UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

 FORM 10-K

 (Mark One)

 ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the fiscal year ended December 31, 2024

 Or

 TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from to

 To

 Commission File No. 001-40058

 (Exact name of registrant as specified in its
charter)

 Delaware

 85-3987148

 (State or other jurisdiction of

incorporation or organization)

 (I.R.S. Employer

Identification No.)

 2515 McKinney Avenue, Suite 1000 Dallas, Texas

 75201

 (Address of Principal Executive Offices)

 (Zip Code)

 (972) 499-4934

 (Registrant's telephone number, including
area code)

 Securities registered pursuant to Section 12(b)
of the Act:

 Title of each class

 Trading Symbol(s)

 Name of each exchange on which registered

 Common stock, par value $0.0001 per share

 MDAI

 The Nasdaq Stock Market LLC

 Redeemable warrants, each whole warrant exercisable for one share of Common Stock at an exercise price of $2.75

 MDAIW

 The Nasdaq Stock Market LLC

 Securities registered pursuant to Section 12(g)
of the Act:

 None

 Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

 Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes No

has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
 No

is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company,"
and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 Large accelerated filer

 Accelerated filer

 Non-accelerated filer

 Smaller reporting company

 Emerging growth company

 If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.

has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.

 If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements.

 Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's
executive officers during the relevant recovery period pursuant to §240.10D-1(b).

is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No

 The aggregate market value of the registrant's common stock held
by non-affiliates of the registrant was approximately $ 30.1 million based on the closing sales price on the Nasdaq Stock Market LLC on
June 28, 2024, the last business day of the registrants most recently completed second fiscal quarter.

 As of March 26, 2025, there were 25,317,196
shares of Common Stock, $0.0001 par value per share, issued and outstanding.

 FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2024

 Page

 Part I.

 Item 1.

 Business

 Item 1.A.

 Risk Factors.

 Item 1.B.

 Unresolved Staff Comments.

 Item 1.C.

 Cybersecurity

 Item 2.

 Properties

 Item 3.

 Legal Proceedings

 Item 4.

 Mine Safety Disclosures

 Part II.

 Item 5.

 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 Item 6.

 [Reserved]

 Item 7.

 Management's Discussion and Analysis of Financial Condition and Results of Operations

 Item 7.A.

 Quantitative and Qualitative Disclosures about Market Risk

 Item 8.

 Financial Statements and Supplementary Data

 Item 9.

 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 Item 9.A.

 Controls and Procedures.

 Item 9.B.

 Other Information.

 Item 9.C.

 Disclosure Regarding Foreign Jurisdictions that Prevent Inspection.

 Part III.

 Item 10.

 Directors, Executive Officers and Corporate Governance

 Item 11.

 Executive Compensation

 Item 12.

 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 Item 13.

 Certain Relationships and Related Transactions, and Director Independence

 Item 14.

 Principal Accountant Fees and Services

 Part IV.

 Item 15.

 Exhibits, Financial Statement Schedules

 Item 16.

 Form 10-K Summary.

 i

 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND RISK FACTOR SUMMARY

 This Annual Report on Form
10-K contains statements that are forward-looking and as such are not historical facts. This includes, without limitation, statements
under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding our
financial position, business strategy and the plans and objectives of management for future operations. These statements constitute projections,
forecasts and forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words "anticipate,"
"believe," "continue," "could," "estimate," "expect," "intends,"
"may," "might," "plan," "possible," "potential," "predict," "project,"
"should," "will," "would" and similar expressions may identify forward-looking statements, but the
absence of these words does not mean that a statement is not forward-looking.

 The forward-looking statements
contained in this Annual Report on Form 10-K are based on our current expectations and beliefs concerning future developments and their
potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These
forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that
may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements.
These risks and uncertainties include, but are not limited to, the following risks, uncertainties and other factors:

 We have incurred significant
 losses since inception and may not be able to achieve significant revenues or profitability.

 We are devoting substantially
 all of our efforts towards research and development of our DeepView System.

 We depend on government
 funding, which if lost or reduced, could have a material adverse effect on our research and development activities and our ability
 to commercialize our DeepView technology. Our largest contract is with Biomedical Advanced Research and Development
 Authority ("BARDA") and is the largest single source of revenue for us. Our BARDA contract is not guaranteed to be completed
 or extended.

 The regulatory review process
 is expensive, time-consuming, and uncertain and we may be unable to obtain clearance, approval, De Novo classification, or certification
 for our DeepView technology.

 We may experience significant
 delays in completing clinical trials, which could prevent or significantly delay our targeted product launch timeframe and impair
 our viability and business plan.

 New legislation and regulations
 and legislative and regulatory reforms may make it more difficult and costly for us to obtain regulatory clearance, approval, De
 Novo classification, or certification of our DeepView System, or to manufacture, market and distribute our device after clearance,
 approval, or classification is obtained.

 Disruptions at the FDA
 and foreign regulatory agencies caused by funding shortages or global health concerns could hinder their ability to hire and retain
 key leadership and other personnel, or otherwise prevent new products and services from being developed or commercialized in a timely
 manner, which could negatively impact our business.

 Modifications to our DeepView
 System may require new clearances, approvals, De Novo classifications, certifications, or new or amended certifications, and may
 require us to cease marketing or to recall the modified device until clearances, approvals, De Novo classifications, or the relevant
 certifications are obtained.

 ii

 Quality problems and product
 liability claims could lead to recalls or safety alerts, reputational harm, adverse verdicts or costly settlements, and could have
 a material adverse effect on our business, results of operations, financial condition, and cash flows.

 We must comply with anti-kickback,
 fraud and abuse, false claims, transparency, and other healthcare laws and regulations.

 If our manufacturers fail
 to comply with the regulatory quality system regulations or any applicable equivalent regulations, our proposed operations could
 be interrupted, and our operating results would suffer.

 Actual or perceived failure
 to comply with data protection, privacy and security laws, regulations, standards and other requirements could negatively affect
 our business, financial condition or results of operations.

 As the regulatory framework
 for AI technology evolves, our business, financial condition and results of operation may be adversely affected.

 If we are unable to establish
 sales, marketing and distribution capabilities either on our own or in collaboration with third parties, we may not be successful
 in commercializing our DeepView System, if approved.

 We may not be able to achieve
 or maintain satisfactory pricing and margins for our DeepView technology.

 We will depend upon third-party
 suppliers, including contract manufacturers and single and sole source suppliers, making us vulnerable to supply shortages and price
 fluctuations that could negatively affect our business, financial condition and results of operations.

 We may encounter difficulties
 in managing our growth, which could disrupt our operations.

 We are highly dependent
 on our senior management, directors and key personnel, and our business could be harmed if we are unable to attract and retain personnel
 necessary for our success.

 The use of artificial intelligence,
 including machine learning, in our analytics platforms may result in reputational harm or liability.

 Product liability suits,
 whether or not meritorious, could be brought against us due to an alleged defective product or for the misuse of our DeepView System.
 These suits could result in expensive and time-consuming litigation, payment of substantial damages, and an increase in our insurance
 rates.

 The success of our algorithms
 depends on our significant repository of proprietary burn image and data.

 Changes in patent law or
 its interpretation could diminish the value of patents in general, thereby impairing our ability to protect our existing and future
 products.

 Our patent rights and other
 intellectual property may be subject to priority, ownership or inventorship disputes, interferences, and similar proceedings and
 we may not be able to enforce our intellectual property rights throughout the world.

 Nasdaq may delist our securities
 from trading on its exchange, which could limit investors' ability to make transactions in our securities and subject us to
 additional trading restrictions.

 iii

 The price of our Common
 Stock and Warrants may be volatile.

 Changes in laws, regulations
 or rules, or a failure to comply with any laws, regulations or rules, may adversely affect our business, investments and results
 of operations.

 If we fail to maintain
 proper and effective internal controls over financial reporting, our ability to produce accurate and timely financial statements
 could be impaired, investors may lose confidence in our financial reporting and the trading price of our Common Stock may decline.

 Certain existing stockholders
 purchased, or may purchase, securities in the Company at a price below the current trading price of such securities and may experience
 a positive rate of return based on the current trading price. Future investors in the Company may not experience a similar rate of
 return.

 Warrants may become exercisable
 for Common Stock, which would increase the number of shares eligible for resale in the public market and result in dilution to our
 stockholders.

 The other risk and uncertainties
 discussed in "Item 1A. Risk Factors," elsewhere in this Annual Report on Form 10-K and in our other filings with the
 Securities and Exchange Commission (the "SEC").

 Should one or more of these
risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from
those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 iv

 PART I.

 References in this Annual Report on Form 10-K
(this "Annual Report") to "we," "us," "our" or the "Company" are to Spectral
AI, Inc., a Delaware corporation. References to our "management" or our "management team" refer to our officers
and directors.

 Item 1. Business. Overview

 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 characteristics 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 or not-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. Our focus from 2013 through 2021 was on the burn indication.

 We were notified that our DeepView System, comprised of the multispectral
imaging ("MSI") component integrated with the predictive AI-Burn software component received United Kingdom
Conformity Assessed ("UKCA") marking for use in the United Kingdom for burn indications on February 22, 2024. The UKCA marking
registration was fully completed on March 7, 2024. We anticipate that our full DeepView System may achieve Class II medical device designation
with the United States Food and Drug Administration (FDA) via a De Novo application. Subject to our receipt of additional necessary market
authorization, our business will have two revenue streams, a SaaS (software as a service) model component predicated on utilizing the
regulatory method, SaMD (software as a medical device), and the imaging device component. The SaaS component will feature a software licensing
fee that includes maintenance, image hosting, and access to algorithmic updates. The proprietary imaging device acquires the images for
the AI algorithms and is a universal platform to house multiple clinical indications including burn wound healing analysis and other tissue
indication assessments. Pricing for these components will be evaluated and strategically set per country and site-of-service for
heightened customer adoption.

 The MSI imaging technology, which comprises one part of the DeepView
System, consists of patented proprietary multi-spectral optics and sensors, capturing injured tissue images ranging from near UV light,
through the human visible wavelengths, all the way into the near infrared range (NIR). The broad wavelength ranges go beyond what the
human eyes can see and capture what medical professionals cannot observe with their naked eyes. This wide range of wavelength images contains
wound tissue physiology and captures the viability of various biomarkers within the skin and from the injured tissue spectral signatures.
The imaging technology extracts appropriate clinical data, processes the image data to provide the injured tissue spectral signatures
to the AI model and algorithms. The AI algorithm classifies various severities of the injuries as (i) fully damaged (non-healing),
(ii) partially damaged or (iii) healthy tissue (healing) and displays a comparison of the original image next to an image with
a color overlay of the non-healing portions of the wound. The image acquisition takes 0.2 seconds, and all image processing and AI model
classification takes approximately 20 to 25 seconds. Our DeepView System's proprietary optics can extract millions of pixels of
data or AI model features from each group of raw images. This information is then used to advance algorithm optimization, which is trained
and tested against a proprietary and clinically validated database of approximately 340 billion pixels of image data as of December
31, 2024. The DeepView-AI Burns software is used with the DeepView SnapShot imaging device, and it is
intended to be used as an adjunctive tool to aid health care providers in the assessment of burn wound healing potential by differentiating
non-healing from healing tissue within an image.

 Below at Figure 1 is an
example of the DeepView System technological process.

 Figure 1 — DeepView Imaging technology

 To our knowledge, there
are no comparable digital wound healing predictive medical diagnostic products that provide clinicians with an objective and immediate
assessment of a wound's future healing potential that benefit from the application of AI. Currently, healthcare professionals
rely on their experience and subjective assessments to determine if wounds, such as burn injuries, will heal under routine care after
a period of time, typically several weeks, or are in need of advanced wound care products and procedures including surgical interventions.
Our DeepView System allows health care professionals to make a "Day One" assessment of a wound's healing potential
over time.

 We have received substantial
support from the U.S. government for our DeepView System's application for burn wounds, including from agencies such as BARDA,
which is part of the Department of Health and Human Services ("HHS") Office of the Assistant Secretary for Preparedness and
Response ("ASPR") in the United States, established to aid in securing the United States from chemical, biological,
radiological, and nuclear threats, as well as from pandemic influenza and emerging infectious diseases. We have also received funding
from the National Science Foundation ("NSF"), National Institute of Health ("NIH") and the DHA an agency within
the Department of Defense ("DoD"). Since 2013, we have been awarded approximately $281.5 million in funding from government
contracts, substantially all of which is from BARDA, which accounts for $272.9 million. This has allowed us to develop our technology
and advance our clinical trials. On September 27, 2023, the Company executed a new contract with BARDA, providing the Company with
additional funding of up to $150.0 million, including an initial award of approximately $54.9 million to support the clinical
validation and application for FDA De Novo status of our DeepView AI – Burn software. This will include the distribution of up to
30 DeepView Systems in various emergency rooms and burn centers to support the clinical validation study. The 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. These deployments
will enable the Company to conduct health economic and outcome research to support the broader clinical adoption of the DeepView System.
This grant funding is non-dilutive to our stockholders, and we believe it validates the important nature of our mission and technology.

 Subject to our receipt of the necessary regulatory market authorizations,
we intend to initially sell the DeepView System throughout the United States and the UK for its burn indication. Given our receipt
of the UKCA authorization for our burn indication we anticipate initial sales in UK to begin in 2025. The sales channel for our burn indication
will be supported by existing and future governmental contracts, primarily from agencies such as BARDA and the DHA. In the United States,
there are approximately 100 burn centers, 700 trauma centers and 5,400 federal and community hospitals with Emergency Rooms where the
burn patients are most likely to visit upon injury. The DeepView System provides a quick clinical decision tool to emergency room clinicians.
It can be used to quickly assess the healing potential for burn wounds so decisions regarding whether patients need routine care or should
be transferred to trauma centers or burn centers for advanced care and accurate surgical planning can be made in a much more timely fashion.
In the burn centers, the DeepView System provides an advanced assessment of the non-healing areas of a burn. Therefore, we plan to target
our sales efforts to these facilities through our highly-trained technical sales support staff that we plan to hire given the nature of
DeepView as a truly disruptive AI driven predictive assistance tool. For the DeepView System's burn application and following receipt
of any future contract awards, we plan to partner with the U.S. governmental agency sponsors to implement the distribution of our
DeepView System throughout the United States into key regions to support the United States' mass casualty countermeasure directives,
with the goal of making our country better prepared for mass casualty events and saving scarce healthcare resources.

 As noted above, subject
to our receipt of the necessary regulatory market authorizations, our business is expected to have two revenue streams, a SaaS model
component predicated on utilizing the regulatory method, SaMD (software as a medical device), and an imaging device component. The SaaS
component will feature a software licensing fee that includes maintenance, image hosting, and access to algorithmic updates. The capital
sale component will be competitively priced for acceptance into burn centers, independent practices, hospitals and clinics.

 Furthermore, we would expect to leverage results from the U.S. study
for a simultaneous conformity assessment procedure in the EU to obtain the CE marking of conformity ("CE Mark"), and we would
expect to commence post-market studies in the UK and Germany. Subject to our receipt of the necessary regulatory market authorization,
we would expect to initiate commercialization in the United States during 2026 and intend to submit for FDA review of the burn application
in 2025 in accordance with the projected timeline for our BARDA contract.

 Burn Indication

 The Company has completed
the enrollment of 164 patients, including 49 pediatric subjects, representing the full enrollment requirements in its validation study
for the burn indication.

 The DeepView System has shown significant improvement in the sensitivity
assessment of the burn wound and non-inferiority in assessing the specificity of a burn wound with cross-validation from the AI model
for identification of non-healing burn regions. This represents a significant improvement above the diagnostic performance of burn physicians
assessing the same adult burn patients. In addition to our validation study, we have conducted three large clinical studies with multiple
sites across the United States, enrolling 413 patients, including 329 adult burn patients and 84 pediatric patients. Through these
studies we were able to determine burn assessment accuracy in both healing and non-healing wounds.

 As of December 31, 2024, our proprietary and clinically validated database
for burns is comprised of approximately 340 billion pixels of image data. This database presents both a significant barrier to entry to
would-be competitors in wound care healing assessment, and a potential additional commercial opportunity for us to develop further indications
in the future.

 Other DeepView Programs in Development

 Funding from the U.S. government has also allowed us to develop
additional "Horizon" indication uses of our DeepView System, including DeepView SnapShot M, DeepView AI 3-D
wound measurement technology, and other indications, including diabetic foot ulcers which the Company has done significant work on to
date. We believe that our DeepView System's use in emergency rooms, trauma and burn centers and other would care facilities should
be expanded to provide greater utility of the DeepView System in such settings.

 DeepView SnapShot M

 In addition to our DeepView System, our primary additional technology
is the DeepView SnapShot M, a fully handheld, portable, wireless diagnostic tool based on the DeepView System's AI platform. The
DeepView SnapShot M provides a potential enhanced and expanded use for the U.S. government and emergency care, first responders and
potentially home health care professionals. On June 23, 2021, we were awarded a two-year, $1.1 million, Sequential Phase II
Small Business Technology Transfer ("STTR") contract by the DHA within the U.S. Department of Defense. This funding enables
us to research and develop the DeepView SnapShot M product primarily for military and combat settings. In April 2023, we were awarded
a $4.0 million grant from the Medical Technology Enterprise Consortium ("MTEC"), a 501(c)(3) biomedical technology
consortium working in partnership with the Department of Defense, to develop our DeepView SnapShot M device in a Phase III feasibility
and commercialization study. 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 September 2024, we received an additional $0.9 million from MTEC for further development
of the handheld device. In March 2024, we received an additional $0.5 million award from the Defense Health Agency to further this development.
These grants, along with prior awards from DHA, bring our funding total for our DeepView SnapShot M to over $7.2 million. The funding
will be used to support military battlefield burn evaluation using DeepView SnapShot M.

 3-D Wound Measurement Technology

 We are also currently developing
3-D software-based wound measurement technology for our DeepView System. This technology will produce rapid, accurate and easy-to-use
wound size measurement images to produce an accurate 3-D tissue representation from a single image snapshot enabling length, width and
area measurements with sub-millimetric accuracy without reference to any attendant markers or manually placed stickers or multiple images.
We believe this is a significant improvement over current wound size measurement technologies which are limited in their ability to measure
all three wound dimensions (length, width and area) or are otherwise cumbersome, requiring reference markers/stickers or multiple images
to determine would size measurements. Our 3D wound measurement technology calculates the total body surface area ("TBSA")
of a wound. This technology will be integrated into our DeepView System This technology enhancement will not only generate the TBSA measurement,
but will also indicate the "healing" versus "non-healing" burn tissue area. This is a critical step in assuring
that these alternative medical solutions will be successful in-patient applications. The 3-D wound size measurement tool has completed
the proof-of-concept phase. We are currently developing this technology in cooperation with BARDA.

 Business Focus and Milestones

 Our current focus is to fulfill our contractual obligations and meet
milestones under our BARDA PBS contract (described in further detail below); and to pursue other indications for the commercialization
of the DeepView System in the UK, United States and EU. Our near-term goals related to the BARDA PBS contract are to deliver on the
current phase of the contract (Phase 1a), and to complete the remaining phases of the BARDA PBS contract. Completion of these contractual
phases support our long-term goal of entering a federal procurement contract with BARDA.

 We intend to submit a De
Novo application to the FDA for market authorization of the burn application by the end of the first half of 2025. In 2023, we received
our ISO 13485:2016 certification for Medical Devices. Our certification audit was completed in the first quarter of 2024, without any
exceptions. In parallel, we are in the process of scheduling the DeepView System Technical Documentation audit necessary to obtain the
CE Mark and UKCA certificates to allow market access in the EU and UK, respectively. In March, Spectral completed its UKCA Mark registration
for the full DeepView System for our burn indication.

 DeepView in Practice

 DeepView is a predictive analytics platform that combines AI algorithms
and MSI imaging for an assessment of wound healing potential. It is non-invasive, non-radiation, non-laser and does not require the use
of injectable dye. This integration can be characterized into four distinct components: DeepView imaging, data extraction, AI model building
and AI wound healing potential assessment. The DeepView AI- Burn software is used with the DeepView SnapShot imaging device, and it is
intended to be used as an adjunctive tool to aid health care providers in the assessment of burn wound healing potential by differentiating
non-healing from healing burned tissue within an image.

 The DeepView technology
 consists of patented proprietary multi-spectral optics and sensors that can classify wound tissue physiology and capture the viability
 of various biomarkers within the skin.

 The imaging technology extracts appropriate imaging data, processes
the image and displays a comparison of the original image next to an image with a color overlay of the non-healing portions of the wound.
The image acquisition takes 0.2 seconds and the output takes approximately 20 to 25 seconds.

 DeepView's proprietary
 optics can extract millions of pixels of data or AI model features from each raw image. This information is then used to build and
 continually improve the AI model, which is trained and tested against a proprietary and clinically validated database of approximately
 340 billion pixels of image data as of December 31, 2024.

 The AI algorithm then seeks
 to produce an objective, accurate, and immediate binary wound healing assessment. This assessment would be graphically represented
 to the clinician through a colored overlay of the original image that annotates the portion of the wound that is predicted to be
 non-healing over a specified period of time – 21 days (See Figure 2 below).

 Figure 2 — Illustration of DeepView's
binary decision assist output where the colored region marks the predicted non-healing portion of the wound.

 The DeepView System is designed
to assist clinicians in making accurate, timely, and informed decisions regarding the treatment of the patient's wound. DeepView
provides physicians with an immediate assessment of a burn wound's healing potential with a binary outcome determination. We have
conducted three large clinical studies with multiple sites across the United States, enrolling 413 patients, including 329
adult burn patients and 84 pediatric burn patients. Through these studies, we were able to determine burn assessment accuracy in both
surgery and non-surgical treatment.

 See the table below for
an analysis of the current DeepView System's benefits to patient care:

 Burn

 Current
 Time to Decision

 21 Days

 DeepView
 Time to Decision

 Day 1

 DeepView
 Estimated Cost savings

 ~$24,000 per stay

 Key Strengths

 We believe the following
key strengths will help us to maintain and grow our business going forward:

 Market Leading Technology

 We have developed proprietary AI algorithms and imaging technology
to assist clinicians to make more accurate and efficient treatment decisions in managing a patient's wounds. This technology is
the result of 13 years of research and development, thousands of hours of user feedback, and most importantly, the continual
commitment to ensuring that the output from DeepView answers a clinical question that is meaningful to physicians. We own and control
the entirety of our data pipeline. We only rely on images and data that the DeepView System collects in a controlled clinical environment
and do not rely on stock images or databases for our algorithms. All optical technology has been developed in-house and is specifically
engineered to collect this imaging data. A current image of our cart-based DeepView System appears below in Figure 3.

 Figure 3 — DeepView Generation 3
System

 Unmet Clinical Need

 The biggest unmet need for clinicians treating burn wounds is the lack
of a diagnostic tool that provides an objective wound healing determination on "Day One." The treatment pathway for these
wounds can be generally characterized by a subjective initial assessment from the physician followed by multiple weeks of clinical
observation to assess whether or not the wound responded to treatment. Burn wounds are primarily staged by their penetration depth into
the skin and involvement of tissues below the skin in severe cases. Burn wounds are diagnosed by expert clinical opinion without the aid
of objective diagnostic tools that provide a wound healing prediction. Furthermore, the current methods of diagnosis rely on a "wait
and see" approach that results in prolonged hospital stays and costly delays in the delivery of definitive treatment. Our goal is
to eliminate these costly delays between initial screening and the delivery of a definitive treatment using AI algorithms applied to our
proprietary multispectral wound images.

 Significant Market Opportunity

 Geography — DeepView has the potential to service a large total addressable market.
We estimate that there are over 57,000 sites of clinical care in which the technology could be placed in the United States and over
20,000 sites across the UK and EU. For all geographies, these sites include both acute inpatient hospitals and outpatient sites of care,
in order to include physician offices. As we expand from the United States into the UK and EU, we will consider follow-on markets
for commercial expansion, including the Middle East, among others.

 Pipeline Applications — Though we are currently focused on the burn application for DeepView,
there are other pipeline applications that we are considering for future commercialization. As noted above, we have already received U.S. government
funding for the development of our DeepView SnapShot M fully handheld device for use in combat, military and home health
care uses. In connection with our BARDA contract, we are working on expanding the indication usage of the DeepView System to incorporate
a wound and burn measurement tool for clinicians. We have completed significant work on DFU and will continue to evaluation the predictive
use of the DeepView System for the DFU indication as the Company moves into 2025 and beyond. We have also explored the technology's
potential for the assessment of wound bed preparation, critical limb ischemia, level of lower limb amputation selection, post-operative
perfusion assessment for peripheral interventions, and military applications. For all future pipeline applications we will leverage our
data analytics algorithms to improve predictive analyses. With any new application, we would need to conduct one or more clinical studies
to collect enough patient data to appropriately support algorithm development for each new application. These new algorithms could easily
be uploaded onto existing DeepView devices in the future. From a regulatory perspective, we believe that these follow-on applications
would all follow a 510(k) clearance process although in some cases, we may need to follow the De Novo classification or premarket
approval pathway if we are not able to identify a predicate, or if use of the device for a new indication is classified as a Class III
device.

 Existing and future revenue base from long
term U.S. Government Contracts — BARDA

 On September 27, 2023,
the Company executed a new contract with BARDA, providing the Company with additional funding of up to $150.0 million, including
an initial award of approximately $54.9 million to support the clinical validation and application for FDA De Novo status of our
DeepView System. This will include the distribution of up to 30 DeepView Systems in various emergency rooms and burn centers to support
the clinical validation study. The 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. These deployments will enable the Company to conduct health economic
and outcome research to support the broader clinical adoption of the DeepView System. This grant funding is non-dilutive to our stockholders,
and we believe it validates the important nature of our mission and technology.

 Significant Wound Data Repository from
Artificial Neural Network

approximately 340 billion pixels of proprietary image data have been acquired and utilized for the deep learning algorithms training.
This presents a significant barrier to entry to would-be competitors in wound care healing assessments. The data collection to clinical
output, the flow, quality and control of the data pipeline is managed entirely by us. Our DeepView System uses deep learning on its wound
data repository to recognize patterns and correlations of injured tissue spectral signatures to produce reliable and reasonable assessment
for clinicians to make accurate and faster treatment decisions. We believe that our strategic partnerships with various leading medical
institutions and healthcare providers in the United States and Europe will enable us to access high quality image data and build
the world's leading wound biopsy tissue database. Our AI algorithms are designed and trained to the clinical "ground truth"
that has been verified and vetted by various U.S. government agencies and leading clinicians in their respective fields. They have
not yet been reviewed or cleared by FDA.

 Strategic Partnerships

 We have developed strategic
partnerships with multiple clinical and academic partners. In the United States, we are currently engaged with leading research
hospitals that are enrolling subjects for our Burn AI training study. In the EU and UK, we have partnered with the Royal College of Surgeons
Ireland, as well as key opinion leaders to provide us with greater knowledge in the wound care sector. In July 2024, we entered into
a memorandum of understanding with PolyNovo, Ltd. to assist in the expansion of our DeepView System throughout Australia by utilizing
the Australian Special Access Scheme. As of December 31, 2024, the Company was accepted into the Special Access Scheme with three hospitals
in Melbourne, Perth and Sydney and anticipates delivering the DeepView Systems to those institutions in the first quarter of 2025. Our
partnerships with these institutions provide us with the opportunity to collaborate with leading wound care providers to develop effective
early stage wound assessment technology. We utilize these strategic partnerships to support the ongoing clinical validation studies we
are using to develop our algorithmic model. Each of our clinical study/trials include certain protocol requirements to ensure a uniform
testing process for our technology.

 Proven Experienced Management Team

 Our board of directors and
senior management team have significant experience in the technology and healthcare sectors, with a track record of successful entrepreneurship,
operational acumen, strategic relationships and the ability to understand and navigate the complexities of healthcare. Our directors
also bring significant expertise from previous public company experience along with financial, governance and technical oversight.

 Respected Advisory Board

 We have established an Advisory
Board composed of industry experts and opinion leaders that will raise our profile. Its members provide us with external, industry-specific
perspectives and technical support.

 Competition

 To our knowledge, no other
predictive wound-healing diagnostic imaging technology is available to clinicians who treat wounds. DeepView's competitive advantage
is that it is the only AI-enabled wound imaging technology that translates raw physiological data/images into an output that is directly
correlated to predictive wound healing.

 Several companies have developed wound imaging systems for wounds;
however, these systems incorporate technology such as spatial frequency domain imaging, thermal imaging, photographic documentation, hyperspectral
imaging, and near-infrared imaging that provide physiologic data to the physician. Ultimately, this physiologic data appears to only provide
an indirect linkage to wound healing and does not display a binary result of "healing vs. non-healing." Furthermore, the majority
of systems in the wound care space are merely documentation tools that record measurements of the wound for health record purposes and
still rely upon subjective clinician opinion for treatment decisions. The advent of a novel technology such as the DeepView System not
only has the potential to disrupt the therapeutic pathway within the wound care market, but also to create a new diagnostic market for
wound care that did not exist previously for clinics and physicians, subject to successful development of the device and FDA marketing
authorization. As noted above, although our previous DeepView Systems received 510(k) clearance, and we have received FDA BDD clearance
for our DeepView GEN 3 System, there can be no assurance that we will be able to obtain market authorization in the US or EU, especially
as the Company seeks a De Novo clearance with the FDA.

 Commercialization and Revenue Strategy

 We intend to pursue the
complete development of our DeepView System and, if marketing authorization is obtained, to commercialize it on our own, or potentially
with a partner, in the United States and other regions. We currently have no sales, marketing or commercial product distribution capabilities and
have no experience as a company commercializing products. However, if necessary, we intend to hire appropriately to build the necessary
infrastructure and capabilities over time for the United States, and potentially other regions, following further advancement of
our DeepView System.

 United States

 Subject to our receipt of
the necessary regulatory marketing authorization, we intend to market our DeepView System using internal and third-party resources to
inpatient and outpatient sites of care throughout the United States. As noted above, subject to our receipt of the necessary regulatory
marketing authorization, our business is expected to have two revenue streams, a SaaS model component predicated on utilizing the regulatory
method, SaMD (software as a medical device), and an imaging device component. The SaaS component will feature a software licensing fee
that includes maintenance, image hosting, and access to algorithm updates. The capital sale component will be competitively priced for
acceptance into independent practices and clinics.

