combined Company”).
Liquidity
As of June 30, 2023 and
December 31, 2022, the Company had approximately $8.2 million and $14.2 million, respectively, in cash, and an accumulated deficit
of $18.6 million and $11.9 million, respectively. The Company has historically funded its operations through the issuance of notes
and the sale of preferred stock and common stock. During 2022, the Company was awarded additional funding of $8.2 million associated
with option 1B of the contract with BARDA. During 2021, the Company executed Options 1A and 1B of the contract with BARDA for
funding of $39.4 million and during 2022 was awarded additional funding of $8.2 million associated with option 1B, resulting in
aggregated funding for Options 1A and 1B of $47.6 million, of which $4.1 million is remaining as of June 30, 2023. The BARDA
contract funding is to execute the clinical training study of DeepView® Wound Imaging System (“DeepView
System”) for burn wound healing assessment. In April, 2023, the Company received a $4.0 million grant from Medical Technology
Enterprise Consortium (“MTEC”) for a project that is expected to be completed by April 2024. The MTEC project is for the
development of a handheld device for the DeepView System. See Research and Development Revenue below. In September 2023, the Company
issued 7,679,198 shares of common stock for $3.4 million (the “Equity Raise”). With the remaining funding under the
BARDA contract, the MTEC funding and the Equity Raise, the Company believes it will have sufficient working capital to fund
operations for at least one year beyond the release date of the condensed consolidated financial statements. Additionally, the
contract with BARDA has a potential funding of up to $96.9 million, in aggregate for Option 1A, 1B and 2, if all future options are
executed.
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- DefinitionThe entire disclosure for the nature of an entity's business, major products or services, principal markets including location, and the relative importance of its operations in each business and the basis for the determination, including but not limited to, assets, revenues, or earnings. For an entity that has not commenced principal operations, disclosures about the risks and uncertainties related to the activities in which the entity is currently engaged and an understanding of what those activities are being directed toward.
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v3.23.2
Summary of Significant Accounting Policies
|
6 Months Ended |
Jun. 30, 2023 |
Accounting Policies [Abstract] |
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s condensed
consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”)
as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).
The accompanying condensed
consolidated balance sheet as of June 30, 2023, the condensed consolidated statements of operations and stockholders’ equity for
the three and six months ended June 30, 2023 and 2022, and statements of cash flows for the six months ended June 30, 2023 and 2022 are
unaudited. The interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated
financial statements and, in management’s opinion, include all adjustments consisting of only normal recurring adjustments necessary
for the fair statement of the Company’s financial position as of June 30, 2023 and its results of operations and cash flows for
the three and six months ended June 30, 2023 and 2022. The results of operations for the three and six months ended June 30, 2023 and
2022 are not necessarily indicative of the results to be expected for the full fiscal year or any other period. These interim condensed consolidated
financial statements should be read in conjunction with the Company’s annual consolidated financial statements for the year ended
December 31, 2022.
Certain reclassifications have
been made to prior year financial statements to conform with current year presentation.
Principles of Consolidation
The condensed consolidated
financial statements include the accounts of the Company and its wholly owned subsidiaries, Spectral MD, Inc. and Spectral MD UK. Significant
inter-company transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of these condensed
consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts
reported in the condensed consolidated financial statements and accompanying notes. The Company bases its estimates and judgments on historical
experience and on various other assumptions that it believes are reasonable under the circumstances. The amounts of assets and liabilities
reported in the Company’s balance sheets and the amounts of expenses reported for each of the periods presented are affected by
estimates and assumptions, which are used for, but not limited to, revenue recognition, warrant liability, stock-based compensation expense,
and income tax valuation allowances. Actual results could differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly
liquid investments with an original maturity of three months or less when purchased to be cash equivalents. All cash and cash equivalents
are held in US financial institutions.
Accounts Receivable, Net and Unbilled Revenue
Accounts receivable represent
amounts due from US government agencies pursuant to research and development contracts associated with the Company’s DeepView®
Wound Imaging System. Accounts receivable amounted to approximately $1.5 million and $2.3 million as of June 30, 2023 and December 31,
2022, respectively.
The Company evaluates the collectability
of its receivables based on a variety of factors, including the length of time the receivables are past due, the financial health of its
customers and historical experience. Based upon the review of these factors, the Company recorded no allowance for doubtful accounts as
of June 30, 2023 and December 31, 2022.
The Company records unbilled
revenue when revenue is recognized prior to billing customers. Unbilled revenue amounted to approximately $0.1 million and $0.6 million
as of June 30, 2023 and December 31, 2022, respectively.
Concentrations of Credit Risk
Financial instruments which
potentially subject the Company to credit risk consist principally of cash and cash equivalents and accounts receivable. Primarily all
cash and cash equivalents are held in US financial institutions which, at times, exceed federally insured limits. The Company has not
recognized any losses from credit risks on such accounts. The Company believes it is not exposed to significant credit risk on cash and
cash equivalents.
Additional credit risk is related
to the Company’s concentration of receivables. As of June 30, 2023 and December 31, 2022, receivables were concentrated from one
customer (which is a US. government agency) representing 71% and 96% of total net receivables, respectively. No allowance for doubtful
accounts were recorded as of June 30, 2023 and December 31, 2022.
One customer (which is a U.S.
government agency) accounted for 95% and 96% for the three and six months ended June 30, 2023, respectively, and 87% and 92%, for the
three and six months ended June 30, 2022, respectively, of the recognized research and development revenue. Deferred offering costs
Deferred offering costs consist
of legal, accounting and other direct expenses incurred through the balance sheet date that are directly related to the Business Combination
and that will be charged to stockholders’ equity upon the completion of the Business Combination. Should the Business Combination
prove to be unsuccessful these deferred costs, as well as additional expenses to be incurred, will be charged to other expense. Offering
costs in excess of proceeds from the Business Combination, if any, will be charged to other expense. As of June 30, 2023, the Company
recorded $1.1 million of deferred offering costs, of which $0.8 million are unpaid.
Fair Value
Fair value is defined as the
exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities
that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair
value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs
used to measure fair value are as follows:
Level 1 - |
Unadjusted quoted prices in active markets that are assessable at the measurement date for identical, unrestricted assets or liabilities. |
Level 2 - |
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and |
Level 3 - |
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
Fair Value of Financial Instruments
Financial instruments, which
include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at cost, which management
believes approximates fair value due to the short-term nature of these instruments.
Foreign Currency
The reporting currency for
the condensed consolidated financial statements of the Company is the US dollar. The functional currency of the Company and its wholly
owned subsidiary Spectral MD, Inc. is the US dollar. The functional currency of Spectral MD UK is its local currency, the British pound.
The assets and liabilities of Spectral MD UK is translated into US. dollars at exchange rates in effect at the end of each reporting period,
and the revenues and expenses are translated at average exchange rates in effect during the applicable period. Translation adjustments
are included in accumulated other comprehensive income as a component of stockholders’ equity. As of June 30, 2023 and December
31, 2022, the Company’s translation adjustments are not material.
Monetary assets and liabilities
denominated in currencies other than the functional currency are translated at exchange rates in effect at the balance sheet date. Resulting
unrealized gains and losses are included in other income, net in the condensed consolidated statements of operations. For the three and
six months ended June 30, 2023 the Company recorded approximately $0 and $13,000, respectively, of foreign exchange transaction gain.
For the three and six months ended June 30, 2022, the Company recorded approximately $0.2 million foreign exchange transaction loss for
both periods, primarily related to the Company’s bank account denominated in British Pounds and accounts payable denominated in
British Pounds, included in foreign exchange transaction loss in the condensed consolidated statements of operations. Leases
The Company accounts for its
leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing
leases and are recorded in the condensed consolidated balance sheets as both a right of use asset and a lease liability, calculated by
discounting fixed lease payments at the rate implicit in the lease or the Company’s incremental borrowing rate factoring the term
of the lease. The incremental borrowing rate used by the Company is an estimate of the interest rate the Company would incur to borrow
an amount equal to the lease payments on a collateralized basis over the term of the lease. Because the Company does not generally borrow
on a collateralized basis, it uses the interest rate it pays on its noncollateralized borrowings as an input to deriving an appropriate
incremental borrowing rate, adjusted for the amount of lease payments, the lease term and the effect on that rate of designating specific
collateral with a value equal to the unpaid lease payments for that lease. Lease liabilities are increased by interest and reduced by
payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability
and the amortization of the right of use asset results in straight-line rent expense over the lease term. Variable lease expenses are
recorded when incurred. In calculating the right of use assets and lease liabilities, the Company elects to combine lease and non-lease
components. The Company excludes short-term leases having initial terms of 12 months or less from the requirement to capitalize right
of use assets and liabilities as an accounting policy election.
For the three and six months
ended June 30, 2023 and 2022, the Company did not have any finance leases.
Warrant Liability
On June 22, 2021, in conjunction
with the closing of the Company’s IPO, the Company issued 762,712 warrants, with strike price of $0.89 and a five-year life, to
SP Angel Corporate Finance LLP (“SP Angel”), who acts as nominated adviser and broker to the Company for the purposes of the
AIM Rules. As of June 30, 2023, there are 762,712 warrants outstanding with an exchange rate adjusted exercise price of $0.75.
