Spectral AI, Inc. quarterly report, Q1 FY2023

Business context and reporting period

This is Rosecliff Acquisition Corp I’s unaudited Form 10-Q for the quarter ended March 31, 2023—not Spectral AI, Inc.’s operating-company quarterly report. Rosecliff was a blank-check company with no operating revenue or operations; it was seeking a business combination. The reported financials are Rosecliff’s, not Spectral MD’s.

After quarter-end, on April 11, 2023, Rosecliff agreed to combine with Spectral MD Holdings, Ltd. The proposed transaction remained subject to customary conditions, including shareholder approvals, an effective Form S-4, regulatory clearance and listing approval.

Financial results and liquidity

The year-over-year swing to a loss primarily reflects warrant fair-value changes: a $788,400 expense in Q1 2023 versus $7,514,642 of income in Q1 2022. These noncash changes materially affected reported earnings. Basic and diluted loss per share was $0.19 for each common-stock class, compared with income per share of $0.22 in Q1 2022.

At March 31, 2023, cash outside the trust was $541,841; trust-account cash was $4,666,884; total assets were $5,412,558; and total liabilities were $14,002,881. Current liabilities were $3,965,281 against current assets of $745,674, a working-capital deficit of $3,219,607 based on the balance sheet. The MD&A separately reports a deficit of $3,287,624; the filing does not reconcile this difference. No long-term debt is reported. Material obligations include an $8,855,000 deferred underwriting fee payable upon completion of a business combination and accrued expenses of $3,686,739.

Material changes, outlook and risks

• In December 2022, shareholders redeemed approximately 98.2% of the original public shares. At quarter-end, 458,716 Class A shares remained subject to redemption.
• The prior proposed Gett transaction was terminated in March 2022. The new Spectral MD transaction was announced after quarter-end; it was not completed as of this filing.
• Management stated that substantial doubt exists about Rosecliff’s ability to continue as a going concern: available liquidity may not fund needs through the business-combination deadline, and sponsor or other financing is possible but not committed. The filing identifies February 17, 2024 as the deadline; failure to complete a transaction would require liquidation.
• Nasdaq deficiencies pose additional risk. The company lacked the minimum public-share count and was warned that failure to complete a business combination by July 21, 2023 could lead to delisting, subject to appeal. A separate notice cited market-value and equity/income listing deficiencies, with a compliance period through October 2, 2023.
• Other disclosed risks include potential excise tax on share repurchases, warrant-liability valuation volatility, and general market and transaction-completion uncertainties. A stockholder demand letter dated May 10, 2023 alleged omissions in the proposed transaction registration statement and sought corrective disclosure.
• Management reported disclosure controls were effective and no material quarterly change in internal control over financial reporting.

Important facts for investors to verify

• Confirm the intended issuer: this filing is Rosecliff’s SPAC filing, not Spectral AI’s or Spectral MD’s operating results.
• Review the definitive merger terms, pro forma ownership and financing, redemption levels, and any cash or PIPE commitments in the transaction filings.
• Check subsequent filings for transaction completion or termination, deadline changes, and Nasdaq listing status.
• Reconcile the working-capital-deficit figures ($3,219,607 on the balance sheet versus $3,287,624 in MD&A) and assess whether additional funding was secured.
• Assess the impact of the deferred underwriting fee, accrued obligations, potential excise tax and warrant valuation changes on cash available at closing.