 Given our receipt of the
UKCA mark for our burn indication, commercial sales are expected to commence in 2025 for the burn indication in the UK. In the United
States, the Company will continue to perform under its new BARDA contract with respect to the burn indication and will receive significant
governmental funding prior to seeking FDA clearance of the DeepView System in the first half of 2025.

 Reimbursement

 We expect to utilize our post-market
clinical evidence and health economic impact analysis to submit to NHS for reimbursement for its Burn indication in the United Kingdom.
Upon more market penetration, we will apply for NICE certification. In the United States, we expect the DeepView System will be used
in both inpatient and outpatient sites of service. The process of reimbursement varies greatly between the two. The DeepView burn indication
will be used both in EDs and Burn Centers. As clinical evidence is developed and utilization increases over the next several years, we
plan to apply for Current Procedural Terminology (CPT)
codes.

 Adoption

 We view our DeepView technology
as disruptive by nature and there will be those who will be slow to adopt it. This emphasizes the importance of having the right strategic
partnerships, institutions, and physician key opinion leaders as early adopters. We plan to engage in relationships that can act as key
opinion leaders to share their experience on why they adopted the DeepView technology. The adoption will be supported by a team of field
clinical educators and digital marketing campaigns.

 Manufacturing Arrangements

 We currently outsource all our manufacturing to a Contract Manufacturer.
Cobalt Product Solutions ("Cobalt"), located in Plano, Texas, is involved with manufacturing the current generation DeepView
System and we anticipate that they will continue to do so for the foreseeable future.

 In addition to Cobalt, we
partner with several other highly specialized contract manufacturers in the areas of optics, technology design, and electronics. We employ
experienced regulatory and quality control personnel to ensure that our manufacturing processes and quality management systems are in
compliance with FDA and EU regulations and standards. As we expand into the European market, we will most likely consider manufacturing
devices in the EU in preparation for commercialization. We do not have any plans to develop our own manufacturing facility at this time.

 Intellectual Property

 We strive to protect and
enhance the proprietary technologies that we believe are important to our business by seeking patents to cover our technology. We also
rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent
protection.

 Our technology is protected
with issued and/or allowed patents across nine families of active patents:

 Burn/Wound Classification on MSI and Photoplethysmography ("PPG");

 Tissue classification on
 MSI and PPG;

 Amputation site analysis on MSI, machine learning ("ML")
and healthcare matrix;

 DFU healing potential prediction
 and wound assessment on MSI, ML and healthcare matrix;

 High-precision, multi-aperture,
 MSI snapshot imaging;

 Wound assessment based
 on MSI;

 Burn/histology assessment
 based on MSI and ML;

 High-precision, single-aperture
 MSI snapshot imaging; and

 Topological characterization
 and assessment of tissues using MSI and ML

 We have 12 issued and allowed
U.S. patents with 6 U.S. patent applications pending. We have 18 issued and allowed international patents with 29 foreign and
international patent applications pending.

 In
addition, we support the development of our brand and product offerings through trademark protection at the United States Patent
and Trademark Office. As of December 31, 2024, we maintain a portfolio of 6 8
trademarks and nine trademark applications pending relating to our DeepView System product offerings. Our trademarks and pending trademark
applications are spread over nine jurisdictions mostly in the UK the EU and China. It is our intention to maintain these registrations
indefinitely and to expand the number of jurisdictions in which we have registered trademarks as deemed necessary to protect our freedom
to use the marks and/or block competitors in additional markets. We will continue to look to protect our intellectual property in the
United States, UK and the EU as those are the first commercial markets for our products and rely on third party experts to assist
in doing this.

 Facilities

 Our corporate headquarters
is located in Dallas, Texas, where we occupy approximately 11,000 square feet of space under a lease agreement. In April, 2024, the Company
executed an extension of its existing lease agreement for our corporate headquarters which expires on February 29, 2028.

 Human Capital Resources and Employees

 We employ a growing and
highly skilled employee base, including our sales force, and promote a culture of innovation to continuously iterate and enhance our
products, systems and commercial footprint. Our human capital objectives include, as applicable, identifying, recruiting, retaining,
incentivizing and integrating our existing and additional employees.

 We continued to expand our workforce in 2024 as we continue to build
a focused and highly skilled team. At December 31, 2024 we had 78 full-time employees in the United States and UK. In 2025, we anticipate
new hires will be made in all areas, in particular in operations, sales, marketing, and government contracts. This will further enable
us to meet our technology, IP, clinical, regulatory, and commercial goals in 2025 and beyond.

 We have designed and implemented our cash and stock compensation programs
to attract, motivate, and retain our employees. We regularly review our compensation structure to ensure that we remain competitive, reward
top performance, and ensure internal equity, while maintaining proper fiscal governance. Our compensation packages are designed based
on market benchmarks. We offer robust benefits package including health (medical, dental and vision) insurance, paid time off, paid parental
leave, a retirement plan and life and disability coverage.

 Available Information

 Our internet address is
 www.spectral-ai.com. Our website and the information contained therein or linked thereto are not part of this Annual Report. We
make available free of charge through our internet website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, proxy statements, registration statements and amendments to those reports filed or furnished pursuant to the Exchange Act
as soon as reasonably practicable after we electronically file such material with, or furnish them to the SEC. The SEC maintains a website
that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. These materials
may be obtained electronically by accessing the SEC's website at www.sec.gov.

 Item 1.A. Risk Factors.

 Investing in our securities
involves risks. Before you make a decision to buy our securities, in addition to the risks and uncertainties discussed above under "Cautionary
Note Regarding Forward-Looking Statements," you should carefully consider the specific risks set forth herein. If any of these
risks actually occur, it may materially harm our business, financial condition, liquidity and results of operations. As a result, the
market price of our securities could decline, and you could lose all or part of your investment. Additionally, the risks and uncertainties
described in this prospectus or any prospectus supplement are not the only risks and uncertainties that we face. We may face additional
risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may also impair our business,
prospects, financial condition or operating results. The following discussion should be read in conjunction with our financial statements
and the financial statements of the Company and notes to the financial statements included herein.

 Risks Related to Our Financial Condition and
Capital Requirements

 We have incurred significant losses since
inception and may not be able to achieve significant revenues or profitability.

 We have incurred substantial net losses since our inception. For the year
ended December 31, 2024 and the year ended December 31, 2023, on a consolidated basis, we incurred a net loss of $15.3 million
and $20.9 million, respectively, and on a consolidated basis our cash balance at December 31, 2024 was $5.2 million. We had
an accumulated deficit of approximately $48.1 million as of December 31, 2024. Our losses have resulted primarily from costs incurred
in connection with our design, manufacturing and development activities, research and development activities, building our commercial
infrastructure, legal, and general and administrative expenses associated with our operations.

 On September 27, 2023,
the Company executed a new contract with BARDA, providing the Company with additional funding of up to $150.0 million, including
an initial award of approximately $54.9 million to support the clinical validation and FDA clearance of our DeepView System. The
Company will utilize its existing cash balance and the initial award from BARDA for its near-term liquidity and operating needs. The
Company believes that it has sufficient cash and revenue from its BARDA contract to support its operations until it is able to obtain
equity or debt investments on terms acceptable to the Company to meet its expected operating cash-flow needs for its burn, DFU and other
indication research and development.

 We do not know whether or
when we will become profitable. Our ability to generate revenue and achieve profitability will depend upon our ability, alone or with
others, to complete the development of our DeepView System, including receipt of the necessary regulatory clearances, approvals, or classifications
and thereafter to successfully commercialize our DeepView System. We may be unable to achieve these goals. We may also encounter unforeseen
expenses, difficulties, complications, delays and other known and unknown factors and risks frequently experienced by medical device
companies in rapidly evolving fields. In addition, the Company's ability to develop its DeepView System for multiple indications
requires research and development costs that may exceed the Company's current cash balance. The Company may need to seek additional
equity or debt investments to meet its projected operating costs for the timely development of the DeepView System. 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 plan. In addition, as a U.S. public company, we incur significant legal, accounting and
other expenses. Accordingly, we expect to continue to incur significant operating losses for the foreseeable future and we cannot assure
you that we will achieve profitability in the future or that, if we do become profitable, we will sustain profitability. Our failure
to achieve and sustain profitability in the future will make it more difficult to finance the capital requirements needed to operate
our business and accomplish our strategic objectives, which would have a material adverse effect on our business, financial condition
and results of operations, and cause the market price of our common stock to decline.

 We are devoting a significant portion of
our efforts towards research and development of our DeepView System.

 Our business, prospects,
results of operations and financial condition depend upon our ability, alone or with others, to complete the development of our DeepView
System, including receipt of the necessary regulatory clearances, approvals, or classifications and thereafter to successfully commercialize
our DeepView System. In addition, though we are currently focused on the burn application for DeepView, there are other pipeline applications
that we are considering for future commercialization. However, we may be unable to achieve these goals. Approval or clearance from the
FDA and comparable regulatory bodies may never be obtained. We also may encounter unforeseen expenses, difficulties, complications, delays
and other known and unknown factors and risks frequently experienced by medical device companies in rapidly evolving fields. Our failure
to receive the necessary approvals and clearances and to successfully commercialize our DeepView System would have a material adverse
effect on our business, prospects, results of operations and financial condition.

 Further, our business plan
and pipeline depend on, and, as further described below, funding under many of our existing contracts depend on, and future contracts
may also depend on, our ability to meet certain milestones or achieve certain timelines with our applications and indications. Our ability
to achieve these depends on numerous factors, including the factors described in this " Risk Factors " section, many
of which may not be within our control. Our inability to achieve our milestones and timelines could have a material adverse impact on
our business, prospects, results of operations and financial condition.

 We depend on government funding, which
if lost or reduced, could have a material adverse effect on our research and development activities and our ability to commercialize
our DeepView technology. Our largest contract is with BARDA and is the largest single source of revenue for us. Our BARDA contract is
not guaranteed to be extended.

 We have not made any commercial
sales of our DeepView System. We receive almost all of our revenue from fees and costs payable by BARDA, and to a lesser extent the Defense
Health Agency ("DHA") of the United States Department of Defense. We currently have agreements with each of BARDA and
the DHA to support continued development of the next generation of our DeepView technology. While we believe we have very good working
relationships with BARDA and DHA, the loss of one or both of our contracts with BARDA and DHA would have an adverse impact on our business,
prospects, results of operations and financial condition. While we expect diversification of customers in future years, assuming
we are able to obtain the necessary regulatory clearances, approvals, De Novo classifications, or certifications (each of which cannot
be guaranteed and may take longer than planned) to commercialize our product, for the time being we are substantially dependent on funding
from BARDA and DHA.

 Our BARDA contract is the
largest single source of revenue for us. On September 27, 2023, the Company executed a new contract with BARDA, providing the Company
with additional funding of up to $150.0 million, including an initial award of approximately $54.9 million to support the clinical
validation and FDA clearance of our DeepView System, in place of the prior contract Option 2 award which was approximately $21.9 million.
The 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. While we currently have no reason to believe that we will fail to achieve these contract milestones and decision
gates or that these further options will not be exercised, and while the BARDA contract has been renewed or extended historically, there
is no guarantee that the BARDA contract will be renewed or extended in the future, and there are no assurances that we will achieve the
contract milestones and decision gates on a timely basis, or at all. As the BARDA contract is significant to us and is our largest single
source of revenue, a decision by BARDA not to exercise further options would have a material adverse impact on our business, prospects,
results of operations and financial condition.

 Under the terms of the BARDA
contract, the U.S. government has the right to terminate the contract for convenience or to terminate for default if we fail to
meet our obligations as set forth in the contract. While the government has a right to terminate the BARDA contract for convenience,
we believe that the government generally does not terminate funding awards unless there is reason, such as the funding contract becomes
too costly, the agency seeks to avoid a dispute with another branch of government, or the agency decides to restructure its contractual
arrangements and perform work in-house. We believe it is unlikely that BARDA will terminate its contract with us. However, there can
be no guarantee that the BARDA contract will not be terminated.

 If BARDA were to terminate
its contract with us, we may be entitled to settlement costs for payment for work already performed, but not yet paid, including costs
incurred in anticipation of performance, and costs arising from termination and settling the termination, for example. However, as the
BARDA contract is critical to our business at this time, non-extension or termination of the BARDA contract would have a material adverse
impact on our business, prospects, results of operations and financial condition.

 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 and has been extended through the second quarter of 2025. We were previously awarded a $1.1 million, Sequential
Phase II STTR contract by the DHA within the U.S. Department of Defense, which is paid to us monthly, as well as a STTR Phase I
and initial Phase II contract from the DHA.

 Though the Company has no
reason to believe that it will not be offered a Phase III contract, and while DHA contracts have been renewed or extended historically,
there is no guarantee that the contract will be extended after the current period or that we will be offered a Phase III contract.
As this contract is a key contract for the Company, non-extension of the contract, or a failure to enter into a new contract, could have
a material adverse impact on the Company's business, prospects, results of operations and financial condition. Under the terms
of the DHA contract, the U.S. government has the right to terminate the contract for convenience or to terminate for default if
we fail to meet our obligations as set forth in the contract.

 We also are party to a Research
Project Award agreement with the Advanced Technology International as Consortium Manager for MTEC. This agreement extends the DHA
Phase II contract for the development of the handheld device of the DeepView System. Under the terms of this agreement, MTEC will
pay us a firm fixed fee based upon our achievement of certain milestones (such as development of the image technology in the handheld
device, validation of the design and development of a handheld device from the current cart-based system, completion of verification
testing builds, and development of commercialization plan) through April 5, 2025. However, there are no assurances that we will
achieve the contract milestones on a timely basis, or at all. Failure to receive the fee under the contract could have a material adverse
impact on the Company's business, prospects, results of operations and financial condition.

 We may need additional funding to finance
our planned operations and may not be able to raise capital when needed, which could force us to delay clinical trials necessary to market
our products or delay establishment of sales and marketing capabilities or other activities necessary to commercialize our products.

 On December 26, 2023, the Company entered into a Common Stock Purchase
Agreement (the "Purchase Agreement") with B. Riley Principal Capital II, LLC ("B. Riley"), pursuant to which,
upon the terms and subject to the satisfaction of the conditions contained in the Purchase Agreement, the Company have the right to sell
to B. Riley up to $10,000,000 of shares of the Common Stock (subject to certain limitations contained in the Purchase Agreement), from
time to time during the term of the Purchase Agreement. Additionally, On March 20, 2024, the Company entered into the 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 $30,000,000 of its shares of 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 2024,
the Company received $12,500,000 of prepaid advances from Yorkville (the "Pre-Paid Advance") in the form of convertible promissory
notes (the "Convertible Notes").

 Based on our current operating
plan, we believe that our cash and cash equivalents, together with the remaining funding available to us under the Purchase Agreement,
the BARDA contract, the MTEC Agreement, and the Yorkville financing will be sufficient to meet our capital requirements and fund our
operations through at least the next 12 months from the release date of the consolidated financial statements included in this annual
report. However, we have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital
resources sooner than we currently expect. Changing circumstances could cause us to consume capital significantly faster than we currently
anticipate, and we may need to raise capital sooner or in greater amounts than currently expected because of circumstances beyond our
control.

 We may require additional
capital in the future to fund our operating expenses and to further our product development efforts, including seeking the necessary
regulatory clearances, approvals, De Novo classifications, or certifications (each which cannot be guaranteed and may take longer than
planned) for our DeepView System and growing our sales and marketing organization. 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 plan. Our future funding requirements will depend on many factors, including:

 the cost of our research
 and development activities;

 the scope, rate of progress
 and cost of our clinical studies;

 the cost and timing of
 additional regulatory clearances, approvals, De Novo classifications, or certifications;

 the degree and rate of
 market acceptance of our DeepView System, assuming we receive the necessary regulatory clearances, approvals, De Novo classifications,
 or certifications (each of which cannot be guaranteed and may take longer than planned);

 the scope and timing of
 investment in our sales force and expansion of our commercial organization;

 the costs associated with
 manufacturing our DeepView System at increased production levels;

 the terms and timing of
 any collaborative, licensing and other arrangements that we may establish;

 the costs associated with
 any product recall that may occur;

 the costs of attaining,
 defending and enforcing our intellectual property rights;

 the emergence of competing
 new products or technologies or other adverse market developments; and

 the impact on our business
 from the global COVID-19 pandemic or any other pandemic, epidemic or outbreak of an infectious disease.

 We may seek to raise additional
capital through equity offerings or debt financings and such additional financing may not be available to us on acceptable terms, or
at all. In addition, any additional equity or debt financing that we raise may contain terms that are not favorable to us or our stockholders.
For example, if we raise funds by issuing equity or equity-linked securities, the issuance of such securities could result in dilution
to our stockholders. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of
our common stock. In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the
market price of our common stock to decline, and the price per share at which we sell additional shares of our common stock, or securities
convertible into or exercisable or exchangeable for shares of our common stock, in future transactions may be higher or lower than the
price per share paid by investors in this offering.

 In addition, the terms of
debt securities issued or borrowings could impose significant restrictions on our operations including restrictive covenants, such as
limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to pay dividends, limitations
on our ability to acquire or license intellectual property rights, and other operating restrictions that could adversely affect our ability
to conduct our business. In the event that we enter into collaborations or licensing arrangements to raise capital, we may be required
to accept unfavorable terms, such as relinquishment or licensing of certain rights related to our products or technologies that we otherwise
would seek to develop or commercialize ourselves. In addition, we may be forced to work with a partner, which could lower the economic
value of our programs to us.

 If we are unable to obtain
adequate financing on terms satisfactory to us when we require it, we may be required to terminate or delay the development of our DeepView
technology or any future products, delay clinical trials necessary to market our products, or delay establishment of sales and marketing
capabilities or other activities necessary to commercialize our products. If this were to occur, our ability to grow and support our
business and to respond to market challenges could be significantly limited, which could have a material adverse effect on our business,
financial condition and results of operations.

 Risks Related to Product Development and Regulatory
Review

 The regulatory review process is expensive,
time-consuming, and uncertain and we may be unable to obtain clearance, approval, De Novo classification, or certification for our DeepView
technology.

 The research, design, testing,
manufacturing, labeling, selling, marketing and distribution of medical devices are subject to extensive regulation by country-specific
regulatory authorities, which regulations differ from country to country.

 There is no guarantee that
our DeepView System or any future products will receive the requisite market authorization, approval, or De Novo classification for clinical
testing, manufacturing, or marketing. While preliminary results have been encouraging and indicative of the potential performance of
our DeepView System, data already obtained, or obtained in the future, from clinical studies do not necessarily predict the results that
will be obtained from later clinical studies. We will be required to incur significant costs in obtaining market authorization, or De
Novo classifications for our DeepView System.

 In the United States,
before we can market a new medical device, or a new use of, new claim for or significant modification to an existing product, we must
first receive 510(k) clearance, approval of a pre-market approval application ("PMA") or be granted De Novo
classification pursuant to the Federal Food, Drug, and Cosmetic Act (the "FDCA"), unless an exemption applies. Oftentimes
the length of the time and expense are prohibitively long and high, respectively, and it may be impractical or impossible to pursue the
PMA regulatory route should our De Novo request be denied.

 In order to sell our device
in member states of the European Union ("EU"), the device must also comply with the general safety and performance requirements
of the EU Medical Devices Regulation (Regulation (EU) No 2017/745). Compliance with these requirements is a prerequisite to be able to
affix the CE mark to our device, without which it cannot be sold or marketed in the EU. All medical devices placed on the market
in the EU must meet the general safety and performance requirements laid down in Annex I to the EU Medical Devices Regulation including
the requirement that a medical device must be designed and manufactured in such a way that, during normal conditions of use, it is suitable
for its intended purpose. Medical devices must be safe and effective and must not compromise the clinical condition or safety of patients,
or the safety and health of users and — where applicable — other persons; provided that any risks
which may be associated with their use constitute acceptable risks when weighed against the benefits to the patient and are compatible
with a high level of protection of health and safety, taking into account the generally acknowledged state of the art.

 In the United Kingdom ("UK"),
post-Brexit, medical devices are regulated under the Medical Devices Regulations 2002 ("MDR 2002"), which implement the three
EU Medical Devices Directives into UK law. The UK decided it would not give effect to the EU Medical Devices Regulation. Instead, the
UK government and the Medical Devices and Healthcare Regulatory Authority ("MHRA") are currently considering amending the
UK MDR. The device must comply with the MDR 2022 and any future UK MDR amendment in order to be sold of marketed in the UK.

 Furthermore, market authorization,
approval, De Novo classification, or certification by any regulatory authority does not ensure marketing authorization or similar registration,
clearance, approval, or certification by regulatory authorities in other countries. However, failure to obtain or delay in obtaining
authorization, registration, clearance, approval, or certification in one or more regulatory jurisdictions may have a negative effect
on the regulatory process in others.

 We may experience significant delays in
completing clinical trials, which could prevent or significantly delay our targeted product launch timeframe and impair our viability
and business plan.

 The completion of any clinical
trials of our DeepView System, or other studies that we may be required to undertake in the future, could be delayed, suspended or terminated
for several reasons, including:

 we may fail to or be unable
 to conduct the clinical trials in accordance with regulatory requirements;

 selection and onboarding
 of clinical sites or a Contract Research Organization ("CRO") may take longer than anticipated;

 sites participating in
 a clinical trial may drop out of the trial, which may require us to engage new sites for an expansion of the number of sites that
 are permitted to be involved in the trial;

 patients may not enroll
 in, remain in or complete, clinical trials at the rates we expect;

 adverse events or unexpected
 developments may occur that affect the patients' safety;

 supply issues may prevent
 us from continuing to use our investigational devices in clinical evaluations; and

 clinical investigators
 may not perform our clinical trials on our anticipated schedule or consistent with the clinical trial protocol and good clinical
 practices.

 In addition, the FDA, applicable
foreign regulatory entities or notified body can delay, limit or deny clearance, approval, De Novo classification, with regards to the
US, or certification of a device for many reasons, including:

 our inability to demonstrate
 to the satisfaction of the FDA or the applicable regulatory entity or notified body that our products are (i) substantially equivalent,
 in the case of a 510(k) clearance, (ii) safe or effective for their intended uses, in the case of a PMA, or (iii) that general
 controls alone or general and special controls together provide reasonable assurance of safety and effectiveness for the intended
 use, in the case of De Novo classification;

 the disagreement of the
 FDA or the applicable foreign regulatory body with the design or implementation of our clinical trials (including, for purposes of
 the EU, clinical investigations) or the interpretation of data from pre-clinical studies or clinical trials, as applicable and to
 the extent required to support marketing authorization or certification;

 our inability to demonstrate
 that the clinical and other benefits of the device outweigh the risks;

 the manufacturing process
 or facilities we use may not meet applicable requirements;

 unanticipated discovery
 of issues that relate to safety or effectiveness of the device during or after the regulatory review process; and

 the potential for policies
 or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data,
 as applicable, and/or regulatory filings insufficient for market authorization, De Novo classification, or certification.

 If our clinical trials are
delayed, it will take us longer to ultimately launch our DeepView System in the market and generate revenues. Moreover, our development
costs will increase if we have material delays in our clinical trials or if we need to perform more or larger clinical trials than planned.

 If the third parties on which we rely to
conduct our clinical trials, to assist us with pre-clinical development or to prepare our regulatory submissions do not perform as contractually
required or expected, we may not be able to obtain market authorization, De Novo classification, certification or other required regulatory
authorizations or certifications to commercialize our products.

 We do not have the
ability to independently conduct all of our pre-clinical and clinical trials for our DeepView System and to prepare the associated
regulatory submissions without the participation of third-party research hospitals, burn and wound centers. We must rely on third
parties such as CROs, medical institutions and clinical investigators to conduct such trials. If these third parties do not
successfully carry-out their contractual duties or comply with regulatory obligations, including compliance with Good Clinical
Practice ("GCP") requirements or meet expected deadlines, if these third parties need to be replaced, if the quality or
accuracy of the data they obtain is compromised due to a failure to adhere to our clinical protocols or regulatory requirements or
for other reasons, or if the prepared regulatory submission does not meet the regulatory agencies' expectations or
requirements, our pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated.
Furthermore, our third-party clinical trial investigators may be delayed in conducting our clinical trials for reasons outside of
their control, including the COVID-19 pandemic, or another pandemic, epidemic or outbreak of an infectious disease. In the event of
such extensions, delays, suspensions or terminations, we may not be able to obtain market authorization, De Novo classification,
certification or other required regulatory authorizations or certifications for, or successfully commercialize, our DeepView System
on a timely basis, if at all, and our business, financial condition and results of operations may be adversely affected.

 New legislation and regulations and legislative
and regulatory reforms may make it more difficult and costly for us to obtain regulatory clearance, approval, De Novo classification,
or certification of our DeepView System, or to manufacture, market and distribute our device after clearance, approval, or classification
is obtained.

 From time to time, legislation
is drafted and introduced in the legislative bodies of the countries in which we intend to sell our DeepView System, assuming we receive
the necessary market authorization. In addition, regulations and guidance are often revised or reinterpreted by the applicable competent
authority in ways that may significantly affect our business and our products. For example, it is unclear the extent to which any proposals,
if adopted, could impose additional regulatory requirements on us that could delay our ability to obtain new 510(k) clearances,
increase the costs of compliance, or restrict our ability to maintain our current clearances, or otherwise create competition that may
negatively affect our business.

 The FDA regulations and
guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business. Any new statutes or regulations
or revisions or reinterpretations of existing statutes or regulations may impose additional costs or lengthen review times or make it
more difficult to obtain market authorization for our DeepView System. We cannot determine what effect changes in regulations, statutes,
legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business. Such changes could, among other
things, require: additional testing prior to obtaining marketing authorization; changes to manufacturing methods; recall, replacement
or discontinuance of our products; or additional record keeping.

 The FDA's and other
regulatory authorities' policies may change and additional government regulations may be promulgated that could prevent, limit
or delay regulatory clearance, approval, or De Novo classification of our DeepView System. We cannot predict the likelihood, nature or
extent of government regulation that may arise from future legislation or administrative action, either in the United States or
abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if
we are not able to maintain regulatory compliance, we may lose any marketing clearance, approval, or De Novo classification that we may
have obtained and we may not achieve or sustain profitability.

 In addition, the landscape
concerning medical devices in the EU has evolved in recent years.

 In the United Kingdom ("UK"),
post-Brexit, medical devices are regulated under the Medical Devices Regulations 2002 ("MDR 2002"), which implement the three
EU Medical Devices Directives into UK law. The UK decided it would not give effect to the EU Medical Devices Regulation. Instead, the
UK government and the Medical Devices and Healthcare Regulatory Authority ("MHRA") are currently considering amending the
UK MDR. This new regulatory framework for medical devices in the UK is expected to become applicable as from July 2024. It
is not clear to what extent the future UK regulatory framework will align with the EU Medical Devices Regulation, which may lead to duplicative
or divergent requirements.

 Any new regulations or revisions
or reinterpretations of existing regulations may impose additional costs or lengthen review times of future products or limit our ability
to sell to clinicians. It is impossible to predict whether legislative changes will be enacted or if regulations, guidance or interpretations
will change and what the impact of such changes, if any, may be.

 Disruptions at the FDA and foreign regulatory
agencies caused by funding shortages or global health concerns could hinder their ability to hire and retain key leadership and other
personnel, or otherwise prevent new products and services from being developed or commercialized in a timely manner, which could negatively
impact our business.

 The ability of the FDA,
foreign regulatory agencies and the notified body, to review and clear, approve, certify, or grant De Novo classifications for new
products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key
personnel and accept the payment of user fees and statutory, regulatory and policy changes. Average review times at these
organizations have fluctuated in recent years as a result. In addition, government funding of other government agencies that
oversee clearances and approvals and that fund research and development activities is subject to the political process, which is
inherently fluid and unpredictable.

 Disruptions at these agencies
and bodies may slow the time necessary for new devices to be reviewed and/or cleared, approved or certified, which would adversely affect
our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory
agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. It is possible that new COVID-19
variants or a new public health emergency will emerge in the future, further interrupting and affecting the agency's ability to
carry out inspections in a timely manner. In such cases, regulatory authorities and certification bodies outside the United States
may adopt similar restrictions, inspection priorities, or other policy measures in response to the COVID-19 or any other public health
emergency or revert to relying on remote interactive evaluations, record requests or information from trusted regulatory partners if
on-site inspections are not feasible.

 In addition, the FDA reallocated
its personnel and resources during the COVID-19 pandemic, including for reviewing applications for emergency use authorizations for certain
medical devices that may be helpful in responding to the pandemic. If a prolonged government shutdown occurs in the future, or if future
global health concerns prevent the FDA, and other foreign regulatory authorities and certification bodies from conducting their regular
inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA, and other regulatory authorities
and certification bodies to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

 For instance, in the EU,
notified bodies must be officially designated to certify products and services in accordance with the EU Medical Devices Regulation.
While several notified bodies have been designated, the COVID-19 pandemic significantly slowed down their designation process and the
current designated notified bodies are facing a large amount of requests with the new regulation, resulting in longer notified body review
times. This situation could impact our ability to grow our business in the EU and EEA.

 Risks Related to Ongoing Government Regulation

 Even if we receive market authorization,
or even if the FDA grants our De Novo classification request, we will continue to be subject to extensive ongoing regulation. If we fail
to maintain necessary clearances, approvals, classifications, or certifications from the FDA, other applicable foreign regulatory authorities
and notified bodies; or if there are state, federal or international level regulatory changes, our commercial operations could be harmed.

 If the FDA grants our market
authorization or grants the De Novo classification for our DeepView technology, our technology will be subject to extensive ongoing regulation
in the United States by the FDA and by corresponding state regulatory agencies and authorities. It will also be subject to extensive
regulation by EU institutions as well as EU member states' regulatory authorities and notified bodies and the regulatory bodies
of any other countries in which we receive the necessary regulatory approvals. These regulations pertain to the design, development,
evaluation, manufacturing, testing, labeling, marketing, sale, advertising, promotion, distribution, shipping and servicing of products.
These entities regulate and oversee record-keeping procedures, safety alerts, recalls, market withdrawals, removals and field corrective
actions, post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to reoccur,
could lead to death or serious injury, and product import and export.