The Company accounts for its
warrants issued to SP Angel as derivative liabilities in accordance with ASC 815, Derivatives and Hedging (“ASC 815”). Accordingly,
the Company recognizes the instruments as liabilities at fair value, determined using the Black-Scholes option-pricing model, and adjusts
the instruments to fair value at the end of each reporting pferiod. The liabilities are subject to re-measurement at each balance sheet
date until exercised, and any change in fair value is recognized in the Company’s condensed consolidated statements of operations.
Research and Development Revenue
The Company recognizes revenue
when the Company’s customers obtain control of promised goods or services, in an amount that reflects the consideration which the
Company expects to receive in exchange for those goods or services by analyzing the following five steps: (1) identify the contract with
a customer(s); (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction
price to the performance obligations in the contract; and (5) recognize revenue when (or as) the Company satisfies a performance obligation.
In order to transfer control to the customer for contract development and manufacturing services, the Company must have a present right
to payment, legal title must have passed to the customer, and the customer must have the significant risks and rewards of ownership. Research
and development revenue contracts are generally recognized based upon the cost-to-cost measure of progress, provided that the Company
meets the criteria associated with transferring control of the good or service over time.
The Company generates research
and development revenue primarily from cost-plus-fee contracts associated with development of certain product candidates. Revenues from
reimbursable contracts are recognized as costs are incurred, generally based on allowable costs incurred during the period, plus any recognizable
earned fee. The Company uses this input method to measure progress as the customer has the benefit of access to the development research
under these projects and therefore benefits from the Company’s performance incrementally as research and development activities
occur under each project. We consider fixed fees under cost-plus-fee contracts to be earned in proportion to the allowable costs incurred
in performance of the contract. Revenue for long-term development contracts is considered variable consideration because the deliverable
is dependent on the successful completion of development and is generally recognized based upon the cost-to-cost measure of progress,
provided that the Company meets the criteria associated with satisfying the performance obligation over time. The Company was awarded
multiyear contracts in 2019 and 2021 (modified for additional funding in 2022) by BARDA for the development of the Company’s DeepView®
Wound Imaging Solution. BARDA may award contracts that are less than 12 months depending on the scope of work and deliverables.
Payments from customers are
generally received within 30 days of when the invoice is sent.
Because the Company’s
contracts have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not
disclose information about its remaining performance obligations. Research and Development Expense
The Company expenses research and development
costs as operating expenses as incurred. These expenses include salaries for research and development personnel, consulting fees, product
development, pre-clinical studies, clinical trial costs, and other fees and costs related to the development of the technology. For the
three months ended June 30, 2023 and 2022, research and development expense was $3.7 million and $4.0 million, respectively,
of which $2.5 million and $3.7 million, respectively, is related to the BARDA contract and included in cost of revenue and $1.2 million
and $0.3 million, respectively, is included in general and administrative expenses. For the six months ended June 30, 2023 and 2022, research
and development expense was $7.7 million and $7.9 million, respectively, of which $5.4 million and $7.1 million, respectively,
is related to the BARDA contract and included in cost of revenue and $2.3 million and $0.8 million, respectively, is included in general
and administrative expenses.
Stock-Based Compensation
The Company accounts for all
stock-based payments to employees and non-employees, including grants of stock options, restricted stock units (“RSUs”), restricted
stock awards (“RSAs”) and stock options with non-market performance conditions (“PSOs”) to be recognized in the
condensed consolidated financial statements, based on their respective grant date fair values. The Company estimates the fair value of
stock option grants and PSOs using the Black-Scholes option pricing model. The RSUs and RSAs are valued based on the fair value of the
Company’s common stock on the date of grant. The assumptions used in calculating the fair value of the Company’s stock and
stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s
judgment. The Company expenses stock-based compensation related to stock options, RSUs and RSAs over the requisite service period. As
the PSOs have performance conditions, compensation expense is recognized for each award if and when the Company’s management deems
it probable that the performance conditions will be satisfied. Forfeitures are recorded as they occur. Compensation previously recorded
for unvested equity awards that are forfeited is reversed upon forfeiture. The Company expenses stock-based compensation to employees
over the requisite service period, on a straight-line basis, based on the estimated grant-date fair value of the awards.
Income Taxes
Income taxes are recorded in
accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach.
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included
in the condensed consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences
are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not
that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain
tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit
of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The
determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position
as well as consideration of the available facts and circumstances. The Company has no uncertain tax positions as of June 30, 2023 and
December 31, 2022 that qualify for either recognition or disclosure in the condensed consolidated financial statements under this guidance.
The Company’s policy
is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses
in the condensed consolidated statements of operations. There were no amounts accrued for interest or penalties for the three and six
months ended June 30, 2023 and 2022.
Comprehensive Loss
Comprehensive loss is equal
to net loss as presented in the condensed consolidated statements of operations, as the Company did not have any material other comprehensive
income or loss for the periods presented. Net Loss per Share of Common Stock
Basic net loss share of common
stock is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock
outstanding during the period. Diluted net loss per share of common stock adjusts basic earnings per share for the potentially dilutive
impact of unvested restricted stock, stock options and warrants. Dilutive securities having an anti-dilutive effect on diluted net earnings
per share are excluded from the calculation. The dilutive effect of the unvested restricted stock and stock options is calculated using
the treasury stock method. For warrants that are liability-classified, during periods when the impact is dilutive, the Company assumes
share settlement of the instruments as of the beginning of the reporting period and adjusts the numerator to remove the change in fair
value of the warrant liability and adjusts the denominator to include the dilutive shares calculated using the treasury stock method.
Recently Adopted Accounting Standards
In June 2016, the FASB issued
ASU No. 2016-13, Financial Instruments - Credit Losses, which was subsequently amended by ASU 2018-19 and ASU 2019-10. This standard requires
the measurement of expected credit losses for financial instruments carried at amortized cost held at the reporting date based on historical
experience, current conditions and reasonable forecasts. The updated guidance also amends the current other-than-temporary impairment
model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance
account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In
addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit
loss exists. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected
credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The Company
adopted this standard on January 1, 2023, with no impact on its condensed consolidated financial statements and related disclosures.
Recently Issued Accounting Standards
In June 2022, the FASB issued
ASU 2022-03, ASC Subtopic 820 “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. The
FASB is issuing this update (1) to clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity
security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example,
and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair
value in accordance with Topic 820. The amendments in this update are effective for the Company on January 1, 2025. Early adoption is
permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company is
still evaluating the impact of this pronouncement on the condensed consolidated financial statements.
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- DefinitionThe entire disclosure for all significant accounting policies of the reporting entity.
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v3.23.2
Fair Value Measurements
|
6 Months Ended |
Jun. 30, 2023 |
Fair Value Measurements [Abstract] |
|
FAIR VALUE MEASUREMENTS |
3. FAIR VALUE MEASUREMENTS
The following table presents
information about the Company’s financial liabilities that are measured at fair value on a recurring basis as of June 30, 2023 and
December 31, 2022, by level within the fair value hierarchy (in thousands):
| |
Fair value measured as of June 30, 2023 | |
| |
| | |
Quoted prices in | | |
Significant
other | | |
Significant | |
| |
Fair value at June 30, | | |
active markets | | |
observable inputs | | |
unobservable inputs | |
| |
2023 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Warrant liability | |
$ | 194 | | |
$ | - | | |
$ | - | | |
$ | 194 | |
| |
Fair value measured as of December 31, 2022 | |
| |
| | |
Quoted prices in | | |
Significant other | | |
Significant | |
| |
Fair value at December 31, | | |
active markets | | |
observable inputs | | |
unobservable inputs | |
| |
2022 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Warrant liability | |
$ | 129 | | |
$ | - | | |
$ | - | | |
$ | 129 | |
There were no transfers between
Level 1, 2 or 3 during the three and six months ended June 30, 2023 and 2022.
The following table presents
changes in Level 3 liabilities measured at fair value for the three and six months ended June 30, 2023 and 2022 (in thousands).
Balance - January 1, 2023 | |
$ | 129 | |
Change in fair value | |
| (16 | ) |
Balance - March 31, 2023 | |
$ | 113 | |
Change in fair value | |
| 81 | |
Balance - June 30, 2023 | |
$ | 194 | |
| |
| | |
Balance - January 1, 2022 | |
$ | 186 | |
Change in fair value | |
| (66 | ) |
Balance - March 31, 2022 | |
$ | 120 | |
Change in fair value | |
| 38 | |
Balance - June 30, 2022 | |
$ | 158 | |
Both observable and unobservable
inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains
and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable
(e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs.
The following table provides
quantitative information regarding Level 3 fair value measurements inputs at their measurement:
| |
June 30, | | |
December 31, | |
| |
2023 | | |
2022 | |
Strike price (per share) | |
$ | 0.75 | | |
$ | 0.71 | |
Contractual term (years) | |
| 4.0 | | |
| 4.5 | |
Volatility (annual) | |
| 71.2 | % | |
| 72.6 | % |
Risk-free rate | |
| 4.1 | % | |
| 4.0 | % |
Dividend yield (per share) | |
| 0.0 | % | |
| 0.0 | % |
|
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- DefinitionThe entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.
