Filing summary
Entity and period: The supplied filing is Rosecliff Acquisition Corp I’s unaudited Form 10-Q for the quarter ended March 31, 2021—not a filing for Spectral AI, Inc. Rosecliff was a shell company formed to pursue a business combination and had not commenced operations. Its February 17, 2021 IPO raised $253.0 million; no operating revenue is expected before a business combination.
Financial results and position
- Quarter results: Net income was $3.22 million, comprising a $3.81 million noncash gain from the change in warrant fair value and $7,140 of trust interest, offset by $157,816 of operating and formation costs and $438,283 of offering costs allocated to warrant liabilities. Income taxes were zero. The filing reports Class B loss per share of $0.55 and essentially zero earnings per redeemable Class A share.
- Cash flow: Operating activities used $149,987. Investing activities used $253.0 million, primarily to fund the trust account. Financing activities provided $254.77 million. Quarter-end cash outside the trust was $1.62 million.
- Assets and liquidity: Total assets were $254.79 million, including $253.01 million in cash and U.S. Treasury securities held in trust and $1.78 million of current assets. The trust was intended primarily to fund a business combination; cash outside the trust was intended for search and transaction expenses.
- Liabilities and equity: Total liabilities were $17.24 million, including $8.02 million of warrant liabilities and an $8.86 million deferred underwriting fee payable upon completion of a business combination. Current liabilities were $369,485; stockholders’ equity was $5.00 million. A further $232.55 million of Class A shares was classified as temporary equity due to possible redemption.
- Revenue and margins: No revenue or operating business was reported; operating costs were $157,816. Operating and net margins are not meaningful for this pre-combination shell, and reported net income was driven mainly by noncash warrant remeasurement.
Changes, accounting matters, and risks
- The company revised its previously issued February 17, 2021 balance sheet after determining that public and private placement warrants should be classified as derivative liabilities, rather than equity. The change reduced equity and increased liabilities at IPO; subsequent fair-value movements flow through earnings. Warrant liabilities were $8.02 million at March 31, versus an initial measurement of $11.83 million.
- Management concluded disclosure controls were ineffective due to a material weakness in internal control over financial reporting related to the warrant accounting. It described planned improvements but gave no assurance they would be effective.
- Management noted COVID-19 could adversely affect the company’s financial position or target search, but the impact was not determinable. The company also warned that warrant-related noncash gains and losses could materially fluctuate results and that potential litigation related to the accounting weakness cannot be ruled out; no such litigation was known at filing.
- There is no comparable first-quarter prior-year operating period presented. The December 31, 2020 balance sheet predates the IPO and showed $164,899 of assets, $140,574 of liabilities, and $24,325 of equity.
Outlook and commitments
The company had until February 17, 2023 to complete a business combination; otherwise it generally must redeem public shares and liquidate, and warrants may expire worthless. Management said it did not expect to need additional funds for planned expenditures but acknowledged possible shortfalls or a need for financing to complete a transaction. It had no long-term debt, but was obligated to pay $10,000 monthly for administrative services until a business combination or liquidation. No specific transaction guidance or target was disclosed.
Facts for investors to verify
- Confirm the intended issuer: the filing identifies Rosecliff Acquisition Corp I, not Spectral AI, Inc.
- Review the warrant reclassification, fair-value assumptions, and resulting effects on reported earnings and equity.
- Assess remediation of the disclosed material weakness and subsequent effectiveness of financial reporting controls.
- Verify trust-account restrictions, redemption terms, deferred underwriting fees, and the business-combination deadline.
- Check later filings for any business-combination announcement, financing needs, litigation, or changes in risk disclosures.