 The regulations to which
we will be subject are complex and have become more stringent over time. Regulatory changes could result in restrictions on our ability
to carry on or expand our operations, higher than anticipated costs or lower than anticipated sales. Such regulations, and interpretations
thereof, may limit our ability to market or prevent us from marketing our products. Further, the FDA, foreign regulatory agencies and
U.S. state agencies have broad enforcement powers, and our failure to comply with state, federal and international regulations could
lead to enforcement actions such as warning letters or untitled letters; the imposition of injunctions, suspensions or loss of regulatory
clearance or approvals; product recalls; safety alerts; termination of distribution; product seizures; consent decrees; civil penalties;
or import detentions, import refusals, or import alerts. In the most extreme cases, criminal sanctions, administrative sanctions (e.g.,
seizure), injunctions, or closure of our manufacturing facilities are possible.

 Even after clearance, approval,
or De Novo classification, under the FDCA and FDA regulations, the scope of marketing claims we can make about cleared or approved devices,
or devices that were granted De Novo classification is limited to the indications that were previously reviewed and permitted by the
FDA. Other countries also have similar laws and regulations restricting marketing to such indications. If a regulatory agency determines
that any of our marketing claims exceed the scope of permitted indications in a particular country, we may be subject to enforcement
action and/or we may be required to cease making the challenged marketing claims, issue corrective communications, pay fines or stop
selling products until the incorrect claims have been corrected.

 Sales of our DeepView System
outside the United States, if approved, will be subject to foreign regulatory requirements that vary widely from country to country,
and such regulatory requirements have been changing and increasing in some countries. Complying with international regulatory requirements
can be an expensive and time-consuming process. We may be unable to obtain or maintain regulatory clearances, approvals, De Novo classifications,
or certifications in these countries. We may incur significant costs in attempting to obtain, renew, or modify foreign regulatory clearances
or approvals, De Novo classifications, or certifications. If we experience difficulties in receiving, maintaining, renewing or modifying
necessary clearances, approvals, De Novo classifications, or certifications to market our products outside the United States, or
if we fail to receive, renew, modify or maintain those clearances, approvals, De Novo classifications, or certifications, we may be unable
to market our products or enhancements in certain international markets effectively, or at all.

 The DeepView System requires a De Novo
classification.

 In the United States,
since the DeepView System utilizes a novel approach to wound healing prediction that has not been previously classified by the FDA and
it is not substantially equivalent to any existing device on the market, it requires a De Novo classification. If we wish to market modified
versions of DeepView System, we will need to make this determination before doing so and document our conclusion regarding the necessity
of further regulatory review. The FDA may review such determinations and may not agree with our decisions regarding whether new 510(k),
PMA, or De Novo classifications are necessary. If we are found to be marketing our products for off-label uses or indications for use
that have not received the requisite clearances, approvals, De Novo classifications, or certifications, we might become subject to FDA
and other competent authorities' enforcement action or have other resulting liability. In addition, if the FDA or the competent
authorities in the EU member states and EEA countries determine that our promotional materials or training constitute promotion of a
use which is unapproved, not cleared, not covered by the De Novo classification order, not covered by a CE mark, or not in compliance
with other regulatory authorities' requirements, they could request that we modify our training or promotional materials or subject
us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, an injunction, product seizures,
consent decrees, civil fines, criminal penalties, import detention, import refusals, or import alerts.

 If our DeepView System is found to cause
or contribute to adverse medical events, this could interrupt, delay, or prevent its continued development, or negatively affect the
market authorization, De Novo classification, or certification. We may be required to report them to the FDA or comparable regulatory
authority, and if we fail to do so, we could be subject to sanctions that could harm our reputation, business, financial condition and
results of operations, and become subject to further administrative and regulatory enforcement actions. The discovery of serious safety
issues with our DeepView System, or a recall of our device either voluntarily or at the direction of the FDA or another governmental
authority, could have a negative impact on us.

 If our DeepView System
is approved for commercialization, we will be subject to the FDA's medical device reporting regulations and similar foreign
regulations, which require us to report to the FDA or comparable regulatory authorities when we receive or become aware of
information that reasonably suggests that one or more of our products may have caused or contributed to a death or serious injury or
malfunctioned in a way that, if the malfunction were to recur, it could cause or contribute to a death or serious injury. For
investigational devices in clinical evaluation, investigators are required to submit a report of an unanticipated adverse device
effect ("UADE") to the sponsor within 10 working days after becoming aware of the UADE. We, as the sponsor,
must evaluate the UADE and report the result of the investigation to FDA, institutional review boards, and all participating
investigators within 10 working days of receiving the notice of the UADE. In certain cases, we may be required to
terminate the clinical investigation. The timing of our obligation to report is triggered by the date when we receive the notice or
when we otherwise become aware of the event, as well as the nature of the event. We may fail to report within the prescribed
timeframe events of which we become aware. The investigator in the clinical evaluation may not be aware of the reporting or
notification requirements or may otherwise fail to report a UADE. We may also fail to recognize that a reportable event has
occurred, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in
time from the use of the product. If we fail to comply with our reporting obligations, the FDA or comparable regulatory authorities
could act, including warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary
penalties, delay or termination of clinical investigations, revocation of our marketing authorizations, seizure of our products or
delay in obtaining marketing authorizations or certifications for our product candidates.

 The FDA and in certain cases,
equivalent foreign regulatory bodies, have the authority to require the recall of products in the event of material deficiencies or defects
in design or manufacture of a product or in the event that a product poses an unacceptable risk to health. The FDA's authority
to require a recall must be based on a finding that there is reasonable probability that the device could cause serious injury or death.
We may also choose to voluntarily recall a product if we determine that such reasonable probability exists, or otherwise, if any material
deficiency is found. Such recalls, whether government-mandated or voluntary, could occur as a result of an unacceptable risk to health,
component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects, or other deficiencies or
failures to comply with applicable regulations. In addition, for investigational devices in development, non-compliance with the above
or related requirements may have a negative effect on our application process, and the FDA or other foreign regulatory bodies may delay
or refuse to clear, approve, issue the De Novo classification request, or issue a certification for our device.

 Depending on the corrective
action we take to redress a product's deficiencies or defects, the FDA or foreign regulatory authorities or bodies may require,
or we may decide, that we need to obtain new clearances, approvals, De Novo classifications, or certifications for the device before
we may market or distribute the corrected device. Seeking such clearances, approvals, De Novo classifications, or certifications may
delay our ability to replace the recalled devices in a timely manner. Moreover, if we do not adequately address problems associated with
our devices, we may face additional regulatory enforcement action, including FDA or foreign regulatory bodies' warning letters,
product seizures, injunctions, administrative penalties or civil or criminal fines.

 Quality problems and product liability
claims could lead to recalls or safety alerts, reputational harm, adverse verdicts or costly settlements, and could have a material adverse
effect on our business, results of operations, financial condition, and cash flows.

 Quality is extremely important
to us and our customers due to the impact on patients, and the serious and potentially costly consequences of product failure. Our business
exposes us to potential product liability risks that are inherent in the design, manufacture, and marketing of medical devices. Once
commercialized, many of our products will be used in settings with seriously ill patients where the devices' failure may cause
serious adverse effects on the patients. Component failures, manufacturing non-conformances, design defects, off-label or unapproved
use, insufficient training of healthcare professionals, or inadequate disclosure of product-related risks or product-related information
with respect to our products, if they were to occur, could result in an unsafe condition or injury to a patient. These problems could
lead to recall of, or issuance of a safety alert relating to, our products, and could result in product liability claims and lawsuits,
including class actions. If such problems occur during clinical investigations, FDA or other foreign regulatory agencies may refuse to
grant market authorization or a De Novo classification request, or issue certifications for our products. In addition, negative publicity
resulting from such problems may negatively affect or seriously hinder the sales of our products even after market authorization, De
Novo classification, or certification. Any of the foregoing problems, including future product liability claims or recalls, regardless
of their ultimate outcome, could harm our reputation and have a material adverse effect on our business, results of operations, financial
condition and cash flows.

 The FDA and other regulatory enforcement
agencies actively enforce the laws and regulations prohibiting the promotion of off-label or unapproved uses. If we are found to have
improperly promoted off-label or unapproved uses, we may become subject to significant liability.

 If we decide to market
any of our products, our marketing practices must stay within the scope of the permitted claims under the market authorization or De
Novo classification order that we may receive in the future. The FDA and other regulatory enforcement agencies strictly regulate the
promotional claims that may be made about medical devices. While we cannot restrict or dictate the healthcare professionals'
use of our devices, we cannot market for any off-label uses, or any uses that FDA has not reviewed and permitted. The use of the
DeepView System for indications other than those for which FDA cleared, approved, or granted De Novo classification requests, or
otherwise were certified by a notified body or foreign regulatory enforcement authority, may not effectively diagnose conditions not
referenced in product indications, which could harm our reputation in the marketplace among clinicians. If we are found to have
promoted such off-label uses or unapproved uses, we may become subject to significant government fines and other related liability.
For example, if the FDA or any foreign regulatory body determines that our promotional materials or training constitute promotion of
an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement
actions, including the issuance or imposition of an untitled letter, which is used for violators that do not necessitate a warning
letter, injunction, seizure, civil fine, or criminal penalties, among others. It is also possible that other federal, state or
foreign enforcement authorities might take action under other regulatory authority, such as false claims laws, if they consider our
business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not
limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation in government
healthcare programs and the curtailment of our operations. The federal government has levied large civil and criminal fines against
companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion or promotion of
unapproved uses. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified
promotional conduct is changed or curtailed.

 In addition, clinicians
may misuse our products or use improper techniques if they are not adequately trained, potentially leading to misdiagnosis, injury, and
an increased risk of product liability. If our device is misused or used with improper technique, we may become subject to costly litigation
by clinicians or their patients. Even if we ultimately prevail, product liability claims could divert management's attention from
our core business and be expensive to defend. If we do not prevail, such claims may result in sizeable damages awards against us that
may not be covered by insurance.

 We must comply with anti-kickback, fraud
and abuse, false claims, transparency, and other healthcare laws and regulations.

 If our DeepView System is
approved for commercialization, our future operations will be subject to various federal and state healthcare laws and regulations. These
laws will affect our sales, marketing and other promotional activities by limiting the kinds of financial arrangements, including sales
programs, we may develop with hospitals, clinicians or other potential purchasers or users of medical devices and services. They also
impose additional administrative and compliance burdens on us. In particular, these laws will influence, among other things, how we structure
our sales, placement and rental offerings, including discount practices, clinician support, education and training programs and clinician
consulting and other service arrangements. The laws that may affect our practices and arrangements include, but are not limited to:

 the U.S. federal Anti-Kickback
 Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or
 paying any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral
 of an individual for, or the purchase, lease, order, or arranging for or recommending the purchase, lease or order of, any good or
 service, for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid. The
 term "remuneration" has been broadly interpreted to include anything of value, and the government can establish a violation
 of the Anti-Kickback Statute without proving that a person or entity had actual knowledge of, or a specific intent to violate, the
 law. The Anti-Kickback Statute is subject to evolving interpretations and has been applied by government enforcement officials to
 a number of common business arrangements in the medical device industry. There are a number of statutory exceptions and regulatory
 safe harbors protecting some common activities from prosecution; however, those exceptions and safe harbors are drawn narrowly, and
 there is no exception or safe harbor for many common business activities. Failure to meet all of the requirements of a particular
 statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute, but the legality
 of the arrangement will be evaluated on a case-by-case basis based on the totality of the facts and circumstances. Practices that
 involve remuneration to those who prescribe, purchase, or recommend medical device products, including discounts, or engaging individuals
 as speakers, consultants, or advisors, may be subject to scrutiny if they do not fit squarely within an exception or safe harbor.
 Our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability;

 the U.S. federal civil
 False Claims Act, which prohibits any person from, among other things, knowingly presenting, or causing to be presented false or
 fraudulent claims for payment of government funds; knowingly making, using or causing to be made or used, a false record or statement
 material to an obligation to pay money to the government or knowingly and improperly avoiding, decreasing or concealing an obligation
 to pay money to the U.S. federal government. In addition, any claims submitted as a result of a violation of the federal Anti-Kickback
 Statute constitute false claims and are subject to enforcement under the False Claims Act. Actions under the False Claims Act may
 be brought by the government or as a qui tam action by a private individual in the name of the government and to share in any monetary
 recovery. Qui tam actions are filed under seal and impose a mandatory duty on the U.S. Department of Justice to investigate
 such allegations. False Claims Act liability is potentially significant in the healthcare industry because the statute provides for
 treble damages and significant mandatory penalties (adjusted annually for inflation) per false claim or statement for violations.
 Because of the potential for large monetary exposure, healthcare companies often resolve allegations without admissions of liability
 for significant and sometimes large settlement amounts to avoid the uncertainty of treble damages and per claim penalties that may
 be awarded in litigation proceedings. Many device manufacturers have resolved investigations of alleged improper activities, including
 causing false claims to be submitted as a result of the marketing of their products for unapproved and thus non reimbursable uses,
 and other interactions with prescribers and others including those that may have affected their billing or coding practices and submission
 to the federal government. Moreover, to avoid the risk of exclusion from federal healthcare programs as a result of a False Claims
 Act settlement, companies may enter into corporate integrity agreements with the government, which may impose substantial costs on
 companies to ensure compliance. There are also criminal penalties, including imprisonment and criminal fines, for making or presenting
 a false or fictitious or fraudulent claim or statement to the federal government;

 criminal healthcare statutes
 that were added by the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") and its implementing
 regulations, which impose criminal and civil liability for, among other things, knowingly and willfully executing, or attempting
 to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up
 a material fact or making any materially false statement, in connection with the delivery of, or payment for healthcare benefits,
 items or services by a healthcare benefit program, which includes both government and privately funded benefits programs; similar
 to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific
 intent to violate them in order to have committed a violation;

 the Eliminating Kickbacks
 in Recovery Act ("EKRA"), 18 U.S.C. § 220, makes it a federal crime for anyone, with respect to services covered
 by a health care benefit program, to knowingly and willfully solicit or receive any remuneration in return for referring a patient
 or patronage to a recovery home, clinical treatment facility, or laboratory; or to pay or offer any remuneration to induce a referral
 of an individual to a recovery home, clinical treatment facility, or laboratory; or in exchange for an individual using the services
 of that recovery home, clinical treatment facility, or laboratory. EKRA applies more broadly than the federal Anti-Kickback Statute,
 as "health care benefit program" includes not only state and federal health care programs, but also private health plans.
 EKRA also has fewer statutory safe harbors and no regulatory state harbors. Violations of this provision may result in substantial
 fines and/or imprisonment. Additional violations that may be imposed include sanctions, licensure revocations, or the exclusion from
 participating in governmental healthcare programs;

 the Physician Payments
 Sunshine Act (the "Sunshine Act") and its implementing regulations, which requires certain manufacturers of drugs, devices,
 biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children's Health Insurance Program to
 report annually to the CMS information related to certain payments made in the preceding calendar year and other transfers of value
 to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family
 members. Beginning January 1, 2022, manufacturers will also be required to report payments and other transfers of value made
 during the prior calendar year to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists,
 and anesthesiology assistants; and

 foreign and state laws
 and regulations, including state payment reporting, anti-kickback and false claims laws, that may apply to items or services reimbursed
 by any third-party payor, including private insurers; foreign and state laws that require medical device companies to comply with
 the medical device industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal
 government and other national governments, or otherwise restrict payments that may be made to healthcare providers and other potential
 referral sources; and foreign and state laws and regulations that require drug and device manufacturers to report information related
 to payments and other transfers of value to dental practitioners and other healthcare providers or marketing expenditures, many of
 which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

 The scope and enforcement
of these laws is substantial and subject to rapid change. The shifting compliance environment and the need to build and maintain robust
compliance programs, systems, and processes to comply with different compliance and/or reporting requirements in multiple jurisdictions
increase the possibility that we may run afoul of one or more of the requirements or that federal or state regulatory authorities might
challenge our current or future activities under these laws. Additionally, we cannot predict the impact of any changes in these laws,
whether or not retroactive. Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions
or safe harbors, it is possible that some of our future activities could be subject to challenge under one or more of such laws. Any
government investigation, even if we are able to successfully defend against it, will require the expenditure of significant resources,
is likely to generate negative publicity, harm our reputation and potentially our financial condition and divert the attention of our
management. Moreover, any investigation into our practices could cause adverse publicity and require a costly and time-consuming response.
If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may
be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment of individuals, exclusion from government
funded healthcare programs, such as Medicare and Medicaid, imposition of compliance obligations and monitoring, and the curtailment or
restructuring of our operations. Any of the foregoing consequences could seriously harm our business and our financial results.

 Healthcare reform measures could hinder
or prevent the commercial success of our DeepView System.

 In the United States,
there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system in
ways that may harm our future revenues and profitability and the demand for our DeepView System, if it receives the necessary market
authorization. Federal and state lawmakers regularly propose and, at times, enact legislation that would result in significant changes
to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. Current and future
legislative and regulatory proposals to further reform healthcare or reduce healthcare costs may limit coverage of or lower reimbursement
for the procedures associated with the use of our DeepView System. The cost containment measures that payors and providers are instituting
and the effect of any healthcare reform initiative implemented in the future could impact our revenue from the sale of our DeepView System.

 The continuing efforts of
the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of
healthcare may harm:

 our ability to set a price
 that we believe is fair for our DeepView System;

 our ability to generate
 revenue and achieve or maintain profitability; and

 the availability of capital.

 We cannot predict what other
laws and regulations will ultimately be enacted and implemented at the federal or state level or the effect of any future legislation
or regulation in the United States on our business, financial condition, prospects and results of operations. Future changes in
healthcare policy could increase our costs and subject us to additional requirements that may interrupt commercialization of our current
and future solutions, decrease our revenue and impact sales of and pricing for our current and future products.

 If our manufacturers fail to comply with
the regulatory quality system regulations or any applicable equivalent regulations, our proposed operations could be interrupted, and
our operating results would suffer.

 We currently outsource all
of our manufacturing to a contract manufacturer and as such we are not in direct control of the manufacture of our products and are,
therefore, exposed to the risk of poor product quality, non-adherence to applicable standards, disruptions in supply chain, or other
matters.

 Our third-party manufacturers
and suppliers will be required, to the extent of applicable regulation, to follow the quality system regulations of each jurisdiction
in which we will seek to market our products and also will be subject to the regulations of these jurisdictions regarding the manufacturing
processes. If our manufacturers or suppliers are found to be in significant non-compliance or fail to take satisfactory corrective action
in response to adverse regulatory findings in this regard, regulatory agencies could take enforcement actions against such manufacturers
or suppliers, which could impair or prevent our ability to produce our products in a cost-effective and timely manner in order to meet
customers' demands. Accordingly, our operating results would suffer.

 In order to mitigate these
risks, we perform regularly scheduled visits with our contract manufacturer and routinely inspect the quality and performance of the
device in accordance with federally mandated standards and certification standards of the International Organization for Standardization
("ISO"). Our current contract manufacturer, Cobalt Product Solutions, is located within a short driving distance from our
headquarters and allows our employees to have hands-on interaction and timely inspections of the device. However, a future pandemic,
epidemic or other infectious disease outbreak could hinder or prevent continued hands-on and timely inspections of the device and the
facilities.

 Actual or perceived failure to comply with
data protection, privacy and security laws, regulations, standards and other requirements could negatively affect our business, financial
condition or results of operations.

 We may be subject to federal,
state, and foreign data protection laws and regulations ( i.e., laws and regulations that address privacy and data security). In
the United States, numerous federal and state laws and regulations, including data breach notification laws, health information
privacy laws, and consumer protection laws and regulations that govern the collection, processing, use, disclosure, and protection of
health-related and other personal information could apply to our operations or the operations of our partners. For example, HIPAA, as
amended by the Health Information Technology for Economic and Clinical Health Act of 2009 ("HITECH"), and the regulations
implemented thereunder, or collectively, HIPAA, imposes obligations on "covered entities," including certain health care
providers, health plans, and health care clearinghouses, and their respective "business associates" that create, receive,
maintain or transmit individually identifiable health information ("PHI") for or on behalf of a covered entity, as well as
their covered subcontractors with respect to safeguarding the privacy, security and transmission of individually identifiable health
information. Entities that are found to be in violation of HIPAA, whether as the result of a breach of unsecured PHI, a complaint about
privacy practices, or an audit by HHS may be subject to significant civil, criminal, and administrative fines and penalties and/or additional
reporting and oversight obligations if required to enter into a resolution agreement and corrective action plan with HHS to settle allegations
of HIPAA non-compliance. Depending on the facts and circumstances, we could be subject to penalties if we violate HIPAA.

 Even when HIPAA does not
apply, according to the Federal Trade Commission (the "FTC"), failing to take appropriate steps to keep consumers'
personal information secure may constitute unfair acts or practices in or affecting commerce in violation of the Federal Trade Commission
Act. The FTC expects a company's data security measures to be reasonable and appropriate in light of the sensitivity and volume
of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce
vulnerabilities. Individually identifiable health information is considered sensitive data that merits stronger safeguards.

 In addition, certain state
laws govern the privacy and security of health-related and other personal information in certain circumstances, some of which may be
more stringent, broader in scope or offer greater individual rights with respect to protected health information than HIPAA, many of
which may differ from each other, thus, complicating compliance efforts. Such laws and regulations will be subject to interpretation
by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers
and strategic partners. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or
criminal penalties and private litigation.

 Foreign data protection
laws, including the General Data Protection Regulation (the "GDPR"), which went into effect in May 2018, may also apply
to our processing of health-related and other personal data regardless of where the processing in question is carried out. The GDPR imposes
stringent requirements for controllers and processors of personal data of individuals within the European Economic Area (the "EEA").
The GDPR applies to any company established in the EEA as well as to those outside the EEA if they collect, process, and use personal
data in connection with the offering of goods or services to individuals in the EEA or the monitoring of their behavior. The GDPR, together
with national legislation, regulations and guidelines of the EEA countries governing the processing of personal data, impose strict obligations
and restrictions on the ability to collect, analyze and transfer personal data, including health data from clinical trials and adverse
event reporting. In particular, these obligations and restrictions involve the consent of the individuals to whom the personal data relates,
the information provided to the individuals, the transfer of personal data out of the EEA to jurisdictions deemed to have inadequate,
security breach notifications and confidentiality of the personal data and imposition of substantial potential fines for breaches of
the data protection obligations. Companies that must comply with the GDPR face increased compliance obligations and risk, including more
robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to 20 million or
4% of the annual global revenues of the noncompliant company, whichever is greater.

 Among other requirements,
the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection
to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the EU
and the United States remains uncertain. If necessary, we will be required to implement revised standard contractual clauses, in
relation to relevant existing contracts and certain additional contracts and arrangements, within the relevant time frames. There is some
uncertainty around whether the revised clauses can be used for all types of data transfers, particularly whether they can be relied on
for data transfers to non-EEA entities subject to the GDPR.

 Further, from January 1,
2021, companies have to comply with the GDPR and also the UK GDPR, which, together with the amended UK Data Protection Act 2018,
retains the GDPR in UK national law. The UK GDPR mirrors the fines under the GDPR (e.g., fines up to the greater of 20 million
( 17.5 million) or 4% of global turnover). The European Commission has adopted an adequacy decision in favor of the United
Kingdom, enabling data transfers from EU member states to the United Kingdom without additional safeguards. However, the United Kingdom
adequacy decision will automatically expire in June 2025 unless the European Commission re-assesses and renews/extends that decision,
and remains under review by the Commission during this period. The relationship between the UK and the European Union in relation to certain
aspects of data protection law remains unclear, and it is unclear how UK data protection laws and regulations will develop in the medium
to longer term, and how data transfers to and from the UK will be regulated in the long term. These changes will lead to additional costs
and increase our overall risk exposure.

 Implementing mechanisms that
endeavor to ensure compliance with the GDPR and relevant local legislation in EEA countries and the UK, if necessary, may be onerous and
may interrupt or delay our development activities, and adversely affect our business, financial condition, prospects and results of operations.
While we have taken steps to comply with the GDPR where applicable, including by reviewing our security procedures, and entering into
data processing agreements with relevant contractors, our efforts to achieve and remain in compliance may not be fully successful.

 Compliance with applicable
US and foreign data protection, privacy and security laws, regulations and standards could require us to take on more onerous obligations
in our contracts, require us to engage in costly compliance exercises, restrict our ability to collect, use and disclose data, or in some
cases, impact our or our partners' or suppliers' ability to operate in certain jurisdictions. Each of these constantly evolving
laws can also be subject to varying interpretations. Any failure or perceived failure to comply could result in government investigations
and enforcement actions (which could include civil or criminal penalties), fines, private litigation, and/or adverse publicity, and could
negatively affect our operating results and business. Moreover, patients about whom we or our partners obtain information, as well as
the providers who share this information with us, may contractually limit our ability to use and disclose the information. Claims that
we have violated individuals' privacy rights, failed to comply with data protection laws, or breached our contractual obligations,
even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm
our business.

 Our employees, collaborators, independent
contractors and consultants may engage in misconduct or other improper activities, including noncompliance with regulatory standards and
requirements.

 We are exposed to the risk
that our employees, collaborators, independent contractors and consultants may engage in fraudulent or other illegal activity with respect
to our business. Misconduct by these persons could include intentional, reckless and/or negligent conduct or unauthorized activity that
violates:

 FDA
requirements, including those laws requiring the reporting of true, complete and accurate information to the FDA authorities, such as
reporting of UADEs during clinical investigations;

 GCP
that relate to clinical investigations, including financial disclosure, informed consent and protection of human subjects, and requirements
that relate to investigational device exemptions;

 manufacturing
standards, such as FDA's Quality System Regulation ("QSR") requirements;

 federal
and state healthcare fraud and abuse laws and regulations; or

 laws
that require the true, complete and accurate reporting of financial information or data.

 In particular, sales, marketing
and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks,
self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing
and promotion, sales commission, incentive programs and other business arrangements. Misconduct by these parties could also involve individually
identifiable information, including, without limitation, the improper use of information obtained in the course of clinical trials, which
could result in regulatory sanctions and serious harm to our reputation. Any incidents or any other conduct that leads to an employee,
contractor, or other agent, or our Company, receiving an FDA debarment or exclusion by OIG could result in penalties, a loss of business
from third parties, and severe reputational harm.

 It is not always possible
to identify and deter misconduct by our employees and other agents, and the precautions we take to detect and prevent this activity may
not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions
or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us,
and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business,
including the imposition of civil, criminal and administrative penalties; treble damages; monetary fines; disgorgement; imprisonment;
possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs; contractual damages; reputational harm;
diminished profits and future earnings; additional reporting requirements and oversight if we become subject to a corporate integrity
agreement or similar agreement to resolve allegations of non-compliance with these laws; and curtailment of our operations.

 As the regulatory framework for AI technology
evolves, our business, financial condition and results of operation may be adversely affected.

 We utilize artificial intelligence,
including machine learning, in our predictive analytics platforms. In recent years, the use of AI has come under increased regulatory
scrutiny. The regulatory framework for AI technology is evolving and remains uncertain. It is possible that new laws and regulations will
be adopted in the United States and in non-U.S. jurisdictions, where we intend to do business subject to our receipt of the
necessary market authorizations, or that existing laws and regulations may be interpreted in new ways that would affect our operations
and the ways in which we may use our AI technology. Specifically, such laws and regulations may limit our ability to use our AI models
or require us to make changes to our technology that may decrease our operational efficiency, result in an increase to operating costs,
or hinder our ability to provide our services. Further, the cost to comply with such laws, rules or regulations could be significant and
would increase our operating expenses, which could adversely affect our business, financial condition and results of operation.

 Any failure or
perceived failure by us to comply with AI technology-related laws, rules and regulations could result in proceedings or actions
against us by individuals, consumer rights groups, government agencies or others. We could incur significant costs in investigating
and defending such claims and, if found liable, pay significant damages or fines or be required to make changes to our technology
and business. Further, any such proceedings and any subsequent adverse outcomes may subject us to significant negative publicity. If
any of these events were to occur, our business, results of operations and financial condition could be materially adversely
affected.

 We must comply with environmental and occupational
safety laws.

 Our research and development
programs as well as our manufacturing operations involve the controlled use of hazardous materials. Accordingly, we are subject to federal,
state and local laws, as well as the laws of foreign countries, governing the use, handling and disposal of these materials. In the event
of an accident or failure to comply with environmental or occupational safety laws, we could be held liable for resulting damages, and
any such liability could exceed our insurance coverage.

 Risks Related to the Commercialization of our
DeepView System

 If approved, the commercial success of our
DeepView System will depend upon the degree of market acceptance by clinicians.

 Even if we receive the necessary
regulatory approvals for commercialization, there is a risk that our DeepView System will not be accepted over competing products and
that we will be unable to enter the marketplace or compete effectively. If the market for our DeepView System fails to develop or develops
more slowly than expected, our business and operating results would be materially and adversely affected.

 We believe that our DeepView
System will allow clinicians to make more accurate and efficient treatment decisions in the wound care sector. Whether clinicians choose
to use our device over other market alternatives, however, is likely to be based on a determination that, among other things, our system
is effective, safe, cost-effective and represents an acceptable method of diagnosis. Even if we can prove the effectiveness of our DeepView
System through clinical trials, there may not be broad adoption and use of our device and clinicians may elect not to use our DeepView
System for any number of reasons, including:

 lack
of experience with our DeepView System and concerns that we are new to market;

 perceived
liability risk generally associated with the use of our device;

 lack
or perceived lack of (i) sufficient clinical evidence regarding our claims of superior diagnostic assessment and (ii) long-term
data, supporting clinical benefits or the cost-effectiveness of our device over existing diagnostic alternatives;

 the
failure of key opinion leaders to provide recommendations regarding our device, or to assure clinicians and healthcare payors of the
benefits of our device as an attractive alternative to other diagnostic options;

 long-standing
relationships with companies and distributors that sell other diagnostic products for wound care assessment;

 concerns
over the capital investment required to purchase our DeepView System and perform the DeepView procedure;

 lack
of availability of adequate third-party payor coverage or reimbursement;

 competitive
response and negative selling efforts from providers of alternative technologies;

 failure
to obtain favorable coverage decisions from payors, including, but not limited to, Medicare or Medicaid; and

 limitations
or warnings contained in the labeling cleared or approved by the FDA, if approved, or approved or certified by other authorities or bodies.