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v3.23.2
Research and Development Revenue
|
6 Months Ended |
Jun. 30, 2023 |
Research and Development Revenue [Abstract] |
|
RESEARCH AND DEVELOPMENT REVENUE |
4. RESEARCH AND DEVELOPMENT REVENUE
For the three and six months
ended June 30, 2023 and 2022, the Company’s revenues disaggregated by the major sources was as follows (in thousands):
| |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
BARDA | |
$ | 4,020 | | |
$ | 6,255 | | |
$ | 8,963 | | |
$ | 11,963 | |
Other U.S governmental authorities | |
| 231 | | |
| 135 | | |
| 366 | | |
| 271 | |
Total revenue | |
$ | 4,251 | | |
$ | 6,390 | | |
$ | 9,329 | | |
$ | 12,234 | |
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- DefinitionThe entire disclosure for research, development, and computer software activities, including contracts and arrangements to be performed for others and with federal government. Includes costs incurred (1) in a planned search or critical investigation aimed at discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service, a new process or technique, or in bringing about a significant improvement to an existing product or process; or (2) to translate research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process whether intended for sale or the entity's use, during the reporting period charged to research and development projects, including the costs of developing computer software up to the point in time of achieving technological feasibility and in-process research and development acquired in a business combination consummated during the period.
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v3.23.2
Accrued Expenses
|
6 Months Ended |
Jun. 30, 2023 |
Accrued Expenses [Abstract] |
|
ACCRUED EXPENSES |
5. ACCRUED EXPENSES
Accrued expenses consist of
the following as of June 30, 2023 and December 31, 2022 (in thousands):
| |
June 30, | | |
December 31, | |
| |
2023 | | |
2022 | |
Salary and wages | |
$ | 1,106 | | |
$ | 1,135 | |
Provision operating expenses | |
| 414 | | |
| 736 | |
Benefits | |
| 790 | | |
| 650 | |
Franchise tax | |
| 84 | | |
| 110 | |
Total accrued expenses | |
$ | 2,394 | | |
$ | 2,631 | |
|
X |
- DefinitionThe entire disclosure for accounts payable and accrued liabilities at the end of the reporting period.
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v3.23.2
Notes Payable
|
6 Months Ended |
Jun. 30, 2023 |
Notes Payable [Abstract] |
|
NOTES PAYABLE |
6. NOTES PAYABLE
Insurance Note
In June 2022 and 2021, the
Company entered into financing agreements for a portion of its insurance premium for approximately $0.4 million (the “2022 Insurance
Note”) and $0.5 million (the “2021 Insurance Note”), respectively. The 2022 Insurance Note and 2021 Insurance Note bear
interest at 6.7% per annum and 5.7% per annum, respectively, and are each payable in equal monthly payments of principal and interest
maturing in May 2023 and February 2022, respectively. The Company determined that the carrying amounts of the 2022 Insurance Note and
2021 Insurance Note approximate fair value due to the short-term nature of borrowings and current market rates interest rates.
During the six months ended
June 30, 2023, the Company repaid the remaining balance of approximately $0.2 million of principal and interest for the 2022 Insurance
Note. As of December 31, 2022, the Company had an outstanding balance of $0.2 million, respectively, for the 2022 Insurance Note.
During the six months ended
June 30, 2022, the Company repaid the remaining balance of approximately $0.2 million, respectively, for the 2021 Insurance Note. There
was no outstanding balance for the 2021 Insurance Note as of December 31, 2022.
PPP Loan
On April 13, 2020, the Company
entered into a promissory note with JPMorgan Chase Bank, N.A., as lender, pursuant to the Paycheck Protection Program (“PPP”)
of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) for $768,575 (the “PPP Loan”). The PPP
Loan, which matured on April 13, 2022 and bears interest at 1% per annum, can be prepaid at any time prior to maturity with no prepayment
penalties. The Company could defer interest and principal payments until September 13, 2021. Beginning on September 13, 2021, the Company
was required to make equal monthly payments of principal and interest until the loan maturity on April 13, 2022. The PPP Loan is subject
to customary terms for payment defaults and breaches of representations and warranties. The Company did not request the PPP Loan to be
forgiven. During the six months ended June 30, 2022, the Company repaid the remaining $0.4 million of principal and interest for the PPP
Loan. There was no outstanding balance for the PPP Loan as of December 31, 2022.
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- DefinitionThe entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
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v3.23.2
Commitments and Contingencies
|
6 Months Ended |
Jun. 30, 2023 |
Commitments and Contingencies [Abstract] |
|
COMMITMENTS AND CONTINGENCIES |
7.
Commitments and Contingencies
Legal Matters
The Company is not a party
to any material legal proceedings and is not aware of any pending or threatened claims. From time to time, the Company may be subject
to various legal proceedings and claims that arise in the ordinary course of its business activities.
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- DefinitionThe entire disclosure for commitments and contingencies.
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v3.23.2
Leases
|
6 Months Ended |
Jun. 30, 2023 |
Leases [Abstract] |
|
LEASES |
8.
Leases
The Company leases office space
for its principal office in Dallas, Texas, which was extended during 2022 to expire in May 2024. This lease was extended again in 2023
to expire in December 2024. During 2022, the Company entered into a lease for office space in the United Kingdom under a lease that expires
in May 2023.
During 2023, the Company entered
into a lease for office space in the United Kingdom for annual payments of $0.1 million under a lease that expires in March 2024. The
lease has been excluded from the tables below as the term is twelve months.
The following table summarizes
quantitative information about the Company’s operating leases for the three and six months ended June 30, 2023 and 2022 (dollars
in thousands):
| |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Operating cash flows from operating leases | |
$ | 212 | | |
$ | 158 | | |
$ | 327 | | |
$ | 313 | |
Right-of-use assets exchanged for operating lease liabilities | |
$ | 483 | | |
$ | 15 | | |
$ | 483 | | |
$ | 624 | |
Weighted average remaining lease term – operating leases (in years) | |
| 1.5 | | |
| 0.7 | | |
| 1.5 | | |
| 0.7 | |
Weighted average discount rate – operating leases | |
| 8.5 | % | |
| 6.7 | % | |
| 8.5 | % | |
| 6.7 | % |
The following table provides
the components of the Company’s lease cost included in general and administrative expense in the condensed consolidated statement
of operations (in thousands):
| |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
Operating leases | |
| | | |
| | | |
| | | |
| | |
Operating lease cost | |
$ | 198 | | |
$ | 132 | | |
$ | 392 | | |
$ | 264 | |
Variable lease cost | |
| 133 | | |
| 49 | | |
| 192 | | |
| 93 | |
Total rent expense | |
$ | 331 | | |
$ | 181 | | |
$ | 584 | | |
$ | 357 | |
Variable lease cost is primarily
attributable to amounts paid to lessors for utility charges and property taxes under an office space lease.
As of June 30, 2023, future
minimum payments under the non-cancelable operating leases under ASC 842 were as follows (in thousands):
Six months ending December 31, 2023 | |
$ | 417 | |
Year ending December 31, 2024 | |
| 894 | |
Total | |
| 1,311 | |
Less: imputed interest | |
| (86 | ) |
Operating lease liabilities | |
$ | 1,225 | |
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v3.23.2
Stockholders' Equity
|
6 Months Ended |
Jun. 30, 2023 |
Stockholders' Equity [Abstract] |
|
STOCKHOLDERS’ EQUITY |
9.
Stockholders’ Equity
The Company was authorized
to issue 400,000,000 shares of common stock, par value $0.001 per share as of June 30, 2023 and December 31, 2022. The Company had 136,261,515
and 135,409,564 shares of common stock issued and outstanding as of June 30, 2023 and December 31, 2022, respectively.
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- DefinitionThe entire disclosure for equity.
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v3.23.2
Stock-based Compensation
|
6 Months Ended |
Jun. 30, 2023 |
Stock-based Compensation [Abstract] |
|
STOCK-BASED COMPENSATION |
10.
Stock-based Compensation
2018 Long Term Incentive Plan
On July 24, 2018, the Company’s
Board adopted the 2018 Long Term Incentive Plan (the “2018 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. In June 2021, in connection with the IPO,
the 2018 Plan was amended so that stock issued pursuant to the 2018 Plan would be the common stock of the Company. Pursuant to the 2018
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. As of June 30, 2023, 38,354,118 shares of common stock were authorized
for issuance under the 2018 Plan, of which 584,952 remain available for issuance.
2022 Long Term Incentive Plan
On September 27, 2022, the
Company’s stockholders approved the adoption of the 2022 Long Term Incentive Plan (the “2022 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. Pursuant
to the 2022 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. As of June 30, 2023, 20,000,000 shares of common stock were
authorized for issuance under the 2022 Plan, of which 18,485,000 remain available for issuance.
