What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2026-03-25 compared with 2025-03-31 · 1023 added, 891 removed, 687 unchanged (74% of the section changed)

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required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K.

An index of those financial statements

is found in Item 15, Exhibits and Financial Statement Schedules, of this Annual Report on Form 10-K.

Changes in and Disagreements with

Accountants on Accounting and Financial Disclosure

An index of those financial statements is

found in Item 15, Exhibits and Financial Statement Schedules, of this Annual Report on Form 10-K.

Changes in and Disagreements with Accountants on Accounting

and Financial Disclosure

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Financial Officer, has evaluated

the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange

Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Annual Report on Form 10-K.

on management’s evaluation as of the year ended December 31, 2024, our Chief Financial Officer has concluded that we successfully

remediated the material weaknesses related to (i) our lack of communication within management and internal departments regarding complex

and unusual arrangements and (ii) that the Company did not maintain adequately designed controls to ensure the proper recording of operating

expenses, related accruals and unbilled revenue in the correct period.

However, our remediation and testing continue for the material

weakness (iii) that our financial statement close process controls which relate to all financial statement accounts, did not consistently

operate effectively or lacked appropriate evidence, to ensure account reconciliations, transactions, and journal entries were performed

or reviewed at the appropriate level of precision and on a timely basis.

As a result of the material weakness in our internal control

over financial reporting as described below and in Part II, Item 1A.

Risk Factors, our disclosure controls and procedures were not effective

Our management is

responsible for establishing and maintaining adequate internal control over financial reporting (as that term is defined in Rules

13a-15(f) and 15d-15(f) under the Exchange Act).

Our management, under the supervision of our Chief Executive Officer and Chief

Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and

15d-15(e) under the Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K.

Material Weakness:

Our financial statement close process controls, including controls over account reconciliations, transaction processing, and financial

reporting review, did not operate consistently or with sufficient precision to ensure timely performance and review, including appropriate

oversight of financial statement reporting.

In conducting our evaluation, management used the updated framework issued by the Committee

of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013).

controls and procedures are designed to ensure that information required to be disclosed by a company in the reports that it files or

submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information

required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to

our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding

required disclosure.

Based on that evaluation,

management concluded that, as of December 31, 2025, our disclosure controls and procedures were not effective due to the material weakness

in internal control over financial reporting described below.

As discussed in Item 9A of our Form 10-K for the year ended December 31,

2025, we identified material weaknesses in our internal control over financial reporting as well as a lack of effective controls over

the COSO principles including control environment, risk assessment, control activities, information and communications and monitoring

as of December 31, 2025.

As a result, certain control activities in our financial statement close process controls which relate to all

financial statement accounts, did not consistently operate effectively or lacked appropriate evidence, to ensure account reconciliations,

transactions, and journal entries were performed or reviewed at the appropriate level of precision and on a timely basis.

deficiency could result in a material misstatement of our accounts or disclosures that would not be prevented or detected on a timely

basis, and accordingly, we determined that these control deficiencies in aggregate constitute a material weakness.

Notwithstanding the identified

material weaknesses, our management believes the consolidated financial statements included in this Annual Report on Form 10-K fairly

present, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented

in accordance with U.S.

Remediation Plan for Material Weaknesses

Remediation generally requires making changes to how controls are designed

and implemented and then adhering to those changes for a sufficient period of time such that the effectiveness of those changes is demonstrated

with an appropriate amount of consistency.

In response to the material weakness, we implemented, and are continuing to implement, measures

designed to improve our internal control over financial reporting.

Remediation generally requires

making changes to how controls are designed and implemented and then adhering to those changes for a sufficient period of time such that

the effectiveness of those changes is demonstrated with an appropriate amount of consistency.

In response to the material weakness, we

implemented, and are continuing to implement and monitor, measures designed to improve our internal control over financial reporting.

These efforts include:

engaging a professional

accounting services firm to help us assess and commence documentation of our internal controls for complying with the Sarbanes-Oxley

strengthening, formalizing,

documenting and testing accounting processes and internal controls, specifically regarding accrued expenses and contract reviews

and improving the information flow throughout the organization to allow for timely communication of new agreements and transactions;

engaging consultants to

provide additional technical accounting expertise;

enhancing functionality

of our enterprise resource planning system to support certain key financial processes and controls and enforce certain segregation

of duties through automation and approval workflows.

The measures we are implementing are subject to continued management

review supported by confirmation and testing, as well as Audit Committee oversight.

Management and the Audit Committee remain committed

to the implementation of remediation efforts to address the material weakness.

We will continue to implement measures to remedy our internal

control deficiencies, though there can be no assurance that our efforts will be successful or avoid potential future material weaknesses.

In addition, until remediation steps have been completed and are operated for a sufficient period of time, and subsequent evaluation of

their effectiveness is completed, the material weakness previously disclosed, and as described above, will continue to exist.

engaging a professional accounting services firm, in 2024, to help us assess and commence documentation of our internal controls for complying with the Sarbanes-Oxley Act of 2002;

Engaged consultants to provide additional technical accounting expertise;

During 2024 and 2025, enhanced functionality of our enterprise resource planning system to support certain key financial processes and controls and enforce certain segregation of duties through automation and approval workflows;

Improved accounting personnel by supplementing capacity gaps.

We will continue to make additional accounting hires to further bolster capabilities.

The measures we implemented

are subject to continued management review supported by confirmation and testing, as well as audit committee oversight.

Management and

the Audit Committee remain committed to the implementation of remediation efforts to address the material weakness.

We will continue to

implement measures to remedy our internal control deficiencies, though there can be no assurance that our efforts will be successful or

avoid potential future material weaknesses.

In addition, until remediation steps have been completed and are operated for a sufficient

period of time, and subsequent evaluation of their effectiveness is completed, the material weaknesses previously disclosed, and as described

above, will continue to exist.

Annual Report on Internal Control over Financial Reporting

Our management assessed

the effectiveness of our internal control over financial reporting as of December 31, 2024.

In making this assessment, our management

used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in Internal Control-Integrated

2013 Framework.

Based on this assessment, our management concluded that, as of December

31, 2024, our internal control over financial reporting was not effective at the reasonable assurance level, due to the material weakness

outlined above.

We believe progress was made in 2024 to enhance and strengthen our

internal control over financial reporting.

The measures we are implementing are subject to continued management review supported by confirmation

and testing, as well as Audit Committee oversight.

Management remains committed to remediating this material weakness.

We will continue

to implement measures to remedy our internal control deficiencies, though there can be no assurance that our efforts will be successful

or avoid potential future material weaknesses.

Our management,

including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial

reporting as of December 31, 2025.

In making this assessment, our management used the criteria set forth by the Committee of

Sponsoring Organizations of the Treadway Commission, or COSO, in Internal Control-Integrated 2013 Framework.

on this assessment, our management concluded that, as of December 31, 2025, our internal control over financial reporting was not effective

at the reasonable assurance level, due to the material weaknesses outlined above.

We made progress in 2025

to enhance and strengthen our internal control over financial reporting.

The measures we implemented are subject to continued management

review supported by confirmation and testing, as well as audit committee oversight.

Management remains committed to remediating these

material weaknesses.

We will continue to implement

measures to remedy our internal control deficiencies, though there can be no assurance that our efforts will be successful or avoid potential

future material weaknesses.

This Annual Report on Form

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section and have opted to comply with the scaled disclosure requirements applicable to emerging growth companies.

information required by this Item 11 is set forth under the caption “Executive Officer and Director Compensation” in our

Definitive Proxy Statement with respect to our 2025 Annual Meeting of Stockholders and is incorporated herein by reference.

information required by this Item 11 is set forth under the caption “Executive Officer and Director Compensation” in our Definitive

Proxy Statement with respect to our 2026 Annual Meeting of Stockholders and is incorporated herein by reference.

Security Ownership of Certain Beneficial Owners and Management

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Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets F-4

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Notes to Consolidated Financial Statements F-8

REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

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We have audited the accompanying consolidated

balance sheets of Spectral AI, Inc.

and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements

of operations and comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for each of the years in the two-year

period ended December 31, 2024, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated

financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023,

and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity

balance sheet of Spectral AI, Inc.

(the “Company”) as of December 31, 2025, the related consolidated statements of operations

and comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for the year ended December 31, 2025, and the

related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements referred

to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its

operations and its cash flows for the year ended December 31, 2025, in conformity with accounting principles generally accepted in the

United States of America.

Basis for Opinion

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our

We are a public accounting firm registered with

the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to

the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange

Commission and the PCAOB.

We conducted our audit in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial

statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged

to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Forvis Mazars, LLP

We have served as the Company’s auditor

Dallas, Texas

March 24, 2026

Report of Independent Registered Public Accounting

To the Stockholders and Board of Directors

Spectral AI, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Spectral

and subsidiaries (the Company) as of December 31, 2024, the related consolidated statements of operations and comprehensive

loss, changes in stockholders’ equity (deficit), and cash flows for the year ended December 31, 2024, and the related notes (collectively,

the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects,

the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended

December 31, 2024, in conformity with U.S.

generally accepted accounting principles.

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Our responsibility is to express an opinion on these consolidated financial statements

based on our audits.

based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)

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rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we

engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements

are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material

misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as

evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for

We have served as the Company’s

auditor since 2021.

We believe that our audit provides a reasonable basis for

We served as the Company’s auditor from 2021 to 2025.

Dallas, Texas

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SPECTRAL AI, INC.

CONSOLIDATED BALANCE

CONSOLIDATED BALANCE SHEETS

(in thousands, except

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Accounts receivable, net

Deferred offering costs

Prepaid expenses

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Total current liabilities

Notes payable, long-term

Lease liabilities, long-term

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Total Liabilities and Stockholders’ Deficit

The accompanying notes are an integral

part of these consolidated financial statements

(1) Reflects an adjustment of $126,000 to additional paid-in capital and accumulated deficit as compared to previously reported amounts as of December 31, 2024.

See further discussion in Note 1.

The accompanying notes

are an integral part of these consolidated financial statements

SPECTRAL AI, INC.

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Other income (expense):

Net interest income

Borrowing related costs

Net interest (expense) income

Financing related costs

Amortization of debt discount

Change in fair value of warrant liabilities

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Other expenses, including transaction costs

Total other expense, net

Total other income (expense), net

Loss before income taxes

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Total comprehensive loss

(1) Reflects an adjustment of $157,000 to the income tax provision during the year ended December 31, 2024.

See further discussion in Note 1.

The accompanying notes

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Stockholders’

Balance at December 31, 2022, after effect of Business Combination

Issuance of common stock upon Business Combination

Issuance of common stock to settle accounts payable

Issuance of shares for transaction costs

Private placement equity issuance

Financing equity issuance

Stock-based compensation

Stock option exercises

Cumulative translation adjustment

Balance at December 31, 2023

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Balance at December 31, 2024

Stock-based compensation

Sale of common stock and warrants (net of $158K issuance costs)

Issuance of common stock to pay convertible debt

Sale of common stock (net of $19K issuance costs)

Sale of common stock and pre-funded warrants (net of $4K issuance costs)

Exercise of stock options

Vesting of restricted stock units

Cumulative translation adjustment

Warrant exercises

Balance at December 31, 2025

(1) Reflects an adjustment of $126,000 as compared to previously reported amounts as of December 31, 2024.

Reflects an adjustment of $(157,000) in Additional Paid in Capital and ($283,000) in Accumulated Deficit as of December 31, 2023.

See further discussion in Note 1.

The accompanying notes

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Depreciation expense

Amortization of debt issuance costs

Stock-based compensation

Amortization of right-of-use assets

Issuance of shares for transaction costs

Change in fair value of warrant liabilities

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Issuance of shares for borrowing related costs

Transaction costs allocated to Avenue Warrants, Investor Warrants, and Hudson Warrants

Changes in operating assets and liabilities:

Accounts receivable

Unbilled revenue

Prepaid expenses

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Cash flows from financing activities:

Proceeds from issuance of common stock

Cash received in Business Combination

Proceeds from issuance of common stock and warrants

Payment of issuance costs

Proceeds from notes payable

Payment of borrowing costs

Proceeds from notes payable - related party

Payments for notes payable

Proceeds from warrant exercises

Stock option exercises

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Effect of exchange rate changes on cash

Net increase (decrease) in cash

Net increase in cash

Cash, beginning of period

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Cash paid for taxes

Noncash operating and financing activities disclosure:

Noncash investing and financing activities disclosure:

Recognition of Right-of-use assets and related lease liabilities upon lease amendment

Issuance of common stock for net liabilities upon Business Combination

Prepaid asset acquired, net of cancellation, for debt and accounts payable

Tenant improvement allowance payments made by the lessor directly to a third party

Issuance of common stock to settle accounts and notes payable

Deferred offering costs included in accrued expenses

Issuance of common stock to settle deferred offering costs

The accompanying notes

are an integral part of these consolidated financial statements

Short-term financing of insurance premium

(1) Reflects an adjustment of $157,000 to net loss and an adjustment of $(157,000) in the change in other assets during the year ended December 31, 2024.

See further discussion in Note 1.

SPECTRAL AI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NATURE OF THE BUSINESS

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check company on November 17, 2020.

The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition,

stock purchase, reorganization or similar business combination with one or more businesses.

On September 11, 2023, the

Company consummated a business combination (the “Business Combination”), pursuant to the business combination agreement dated

April 11, 2023 (the “Business Combination Agreement”) by and among the Company, Ghost Merger Sub I, a Delaware Corporation,

Ghost Merger Sub II, a Delaware corporation and Spectral MD Holdings, Ltd., a Delaware corporation incorporated on March 9, 2009 and

headquartered in Dallas, Texas (“Legacy Spectral”).

Upon closing of the Business Combination (the “Closing”),

in sequential order:

(a) Ghost Merger Sub I merged with and into the Legacy Spectral, with Legacy Spectral continuing as the surviving

company as a wholly owned subsidiary of the Company (the “Spectral Merger”) and then, (b) Legacy Spectral merged with and

into Ghost Merger Sub II (renamed Spectral MD Holdings LLC) (the “SPAC Merger”, together with the Spectral Merger (the “Business

Combination”)), with Ghost Merger Sub II surviving the SPAC Merger as a direct wholly-owned subsidiary of the Company.