 We believe that educating
notable industry key opinion leaders and clinicians about the merits and benefits of our DeepView System, including safety, performance,
ease of use and efficiency will be critical for increasing the adoption of our device. Widespread adoption of new medical device technologies
typically follows early adoption and promotion by key opinion and thought leaders in the relevant sectors. We have taken steps to address
this by establishing strong relationships with leading U.S. hospitals around the country. The Company has enrolled subjects in its
validation studies in clinical and academic sites across the US and the EU across well-known medical facilities. The Company has also
signed with international partners, including well-respected institutions in the field. We believe that we will be able to leverage
these relationships to access other institutions and individuals, which should increase awareness and early adoption of our technology
in the United States, UK and EU. U.S. adoption will also benefit from the potential future BARDA funding of technology
placement for burns applications.

 If clinicians do not adopt
our DeepView System for any reason, including those listed above, our ability to execute our growth strategy will be impaired, and it
will negatively affect our business, financial condition, prospects and results of operations. Even if our DeepView System achieves widespread
market acceptance, it may not maintain such level of market acceptance over the long term if competing products or technologies, which
are more cost-effective or received more favorably, are introduced. In addition, our limited commercialization experience makes it difficult
to evaluate our current business and predict our future prospects. We cannot predict how quickly, if at all, clinicians will accept our
DeepView System or, if accepted, how frequently it will be used. Failure to achieve or maintain market acceptance and/or market share
could materially and adversely affect our ability to generate revenue and would have a material adverse effect on our business, financial
condition and results of operations.

 We have no experience in marketing and selling
our DeepView System and we may provide inadequate training, fail to increase our sales and marketing capabilities, or fail to develop
and maintain broad brand awareness in a cost-effective manner.

 We have no experience marketing
and selling our DeepView System. If our DeepView System is approved for commercialization, we expect to rely on a direct sales force to
sell our product in targeted geographic regions and territories. Any failure to grow and maintain our direct sales force could harm our
business. The members of our direct sales force will receive extensive training on our DeepView System and will possess technical expertise
with respect to our technology. The members of our sales force will be at-will employees. The loss of these personnel to competitors,
or otherwise, could materially harm our business. If we are unable to retain our direct sales force personnel or replace them when needed
with individuals of comparable expertise and qualifications, or if we are unable to successfully instill such expertise in replacement
personnel, our product sales, revenues and results of operations could be materially harmed.

 Identifying and recruiting
qualified sales and marketing professionals and training them on our DeepView System, on applicable federal and state laws and regulations,
and on our internal policies and procedures will require significant time, expense and attention. It may take several months or more
before a sales representative is fully trained and productive. Our sales force may subject us to higher fixed costs than those of companies
with competing products that can utilize independent third parties, placing us at a competitive disadvantage. Our business may be harmed
if our efforts to train and grow our sales force do not generate significant product sales and revenue, and our higher fixed costs may
slow our ability to reduce costs in the face of a sudden decline in demand for our technology. Any failure to hire, develop and retain
talented sales personnel, to achieve desired productivity levels in a reasonable period of time or timely reduce fixed costs, could have
a material adverse effect on our business, financial condition and results of operations.

 If our DeepView System is
approved for commercialization, our ability to achieve broader market acceptance of our device will depend, to a significant extent, on
our sales, marketing and educational efforts. We plan to dedicate significant resources to our sales, marketing and educational programs.
Our business may be harmed if these efforts and expenditures do not generate sufficient revenue. In addition, we believe that developing
and maintaining broad awareness of our DeepView System in a cost-effective manner is critical to achieving broad acceptance of our device.
Promotional and educational activities may not generate clinician awareness or generate sufficient revenue, and even if they do, any revenue
generated may not offset the costs and expenses we incur. If we fail to successfully promote our DeepView System in a cost-effective manner,
we may fail to attract or retain the market acceptance necessary to realize a sufficient return on our promotional and educational efforts,
or to achieve broad adoption of our products.

 If we are unable to establish sales, marketing
and distribution capabilities either on our own or in collaboration with third parties, we may not be successful in commercializing our
DeepView System, if approved.

 We do not have any infrastructure
currently in place for the sales, marketing or distribution of our DeepView System, or compliance functions related to such activities,
and the cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. To market and successfully
commercialize our DeepView System, if approved, we must build our sales, distribution, marketing, managerial, compliance, and other non-technical
capabilities or make arrangements with third parties to perform these services. We expect to build a focused sales, distribution and marketing
infrastructure to market the DeepView System, if approved. There are significant expenses and risks involved with establishing our own
sales, marketing and distribution capabilities. Any failure or delay in the development of our internal sales, marketing, distribution
and compliance capabilities could delay any product launch, which would adversely impact the commercialization of our product.

 If third-party payors do not provide coverage
and reimbursement for the use of our DeepView System, our business and prospects will be negatively impacted.

 If we receive the necessary
regulatory approval to commercialize our DeepView System, sales of our DeepView System will depend, in part, on the extent to which the
use of our device is covered and reimbursed by third-party payors, including private insurers and government healthcare programs such
as Medicare Advantage plans and plans purchased through the ACA marketplace. Where third-party payor coverage is not available, patients
will be responsible for all of the costs associated with the use of our device. Even if a third-party payor covers a particular use of
our device, the resulting reimbursement rate may not be adequate to cover a provider's cost to purchase our product or ensure such
purchase is profitable for the provider.

 Third-party payors, whether
governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in certain
countries, no uniform policy of coverage and reimbursement for medical device products and services exists among third-party payors. Therefore,
coverage and reimbursement for medical device products and services can differ significantly from payor to payor. In addition, payors
continually review new technologies for possible coverage and can, without notice, deny coverage for these new products and procedures.
As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific
and clinical support for the use of our device to each payor separately, with no assurance that coverage and adequate reimbursement will
be obtained, or maintained if obtained.

 Further, future coverage
and reimbursement may be subject to increased restrictions, such as additional prior authorization requirements, both in the United States
and in relevant international markets in which we plan to operate, assuming we receive the necessary approvals. Third-party coverage and
reimbursement for procedures using our DeepView System may not be available or adequate in either the United States or international
markets. If demand for our DeepView System is adversely affected by changes in third-party reimbursement policies and decisions, it could
have a material adverse effect on our business, financial condition and results of operations.

 We may not be able to achieve or maintain
satisfactory pricing and margins for our DeepView technology.

 Manufacturers of medical
devices have a history of price competition, and we can give no assurance that we will be able to achieve satisfactory prices for our
DeepView System, if it is approved for commercialization. We will be subject to a number of factors on our ability to maintain satisfactory
pricing and margins, including, but not limited to, payor reimbursement, sale pricing of our DeepView System, wide-spread adoption of
the DeepView System at hospitals, clinics and burn centers, as well as production cost increases from third party suppliers and our contract
manufacturers. For example, any decline in the amount that payors reimburse clinicians for our DeepView System could make it difficult
for them to continue using, or to adopt, our device and could create additional pricing pressure for us. If we are forced to lower the
price we charge for our DeepView System, our revenue and gross margins will decrease, which will adversely affect our ability to invest
in and grow our business. If we are unable to maintain our sales or our prices, including during any international expansion, or if our
costs increase and we are unable to offset such increase with an increase in our prices, our margins could erode. We will be subject to
significant pricing pressure, which could negatively affect our business, financial condition and results of operations.

 We will face competition from many sources,
including larger companies, and we may be unable to compete successfully.

 We operate in a highly competitive
industry that is significantly affected by the introduction of new products and technologies and other activities of industry participants.
Our DeepView System will compete directly against conventional methods of wound care assessment. We will compete with manufacturers and
suppliers of devices, instruments and other supplies used in connection with such conventional diagnoses. The market for these devices
and instruments is highly fragmented with primary supply chains concentrated across a few larger manufacturers and distributors, such
as Cobalt Product Solutions, Sanmina Corporation and Plexus Manufacturing.

 Many of our competitors have
longer, more established operating histories, and significantly greater name recognition and financial, technical, marketing, sales, distribution
and other resources, which may prevent us from achieving significant market penetration. These companies may enjoy several other competitive
advantages, including established relationships with clinicians who are familiar with other alternatives for wound care assessment, additional
lines of products, and the ability to offer rebates or bundle products to offer greater discounts or incentives to gain a competitive
advantage and established sales, marketing and worldwide distribution networks.

 We believe the primary competitive
factors for companies that market new or alternative treatments and solutions in the wound care industry include acceptance by leading
clinicians, patient outcomes and adverse event rates, patient experience and treatment time, ease-of-use and reliability, patient recovery
time and level of discomfort, economic benefits and cost savings, intellectual property protection and the development of successful sales
and marketing channels. One of the major hurdles to widespread adoption of our device will be overcoming established diagnostic patterns,
which will require education of clinicians and their referral sources.

 We may also compete with
additional competitors and products outside the United States as well. Among other competitive advantages, such companies may have
more established sales and marketing programs and networks, established relationships with clinicians and greater name recognition in
such markets.

 In addition, our current
and potential competitors have established, or may establish, financial and strategic relationships among themselves or with existing
or potential customers or other third parties to increase the ability of their products to address customer needs. Accordingly, it is
possible that new competitors or alliances among competitors could emerge and acquire a significant market share. Existing and/or increased
competition could, therefore, adversely affect our market share and/or force us to reduce the price of our products, which could have
an adverse impact on our business, prospects, results of operations and financial condition.

 If we are unable to continue to innovate
and improve our products and services, we could lose market share.

 The markets for our products
and services are characterized by changing technology and customer requirements. Changing customer requirements and the introduction of
products or services or enhancements embodying new technology may render our existing DeepView System obsolete, unmarketable or competitively
impaired and may exert downward pressures on the pricing of our device. One of our key competitive advantages is that we are currently
the only AI-enabled wound imaging technology that translates raw physiological data/images into an output that is directly correlated
to a wound healing assessment. We intend to continue to invest in technical developments in order to mitigate the impact of future competition.

 It is critical to our success
to be able to anticipate changes in technology or in industry standards, to successfully develop and introduce new, enhanced and competitive
products on a timely basis, and to keep pace with technological change. This may place excessive strain on our capital resources, which
may adversely impact our revenues and profitability. We cannot assure you that we will successfully develop new products or services or
enhance and improve our existing products or services on a timely basis. Neither can we be certain that new products and enhanced and
improved existing products will achieve market acceptance or that the introduction of new products or enhancing existing products by others,
or changing customer requirements, will not render our products or services obsolete. Our inability to develop products or services that
are competitive in technology and price and that meet client needs could have an adverse impact on our business, prospects, results of
operations and financial condition.

 We will depend upon third-party suppliers,
including contract manufacturers and single and sole source suppliers, making us vulnerable to supply shortages and price fluctuations
that could negatively affect our business, financial condition and results of operations.

 If we receive the necessary
regulatory approvals for commercialization, we will rely on third-party suppliers, including in some instances single or sole source suppliers,
to provide us with certain components, sub-assemblies and finished products for our DeepView System. These components, sub-assemblies
and finished products are critical and, for a small number of items, there are relatively few alternative sources of supply. For example,
we primarily work with Cobalt Systems Product Solutions. We do not currently have long-term supply contracts with certain of the sole
and single source suppliers of these key components, and there are no minimum purchase or payment requirements. Additionally, we believe
we are not a major customer to many of our suppliers. Our suppliers may therefore give other customers' needs higher priority than
ours, and we may not be able to obtain adequate supply in a timely manner or on commercially reasonable terms. These single or sole source
suppliers may be unwilling or unable to supply the necessary materials and components or manufacture and assemble our product in a reliable
manner and at the levels we anticipate or at levels adequate to satisfy demand for our product. While our suppliers have generally met
our demand for their products and services on a timely basis in the past, we cannot guarantee that they will in the future be able to
meet our demand for such products and services, either because of acts of nature, the nature of our agreements with those suppliers or
our relative importance to them as a customer, and our suppliers may decide in the future to discontinue or reduce the level of business
they conduct with us.

 We have not been qualified
or obtained necessary regulatory clearances for additional suppliers for most of these components, sub-assemblies and materials. While
we currently believe that alternative sources of supply may be available, we cannot be certain whether they will be available if and when
we need them, or that any alternative suppliers or providers would be able to provide the quantity and quality of components and materials
that we would need to manufacture and ship our products if our existing suppliers and providers were unable to satisfy our requirements.

 To utilize other sources,
we would need to identify and qualify new providers to our quality standards and obtain any additional regulatory clearances or approvals
required to change providers, which could result in manufacturing delays and increase our expenses.

 Although we believe that
we have stable relationships with our existing suppliers, we cannot assure you that we will be able to secure a stable supply of components
or materials going forward. In the event that any adverse developments occur with our suppliers, in particular for those components that
are single or sole sourced, or if any of our suppliers modifies any of the components they supply to us, our ability to supply our products
may be temporarily or permanently interrupted. Obtaining substitute components could be difficult, time and resource-consuming and costly.
Also, there can be no assurance that we will be able to secure a supply of alternative components at reasonable prices without experiencing
interruptions in our business operations.

 Our dependence on third parties
subjects us to a number of risks that could impact our ability to manufacture our products and harm our business, including:

 interruption
of supply resulting from modifications to, or discontinuation of, a third party's operations;

 delays
in product shipments resulting from uncorrected defects or errors, reliability issues or a third party's failure to produce components
that consistently meet our quality specifications;

 price
fluctuations due to a lack of long-term supply arrangements with our third parties for key components;

 inability
to obtain adequate supply or services in a timely manner or on commercially reasonable terms;

 difficulty
identifying and qualifying alternative third parties for the supply of components of our products in a timely manner;

 inability
of third parties to comply with applicable provisions of the FDA's QSR or other applicable laws or regulations enforced by the
FDA, state, local and global regulatory authorities;

 inability
to ensure the quality of products manufactured by third parties;

 shipping
and manufacture delays and interruptions caused by the ongoing COVID-19 crisis that we are not able to address, prepare for, or prevent;

 production
delays related to the evaluation and testing of products and services from alternative third parties and corresponding regulatory qualifications;

 trends
towards consolidation within the medical device manufacturing supplier industry; and

 delays
in delivery by our suppliers and service providers.

 In addition, quarantines,
shelter-in-place and similar government orders resulting from any future pandemic, epidemic or other infectious disease outbreak, or the
perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, could impact the suppliers
upon which we rely, or the availability or cost of materials, which could disrupt the supply chain for our products.

 Although we require our third-party
suppliers and providers to supply us with components and services that meet our specifications and other applicable legal and regulatory
requirements in our agreements and contracts, and we perform incoming inspection, testing or other acceptance activities to ensure the
components meet our requirements, there is a risk that these third parties will not always act consistent with our best interests, and
may not always supply components or provide services that meet our requirements or in a timely manner. In addition, we cannot assure you
that our suppliers have obtained and will be able to obtain or maintain all licenses, permits, clearances and approvals necessary for
their operations or comply with all applicable laws and regulations, and failure to do so by them may lead to interruption in their business
operations, which in turn may result in shortages of components supplied to us.

 If we receive a significant number of warranty
claims or our DeepView System requires significant amounts of service after sale, our operating expenses may substantially increase and
our business and financial results will be adversely affected.

 If our DeepView System is
approved for commercialization, we intend to warrant each DeepView System against defects in materials and workmanship. We also expect
to provide technical and other services beyond the warranty period pursuant to a supplemental service plan that we sell for our DeepView
system. We have no history of commercial placements from which to judge our rate of warranty claims, and we expect that the number of
warranty claims we receive may increase as we scale our operations and as commercial placements age. If product returns or warranty claims
are significant or exceed our expectations, we could incur unanticipated reductions in sales or additional operating expenditures for
parts and service. In addition, our reputation could be damaged and our device may not achieve the level of market acceptance that we
are targeting in order to achieve and maintain profitability. Unforeseen warranty exposure could negatively impact our business and financial
results.

 We need to ensure strong product performance
and reliability to maintain and grow our business.

 We need to maintain and continuously
improve the performance and reliability of our DeepView System to achieve our profitability objectives. Poor product performance and reliability
could lead to clinician dissatisfaction, adversely affect our reputation and revenues, and increase our service and distribution costs
and working capital requirements. In addition, software and hardware incorporated into our DeepView System may contain errors or defects,
especially when first introduced and while we have made efforts to test this software and hardware extensively, we cannot assure that
the software and hardware, or software and hardware developed in the future, will not experience errors or performance problems.

 Our reputation and the public
image of our products, services and technologies may be impaired if our products or services fail to perform as expected. If our products
do not perform, or are perceived to not have performed, as expected or favorably in comparison to competitive products, our operating
results, reputation, and business will suffer, including due to the costs associated with replacing products and decreased demand for
our product offering.

 Any of the foregoing could have a material adverse
effect on our business, financial condition, prospects and results of operations.

 Although we intend to test
our products prior to shipment, defects or errors could nonetheless occur. Our operating results will depend on our ability to execute
and, when necessary, improve our quality management strategy and systems and our ability to effectively train and maintain our employee
base with respect to quality management. The failure of our quality control systems or those of our third-party suppliers could result
in problems with facility operations or preparation or provision of products. In each case, such problems could arise for a variety of
reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems with off-the-shelf materials,
sub-assemblies, parts and other components or environmental factors and damage to, or loss of, manufacturing operations.

 Our results of operations will be materially
harmed if we are unable to accurately forecast demand for, and utilization of, our DeepView System and manage our inventory.

 If our DeepView System is
approved for commercialization, we will be required to forecast inventory needs and manufacture our DeepView System based on our estimates
of future demand for, and utilization of, our device. Our ability to accurately forecast demand and utilization could be negatively affected
by many factors, including our failure to accurately manage our expansion strategy, product introductions by competitors, an increase
or decrease in demand for our products or for products of our competitors, our failure to accurately forecast acceptance of new products,
unanticipated changes in general market conditions or regulatory matters and weakening of economic conditions or consumer confidence in
future economic conditions. Inventory levels in excess of demand may result in inventory write-downs or write-offs, which would cause
our gross margin to be adversely affected and could impair the strength of our brand. Conversely, if we underestimate demand and utilization,
our supply chain, manufacturing partners and/or internal manufacturing team may not be able to deliver components and products to meet
our requirements, and this could result in damage to our reputation and relationships with clinicians and dental practitioners. In addition,
if we experience a significant increase in demand or utilization, additional supplies of off-the-shelf materials, sub-assemblies, parts
and other components or additional manufacturing capacity may not be available when required on terms that are acceptable to us, or at
all, or suppliers may not be able to allocate sufficient capacity in order to meet our increased requirements. We currently outsource
all of our manufacturing through an original equipment manufacturer. Cobalt, located in Plano, Texas, is involved with manufacturing the
current generation DeepView System and we anticipate that they will continue to do so for the foreseeable future. In addition to Cobalt,
we integrate several other highly specialized contract manufacturers in the areas of optics, technology design and electronics. If any
of these suppliers were unable to meet our requirements, we would need to find a replacement or supplemental supplier, which we may not
be able to do on a timely basis, or at all. Any of the foregoing would materially which will adversely affect our business, financial
condition, prospects and results of operations.

 Risks Related to Our Business Operations

 We may encounter difficulties in managing
our growth, which could disrupt our operations.

 We have experienced substantial
growth in our operations, and we expect to experience continued substantial growth in our business. Over the next several years,
we expect to significantly increase the scope of our operations, particularly in the areas of manufacturing, sales and support, research
and development, product development, regulatory affairs, marketing and other functional areas, including finance, accounting, quality
control, and legal. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational quality
and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial
resources, we may not be able to manage the expansion of our operations or recruit and train additional qualified personnel in an effective
manner. In addition, the physical expansion of our operations may lead to significant costs and may divert our management and business
development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

 We are highly dependent on our senior management,
directors and key personnel, and our business could be harmed if we are unable to attract and retain personnel necessary for our success.

 We depend to a significant
degree on the continued services of our senior management, directors and key personnel. Their knowledge of both the market and their
skills and experience are critical elements to our success. Our senior management team, directors and employees are engaged with us on
an 'at will' basis, meaning that both they and we are able to terminate the arrangement without notice. The loss of key personnel
could have an adverse impact on our business, prospects, results of operations and financial condition.

 If we are not able to attract and retain
highly skilled managerial, scientific and technical personnel, we may not be able to implement our business model successfully.

 We will rely upon technical
and scientific employees or third-party contractors to effectively establish, manage and grow our business. Consequently, we believe that
our future viability will depend largely on our ability to attract and retain highly skilled managerial, sales, scientific and technical
personnel. In order to do so, we may need to pay higher compensation or fees to our employees or consultants than we currently expect,
and such higher compensation payments would have a negative effect on our operating results. Competition for experienced, high-quality
personnel is intense and we cannot assure you that we will be able to recruit and retain such personnel. We may not be able to hire or
retain the necessary personnel to implement our business strategy. Our failure to hire and retain such personnel could impair our ability
to develop new products and manage our business effectively.

 Our growth plans may place a significant strain on our management and
operational, financial and personnel resources. In order to execute our strategy, we will need to hire additional individuals. These hires
include product management, marketing and highly technical engineering roles. Furthermore, some of these hires will be in the UK and/or
Europe to support our European strategy. Though we have never undertaken this level of growth, our management team has instituted a long-term
hiring plan with key dates that ensure the individual is hired and trained months before the strategy must be executed. Furthermore,
our ability to implement our strategy requires effective planning and management control systems. Therefore, our future growth and prospects
will depend on our ability to manage this growth.

 We expect to significantly increase the
size of our organization over the next several years. As a result, we may encounter difficulties in managing our growth, which could
disrupt our operations and/or increase our net losses.

 As of March 25, 2025, we
had 76 employees. Over the next several years, we expect to experience significant growth in the number of our employees and the
scope of our operations, particularly in the areas of regulatory affairs, clinical and sales and marketing. There are significant expenses
and risks involved with establishing our own sales, marketing and distribution capabilities. Any failure or delay in the development of
our internal sales, marketing, distribution and compliance capabilities could delay any product launch, which would adversely impact the
commercialization of our product. We also intend to continue to improve our operational, financial and management controls, reporting
systems and procedures, which may require additional personnel. Such growth could place a strain on our administrative and operational
infrastructure, and/or our managerial abilities, and we may not be able to make improvements to our management information and control
systems in an efficient or timely manner. We may discover deficiencies in existing systems and controls.

 Some of these employees will
also be in countries outside of our corporate headquarters, which adds additional complexity. To manage our anticipated future growth,
we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit
and train additional qualified personnel. We may not be able to effectively manage these activities. The physical expansion of our operations
may lead to significant costs and may divert our management and business development resources.

 Our software and our internal computer systems
may fail and such failure could negatively affect our business, financial condition and results of operations.

 The continued
development, maintenance and operation of our software and technologies are important factors impacting the success of our products
and level of market acceptance. These efforts are expensive and complex and may involve unforeseen difficulties, including material
performance problems and undetected defects or other technical or human errors. We may encounter technical obstacles, and it is
possible that we may discover additional problems that prevent our software and technologies from operating properly. If our
software or technologies, individually or collectively, do not function reliably or fail to meet clinician or payor expectations of
performance or outcomes, then clinicians may stop using our products and payors could attempt to cancel their contracts with us.

 Proprietary software development
is time-consuming, expensive and complex, and may involve unforeseen difficulties. Our software may contain errors or vulnerabilities.
Any real or perceived errors, failures, bugs or other vulnerabilities discovered in our existing or new software could result in negative
publicity and damage to our reputation, loss of customers, loss of or delay in market acceptance of our products, loss of competitive
position, loss of revenue or liability for damages, overpayments and/or underpayments, any of which could harm our business and results
of operation.

 Our information technology
systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop new systems
to keep pace with continuing changes in information processing technology, evolving legal and regulatory standards, the increasing need
to protect patient and customer information, changes in the techniques used to obtain unauthorized access to data and information systems,
and the information technology needs associated with any new products and services. There can be no assurance that our process of consolidating,
protecting, upgrading and expanding our systems and capabilities, continuing to build security into the design of our products, and developing
new systems to keep pace with continuing changes in information processing technology will be successful or that additional systems issues
will not arise in the future.

 We will rely on the proper function, security
and availability of our information technology systems and data to operate our business, and a breach, cyber-attack or other disruption
to these systems or data could materially and adversely affect our business, results of operations, financial condition, cash flows, reputation
or competitive position.

 We rely on information technology
systems to conduct our operations. In the ordinary course of our business, we use third parties to process and store, sensitive intellectual
property and other proprietary business information. Because of this, we and our software are at risk for cyber-attacks. Cyber-attacks
can result from deliberate attacks or unintentional events and may include (but are not limited to) malicious third parties gaining unauthorized
access to our software for the purpose of misappropriating financial assets, intellectual property or sensitive information (such as
patient data), corrupting data, or causing operational disruption.

 In the future, we may rely
on third-party vendors to supply and/or support certain aspects of our information technology systems. These third-party systems could
also become vulnerable to cyber-attack, malicious intrusions, breakdowns, interference or other significant disruptions, and may contain
defects in design or manufacture or other problems that could result in system disruption or compromise the information security of our
own systems.

 We have taken numerous steps
to ensure the protection of our devices and technology. We regularly engage each of our employees in data protection training, have enabled
two-factor authentication, and do not distribute or share data across external systems. Furthermore, we take measures to ensure that our
employees who come in contact with data or patients do not violate any standards involving the HIPAA or compromise a patient's private
health information.

 While we believe that we
have taken appropriate steps to protect our systems, there can be no assurance that our efforts will prevent service interruptions or
security breaches in our systems or the unauthorized or inadvertent wrongful access or disclosure of confidential information that could
have an adverse impact on our business, prospects, results of operations and financial condition or result in the loss, dissemination,
or misuse of critical or sensitive information. If we suffer from a cyber-attack, whether by a third party or insider, we may incur significant
costs (including liability for stolen assets or information) and repairing any damage caused to our network infrastructure and systems.
Additionally, theft of our intellectual property or proprietary business information could require substantial expenditures to remedy.
Such theft could also lead to loss of intellectual property rights through our disclosure of our proprietary business information, and
such loss may not be capable of remedying. We may also suffer reputational damage and loss of investor confidence. We could also be exposed
to potential financial and reputational harm if we experience a cyber-attack.

 Because the techniques
used to obtain unauthorized access to, or to sabotage, systems change frequently and often were not recognized until launched
against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also
experience security breaches that may remain undetected for an extended period. If our systems are damaged or cease to function
properly due to any number of causes, ranging from catastrophic events to power outages to security breaches, and our business
continuity plans do not effectively compensate timely, we may suffer interruptions in our ability to manage operations, and would
also be exposed to a risk of loss, including financial assets or litigation and potential liability. To the extent that any
disruption or security breach were to result in a loss of, or damage to, our data or systems or data or systems of our commercial
partners, or inappropriate or unauthorized access to or disclosure or use of confidential, proprietary, or other sensitive,
personal, or health information, we could incur liability and suffer reputational harm. Failure to maintain or protect our
information technology systems effectively could negatively affect our business, financial condition and results of operations.

 There has been a developing
trend of civil lawsuits and class actions relating to breaches of consumer data held by large companies or incidents arising from other
cyber-attacks. Any data security breaches, cyber-attacks, malicious intrusions or significant disruptions could result in actions by regulatory
bodies and/or civil litigation, any of which could materially and adversely affect our business, results of operations, financial condition,
cash flows, reputation or competitive position.

 While we maintain certain
insurance coverage, our insurance may be insufficient or may not cover all liabilities incurred by such attacks. We also cannot be certain
that our insurance coverage will be adequate for data handling or data security liabilities actually incurred, that insurance will continue
to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.
The successful assertion of one or more large claims against us that exceeds available insurance coverage, or the occurrence of changes
in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have
a material adverse effect on our business, including our financial condition, operating results and reputation.

 The use of artificial intelligence, including
machine learning, in our analytics platforms may result in reputational harm or liability.

 AI is enabled by or integrated
into the predictive analytics inherent in our DeepView platforms and will continue to be a substantial element of our product offerings
going forward. As with many developing technologies, AI presents risks and challenges that could affect its further development, adoption,
and use, and therefore our business. AI algorithms may be flawed and continual data propagation may prove ineffective. Data sets may be
insufficient, of poor quality, or contain biased information. If the analyses that AI applications assist in producing are deficient or
inaccurate, we could be subjected to competitive harm, potential legal liability, and brand or reputational harm. Some uses of AI present
ethical issues, and our judgment as to the ethical concerns may not be accurate. If we use AI as part of our predictive analytics in a
manner that is controversial because of the purported or real impact on our business or vendors, this may lead to adverse results for
our financial condition and operations or the financial condition and operations of our business, which may further lead to us experiencing
competitive harm, legal liability and brand or reputational harm.

 Product liability suits, whether or not
meritorious, could be brought against us due to an alleged defective product or for the misuse of our DeepView System. These suits could
result in expensive and time-consuming litigation, payment of substantial damages, and an increase in our insurance rates.

 If we supply products or
services that are defectively designed or manufactured, or our products contain defective components or are misused, or if someone claims
any of the foregoing, whether or not meritorious, we may become subject to substantial and costly litigation. Misusing our technology
or failing to adhere to the operating guidelines or our device producing inaccurate or unreliable readings could cause significant harm
to patients. In addition, if our operating guidelines are found to be inadequate, we may be subject to liability. Product liability claims
could divert management's attention from our core business, be expensive to defend and result in sizable damage awards against us.
While we maintain product liability insurance, we may not have sufficient insurance coverage for all future claims. Any product liability
claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing
coverage, could harm our reputation in the industry and could reduce revenue. Product liability claims in excess of our insurance coverage
would be paid out of cash reserves harming our financial condition and adversely affecting our results of operations.

 To the extent that
a claim or claims of a significant nature were made against us, we may be required to expend substantial management resources and litigation
costs in defending such claim(s) and such claim(s), if successful, could reduce margins, harm our reputation in the market, and
increase future insurance premiums, the occurrence of each of which could have an adverse impact on our business, prospects, results
of operations and financial condition.

 Our insurance policies are expensive and
protect us only from some business risks, which leaves us exposed to significant uninsured liabilities.

 While we maintain commercial
insurance at a level we believe is appropriate against certain risks commonly insured in the industry in which we operate, there is no
guarantee that our insurer will cover costs or that we will be able to obtain the desired level of coverage on acceptable terms in the
future. The potential costs that could be associated with any shortfall of insurance coverage may cause delays and disruptions to our
operations and the additional expenditure that we may incur could affect our earnings and competitive position in the future and, potentially,
our financial position. We could suffer losses that may not be fully compensated by insurance. In addition, certain types of risk may
be, or may become, either uninsurable or not economically insurable, or may not be currently or in the future covered by our insurance
policies. Any of the foregoing could have an adverse impact on our business, prospects, results of operations and financial condition.