Restricted Stock Awards
The RSAs generally vest over
four years. A summary of RSA activities for the six months ended June 30, 2023 are presented below:
| | |
Number of Shares | | |
Weighted Average Grant Date Fair Value per
Share
US$ | |
Nonvested as of January 1, 2023 | | |
| 312,502 | | |
$ | 0.10 | |
Vested | | |
| (312,502 | ) | |
$ | 0.10 | |
Nonvested as of June 30, 2023 | | |
| - | | |
$ | - | |
Restricted Stock Units
The RSUs generally vest over
three years. A summary of RSU activities for the six months ended June 30, 2023 are presented below:
| | |
Number of Shares | | |
Weighted
Average
Grant
Date
Fair
Value
per
Share
US$ | |
Nonvested as of January 1, 2023 | | |
| - | | |
$ | - | |
Granted | | |
| 600,000 | | |
$ | 0.45 | |
Nonvested as of June 30, 2023 | | |
| 600,000 | | |
$ | 0.45 | |
Stock Options
The fair value of each employee
and non-employee stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company’s
common stock became publicly traded on July 22, 2021 and lacks company-specific historical and implied volatility information. Therefore,
it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies. Due to the lack
of historical exercise history, the expected term of the Company’s stock options for employees has been determined utilizing the
simplified method by taking an average of the vesting periods and the original contractual terms for each award. The expected term of
stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined
by reference to the US. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected
term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect
to pay any cash dividends in the foreseeable future.
In applying the Black Scholes
option pricing model, the Company used the following assumptions for stock options granted in the six months ended June 30, 2023:
| |
Six Months Ended | |
| |
June 30, 2023 | |
Exercise price (per share) | |
$ | 0.44 | |
Expected term (years) | |
| 6.0 | |
Volatility (annual) | |
| 72 | % |
Risk-free rate | |
| 3.5 | % |
Dividend yield (per share) | |
| 0 | % |
A summary of stock options
activity for the six months ended June 30, 2023 is presented below:
| |
Stock Options | | |
Weighted Average Exercise Price US$ | | |
Weighted Average Remaining Contractual
Life (in years) | | |
Aggregate Intrinsic
Value (in
thousands) | |
Outstanding at January 1, 2023 | |
| 36,124,000 | | |
$ | 0.20 | | |
| 7.3 | | |
$ | 6,831 | |
Options granted | |
| 2,511,000 | | |
$ | 0.44 | | |
| | | |
| | |
Options forfeited | |
| (163,334 | ) | |
$ | 0.35 | | |
| | | |
| | |
Options exercised | |
| (220,000 | ) | |
$ | 0.17 | | |
| | | |
| | |
Options cancelled | |
| (210,000 | ) | |
$ | 0.19 | | |
| | | |
| | |
Outstanding as of June 30, 2023 | |
| 38,041,666 | | |
$ | 0.21 | | |
| 7.0 | | |
$ | 12,426 | |
Options vested and exercisable as of June 30, 2023 | |
| 30,265,209 | | |
$ | 0.17 | | |
| 6.6 | | |
$ | 11,244 | |
The Company recorded
stock-based compensation expense for stock options and restricted stock of $0.3 million and $0.7 million for the three and six
months ended June 30, 2023, respectively, and $0.3 million and $0.6 million for the three and six months ended June 30, 2022,
respectively, in general and administrative expenses in the condensed consolidated statements of operations.
As of June 30, 2023, there
was approximately $1.7 million and $0.2 million of unrecognized stock-based compensation related to stock option grants and restricted
stock unit grants, respectively, that will be amortized over a weighted average period of 1.2 years and 1.3 years, respectively.
During the year ended December
31, 2018, the Company granted of 10,039,926 stock options to investors (the “Investor Options”) that were approved by the
Board of Directors outside of the 2018 Plan. As of June 30, 2023, 9,681,354 Investor Options are outstanding and will expire in November
2023. The Investor Options have an exercise price of $0.20 per share. As of June 30, 2023, there is no unrecognized stock-based compensation
expense related to the Investor Options. As of June 30, 2023, the Company
has outstanding stock options, issued to an investor, to purchase 210,000 shares of the Company’s common stock (the “ASC 815
Options”) at a price of $0.19 per share that expire in December 2023. The ASC 815 Options have a grant date fair value of $0.21
per share and are equity-classified stock options in accordance with ASC 815.
|
X |
- DefinitionThe entire disclosure for share-based payment arrangement.
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v3.23.2
Income Taxes
|
6 Months Ended |
Jun. 30, 2023 |
Income Taxes [Abstract] |
|
INCOME TAXES |
11. INCOME TAXES
The Company recorded a provision
for income taxes of approximately $40,000 and $86,000 for the three and six months ended June 30, 2023, respectively, and $11,000 and
$6,000 for the three and six months ended June 30, 2022, respectively. The effective tax rate was 1.3% for the three and six months ended
June 30, 2023, and 4.3% and 0.8% for the three and six months ended June 30, 2022, respectively.
The tax provision for interim
periods is determined using an estimate of the Company’s annual effective tax rate, adjusted for discrete items arising in that
quarter. The Company’s effective tax rate differs from the U.S. statutory tax rate in the three and six months ended June 30, 2023
primarily due to changes in valuation allowances on deferred tax assets as it is more likely than not that some or all of the Company’s
deferred tax assets will not be realized.
The Company evaluates its tax
positions on a quarterly basis and revises its estimate accordingly. The Company recorded immaterial interest and penalties during the
three and six months ended June 30, 2023.
|
X |
- DefinitionThe entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
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v3.23.2
Net Loss Per Common Share
|
6 Months Ended |
Jun. 30, 2023 |
Net Loss Per Common Share [Abstract] |
|
NET LOSS PER COMMON SHARE |
12. NET LOSS PER COMMON SHARE
Basic and diluted net loss
per common share attributable to common stockholders are the same for the three and six months ended June 30, 2023 and 2022, since the
inclusion of all potential shares of common stock outstanding would have been anti-dilutive due to the Company’s net loss.
The table below summarizes
potentially dilutive securities that were excluded from the computation of net loss per common share as of the periods presented because
including them would be anti-dilutive.
| |
2023 | | |
2022 | |
Common stock options | |
| 47,933,020 | | |
| 46,163,926 | |
Common stock warrants | |
| 762,712 | | |
| 762,712 | |
Unvested restricted stock units | |
| 600,000 | | |
| - | |
Unvested restricted stock | |
| - | | |
| 687,502 | |
Potentially dilutive securities | |
| 49,295,732 | | |
| 47,614,140 | |
|
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- DefinitionThe entire disclosure for earnings per share.
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v3.23.2
X |
- DefinitionThe entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.
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v3.23.2
Subsequent events
|
6 Months Ended |
Jun. 30, 2023 |
Subsequent events [Abstract] |
|
SUBSEQUENT EVENTS |
14. SUBSEQUENT EVENTS
Share Issuances and Business Combination
In September 2023, prior to
the closing of the Business Combination, the Company completed the Equity Raise. On September 11, 2023 (the
“Closing”), the Company consummated the Business Combination with Rosecliff, whereby all of the Company’s 137,701,673
shares of common stock and the Equity Issuance common stock were exchanged by Rosecliff for 13,316,464 and 744,667, respectively, ordinary
shares of Rosecliff, at an exchange ratio of 10.31.
Pursuant to the Business
Combination Agreement, on the Closing, in sequential order: (a) Ghost Merger Sub I merged with and into the Company, with the Company
continuing as the surviving company as a wholly owned subsidiary of Rosecliff (the “Spectral Merger”) and then, (b) the Company
merged with and into Ghost Merger Sub II (the “SPAC Merger”, together with the Spectral Merger (the “Merger”)),
with Ghost Merger Sub II surviving the SPAC Merger as a direct wholly-owned subsidiary of Rosecliff. Rosecliff was renamed Spectral AI,
Inc. (“Spectral AI” or the “Combined Company”).
In conjunction with the closing, options to purchase 46,592,862 shares of the Company’s common stock and 600,000 RSUs were exchanged for options
to purchase 4,519,191 shares of Spectral AI’s ordinary shares and 58,196 RSUs of Spectral AI. Additionally, the warrants to purchase
762,712 of the Company’s common stock were exchanged for warrants to purchase 73,978 ordinary shares
of Spectral AI’s common stock.
On September 12, 2023,
Spectral AI began trading its shares on the NASDAQ stock exchange after delisting its shares from the AIM market of the London Stock Exchange
on September 7, 2023.
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- DefinitionThe entire disclosure for significant events or transactions that occurred after the balance sheet date through the date the financial statements were issued or the date the financial statements were available to be issued. Examples include: the sale of a capital stock issue, purchase of a business, settlement of litigation, catastrophic loss, significant foreign exchange rate changes, loans to insiders or affiliates, and transactions not in the ordinary course of business.