Upon the Closing, the Company changed its name from Rosecliff Acquisition Corp I to Spectral AI, Inc.

In conjunction with the

Business Combination, the Company cancelled the redeemable warrants that it issued to Rosecliff Acquisition Sponsor I LLC, a Delaware

limited liability company (the “Sponsor”), in a private placement (the “Private Warrants”) in connection with

the Company’s initial public offering on February 17, 2021 (the “Initial Public Offering”) at Closing, but the 8,433,333

redeemable warrants issued to the public in the Initial Public Offering (the “Public Warrants”) remain outstanding.

Prior to the Business Combination,

Rosecliff Acquisition Corp I (“Rosecliff”) had 280,485 shares of Class A common stock, par value $ 0.0001 per share, issued

and outstanding and held by public shareholders (the “Public Shares”) and 6,325,000 shares of Class B common stock, par value

$ 0.0001 per share, issued and outstanding and held by the Sponsor (the “Sponsor Shares”).

Upon the Closing, 5,445,000 of

the Sponsor Shares were forfeited, in accordance with a letter agreement with the Sponsor, and the remaining 880,000 Sponsor Shares and

280,485 Public Shares, no longer designated Class A and Class B, were included in shares of the Company’s common stock, par value

$ 0.0001 per share (the “Company Common Stock”).

Prior to the Business Combination,

Legacy Spectral’s shares of common stock, par value $ 0.001 per share (“Legacy Spectral Common Stock”) were listed on the

AIM market on the London Stock Exchange (delisted on September 7, 2023).

In September 2023, prior to the Closing, Legacy Spectral issued 7,679,198 shares

of Legacy Spectral Common Stock to certain investors in a private placement, in exchange for $ 3.4 million (the “Equity Raise”).Upon

the Closing, all of Legacy Spectral’s issued and outstanding 145,380,871 shares of Legacy Spectral Common Stock, including

the shares from the Equity Raise, were exchanged for 14,094,450 shares of Company Common Stock at an exchange ratio of 10.31

(the “Exchange Ratio”), meaning that the Company issued one share of Company Common Stock in exchange for 10.31 shares of

Legacy Spectral Common Stock.

On September 12, 2023, the

Company began trading the Company Common Stock and the Public Warrants on the NASDAQ Capital Market (“NASDAQ”) under the

symbols “MDAI” and “MDAIW”, respectively.

Prior to the Business Combination, the Company’s shares of Company

Common Stock and Public Warrants were listed on the NASDAQ under the symbols “RCLF” and “RCLFW”, respectively.

On September 11, 2023, the Company consummated a business combination (the “Business Combination”)

pursuant to the business combination agreement dated April 11, 2023, by and among the Company, Ghost Merger Sub I, a Delaware Corporation,

Ghost Merger Sub II, a Delaware corporation and Spectral MD Holdings, Ltd., a Delaware corporation.

At the time of the Business Combination,

8,433,333 redeemable warrants issued to the public in Rosecliff Acquisition Corp I’s initial public offering (the “Public

Warrants”) remained outstanding.

On September 12, 2023, the Company began trading the Company Common Stock and the Public Warrants

on the NASDAQ Capital Market (“NASDAQ”) under the symbols “MDAI” and “MDAIW”, respectively.

to the Business Combination, the Company’s shares of Company Common Stock and Public Warrants were listed on the NASDAQ under the

symbols “RCLF” and “RCLFW”, respectively.

Nature of Operations

We are an artificial intelligence (“AI”) company focused

on predictive medical diagnostics.

Our DeepView System uses proprietary AI algorithms to distinguish between fully damaged, partially

damaged and healthy human tissue characters invisible to the naked eye, at the initial time point of wound presentation.

System delivers a binary prediction on the wound’s capacity to heal by a specified time point in the future.

Our DeepView System’s

output is specifically engineered to assist the physician in making a more accurate, timely and informed decision regarding the treatment

of the patient’s wounds.

Spectral AI is devoting

substantially all of its efforts towards research and development of its DeepView® Wound Imaging System, currently focused on burn

wounds, specifically engineered to allow physicians to make a more accurate, timely and informed decision for treatment options.

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”) and under a contract with Medical Technology Enterprise Consortium (“MTEC”).

In September 2023, the Company executed its third contract with BARDA

for a multi-year Project BioShield (“PBS”) contract, valued at up to approximately $ 150.0 million (the “PBS BARDA Contract”).

This multi-year contract includes an initial award of nearly $ 54.9 million to support the clinical validation and FDA clearance of DeepView®

for commercial development and distribution purposes.

The PBS BARDA Contract also includes options, similar to our prior BARDA contracts,

with an additional total value of approximately $ 95.1 million which can be exercised for additional product development, procurement

and the expanded deployment of DeepView Systems at emergency rooms, trauma and burn centers.

The Company completed the second contract

with BARDA, referred to as BARDA Burn II, which was signed in July 2019 and completed in November 2023.

Under this contract, the Company

furthered the DeepView System design, developed the AI algorithm, and took steps to obtain FDA approval.

As of December 31, 2024, the

Company has $ 22.9 million remaining under the initial award under the PBS BARDA Contract.

In April 2023, the Company received a $ 4.0 million grant from MTEC

for a project that is expected to be completed by April 2025 (the “MTEC Agreement”).

The MTEC Agreement is for the development

of a handheld version of the DeepView System which is to be used to support military battlefield burn evaluation.

The project has three

phases, beginning with planning, design and testing;

followed by development, design modification and buildout of the handheld device;

We are an artificial intelligence

(“AI”) company focused on predictive medical diagnostics.

Our DeepView System uses proprietary AI algorithms to distinguish

between fully damaged, partially damaged and healthy human tissue characters invisible to the naked eye, at the initial time point of

wound presentation.

The DeepView System delivers a binary prediction on the wounds capacity to heal by a specified time point in the future.

Our DeepView System’s output is specifically engineered to assist the physician in making a more accurate, timely and informed decision

regarding the treatment of the patient’s wounds.

Spectral AI is devoting substantially

all of its efforts towards research and development of its DeepView Wound Imaging System, currently focused on burn wounds, specifically

engineered to allow physicians to make a more accurate, timely and informed decision for treatment options.

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”) and under

a contract with Medical Technology Enterprise Consortium (“MTEC”).

In September 2023, the Company

executed its third contract with BARDA for a multi-year Project BioShield (“PBS”) contract, valued at up to approximately

$ 150.0 million (the “PBS BARDA Contract”).

This multi-year contract includes an initial award of nearly $ 54.9 million to support

the clinical validation and FDA clearance of our DeepView System for commercial development and distribution purposes.

The PBS BARDA Contract

also includes options, similar to our prior BARDA contracts, with an additional total value of approximately $ 95.1 million which

can be exercised for additional product development, procurement and the expanded deployment of DeepView Systems at emergency rooms, trauma

and burn centers.

The Company completed the second contract with BARDA, referred to as BARDA Burn II, which was signed in July 2019 and

completed in November 2023.

Under this contract, the Company furthered the DeepView System design, developed the AI algorithm, and took

steps to obtain FDA approval.

As of December 31, 2025, the Company has $ 5.3 million remaining to bill under the initial award under the

PBS BARDA Contract.

In April 2023, the

Company received a $ 4.0 million grant from MTEC for a project that is expected to be completed in 2026 (the “MTEC

The MTEC Agreement is for the development of a handheld version of the DeepView System which is to be used to

support military battlefield burn evaluation.

The project has three phases, beginning with planning, design and testing;

development, design modification and buildout of the handheld device;

and then the manufacturing of the handheld device.

In August 2024, the MTEC award was increased to $ 4.9 million and is currently

intended to run through December 2025 with funding dependent on various milestones.

In March 2024, we received an additional $ 0.5 million

award from the Defense Health Agency (“DHA”) to further this development.

As of December 31, 2024, the Company has $ 1.9 million

and $ 0.1 million remaining to receive under the MTEC and DHA awards, respectively.

2024, the MTEC award was increased to $ 4.9 million and was extended to run through December 2025 with funding dependent on

various milestones.

In December 2025, the MTEC contract was extended to run through June 2026.

In March 2024, we received an

additional $ 0.5 million award from the Defense Health Agency to further this development.

As of December 31, 2025, the Company

has $ 1.6 million and $ 0.05 million remaining to bill under the MTEC and DHA awards, respectively.

On March 7, 2024, the Company

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The investment is structured as a note payable with a one-year maturity, an interest rate of 8 %, and

requiring earlier prepayment if the Company spins off Spectral IP to the Company’s shareholders or if Spectral IP is sold to a

On October 1, 2024, the

note was amended to (i) reduce the annual interest rate from 8 % to 4 %, (ii) extend the term of the Note through the second

anniversary of the issuance date, March 18, 2026, (iii) include a conversion feature at the option of either the holder or Spectral IP

to convert the then outstanding principal and accrued but unpaid interest into shares of the Company at any time (into such number of

shares calculated by taking a five percent ( 5.00 %) discount to the closing price of the Company’s common stock on the day prior

to the date of notice to the Company of the exercise of the conversion right) and at maturity, respectively, and (iv) provide for registration

rights of any shares of the Company issued in satisfaction of the outstanding obligations.

On October 1, 2024, Spectral IP amended its existing $ 1,000,000 promissory

note to extend the term from one to two years , reduce the interest rate from 8.00 % to 4.00 % per annum and to provide a conversion feature

for shares of the Company’s common stock in satisfaction of the outstanding principal and accrued but unpaid interest.

of the Spectral IP Note exercised a number of conversion rights throughout the fourth quarter of 2024 for the full conversion of the Spectral

IP Note in exchange for a total of 540,996 shares of the Company’s common stock, which represents a 5.00 % discount to the closing

price of the Company’s shares of Common Stock on the day prior to the date of notice of the holder’s exercise of its conversion

requiring earlier prepayment if the Company spins off Spectral IP to the Company’s shareholders or if Spectral IP is sold to a third

On October 1, 2024, the note

was amended to (i) reduce the annual interest rate from 8 % to 4 %, (ii) extend the term of the note through the second anniversary

of the issuance date, March 18, 2026, (iii) include a conversion feature at the option of either the holder or Spectral IP to convert

the then outstanding principal and accrued but unpaid interest into shares of the Company at any time (into such number of shares calculated

by taking a five percent ( 5.00 %) discount to the closing price of the Company’s common stock on the day prior to the date of notice

to the Company of the exercise of the conversion right) and at maturity, respectively, and (iv) provide for registration rights of any

shares of the Company issued in satisfaction of the outstanding obligations.

On October 1, 2024, Spectral

IP amended its existing $ 1,000,000 promissory note to extend the term from one to two years , reduce the interest rate from 8.00 % to 4.00 %

per annum and to provide a conversion feature for shares of the Company’s common stock in satisfaction of the outstanding principal

and accrued but unpaid interest.

The holder of the Spectral IP Note exercised a number of conversion rights throughout the fourth quarter

of 2024 for the full conversion of the Spectral IP Note in exchange for a total of 540,996 shares of the Company’s common stock,

which represents a 5.00 % discount to the closing price of the Company’s shares of Common Stock on the day prior to the date of notice

of the holder’s exercise of its conversion right

Revision of Prior Period Financial Information

As previously disclosed,

during the year ended December 31, 2023, management deferred certain costs associated with a stock offering which was completed during

2024, at which time the costs were recorded as a reduction of additional paid-in capital.

Management subsequently determined that these

costs should have been expensed during the fourth quarter of 2023.

Accordingly, the Company has revised its consolidated statements of

changes in stockholders’ equity (deficit) as of December 31, 2024, and 2023 to increase both the accumulated deficit and additional

paid-in capital by $ 283,000 .

Additionally, during the

third quarter of 2023 in conjunction with the accounting for the Business Combination, the Company recognized an income tax receivable

asset which should not have been recorded due to uncertainties about collectability.

This receivable was written off during the fourth

quarter of 2024 through income tax expense.

Accordingly, the Company has revised its consolidated statement of changes in stockholders’

deficit to reduce both the accumulated deficit and additional paid-in capital by $ 157,000 as of December 31, 2024 and to reduce additional

paid in capital by $ 157,000 as of December 31, 2023.

The Company has revised its consolidated statements of operations and comprehensive

loss for the year ended December 31, 2024 to reduce income tax provision and net loss by $ 157,000 and to revise the net loss per share

accordingly as well.

The net effect of the two

corrections described above is a $ 126,000 increase to both the accumulated deficit and additional paid-in capital as of December 31, 2024,

The Company has determined that the errors were immaterial to all impacted periods and has corrected the impacted periods as

an immaterial correction of an error.

Risks and Uncertainties

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As of December

31, 2024, the Company had approximately $ 2.8 million in notes payable and no long-term debt as of either period.

On December 26, 2023, we entered into a Common Stock Purchase Agreement

and related Registration Rights Agreement with B.

Riley Principal Capital II, LLC (“B.

Upon the terms and subject

to the satisfaction of the conditions set forth in the Common Stock Purchase Agreement, the Company has the right, in our sole discretion,

to sell to B.

Riley up to $ 10.0 million in aggregate gross purchase price of newly issued shares of the Company’s Common Stock (the

We have previously raised $ 2.7 million from share issuances under the B.

Riley transaction.

The Company maintained

the right to raise up to $ 3.0 million of shares of its Common Stock from the B.

Riley transaction upon execution of the SEPA with Yorkville,

which is described in more detail below.

On March 20, 2024, the Company entered into a Standby Equity Purchase

Agreement (“SEPA”) with YA II PN, LTD, a Cayman Islands exempt limited partnership (“Yorkville”) pursuant to which

the Company has the right to sell to Yorkville up to $ 30.0 million of its shares of Common Stock, subject to certain limitations and conditions

set forth in the SEPA.

In connection with the SEPA, and subject to the conditions set forth therein, Yorkville has agreed to advance to

the Company in the form of convertible promissory notes an aggregate principal amount of up to $ 12.5 million (the “Pre-Paid Advance”),

which will be paid in three tranches.