 Operating as a U.S. public
company can make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required
to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result,
it may be more difficult for us to attract and retain qualified people to serve on our board of directors, on our board committees or
as executive officers. We do not know, however, if we will be able to maintain existing insurance with adequate levels of coverage. Any
significant uninsured liability may require us to pay substantial amounts, which would negatively affect our business, financial condition
and results of operations.

 The success of our algorithms depends on
our significant repository of proprietary image data.

approximately 340 billion pixels of proprietary image data have been acquired and utilized for the deep learning algorithms training.
We believe this presents a significant barrier to entry to would-be competitors in wound care healing assessments. The data collection
to clinical output, the flow, quality and control of the data pipeline is managed entirely by us. Our DeepView System uses deep learning
on its wound data repository to recognize patterns and correlations of injured tissue spectral signatures to produce reliable and reasonable
assessment for clinicians to make accurate and efficient treatment decisions.

 We have developed strategic
partnerships with multiple clinical and academic partners in the United States and Europe. Through our strategic partnerships with
multiple clinical and academic partners, we are able to access large, diverse and specific sets of wound data inputs to develop, validate
and improve our DeepView algorithms efficiently and effectively. We believe we have the pre-eminent proprietary clinical wound database.
The depth and quality of our proprietary data is critical to developing a leading wound assessment technology with demonstrated clinical
need across burn and other indications with a positive impact on health economics and patient outcomes, while safeguarding patient data
and privacy. If we were no longer able to access or receive this data, it would have a material adverse effect on our business, prospects,
results of operations and financial condition.

 We may further seek strategic alliances,
joint ventures or collaborations, or enter into licensing or partnership arrangements in the future and may not be successful in doing
so, and even if we are, we may not realize the benefits or costs of such relationships.

 We have developed
strategic partnerships with multiple clinical and academic partners and, in the future, we may further form or seek strategic
alliances, create joint ventures or collaborations or enter into licensing or partnership arrangements with third parties that we
believe will complement or augment our sales and marketing efforts with respect to our DeepView System or future products. We may
not be successful in our efforts to establish such collaborations, and we may not achieve the benefits expected from our current
strategic partnerships or future collaborations. Any of these relationships may require us to incur non-recurring and other charges,
indemnify the counterparty, increase our near and long-term expenditures, issue securities that dilute our existing stockholders or
disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic partners and the
negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic
alliance or other alternative arrangements for our products. We cannot be certain that, following a strategic alliance or similar
arrangement, we will achieve the revenue or specific net income that justifies such transaction. In addition, any potential future
collaborations may be terminable by our collaborators, and we may not be able to adequately protect our rights under these
agreements. Any termination of collaborations we enter into in the future, or delays in entering into new strategic partnership
agreements could delay tour sales and marketing efforts, which would harm our business prospects, financial condition and results of
operations.

 Additionally, we may not
have sole decision-making authority with respect to any such collaboration or arrangement, which could create the potential risk of creating
impasses on decisions, and our collaborators may have economic or business interests or goals that are, or that may become, inconsistent
with our business interests or goals. It is possible that conflicts may arise with our collaborators, such as conflicts concerning the
achievement of performance milestones, or the interpretation of significant terms under any agreement, such as those related to financial
obligations, or the ownership or control of intellectual property developed during the collaboration. If any conflicts arise with our
current or future collaborators, they may act in their self-interest, which may be averse to our best interest, and they may breach their
obligations to us. In addition, we have limited control over the amount and timing of resources that our current collaborators or any
future collaborators devote to our collaborators' or our future products and technologies.

 As international expansion of our business
occurs in future years, it will expose us to market, regulatory, political, operational, financial and economic risks associated
with doing business outside of the United States.

 Our long-term strategy is to
increase our international presence, including securing regulatory clearances or approvals in targeted countries outside the United States.
This strategy may include establishing and maintaining clinician outreach and education capabilities outside of the United States
and expanding our relationships with international payors. Doing business internationally involves a number of risks, including:

 difficulties
in staffing and managing our international operations;

 multiple,
conflicting and changing laws and regulations such as tax laws, privacy laws, export and import restrictions, employment laws, regulatory
requirements and other governmental clearances, approvals, permits and licenses;

 reduced
or varied protection for intellectual property rights in some countries;

 obtaining
regulatory clearance, approval or certification where required for our products in various countries;

 requirements
to maintain data and the processing of that data on servers located within such countries;

 complexities
associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems;

 limits
on our ability to penetrate international markets if we are required to manufacture our products locally;

 financial
risks, such as longer payment cycles, difficulty collecting accounts receivable, foreign tax laws and complexities of foreign value-added
tax systems, the effect of local and regional financial pressures on demand and payment for our products and exposure to foreign currency
exchange rate fluctuations;

 restrictions
on the site-of-service for use of our products and the economics related thereto for clinicians, providers and payors;

 natural
disasters, political and economic instability, including wars, terrorism, political unrest, outbreak of disease, boycotts, curtailment
of trade and other market restrictions; and

 regulatory and compliance risks that relate to maintaining accurate information and control over activities subject to regulation under the United States Foreign Corrupt Practices Act of 1977, or FCPA, U.K. Bribery Act of 2010 and comparable laws and regulations in other countries.

 Any of these factors could
significantly harm our future international expansion and operations and, consequently, have a material adverse effect on our business,
financial condition and results of operations.

 Risks Related to Our Intellectual Property

 If we are unable to obtain and maintain
patent or other intellectual property protection for any products we develop or for our technology, or if the scope of the patent and
other intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products and
technology similar or identical to ours, and our ability to successfully commercialize any products we may develop, and our technology,
may be harmed.

 We believe that one of our
key strengths is our market leading technology, including our proprietary AI algorithms and optical technology. In order to remain competitive,
we must develop, maintain, and protect the proprietary aspects of our brands, technologies, data, and products. We rely on a combination
of contractual provisions, confidentiality procedures, patent, copyright, trademark, trade secret, and other intellectual property laws
to protect the proprietary aspects of our brands, technologies, data, and products. These legal measures afford only limited protection,
and competitors or others may gain access to or use our intellectual property and proprietary information. Any failure to obtain or maintain
patent and other intellectual property protection with respect to our products could harm our business, financial condition and results
of operations.

 Our technology is protected
with issued and/or allowed patents across nine families of active patents: (i) Burn/Wound Classification on MSI and PPG; (ii) Tissue
classification on MSI and PPG; (iii) Amputation site analysis on MSI, ML and healthcare matrix; (iv) DFU healing potential prediction
and wound assessment on MSI, ML and healthcare matrix; (v) High-precision, multi-aperture, MSI snapshot imaging; (vi) Wound
assessment based on MSI; (vii) Burn/histology assessment based on MSI and ML; (viii) High-precision, single-aperture MSI snapshot
imaging; and (ix) Topological characterization and assessment of tissues using MSI and ML.

 As of the date of this annual report, we have 12 issued and allowed
U.S. patents with 6 U.S. patent applications pending. We have 18 issued and allowed international patents with 29 foreign and international
patent applications pending. We protect our DeepView System trademarks primarily in four classes: pre-recorded/downloadable software,
surgical, medical apparatus, computer and scientific services and medical and healthcare services. As of December 31, 2024, we maintain
a portfolio of 68 trademarks and nine trademark applications pending relating to our DeepView and SnapShot product offerings. Our trademarks
and pending trademark applications are spread over nine jurisdictions mostly in China, the UK and the EU. It is our intention to
maintain these registrations indefinitely and to expand the number of jurisdictions in which we have registered trademarks as deemed necessary
to protect our freedom to use the marks and/or block competitors in additional markets. We will continue to primarily focus on protecting
our intellectual property in the United States, UK and the EU as those represent the first significant commercial markets for our
products.

 We cannot assure you that
our intellectual property position will not be challenged or that all patents for which we have applied will be granted. As with other
medical device companies, our success depends, in part, on our ability to obtain, maintain, expand, enforce, and defend the scope of our
intellectual property portfolio or other proprietary rights, including the amount and timing of any payments we may be required to make
in connection with the licensing, filing, maintaining, defense and enforcement of any patents or other intellectual property rights. The
process of applying for and obtaining a patent is expensive, time-consuming and complex, and we may not be able to file, prosecute, maintain,
enforce, or license all necessary or desirable patents or patent applications at a reasonable cost, in a timely manner, or in all jurisdictions
where protection may be commercially advantageous, or we may not be able to protect our proprietary rights at all. Although we enter into
non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development
output, such as our employees, corporate collaborators, outside scientific collaborators, suppliers, consultants, advisors and other third
parties, any of these parties may breach such agreements and disclose such output before a patent application is filed, thereby jeopardizing
our ability to seek and obtain patent protection.

 We may choose not to seek
patent protection for certain innovations and may choose not to pursue patent protection in certain jurisdictions, and under the laws
of certain jurisdictions, patents or other intellectual property rights may be unavailable or limited in scope. It is also possible that
we will fail to identify patentable aspects of our products or research and development results before it is too late to obtain patent
protection. While the imaging modality — SnapShot MSI system and proprietary illumination system — are
patent protected, our AI algorithm used in the system is not patent protected. The device performance is supported by the proprietary
clinical data owned by Spectral. The loss or disclosure of both the data and the algorithm could be detrimental to the future development
and competitive advantage of our DeepView System.

 In addition, our ability
to obtain and maintain valid and enforceable patents depends in part on whether the differences between our inventions and the prior art
allow our inventions to be patentable over the prior art. Furthermore, the publication of discoveries in scientific literature often lags
behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until
18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to file for patent protection
of such inventions. Despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain and use information
that we regard as proprietary. In addition, the issuance of a patent is not conclusive as to its inventorship, validity or enforceability,
and our patents may be challenged in the courts or patent offices in the United States and abroad, so even if we obtain patents,
they may not provide us with adequate proprietary protection or competitive advantage against our competitors with similar products. Our
patent applications may not result in issued patents and our patents may not be sufficiently broad to protect our technology or to prevent
competitive technologies. In addition, the laws of foreign jurisdictions may not protect our rights to the same extent as the laws of
the United States. For example, certain countries outside of the United States do not allow patents for methods of treating
the human body. This may preclude us from obtaining method patents outside of the United States having similar scope to those we
have obtained or may obtain in the future in the United States. Changes in either the patent laws or their interpretation in the
United States and other countries may diminish our ability to protect our inventions, obtain, maintain, and enforce our intellectual
property rights and, more generally, could affect the value or validity of our intellectual property or narrow the scope of our patent
protection. Additionally, we cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular
jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors or other third parties.

 Moreover, even if we are
able to obtain patent protection, such patent protection may be of insufficient scope to achieve our business objectives. The strength
of patent rights generally, and particularly the patent position of medical device companies, involves complex legal, factual and scientific
questions and can be uncertain, and has been the subject of much litigation in recent years. This uncertainty includes changes to
the patent laws through either legislative action to change statutory patent law or court action that may reinterpret existing law or
rules in ways affecting the scope or validity of issued patents. Even if patents do successfully issue from our patent applications, third
parties may challenge the validity, enforceability, or scope of such patents, which may result in such patents being narrowed, invalidated,
or held unenforceable. Decisions by courts and governmental patent agencies may introduce uncertainty in the enforceability or scope of
patents owned by or licensed to us. Furthermore, the issuance of a patent does not give us the right to practice the patented invention.
Third parties may also have blocking patents that could prevent us from marketing our own products and practicing our own technology.
We may not be aware of all third-party intellectual property rights (for example, not be aware of a patent or not be aware of a patent's
scope) potentially relating to our products, product candidates or their intended uses, and as a result the impact of such third-party
intellectual property rights upon the patentability of our own patents and patent applications, as well as the impact of such third-party
intellectual property upon our ability to market our products without infringing third party patent rights, is highly uncertain. We cannot
ensure that we do not infringe any patents or other proprietary rights held by others. If our products were found to infringe any proprietary
right of another party, we could be required to pay significant damages or license fees to such party and/or cease production, marketing
and distribution of those products.

 Litigation may also be
necessary to defend infringement claims of third parties or to enforce patent rights we hold or protect trade secrets or techniques
we own. Further, third parties may seek approval to market their own products similar to or otherwise competitive with our products.
In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement.
In any of these types of proceedings, a court or agency with jurisdiction may find our patents invalid, unenforceable, or not
infringed; competitors may then be able to market products and use manufacturing and analytical processes that are substantially
similar to ours. Even if we have valid and enforceable patents, these patents still may not provide protection against competing
products or processes sufficient to achieve our business objectives.

 Our success will also depend,
in part, on preserving our trade secrets, maintaining the security of our data and know-how, and obtaining and maintaining other intellectual
property rights. We rely on trade secret protection and confidentiality agreements for strategic purposes, to protect proprietary know-how
that is not patentable, processes for which patents are difficult to enforce and any other elements of our discovery and development processes
that involve proprietary know-how, information or technology that is not covered by patents. We may also rely on trade secret protection
as temporary protection for concepts that may be included in a future patent filing. There can be no assurances that we can meaningfully
protect or maintain intellectual property, trade secrets or other unpatented proprietary rights necessary to our business or in a form
that provides us with a competitive advantage, or that others will not independently develop substantially equivalent proprietary products
or processes or otherwise gain access to our proprietary technology. In addition, our trade secrets, data, and know-how could be subject
to unauthorized use, misappropriation, or disclosure to unauthorized parties, despite our efforts to enter into confidentiality agreements
with our employees, consultants, clients, and other vendors who have access to such information, and could otherwise become known or be
independently developed or discovered by third parties. Our intellectual property, including trademarks, could be challenged, invalidated,
infringed, and circumvented by third parties, and our trademarks could also be diluted, declared generic or found to be infringing other
marks. If any of the foregoing occurs, we could be forced to re-brand our products, resulting in loss of brand recognition, and requiring
us to devote resources to advertising and marketing new brands, and suffer other competitive harm. Third parties may also adopt trademarks
similar to ours, which could harm our brand identity and lead to market confusion. Failure to obtain and maintain intellectual property
rights necessary to our business and failure to protect, monitor and control the use of our intellectual property rights could negatively
impact our ability to compete and cause us to incur significant expenses. The intellectual property laws and other statutory and contractual
arrangements in the United States and other jurisdictions we depend upon may not provide sufficient protection in the future to prevent
the infringement, use, violation or misappropriation of our trademarks, data, technology and other intellectual property and services,
and may not provide an adequate remedy if our intellectual property rights are infringed, misappropriated, or otherwise violated.

 Additionally, we may find
it necessary or prudent to acquire or obtain licenses from third-party intellectual property holders. However, we may be unable to acquire
or secure such licenses to any intellectual property rights from third parties that we identify as necessary for our products or any future
products we may develop. The acquisition or licensing of third-party intellectual property rights is a competitive area, and our competitors
may pursue strategies to acquire or license third-party intellectual property rights that we may consider attractive or necessary, and
our competitors could market competing products and technology. Our competitors may have a competitive advantage over us due to their
size, capital resources and greater development and commercialization capabilities. In addition, companies that perceive us to be a competitor
may be unwilling to assign or license rights to us. We also may be unable to acquire or license third-party intellectual property rights
on terms that would allow us to make an appropriate return on our investment or at all. If we are unable to successfully obtain rights
to required third-party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon
development of the relevant product, and our customers may be forced to stop using the relevant product, which could harm our business,
financial condition, prospects and results of operations.

 We may, in the future, be a party to intellectual
property litigation or administrative proceedings that are very costly and time-consuming and could interfere with our ability to sell
and market our products.

 The medical device industry
is highly competitive and has been characterized by extensive litigation regarding patents, trademarks, trade secrets, and other intellectual
property rights, and companies in the industry have used intellectual property litigation to gain a competitive advantage. It is possible
that U.S. and foreign patents, along with pending patent applications or trademarks controlled by third parties, may be alleged to
cover our products, or that we may be accused of misappropriating third parties' trade secrets. Additionally, our products include
components that we purchase from vendors, and may include design components that are outside of our direct control. Our competitors, many
of which have substantially greater resources and have made substantial investments in patent portfolios, trade secrets, trademarks, and
competing technologies, may have applied for or obtained, or may in the future apply for or obtain, patents or trademarks that will prevent,
limit or otherwise interfere with our ability to make, use, sell, import, and/or export our products (or components thereof) or to use
our technologies or our product names.

 Third parties, including
our competitors, may currently have patents or obtain patents in the future and claim that the manufacture, use or sale of our products
infringes these patents. We have not conducted an extensive search of patents issued or assigned to other parties, including our competitors,
and no assurance can be given that patents containing claims relating to our products, parts of our products, technology or methods do
not exist, have not been filed or could not be filed or issued. In addition, because patent applications can take many years to issue
and because publication schedules for pending applications vary by jurisdiction, there may be applications now pending that may result
in issued patents that our current or future products infringe. Also, because the claims of published patent applications can change between
publication and patent grant, there may be published patent applications that may ultimately issue with claims that we infringe. As the
number of competitors in our market grows and the number of patents issued in this area increases, the possibility of patent infringement
claims against us escalates. Moreover, in recent years, individuals and groups that are non-practicing entities, commonly referred
to as "patent trolls," have purchased patents and other intellectual property assets for the purpose of making claims of infringement
in order to extract settlements. From time to time, we may receive threatening letters, notices or "invitations to license,"
or may be the subject of claims that our products and business operations infringe or violate the intellectual property rights of others.
The defense of these matters can be time-consuming, costly to defend, divert management's attention and resources, damage our reputation
and brand and cause us to incur significant expenses or make substantial payments. Vendors from which we purchase hardware or software
may not indemnify us in the event that such hardware or software is accused of infringing a third-party's patent or trademark or
of misappropriating a third-party's trade secret.

 Because patent applications
are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related
to our products. Competitors may also contest our patents in court, at an administrative agency, or at the patent office, if issued, by
proving that the invention was not original, was not novel, was obvious, or was obtained without disclosing all pertinent material prior
art information to the patent office, among other reasons. For example, in litigation, a competitor could claim that our patents, if issued,
are not valid for a number of reasons or are unenforceable due to inequitable conduct. If a court agreed, we would lose our rights to
those challenged patents.

 In addition, we may in the
future be subject to claims by our former employees or consultants asserting an ownership right in our patents or patent applications,
as a result of the work they performed on our behalf. Although we generally require all of our employees and consultants and any other
partners or collaborators who have access to our proprietary know-how, information or technology to assign or grant similar rights to
their inventions to us, we cannot be certain that we have executed such agreements with all parties who may have contributed to our intellectual
property, nor can we be certain that our agreements with such parties will be upheld in the face of a potential challenge, or that they
will not be breached, for which we may not have an adequate remedy.

 Further, if third party claims
of patent or trademark infringement or trade secret misappropriation are successfully asserted against us, such claims may harm our business,
result in injunctions preventing us from selling our products, and require payment of license fees, damages, attorneys' fees, and
court costs, which may be substantial and have a material adverse impact on our business. In addition, if we are found to have willfully
infringed third-party patents or trademarks or to have misappropriated trade secrets, we could be required to pay treble damages in addition
to other penalties. Although patent, trademark, trade secret, and other intellectual property disputes in the medical device area have
often been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and could include
ongoing royalties that may substantially erode our margins. Further, we may be unable to obtain necessary licenses on satisfactory terms,
if at all. If we do not obtain necessary licenses, we may not be able to redesign our products to avoid infringement, and as such may
need to stop selling the infringing products, which would have a significant adverse impact on our business, financial condition, prospects
and results of operations.

 Similarly,
interference, derivation, cancellation, and opposition proceedings provoked by third parties or brought by the U.S. Patent and
Trademark Office (USPTO) may be necessary to determine priority with respect to our patents, patent applications, trademarks, or
trademark applications. We may also become involved in other proceedings, such as reexamination, inter partes review, post-grant
review, derivation, interference, supplemental examination, cancellation or opposition proceedings before the USPTO or other
jurisdictional body relating to our intellectual property rights or the intellectual property rights of others. Such challenges may
result in loss of exclusivity or ability to make, use, and sell our products without infringing third-party intellectual property
rights, or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to
stop others from using or commercializing similar or identical products and techniques without payment to us, or limit the duration
of the patent protection of our technology. Adverse determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses or rights could prevent us from using, selling, manufacturing, or importing our products or using product names,
which would have a significant adverse impact on our business, financial condition, prospects and results of operations.

 Additionally, we may file
lawsuits or initiate other proceedings to protect or enforce our patents, trademarks, or other intellectual property rights, which could
be expensive, time consuming and unsuccessful. Former, current, or future licensees may violate the terms of their licenses and thereby
infringe our intellectual property. Competitors may infringe our issued patents, trademarks, or other intellectual property. To counter
infringement or unauthorized use by licensees, competitors, or other parties, we may be required to file infringement or misuse claims,
which can be expensive and time-consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims
or file administrative actions against us alleging that we infringe their intellectual property. In addition, in a patent infringement
proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent's claims
narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology
in question. Furthermore, even if our patents or trademarks are found to be valid and infringed, a court may refuse to grant injunctive
relief against the infringer and instead grant us monetary damages and/or ongoing royalties. Such monetary compensation may be insufficient
to adequately offset the damage to our business caused by the infringer's competition in the market, and an adverse result in any
litigation proceeding or administrative action could put one or more of our patents at risk of being invalidated or interpreted narrowly,
which could adversely affect our competitive business position, financial condition, and results of operations. In addition, although
we make efforts to comply with the patent marking provisions of 35 U.S.C. § 287(a), a court may decide that we have not met the requirements
of the patent marking statute, which may prevent us from obtaining monetary damages that would otherwise have been due to us if we had
complied with the marking statute.

 Even if we are successful
in defending against intellectual property claims, litigation or other legal proceedings relating to such claims may cause us to incur
significant expenses and could distract our technical and management personnel from their normal responsibilities. Protracted litigation
to defend or prosecute our intellectual property rights could also result in our customers or potential customers deferring or limiting
their purchase or use of the affected products until resolution of the litigation. In addition, there could be public announcements of
the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results
to be negative, it could have a substantial negative impact on the price of our common stock. Such litigation or proceedings could substantially
increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other
resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation
or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the
initiation and continuation of litigation or other intellectual property related proceedings could harm our business, financial condition,
prospects and results of operations.

 In addition, third parties
may assert infringement claims against our customers. These claims may require us to initiate or defend protracted and costly litigation
on behalf of our customers or indemnify our customers for any costs associated with their own initiation or defense of infringement claims,
regardless of the merits of these claims. If any of these claims succeeds or settles, we may be forced to pay damages or settlement payments
on behalf of our customers or may be required to obtain licenses for the products they use. If we cannot obtain all necessary licenses
on commercially reasonable terms, our customers may be forced to stop using our products.

 Obtaining and maintaining intellectual property,
including patent protection, depends on compliance with various procedural, document submission, fee payment and other requirements imposed
by governmental agencies, and our intellectual property, including patent protection, could be reduced or eliminated for non-compliance
with these requirements.

 The USPTO,
United States Copyright Office (USCO) and various foreign governmental agencies require compliance with a number of procedural,
documentary, fee payment and other similar provisions during the application process. In addition, periodic maintenance fees,
renewal fees, annuity fees and various other government fees often must be paid to the USPTO, USCO and foreign agencies over the
lifetime of any registered or applied-for intellectual property rights we may obtain in the future. While an unintentional lapse of
an intellectual property registration or application can in many cases be cured by payment of a late fee or by other means in
accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the
registration or application, resulting in partial or complete loss of intellectual property rights in the relevant jurisdiction.
Non-compliance events that could result in abandonment or lapse of a registration or application include, but are not limited to,
failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and
submit formal documents. If we fail to maintain the intellectual property registrations and applications covering our products, we
may not be able to stop a competitor from developing or marketing products that are the same as or similar to our products, which
would have a material adverse effect on our business. We also have a duty to disclose to the USPTO any prior art known to us that
may be material to the patentability of our patents. If we failed to submit any such material prior art, a court or administrative
agency may deem one or more of our patents unenforceable.

 Additionally, certain of our patent applications relate to software
inventions. Software-related patents in general are susceptible to validity or patentability challenges before the USPTO or in other judicial
or quasi-judicial proceedings for being directed to non-statutory subject matter under 35 U.S.C. §101.

 Patent terms may be inadequate to protect
our competitive position on our products for an adequate amount of time.

 Patents have a limited lifespan.
The terms of individual patents depend upon the legal term for patents in the countries in which they are granted. In most countries,
including the United States, if all maintenance fees are timely paid, the natural expiration of a utility patent is generally 20 years
from its earliest non-provisional filing date in the applicable country. However, the actual protection afforded by a patent varies from
country to country, and depends upon many factors, including the type of patent, the scope of its coverage, voluntary disclaimer of patent
term to obtain a patent's allowance, the availability of regulatory-related extensions, the availability of legal remedies in a
particular country and the validity and enforceability of the patent. Various extensions may be available, but the life of a patent, and
the protection it affords, is limited. Even if patents covering our products are obtained, once the patent life has expired, we may be
open to competition from competitive products, which may harm our business prospects.

 In addition, although upon
issuance in the United States a patent's term can be extended based on certain delays caused by the USPTO, this extension can
be reduced or eliminated based on certain delays caused by the patent applicant during patent prosecution. Given the amount of time required
for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or
shortly after such candidates are commercialized. If we do not have sufficient patent terms to protect our products, proprietary technologies
and their uses, our business would be seriously harmed. As our patents expire, the scope of our patent protection will be reduced, which
may reduce or eliminate any competitive advantage afforded by our patent portfolio. As a result, our patent portfolio may not provide
us with sufficient rights to exclude others from commercializing products similar or identical to ours.

 Changes in patent law or its interpretation
could diminish the value of patents in general, thereby impairing our ability to protect our existing and future products.

 Patent reform
legislation could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or
defense of issued patents. In 2011, the Leahy-Smith America Invents Act (the Leahy-Smith Act) was signed into law. The Leahy-Smith
Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent
applications are prosecuted and also may affect patent litigation. These also include provisions that switched the
United States from a "first-to-invent" system to a "first-to-file" system, allow third-party submission
of prior art to the USPTO during patent prosecution and set forth additional procedures to attack the validity of a patent by the
USPTO administered post-grant proceedings. Under a first-to-file system, assuming the other requirements for patentability are met,
the first inventor to file a patent application generally will be entitled to the patent on an invention regardless of whether
another inventor had made the invention earlier. The USPTO recently developed new regulations and procedures to govern
administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in
particular, the first to file provisions, only became effective in 2013. A third-party that files a patent application in the USPTO
after March 2013, but before us could therefore be awarded a patent covering an invention of ours even if we had made the
invention before it was made by such third-party. This will require us to be cognizant of the time from invention to filing of a
patent application. Since patent applications in the United States and most other countries are confidential for a period of
time after filing or until issuance, we cannot be certain that we were the first to file any patent application related to our
products or invent any of the inventions claimed in our patents or patent applications.

 The Leahy-Smith Act also
includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation.
These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack
the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review and derivation
proceedings. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts
necessary to invalidate a patent claim, a third-party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO
to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court
action. Accordingly, a third-party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated
if first challenged by the third-party as a defendant in a district court action. Therefore, the Leahy-Smith Act and its implementation
could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our
issued patents. In addition, future actions by the U.S. Congress, the federal courts and the USPTO could cause the laws and regulations
governing patents to change in unpredictable ways. The Leahy-Smith Act and its implementation could increase the uncertainties and costs
surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a
material adverse effect on our business, financial condition, prospects and results of operations.

 In addition, patent reform
legislation may pass in the future that could lead to additional uncertainties and increased costs surrounding the prosecution, enforcement
and defense of our patents and applications. Furthermore, the U.S. Supreme Court and the U.S. Court of Appeals for the Federal
Circuit have made, and will likely continue to make, changes in how the patent laws of the United States are interpreted. Similarly,
foreign courts have made, and will likely continue to make, changes in how the patent laws in their respective jurisdictions are interpreted.
We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by U.S. and
foreign legislative bodies. Those changes may materially affect our patents or patent applications and our ability to obtain additional
patent protection in the future.

 Our patent rights and other intellectual
property may be subject to priority, ownership or inventorship disputes, interferences, and similar proceedings.

 We may also be subject to
claims that former employees, collaborators, or other third parties have an interest in our patents and patent applications or other intellectual
property as an inventor or co-inventor. If we are unable to obtain an exclusive license to any such third-party co-owners' interest
in such patents and patent applications, such co-owners' rights may be subject, or in the future subject, to assignment or license
to other third parties, including our competitors. In addition, we may need the cooperation of any such co-owners to enforce any such
patents and any patents issuing from such patent applications against third parties, and such cooperation may not be provided to us. Additionally,
we may be subject to claims from third parties challenging our ownership interest in or inventorship of intellectual property we regard
as our own, for example, based on claims that our agreements with employees or consultants obligating them to assign intellectual property
to us are ineffective or in conflict with prior or competing contractual obligations to assign inventions to another employer, to a former
employer, or to another person or entity, despite our inclusion of valid, present-tense intellectual property assignment obligations.
Litigation may be necessary to defend against claims, and it may be necessary or we may desire to enter into a license to settle any such
claim.

 If we or our licensors
are unsuccessful in any priority, validity (including any patent oppositions), ownership or inventorship disputes to which we or
they are subject, we may lose valuable intellectual property rights through the loss of one or more of our patents, or such patent
claims may be narrowed, invalidated, or held unenforceable, or through loss of exclusive ownership of or the exclusive right to use
our owned or in-licensed patents. In the event of loss of patent rights as a result of any of these disputes, we may be required to
obtain and maintain licenses from third parties, including parties involved in any such interference proceedings or other priority
or inventorship disputes. Such licenses may not be available on commercially reasonable terms or at all or may be non-exclusive. If
we are unable to obtain and maintain such licenses, we may need to cease the development, manufacture, and commercialization of one
or more of the product candidates we may develop. An inability to incorporate technologies, features or other intellectual property
that are important or essential to our products could have a material adverse effect on our business and competitive position. The
loss of exclusivity or the narrowing of our patent claims could limit our ability to stop others from using or commercializing
similar or identical technology and product candidates. Even if we are successful in priority, inventorship or ownership disputes,
it could result in substantial costs and be a distraction to management and other employees. Any litigation or the threat thereof
may adversely affect our ability to hire employees or contract with independent sales representatives. Any of the foregoing could
result in a material adverse effect on our business, financial condition, prospects and results of operations.