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v3.23.2
Accounting Policies, by Policy (Policies)
|
6 Months Ended |
Jun. 30, 2023 |
Accounting Policies [Abstract] |
|
Basis of Presentation |
Basis of Presentation The Company’s condensed
consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”)
as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The accompanying condensed
consolidated balance sheet as of June 30, 2023, the condensed consolidated statements of operations and stockholders’ equity for
the three and six months ended June 30, 2023 and 2022, and statements of cash flows for the six months ended June 30, 2023 and 2022 are
unaudited. The interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated
financial statements and, in management’s opinion, include all adjustments consisting of only normal recurring adjustments necessary
for the fair statement of the Company’s financial position as of June 30, 2023 and its results of operations and cash flows for
the three and six months ended June 30, 2023 and 2022. The results of operations for the three and six months ended June 30, 2023 and
2022 are not necessarily indicative of the results to be expected for the full fiscal year or any other period. These interim condensed consolidated
financial statements should be read in conjunction with the Company’s annual consolidated financial statements for the year ended
December 31, 2022. Certain reclassifications have
been made to prior year financial statements to conform with current year presentation.
|
Principles of Consolidation |
Principles of Consolidation The condensed consolidated
financial statements include the accounts of the Company and its wholly owned subsidiaries, Spectral MD, Inc. and Spectral MD UK. Significant
inter-company transactions and balances have been eliminated in consolidation.
|
Use of Estimates |
Use of Estimates The preparation of these condensed
consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts
reported in the condensed consolidated financial statements and accompanying notes. The Company bases its estimates and judgments on historical
experience and on various other assumptions that it believes are reasonable under the circumstances. The amounts of assets and liabilities
reported in the Company’s balance sheets and the amounts of expenses reported for each of the periods presented are affected by
estimates and assumptions, which are used for, but not limited to, revenue recognition, warrant liability, stock-based compensation expense,
and income tax valuation allowances. Actual results could differ from these estimates.
|
Cash and Cash Equivalents |
Cash and Cash Equivalents The Company considers all highly
liquid investments with an original maturity of three months or less when purchased to be cash equivalents. All cash and cash equivalents
are held in US financial institutions.
|
Accounts Receivable, Net and Unbilled Revenue |
Accounts Receivable, Net and Unbilled Revenue Accounts receivable represent
amounts due from US government agencies pursuant to research and development contracts associated with the Company’s DeepView®
Wound Imaging System. Accounts receivable amounted to approximately $1.5 million and $2.3 million as of June 30, 2023 and December 31,
2022, respectively. The Company evaluates the collectability
of its receivables based on a variety of factors, including the length of time the receivables are past due, the financial health of its
customers and historical experience. Based upon the review of these factors, the Company recorded no allowance for doubtful accounts as
of June 30, 2023 and December 31, 2022. The Company records unbilled
revenue when revenue is recognized prior to billing customers. Unbilled revenue amounted to approximately $0.1 million and $0.6 million
as of June 30, 2023 and December 31, 2022, respectively.
|
Concentrations of Credit Risk |
Concentrations of Credit Risk Financial instruments which
potentially subject the Company to credit risk consist principally of cash and cash equivalents and accounts receivable. Primarily all
cash and cash equivalents are held in US financial institutions which, at times, exceed federally insured limits. The Company has not
recognized any losses from credit risks on such accounts. The Company believes it is not exposed to significant credit risk on cash and
cash equivalents. Additional credit risk is related
to the Company’s concentration of receivables. As of June 30, 2023 and December 31, 2022, receivables were concentrated from one
customer (which is a US. government agency) representing 71% and 96% of total net receivables, respectively. No allowance for doubtful
accounts were recorded as of June 30, 2023 and December 31, 2022. One customer (which is a U.S.
government agency) accounted for 95% and 96% for the three and six months ended June 30, 2023, respectively, and 87% and 92%, for the
three and six months ended June 30, 2022, respectively, of the recognized research and development revenue.
|
Deferred offering costs |
Deferred offering costs Deferred offering costs consist
of legal, accounting and other direct expenses incurred through the balance sheet date that are directly related to the Business Combination
and that will be charged to stockholders’ equity upon the completion of the Business Combination. Should the Business Combination
prove to be unsuccessful these deferred costs, as well as additional expenses to be incurred, will be charged to other expense. Offering
costs in excess of proceeds from the Business Combination, if any, will be charged to other expense. As of June 30, 2023, the Company
recorded $1.1 million of deferred offering costs, of which $0.8 million are unpaid.
|
Fair Value |
Fair Value Fair value is defined as the
exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities
that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair
value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs
used to measure fair value are as follows:
Level 1 - |
Unadjusted quoted prices in active markets that are assessable at the measurement date for identical, unrestricted assets or liabilities. |
Level 2 - |
Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and |
Level 3 - |
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
|
Fair Value of Financial Instruments |
Fair Value of Financial Instruments Financial instruments, which
include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at cost, which management
believes approximates fair value due to the short-term nature of these instruments.
|
Foreign Currency |
Foreign Currency The reporting currency for
the condensed consolidated financial statements of the Company is the US dollar. The functional currency of the Company and its wholly
owned subsidiary Spectral MD, Inc. is the US dollar. The functional currency of Spectral MD UK is its local currency, the British pound.
The assets and liabilities of Spectral MD UK is translated into US. dollars at exchange rates in effect at the end of each reporting period,
and the revenues and expenses are translated at average exchange rates in effect during the applicable period. Translation adjustments
are included in accumulated other comprehensive income as a component of stockholders’ equity. As of June 30, 2023 and December
31, 2022, the Company’s translation adjustments are not material. Monetary assets and liabilities
denominated in currencies other than the functional currency are translated at exchange rates in effect at the balance sheet date. Resulting
unrealized gains and losses are included in other income, net in the condensed consolidated statements of operations. For the three and
six months ended June 30, 2023 the Company recorded approximately $0 and $13,000, respectively, of foreign exchange transaction gain.
For the three and six months ended June 30, 2022, the Company recorded approximately $0.2 million foreign exchange transaction loss for
both periods, primarily related to the Company’s bank account denominated in British Pounds and accounts payable denominated in
British Pounds, included in foreign exchange transaction loss in the condensed consolidated statements of operations.
|
Leases |
Leases The Company accounts for its
leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing
leases and are recorded in the condensed consolidated balance sheets as both a right of use asset and a lease liability, calculated by
discounting fixed lease payments at the rate implicit in the lease or the Company’s incremental borrowing rate factoring the term
of the lease. The incremental borrowing rate used by the Company is an estimate of the interest rate the Company would incur to borrow
an amount equal to the lease payments on a collateralized basis over the term of the lease. Because the Company does not generally borrow
on a collateralized basis, it uses the interest rate it pays on its noncollateralized borrowings as an input to deriving an appropriate
incremental borrowing rate, adjusted for the amount of lease payments, the lease term and the effect on that rate of designating specific
collateral with a value equal to the unpaid lease payments for that lease. Lease liabilities are increased by interest and reduced by
payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability
and the amortization of the right of use asset results in straight-line rent expense over the lease term. Variable lease expenses are
recorded when incurred. In calculating the right of use assets and lease liabilities, the Company elects to combine lease and non-lease
components. The Company excludes short-term leases having initial terms of 12 months or less from the requirement to capitalize right
of use assets and liabilities as an accounting policy election. For the three and six months
ended June 30, 2023 and 2022, the Company did not have any finance leases.
|
Warrant Liability |
Warrant Liability On June 22, 2021, in conjunction
with the closing of the Company’s IPO, the Company issued 762,712 warrants, with strike price of $0.89 and a five-year life, to
SP Angel Corporate Finance LLP (“SP Angel”), who acts as nominated adviser and broker to the Company for the purposes of the
AIM Rules. As of June 30, 2023, there are 762,712 warrants outstanding with an exchange rate adjusted exercise price of $0.75. The Company accounts for its
warrants issued to SP Angel as derivative liabilities in accordance with ASC 815, Derivatives and Hedging (“ASC 815”). Accordingly,
the Company recognizes the instruments as liabilities at fair value, determined using the Black-Scholes option-pricing model, and adjusts
the instruments to fair value at the end of each reporting pferiod. The liabilities are subject to re-measurement at each balance sheet
date until exercised, and any change in fair value is recognized in the Company’s condensed consolidated statements of operations.
|
Research and Development Revenue |
Research and Development Revenue The Company recognizes revenue
when the Company’s customers obtain control of promised goods or services, in an amount that reflects the consideration which the
Company expects to receive in exchange for those goods or services by analyzing the following five steps: (1) identify the contract with
a customer(s); (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction
price to the performance obligations in the contract; and (5) recognize revenue when (or as) the Company satisfies a performance obligation.