The first Pre-Paid Advance was disbursed on March 20, 2024 in the amount of $ 5.0 million with a

fixed conversion price of $ 3.16 .

The Company received $ 4.6 million in cash, net of the 8 % original issue discount.

On May 14, 2024, the

shareholders voted to approve the reservation and issuance of shares to Yorkville to exceed the 19.99 % of the shares of Common stock outstanding

immediately prior to the execution of the SEPA (the “Exchange Cap”) and the second Pre-Paid Advance was disbursed on May 16,

2024 in the amount of $ 4.6 million, which is the $ 5.0 million second Pre-Paid Advance net of $ 0.4 million of the 8 % original issue discount,

with a fixed conversion price of $ 2.03 .

The third Pre-Paid Advance was disbursed on July 17, 2024 in the principal amount of $ 2.3 million,

which is the $ 2.5 million third Pre-Paid Advance net of the $ 0.2 million of the 8 % original issue discount.

As of December 31, 2024, $ 7.8

million of the outstanding balance of the Pre-Paid Advances was paid in cash and $ 2.4 million was paid in shares of the Company issued

under the SEPA.

The Company still has access to the remaining funds under the SEPA.

The sales of the shares of Common Stock to Yorkville

under the SEPA, and the timing of any such sales, are at the Company’s option.

In March 2024, the Company received an additional $ 0.5 million award

from the Defense Health Agency to further the development related to the DHA Agreement.

On June 3, 2024, the Company received a letter from the Listing Qualifications

Staff of the Nasdaq Stock Market, LLC (“Nasdaq”) that the Company was not in compliance with the listing requirement relating

to a minimum market value of its listed securities of $ 35.0 million.

On December 20, 2024, the Company received a “moot” letter

from Nasdaq confirming that the Company has regained compliance with all applicable listing standards for its continued listing on the

Nasdaq Capital Market.

We cannot assure you that our securities will continue to be listed on Nasdaq.

If any of our securities are delisted

from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect such securities

could be quoted on an over-the-counter market.

If our securities are delisted, we may face limitations in utilizing the SEPA and the ELOC.

As of December 31, 2024, based on our current operating plan, we believe

that our cash and cash equivalents, together with the PBS BARDA Contract, the MTEC Agreement, the B.

Riley ELOC, and the Yorkville Transaction,

and certain research and development cost-saving measures, will be sufficient to fund operations for at least one year beyond the release

date of these consolidated financial statements.

31, 2025, the Company had approximately $ 8.4 million in notes payable, of which $ 5.5 million is long-term.

On March 24, 2025, the Company

completed an equity financing and entered into a long-term debt financing agreement with Avenue Venture Opportunities Fund II, L.P., a

fund of Avenue Capital Group (the “Avenue Financing”), which provides for the ability to borrow up to $ 15.0 million with an

initial draw-down of $ 8.5 million, and the remaining availability is contingent upon, among other things, FDA clearance of the DeepView

System, see Note 6.

On October 22, 2025, the

Company entered into a securities purchase agreement, by and between Spectral AI, Inc.

and Hudson Bay Master Fund Ltd., which provided

for the issuance and sale of 3.1 million shares of Common Stock, at an offering price of $ 1.90 per share.

In addition, in a concurrent

private placement, the Company issued and sold warrants for the purchase of up to 4.0 million shares of Common Stock and pre-funded warrants

to purchase up to 0.9 million shares of common stock, for aggregate gross proceeds of $ 7.6 million (such transaction, the “Hudson

Bay Financing”).

Each warrant has an exercise price per share of $ 2.51 and will be exercisable on the earlier of (a) the effective

date of stockholder approval for the issuance of shares of Common Stock underlying the warrants and (b) the date that is six months following

the issuance date of the warrants and will have a term of five (5) years from the initial issuance date..

See Note 2 for further information.

On March 18, 2026, the Company

announced that it has received a contract modification from BARDA for the advancement of $ 31.7 million from its existing contract

with BARDA which included (i) a no-cost extension of the base phase of the contract, and (ii) the acceleration of certain parts of the

next phase of such contract.

As part of this funding advance, the Company has committed to fund $ 9.7 million of the total overall

development costs associated with these feature advancements.

This funding comes as part of an ongoing partnership with BARDA, which

has committed $ 54.9 million to date under the contract with an overall value of approximately $ 150 million.

of December 31, 2025, based on our current operating plan, we believe that our cash and cash equivalents, together with the PBS BARDA

Contract, the MTEC Agreement, the Avenue Financing, the Hudson Bay Financing, the Yorkville SEPA and certain research and development

cost-saving measures, the Company believes it has, sufficient working capital to fund operations for at least one year beyond the release

date of the consolidated financial statements.

We have based this determination on assumptions that may prove to be wrong, and we could

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because of circumstances beyond our control.

Changes in the current equity markets may also limit our ability to utilize the B.

ELOC and Yorkville Transaction as currently structured, including if the Company is no longer listed on Nasdaq or another securities exchange.

On March 24, 2025, the Company completed an equity financing and entered into a long-term debt financing agreement with Avenue Venture

Opportunities Fund II, L.P., a fund of Avenue Capital Group, with an initial draw-down of $ 8.5 million.

In connection with the debt financing,

the Company also raised $ 2.7 million of equity financing from institutional investors as well as existing UK investors.

The financing

includes the potential for up to almost $ 25.0 million after the completion of certain development and financing milestones for the second

tranche of debt financing.

To the extent additional capital is necessary, there are no assurances that we will be able to raise additional

capital on favorable terms or at all, and therefore we may not be able to execute our business plans and the continued work on indications

beyond expanding our burn indication.

SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES

To the extent additional capital is necessary, there are no assurances that we will be able

to raise additional capital on favorable terms or at all, and therefore we may not be able to execute our business plans and the continued

work on indications beyond expanding our burn indication.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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Standards Update (“ASU”).

The Business Combination

was accounted for as a reverse recapitalization in accordance with GAAP.

Legacy Spectral was determined as the accounting acquirer and

the Company as the acquired company for financial reporting purposes.

Accordingly, for accounting purposes, the Business Combination

is treated as the equivalent of a capital transaction in which Legacy Spectral issued stock for the net assets of the Company.

the Closing, the net assets of the Company are stated at fair value, with no goodwill or other intangible assets recorded.

– Recapitalization .

Legacy Spectral was determined

to be the accounting acquiror based on evaluation of the following facts and circumstances:

Legacy Spectral’s

former shareholders have a majority of the voting power of Spectral AI;

Legacy Spectral’s

senior management comprises all of the senior management of Spectral AI;

Legacy Spectral selected

five of the six directors for the Board of Directors of Spectral AI;

Legacy Spectral’s

relative size of assets and operations compared to Rosecliff;

Legacy Spectral’s

operations comprise the ongoing operations of Spectral AI.

All historical financial

information presented in the consolidated financial statements represents the accounts of Legacy Spectral at their historical values

as if Legacy Spectral is the predecessor to the Company.

The consolidated financial statements following the Closing reflect the results

of the combined entity’s operations.

All issued and outstanding

shares of Legacy Spectral Common Stock and warrants, stock options, restricted stock units (“RSUs”) and restricted stock

awards (“RSAs”) of Legacy Spectral and the per share amounts contained in the consolidated financial statements for the periods

presented prior to the Closing have been retroactively restated to reflect the Exchange Ratio (as defined in Note 1).

Principles of Consolidation

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and Spectral DeepView Limited.

Significant inter-company transactions

and balances have been eliminated in consolidation.

Spectral DeepView Limited was dissolved

in February 2026.

Significant inter-company transactions and balances have been eliminated in consolidation.

Use of Estimates

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the 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 liabilities, the fair value of short term notes

payable, fair value of the B.

Riley and Yorkville derivative instruments, stock-based compensation expense, stock issued for transaction

costs, the net realizable value of inventory, right-of-use assets, and income tax valuation allowances.

Actual results could differ from

these estimates.

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 (including the measure of progress of completion), warrant liabilities,

the fair value of short term notes payable, fair value of the B.

Riley and Yorkville derivative instruments, stock-based compensation

expense, stock issued for transaction costs, the net realizable value of inventory, right-of-use assets, and income tax valuation allowances.

Actual results could differ from these estimates.

Operating segments are defined

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summary of significant accounting policies.

The Company’s method for measuring profitability includes net

income (loss), which the chief operating decision-maker uses to assess performance and make decisions for resource allocation, consistent

with the measurement principals for net income(loss) as reported on the Company’s consolidated statement of operations.

The significant

expenses regularly reviewed by the chief operating decision-maker are consistent with those reported on the Company’s consolidated

statement of operations as well as research and development expenses which are disclosed in the footnotes to these financial statements.

Certain expenses are reviewed for purposes of assessing operating activities and resource allocation for the Company.

The measure of segment

assets is reported on the consolidated balance sheets as total assets.

The Company’s method

for measuring profitability includes net income (loss), which the chief operating decision-maker uses to assess performance and make decisions

for resource allocation, consistent with the measurement principals for net income(loss) as reported on the Company’s consolidated

statement of operations.

The significant expenses regularly reviewed by the chief operating decision-maker are consistent with those reported

on the Company’s consolidated statement of operations, and expenses are not regularly reviewed on a more disaggregated basis for

purposes of assessing segment performance and deciding how to allocate resources.

The measure of segment assets is reported on the consolidated

balance sheets as total assets.

The Company considers all

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All cash is held in

US, UK, and Ireland financial institutions.

Accounts Receivable, Net and Unbilled Revenue

US and UK financial institutions.

Accounts Receivable

Accounts receivable represent

amounts due from US government agencies pursuant to research and development contracts associated with the Company’s DeepView ®

amounts due from US government agencies pursuant to research and development contracts associated with the Company’s DeepView System.

The Company evaluates the

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health of its customers and historical experience.

Based upon the review of these factors, the Company recorded no allowance for doubtful

accounts as of December 31, 2024 and December 31, 2023.

Based upon the review of these factors, the Company recorded no allowance for credit

losses as of December 31, 2025 and December 31, 2024.

Certain third-party costs

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deferred revenue when the customers have been billed prior to recognizing revenue.

The Company records unbilled revenue when revenue

is recognized prior to billing customers.

Comprehensive Loss

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potentially subject the Company to credit risk consist principally of cash and accounts receivable.

Primarily all cash is 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.

Primarily all cash is 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.

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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;

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).

Unadjusted quoted prices in active markets that are assessable at the measurement date for identical, unrestricted assets or liabilities.

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;

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).

Foreign Currency

The reporting currency for the consolidated financial statements of

the Company is the US dollar.

The functional currency of the Company and its wholly-owned subsidiaries Spectral MD Holdings LLC, Spectral

MD, Inc., and Spectral IP is the US dollar.

The functional currency of Spectral MD UK is its local currency, the British pound.

The functional

currency of Spectral DeepView Limited, an Irish private limited company, is its local currency, the Euro.

The assets and liabilities of

Spectral MD UK and Spectral DeepView Limited, are translated into US.

The reporting currency for

the consolidated financial statements of the Company is the US dollar.

The functional currency of the Company and its wholly-owned subsidiaries

Spectral MD Holdings LLC, Spectral MD, Inc., and Spectral IP is the US dollar.

The functional currency of Spectral MD UK is its local

currency, the British pound.

The functional currency of Spectral DeepView Limited was its local currency, the Euro.

The assets and liabilities

of Spectral MD UK and Spectral DeepView Limited, are 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 reporting period.

adjustments are included in accumulated other comprehensive income as a component of stockholders’ equity.

As of December 31, 2024

and December 31, 2023, the Company’s translation adjustments are not material.

DeepView Limited was dissolved in February 2026.

Translation adjustments are included in accumulated other comprehensive income as a component

of stockholders’ equity.

As of December 31, 2025 and December 31, 2024, the Company’s translation adjustments are not material.

Monetary assets and liabilities

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Property and Equipment, Net

Property and equipment,

net is recorded at cost less accumulated depreciation.

Property and equipment, net

is recorded at cost less accumulated depreciation.

Depreciation expense is recorded using the straight-line method over the estimated

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Leasehold improvements Shorter of remaining lease term or useful life

Depreciation expense for

the years ended December 31, 2025 and 2024 was $ 71 ,000 and $ 10 ,000, respectively.

Purchased assets that are

not yet in service are recorded to construction-in-process and no depreciation expense is recorded.

Once they are placed in service,

they are reclassified to the appropriate asset class.

Once they are placed in service, they

are reclassified to the appropriate asset class.

When assets are retired or otherwise disposed of, the assets and related accumulated

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meeting the definition of a lease are classified as operating or financing leases.

Operating leases are recorded in the 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.

Operating leases are recorded in the 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 has elected 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

In calculating the right-of-use assets and lease

liabilities, the Company has elected 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.

During the years ended December

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Warrant Liabilities

On September 11, 2023, in

conjunction with the Business Combination, the Company assumed the Public Warrants which had an exercise price of $ 11.50 per share, are

exercisable 30 days after the Business Combination and expire five years after the Business Combination or upon redemption.

may redeem the Public Warrants if the Company’s common stock equals or exceeds $ 18.00 per share for 20 trading days within a 30-trading

day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the holders of Public

Public Warrants :

September 11, 2023, in conjunction with the Business Combination, the Company assumed the Public Warrants which had an exercise price

of $ 11.50 per share, are exercisable 30 days after the Business Combination and expire five years after the Business Combination or upon

The Company may redeem the Public Warrants if the Company’s common stock equals or exceeds $ 18.00 per share for 20 trading

days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption

to the holders of Public Warrants.

In November 2024, the Company amended the Public Warrants to have an exercise price of $ 2.75 per share.

As of December 31,

2024, there are 8,433,333 Public Warrants Outstanding.

Each warrant entitles the registered holder to purchase one share of Company Common

Stock at an exercise price of $ 2.75 per full share.

Pursuant to the Warrant Agreement, a holder of Public Warrants may exercise its Public

Warrants only for a whole number of shares of Company Common Stock.

This means that only a whole warrant may be exercised at any given

time by a holder of Public Warrants.