 We may be subject to claims that our employees,
consultants, advisors, or contractors have misappropriated the intellectual property of a third party, including trade secrets or know-how,
or are in breach of a non-competition or non-solicitation agreement with our competitors, and third parties may claim an ownership interest
in intellectual property we regard as our own. Such claims could harm our business, financial condition, prospects and results of operations.

 As is common in the medical
device industry, our employees, consultants, and advisors may be currently or previously employed or engaged at universities or other
medical device or healthcare companies, including our competitors and potential competitors. Some of these employees, consultants, advisors,
and contractors may have executed proprietary rights, non-disclosure, and non-competition agreements in connection with such previous
employment. Although we try to ensure that our employees, consultants, advisors, and contractors do not use the intellectual property,
proprietary information, know-how or trade secrets of others in their work for us, we may in the future become subject to claims that
we or these individuals have, inadvertently or otherwise, misappropriated the intellectual property, including trade secrets or other
proprietary information, of their current or former employers, competitors or other third parties. Also, we may in the future be subject
to claims that these individuals are violating non-compete agreements with their former employers. Litigation may be necessary to defend
against these claims. If we fail to defend any such claims, in addition to paying monetary damages, we may lose valuable intellectual
property rights or personnel, which could harm our business, financial condition and results of operations. Even if we are successful
in defending against such claims, litigation could result in substantial costs and be a distraction to management.

 In addition, while it is
our policy to require our employees, vendors, and contractors who may be involved in the conception or development of intellectual property
to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party
who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may
not be self-executing, may be ineffective under current or future case law, or the assignment agreements may be breached, and we may be
forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard
as our intellectual property. Such defects in assignment or resulting claims could harm our business, financial condition, prospects and
results of operations.

 If we fail to validly execute invention
assignment agreements with our employees and contractors involved in the development of intellectual property or are unable to protect
the confidentiality of our trade secrets and other proprietary information, the value of our products our business and competitive position
may be harmed.

 In addition to patent
protection, we also rely on other proprietary rights, including protection of trade secrets, know-how, and other confidential and
proprietary information that is not patentable or that we elect not to patent. However, trade secrets can be difficult to protect,
and some courts are less willing or unwilling to protect trade secrets. To maintain the confidentiality of our trade secrets and
proprietary information, we generally have confidentiality and invention assignment provisions in contracts with our employees,
consultants, suppliers, contract manufacturers, collaborators, and others upon the commencement of their relationship with us.
However, we may not enter into such agreements with each party that may have or have had access to our trade secrets or proprietary
technology and processes. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade
secrets by such third parties, despite the existence generally of these confidentiality restrictions. These contracts may not
provide meaningful protection for our trade secrets, know-how, or other proprietary information in the event of any unauthorized
use, misappropriation, or disclosure of such trade secrets, know-how, or other confidential or proprietary information. There can be
no assurance that such third parties will not breach their agreements with us, that we will have adequate remedies for any breach,
or that our trade secrets or proprietary technology and processes will not otherwise become known or independently developed by
competitors. We may need to share our proprietary information, including trade secrets, with future business partners,
collaborators, contractors, and others located in countries at heightened risk of theft of trade secrets, including through direct
intrusion by private parties or foreign actors, and those affiliated with or controlled by state actors. Despite the protections we
do place on our intellectual property or other confidential and proprietary rights, monitoring unauthorized use and disclosure of
our intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual property or
other proprietary rights will be adequate. In addition, the laws of many foreign countries will not protect our intellectual
property or other proprietary rights to the same extent as the laws of the United States. Consequently, we may be unable to
prevent our proprietary technology from being exploited abroad, which could affect our ability to expand to international markets or
require costly efforts to protect our technology.

 To the extent our intellectual
property or other proprietary information protection is incomplete, we are exposed to a greater risk of direct competition. A third-party
could, without authorization, copy or otherwise obtain and use our products or technology, or develop similar technology. Our competitors
could purchase our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts
or design around our protected technology. Our failure to secure, protect and enforce our intellectual property rights could substantially
harm the value of our products, brand, and business. The theft or unauthorized use or publication of our trade secrets and other confidential
business information could reduce the differentiation of our products and harm our business, the value of our investment in research and
development or acquisitions could be reduced, and third parties might make claims against us related to losses of their confidential or
proprietary information. Any of the foregoing could materially and adversely affect our business, financial condition, prospects and results
of operations.

 Further, it is possible that
others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology, and in such
cases, we could not assert any trade secret rights against such parties. Unauthorized parties may also attempt to copy or reverse engineer
certain aspects of our products that we consider proprietary. Costly and time-consuming litigation could be necessary to enforce and determine
the scope of our trade secret rights and related confidentiality and nondisclosure provisions. If we fail to obtain or maintain trade
secret protection, or if our competitors obtain our trade secrets or independently develop technology similar to ours or competing technologies,
our competitive market position could be materially and adversely affected. In addition, some courts are less willing or unwilling to
protect trade secrets, and agreement terms that address non-competition are difficult to enforce in many jurisdictions and might not be
enforceable in certain cases. Even though we use commonly accepted security measures, trade secret violations are often a matter of state
law, and the criteria for protection of trade secrets can vary among different jurisdictions.

 We also seek to preserve
the integrity and confidentiality of our data and other confidential information by maintaining physical security of our premises and
physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and
systems, agreements or security measures may be breached and detecting the disclosure or misappropriation of confidential information
and enforcing a claim that a party illegally disclosed or misappropriated confidential information is difficult, expensive, and time-consuming,
and the outcome is unpredictable. Further, we may not be able to obtain adequate remedies for any such breach.

 We may not be able to enforce our intellectual
property rights throughout the world.

 Filing, prosecuting, and
defending patents or trademarks on our current and future products in all countries throughout the world would be prohibitively expensive.
The requirements for patentability and trademarking may differ in certain countries, particularly developing countries. The laws of some
foreign countries do not protect intellectual property rights to the same extent as laws in the United States. Consequently, we may
not be able to prevent third parties from utilizing our inventions and trademarks in all countries outside the United States. Competitors
may use our technologies or trademarks in jurisdictions where we have not obtained patent or trademark protection to develop or market
their own products and further, may export otherwise infringing products to territories where we have patent and trademark protection,
but enforcement on infringing activities is inadequate. These products or trademarks may compete with our current or future products or
trademarks, and our patents, trademarks or other intellectual property rights may not be effective or sufficient to prevent them from
competing.

 Many companies have
encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The
legal systems of certain countries, particularly certain developing countries, may not favor the enforcement of patents, trademarks,
and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents and
trademarks or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent
and trademark rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other
aspects of our business, could put our patents and trademarks at risk of being invalidated or interpreted narrowly, and could
provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other
remedies awarded, if any, may not be commercially meaningful. In addition, certain countries in Europe and many other countries,
including India and China, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third
parties. In those countries, we may have limited remedies if our patents are infringed or if we are compelled to grant a license to
our patents to a third party, which could materially diminish the value of those patents. This could limit our potential revenue
opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a
significant commercial advantage from the intellectual property that we own or license. Finally, our ability to protect and enforce
our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws.

 If our trademarks and trade names are not
adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

 We rely on trademarks and
trade names to build brand recognition and to promote, distinguish and market our products and services. Our current or future registered
and unregistered trademarks or trade names may be challenged, opposed, infringed, circumvented or declared generic or descriptive, determined
to be not entitled to registration, or determined to be infringing other marks. We may not be able to protect our rights to these trademarks
and trade names or may be forced to stop using these names or logos, which we need for name recognition by potential partners or customers
in our markets of interest. During trademark registration proceedings, we may receive rejections of our applications by the USPTO or in
other foreign jurisdictions. Although we would be given an opportunity to respond to those rejections, we may be unable to overcome such
rejections. If our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand
recognition, and could require us to devote resources to advertising and marketing new brands. In addition, in the USPTO and in comparable
agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to
cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive
such proceedings. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete
effectively, and our business may be adversely affected. We may in the future license our trademarks and trade names to third parties.
Although these license agreements may provide guidelines for how our trademarks and trade names may be used, a breach of these agreements
or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in or diminish the goodwill associated with our
trademarks and trade names. Our efforts to enforce or protect our proprietary rights related to trademarks, trade names, and service marks
may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our financial condition
or results of operations.

 Trademark litigation can
be expensive, and the outcome can be highly uncertain. Furthermore, in many countries, owning and maintaining a trademark registration
may not provide an adequate defense against a subsequent infringement claim asserted by the owner of a senior trademark. At times, competitors
or other third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly
leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other
registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. If we assert
trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against
whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced
to cease the use of such trademarks.

 If we are unable to obtain licenses from
third parties on commercially reasonable terms or fail to comply with our obligations under such agreements, our business could be harmed.

 It may be necessary for
us to use the patented or proprietary technology of third parties to commercialize our products, in which case we would be required
to obtain a license from these third parties. The licensing or acquisition of third-party intellectual property rights is a
competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual
property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us
due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies
that perceive us to be a competitor may be unwilling to assign or license rights to us. If we are unable to license such technology,
or if we are forced to license such technology, on unfavorable terms, our business could be harmed. If we are unable to obtain a
necessary license, we may be unable to develop or commercialize the affected product candidates, which could harm our business, and
the third parties owning such intellectual property rights could seek either an injunction prohibiting our sales, or, with respect
to our sales, an obligation on our part to pay royalties and/or other forms of compensation. Even if we are able to obtain a
license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us.

 Moreover, some of our patents
and patent applications in the future may be jointly owned with third parties. If we are unable to obtain an exclusive license to any
such third-party joint owners' interest in such patents or patent applications, such joint owners may be able to license their rights
to other third parties, including our competitors, who could market competing products and technology. In addition, we may need the cooperation
of any such joint owners in order to enforce such patents against third parties, and such cooperation may not be provided to us. Any of
the foregoing could harm our business, financial condition and results of operations.

 If our third-party manufacturers do not
respect our intellectual property and trade secrets and produce or sell competitive products using our designs or intellectual property,
our business, financial condition, prospects and results of operation would be harmed.

 Although our agreements with
third-party manufacturing partners generally seek to preclude them from misusing our intellectual property and trade secrets, or using
our designs to manufacture products for our competitors, we may be unsuccessful in monitoring and enforcing our intellectual property
rights and may find counterfeit goods in the market being sold as our products and any future products similar to ours produced for our
competitors using our intellectual property. Additionally, any steps to stop counterfeits may not be successful and customers who purchase
these counterfeit goods may experience product defects or failures, harming our reputation and brand and causing us to lose future sales.
Any of the foregoing could harm our business, financial condition and results of operations.

 Intellectual property rights do not necessarily
address all potential threats, and limitations in intellectual property rights could harm our business, financial condition, prospects
and results of operations.

 The degree of future protection
afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately
protect our business or permit us to maintain our competitive advantage. For example:

 others
may be able to make products that are similar to our products or utilize similar technology but that are not covered by the claims of
our patents or that incorporate certain technology in our products that is in the public domain;

 we,
or our future licensors or collaborators, might not have been the first to make the inventions covered by the applicable issued patent
or pending patent application that we own now or may own or license in the future;

 we,
or our future licensors or collaborators, might not have been the first to file patent applications covering certain of our or their
inventions;

 we,
or our future licensors or collaborators, may fail to meet our obligations to the U.S. government regarding any future patents and
patent applications funded by U.S. government grants, leading to the loss or unenforceability of patent rights;

 others
may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual
property rights;

 it
is possible that our patents or patent applications omit individuals who should be listed as inventors or include individuals that should
not be listed as inventors, which may cause these patents or patents issuing from these patent applications to be held invalid or unenforceable;

 claims of our patents or patent applications, if and when issued, may not cover our products or technologies or competitive products or technologies;

 the inventors of our patents or patent applications may become involved with competitors, develop products or processes that design around our patents, or become hostile to us or the patents or patent applications on which they are named as inventors;

 our competitors or other third parties might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

 we have engaged in scientific collaborations in the past and will continue to do so in the future and our collaborators may develop adjacent or competing products that are outside the scope of our patents;

 we
may not develop additional proprietary technologies that are patentable;

 the
patents of others may harm our business; or

 we
may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third-party may subsequently file a patent
covering such intellectual property.

 Any of the foregoing could
harm our business, financial condition, prospects and results of operations.

 Our contracts with BARDA and DHA may affect
our intellectual property rights.

 Our contracts with BARDA
and DHA include provisions that implement the Bayh-Dole Act of 1980 relating to a uniform patent policy among the many federal
agencies funding research, which grants the U.S. government certain rights in inventions that may be conceived or first actually
reduced to practice under the contract. In particular, pursuant to the Federal Acquisition Regulations which governs executive agencies
acquisition of services with appropriated funds, the U.S. government is granted a nonexclusive, nontransferable, irrevocable, paid-up,
worldwide license to practice such inventions or have such inventions practiced for or on behalf of the U.S. government. In addition
to our intellectual property rights, the BARDA and DHA contracts each provide certain data rights to the U.S. government with unlimited
rights in: (i) data first produced in the performance of this contract; (ii) form, fit, and function data delivered under the
contract; (iii) data delivered under this contract (except for restricted computer software) that constitute manuals or instructional
and training material for installation, operation, or routine maintenance and repair of items, components, or processes delivered or furnished
for use under this contract; and (iv) all other data delivered under this contract unless provided otherwise for limited rights data
or restricted computer software.

 Nasdaq may delist our securities from trading
on its exchange, which could limit investors' ability to make transactions in our securities and subject us to additional trading
restrictions.

 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 this were to occur, we could face significant material adverse consequences, including:

 a
limited availability of market quotations for our securities;

 reduced
liquidity for our securities;

 a
determination that our Common Stock are a "penny stock" which will require brokers trading in our Common Stock to adhere
to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

 a
limited amount of news and analyst coverage; and

 a
decreased ability to issue additional securities or obtain additional financing in the future.

 The listing of our securities on Nasdaq
did not benefit from the process undertaken in connection with an underwritten initial public offering.

 On
September 12, 2023, following completion of the Company's business combination with Rosecliff Acquisition Corp I (the "Business
Combination") our Common Stock and our Warrants were listed on the Nasdaq under the symbols "MDAI" and "MDAIW,"
respectively. Unlike an underwritten initial public offering of our securities, the initial listing of our securities as a result of the
Business Combination did not benefit from the following:

 the
book-building process undertaken by underwriters that helps to inform efficient price discovery with respect to opening trades of newly
listed securities;

 underwriter
support to help stabilize, maintain or affect the public price of the new issue immediately after listing; and

 potential
underwriter liability for material misstatements or omissions of fact in a prospectus used in connection with the securities being offered
or for statements made by the underwriters' securities analysts or other personnel.

 The lack of such a process
in connection with the listing of our securities could result in diminished investor demand, inefficiencies in pricing and a more volatile
public price for our securities in the near future than in connection with an underwritten initial public offering.

 The Charter provides that the Court of Chancery
of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could
limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.

 The Charter provides that
unless we consent in writing to the selection of an alternative forum, the Court of Chancery (the "Chancery Court") of the
State of Delaware (or, in the event that the Chancery Court does not have jurisdiction, the federal district court for the District of
Delaware or other state courts of the State of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum
for: (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action, suit or proceeding asserting
a claim of breach of a fiduciary duty owed by any current or former director, officer or other employee, agent or stockholder of the Company
to the Company or to the Company's stockholders, (iii) any action, suit or proceeding asserting a claim against the Company,
its current or former directors, officers, or employees, agents or stockholders arising pursuant to any provision of the DGCL or our Charter
or Bylaws, or (iv) any action, suit or proceeding asserting a claim against the Company, its current or former directors, officers,
or employees, agents or stockholders governed by the internal affairs doctrine.

 The exclusive forum provision
set forth above does not apply to, and does not preclude or contract the scope of, either (i) exclusive federal jurisdiction pursuant
to Section 27 of the Exchange Act for claims seeking to enforce any liability or duty created by the Exchange Act or the
rules and regulations thereunder, or any other claim for which the U.S. federal courts have exclusive jurisdiction, or (ii) concurrent
jurisdiction under Section 22 of the Securities Act for federal and state courts over all claims seeking to enforce any liability
or duty created by the Securities Act or the rules and regulations thereunder. Our stockholders will not be deemed to have waived our
compliance with the federal securities laws and the rules and regulations thereunder.

 The choice of forum provision
may limit a stockholder's ability to bring, and increase the cost of, a claim in a judicial forum that it finds favorable for disputes
with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers, and
other employees. Alternatively, if a court were to find the choice of forum provision contained in the Charter to be inapplicable or unenforceable
in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business,
results of operations, and financial condition.

 The failure of any bank in which we deposit
our funds could have an adverse effect on our financial condition.

 We deposit substantial funds
in financial institutions and may, from time to time, maintain cash balances at such financial institutions in excess of the Federal Deposit
Insurance Corporation limit. Should one or more of the financial institutions at which deposits are maintained fail, there is no guarantee
as to the extent that we would recover the funds deposited, whether through Federal Deposit Insurance Corporation coverage or otherwise,
or the timing of any recovery.

 Risks Relating to the Ownership of Our Securities

 The price of Common Stock and Warrants may
be volatile.

 Fluctuations in the price
of the Company's securities could contribute to the loss of all or part of your investment. The valuation ascribed to the Company
in the Business Combination may not be indicative of the price that will prevail in the trading market. If an active market for our securities
develops and continues, the trading price of the Company's securities could be volatile and subject to wide fluctuations in response
to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your
investment in our securities and the Company's securities may trade at prices significantly below the price you paid for them. In
such circumstances, the trading price of our securities may not recover and may experience a further decline.

 Factors affecting the trading
price of the Company's securities may include:

 actual
or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar
to us;

 changes
in the market's expectations about the Company's operating results;

 success
of competitors;

 the
public's reaction to our press releases, other public announcements and filings with the SEC,

 operating
results failing to meet the expectations of securities analysts or investors in a particular period;

 changes
in financial estimates and recommendations by securities analysts concerning the Company or the industry in which the Company operates
in general;

 operating
and stock price performance of other companies that investors deem comparable to the Company;

 ability
to market new and enhanced products and services on a timely basis;

 changes
in laws and regulations affecting our business;

 commencement
of, or involvement in, litigation involving the Company;

 changes
in the Company's capital structure, such as future issuances of securities or the incurrence of additional debt;

 the
volume of shares of the Company's common stock available for public sale;

 any
major change in the Company's board or management;

 sales
of substantial amounts of the Company's common stock by our directors, executive officers or significant stockholders or the perception
that such sales could occur; and

 general
economic and political conditions such as recessions, changes in interest rates, changes in fuel prices, international currency fluctuations
and acts of war or terrorism.

 Broad market and industry
factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general,
and Nasdaq specifically, have experienced extreme volatility that has often been unrelated to the operating performance of particular
companies. As a result of this volatility, our investors may not be able to sell your securities at or above the price at which they were
acquired. A loss of investor confidence in the market for the stocks of other companies which investors perceive to be similar to the
Company could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline
in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain
additional financing in the future.

 The Company amended the exercise
price of the Company's publicly-traded warrants from $11.50 to $2.75 per share in November 2024. The change in the exercise price
may provide incentive to investors to exercise the public warrants. There can be no assurance that the public warrants will be exercised
in part or in full, nor can there be any assurance that the change in exercise price has any positive impact on the Company's stock
price or will contribute in any meaningful way in the raising of additional operating capital for the Company from the aggregate exercise
price from the exercise by holders of the public warrants.

 Changes in laws, regulations or rules, or
a failure to comply with any laws, regulations or rules, may adversely affect our business, investments and results of operations.

 The Company is subject to
laws, regulations and rules enacted by national, regional and local governments and the Nasdaq. In particular, Company is required to
comply with certain SEC, Nasdaq and other legal or regulatory requirements. Compliance with, and monitoring of, applicable laws, regulations
and rules may be difficult, time consuming and costly. Those laws, regulations or rules and their interpretation and application may also
change from time to time and those changes could have a material adverse effect on Company's business, investments and results of
operations. In addition, a failure to comply with applicable laws, regulations or rules, as interpreted and applied, could have a material
adverse effect on Company's business and results of operations.

 If we fail to maintain proper and effective
internal controls over financial reporting, our ability to produce accurate and timely financial statements could be impaired, investors
may lose confidence in our financial reporting and the trading price of our Common Stock may decline.

 Effective internal controls
over financial reporting are necessary for the Company to provide reliable financial reports and, together with adequate disclosure controls
and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered
in their implementation could cause the Company to fail to meet its reporting obligations. In addition, any testing by the Company conducted
in connection with Section 404 of the Sarbanes-Oxley Act ("Section 404") or any subsequent testing by the Company's
independent registered public accounting firm, may reveal deficiencies in the Company's internal controls over financial reporting
that are deemed to be material weaknesses or that may require prospective or retroactive changes to the Company's financial statements
or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence
in the Company's reported financial information, which could have a negative effect on the trading price of the Company's
stock.

 For as long as the Company
is an emerging growth company, its independent registered public accounting firm will not be required to attest to the effectiveness of
its internal controls over financial reporting pursuant to Section 404. An independent assessment of the effectiveness of the Company's
internal controls over financial reporting could detect problems that the Company's management's assessment might not detect.
Undetected material weaknesses in the Company's internal controls over financial reporting could lead to restatements of the Company's
consolidated financial statements and require the Company to incur the expense of remediation.

 If the Company is not
able to comply with the requirements of Section 404 in a timely manner or it is unable to maintain proper and effective
internal controls over financial reporting may not be able to produce timely and accurate consolidated financial statements. As a
result, the Company's investors could lose confidence in its reported financial information, the market price of the Common
Stock could decline and the Company could be subject to sanctions or investigations by the SEC or other regulatory authorities.

 Our internal controls over financial reporting
currently do not meet all of the standards contemplated by Section 404 of the Sarbanes-Oxley Act of 2002, as amended ("SOX"),
and failure to achieve and maintain effective internal controls over financial reporting in accordance with Section 404 of SOX could impair
our ability to produce timely and accurate financial statements or comply with applicable regulations and have a material adverse effect
on our business. In the future, our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

 As a public company, we are subject to certain reporting requirements
of the Exchange Act and have significant requirements for enhanced financial reporting and internal controls. Our disclosure controls
and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the
Exchange Act is accumulated and communicated to management, recorded, processed, summarized, and reported within the time periods specified
in the rules and forms of the SEC. The process of designing and implementing effective internal controls is a continuous effort that requires
us to anticipate and react to changes in our business and the economic and regulatory environments, and to expend significant resources
to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable
to maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations
on a timely basis, result in material misstatements in our consolidated financial statements, and harm our operating results. We believe
that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls.
Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud
may occur and not be detected. In addition, we are required, pursuant to Section 404 of the Sarbanes–Oxley Act of 2002, as amended
("SOX"), to furnish a report by management on, among other things, the effectiveness of our internal control over financial
reporting in our Annual Report on Form 10-K. This assessment includes disclosure of any material weaknesses identified by our management
in our internal control over financial reporting. The rules governing the standards that must be met for our management to assess our
internal control over financial reporting are complex and require significant documentation, testing, and possible remediation. Testing
and maintaining internal controls may divert management's attention from other matters that are important to our business. As an
emerging growth company, our independent registered public accounting firm will not be required to formally attest to the effectiveness
of our internal control over financial reporting pursuant to Section 404 until our annual report for any fiscal year following such date
that we are no longer an emerging growth company. If we are not able to complete our initial assessment of our internal controls and otherwise
implement the requirements of Section 404 of SOX in a timely manner or with adequate compliance, our independent registered public accounting
firm may not be able to certify as to the adequacy of our internal controls over financial reporting. Additionally, when required, an
independent assessment of the effectiveness of our internal controls over financial reporting could detect problems that our management's
assessment might not. Undetected material weaknesses in our internal controls over financial reporting could lead to financial statement
restatements and require us to incur the expense of remediation. Matters impacting our internal controls may cause us to be unable to
report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the
SEC or violations of applicable stock exchange listing rules, which may result in a breach of the covenants under existing or future financing
arrangements. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability
of our consolidated financial statements. Confidence in the reliability of our consolidated financial statements also could suffer if
we or our independent registered public accounting firm report a material weakness in our internal controls over financial reporting.
In connection with the preparation of our consolidated financial statements for the year ended December 31, 2024, we identified a material
weakness in our internal control over financial reporting related to deficiencies in our controls over the accounting for complex equity
arrangements, financial statement close process and in the design and operation of internal controls involving accruals and unbilled revenue.

 We have implemented, and are continuing to implement, measures designed
to improve our internal control over financial reporting to remediate this material weakness. These measures include formalizing our processes
and internal control documentation, strengthening supervisory reviews by our financial management, engaging financial consultants to enable
the implementation of internal control over financial reporting, and enhancing the 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.
We expect to incur additional costs to remediate the control deficiencies identified, though there can be no assurance that our efforts
will be successful or avoid potential future material weaknesses. If we are unable to successfully remediate our existing or any future
material weaknesses in our internal control over financial reporting, or if we identify any additional material weaknesses, the accuracy
and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements
regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence
in our financial reporting, and our stock price may decline as a result. We also could become subject to investigations by Nasdaq, the
SEC or other regulatory authorities. Our internal resources and personnel may in the future be insufficient to avoid accounting errors
and there can be no assurance that we will not have additional material weaknesses in the future. Any failure to develop or maintain effective
controls or any difficulties encountered implementing required new or improved controls could harm our operating results or cause us to
fail to meet our reporting obligations and may result in a restatement of our consolidated financial statements for prior periods. Any
failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic
management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our
internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with
the SEC. Ineffective disclosure controls, procedures, and internal control over financial reporting could also cause investors to lose
confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common
stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on Nasdaq.

 If securities analysts do not publish research
or reports about us, or if they issue unfavorable commentary about us or our industry or downgrade our Common Stock, the price of our
Common Stock could decline.

 The trading market for our
Common Stock will depend in part on the research and reports that third-party securities analysts publish about us and the industries
in which we operate. We may be unable or slow to attract new research coverage and if one or more analysts cease coverage of us, the
price and trading volume of our securities would likely be negatively impacted. If any of the analysts that may cover us change their
recommendation regarding our securities adversely, or provide more favorable relative recommendations about our competitors, the price
of our securities would likely decline. If any analyst that may cover us ceases covering us or fails to regularly publish reports on
us, we could lose visibility in the financial markets, which could cause the price or trading volume of our securities to decline. Moreover,
if one or more of the analysts who cover us downgrades our Common Stock, or if our reporting results do not meet their expectations,
the market price of our Common Stock could decline.

 Sales, or the perception of sales, of our
common stock by us or our existing stockholders in the public market could cause the market price for our common stock to decline.

 The sale of substantial
amounts of shares of our common stock in the public market, or the perception that such sales could occur, could harm the prevailing
market price of shares of our Common Stock. These sales, or the possibility that these sales may occur, also might make it more difficult
for us to sell equity securities in the future at a time and at a price that we deem appropriate.

 Upon the expiration or waiver
of certain lock-up restrictions, shares held by certain of our stockholders will be eligible for resale, subject to, in the case of certain
stockholders, volume, manner of sale and other limitations under Rule 144. As restrictions on resale end, the market price of shares
of our Common Stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to
sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of
Common Stock or other securities.

 In addition, the shares
of our Common Stock reserved for future issuance under the Spectral AI, Inc. 2023 Equity Incentive Plan, which was approved and adopted
by the Company at its first annual meeting following the Business Combination ("Equity Incentive Plan") in May 2024, will
become eligible for sale in the public market once those shares are issued, subject to provisions relating to various vesting agreements,
lock-up agreements and, in some cases, limitations on volume and manner of sale by affiliates under Rule 144, as applicable. The
number of shares to be reserved for future issuance under the Equity Incentive Plan is expected to equal approximately 8,000,000 shares.

 We have filed a registration
statement on Form S-8 under the Securities Act to register shares of our common stock or securities convertible into or exchangeable
for shares of our common stock issued pursuant to our equity incentive plans. Form S-8 registration statements automatically become
effective upon filing. Accordingly, the initial registration statement on Form S-8 covered approximately 5,466,000 shares of our
common stock.

 Warrants will become exercisable for Company
common stock, which would increase the number of shares eligible for resale in the public market and result in dilution to our stockholders.

 Outstanding warrants to
purchase an aggregate of 8,433,333 shares of Common Stock will become exercisable in accordance with the terms of the Warrant Agreement
governing those securities. Each warrant originally entitled the registered holder to purchase one share of Common Stock at a price of
$11.50 per full share. As noted above, in November 2024, the Company reduced the exercise price from $11.50 per full share to $2.75 per
full share. Pursuant to the Warrant Agreement, a holder of Warrants may exercise its Warrants only for a whole number of shares. This
means that only a whole warrant may be exercised at any given time by a holder of Warrants. To the extent such warrants are exercised,
additional shares of the Common Stock will be issued, which will result in dilution to the holders of the Common Stock and increase the
number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact
that such warrants may be exercised could adversely affect the market price of the Common Stock.

 Item 1.B. Unresolved Staff Comments.

 None.

 Item 1.C. Cybersecurity

 Risk Management and Strategy

 The Company manages cybersecurity
risk as part of our overall enterprise risk management strategy, which is overseen by the Audit Committee and the Board. The Company
employs robust cybersecurity and data privacy programs to assess, identify and manage material risks from cybersecurity threats.

 We are constantly evolving
our cyber defenses to minimize impacts from cyber threats by using a multi-pronged approach that helps safeguard our assets and data.
We are particularly focused on addressing emerging cybersecurity risks, including human risk, as phishing attacks remain one of the most
common causes of data breaches; third-party supply chain risks, as threat actors continue to target supply chains to compromise a greater
number of victims; and geopolitical risk, as tensions and conflicts around the world are often accompanied by an increase in sabotage,
espionage and cyber-attacks. As threat actors frequently target employees to gain access to information and systems, we have a comprehensive
human risk management program that educates our workforce on threats they face as a first line of defense, and includes elements addressing
phishing, malware, data handling, device security, cybersecurity education, password security, internet browsing and defenses to physical
threats. Our employees are exposed to cybersecurity awareness training and training to keep pace with industry standards, evolving challenges
and innovative solutions with respect to information security, data privacy, and cybersecurity risks to the organization. Additionally,
we employ a multi-layered approach in our application of cybersecurity technologies to help safeguard our systems, networks, and data
from potential cybersecurity threats.