In order to transfer control to the customer for contract development and manufacturing services, the Company must have a present right
to payment, legal title must have passed to the customer, and the customer must have the significant risks and rewards of ownership. Research
and development revenue contracts are generally recognized based upon the cost-to-cost measure of progress, provided that the Company
meets the criteria associated with transferring control of the good or service over time. The Company generates research
and development revenue primarily from cost-plus-fee contracts associated with development of certain product candidates. Revenues from
reimbursable contracts are recognized as costs are incurred, generally based on allowable costs incurred during the period, plus any recognizable
earned fee. The Company uses this input method to measure progress as the customer has the benefit of access to the development research
under these projects and therefore benefits from the Company’s performance incrementally as research and development activities
occur under each project. We consider fixed fees under cost-plus-fee contracts to be earned in proportion to the allowable costs incurred
in performance of the contract. Revenue for long-term development contracts is considered variable consideration because the deliverable
is dependent on the successful completion of development and is generally recognized based upon the cost-to-cost measure of progress,
provided that the Company meets the criteria associated with satisfying the performance obligation over time. The Company was awarded
multiyear contracts in 2019 and 2021 (modified for additional funding in 2022) by BARDA for the development of the Company’s DeepView®
Wound Imaging Solution. BARDA may award contracts that are less than 12 months depending on the scope of work and deliverables. Payments from customers are
generally received within 30 days of when the invoice is sent. Because the Company’s
contracts have an expected duration of one year or less, the Company has elected the practical expedient in ASC 606-10-50-14(a) to not
disclose information about its remaining performance obligations.
|
Research and Development Expense |
Research and Development Expense The Company expenses research and development
costs as operating expenses as incurred. These expenses include salaries for research and development personnel, consulting fees, product
development, pre-clinical studies, clinical trial costs, and other fees and costs related to the development of the technology. For the
three months ended June 30, 2023 and 2022, research and development expense was $3.7 million and $4.0 million, respectively,
of which $2.5 million and $3.7 million, respectively, is related to the BARDA contract and included in cost of revenue and $1.2 million
and $0.3 million, respectively, is included in general and administrative expenses. For the six months ended June 30, 2023 and 2022, research
and development expense was $7.7 million and $7.9 million, respectively, of which $5.4 million and $7.1 million, respectively,
is related to the BARDA contract and included in cost of revenue and $2.3 million and $0.8 million, respectively, is included in general
and administrative expenses.
|
Stock-Based Compensation |
Stock-Based Compensation The Company accounts for all
stock-based payments to employees and non-employees, including grants of stock options, restricted stock units (“RSUs”), restricted
stock awards (“RSAs”) and stock options with non-market performance conditions (“PSOs”) to be recognized in the
condensed consolidated financial statements, based on their respective grant date fair values. The Company estimates the fair value of
stock option grants and PSOs using the Black-Scholes option pricing model. The RSUs and RSAs are valued based on the fair value of the
Company’s common stock on the date of grant. The assumptions used in calculating the fair value of the Company’s stock and
stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s
judgment. The Company expenses stock-based compensation related to stock options, RSUs and RSAs over the requisite service period. As
the PSOs have performance conditions, compensation expense is recognized for each award if and when the Company’s management deems
it probable that the performance conditions will be satisfied. Forfeitures are recorded as they occur. Compensation previously recorded
for unvested equity awards that are forfeited is reversed upon forfeiture. The Company expenses stock-based compensation to employees
over the requisite service period, on a straight-line basis, based on the estimated grant-date fair value of the awards.
|
Income Taxes |
Income Taxes Income taxes are recorded in
accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach.
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included
in the condensed consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences
are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not
that some or all of the deferred tax assets will not be realized. The Company accounts for uncertain
tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit
of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The
determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position
as well as consideration of the available facts and circumstances. The Company has no uncertain tax positions as of June 30, 2023 and
December 31, 2022 that qualify for either recognition or disclosure in the condensed consolidated financial statements under this guidance. The Company’s policy
is to classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses
in the condensed consolidated statements of operations. There were no amounts accrued for interest or penalties for the three and six
months ended June 30, 2023 and 2022.
|
Comprehensive Loss |
Comprehensive Loss Comprehensive loss is equal
to net loss as presented in the condensed consolidated statements of operations, as the Company did not have any material other comprehensive
income or loss for the periods presented.
|
Net Loss per Share of Common Stock |
Net Loss per Share of Common Stock Basic net loss share of common
stock is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock
outstanding during the period. Diluted net loss per share of common stock adjusts basic earnings per share for the potentially dilutive
impact of unvested restricted stock, stock options and warrants. Dilutive securities having an anti-dilutive effect on diluted net earnings
per share are excluded from the calculation. The dilutive effect of the unvested restricted stock and stock options is calculated using
the treasury stock method. For warrants that are liability-classified, during periods when the impact is dilutive, the Company assumes
share settlement of the instruments as of the beginning of the reporting period and adjusts the numerator to remove the change in fair
value of the warrant liability and adjusts the denominator to include the dilutive shares calculated using the treasury stock method.
|
Recently Adopted Accounting Standards |
Recently Adopted Accounting Standards In June 2016, the FASB issued
ASU No. 2016-13, Financial Instruments - Credit Losses, which was subsequently amended by ASU 2018-19 and ASU 2019-10. This standard requires
the measurement of expected credit losses for financial instruments carried at amortized cost held at the reporting date based on historical
experience, current conditions and reasonable forecasts. The updated guidance also amends the current other-than-temporary impairment
model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance
account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In
addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit
loss exists. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected
credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The Company
adopted this standard on January 1, 2023, with no impact on its condensed consolidated financial statements and related disclosures.
|
Recently Issued Accounting Standards |
Recently Issued Accounting Standards In June 2022, the FASB issued
ASU 2022-03, ASC Subtopic 820 “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. The
FASB is issuing this update (1) to clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity
security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example,
and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair
value in accordance with Topic 820. The amendments in this update are effective for the Company on January 1, 2025. Early adoption is
permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company is
still evaluating the impact of this pronouncement on the condensed consolidated financial statements.
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v3.23.2
Fair Value Measurements (Tables)
|
6 Months Ended |
Jun. 30, 2023 |
Fair Value Measurements [Abstract] |
|
Schedule of Financial Liabilities that are Measured at Fair Value on a Recurring Basis |
The following table presents
information about the Company’s financial liabilities that are measured at fair value on a recurring basis as of June 30, 2023 and
December 31, 2022, by level within the fair value hierarchy (in thousands):
| |
Fair value measured as of June 30, 2023 | |
| |
| | |
Quoted prices in | | |
Significant
other | | |
Significant | |
| |
Fair value at June 30, | | |
active markets | | |
observable inputs | | |
unobservable inputs | |
| |
2023 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Warrant liability | |
$ | 194 | | |
$ | - | | |
$ | - | | |
$ | 194 | |
| |
Fair value measured as of December 31, 2022 | |
| |
| | |
Quoted prices in | | |
Significant other | | |
Significant | |
| |
Fair value at December 31, | | |
active markets | | |
observable inputs | | |
unobservable inputs | |
| |
2022 | | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | |
Warrant liability | |
$ | 129 | | |
$ | - | | |
$ | - | | |
$ | 129 | |
|
Schedule of Changes in Level 3 Liabilities Measured at Fair Value |
The following table presents
changes in Level 3 liabilities measured at fair value for the three and six months ended June 30, 2023 and 2022 (in thousands).
Balance - January 1, 2023 | |
$ | 129 | |
Change in fair value | |
| (16 | ) |
Balance - March 31, 2023 | |
$ | 113 | |
Change in fair value | |
| 81 | |
Balance - June 30, 2023 | |
$ | 194 | |
| |
| | |
Balance - January 1, 2022 | |
$ | 186 | |
Change in fair value | |
| (66 | ) |
Balance - March 31, 2022 | |
$ | 120 | |
Change in fair value | |
| 38 | |
Balance - June 30, 2022 | |
$ | 158 | |
|
Schedule of Quantitative Information Regarding Level 3 Fair Value Measurements Inputs |
The following table provides
quantitative information regarding Level 3 fair value measurements inputs at their measurement:
| |
June 30, | | |
December 31, | |
| |
2023 | | |
2022 | |
Strike price (per share) | |
$ | 0.75 | | |
$ | 0.71 | |
Contractual term (years) | |
| 4.0 | | |
| 4.5 | |
Volatility (annual) | |
| 71.2 | % | |
| 72.6 | % |
Risk-free rate | |
| 4.1 | % | |
| 4.0 | % |
Dividend yield (per share) | |
| 0.0 | % | |
| 0.0 | % |
|
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v3.23.2
Research and Development Revenue (Tables)
|
6 Months Ended |
Jun. 30, 2023 |
Research and Development Revenue [Abstract] |
|
Schedule of Revenues Disaggregated |
For the three and six months
ended June 30, 2023 and 2022, the Company’s revenues disaggregated by the major sources was as follows (in thousands):
| |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
BARDA | |
$ | 4,020 | | |
$ | 6,255 | | |
$ | 8,963 | | |
$ | 11,963 | |
Other U.S governmental authorities | |
| 231 | | |
| 135 | | |
| 366 | | |
| 271 | |
Total revenue | |
$ | 4,251 | | |
$ | 6,390 | | |
$ | 9,329 | | |
$ | 12,234 | |
|
X |
- DefinitionTabular disclosure of disaggregation of revenue into categories depicting how nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factor.