The Company maintains a redemption right with respect to the Public Warrants in that the Company

can redeem some or all of the Public Warrants for $ 0.10 per Public Warrant based on certain market conditions and the market price of

the Company Common Stock.

In September 2021, Legacy

Spectral issued 73,978 warrants, with a strike price of $ 7.75 and a five-year life, to SP Angel Corporate Finance LLP (“SP

Angel”), who acted as nominated adviser and broker to the Company for the purposes of the AIM Rules (“Angel Warrants”).

In conjunction with the Business Combination, the Angel Warrants were converted into warrants to purchase Company Common Stock based

on the Exchange Ratio.

As of December 31, 2025, there are 8,433,333 Public Warrants Outstanding.

Each warrant entitles the registered holder to purchase one

share of Company Common Stock at an exercise price of $ 2.75 per full share.

Pursuant to the Warrant Agreement, a holder of Public Warrants

may exercise its Public Warrants only for a whole number of shares of Company Common Stock.

This means that only a whole warrant may be

exercised at any given time by a holder of Public Warrants.

The Company maintains a redemption right with respect to the Public Warrants

in that the Company can redeem some or all of the Public Warrants for $ 0.10 per Public Warrant based on certain market conditions and

the market price of the Company Common Stock.

Angel Warrants :

September 2021, Legacy Spectral issued 73,978 warrants, with a strike price of $ 7.75 and a five-year life, to SP Angel Corporate

Finance LLP (“SP Angel”), who acted as nominated adviser and broker to the Company for the purposes of the AIM Rules (“Angel

In conjunction with the Business Combination, the Angel Warrants were converted into warrants to purchase Company Common

Stock based on the Exchange Ratio.

As of December 31, 2025, there are 73,978 Angel Warrants to purchase Company Common Stock outstanding.

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in fair value is recognized in the Company’s consolidated statements of operations within other income (expense).

On March 21, 2025, the Company entered into purchase agreements with certain stockholders for the sale of an aggregate of

2,068,846 shares of Common Stock, at an offering price of $ 1.30 per Share (the “Purchase Agreements”).

In a concurrent private

placement pursuant to the Purchase Agreements (the “Private Placement”), the Company agreed to sell to the investors an aggregate

of 2,068,846 warrants to purchase shares of Common Stock at an exercise price of $ 1.80 per share (the “Investor Warrants”).

The Investor Warrants, along with the shares of Common Stock issuable upon the exercise of the Investor Warrants, were offered pursuant

to the exemptions provided in Section 4(a)(2) under the Securities Act of 1933, as amended (the “Securities Act”).

consideration was received by the Company for the issuance of the Investor Warrants.

Investor Warrants issued in connection with the Purchase Agreements are exercisable any time on or after March 20, 2025 (the “Issuance

Date”) and on or prior to the close of business on the third anniversary of the Issuance Date.

Additionally, the Investor Warrants

issued in connection with the Purchase Agreements contain adjustment provisions in the event of (i) stock dividends and split, (ii) reclassifications

of securities, (iii) issuance of Common Stock or Common Stock Equivalents (as defined in the Purchase Agreements), (iv) pro rata distributions,

(v) Fundamental Transactions (as defined in the Warrants), and (vi) subsequent equity sales of shares of common stock or common stock

equivalents for a consideration per share less than a price equal to $ 1.30 , subject to a floor of $ 0.65 per share.

The Investor Warrants

issued in connection with the Purchase Agreements also include a “Most Favored Nation” clause which grants the holders of

such Investor Warrants the right, in their sole discretion, to elect to receive more favorable terms and conditions given to a subsequent

investor in a subsequent financing transaction (including, but not limited to, a lower purchase price per share, a higher warrant coverage

percentage, a lower warrant exercise price, a longer warrant exercise period, more favorable anti-dilution protections, preferential liquidation

rights, enhanced voting rights, reduced fees or commissions, more advantageous registration rights, or the inclusion of additional incentives

such as cash bonuses, dividend preferences, or equity sweeteners).

The Investor Warrants were determined to be liability classified

instruments, as certain terms preclude them from being considered indexed to the Company’s Common Stock.

The gross proceeds of the

Private Placement and Investor Warrants of $ 2.7 million were allocated to the Investor Warrants based on their fair value at issuance

of $ 2.2 million, with the residual gross proceeds of $ 0.5 million allocated to the Common Stock.

Total issuance costs incurred of $ 0.2

million were allocated between the Investor Warrants and Common Stock issued.

Issuance costs allocated to the Investor Warrants of $ 43,000

were expensed during the year ended December 31, 2025 as financing related costs in the consolidated statement of operations and comprehensive

Issuance costs allocated to the Common Stock of $ 152,000 were recorded in additional paid-in-capital.

May 2025, 915,000 Investor Warrants, (the “Amended Investor Warrants”) were amended and restated.

The amendment extended the

contractual term such that the Amended Investor Warrants are exercisable any time on or prior to the close of business on the fifth anniversary

of the Issuance Date and resulted in $ 137,000 increase in the fair value of the warrants recognized as additional expense in the change

in fair value of warrant liabilities in the consolidated statement of operations and comprehensive loss.

the year ended December 31, 2025, 1,403,846 Investor Warrants were exercised.

The warrants were remeasured to fair value immediately prior

to exercise and the carrying amount of the warrant liability was derecognized and reclassified to additional paid-in-capital.

received from exercise were recognized in stockholders’ equity.

The exercise of warrants resulted in an increase to stockholders’

equity of $ 4.7 million.

As of December 31, 2025, there were 665,000 Investor Warrants to purchase Common Stock outstanding.

Avenue Warrants:

24, 2025, the Company completed the Avenue Financing, with an initial draw-down of $ 8.5 million.

As part of the Avenue Financing the Company

issued 768,072 warrants to Avenue Capital Group which was equal to 8.5 % of the total funding commitment (the “Avenue Warrants”).

The Avenue Warrants have an exercise price equal to the lower of $ 1.66 per share and the lowest price per share paid to the Company in

cash for common stock through December 31, 2025.

The Avenue Warrants were determined to be classified as a liability instrument as certain

terms preclude them from being considered indexed to the Company’s Common Stock.

The net proceeds of Avenue

Financing of $ 8.3 million were first allocated to the fair value of the Avenue Warrants, with the residual proceeds being allocated to

The difference between debt proceeds and the amount of those proceeds allocated to debt gave rise to a debt discount of $ 0.7

The discount amount due to the Avenue Warrants of $ 0.7 million along with the loan fees allocated to the loan of $ 1.0 million,

which includes the final payment of $ 0.8 million, for an aggregate debt discount and debt issuance costs of $ 1.7 million, will be amortized

as interest expense through maturity using the effective interest method.

The portion of loan fees allocated to the Avenue Warrants, of

$ 22,000 , were expensed during the year ended December 31, 2025 as financing related costs in the consolidated statement of operations

and comprehensive loss.

of December 31, 2025, there were 768,072 Avenue Warrants to purchase Common Stock outstanding.

On October 22, 2025, the Company entered into a securities purchase agreement with a certain investor for the sale of 3,065,000

shares of Common Stock, at an offering price of $ 1.90 per Share (the “Offering”).

In a concurrent private placement pursuant

to the purchase agreement, the Company agreed to sell to the investor (i) warrants (the “Hudson Warrants”) to purchase up

to 4,000,000 shares of Common Stock, and (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 935,000 shares

of Common Stock.

Each Hudson Warrant has an exercise price per share of $ 2.51 , will exercisable on the earlier of (a) the effective date

of stockholder approval for the issuance of shares of Common Stock underlying the warrants and (b) the date that is six months following

the issuance date of the warrants and will have a term of five years from the initial issuance date.

Each Pre-Funded Warrant has a purchase

price of $ 1.8999 , an exercise price per share of $ 0.0001 , is exercisable immediately and may be exercised at any time until such Pre-Funded

Warrant is exercised in full.

The Hudson Warrants and the Pre-Funded Warrants, along with the shares of Common Stock issuable upon the

exercise of the warrants, are being offered pursuant to the exemptions provided in Section 4(a)(2) under the Securities Act of 1933, as

The Hudson Warrants and Pre-Funded Warrants contain

adjustment provisions in the event of (i) stock dividends and split, (ii) pro rata distributions, and (iii) Fundamental Transactions (as

defined in the warrant agreements).

In the event of a Fundamental Transaction not in the Company’s control, the holders of the Warrants

have the right to require the Company or a successor entity to redeem the Hudson Warrants for cash in the amount of the Black Scholes

Value (as defined in the warrant agreements).

The Hudson Warrants contain further adjustment provisions in the event of the (i) subsequent

equity sales of shares of common stock or common stock equivalents for a consideration per share less than a price equal to $2.51 (ii)

changes in the exercise price or rate of conversion of equity sales or convertible securities any time prior to the two-year anniversary

of the stockholder approval date, subject to a floor of $ 0.48 per share.

The Hudson Warrants were determined to be liability classified

instruments, as certain terms preclude them from being considered indexed to the Company’s Common Stock.

The Pre-Funded Warrants

were determined to be equity classified instruments, as they are considered indexed to the Company’s stock and do not contain any

provisions that preclude equity classification.

The gross proceeds of the Offering and private placement of $ 7.6 million were allocated

to the Hudson Warrants based on their fair value at issuance of $ 7.5 million, with the residual gross proceeds of $ 0.1 million allocated

between the Common Stock and Pre-Funded Warrants based on their relative fair value.

Total issuance costs incurred of $ 0.6 million were

allocated between the warrants and Common Stock issued.

Issuance costs allocated to the Hudson Warrants of $ 0.6 million were expensed

during the year ended December 31, 2025 as financing related costs in the consolidated statement of operations and comprehensive loss.

Issuance costs allocated to the Common Stock and Pre-Funded Warrants of less than $ 0.1 million were recorded in additional paid-in-capital.

of December 31, 2025, there were 4,000,000 Hudson Warrants and 935,000 Pre-Funded Warrants to purchase Common Stock outstanding.

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 accordance with ASC 606, Revenue from Contracts with Customers.

ASC 606 requires the Company to identify the contract with a customer,

identify the performance obligations, determine and allocate the transaction price, and recognize revenue when, or as, performance obligations

are satisfied.

The Company generates research

and development revenue, primarily from the contracts with BARDA and MTEC.

Each contract for BARDA and MTEC has a single performance

The contracts with BARDA

are cost-plus-fee contracts associated with development of certain product candidates.

BARDA reimburses the Company based on allowable

costs plus any recognizable earned fee.

Revenues from these reimbursable costs are recognized as the costs are incurred.

receive funding from a contract by the DHA within the U.S.

Department of Defense, which enables us to research and develop a fully portable,

handheld version of our DeepView System and has been extended through the second quarter

and development revenue primarily from contracts with the Biomedical Advanced Research and Development Authority (“BARDA”)

and the Medical Technology Enterprise Consortium (“MTEC”).

Each of the Company’s BARDA and MTEC arrangements contains

a single performance obligation.

The Company’s contract

with BARDA is a cost-plus-fee arrangement related to the research, development, clinical validation, regulatory advancement and commercialization

of the Company’s DeepView® System, which represents an output of the Company’s ordinary activities.

Accordingly, the Company

has concluded that BARDA is a customer within the scope of ASC 606.

Under these arrangements,

BARDA reimburses the Company for allowable costs incurred which are subject to contractual ceilings.

Costs are reimbursed under the incurred

costs method of inputs for satisfying obligations over time that are allowable under the contract.

The contract contains a single

performance obligation consisting of a bundled promise to perform research and development activities necessary to develop and advance

the DeepView® System.

The Company has determined that the BARDA contracts do not contain a financing component.

Under the contract, BARDA

receives a non-exclusive, non-transferable, irrevocable, paid-up license to use the technology developed under the agreements, along with

certain restrictions on the Company’s ability to transfer the developed technology and a right of first refusal in the event of

a proposed sale for devices licensed under the agreement.

While the Company retains ownership of the underlying intellectual property,

these provisions provide BARDA with substantive and enforceable rights to the outputs of the Company’s research and development

activities, supporting the conclusion that the arrangements are contracts with a customer under ASC 606

We receive funding from a

contract by the DHA within the U.S.

Department of Defense, which enables us to research and develop a fully portable, handheld version

of our DeepView System.

We were previously awarded a $ 1.1 million Sequential Phase II STTR contract by the DHA within the U.S.

of Defense, which is paid to us monthly, as well as a STTR Phase I and initial Phase II contract from the DHA.

In December 2025,

the MTEC contract was extended through June 2026.

The MTEC Agreement provides

for installment payments after the completion of milestone events.

The installment payments are considered variable consideration as

the entitlement depends on successful completion of research.

The installment payments are considered variable consideration as the

entitlement depends on successful completion of research.

However, the payments are not constrained from inclusion in the transaction

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at the end of each reporting period and reflect any changes to the estimated cost of the project on a prospective basis.

The Company elected the

practical expedient not to adjust the transaction price for the effects of a significant financing component as the period between performance

(satisfaction of a performance obligation) and payment is one year or less.

Payments from customers are generally received within 30

days of when the invoice is sent.

The Company records

unbilled revenue when revenue is recognized prior to billing.

As of December 31, 2025, the Company had approximately $ 1.6 million of billings

remaining in 2026.

The Company elected the practical

expedient not to adjust the transaction price for the effects of a significant financing component as the period between performance (satisfaction

of a performance obligation) and payment is one year or less.

Payments from customers are generally received within 30 days of when the

invoice is sent.

Research and Development Expense

The Company expenses research and development costs as incurred.

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 years ended December 31, 2024 and 2023, research

and development expense was $ 19.3 million and $ 15.1 million, respectively, of which $ 16.3 million and $ 10.2 million,

respectively, is related to the combined BARDA and MTEC contracts and included in cost of revenue and $ 3.0 million and $ 4.9 million,

respectively, is included in general and administrative expenses.

The Company expenses research

and development costs 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 years ended

December 31, 2025 and 2024, research and development expense was $ 11.3 million and $ 19.3 million, respectively, of which $ 10.7

million and $ 16.1 million, respectively, is related to the combined BARDA, DHA and MTEC contracts and included in cost of revenue

and $ 0.6 million and $ 3.2 million, respectively, is included in general and administrative expenses.