 To support our preparedness,
we have a cybersecurity incident response plan ("CIRP") that we regularly update as business needs and the security landscapes
change. In the event of a cybersecurity incident, our incident response team refers to our CIRP and existing management internal controls
and disclosure processes. Pursuant to this process, designated personnel are responsible for assessing the severity of the incident and
any associated threats, containing and resolving the incident as quickly as possible, managing any damage to the Company's systems
and networks, minimizing the impact on the Company's stakeholders, analyzing and executing upon internal reporting obligations,
escalating information about the incident to senior management, as appropriate, and performing post-incident analysis and program enhancements,
as needed. We perform periodic tabletop exercises annually to test our incident response procedures, identify gaps and improvement opportunities
and exercise team preparedness.

 We recognize that third
parties that provide services to the Company can be subject to cybersecurity incidents that could impact the Company. To manage third-party
risk, we maintain a third-party risk management program,which is designed to assess the security controls of our third parties. The assessment
methodology is based on risk and relies on the data, access, connectivity, and criticality of the services that the third-party offers.

 We maintain relationships
with legal counsel to inform our cybersecurity and data privacy programs.

and through the date of this filing, we are not aware of any material cybersecurity incidents that have impacted the Company. We face
risks of incidents, whether through cyber attacks or cyber intrusions through the Cloud, the Internet, phishing attempts, ransomware
and other forms of malware, computer viruses, email attachments, extortion, and other scams. Although we make efforts to maintain the
security and integrity of our information technology systems, these systems and the proprietary, confidential and personal information
that resides on or is transmitted through them, are subject to the risk of a cybersecurity incident or disruption, and there can be no
assurance that our security efforts and measures, and those of our third-party vendors, will prevent breakdowns or incidents to our or
our third-party vendors' systems that could adversely affect our business.

 Governance

 The Company's cybersecurity
and data privacy programs are implemented and overseen by the Company's designated director of information systems ("IT Director")
and senior management. The information security team responsible for managing and implementing the Company's cybersecurity and
data privacy programs has many years of valuable business experience managing risks from cybersecurity threats and data privacy breaches
and developing and implementing cybersecurity and data privacy policies and procedures.

 Our Audit Committee, which
consists solely of independent directors, oversees the Company's overall enterprise risk assessment and risk management policies
and guidelines, including risks related to cybersecurity matters. Our Audit Committee reviews, discusses with management and oversees
the Company's information security and data protection programs. In particular, the Audit Committee receives periodic updates from
the IT Director, internal audit function and other members of management on significant cybersecurity and data privacy threats to our
systems and the potential impact on the Company's business, financial results, operations, and reputation, risk management strategies,
including information governance and security policies and programs, program assessments, planned improvements, major legislative and
regulatory developments that could materially impact the Company's cybersecurity and data privacy policies and programs, and status
of information security initiatives, including an appropriate threat assessment relating to information technology risks. The Board also
receives similar cybersecurity updates directly from the IT Director and other members of management at least annually, and as needed
from time to time.

 Item 2. Properties.

 We currently maintain our
executive offices, which are located at 2515 McKinney Avenue, Suite 1000, Dallas, TX 75201. The cost for this space is approximately
$105,000 per month. We also maintain an office space in the United Kingdom at Orion House, Bessemer Road, Welwyn Garden City, Herts Al7
1HH. The cost for this space is $14,000 per month. We consider our current office space adequate for our current operations.

 Item 3. Legal Proceedings.

 The Company is not a party
to any material legal proceedings or pending claims. 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. To our knowledge, there is not any material legal proceeding threatened against any of our officers or directors
in their corporate capacity.

 Item 4. Mine Safety Disclosures.

 None.

 PART II.

 Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.

 Market Information

 Following the Business Combination,
our Common Stock began trading on Nasdaq on September 12, 2023. The shares of Common Stock and our redeemable warrants trade on Nasdaq
under the symbols "MDAI" and "MDAIW", respectively.

 Holders

 As of March 26, 2025, there were at least 1,600 holders of record of
25,317,196 shares of our Common Stock and 15 holders of record of our redeemable warrants.

 Dividends

 We have not declared or
paid any dividends on our capital stock to date. We anticipate that we will retain all of our future earnings, if any, for use in the
operation and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Any future determination
related to our dividend policy will be made at the discretion of our board of directors after considering our business prospects, results
of operations, financial condition, cash requirements and availability, debt repayment obligations, capital expenditure needs, contractual
restrictions, covenants in the agreements governing current and future indebtedness, industry trends, the provisions of Delaware law
affecting the payment of dividends and distributions to stockholders and any other factors or considerations the Board deems relevant.

 Securities Authorized for Issuance Under Equity
Compensation Plans

 In 2024, we awarded options
and restricted stock units to key employees (including our named executive officers) for retention, engagement and bonus compensation
awards. These awards are designed to align a portion of our named executive officers' compensation with the interests of our existing
stockholders and to build retention value by incentivizing our named executive officers to remain in our service.

 2018 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. In May
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 to be 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
2023 Plan. The maximum aggregate number of shares that may be issued under the Plan shall not exceed 8,000,000. The Board of Directors
may increase the number of shares in the Plan by adding additional shares 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. No new shares were added to the Plan in 2025. 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. Under the 2023 Plan, 4,236,113 shares remain available
for issuance through grants of future options. RSUs awarded under the 2023 Plan for the purchase of common stock will vest based on continued
service which is generally three years or based on the achievement of market terms as set forth in the individual awards. The grant date
fair value of the award will be recognized as compensation expense over the requisite service period. The fair value of the RSUs is estimated
on the date of grant based on the fair value of the Company's common stock. 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.

 Performance Graph

 The performance graph has
been omitted as permitted under rules applicable to smaller reporting companies.

 Recent Sales of Unregistered Securities; Use
of Proceeds from Registered Offerings

 Unregistered Securities

 Yorkville Standby Equity Purchase Agreement

 On March 20, 2024, the Company
entered into the 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 $30,000,000 of its shares of 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"). 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, and the Company is under no obligation to sell any shares of Common Stock to Yorkville under
the SEPA. While the Convertible Notes were outstanding, Yorkville was able to issue share purchase notices, as described in the SEPA.

 In connection with the SEPA, and subject to the conditions set forth
therein, Yorkville had previously agreed to advance to the Company, in the form of convertible promissory notes (the "Convertible
Notes"), an aggregate principal amount of up to $12,500,000 million (the "Pre-Paid Advance"), which was paid in three
tranches. The first Pre-Paid Advance was disbursed on March 20, 2024 in the amount of $5,000,000 with a fixed conversion price of $3.16.
The Company received $4,600,000 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 if needed to exceed the beneficial ownership limitation and the second Pre-Paid Advance
was disbursed on May 16, 2024 in the amount of $4,600,000, which was the $5,000,000 second Pre-Paid Advance net of $400,000 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 $2,300,000, which is the $2,500,000 third Pre-Paid Advance net of the $200,000 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 maturity date of the Convertible Note issue in connection with each Pre-Paid Advance was12 months after the issuance date of
such Convertible Note.

 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, plus (ii) a payment premium of 7% of such Installment Principal Amount, and (iii) accrued and unpaid
interest hereunder as of each Installment Date, if any. In October 2024, the Company and Yorkville agreed to amend the Installment 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 was paid in full on February 17, 2025. As of December 31, 2024, $7,768,508 of the outstanding balance of the Pre-Paid Advances
was paid in cash and $2,400,000 has been 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. The Company paid no interest relating to the Convertible Notes.

 B. Riley Committed Equity Facility

 On December 26, 2023, the
Company entered into a Common Stock Purchase Agreement (the "Purchase Agreement") with B. Riley Principal Capital II, LLC
("B. Riley"), pursuant to which, upon the terms and subject to the satisfaction of the conditions contained in the Purchase
Agreement, we have the right, in our sole discretion, to sell to B. Riley up to $10,000,000 of shares of the Common Stock (subject to
certain limitations contained in the Purchase Agreement), from time to time during the term of the Purchase Agreement through a Market
Open Purchase or an Intraday Purchase on any Purchase Date (each term as defined in the Purchase Agreement). Sales of Common Stock pursuant
to the Purchase Agreement, and the timing of any sales, are solely at our option, and we are under no obligation to sell any securities
to B. Riley under the Purchase Agreement (such transaction, the "B. Riley Transaction"). We have previously raised $2.7 million
from share issuances under the B. Riley Transaction. The Company maintained the right to raise up to $3,000,000 of shares of its Common
Stock from the B. Riley transaction upon execution of the SEPA with Yorkville.

 Use of Proceeds

 There has been no material
change in the planned use of the proceeds from the B. Riley transaction or the Yorkville SEPA, as is described in the Company's
final prospectuses related to the B. Riley Transaction (Registration No. 333-276406), as filed with the SEC on January 2, 2024, and the
Yorkville Transaction (Registration No. 333-278610), as filed with the SEC on February 1, 2024. For a description of the use of the proceeds
generated from the different financings, see "Item 1. Business."

 Item 6. [Reserved].

 Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.

 You should read the following
discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and
related notes included elsewhere in this Annual Report on Form 10-K (the "Annual Report"). Some of the information contained
in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy
for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those
factors set forth in the section titled "Risk Factors," our actual results could differ materially from the results described
in or implied by the forward-looking statements contained in the following discussion and analysis.

 Overview

 We are an artificial intelligence ("AI") company focused
on predictive medical diagnostics. We operate in one segment. Currently, we are devoting substantially all of our efforts towards research
and development of our DeepView System, an internally developed multi-spectral imaging device that has previously received
FDA breakthrough device designation status for an earlier version. Given our recent receipt of the UKCA mark for burn indication on our
DeepView System, we expect to begin commercialization activities in the United Kingdom in 2025. Our DeepView System uses proprietary algorithms
to distinguish between damaged and healthy human tissue invisible to the naked eye, providing "Day One" healing assessments.
DeepView's output is specifically engineered to allow the physician to make a more accurate, timely and informed decision regarding
the treatment of the patient's wound. Our focus has been on the burn indication which is supported by the BARDA PBS contract.

 For burn wounds, a non-healing assessment
could aid the clinician in making an immediate and objective determination for appropriate candidates for surgery, as well as determining
what specific areas of the burn wound will require excision and skin grafting. We have conducted three large clinical studies with
multiple sites across the United States, enrolling 413 burn patients, including 329 adult and 84 pediatric patients. Through these studies,
we were able to quantify the burn assessment accuracy in patients undergoing both surgical and non-surgical treatment. In December
2023, we initiated a pivotal clinical study seeking enrollment of 240 patients, including 180 adult and 60 pediatric patients through
multiple sites across the United States in both burn center and emergency departments. By the end of 2024, the Company had completed
the enrollment of the pivotal clinical study with 267 patients, including 146 at burn centers, 121 at emergency departments across 22
sites across the United States. As part of the total 267 patients enrolled, 42 pediatric patients were included from burn centers and
another 42 pediatric patients were included from emergency departments.

 We have not generated any product revenue to date. We have received
substantial support from the U.S. government for our DeepView System's application for burn wounds, particularly from the Biomedical
Advanced Research and Development Authority ("BARDA"), which is part of the HHS Office of the Assistant Secretary for Preparedness
and Response in the United States, established to aid in securing the United States from chemical, biological, radiological,
and nuclear threats, as well as from pandemic influenza and emerging infectious diseases. We have also received funding from the National
Science Foundation (the "NSF"), the National Institute of Health (the "NIH") and the Defense Health Agency (the
"DHA"). Since 2013, we have received approximately $281.9 million in funding awards from government contracts, primarily
from BARDA, which accounts for $272.9 million. This has allowed us to develop our technology and further our clinical trials.

 In September 2023, we executed
our third contract with BARDA for a multi-year Project BioShield ("PBS") agreement, 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 marketing and distribution purposes, which we expect to
continue through the first quarter of 2026. This contract funding is non-dilutive to our shareholders, and we believe it validates
the important nature of our mission and technology.

 In addition to our PBS BARDA
Contract, we received a $4.0 million grant award from the Medical Technology Enterprise Consortium ("MTEC") in April
2023, which, building on prior awards from DHA, is to be used to support military battlefield burn evaluation via a handheld version
of the DeepView System (the "MTEC Agreement"). 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 DHA to further this development, for a total contract value of approximately $2.8 million.

 Once commercialized, we anticipate that the DeepView System will have
two revenue streams, a SaMD (software as a medical device) model, and an imaging device component. The SaMD model applies a SaaS (software
as a service) treatment for the DeepView System which will feature a software licensing fee that includes maintenance, image hosting,
and access to algorithm updates. The proprietary imaging device accesses artificial intelligence algorithms and is a universal platform
to house multiple clinical applications. Pricing for these components will be evaluated and strategically set per country and site-of-service for
heightened customer adoption.

 Business Combination

 On September 12, 2023, following
completion of the Business Combination, the Company began trading its shares of the Company Common Stock and the Public Warrants on the
Nasdaq Global Market (the "Nasdaq") under the symbols "MDAI" and "MDAIW", respectively.

 Financial Operations Overview

 Research and Development Revenue

 To date we have not generated
any revenues from the sale or license of our products. Our primary source of revenue is research and development revenue. Currently,
we are highly dependent upon the reimbursements from BARDA for the burn diagnostic testing of our DeepView System and other U.S. government
awards. Our research and development revenue is affected by the amount of research and development that is expended each month with respect
to our contract with BARDA and other U.S. governmental contract awards, such as our grant under the MTEC Agreement which we earn based
on the achievement of milestones. Our revenue growth is dependent upon a number of factors including expanding the research and development
activities under the BARDA contract, research and development reimbursed expenses relating to other contract awards from U.S. governmental
agencies and the intended future commercial sales of our DeepView System. See "Liquidity and Capital Resources" for additional
information.

 Cost of Revenue

 Our cost of revenues consists
primarily of direct and indirect costs associated with the research and development activities relating to the BARDA and MTEC contracts.
Our cost of revenue is affected by the extent of research and development activities as well as expansion of work on other U.S. governmental
projects and the expanded applications for our DeepView System.

 Gross Profit

 Gross profit may vary from
period-to-period and is primarily affected by the current reimbursement rates under the BARDA contract and other U.S. governmental contract
awards. These reimbursement rates are fixed under the BARDA contract. Under the BARDA contract our gross profit represents this reimbursement
rate plus a fixed fee component relating to non-reimbursed expenses incurred in connection with the work completed. Under the other fixed
fee U.S. governmental contract awards our gross profit corresponds to the achievement of pre-determined milestones.

 Operating Expenses

 Operating costs and expenses
consist of general and administrative expenses. These expenses primarily relate to salaries and related costs of our organization's
support and operations staff, consulting fees, rent, insurance and office expenses, and our non-revenue generating research and development
expenses, primarily related to salaries and related costs and consulting fees.

 Other Income (Expense)

 In 2024, other income (expense) consists of fees incurred in connection
with the Yorkville transaction and B. Riley purchase agreement, net interest income, borrowing related costs related to the Yorkville
convertible notes, including the 8% original issue discount and 7% repayment premium as may be applicable per each Pre-Paid Advance, change
in fair value of notes payable, change in fair value of warrant liabilities, changes in fair value of derivatives, and foreign exchange
transaction gains/losses. In 2023, other income (expense) consists of transaction costs related to the Business Combination, net interest
income, change in fair value of warrant liabilities and foreign exchange transaction gain/losses. Historic foreign exchange transaction
loss primarily relates to changes in the exchange rate between the U.S. dollar and the British pound sterling for our deposit accounts
that are denominated in British pound sterling. In addition, this amount includes costs associated with currency translation costs associated
with purchasing British pound sterling for payment of our employees and vendors in the UK.

 Key Operating and Financial Metrics

 We regularly review a
number of metrics, including the following key operating and financial metrics, to evaluate our business, measure our performance,
identify trends in our business, prepare financial projections and make strategic decisions. We believe the operating and financial
metrics presented are useful in evaluating our operating performance, as they are similar to measures by our public competitors and
are regularly used by security analysts, institutional investors, and other interested parties in analyzing operating performance
and prospects. Adjusted EBITDA is a non-GAAP measure, as it is not a financial measure calculated in accordance with GAAP and
should not be considered as a substitute for net (loss) income, calculated in accordance with GAAP. See
"Non-GAAP Financial Measures" for additional information on adopted non-GAAP financial measures and a
reconciliation of these non-GAAP measures to the most comparable GAAP measures.

 Comparison of
Years Ended December 31, 2024 and 2023

 The following table summarizes
these metrics for the years ended December 31, 2024 and 2023 (in thousands):

 2024

 2023

 Change

 $

 $

 $
 11,525

 Gross profit

 13,274

 7,880

 5,394

 Gross margin

 44.9
 %

 43.6
 %

 1.2
 %

 Operating loss

 (6,582
)

 (12,984
)

 6,402

 (15,315
)

 (20,854
)

 5,539

 Adjusted EBITDA

 (5,540
)

 (11,732
)

 6,192

 See "Non-GAAP Financial
Measures" below for a reconciliation of net loss to Adjusted EBITDA.

 Research and Development Revenue

 We define research and development
revenue as revenue generated from the research, testing and development of our DeepView System as utilized in connection with our burn
indication. This research and development revenue reflects applied research and experimental development costs relating to our burn application
as developed in connection with our BARDA, MTEC and DHA contracts.

 Gross Profit and Gross Margin

 We define gross profit as research and development revenue, less cost
of revenue, and define gross margin, expressed as a percentage, as the ratio of gross profit to revenue. Gross profit and gross margin
can be used to understand our financial performance and efficiency and as we begin commercialization, it will allow investors to evaluate
our pricing strategy and compare against our competitors. Our management uses these metrics to make strategic decisions, pricing decisions,
identify areas for improvement, set targets for future performance and make informed decisions about how to allocate resources going forward.

 Adjusted EBITDA

 We define adjusted earnings
before interest, tax, depreciation and amortization ("Adjusted EBITDA") as net loss excluding income taxes, depreciation
of property and equipment, net interest income, stock compensation, transaction costs and any non-operating financial income and expense.
See "Non-GAAP Financial Measures" for a reconciliation of GAAP net loss to Adjusted EBITDA.

 Key Factors that May Influence Future
Results of Operations

 Our financial results of
operations may not be comparable from period to period due to several factors. Key factors affecting our results of operations are summarized
below.

 Revenue Sources. As
a pre-commercialization company, we currently generate revenue almost exclusively from two U.S. governmental agencies. We are
highly dependent upon the continuation of the existing U.S. governmental contract awards, as well as future governmental procurement
or other awards. Our operating results may not be comparable between periods as the timing and amount of awards or procurements from
the U.S. government may be inconsistent with the timing of prior awards and the phasing of the development study schedules may be
different. Our revenues may continue to be almost exclusively dependent upon the terms of those awards.

 Gross Margin. When
we begin commercial sales of the DeepView System, we may need to determine lower pricing and incentives to accelerate adoption and implementation
of the DeepView System, which may negatively impact future revenue and gross margin percentages.

 Managing our Supply Chain. We
are reliant on contract manufacturers and suppliers to produce our components. While we have not been subject to any disruptions in our
current limited production, we may be subject to component shortages, which may cause delays in critical components and inventory, longer
lead times, increased costs and delays in product shipments. Our ability to grow depends, in part, on the ability of our contract manufacturers
and suppliers to provide high quality services and deliver components and finished products on time and at reasonable costs. While we
do not maintain sole-source suppliers, there is a concentration of suppliers which could lead to supply shortages, long lead times
for components and supply changes. In the event we are unable to mitigate the impact of delays and/or price increases in raw materials,
electronic components and freight, it could delay the manufacturing and installation of our products, which would adversely impact our
cash flows and results of operations, including revenue and gross margin.

 Results of Operations

 The following table summarizes our results of operations for the years
ended December 31, 2024 and 2023 (in thousands):

 2024

 2023

 Change

 $

 $

 $

 11,525

 Cost of revenue

 (16,307

)

 (10,176

)

 (6,131

)

 Gross profit

 13,274

 7,880

 5,394

 Operating costs and expenses:

 General and administrative

 (1,008

)

 Total operating costs and expenses

 (1,008

)

 Operating loss

 (6,582

)

 (12,984

)

 6,402

 Other income (expense):

 Net interest income

 (158

)

 Borrowing related costs

 (2,965

)

 -

 (2,965

)

 Change in fair value of warrant liability

 (4,633

)

 (4,968

)

 (220

)

 -

 (220

)

 Foreign exchange transaction loss

 (43

)

 (24

)

 (19

)

 Transaction costs

 (615

)

 (8,342

)

 7,727

 Total other expense, net

 (8,462

)

 (7,859

)

 (603

)

 Loss before income taxes

 (15,044

)

 (20,843

)

 (5,799

)

 Income tax provision

 (271

)

 (11

)

 (260

)

 $

 (15,315

)

 $

 (20,854

)

 $

 (5,539

)

 2024

 2023

 $

 %

 $

 $

 $
 11,525

 63.8
 %

 Research and development revenue was $29,581 for the year ended December
31, 2024, an increase of 63.8% compared to the comparable period in 2023, reflecting more activity as we completed work under the PBS
BARDA Contract and in the awards and work performed under the Company's other U.S. governmental contracts.

 For the year ended December
31, 2024 and 2023, the Company's revenues disaggregated by the major sources was as follows:

 2024

 2023

 $

 %

 BARDA

 $
 27,903

 $
 17,027

 $
 10,876

 63.9
 %

 Other U.S. governmental authorities

 1,678

 1,029

 63.1
 %

 Total research and development revenue

 $

 $

 $
 11,525

 63.8
 %

 Cost of Revenues and Gross Profit

 2024

 2023

 $

 %

 Cost of revenue

 $
 16,307

 $
 10,176

 $
 6,131

 60.2
 %

 Gross profit

 13,274

 7,880

 5,394

 68.5
 %

 Gross margin

 44.9
 %

 43.6
 %

 Cost of revenue for the
year ended December 31, 2024 was $16.3 million, an increase of 60.2% compared to the comparable period in 2023, due to increased development
activity to fulfill our U.S. governmental contracts, consistent with increased research and development revenue.

 Gross margin for the year
ended December 31, 2024 was 44.9%, an increase from 43.6% as compared to the comparable period in 2023, due to more direct labor attributed
to the PBS BARDA Contract as a component of the overall development activity and the higher reimbursement rate under the PBS BARDA Contract,
executed in September 2023, than the rate in the BARDA Burn II contact.

 General and Administrative Expense

 2024

 2023

 $

 %

 General and administrative expense

 $

 $

 $
 (1,008
)

 (4.8
)%

 General and administrative expense was $19.9 million, for the year
ended December 31, 2024, a decrease of 4.8% as compared to the comparable period in 2023. Non-revenue generating research and development
activities have decreased by approximately $2.1 million for the year ended December 31, 2024 compared to the comparable period in 2023
due to an overall increase in the percentage of work performed on the PBS BARDA Contract in 2024. The reduction was offset by an increase
of approximately $1.1 million related to other administrative expenses for the year ended December 31, 2024, compared to the comparable
period in 2023. This expense also reflects the consistent headcount at the Company from the prior year.

 Other income (expense)

 2024

 2023

 $

 Net interest income

 $

 $

 $
 (158
)

 Borrowing related costs

 (2,965
)

 —

 (2,965
)

 Change in fair value of warrant liabilities

 (4,633
)

 (4,968
)

 (220
)

 —

 (220
)

 Foreign exchange transaction loss, net

 (43
)

 (24
)

 (19
)

 Other income (expenses), including transaction costs

 (615
)

 (8,342
)

 7,727

 Total other income (expense), net

 $
 (8,462
)

 $
 (7,859
)

 $
 (603
)

 Net interest income for
the year ended December 31, 2024 primarily relates to cash interest received or (paid) by us from our deposit accounts.

 Borrowing related costs increased
$3.0 million for the year ended December 31, 2024, as compared to the comparable period in 2023 due to debt issuance costs and payments
of the discount and premium related to the Yorkville Convertible Notes that were expensed during fiscal year 2024.

 Change in fair value of
warrant liabilities decreased by approximately $5.0 million for the year ended December 31, 2024 as compared to the comparable period
in 2023. The decrease reflects changes in the fair value of the Public Warrants, which were issued in September 2023 and repriced in
December 2024.

 Change in fair value of
notes payable decreased by approximately $0.2 million for the year ended December 31, 2024, as compared to the comparable period in 2023,
which reflects the total change in the fair value of the Yorkville notes issued in 2024.

 Foreign exchange transaction
loss for the year ended December 31, 2024 is immaterial due to lower balances in our deposit accounts and accounts payable denominated
in British pound sterling and less fluctuation in the exchange rate between the U.S. dollar and the British pound sterling. Foreign exchange
transaction loss for the year ended December 31, 2023 relates to the decreased exchange rate between the U.S. dollar and the British
pound sterling during 2023 for our deposit accounts that are denominated in British pound sterling. In addition, this amount includes
costs associated with buying British pound sterling for payment of our employees and vendors in the UK.

 Other income (expenses),
including transaction costs for the year ended December 31, 2024 primarily relate to legal, professional, and service fees incurred in
connection with the Yorkville transaction and B. Riley purchase agreement. Other income (expenses), including transaction costs for the
year ended December 31, 2023 primarily relate to non-recurring legal, accounting, and consulting costs expended for the Business Combination.

 Non-GAAP Financial Measures

 We use Adjusted EBITDA as
a non-GAAP metric when measuring performance, including when measuring current period results against prior periods' Adjusted EBITDA. This
non-GAAP financial measure should be considered in addition to results prepared in accordance with GAAP and should not be considered
as a substitute for, or superior to, GAAP results. In addition, Adjusted EBITDA should not be construed as an indicator of our operating
performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors
or trends that it fails to address.

 Because of their non-standardized
definitions, non-GAAP measures (unlike GAAP measures) may not be comparable to the calculation of similar measures of other companies.
We caution investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions. Supplemental
non-GAAP measures are presented solely to permit investors to more fully understand how Spectral AI's management assesses underlying
performance.

 Adjusted EBITDA

 We define Adjusted EBITDA
as net loss excluding income taxes, depreciation of property and equipment, net interest income, stock compensation, transaction costs
and any non-operating financial income and expense.

 The following table presents
our Adjusted EBITDA for the years ended December 31, 2024 and 2023 (in thousands):

 2024

 2023

 $
 (15,315
)

 $
 (20,854
)

 Adjust:

 Depreciation expense

 Provision for income taxes

 Net interest expense

 (14
)

 (172
)

 EBITDA

 (15,048
)

 (21,006
)

 Additional adjustments:

 1,032

 1,243

 Borrowing related costs

 2,965

 -

 Change in fair value of warrant liability

 4,633

 (335
)

 -

 Foreign exchange transaction (gain) loss

 Other (income) expenses, including transaction costs

 8,342

 Adjusted EBITDA

 $
 (5,540
)

 $
 (11,732
)

 Liquidity and Capital Resources

 Sources of Liquidity

 As of December 31, 2024, we had approximately $5.2 million in cash,
notes payable of $2.8 million, and no long-term debt. We had an accumulated deficit of approximately $48.1 million. The Company incurred
a net loss of $15.3 million during the year ended December 31, 2024 and had working capital (current assets less current liabilities)
of approximately ($7.5) million as of December 31, 2024. Net cash used in operating activities was $9.1 million for the year ended December
31, 2024.

 In November and December 2024, the Company issued 3,896,781 shares
for gross proceeds of approximately $4.5 million to certain institutional investors through at-the market equity issuances, stock option
exercises and the conversion of the Company's wholly-owned subsidiary, Spectral IP, Inc. ("Spectral IP"), convertible
promissory note into shares of the Company's common stock.

 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.
Riley"). 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 "ELOC"). The Company maintained the right to raise up to $3,000,000 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 also 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.

 We have historically funded
our operations through the issuance of notes and the sale of common stock, along with payments under governmental contracts for research
and development activity.

 In September 2023, the Company executed its third contract with BARDA
for a multi-year PBS BARDA Contract, valued at up to approximately $150.0 million. 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 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.

 In April 2023, the Company
received a $4.0 million grant under the MTEC Agreement, which was increased to $4.9 million in August 2024 and is currently intended
to run through December 2025. 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; and then the manufacturing of the handheld device.

 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, will be sufficient to fund operations for at least one year beyond the release date of these consolidated
financial statements. We have based this determination on assumptions that may prove to be wrong, and we could utilize our available
capital resources sooner than we currently expect. The Company may continue to conserve our working capital and to focus our efforts
primarily on the burn indication. Changing circumstances could also cause us to consume capital significantly faster than we currently
anticipate, and we may need to raise capital sooner or in greater amounts than currently expected because of circumstances beyond our
control. Changes in the current equity markets may also limit our ability to utilize the B. Riley ELOC and Yorkville SEPA as currently
structured. 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.

 Our future capital requirements
will depend on many factors, including the revenue growth rate, the success of future product development and capital investment required,
and the timing and extent of spending to support further sales and marketing and research and development efforts. If we are unable to
raise additional capital when desired, our business, operating results, and financial condition could be adversely affected.

 Cash Flows

 The
following table summarizes our cash flows for the years ended December 31, 2024 and 2023 (in thousands):

 2024

 2023

 Net cash used in operating activities

 $
 (9,199
)

 $
 (13,240
)

 Net cash provided by financing activities

 9,575

 3,844

 Cash Flows Used in
Operating Activities

 Net
cash used in operating activities decreased by approximately $4.0 million for the year ended December 31, 2024, as compared to the year
ended December 31, 2023 primarily driven by changes in operating liabilities including accrued expenses and deferred revenue, partially
offset by a decrease in net loss. The lower net loss is a result of higher research and development revenue due to increased BARDA activity
and lower non-operating transaction costs in the year ended December 31, 2024 compared to the year ended December 31, 2023.