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v3.23.2
Accrued Expenses (Tables)
|
6 Months Ended |
Jun. 30, 2023 |
Accrued Expenses [Abstract] |
|
Schedule of Accrued Expenses |
Accrued expenses consist of
the following as of June 30, 2023 and December 31, 2022 (in thousands):
| |
June 30, | | |
December 31, | |
| |
2023 | | |
2022 | |
Salary and wages | |
$ | 1,106 | | |
$ | 1,135 | |
Provision operating expenses | |
| 414 | | |
| 736 | |
Benefits | |
| 790 | | |
| 650 | |
Franchise tax | |
| 84 | | |
| 110 | |
Total accrued expenses | |
$ | 2,394 | | |
$ | 2,631 | |
|
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v3.23.2
Leases (Tables)
|
6 Months Ended |
Jun. 30, 2023 |
Leases [Abstract] |
|
Schedule of Operating Leases |
The following table summarizes
quantitative information about the Company’s operating leases for the three and six months ended June 30, 2023 and 2022 (dollars
in thousands):
| |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Operating cash flows from operating leases | |
$ | 212 | | |
$ | 158 | | |
$ | 327 | | |
$ | 313 | |
Right-of-use assets exchanged for operating lease liabilities | |
$ | 483 | | |
$ | 15 | | |
$ | 483 | | |
$ | 624 | |
Weighted average remaining lease term – operating leases (in years) | |
| 1.5 | | |
| 0.7 | | |
| 1.5 | | |
| 0.7 | |
Weighted average discount rate – operating leases | |
| 8.5 | % | |
| 6.7 | % | |
| 8.5 | % | |
| 6.7 | % |
|
Schedule of Lease Cost Included in General and Administrative Expense in the Condensed Consolidated Statement of Operations |
The following table provides
the components of the Company’s lease cost included in general and administrative expense in the condensed consolidated statement
of operations (in thousands):
| |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
Operating leases | |
| | | |
| | | |
| | | |
| | |
Operating lease cost | |
$ | 198 | | |
$ | 132 | | |
$ | 392 | | |
$ | 264 | |
Variable lease cost | |
| 133 | | |
| 49 | | |
| 192 | | |
| 93 | |
Total rent expense | |
$ | 331 | | |
$ | 181 | | |
$ | 584 | | |
$ | 357 | |
|
Schedule of Minimum Payments Under the Non-Cancelable Operating Leases |
As of June 30, 2023, future
minimum payments under the non-cancelable operating leases under ASC 842 were as follows (in thousands):
Six months ending December 31, 2023 | |
$ | 417 | |
Year ending December 31, 2024 | |
| 894 | |
Total | |
| 1,311 | |
Less: imputed interest | |
| (86 | ) |
Operating lease liabilities | |
$ | 1,225 | |
|
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v3.23.2
Stock-based Compensation (Tables)
|
6 Months Ended |
Jun. 30, 2023 |
Stock-based Compensation (Tables) [Line Items] |
|
Schedule of Black Scholes Option Pricing Model |
In applying the Black Scholes
option pricing model, the Company used the following assumptions for stock options granted in the six months ended June 30, 2023:
| |
Six Months Ended | |
| |
June 30, 2023 | |
Exercise price (per share) | |
$ | 0.44 | |
Expected term (years) | |
| 6.0 | |
Volatility (annual) | |
| 72 | % |
Risk-free rate | |
| 3.5 | % |
Dividend yield (per share) | |
| 0 | % |
|
Schedule of Stock Options Activity |
A summary of stock options
activity for the six months ended June 30, 2023 is presented below:
| |
Stock Options | | |
Weighted Average Exercise Price US$ | | |
Weighted Average Remaining Contractual
Life (in years) | | |
Aggregate Intrinsic
Value (in
thousands) | |
Outstanding at January 1, 2023 | |
| 36,124,000 | | |
$ | 0.20 | | |
| 7.3 | | |
$ | 6,831 | |
Options granted | |
| 2,511,000 | | |
$ | 0.44 | | |
| | | |
| | |
Options forfeited | |
| (163,334 | ) | |
$ | 0.35 | | |
| | | |
| | |
Options exercised | |
| (220,000 | ) | |
$ | 0.17 | | |
| | | |
| | |
Options cancelled | |
| (210,000 | ) | |
$ | 0.19 | | |
| | | |
| | |
Outstanding as of June 30, 2023 | |
| 38,041,666 | | |
$ | 0.21 | | |
| 7.0 | | |
$ | 12,426 | |
Options vested and exercisable as of June 30, 2023 | |
| 30,265,209 | | |
$ | 0.17 | | |
| 6.6 | | |
$ | 11,244 | |
|
RSA [Member] |
|
Stock-based Compensation (Tables) [Line Items] |
|
Schedule of RSA and RSUs Activities |
A summary of RSA activities for the six months ended June 30, 2023 are presented below:
| | |
Number of Shares | | |
Weighted Average Grant Date Fair Value per
Share
US$ | |
Nonvested as of January 1, 2023 | | |
| 312,502 | | |
$ | 0.10 | |
Vested | | |
| (312,502 | ) | |
$ | 0.10 | |
Nonvested as of June 30, 2023 | | |
| - | | |
$ | - | |
|
RSUs [Member] |
|
Stock-based Compensation (Tables) [Line Items] |
|
Schedule of RSA and RSUs Activities |
A summary of RSU activities for the six months ended June 30, 2023 are presented below:
| | |
Number of Shares | | |
Weighted
Average
Grant
Date
Fair
Value
per
Share
US$ | |
Nonvested as of January 1, 2023 | | |
| - | | |
$ | - | |
Granted | | |
| 600,000 | | |
$ | 0.45 | |
Nonvested as of June 30, 2023 | | |
| 600,000 | | |
$ | 0.45 | |
|
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v3.23.2
Net Loss Per Common Share (Tables)
|
6 Months Ended |
Jun. 30, 2023 |
Net Loss Per Common Share [Abstract] |
|
Schedule of Summarizes Potentially Dilutive Securities that were Excluded from the Computation of Net Loss Per Common Share |
The table below summarizes
potentially dilutive securities that were excluded from the computation of net loss per common share as of the periods presented because
including them would be anti-dilutive.
| |
2023 | | |
2022 | |
Common stock options | |
| 47,933,020 | | |
| 46,163,926 | |
Common stock warrants | |
| 762,712 | | |
| 762,712 | |
Unvested restricted stock units | |
| 600,000 | | |
| - | |
Unvested restricted stock | |
| - | | |
| 687,502 | |
Potentially dilutive securities | |
| 49,295,732 | | |
| 47,614,140 | |
|
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v3.23.2
Organization, Nature of Business and Liquidity (Details) - USD ($)
|
1 Months Ended |
6 Months Ended |
12 Months Ended |
|
Sep. 30, 2023 |
Apr. 30, 2023 |
Jun. 30, 2023 |
Dec. 31, 2022 |
Dec. 31, 2021 |
Apr. 11, 2023 |
Organization, Nature of Business and Liquidity (Details) [Line Items] |
|
|
|
|
|
|
Cash |
|
|
$ 8,200,000
|
$ 14,200,000
|
|
|
Accumulated deficit |
|
|
18,600,000
|
11,900,000
|
|
|
Additional funding amount |
|
|
|
8,200,000
|
|
|
Aggregated funding options |
|
|
4,100,000
|
47,600,000
|
$ 39,400,000
|
|
Additional fund |
|
|
|
8,200,000
|
|
|
Received amount |
|
$ 4,000,000
|
|
|
|
|
common stock issued |
|
|
$ 136,000
|
$ 135,000
|
|
|
Common Stock, Discount on Shares |
$ 3,400,000
|
|
|
|
|
|
Potential fund |
96,900,000
|
|
|
|
|
|
Common Stock [Member] |
|
|
|
|
|
|
Organization, Nature of Business and Liquidity (Details) [Line Items] |
|
|
|
|
|
|
common stock issued |
$ 7,679,198
|
|
|
|
|
|
Rosecliff [Member] |
|
|
|
|
|
|
Organization, Nature of Business and Liquidity (Details) [Line Items] |
|
|
|
|
|
|
Ordinary shares (in Shares) |
|
|
|
|
|
17,000,000
|
Aggregate equity value |
|
|
|
|
|
$ 170,000,000
|
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v3.23.2
Summary of Significant Accounting Policies (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended |
6 Months Ended |
12 Months Ended |
|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
Jun. 22, 2021 |
Summary of Significant Accounting Policies (Details) [Line Items] |
|
|
|
|
|
|
Accounts receivable, net |
$ 1,520
|
|
$ 1,520
|
|
$ 2,294
|
|
Unbilled revenue |
100
|
|
100
|
|
600
|
|
Allowance for doubtful accounts |
|
|
|
|
|
|
Deferred offering cost |
1,100
|
|
1,100
|
|
|
|
Deferred cost, unpaid |
|
|
800
|
|
|
|
Foreign exchange transaction gain |
$ 0
|
|
$ 13
|
|
|
|
Foreign exchange transaction loss |
|
$ 200
|
|
$ 200
|
|
|
Warrants issued (in Shares) |
|
|
|
|
|
762,712
|
Strike price (in Dollars per share) |
|
|
|
|
|
$ 0.89
|
Warrants outstanding (in Shares) |
762,712
|
762,712
|
762,712
|
762,712
|
|
|
Exercise price (in Dollars per share) |
|
|
$ 0.75
|
|
|
|
Research and development expense |
$ 3,700
|
$ 4,000
|
$ 7,700
|
$ 7,900
|
|
|
Cost of revenue |
2,500
|
3,700
|
5,400
|
7,100
|
|
|
General and administrative expenses |
$ 1,200
|
$ 300
|
$ 2,300
|
$ 800
|
|
|
One Customer [Member] |
|
|
|
|
|
|
Summary of Significant Accounting Policies (Details) [Line Items] |
|
|
|
|
|
|
Net receivables percentage |
|
|
71.00%
|
|
96.00%