Stock-Based Compensation

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the application of management’s judgment.

The Company expenses stock-based compensation related to stock options and RSUs over

the requisite service period.

The Company expenses stock-based compensation related to stock options and RSUs over the

requisite service period.

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.

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.

For RSUs with market-based conditions, compensation

is not reversed if these awards are forfeited based solely on failing to meet such market-based conditions.

The Company records its

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 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 records its 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 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.

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 December 31, 2024 and December 31, 2023 that qualify for either recognition or disclosure in the 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 consolidated statements of operations.

The Company did not have any interest or penalties during the years ended December 31, 2024 and 2023 and did not have any interest or

penalties accrued as of December 31, 2024.

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 December 31, 2025 and December 31, 2024 that qualify for either recognition or disclosure in the 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 consolidated statements of operations.

The Company did not have any interest and penalties during the years ended December 31,

2025 and 2024 and did not have any interest or penalties accrued as of December 31, 2025.

Net Loss per Share of Common Stock

Basic net loss per 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.

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.

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.

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.

Comprehensive Income (Loss)

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translation adjustment, as it intends to indefinitely reinvest undistributed earnings of its foreign subsidiaries.

Accumulated other

comprehensive income (loss) is reported as a component of stockholders' equity.

Accumulated other comprehensive

income (loss) is reported as a component of stockholders’ equity.

Recently Adopted Accounting Standards

In September 2016, the FASB

issued ASU No.

2016-13, Financial Instruments — Credit Losses, which was subsequently amended by ASU No.

2018-19, ASU No.

2019-05, ASU 2019-10, ASU No.

2019-11, ASU No.

2020-03, and ASU No.

These ASUs have provided for various minor technical

corrections and improvements to the codification as well as other transition matters.

Smaller reporting companies who file with the SEC

are required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022.

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

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

The Company adopted this standard on January 1, 2023, with no impact on its consolidated financial statements and related disclosures.

In August 2020, the

FASB issued ASU No.

2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives

and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and

Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models

required under current GAAP.

The ASU removes certain settlement conditions that are required for equity contracts to qualify for

the derivative scope exception, and it also simplifies the diluted earnings per share calculation in certain areas.

The Company adopted

this standard on January 1, 2024, with no impact on its consolidated financial statements and related disclosures.

In June 2022, the FASB

issued ASU 2022-03, ASC Subtopic 820 Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU

The FASB issued 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.

For public business entities, the amendments in this

update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years.

The Company adopted this standard on January 1, 2024, with no impact on its consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic

Improvements to Reportable Segment Disclosures (“ASU 2023-07”).

ASU 2023-07 updates reportable segment disclosure requirements,

primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance.

adopted this guidance in the year ended December 31, 2024 with no material impact on the consolidated financial statements and disclosures.

See Segment policy above for additional information.

In December 2023, the FASB

issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”).

ASU 2023-09 requires

more detailed income tax disclosures, requiring entities to disclose disaggregated information about their effective tax rate reconciliation

as well as expanded information on income taxes paid by jurisdiction.

The Company adopted this guidance prospectively in the year ended

December 31, 2025 with no material impact on the consolidated financial statements and disclosures, see Note 11 for additional information.

Recently Issued Accounting Standards

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not expect ASU 2023-06 to have a material impact on the consolidated financial statements.

In December 2023, the FASB

issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”).

ASU 2023-09 requires

more detailed income tax disclosures, requiring entities to disclose disaggregated information about their effective tax rate reconciliation

as well as expanded information on income taxes paid by jurisdiction.

The disclosure requirements will be applied on a prospective basis,

with the option to apply them retrospectively.

This update will be effective for annual periods beginning after December 15, 2024, with

early adoption permitted.

The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated

financial statements and disclosures.

In November 2024, the FASB

issued ASU No.

2024-03, Income Statement- Reporting Comprehensive Income- Expense Disaggregation Disclosures (Subtopic 220-40),

requiring public business entities to disclose additional information about specific expense categories in the notes to financial statements

at interim and annual reporting periods.

ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim

reporting periods beginning after December 15, 2027, with early adoption permitted.

The disclosures required under the guidance can be

applied either prospectively to financial statements issued for reporting periods after the effective date or retrospectively to any

or all periods presented in the financial statements.

The Company is currently evaluating the impact of adopting this guidance on its

consolidated financial statements and disclosures.

RECAPITALIZATION

As discussed in Note 1,

on September 11, 2023, the Company consummated the Business Combination, with Legacy Spectral surviving the merger as a wholly-owned

subsidiary of the Company.

On the date of the Business

Combination, the Company recorded net liabilities of $ 2.4 million, with an offsetting decrease to additional paid-in capital.

The following

table provides the elements of the Business Combination:

Other current assets

Accounts payable

Accrued expenses

Warrant liabilities

Net liabilities assumed in exchange for common stock

Non-cash net liabilities assumed in exchange for common stock

Upon the Closing, the Company

issued 33,333 shares of Company Common Stock, with a fair value of $ 0.2 million, to settle an assumed liability to the Sponsor as a payment

for an administrative fee.

The Company recorded transaction

costs, consisting of legal, accounting and other professional services incurred by Legacy Spectral related to the Business Combination,

of $ 7.6 million (the “Transaction Costs”), in other income (expense) in the consolidated statement of operations for the

year ended December 31, 2023 and no costs were capitalized.

During the year ended December 31, 2023, the Company paid $ 1.9 million of

Transaction Costs in cash and issued 966,667 shares of Company Common Stock with a fair value of $ 4.4 million.

Prior to the Business Combination

the Company incurred $ 0.7 million of transaction costs, included in other income (expense) in the consolidated statement of operations

for the year ended December 31, 2023, for professional services incurred by Legacy Spectral that were related to potential business combinations

that did not occur.

2024-03, Income Statement- Reporting Comprehensive Income- Expense Disaggregation Disclosures (Subtopic 220-40), requiring

public business entities to disclose additional information about specific expense categories in the notes to financial statements at

interim and annual reporting periods.

ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim reporting

periods beginning after December 15, 2027, with early adoption permitted.

The disclosures required under the guidance can be applied either

prospectively to financial statements issued for reporting periods after the effective date or retrospectively to any or all periods presented

in the financial statements.

The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements

and disclosures.

In July 2025, the FASB issued

2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets, (“ASU 2025-05”) which provides

a practical expedient to measure credit losses on accounts receivable and contract assets.

ASU 2025-05 is effective for fiscal years beginning

after December 15, 2025, and interim reporting periods within those fiscal years, with early adoption permitted.

The Company does not

expect ASU 2025-05 to have a material impact on the consolidated financial statements and related disclosures.

FAIR VALUE MEASUREMENTS

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Fair value measured as of December 31, 2025

Quoted prices

Significant other

Fair value at

Warrant liabilities

Short-term notes payable- Yorkville

Fair value measured as of December 31, 2024

Quoted prices

Significant other

Fair value at

Warrant liabilities

There were no transfers

between Level 1, 2 or 3 during the years ended December 31, 2024 and 2023.

Short-term notes payable- Yorkville

There were no transfers between

Level 1, 2 or 3 during the years ended December 31, 2025 and 2024.

Fair values of cash, accounts

receivable, accounts payable, accrued expenses, and short-term debt (other than the notes payable with Yorkville) are carried at cost,

which management believes approximates fair value due to the short-term nature of these instruments.

The fair value of the Public Warrants,

which trade in active markets, is based on quoted market prices and classified in Level 1 of the fair value hierarchy.

The SP Angel Warrants

are classified within Level 3 of the fair value hierarchy because their fair values are based on significant inputs that are unobservable

in the market.

receivable, accounts payable, accrued expenses, and short-term debt are carried at cost, which management believes approximates fair value

due to the short-term nature of these instruments.

The fair value of the Public Warrants, which trade in active markets, is based on quoted

market prices and classified in Level 1 of the fair value hierarchy.

The Angel Warrants, Avenue Warrants, Investor Warrants and Hudson

Warrants are classified within Level 3 of the fair value hierarchy because their fair values are based on significant inputs that are

unobservable in the market.

The following table presents

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Balance - January 1, 2025

Issuance of warrants

Exercise of warrants

Change in fair value

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quantitative information regarding Level 3 warrant liability fair value measurements inputs at their measurement:

December 31, 2025

Valuation Method

Black Scholes

Strike price (per share)

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Dividend yield (per share)

Valuation of short-term

notes payable – Yorkville

Probability assessment (1)

(1) Probability assessment reflects management’s estimate

an event occurring such that a forced exercise would occur resulting in a reduction in strike price.

Valuation of short-term notes payable

Company elected the fair value option to account for the financial instrument with Yorkville signed on March 20, 2024 (see Note 6).

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is determined using Level 3 inputs and assumptions unobservable in the market.

Changes in the fair value of debt that is accounted for at fair value,

inclusive of related accrued interest expense, are presented as gains or losses as a component of other income (expense) in the accompanying

consolidated statements of operations and comprehensive loss under change in fair value of debt.

The actual settlement of the short-term

debt could differ from current estimates based on the timing of when and if Yorkville elects to convert amounts into common shares, potential

As of December 31, 2025, there was no outstanding balance

related to the Yorkville debt.

in the fair value of debt that are accounted for at fair value, inclusive of related accrued interest expense, are presented as gains

or losses as a component of other income (expense) in the accompanying consolidated statements of operations and comprehensive loss under

change in fair value of debt, with the exception of changes due to the Company’s credit risk, which are presented as a component

of accumulated other comprehensive income in the accompanying consolidated balance sheets.

The actual settlement of the short-term debt

could differ from current estimates based on the timing of when and if Yorkville elects to convert amounts into common shares, potential

cash repayment by the Company prior to maturity, and movements in the Company’s common stock price.

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4.34 – 4.35 %

Valuation of forward options in B.

ELOC and Yorkville SEPA

Riley ELOC and Yorkville SEPA are accounted for as derivatives

and will be recognized at fair value.

The Company has determined the fair value of the purchase put option in the Company’s shares

to be immaterial.

Any changes in fair value between the carrying amount of the forward issuance contracts and the settlement amounts will

be recognized in other income (expense) in the consolidated statement of operations and comprehensive loss.

For the year ended December

31, 2024, the Company determined there were immaterial changes in derivative liability fair value related to the B.

Riley ELOC the Yorkville

The Company recorded no liability for the forward issuance contract, as there are no such contracts outstanding at December 31,

Valuation of forward options in Yorkville

Yorkville SEPA is accounted for as a derivative and is recognized at fair value.

Any changes in fair value between the carrying amount

of the forward issuance contracts and the settlement amounts will be recognized in other income (expense) in the consolidated statement

of operations and comprehensive loss.

For the year ended December 31, 2025, the Company determined there were immaterial changes in derivative

liability fair value related to the Yorkville SEPA.

The Company recognized no change in derivative liability fair value for the year ended

December 31, 2025.

RESEARCH AND DEVELOPMENT REVENUE

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Total revenue

The following table

presents the activity in the Company’s contract liabilities during the year ended December 31, 2024 (in thousands):

The following table presents

the activity in the Company’s contract liabilities during the year ended December 31, 2025 (in thousands):

Contract liabilities:

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Total contract liabilities

The following table presents

the activity in the Company’s contract assets during the year ended December 31, 2025 (in thousands):

Contract assets:

Unbilled revenue

Total contract assets

ACCRUED EXPENSES

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The Company entered into

the Yorkville Convertible Notes, the Related Party Note, and financing arrangements for a portion of its Directors and Officers insurance

premiums, as follows (in thousands):

the Avenue Financing, the Yorkville agreement, the Related Party note, and financing arrangements for a portion of its Directors and Officers

(“D&O”) insurance premiums, as follows (in thousands):

Principal Repayments

Outstanding Balance

Year Ended December 31,

Amount Financed

Interest Rate

Yorkville Convertible Notes

Avenue Capital Note Principal and Final Payment Fee

Prime + 5.25 %

Yorkville Convertible Notes, at fair value

Related Party Note

2025 Insurance Note

New 2023 Insurance Note

2024 Insurance Note

2022 Insurance Note

Yorkville Convertible Notes

New 2023 Insurance Note

current portion of notes payable

Unamortized debt discounts and debt issuance costs

Notes payable, long term

Avenue Capital Financing

On March 24, 2025, the Company

entered into the SEPA with Yorkville pursuant to which the Company has the right to sell to Yorkville up to $ 30.0 million of its shares

of Company Common Stock, subject to certain limitations and conditions set forth in the SEPA, from time to time during the term of the

SEPA (such transaction, the “Yorkville Transaction”).

In connection with the SEPA, and subject to the conditions set forth

therein, Yorkville has agreed to advance to the Company in the form of convertible promissory notes (the “Convertible Notes”)

an aggregate principal amount of up to $ 12.5 million (the “Pre-Paid Advance”), which will be paid in three tranches.

first Pre-Paid Advance was disbursed on March 20, 2024 in the amount of $ 5.0 million with a fixed conversion price of $ 3.16 .

received $ 4.6 million in cash, net of the 8 % original issue discount.

On May 14, 2024, the shareholders voted to approve the reservation

and issuance of shares to Yorkville to exceed the Exchange Cap and the second Pre-Paid Advance was disbursed on May 16, 2024 in the amount

of $ 4.6 million, which is the $ 5.0 million second Pre-Paid Advance net of $ 0.4 million of the 8 % original issue discount, with a fixed

conversion price of $ 2.03 .

The third Pre-Paid Advance was disbursed on July 17, 2024 in the principal amount of $ 2.3 million, which is

the $ 2.5 million third Pre-Paid Advance net of the $ 0.2 million of the 8 % original issue discount, with a fixed conversion price equal

to 120 % of the average VWAP during the three trading days immediately prior to the issuance of the note.

The purchase price for the Pre-Paid

Advance is 92.0 % of the principal amount of the Pre-Paid Advance.

Interest shall accrue on the outstanding balance of any Pre-Paid Advance

at an annual rate equal to 0 %, subject to an increase to 18 % upon an event of default as described in the Convertible Notes.

paid no interest relating to the Convertible Notes.

Beginning on the forty-fifth (45th) day following the issuance date

of the Convertible Note issued in connection with the first Pre-Paid Advance, and continuing on the same day of each successive month

thereafter, (each, an “Installment Date”), the Company shall repay a portion of the outstanding balance of the Pre-Paid Advance

in an amount equal to (i) $ 1,750,000 , provided however, in respect of any Installment Date prior to the closing of the second Pre-Paid

Advance, $ 750,000 (the “Installment Principal Amount”), plus (ii) the a payment premium of 7 % of such Installment Principal

Amount, and (iii) accrued and unpaid interest hereunder as of each Installment Date.

The maturity date of the Convertible Notes issued

in connection with each Pre-Paid Advance will be 12 months after the issuance date of such Convertible Notes.

In October 2024, the Company

and Yorkville agreed to amend the dates and the allocation of installment amounts to be paid pursuant to the Pre-Paid Advances, such that

the outstanding balance of the Pre-Paid Advances is to be paid by February 2025.

As of December 31, 2024, the Company has made aggregate

installment payments on the Pre-Paid Advances in the amount of $ 10.2 million, of which $ 7.8 million was settled in cash and $ 2.4 million

was settled in shares.

Of the aggregate installment payments, $ 9.4 million relates to the repayment of the principal, $ 0.8 million relates

to the 8 % original issue discount and $ 0.6 million relates to the 7 % payment premium.

As of December 31, 2024, the aggregate outstanding

principal balance of the Yorkville Convertible Notes is $ 2.1 million.

As of December 31, 2024, $ 7.8 million of the outstanding balance

of the Pre-Paid Advances has been paid in cash and $ 2.4 million was paid in shares of the Company issued under the SEPA.

The Company still

has access to the remaining funds under the SEPA.

The sales of the shares of Common Stock to Yorkville under the SEPA, and the timing

of any such sales, are at the Company’s option.

As the SEPA is an equity-linked contract that does not qualify for

equity classification, any expenses incurred will be recognized in the consolidated statements of operations and comprehensive loss within

borrowing related costs.

For the year ended December 31, 2024, the Company recognized $ 1.1 million in issuance costs related to the 8 %

original issue discount for the SEPA.

completed the Avenue Financing, with an initial draw-down of $ 8.5 million.

The term of the Avenue Financing

is for three years, with an interest-only payment period of no less than 15 months, which can be extended to 24 months upon achieving

the milestones for the second financing tranche.

The second financing tranche, which includes an additional $ 6.5 million in debt

financing from Avenue Capital Group is contingent upon;

(i) FDA clearance of the DeepView System and (ii) the Company completing a $ 7.0 million

equity raise.

The borrowings under the Avenue Financing accrue interest at a variable amount per annum equal to the greater of (i)

the sum of (A) the Prime Rate plus (B) 5.25 %, and (ii) 12.75 %, and they mature on March 1, 2028 (the “Maturity Date”).

addition, on the Maturity Date a final payment of $ 0.8 million is due to Avenue Capital Group and is accrued as debt as of December 31,

Up to $ 2.0 million of

the borrowings under the Avenue Financing is convertible at the lenders option, into a number of shares of common stock at a price per

share equal to 120 % of the exercise price of the Avenue Warrants discussed below.

As part of the Avenue Financing

the Company issued 768,072 warrants to Avenue Capital Group which was equal to 8.5 % of the total funding commitment (the

“Avenue Warrants”).

The Avenue Warrants have an exercise price equal to the lower of $ 1.66 per share and the lowest price

per share paid to the Company in cash for common stock through December 31, 2025.

The Avenue Warrants were determined to be classified

as a liability instrument as certain terms preclude them from being considered indexed to the Company’s Common Stock.

The net proceeds of Avenue

Financing of $ 8.3 million were first allocated to the fair value of the Avenue Warrants, with the residual proceeds being allocated

The difference between debt proceeds and the amount of those proceeds allocated to debt gave rise to a debt discount of $ 0.7 million.

The discount amount due to the Avenue Warrants of $ 0.7 million along with the loan fees allocated to the loan of $ 1.0 million,

which includes the final payment of $ 0.8 million, for an aggregate debt discount and debt issuance costs of $ 1.7 million as

shown in the table above, will be amortized as interest expense through maturity using the effective interest method.

The portion of loan

fees allocated to the Avenue Warrants, of $ 22,000 , were expensed during the year ended December 31, 2025 as financing related costs in

the consolidated statement of operations and comprehensive income (loss).

Future principal payments, including the final

payment, of the Avenue note payable are as follows (in thousands):

Year Ended December 31, 2026

Year Ended December 31, 2027

Year Ended December 31, 2028

Yorkville Convertible Notes

On March 20, 2024, the Company entered into the

SEPA with Yorkville pursuant to which the Company has the right to sell to Yorkville up to $ 30.0 million of its shares of Company Common

Stock, subject to certain limitations and conditions set forth in the SEPA, from time to time during the term of the SEPA (such transaction,

the “Yorkville Transaction”).

In connection with the SEPA, and subject to the conditions set forth therein, Yorkville has

agreed to advance to the Company in the form of convertible promissory notes (the “Convertible Notes”) an aggregate principal

amount of up to $ 12.5 million (the “Pre-Paid Advance”), which will be paid in three tranches.

The first Pre-Paid Advance was

disbursed on March 20, 2024 in the amount of $ 5.0 million with a fixed conversion price of $ 3.16 .

The Company received $ 4.6 million in

cash, net of the 8 % original issue discount.

On May 14, 2024, the shareholders voted to approve the reservation and issuance of shares

to Yorkville to exceed the Exchange Cap and the second Pre-Paid Advance was disbursed on May 16, 2024 in the amount of $ 4.6 million, which

is the $ 5.0 million second Pre-Paid Advance net of $ 0.4 million of the 8 % original issue discount, with a fixed conversion price of $ 2.03 .

The third Pre-Paid Advance was disbursed on July 17, 2024 in the principal amount of $ 2.3 million, which is the $ 2.5 million third Pre-Paid

Advance net of the $ 0.2 million of the 8 % original issue discount, with a fixed conversion price equal to 120 % of the average VWAP during

the three trading days immediately prior to the issuance of the note.

The purchase price for the Pre-Paid Advance is 92.0 % of the principal

amount of the Pre-Paid Advance.

Interest shall accrue on the outstanding balance of any Pre-Paid Advance at an annual rate equal to 0 %,

subject to an increase to 18 % upon an event of default as described in the Convertible Notes.

The Company paid no interest relating to

the Convertible Notes.

Beginning on the forty-fifth (45th) day following

the issuance date of the Convertible Note issued in connection with the first Pre-Paid Advance, and continuing on the same day of each

successive month thereafter, (each, an “Installment Date”), the Company shall repay a portion of the outstanding balance of

the Pre-Paid Advance in an amount equal to (i) $ 1,750,000 , provided however, in respect of any Installment Date prior to the closing of

the second Pre-Paid Advance, $ 750,000 (the “Installment Principal Amount”), plus (ii) the a payment premium of 7 % of such

Installment Principal Amount, and (iii) accrued and unpaid interest hereunder as of each Installment Date.

The maturity date of the Convertible

Notes issued in connection with each Pre-Paid Advance will be 12 months after the issuance date of such Convertible Notes.

2024, the Company and Yorkville agreed to amend the dates and the allocation of installment amounts to be paid pursuant to the Pre-Paid

Advances, such that the outstanding balance of the Pre-Paid Advances is to be paid by February 2025.

During the year ended December 31,

2024, the Company made aggregate installment payments on the Pre-Paid Advances in the amount of $ 10.8 million, of which $ 8.3 million was

settled in cash and $ 2.5 million was settled in shares.

Of the aggregate installment payments, $ 9.4 million relates to the repayment of

the principal, $ 0.8 million relates to the 8 % original issue discount and $ 0.6 million relates to the 7 % payment premium.

As of December

31, 2024, the aggregate outstanding principal balance of the Yorkville Convertible Notes was $ 2.1 million.

As the SEPA is an equity-linked contract that

does not qualify for equity classification, any expenses incurred will be recognized in the consolidated statements of operations and

comprehensive loss within financing related costs.

For the year ended December 31, 2024, the Company recognized $ 1.1 million in issuance

costs related to the SEPA.

During the year ended

December 31, 2025, the Company paid the remaining $ 2.4 million of Yorkville Convertible Notes of which $ 1.2 million was settled

in cash and $ 1.2 million was settled in shares of common stock.

The Company still has access to the remaining funds under the SEPA.

The sales of the shares of Common Stock to Yorkville under the SEPA, and the timing of any such sales, are at the Company’s option.

Related Party Note

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for the acquisition and development of a health care related artificial intelligence intellectual property portfolio.

The investment

is structured as a note payable with a one-year maturity, at an interest rate of 8 %, and requiring earlier prepayment if the Company

spins off Spectral IP to the Company’s shareholders or if Spectral IP is sold to a third party.

The holder of the Spectral IP Note

exercised a number of conversion rights throughout the fourth quarter of 2024 for the full conversion of the Spectral IP Note in exchange

for a total of 540,996 shares of the Company’s common stock, which represents a 5.00 % discount to the closing price of the Company’s

The investment is

structured as a note payable with a one-year maturity, at an interest rate of 8 %, and requiring earlier prepayment if the Company spins

off Spectral IP to the Company’s shareholders or if Spectral IP is sold to a third party.

The holder of the Spectral IP Note exercised

a number of conversion rights throughout the fourth quarter of 2024 for the full conversion of the Spectral IP Note in exchange for a

total of 540,996 shares of the Company’s common stock, which represents a 5.00 % discount to the closing price of the Company’s

shares of Common Stock on the day prior to the date of notice of the holder’s exercise of its conversion right.

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to any material legal proceedings or pending claims.

The Company is aware of a material threatened claim that it believes is without

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, none of which we believe are material or would be expected to have, individually or in the aggregate, a material

adverse effect on our business, financial condition, cash flows or results of operations.

The Company is aware of a material threatened claim that it believes is without merit.

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, none of which we believe are material or would be expected to have, individually or in the aggregate, a material adverse effect

on our business, financial condition, cash flows or results of operations.

The Company leases office

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The Company determined that it owns the leasehold improvements under the lease and, as such,

reflected the $ 0.3 million lease incentive as a reduction in lease liabilities and right-of-use assets.

As of December 31, 2024, the

Company has not yet incurred any leasehold improvement costs that were paid for by the lessor.

reflected the $ 0.3 million lease incentive as an in-substance fixed lease payment that reduced the lease liability and right-of-use asset.

As of December 31, 2025, leasehold improvement costs of $ 0.3 million were incurred and paid for directly by the lessor.

As construction

was performed for the improvements, the reduction to the lease payments was capitalized to construction-in-process.

The construction was

completed during the year ended December 31, 2025 and the Company recognized a leasehold improvement asset which is amortized over the

remaining lease term.

During 2025, the Company

entered into a lease for office space in the United Kingdom for annual payments of $ 0.1 million under a lease that expired in March

The lease was renewed in March 2024, however the Company has excluded this lease from the tables below as the term is twelve

entered into a lease for office space in the United Kingdom for annual payments of $ 0.1 million under a lease.

The lease was renewed

for an additional year in January 2026, however the Company has excluded this lease from the tables below as the term is twelve months .

The following table summarizes

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Year Ended December 31, 2028

Year ended December 31, 2028

imputed interest

tenant improvement allowance

Operating lease liabilities

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In conjunction with the

Closing, the Company’s certificate of incorporation was amended and restated to authorize the issuance of 80,000,000 shares of

Company Common Stock, $ 0.0001 par value and 1,000,000 shares of preferred stock, $ 0.0001 par value (the “Company Preferred Stock”).

November and December 2024, the Company issued 2,415,900 shares for aggregate net proceeds of approximately $ 3.1 million to certain institutional

Closing, the Company’s certificate of incorporation was amended and restated to authorize the issuance of 80,000,000 shares of Company

Common Stock, $ 0.0001 par value and 1,000,000 shares of preferred stock, $ 0.0001 par value (the “Company Preferred Stock”).

On March 21, 2025, the

Company entered into Purchase Agreements with certain stockholders for the sale of an aggregate of 2,068,846 shares of Common Stock, at

an offering price of $ 1.30 per Share along with the issuance of the Investor Warrants.

The gross proceeds of $ 2.7 million were allocated

to the liability-classified Investor Warrants based on their fair value at issuance of $ 2.2 million, with the residual gross proceeds

of $ 0.5 million allocated to the Common Stock.

Total issuance costs incurred of $ 0.2 million were allocated between the Investor Warrants

and Common Stock issued.

Issuance costs allocated to the Common Stock of $ 152,000 were recorded in additional paid-in-capital.

On October 22, 2025,

the Company entered into a securities purchase agreement with a certain investor for the sale of 3,065,000 shares of Common Stock, at

an offering price of $ 1.90 per Share along with the issuance of the Hudson Warrants and Pre-Funded Warrants.

The gross proceeds of $ 7.6

million were allocated to the liability-classified Hudson Warrants based on their fair value at issuance of $ 7.5 million, with the residual

gross proceeds of $ 0.1 million allocated between the Common Stock and equity-classified Pre-Funded Warrants based on their relative fair

Total issuance costs incurred of $ 0.6 million were allocated between the warrants and Common Stock issued.

Issuance costs allocated

to the Common Stock and Pre-Funded Warrants of less than $ 0.1 million were recorded in additional paid-in-capital.

Refer to Note 2 for further

information on the Investor Warrants, Avenue Warrants, and Pre-Funded Warrants.

As described in Note

2, during the year ended December 31, 2025, 1,403,846 Investor Warrants were exercised for shares of Common Stock.

In November and December

2024, the Company issued 2,415,900 shares for aggregate net proceeds of approximately $ 3.1 million to certain institutional

investors through at-the market equity issuances.

STOCK-BASED COMPENSATION

Each option and warrant

to purchase common stock of Legacy Spectral was converted into an option and warrant, respectively, to purchase Spectral AI’s common

stock based on the Exchange Ratio, with corresponding adjustments to the exercise price.