|
|
Recognized research and development revenue percentage |
95.00%
|
87.00%
|
96.00%
|
92.00%
|
|
|
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Research and Development Revenue (Details) - Schedule of Revenues Disaggregated - USD ($) $ in Thousands |
3 Months Ended |
6 Months Ended |
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Disaggregation of Revenue [Line Items] |
|
|
|
|
Total revenue |
$ 4,251
|
$ 6,390
|
$ 9,329
|
$ 12,234
|
BARDA [Member] |
|
|
|
|
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|
|
|
|
Total revenue |
4,020
|
6,255
|
8,963
|
11,963
|
Other U.S governmental authorities [Member] |
|
|
|
|
Disaggregation of Revenue [Line Items] |
|
|
|
|
Total revenue |
$ 231
|
$ 135
|
$ 366
|
$ 271
|
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v3.23.2
Notes Payable (Details) - USD ($)
|
6 Months Ended |
|
|
|
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
Jun. 30, 2021 |
Apr. 13, 2020 |
Note payable [Line items] |
|
|
|
|
|
Fnancing agreements for insurance premium |
|
$ 400,000
|
|
$ 500,000
|
|
Insurance note bearing interest percentage |
|
6.70%
|
|
5.70%
|
|
Repaid of remaining balance amount |
$ 200,000
|
|
|
|
|
Outstanding balance amount |
|
|
$ 200,000
|
|
|
Remaining balance amount |
|
$ 200,000
|
|
|
|
Loan amount |
|
|
|
|
$ 768,575
|
Maturity date |
Apr. 13, 2022
|
|
|
|
|
Bears interest rate of per annum |
1.00%
|
|
|
|
|
PPP Loan [Member] |
|
|
|
|
|
Note payable [Line items] |
|
|
|
|
|
Repaid of remaining balance amount |
|
$ 400,000
|
|
|
|
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Leases (Details) - Schedule of Lease Cost Included in General and Administrative Expense in the Condensed Consolidated Statement of Operations - USD ($) $ in Thousands |
3 Months Ended |
6 Months Ended |
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Operating leases |
|
|
|
|
Operating lease cost |
$ 198
|
$ 132
|
$ 392
|
$ 264
|
Variable lease cost |
133
|
49
|
192
|
93
|
Total rent expense |
$ 331
|
$ 181
|
$ 584
|
$ 357
|
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v3.23.2
Stockholders' Equity (Details) - $ / shares
|
Jun. 30, 2023 |
Dec. 31, 2022 |
Stockholders' Equity [Abstract] |
|
|
Common stock , share athorized |
400,000,000
|
400,000,000
|
Common stock, par value (in Dollars per share) |
$ 0.001
|
$ 0.001
|
Common stock shares issued |
136,261,515
|
136,261,515
|
Common stock shares outstanding |
135,409,564
|
135,409,564
|
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- DefinitionFace amount or stated value per share of common stock.
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v3.23.2
Stock-based Compensation (Details) - USD ($) $ / shares in Units, $ in Millions |
3 Months Ended |
6 Months Ended |
12 Months Ended |
|
|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2018 |
Sep. 27, 2022 |
Jul. 24, 2018 |
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] |
|
|
|
|
|
|
|
Expected dividend yield |
|
|
0.00%
|
|
|
|
|
Stock-based compensation expense (in Dollars) |
$ 0.3
|
$ 0.3
|
$ 0.7
|
$ 0.6
|
|
|
|
Unrecognized stock-based compensation (in Dollars) |
|
|
$ 1.7
|
$ 0.2
|
|
|
|
Weighted average period |
|
|
1 year 2 months 12 days
|
1 year 3 months 18 days
|
|
|
|
Investor options are outstanding |
|
|
2,511,000
|
|
|
|
|
Investor options exercise price per share (in Dollars per share) |
$ 0.2
|
|
$ 0.2
|
|
|
|
|
Purchase of shares |
|
|
210,000
|
|
|
|
|
Purchase of price per share (in Dollars per share) |
|
|
$ 0.19
|
|
|
|
|
Grant options fair value per share (in Dollars per share) |
|
|
$ 0.21
|
|
|
|
|
Stock Options [Member] |
|
|
|
|
|
|
|
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] |
|
|
|
|
|
|
|
Granted stock options to investors |
|
|
|
|
10,039,926
|
|
|
Investor Options [Member] |
|
|
|
|
|
|
|
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] |
|
|
|
|
|
|
|
Investor options are outstanding |
|
|
9,681,354
|
|
|
|
|
2018 Long Term Incentive Plan [Member] |
|
|
|
|
|
|
|
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] |
|
|
|
|
|
|
|
Expire term |
|
|
|
|
|
|
10 years
|
Common stock authorized for issuance |
|
|
38,354,118
|
|
|
|
|
Remaining shares of issuance |
584,952
|
|
584,952
|
|
|
|
|
2022 Long Term Incentive Plan [Member] |
|
|
|
|
|
|
|
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] |
|
|
|
|
|
|
|
Expire term |
|
|
|
|
|
10 years
|
|
Common stock authorized for issuance |
|
|
20,000,000
|
|
|
|
|
Remaining shares of issuance |
18,485,000
|
|
18,485,000
|
|
|
|
|
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- DefinitionFinal price paid per share for the purchase of the targeted number of shares, determined by an average market price over a fixed period of time.
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v3.23.2
Stock-based Compensation (Details) - Schedule of Stock Options Activity - USD ($) $ / shares in Units, $ in Thousands |
6 Months Ended |
Jun. 30, 2023 |
Schedule of Stock Options Activity [Abstract] |
|
Stock Options, Outstanding Beginning Balance |
36,124,000
|
Weighted Average Exercise Price, Outstanding Beginning Balance |
$ 0.2
|
Weighted Average Remaining Contractual Life, Outstanding Beginning Balance |
7 years 3 months 18 days
|
Aggregate Intrinsic Value, Outstanding Beginning Balance |
$ 6,831
|
Stock Options, Options granted |
2,511,000
|
Weighted Average Exercise Price, Options granted |
$ 0.44
|
Stock Options, Options forfeited |
(163,334)
|
Weighted Average Exercise Price, Options forfeited |
$ 0.35
|
Stock Options, Options exercised |
(220,000)
|
Weighted Average Exercise Price, Options exercised |
$ 0.17
|
Stock Options, Options cancelled |
(210,000)
|
Weighted Average Exercise Price, Options cancelled |
$ 0.19
|
Stock Options, Outstanding ending Balance |
38,041,666
|
Weighted Average Exercise Price, Outstanding ending Balance |
$ 0.21
|
Weighted Average Remaining Contractual Life, Outstanding ending Balance |
7 years
|
Aggregate Intrinsic Value, Outstanding ending Balance |
$ 12,426
|
Stock Options, Options vested and exercisable |
30,265,209
|
Weighted Average Exercise Price, Options vested and exercisable |
$ 0.17
|
Weighted Average Remaining Contractual Life, Options vested and exercisable |
6 years 7 months 6 days
|
Aggregate Intrinsic Value, Options vested and exercisable |
$ 11,244
|
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v3.23.2
v3.23.2
Net Loss Per Common Share (Details) - Schedule of Summarizes Potentially Dilutive Securities that were Excluded from the Computation of Net Loss Per Common Share - shares
|
6 Months Ended |
Jun. 30, 2023 |
Jun. 30, 2022 |
Schedule Of Summarizes Potentially Dilutive Securities That Were Excluded From The Computation Of Net Loss Per Common Share Abstract |
|
|
Common stock options |
47,933,020
|
46,163,926
|
Common stock warrants |
762,712
|
762,712
|
Unvested restricted stock units |
600,000
|
|
Unvested restricted stock |
|
687,502
|
Potentially dilutive securities |
49,295,732
|
47,614,140
|
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v3.23.2
Subsequent events (Details)
|
Sep. 11, 2023
shares
|
Subsequent events (Details) [Line Items] |
|
Conversion ratio |
10.31
|
Warrants to purchase common stock |
762,712
|
Common Stock [Member] |
|
Subsequent events (Details) [Line Items] |
|
Shares exchanged |
13,316,464
|
Number of options to purchase shares for exchange |
46,592,862
|
Equity Issuance common stock [Member] |
|
Subsequent events (Details) [Line Items] |
|
Shares exchanged |
744,667
|
Rosecliff [Member] |
|
Subsequent events (Details) [Line Items] |
|
Sale of stock |
137,701,673
|
Spectral AI [Member] |
|
Subsequent events (Details) [Line Items] |
|
Warrants to purchase common stock |
73,978
|
Spectral AI [Member] | Common Stock [Member] |
|
Subsequent events (Details) [Line Items] |
|
Number of options to purchase shares for exchange |
4,519,191
|
RSU [Member] |
|
Subsequent events (Details) [Line Items] |
|
Number of options to purchase shares for exchange |
600,000
|
RSU [Member] | Spectral AI [Member] |
|
Subsequent events (Details) [Line Items] |
|
Number of options to purchase shares for exchange |
58,196
|
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Rosecliff Acquisition Co... (NASDAQ:RCLFU)
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