Accordingly, the options and warrants to purchase 46,592,862

and 762,712 , respectively, shares of the common stock of Legacy Spectral were converted into options and warrants to purchase 4,519,191

and 73,978 , respectively, shares of Spectral AI’s common stock.

Legacy Spectral’s 600,000 RSUs were converted into 58,197

Spectral AI RSUs, based on the Exchange Ratio.

2023 Long Term Incentive Plan

On July 24, 2018, Legacy

Spectral’s Board of Directors adopted the 2018 Long Term Incentive Plan (the “2018 Plan”) which permitted granting

of incentive stock options (which must meet all statutory requirements), non-qualified stock options, stock appreciation rights, restricted

stock, stock units, performance shares, performance units, incentive bonus awards, and other cash-based or stock-based awards.

2024, all awards outstanding under the 2018 Plan were replaced with corresponding awards to be issued pursuant to the 2023 Plan, as discussed

below, and no new grants will be made under the 2018 Plan.

2022 Long Term Incentive Plan

On September 27, 2022, Legacy

Spectral’s stockholders approved the adoption of the 2022 Long Term Incentive Plan (the “2022 Plan”) which permitted

granting of incentive stock options (they must meet all statutory requirements), non-qualified stock options, stock appreciation rights,

restricted stock, stock units, performance shares, performance units, incentive bonus awards, and other cash-based or stock-based awards.

In May 2024, all awards outstanding under the 2022 Plan were replaced with corresponding awards to be issued pursuant to the 2023 Plan,

as discussed below, and no new grants will be made under the 2022 Plan.

2023 Long Term Incentive Plan

On May 14, 2024, the Company’s shareholders approved the adoption

of the 2023 Long Term Incentive Plan (the “2023 Plan”) which permits granting of incentive stock options (they must meet all

statutory requirements), non-qualified stock options, stock appreciation rights, restricted stock, stock units, performance shares, performance

units, incentive bonus awards, and other cash-based or stock-based awards.

The options, restricted stock units and other securities issued

pursuant to the 2018 Plan and 2022 Plan have been replaced with a corresponding award issued pursuant to the 2023 Plan.

No new grants

will be made under the 2022 Plan and the 2018 Plan and all outstanding grants under the 2018 Plan and 2022 Plan will be assumed by the

The maximum aggregate number of shares that may be issued under the Plan shall not exceed 8,000,000 , plus the number of shares

that are automatically added on January 1st of each year for a period of up to ten years, commencing on January 1, 2024 and ending on

(and including) January 1, 2033, in an amount equal to the lesser of (i) five percent ( 5 %) of the total number of shares of stock outstanding

on December 31st of the preceding calendar year, and (ii) an amount determined by the Board of Directors.

Pursuant to the 2023 Plan, stock

options must expire within 10 years and must be granted with exercise prices of no less than the fair value of the common stock

on the grant date, as determined by the Board of Directors.

As of December 31, 2024, under the 2023 Plan, 3,594,488 shares of common

stock were issuable upon exercise of outstanding options and 169,400 restricted stock units (“RSUs”) were issuable.

the 2023 Plan, 4,236,112 shares remain available for issuance through grants of future options.

The 2023 Plan provides that the Compensation

Committee shall determine the vesting conditions of awards granted under the 2023 Plan, and the Compensation Committee has from time-to-time

approved vesting schedules for certain awards that deviate from the vesting conditions described in the previous sentence.

On May 14, 2024, the Company’s

shareholders approved the adoption of the 2023 Long Term Incentive Plan (the “2023 Plan”) which permits granting of incentive

stock options (they must meet all statutory requirements), non-qualified stock options, stock appreciation rights, restricted stock, stock

units, performance shares, performance units, incentive bonus awards, and other cash-based or stock-based awards.

The options, restricted

stock units and other securities issued pursuant to previous plans have been replaced with a corresponding award to be issued pursuant

to the 2023 Plan.

The maximum aggregate number of shares that may be issued under the Plan shall not exceed 8,000,000 , plus the number

of shares that are automatically added on January 1st of each year for a period of up to ten years, commencing on January 1, 2024 and

ending on (and including) January 1, 2033, in an amount equal to the lesser of (i) five percent ( 5 %) of the total number of shares of

stock outstanding on December 31st of the preceding calendar year, and (ii) an amount determined by the Board of Directors.

the 2023 Plan, stock options must expire within 10 years and must be granted with exercise prices of no less than the fair value

of the common stock on the grant date, as determined by the Board of Directors.

As of December 31, 2025, under the 2023 Plan, 3,857,136

shares of common stock were issuable upon exercise of outstanding options and 9,700 restricted stock units (“RSUs”) were issuable.

Under the 2023 Plan, 3,730,684 shares remain available for issuance through grants of future options.

The 2023 Plan provides that the

Compensation Committee shall determine the vesting conditions of awards granted under the 2023 Plan, and the Compensation Committee has

from time-to-time approved vesting schedules for certain awards that deviate from the vesting conditions described in the previous sentence.

Restricted Stock Units

On January 3, 2024, pursuant to the 2022 Plan, the Company granted

its then-CFO a market condition RSU of up to 150,000 shares of the Company’s common stock.

The award had a grant date fair value

of approximately $0.4 million using a Monte Carlo simulation model.

The RSUs under this market-based award will vest partially based on

achievement of stock price targets of the Company’s common stock.

On January 3, 2024, the Company

granted its then-CFO a market condition RSU of up to 150,000 shares of the Company’s common stock.

The award had a grant date fair

value of approximately $ 0.4 million using a Monte Carlo simulation model.

The RSUs under this market-based award will vest partially based

on achievement of stock price targets of the Company’s common stock.

50,000 RSUs vest when the 180-day VWAP meets or exceeds $ 8.00

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these awards are forfeited based solely on failing to meet such market-based conditions.

On February 29, 2024, pursuant to the 2022 Plan, the Company granted

both its CFO and CEO awards of RSUs up to 150,000 shares of the Company’s common stock.

The two awards together had a grant date

fair value of approximately $ 0.6 million using a Monte Carlo simulation model.

The portion of RSUs that are market-based awards will vest

partially based on achievement of stock price targets of the Company’s common stock.

37,500 RSUs vest when the 180-day VWAP meets

or exceeds $ 8.00 per share, 37,500 RSUs vest when the 180-day VWAP meets or exceeds $ 10.00 per share.

The market-based conditions must

be met in order for the market-based portion of the RSU awards to vest, and it is therefore possible that certain awards ultimately would

On February 29, 2024, the

Company granted both its CFO and CEO awards of RSUs up to 150,000 shares of the Company’s common stock.

The two awards had a grant

date fair value of approximately $ 0.6 million using a Monte Carlo simulation model.

The portion of RSUs that are market-based awards will

vest partially based on achievement of stock price targets of the Company’s common stock.

37,500 RSUs vest when the 180-day VWAP

meets or exceeds $ 8.00 per share, 37,500 RSUs vest when the 180-day VWAP meets or exceeds $ 10.00 per share.

The market-based conditions

must be met in order for the market-based portion of the RSU awards to vest, and it is therefore possible that certain awards ultimately

would not vest.

75,000 RSUs are not market-based and will vest over the continued service period of three years.

The grant date fair value of

each RSU grant is expensed over the requisite service period.

Compensation expense relating to share-based awards with market-based conditions

is not reversed if these awards are forfeited based solely on failing to meet such market-based conditions.

The grant date fair value

of each RSU grant is expensed over the requisite service period.

Compensation expense relating to share-based awards with market-based

conditions is not reversed if these awards are forfeited based solely on failing to meet such market-based conditions.

On February 29, 2024, the

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the incremental compensation cost of the amendment was not material.

In October 2024, in connection with the resignation of the then-CEO,

300,000 unvested RSUs were forfeited and the Company granted 100,000 RSUs that immediately vested to the then-CEO.

The previously recognized compensation cost related to the forfeited RSUs

was reversed upon forfeiture, and the fair value of the awards granted in October 2024 was expensed as of the grant date.

In October 2024, in connection

with the resignation of the then-CEO, 300,000 unvested RSUs were forfeited and the Company granted 100,000 RSUs that immediately vested

to the then-CEO.

During the year ended December

31, 2025, the Company modified the terms of 150,000 outstanding RSU awards with market based and service based vesting conditions to remove

all market based vesting conditions and accelerate the service based vesting.

The modified award will vest such that 100,000 awards vested

upon modification and 50,000 awards will vest on December 31, 2025.

The modification was accounted for as if the modified award was a

new award on the modification date.

The Company compared the fair-value-based measure of the modified awards to the fair-value-based measure

of the original awards immediately before the modification.

As a result of the modification, the Company recognized incremental compensation

cost of approximately $ 43 thousand, representing the excess of the fair-value-based measure of the modified awards over the original awards.

This incremental cost is being recognized over the remaining requisite service period of the awards.

A summary of RSU activities

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Nonvested as of December 31, 2025

During the year ended December

31, 2024 and 2023, the Company granted 550,000 and 58,197 restricted stock units, respectively, with a weighted-average grant date fair

value of $ 1.98 per share and $ 4.65 per share, respectively.

As of December 31, 2024, total unrecognized compensation expense related

to restricted stock units was $ 0.3 million, which is expected to be recognized over a weighted-average period of 1.5 years.

The Company did not grant

any restricted stock awards during the year ended December 31, 2025.

As of December 31, 2025, total unrecognized compensation expense

related to restricted stock units was $ 13,000 , which is expected to be recognized over a weighted-average period of 0.3 years.

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.

Legacy Spectral’s stock became publicly traded on

June 22, 2021 on the AIM Market of the London Stock Exchange, and lacks company-specific historical and implied volatility information.

On September 11, 2023 the Company completed the Business Combination and was listed on NASDAQ under the symbol MDAI.

Legacy Spectral estimated

its expected stock volatility based on the historical volatility of a publicly traded set of peer companies.

Spectral AI continues to

estimate 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 Legacy Spectral’s and Spectral AI’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 Legacy Spectral and Spectral

AI have never paid cash dividends and Spectral AI does not expect to pay any cash dividends in the foreseeable future.

The fair value of each employee

and non-employee stock option grant with service based vesting conditions is estimated on the date of grant using the Black-Scholes option-pricing

In the current year, the Company estimates its expected stock volatility based on its historical volatility, and in previous years,

due to insufficient historical volatility, the historical volatility of a publicly traded set of peer companies.

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 does not expect to pay any cash dividends in the foreseeable future.

The Company’s stock

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model, the Company used the following assumptions for stock options granted during the years ended December 31, 2025 and 2024:

2024 Year ended

Fair value of common stock $ 1.51 $ 4.57

December 31, 2025 Year ended

December 31, 2024

Exercise price (per share) $ 1.28 $ 1.51

Expected term (years) 5.3 4.8

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Dividend yield (per share) 0 % 0 %

During the year ended December

31, 2025, the Company granted stock options to purchase shares of the Company’s common stock to certain employees and board members

which vest based on achievement of stock price targets of the Company’s common stock.

As of December 31, 2025, options to

purchase 550,000 shares of common stock will vest when the 30-day VWAP meets or exceeds $ 3.00 per share.

The grant date

fair value of these options were valued using a Monte Carlo valuation model and will be expensed over the requisite service period.

applying the Monte Carlo simulation model, the Company used the following assumptions for stock options granted during the years ended

December 31, 2025:

December 31, 2025

Exercise price (per share) $ 1.25

Expected term (years) 2.0

Volatility (annual) 75 %

Risk-free rate 4.3 %

Dividend yield (per share) 0 %

A summary of stock options

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Options vested and exercisable as of December 31, 2025 2,951,221 1.92 5.2 420

The aggregate intrinsic

value of options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s

common stock for those stock options that had exercise prices lower than the fair value of the common stock as of the respective date.

The weighted-average grant date fair value of stock options granted

during the years ended December 31, 2024 and 2023 was $ 0.90 and $ 3.20 per share, respectively.

The aggregate intrinsic value

of options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common

stock for those stock options that had exercise prices lower than the fair value of the common stock as of the respective date.

As of December 31, 2025,

there was approximately $ 0.7 million of unrecognized stock-based compensation related to stock option grants that will be amortized

over a weighted average period of 0.8 years.

there was approximately $ 0.5 million of unrecognized stock-based compensation related to stock option grants that will be amortized over

a weighted average period of 1 .0 years.

The Company recorded stock-based

compensation expense for stock options, RSUs, and restricted stock awards of $ 1.03 million for the year ended December 31, 2024

and $ 1.2 million for the year ended December 31, 2023 in general and administrative expenses in the consolidated statements of operations.

During the year ended December

31, 2018, the Company granted 973,803 stock options to investors (the “Investor Options”) that were approved by the Board

of Directors outside of the 2018 Plan.

During the year ended December 31, 2023, 34,779 of the Investor Options were exercised and the

remaining 904,245 Investor Options expired in November 2023.

The Investor Options had an exercise price of $ 2.06 per share.

As of December 31, 2024, there is no unrecognized stock-based compensation expense related to the Investor Options.

compensation expense for stock options, RSUs, and restricted stock awards of $ 1.1 million for the year ended December 31, 2025 and

$ 1.0 million for the year ended December 31, 2024 in general and administrative expenses in the consolidated statements of operations.

Effective for the year ended

December 31, 2025, the Company adopted ASU 2023-09 and applied the disclosure requirements on a prospective basis.

In accordance with

prospective application, the Company did not recast prior period disclosures.

Loss Before Income Taxes

Loss from before income tax

expense/(benefit) disaggregated between domestic and foreign were as follows in accordance with ASU 2023-09 (in thousands):

Total loss before income taxes

Effective Tax Rate

The overall effective tax rate (“ETR”) for the Company,

as calculated under ASC 740 guidance for the years ended December 31, 2024, and 2023 is ( 1.78 %) and ( 0.10 %), respectively.

The following

table reconciles the federal statutory income rate to the Company’s effective income tax rate:

The overall effective tax

rate “ETR” for the Company, as calculated under ASC 740 guidance for the tax period ended December 31,2025 and 2024 is ( 0.15 )%

and ( 1.78 )% respectively.

The following tables reconcile the federal statutory income rate to the Company’s effective income tax

federal statutory tax rate

State income taxes, net of federal benefit

Foreign tax effects:

United Kingdom:

Changes in valuation allowance

Statutory tax difference between U.K.

Change in valuation allowance

Nontaxable or nondeductible items:

Mark to market warrants

Total federal, state and income taxes

Federal income tax rate

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Effective income tax rate

The above schedule beaks

out the key components of the ETR.

The main drivers between the federal statutory rate of 21 % and ETR of ( 1.78 %) are permanent adjustments

and change in valuation allowance.

The main drivers between the federal statutory

rate of 21.00 % and ETR of ( 0.15 %) for the year ended December 31, 2025 is the mark to market of the warrants and change in valuation allowance.

Components of Income Tax Expense/(Benefit)

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Total provision for income taxes

The Company is in a

taxable loss position for the year ending December 31, 2024.

The current tax expense of $ 271,000 is resulting from a reversal of a

federal income tax refund and the gross margin tax for the Company’s state filing in Texas.

The company is in a taxable

loss position for the year ending December 31, 2025.

The current tax expense of $ 11,000 is resulting from the gross margin tax for the

Company’s state filing in Texas.

Income Taxes Paid

Income taxes paid, net of

refunds received, consisted of the following for the year ending December 31, 2025 (in thousands):

State and local

Income taxes paid, net of refunds received

Deferred Income Taxes

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Capitalized research expenses

Intangible assets

Stock-based compensation

Lease liabilities

Non-deductible interest

Accrued compensation

Total deferred income tax assets

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Section 174 Capitalization

The Tax Cuts and Jobs Act of 2017 (TCJA) made a significant change

to Section 174 that went into effect for taxable years beginning after December 31, 2021.

The change eliminated the ability to currently

deduct R&D expenses.

Instead, taxpayers must now capitalize and amortize these costs.

Capitalized Section 174 costs must be amortized

over five years ( 15 years for expenditures attributable to foreign research) beginning with the midpoint of the tax year in which the

expenditures are paid or incurred.

The Company had an estimated

$ 1.7 million of domestic R&D expenses for the tax year ending December 31, 2024.

The domestic R&D expenses will be capitalized

and amortized over a five-year period.

On July 4, 2025, U.S.

formally titled “An Act to Provide for Reconciliation Pursuant to Title II of H.

14” (“The Act”) was

signed into law.

The Act, among other things, extended key provisions of the 2017 Tax Cuts and Jobs Act and introduced targeted changes

federal income tax regime.

The most significant of these changes for the Company is the change to immediate expense for research

and development costs that were previously capitalized and a change to the calculation for the interest limitation for tax purposes.

the year the Company recorded an immaterial benefit to income tax expense.

The Company has also elected to deduct all 50 % of previously

capitalized research and development expenses in 2025 and the balance in 2026, that resulted in an increase to net operating loss carryovers

offset with a corresponding valuation allowance.

The Company continues to capitalize certain research and development costs based on historic

Net Operating Losses

As of December 31, 2025

and 2023, the Company had available federal net operating loss carryforwards (“NOLs”) of $ 19.2 million and $ 11.0 million,

respectively, which are available to offset future federal taxable income.

Under the Tax Cuts and Jobs Act (“TCJA”), all

NOLs incurred after December 31, 2017 are carried forward indefinitely for federal tax purposes.

Utilization of net operating losses

and credits may be subject to substantial annual limitations due to the “change in ownership” provisions of the Internal

Revenue Code of 1986 and similar state provisions.

The annual limitations may result in the expiration of net operating losses before

and 2024, the Company had available federal net operating loss carryforwards (“NOLs”) of $ 25.9 million and $ 19.2

million, respectively, which are available to offset future federal taxable income.

Under the Tax Cuts and Jobs Act

(“TCJA”), all NOLs incurred after December 31, 2017 are carried forward indefinitely for federal tax purposes.

Utilization of net operating losses and credits may be subject to substantial annual limitations due to the “change in

ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions.

The annual limitations may result in

the expiration of net operating losses before utilization.

The Company has not yet performed an analysis, and that, when completed,

such an analysis may result in expiration of net operating losses before utilization and an adjustment to the Company’s

deferred taxes.

As of December 31, 2025 and 2024, the Company had available UK NOL of $ 2.8 million and $ 1.9 million to offset future

UK taxable income.

of the Internal Revenue Code limits the utilization of U.S.

net operating loss (“NOL”) carryforwards following a change of

We have not performed an analysis of whether a change of control defined under Section 382 may have occurred.

Upon performing

an analysis of whether an ownership change has occurred, any future NOL deductions may be limited.

However, our NOL carryforward

as discussed above does not expire.

The Company has not performed an analysis of whether a change of control defined under Section 382 may have occurred.

performing an analysis of whether an ownership change has occurred, any future NOL deductions may be limited.

However, the Company’s

NOL carryforward as discussed above does not expire.

Company is subject to taxation in the U.S and in various state, local and foreign jurisdictions.

The Company’s tax returns for

years 2021 through present are open to tax examinations by U.S.

The Company’s tax returns for years

2021 through present are open to tax examinations by U.S.

Federal, state, local and foreign tax authorities;

however, carryforward

attributes that were generated prior to January 1, 2018, remain subject to adjustment upon examination if they either have been utilized

or will be utilized in a future period.

however, carryforward attributes

that were generated prior to January 1, 2018, remain subject to adjustment upon examination if they either have been utilized or will

be utilized in a future period.

NET LOSS PER COMMON SHARE

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of all potential shares of common stock outstanding would have been anti-dilutive due to the Company’s net loss.

Basic and diluted

net loss per common share attributable to common stockholders for the year ended December 31, 2025 includes the weighted average effect

of 935,000 shares of common stock issuable upon exercise of pre-funded warrants that were issued in connection with the October 2025 Offering.

The table below summarizes

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Unvested restricted stock units

Unvested restricted stock

Potentially dilutive securities

1 unchanged sentence

On March 7, 2024, the Company

formed a new wholly-owned subsidiary, Spectral IP, to be utilized to advance artificial intelligent intellectual property with a specific

formed a new wholly-owned subsidiary, Spectral IP, to be utilized to acquire artificial intelligence intellectual property with a specific

emphasis on healthcare.

On March 19, 2024, the Company announced that Spectral IP received a $ 1.0 million investment from an affiliate

of its largest shareholder for the development of its artificial intelligence intellectual property portfolio.

The investment is structured

of its largest stockholder for the development of its artificial intelligence intellectual property portfolio.

The investment was structured

as a note payable with a one-year maturity, an interest rate of 8 %, and requiring earlier prepayment if the Company spins off Spectral

IP to the Company’s shareholders or if Spectral IP is sold to a third party (the “Note”).

On October 1, 2024, the

Note was amended to (i) reduce the annual interest rate from 8 % to 4 %, (ii) extend the term of the Note through the second

anniversary of the issuance date, March 18, 2026, (iii) include a conversion feature at the option of either IP Protocol or Spectral

IP to convert the then outstanding principal and accrued but unpaid interest into shares of the Company at any time (into such

number of shares calculated by taking a five percent ( 5.00 %) discount to the closing price of the Company’s common stock on

the day prior to the date of notice to the Company of the exercise of the conversion right) and at maturity, respectively, and (iv)

provide for registration rights of any shares of the Company issued in satisfaction of the outstanding obligations.

In December 2024, the Company

issued 540,996 shares of common stock to settle its outstanding obligations under the Note.

For the year ended December

31, 2023, the Company did not have any transactions with related parties.

IP to the Company’s stockholders or if Spectral IP is sold to a third party (the “Spectral IP Note”).

On October 1, 2024, the Spectral

IP Note was amended to (i) reduce the annual interest rate from 8 % to 4 %, (ii) extend the term of the Spectral IP Note through

the second anniversary of the issuance date, March 18, 2026, (iii) include a conversion feature at the option of either the holder or

Spectral IP to convert the then outstanding principal and accrued but unpaid interest into shares of the Company at any time (into such

number of shares calculated by taking a five percent ( 5.00 %) discount to the closing price of the Common Stock on the day prior to the

date of notice to the Company of the exercise of the conversion right) and at maturity, respectively, and (iv) provide for registration

rights of any shares of the Company issued in satisfaction of the outstanding obligations.

The holder of the Spectral IP Note exercised

a number of conversion rights throughout the fourth quarter of 2024 for the full conversion of the Spectral IP Note in exchange for a

total of 540,996 shares of the Common Stock, which represents a 5.00 % discount to the closing price of the Company’s shares of Common

Stock on the day prior to the date of notice of the holder’s exercise of its conversion right.

There were no outstanding obligations

due and owing under the Spectral IP Note as of December 31, 2025.

On November 4, 2024,

Spectral IP entered into a purchase agreement with Sauvegarder Investment Management, Inc.

(“Sauvegarder IM”, formerly known

as SIM Tech Inc.), Sauvegarder IM was formed on March 25, 2024 with a focus on IP-related transactions.

Pursuant to the

purchase agreement, as amended, Spectral IP will acquire all of the outstanding common stock of Sauvegarder IM in exchange for issuing

to the Sauvegarder IM stockholders 21,399,851 shares of common stock of Spectral IP and 22,827,380 shares of preferred stock of Spectral

Additionally, the Company has agreed to forfeit all shares of Spectral IP it holds other than 1,849,102 , which is the value the parties

attribute to the intellectual property license agreement held by Spectral IP.

On May 5, 2025, the

Company entered into an intellectual property license agreement pursuant to which Spectral IP received a worldwide, non-exclusive, license

to one international patent asset of the Company for the purposes of commercializing and monetizing outside the core areas of focus of

the Company on market terms and conditions that are to be finalized.

SUBSEQUENT EVENTS

On March 24, 2025, the

Company completed an equity financing and entered into a long-term debt financing agreement with Avenue Venture Opportunities Fund

II, L.P., a fund of Avenue Capital Group, with an initial draw-down of $ 8.5 million.

In connection with the debt financing, the

Company also raised approximately $ 2.7 million of equity financing from institutional investors, as well as existing UK investors.

The financing includes the potential for up to almost $ 25.0 million with the completion of the milestones for the second tranche of

debt financing.

The term of the

financing agreement is for three years , with an interest-only payment period of no less than 15 months, which can be extended to 24

months upon achieving the milestones for the second financing tranche.

The second financing tranche, which includes an additional

$ 6.5 million in debt financing from Avenue Capital Group is contingent upon;

(i) FDA clearance of the DeepView System and (ii) the

Company completing a $ 7.0 million equity raise.

The Company also issued 768,072 warrants to Avenue Capital Group which

was equal to 8.5 % of the total funding

commitment, with an exercise price of $ 1.66 per share as part of the debt financing.

listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K.

On March 18, 2026, the Company announced that

it has received a contract modification from the Biomedical Advanced Research and Development Authority (BARDA) for the advancement of

$ 31.7 million from its existing contract with BARDA which included (i) a no-cost extension of the base phase of the contract, and

(ii) the acceleration of certain parts of the next phase of such contract.

As part of this funding advance, the Company has committed

to fund $ 9.7 million of the total overall development costs associated with these feature advancements.

This funding comes

as part of an ongoing partnership with BARDA, which has committed $ 54.9 million to date under the contract with an overall value of approximately

$ 150 million.

The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K.

Exhibit Index

45 unchanged sentences

Spectral AI, Inc.

2023 Long Term Incentive Plan (Incorporated by reference to Exhibit 10.12 of Registrants Form 10-K, filed with the SEC on March 29, 2024)

Code of Business Conduct and Ethics (Incorporated by reference to Exhibit 14 of Registrants Form 10-K, filed with the SEC on March 29, 2024)

Insider Trading Policy (Incorporated by reference to Exhibit 19 of Registrants Form 10-K, filed with the SEC on March 29, 2024)

2023 Long Term Incentive Plan (Incorporated by reference to Exhibit 10.12 of Registrant’s Form 10-K, filed with the SEC on March 29, 2024)

Code of Business Conduct and Ethics (Incorporated by reference to Exhibit 14 of Registrant’s Form 10-K, filed with the SEC on March 29, 2024)

Insider Trading Policy

List of Subsidiaries of the Registrant as of December 31, 2025

Consent of Forvis Mazars, LLP.

Consent of KPMG LLP.

2 unchanged sentences

Section 1350 Certifications of the Principal Executive Officer and the Chief Financial Officer

Policy relating to recovery of erroneously awarded compensation (Incorporated by reference to Exhibit 97 of Registrants Form 10-K, filed with the SEC on March 29, 2024)

Policy relating to recovery of erroneously awarded compensation (Incorporated by reference to Exhibit 97 of Registrant’s Form 10-K, filed with the SEC on March 29, 2024).

Inline XBRL Instance Document

5 unchanged sentences

Cover Page Interactive Data File

** Previously

portions of this Exhibit have been omitted pursuant to Regulation S-K Item 601(a)(5), Item 601(a)(6) or Item 601(b)(10),

as applicable, promulgated under the Exchange Act.

The Registrant agrees to furnish supplementally a copy of any omitted schedule

to the SEC upon request.

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File

Previously filed.

Certain portions of this Exhibit have been omitted pursuant to Regulation S-K Item 601(a)(5), Item 601(a)(6) or Item 601(b)(10), as applicable, promulgated under the Exchange Act.

The Registrant agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request.

Form 10-K Summary.

2 unchanged sentences

thereunto duly authorized.

Michael DiMaio

Chairman of the Board of

/s/ Vincent S.

Chief Executive Officer

March 24, 2026

Michael DiMaio

( Principal Executive

/s/ Vincent Capone

Chief Financial Officer

( Principal Executive Officer )

/s/ Thomas Spieth

March 24 2026

Vincent Capone

( Principal Financial Officer, General Counsel

Thomas Spieth

( Principal Financial Officer

And Principal Accounting Officer )

Michael DiMaio

March 24, 2026

Michael DiMaio

/s/ Richard Cotton

7 unchanged sentences

Deepak Sadagopan

/s/ Erich Spangenberg

March 31, 2025

Erich Spangenberg

/s/ Marion Snyder

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data