 Cash Flows Provided
by Financing Activities

 Net
cash provided by financing activities increased approximately $5.7 million for the year ended December 31, 2024 compared to the year ended
December 31, 2023. This was primarily attributable to the proceeds of $2.7 million from the ELOC, proceeds of $13.1 received from the
sale of the Company's Common Stock and the principal amount of the notes payable from the Pre-Paid Advances under the SEPA, partially
offset by $7.8 million of repayments of notes payable as compared to proceeds of $3.4 million from the issuance of Common Stock and operating
cash received upon closing of the Business Combination of $0.7 million during the year ended December 31, 2023.

 Current Indebtedness

 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.

 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, 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 issue 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, $7.8 million of the outstanding balance of
the Pre-Paid Advances was paid in cash and $2.4 million has been 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.

 Related Party Transactions

 On
March 7, 2024, the Company formed a new wholly-owned subsidiary, Spectral IP, to be utilized to acquire artificial intelligent 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 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.

 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.

 For
the year ended December 31, 2023, we did not have any transactions with related parties.

 Off-Balance Sheet
Arrangements

 During
the periods presented, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

 Critical Accounting
Policies

 Our
significant accounting policies are described in Note 2 to our audited consolidated financial statements included elsewhere in this Annual
Report. We believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation
of our consolidated financial statements.

 Accrued Research and Development Expenses

 As
part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development
expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our applicable
personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated
cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers
invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require
advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based
on facts and circumstances known to us at that time. We periodically confirm the accuracy of the estimates with the service providers
and make adjustments if necessary.

 Determination of the Fair Value of
Equity-Based Awards

 We
measure stock options and other stock-based awards granted to directors, employees, and non-employees based on their fair value on
the date of the grant and recognize the corresponding compensation expense of those awards over the requisite service period, which
is generally the vesting period of the respective award. We have issued stock options, restricted stock awards and restricted stock
units with time-based vesting conditions and record the expense for these awards using the ratable method. We have also issued
restricted stock units that vest upon the achievement of certain market conditions. We determine the fair value of time-based
vesting restricted stock awards granted based on the fair value of our common stock. We estimate the fair value of stock option
awards granted using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and subjective
assumptions we make, including the expected stock price volatility, the risk-free interest rate and expected dividends, and the
contractual term as the expected term of the award. We determine the fair value of restricted stock units that vest upon the
achievement of certain market conditions using a Monte Carlo simulation model, which uses as inputs the fair value of our common
stock and subjective assumptions we make, including the expected stock price volatility, the expected term of the award, the
risk-free interest rate and expected dividends.

 Due
to insufficient trade history of our common stock, we are unable to estimate the future volatility of our share price and instead estimate
our expected volatility from the historical volatility of a representative group of publicly traded companies for which historical information
is available. The historical volatility is generally calculated based on a period of time commensurate with the expected term assumption.
We use the simplified method to calculate the expected term for options granted to employees and directors, which is based on the average
of the time-to-vesting and the contractual life of the options. We utilize this method as we do not have sufficient historical exercise
data to provide a reasonable basis upon which to estimate the expected term. For grants to non-employees, the relevant accounting literature
allows entities to use the expected term to measure non-employee options or elect to use the contractual term as the expected term, on
an award-by-award basis. The risk-free interest rate is based on a U.S. treasury instrument whose term is consistent with the expected
term of the stock options. The expected dividend yield is assumed to be zero as we have never paid dividends and do not have current
plans to pay any dividends on our common stock.

 See
Note 11 to our audited consolidated financial statements included elsewhere in this Annual Report for information concerning certain
of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock
options granted in the years ended December 31, 2024 and 2023.

 Recent Accounting
Pronouncements

 See
Note 2, Summary of Significant Accounting Policies, of the notes to our consolidated financial statements included elsewhere in this
Form 10-K for recently adopted accounting standards and recently issued accounting standards as of the dates of the statement of financial
position included in this Form 10-K.

 Emerging Growth Company
and Smaller Reporting Company Status

 We
are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). The JOBS
Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting
standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards
would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act for the adoption
of certain accounting standards until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively
and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be
comparable to companies that comply more promptly with new or revised accounting pronouncements as of public company effective dates.

 In
addition, as an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise
applicable generally to public companies. These provisions include:

 being permitted to present
 only two years of audited consolidated financial statements in addition to any required unaudited interim consolidated financial
 statements, with correspondingly reduced disclosure in the section titled "Management's Discussion and Analysis of Financial
 Condition and Results of Operations";

 an exception from compliance
 with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended;

 reduced disclosure about
 our executive compensation arrangements in our periodic reports, proxy statements and registration statements;

 exemptions from the requirements
 of holding non-binding advisory votes on executive compensation or golden parachute arrangements; and

 We
may take advantage of these provisions until the last day of the fiscal year ending after the fifth anniversary of our initial public
offering or such earlier time that we no longer qualify as an emerging growth company. We will cease to qualify as an emerging growth
company on the date that is the earliest of: (i) December 31, 2026; (ii) the last day of the fiscal year in which we have more than $1.235
billion in total annual gross revenues; (iii) the date on which we are deemed to be a "large accelerated filer" under the
rules of the SEC, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior
June 30th and we have been a public company for at least 12 months and have filed one annual report on Form 10-K; or (iv) the date on
which we have issued more than $1.0 billion of non-convertible debt over the prior three-year period. We may choose to take advantage
of some but not all of these reduced reporting burdens. Accordingly, the information contained herein may be different than you might
obtain from other public companies in which you hold equity interests.

 We are also a "smaller
reporting company." If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue
to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller
reporting company, we may choose to present only the two most recent fiscal years of audited consolidated financial statements in our
Annual Report and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive
compensation.

 Item 7.A. Quantitative and Qualitative Disclosures
about Market Risk

 Not required.

 Item 8. Financial Statements and Supplementary Data

 The financial statements
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.

 Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure

 None.

 Item 9.A. 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. Based
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
as of December 31, 2024. 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. This control
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. GAAP.

 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. 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
 Act of 2002;

 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; and

 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.

 Management's
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.

 This Annual Report on Form
10-K does not include an attestation report of our independent registered public accounting firm on internal control over financial reporting
due to an exemption established by the JOBS Act for "emerging growth companies."

 Changes in Internal Control over Financial
Reporting

 Except for the remediation
efforts in connection with the material weaknesses described above, there were no changes in our internal control over financial reporting
(as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the fourth quarter of the year ended December 31, 2024 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 Item 9.B. Other Information.

 None.

 Item 9.C. Disclosure Regarding Foreign Jurisdictions that Prevent
Inspection.

 Not Applicable.

 PART III.

 Item 10. Directors, Executive Officers and Corporate Governance.

 The
information required by this Item 10 is set forth under the captions "Executive Officers of the Registrant", "Proposal
No. 1 – Election of Directors" and "Board of Directors and Committees" in our Definitive Proxy Statement with
respect to our 2025 Annual Meeting of Stockholders and is incorporated herein by reference.

 Item 11. Executive Compensation.

 As
an "emerging growth company" as defined in the JOBS Act, we are not required to include a Compensation Discussion and Analysis
section and have opted to comply with the scaled disclosure requirements applicable to emerging growth companies.

 The
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.

 Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.

 The
information required by this Item 12 is set forth under the captions "Share Ownership" and "Outstanding Equity Awards
at Fiscal Year End 2024" in our Definitive Proxy Statement with respect to our 2025 Annual Meeting of Stockholders and is incorporated
by reference.

 Item 13. Certain Relationships and Related Transactions, and Director
Independence.

 The
information required by this Item 13 is set forth under the captions "Certain Relationships and Related Transactions" and
"Board of Directors and Committees" in our Definitive Proxy Statement with respect to our 2025 Annual Meeting of Stockholders
and is incorporated herein by reference.

 Item 14. Principal Accountant Fees and Services.

 The
information required by this Item 14 will be set forth under the caption "Proposal No. 3: Ratification of Independent Registered
Public Accounting Firm" in our Definitive Proxy Statement with respect to our 2025 Annual Meeting of Stockholders and is incorporated
herein by reference.

 PART IV.

 Item 15. Exhibits, Financial Statement Schedules.

 (a)

 The
 following documents are filed as part of this Annual Report on Form 10-K:

 INDEX TO FINANCIAL
STATEMENTS

 Report of Independent Registered Public Accounting Firm (PCAOB ID: 185)

 Consolidated Balance Sheets

 Consolidated Statements of Operations and Comprehensive Loss

 Consolidated Statements of Changes in Stockholders' Equity (Deficit)

 Consolidated Statements of Cash Flows

 Notes to Consolidated Financial Statements

 F- 1

 REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

 To the Stockholders and Board of Directors

 Spectral AI, Inc.:

 Opinion on the Consolidated Financial Statements

 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
with U.S. generally accepted accounting principles.

 Basis for Opinion

 These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits. 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 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
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits 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
our opinion.

 /s/
 KPMG LLP

 We have served as the Company's
auditor since 2021.

 Dallas, Texas

 F- 2

 CONSOLIDATED BALANCE
SHEETS

 (in thousands, except
share and per share data)

 2024

 2023

 Assets

 Current assets:

 Cash

 $
 5,157

 $
 4,790

 Accounts receivable, net

 2,505

 2,346

 Inventory

 Deferred offering costs

 -

 Prepaid expenses

 1,289

 1,452

 Other current assets

 Total current assets

 10,122

 9,902

 Non-current assets:

 Property and equipment, net

 Right-of-use assets

 1,971

 Total Assets

 $
 12,095

 $
 10,692

 Commitments and contingencies (Note 8)

 Liabilities and Stockholders' Equity (Deficit)

 Current liabilities:

 Accounts payable

 $
 4,035

 $
 2,683

 Accrued expenses

 3,210

 4,300

 Deferred revenue

 2,311

 Lease liabilities, short-term

 Notes payable

 Notes payable – at fair value

 2,365

 -

 Warrant liabilities

 6,451

 1,818

 Total current liabilities

 17,644

 12,401

 Lease liabilities, long-term

 1,702

 -

 Total Liabilities

 19,346

 12,401

 Stockholders' Deficit

 Preferred stock ($ 0.0001 par value); 1,000,000 shares authorized; no shares issued and outstanding as of December 31, 2024 and December 31, 2023

 -

 -

 Common stock ($ 0.0001 par value); 80,000,000 shares authorized; 22,594,877 and 16,294,935 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively

 Additional paid-in capital

 40,847

 31,065

 Accumulated other comprehensive income

 Accumulated deficit

 ( 48,103
)

 ( 32,788
)

 Total Stockholders' Deficit

 ( 7,251
)

 ( 1,709
)

 Total Liabilities and Stockholders' Deficit

 $
 12,095

 $
 10,692

 The accompanying notes are an integral
part of these consolidated financial statements

 F- 3

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

 2024

 2023

 $

 $

 Cost of revenue

 ( 16,307

)

 ( 10,176

)

 Gross profit

 13,274

 7,880

 Operating costs and expenses:

 General and administrative

 Total operating costs and expenses

 Operating loss

 ( 6,582

)

 ( 12,984

)

 Other income (expense):

 Net interest income

 Borrowing related costs

 ( 2,965

)

 -

 Change in fair value of warrant liabilities

 ( 4,633

)

 ( 220

)

 -

 Foreign exchange transaction loss, net

 ( 43

)

 ( 24

)

 Other expenses, including transaction costs

 ( 615

)

 ( 8,342

)

 Total other expense, net

 ( 8,462

)

 ( 7,859

)

 Loss before income taxes

 ( 15,044

)

 ( 20,843

)

 Income tax provision

 ( 271

)

 ( 11

)

 $

 ( 15,315

)

 $

 ( 20,854

)

 Net loss per share of common stock

 Basic and Diluted

 $

 ( 0.85

)

 $

 ( 1.48

)

 Weighted-average common shares outstanding

 Basic and Diluted

 17,934,218

 14,087,586

 Other comprehensive income:

 Foreign currency translation adjustments

 $

 ( 9

)

 $

 Total comprehensive loss

 $

 ( 15,324

)

 $

 ( 20,842

)

 The accompanying notes
are an integral part of these consolidated financial statements

 F- 4

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

(In thousands, except share data)

 Additional

 Accumulated Other

 Total

 Common
 Stock

 Paid-in

 Comprehensive

 Accumulated

 Stockholders'

 Shares

 Amount

 Capital

 Income

 Deficit

 Deficit

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

 13,170,148

 $

 $
 23,929

 $
 -

 $
 ( 11,934
)

 $
 11,996

 Issuance of common stock upon Business Combination

 1,154,173

 ( 2,375
)

 -

 -

 ( 2,374
)

 Issuance of common stock to settle accounts payable

 33,333

 -

 -

 -

 Issuance of shares for transaction costs

 966,667

 -

 4,350

 -

 -

 4,350

 Private placement equity issuance

 744,667

 -

 3,351

 -

 -

 3,351

 Financing equity issuance

 40,000

 -

 -

 -

 30,318

 -

 1,243

 -

 -

 1,243

 Stock option exercises

 155,629

 -

 -

 -

 Cumulative translation adjustment

 -

 -

 -

 -

 -

 -

 -

 -

 ( 20,854
)

 ( 20,854
)

 Balance at December 31, 2023

 16,294,935

 $

 $
 31,065

 $

 $
 ( 32,788
)

 $
 ( 1,709
)

 -

 -

 1,032

 -

 -

 1,032

 Issuance of common stock under the SEPA

 1,744,694

 -

 3,154

 -

 -

 3,154

 Issuance of shares under convertible note - related party

 540,996

 -

 1,422

 -

 -

 1,422

 Sale of common stock

 3,603,298

 -

 3,997

 -

 -

 3,997

 Stock option exercises

 281,857

 -

 -

 -

 Vesting of restricted stock units

 129,097

 -

 -

 -

 -

 -

 Cumulative translation adjustment

 -

 -

 -

 ( 9
)

 -

 ( 9
)

 -

 -

 -

 -

 ( 15,315
)

 ( 15,315
)

 Balance at December 31, 2024

 22,594,877

 40,847

 ( 48,103
)

 ( 7,251
)

 The accompanying notes
are an integral part of these consolidated financial statements

 F- 5

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 2024

 2023

 Cash flows from operating activities:

 $
 ( 15,315
)

 $
 ( 20,854
)

 Adjustments to reconcile net loss to net cash used in operating activities:

 Depreciation expense

 1,032

 1,243

 Amortization of right-of-use assets

 Issuance of shares for transaction costs

 -

 4,350

 Change in fair value of warrant liabilities

 4,633

 ( 335
)

 -

 Costs from issuance of common stock

 -

 Issuance of shares for borrowing related costs

 1,143

 -

 Changes in operating assets and liabilities:

 Accounts receivable

 ( 159
)

 ( 52
)

 Inventory

 ( 195
)

 ( 230
)

 Unbilled revenue

 -

 Prepaid expenses

 ( 377
)

 Other assets

 ( 404
)

 Accounts payable

 1,426

 ( 935
)

 Accrued expenses

 ( 1,090
)

 1,359

 Deferred revenue

 ( 1,351
)

 2,311

 Lease liabilities

 ( 721
)

 ( 656
)

 Net cash used in operating activities

 ( 9,199
)

 ( 13,240
)

 Cash flows from financing activities:

 Proceeds from issuance of common stock

 4,060

 3,351

 Cash received in Business Combination

 -

 Proceeds from notes payable

 12,096

 -

 Proceeds from notes payable - related party

 1,000

 -

 Payments for notes payable

 ( 7,758
)

 ( 483
)

 Stock option exercises

 Net cash provided by financing activities

 9,575

 3,844

 Effect of exchange rate changes on cash

 ( 9
)

 Net increase (decrease) in cash

 ( 9,384
)

 Cash, beginning of period

 4,790

 14,174

 Cash, end of period

 $
 5,157

 $
 4,790

 Supplemental cash flow information:

 Cash paid for interest

 $

 $

 Cash paid for taxes

 $

 $

 Noncash operating and financing activities disclosure:

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

 $
 1,771

 $

 Issuance of common stock for net liabilities upon Business Combination

 $
 -

 $
 3,034

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

 $
 -

 $

 Issuance of common stock to settle accounts and notes payable

 $
 3,207

 $

 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

 F- 6

 1. NATURE OF THE BUSINESS

 Business Combination

 Spectral AI, Inc., a Delaware
corporation formerly known as Rosecliff Acquisition Corp I ("Spectral AI" or the "Company") was formed as a blank
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. See Note
3. 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.

 F- 7

 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. The DeepView
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. 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 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;
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.

 On March 7, 2024, the Company
formed a new wholly-owned subsidiary, Spectral IP, Inc., a Delaware corporation ("Spectral IP"), to be utilized to advance
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 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.

 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'.

 F- 8

 Risks and Uncertainties

 The Company is subject to
a number of risks common to development stage companies in the medical technology industry, including, but not limited to, risks of failure
of preclinical studies and clinical trials, dependence on key personnel, protection of proprietary technology, reliance on third party
organizations, risks of obtaining regulatory approval for any products that it may develop, development by competitors of technological
innovations, compliance with government regulations and the need to obtain additional financing.

 Liquidity

 As
of December 31, 2024 the Company had approximately $ 5.2 million in cash, and an accumulated deficit of $ 48.1 million. As of December
31, 2024, the Company had approximately $ 2.8 million in notes payable and no long-term debt as of either period. See Note 7.

 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. Riley"). 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
"ELOC"). 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.

 F- 9

 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. We have based this determination on assumptions that may prove to be wrong, and we could
utilize our available capital resources sooner than we currently expect. Changing circumstances could also cause us to consume capital
significantly faster than we currently anticipate, and we may need to raise capital sooner or in greater amounts than currently expected
because of circumstances beyond our control. Changes in the current equity markets may also limit our ability to utilize the B. Riley
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.

 2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

 Basis of Presentation

 The Company's consolidated
financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") as determined
by the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") or an Accounting
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. Upon
the Closing, the net assets of the Company are stated at fair value, with no goodwill or other intangible assets recorded. See Note 3
– Recapitalization.

 Legacy Spectral was determined
to be the accounting acquiror based on evaluation of the following facts and circumstances:

 (i)

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

 (ii)

 Legacy Spectral's
 senior management comprises all of the senior management of Spectral AI;

 (iii)

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

 (iv)

 Legacy Spectral's
 relative size of assets and operations compared to Rosecliff; and

 (v)

 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).

 F- 10

 Principles of Consolidation

 The consolidated financial
statements include the accounts of the Company and its wholly owned subsidiaries, Spectral MD Holdings LLC, Spectral MD Inc., Spectral
MD UK Limited ("Spectral MD UK"), Spectral IP, Inc. and Spectral DeepView Limited. Significant inter-company transactions
and balances have been eliminated in consolidation.

 Use of Estimates

 The preparation of the consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in
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.

 Segments

 Operating segments are defined
as components of an enterprise for which separate and discrete information is available for evaluation by the chief operating decision-maker
in deciding how to allocate resources and assess performance. The Chairman of the Board in conjunction with the Company's executive
management team manages the Company's operations on an aggregate basis for the purpose of allocating resources.

 The Company has one operating
segment. The accounting policies of the Company's single operating and reportable segment are the same as those described in the
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.

 Cash

 The Company considers all
highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. All cash is held in
US, UK, and Ireland financial institutions.

 Accounts Receivable, Net and Unbilled Revenue

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

 The Company evaluates the
collectability of its receivables based on a variety of factors, including the length of time the receivables are past due, the financial
health of its customers and historical experience. Based upon the review of these factors, the Company recorded no allowance for doubtful
accounts as of December 31, 2024 and December 31, 2023.

 Certain third-party costs
that are prepaid per the terms of the contract are billable to customers prior to recognition of related expenses. The Company records
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.

 F- 11

 Comprehensive Loss

 Comprehensive loss includes
net loss, as well as other changes in stockholders' equity (deficit) that result from transactions and economic events other than
those with stockholders.

 Concentrations of Credit Risk

 Financial instruments which
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. The Company believes it is not exposed to significant credit risk on cash.

 Additional credit risk is
related to the Company's concentration of receivables. As of December 31, 2024 and December 31, 2023, receivables were concentrated
from one customer (which is a US. government agency) representing 85 % and 92 % of total net receivables, respectively.

 One customer (which is a
U.S. government agency) accounted for 94 % for the year ended December 31, 2024 and 95 % for the year ended December 31, 2023
of the recognized research and development revenue.

 Inventory

 Inventory is comprised of
finished goods, purchased from a third-party manufacturer, and is stated at the lower of cost (average cost) or net realizable value.
For the year ended December 31, 2024, the Company did not have write-downs for obsolete inventory.

 Fair Value

 Fair value is defined as
the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities
that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair
value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs
used to measure fair value are as follows:

 Level 1
 Unadjusted
quoted prices in active markets that are assessable at the measurement date for identical, unrestricted assets or liabilities.

 Level 2
 Quoted
prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term
of the asset or liability; and

 Level 3
 Prices
or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little
or no market activity).

 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. 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. Translation
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.

 Monetary assets and liabilities
denominated in currencies other than the US dollar are translated at exchange rates in effect as of the balance sheet date. Resulting
unrealized gains and losses are included in other income (expense), net in the consolidated statements of operations. For the year ended
December 31, 2024, the Company recorded approximately $ 43,000 of net foreign exchange transaction losses. For the year ended December
31, 2023, the Company recorded approximately $ 24,000 of net foreign exchange transaction losses. These amounts primarily relate to one
of the Company's bank accounts being denominated in British Pounds and certain accounts payable denominated in British Pounds.

 F- 12

 Property and Equipment, Net

 Property and equipment,
net is recorded at cost less accumulated depreciation. Depreciation expense is recorded using the straight-line method over the estimated
useful lives of the related assets, which are as follows:

 Estimated Useful Life

 Computer equipment

 3 years

 Manufacturing equipment

 5 years

 Furniture and equipment

 5 years

 Laboratory equipment

 5 years

 Leasehold improvements

 Shorter of remaining lease term or useful life

 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. When assets are retired or otherwise disposed of, the assets and related accumulated
depreciation are eliminated from the accounts and any resulting gain or loss is reflected in the Company's consolidated statements
of operation and comprehensive loss. Expenditures for maintenance and repairs are expensed as incurred.

 Impairment of Long-Lived Assets

 Long-lived assets consist
of property and equipment. The Company continually evaluates whether events or circumstances have occurred that indicate that the estimated
remaining useful life of its long-lived assets may warrant revision or that the carrying value of these assets may not be recoverable.
If circumstances require that a long-lived asset or asset group be tested for impairment, the Company first compares the estimated undiscounted
future cash flows expected to result from the use or disposition of that asset or asset group to its carrying amount. If the carrying
amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment loss would be recognized
to the extent the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted
cash flow models, quoted market prices and third-party independent appraisals, as considered necessary.

 Leases

 Under lease guidance, arrangements
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. 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
election.

 During the years ended December
31, 2024 and 2023, the Company did not have any financing leases.

 F- 13

 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. 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, 2024, there are 73,978 Angel Warrants to purchase Company Common Stock outstanding.

 The Company accounts for
its Public Warrants and the Angel Warrants as derivative liabilities. Accordingly, the Company recognizes the instruments as liabilities
at fair value, determined using the closing price of the observable market quote in an active market (the NASDAQ) for the Public Warrants
and the Black-Scholes option-pricing model for the Angel Warrants, and adjusts the instruments to fair value at the end of each reporting
period. The liabilities are subject to re-measurement at each balance sheet date until exercised, redeemed or expired, and any change
in fair value is recognized in the Company's consolidated statements of operations within other income (expense).

 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.

 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
obligation.

 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.

 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 and has been extended through the second quarter
of 2025. We were previously awarded a $ 1.1 million Sequential Phase II STTR contract by the DHA within the U.S. Department
of Defense, which is paid to us monthly, as well as a STTR Phase I and initial Phase II contract from the DHA.

 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. However, the payments are not constrained from inclusion in the transaction
price as it not probable that a significant reversal of cumulative revenue will be reversed when the underlying uncertainty is resolved.
Revenue for the MTEC Agreement is recognized over time based upon the cost-to-cost measure of progress, using this input method to measure
progress as the customer has the benefit of access to the development research under these projects and therefore benefits from the Company's
performance incrementally as research and development activities occur under each project. The Company measures progress of performance
by comparing the actual costs incurred to-date to the total estimated cost of the project. The Company will adjust the measure of progress
at the end of each reporting period and reflect any changes to the estimated cost of the project on a prospective basis.

 F- 14

 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. 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, 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.

 Stock-Based Compensation

 The Company accounts for
all stock-based payments to employees and non-employees, including grants of stock options and RSUs based on their respective grant date
fair values. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model. The RSUs are valued
based on the fair value of the Company's common stock on the date of grant. The fair value of RSUs with market based vesting conditions
were determined using a Monte-Carlo Simulation to reflect the effects of the market conditions. The assumptions used in calculating the
fair value of the Company's stock-based awards represent management's best estimates and involve inherent uncertainties and
the application of management's judgment. The Company expenses stock-based compensation related to stock options 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. 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.

 Income Taxes

 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.

 F- 15

 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.

 Comprehensive Income (Loss)

 Comprehensive income (loss)
consists of net income (loss) and other comprehensive income (loss), which includes foreign currency translation adjustments. For the
purposes of comprehensive income (loss) disclosures, the Company does not record deferred taxes for the net changes in the foreign currency
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.

 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. 2019-04,
ASU No. 2019-05, ASU 2019-10, ASU No. 2019-11, ASU No. 2020-03, and ASU No. 2022-02. 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. This
standard requires the measurement of expected credit losses for financial instruments carried at amortized cost held at the reporting
date based on historical experience, current conditions and reasonable forecasts. The updated guidance also amends the current other-than-temporary
impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through
an allowance account and limits the amount of credit loss to the difference between a security's amortized cost basis and its fair
value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of
whether a credit loss exists. The main objective of this ASU is to provide financial statement users with more decision-useful information
about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting
date. The Company adopted this standard on January 1, 2023, with no impact on its 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
2022-03"). 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.

 F- 16

 In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic
280): 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. The Company
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.

 Recently Issued Accounting Standards

 In October 2023, the FASB
issued ASU 2023-06 Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification
Initiative ("ASU 2023-06"), which modifies certain disclosure and presentation requirements of a variety of Topics in the
Codification and is intended to both clarify or improve such requirements and align the requirements with the SEC's regulations.
The effective date for each amendment is the effective date of the removal of the related disclosure from Regulation S-X or Regulation
S-K, with early adoption prohibited. The Company will apply the provisions prospectively as such provisions become effective and does
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.

 3. 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:

 Cash

 $

 Other current assets

 Accounts payable

 ( 860
)

 Accrued expenses

 ( 277
)

 Warrant liabilities

 ( 2,024
)

 Net liabilities assumed in exchange for common stock

 ( 2,374
)

 Less: Cash

 ( 660
)

 Non-cash net liabilities assumed in exchange for common stock

 $
 ( 3,034
)

 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.

 F- 17

 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.

 4. FAIR VALUE MEASUREMENTS

 The following table presents
information about the Company's financial liabilities that are measured at fair value on a recurring basis as of December 31, 2024
and December 31, 2023, by level within the fair value hierarchy (in thousands):

 Fair value measured as of December
 31, 2024

 Fair value at

2024

 Quoted

prices

in active
 markets
 (Level 1)

 Significant

other

observable

inputs
 (Level 2)

 Significant

unobservable

inputs

(Level 3)

 Warrant liabilities

 $
 6,451

 $
 6,409

 $
 -

 $

 Short-term notes payable- Yorkville

 2,365

 -

 -

 2,365

 $
 8,816

 $
 6,409

 $
 -

 $
 2,406

 Fair value measured as of December
 31, 2023

 Fair value at

2023

 Quoted

prices

in active
 markets
 (Level 1)

 Significant

other

observable

inputs
 (Level 2)

 Significant

unobservable

inputs

(Level 3)

 Warrant liabilities

 $
 1,818

 $
 1,771

 $
 -

 $

 There were no transfers
between Level 1, 2 or 3 during the years ended December 31, 2024 and 2023.

 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.

 The following table presents
changes in Level 3 warrant liabilities measured at fair value for the years ended December 31, 2024 and 2023 (in thousands):

 Balance - January 1, 2023

 $

 Change in fair value

 ( 82
)

 Balance - January 1, 2024

 $

 Change in fair value

 ( 6
)

 Balance - December 31, 2024

 $

 Both observable and unobservable
inputs were used to determine the fair value of warrants that the Company has classified within the Level 3 category. Unrealized gains
and losses associated with warrant liabilities within the Level 3 category include changes in fair value that were attributable to both
observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs.

 F- 18

 The following table provides
quantitative information regarding Level 3 warrant liability fair value measurements inputs at their measurement:

 2024

 2023

 Strike price (per share)

 $
 7.32

 $
 7.32

 Contractual term (years)

 2.5

 3.5

 Volatility (annual)

 70.6
 %

 71.2
 %

 Risk-free rate

 4.3
 %

 4.0
 %

 Dividend yield (per share)

 0.0
 %

 0.0
 %

 Valuation of short-term
notes payable – Yorkville

 The
Company elected the fair value option to account for the financial instrument with Yorkville signed on March 20, 2024 (see Note 7). The
estimate of the fair value as of December 31, 2024 was determined using a binomial lattice model. The fair value measurement of the debt
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
cash repayment by the Company prior to maturity, and movements in the Company's common stock price.

 The
following table provides a rollforward of the aggregate fair values of the Company's Yorkville debt for which fair values are determined
using Level 3 inputs (in thousands):

 Balance as of January 1, 2024

 $
 -

 Addition of short-term notes payable

 11,500

 Principal repayments

 ( 9,355
)

 Fair value adjustment

 Balance as of December 31, 2024

 2,365

 The following table provides
quantitative information regarding Level 3 fair value measurements inputs at their measurement:

 2024

 Expected term (years)

 0.05 – 0.13

 Volatility (annual)

 %

 Risk-free rate

 4.34 – 4.35
 %

 F- 19

 Valuation of forward options in B. Riley
ELOC and Yorkville SEPA

 The B. 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
SEPA. The Company recorded no liability for the forward issuance contract, as there are no such contracts outstanding at December 31,
2024.

 5. RESEARCH AND DEVELOPMENT REVENUE

 For the years ended December
31, 2024 and 2023, the Company's revenues disaggregated by the major sources was as follows (in thousands):

 2024

 2023

 BARDA

 $
 27,903

 $
 17,027

 Other U.S governmental authorities

 1,678

 1,029

 Total revenue

 $

 $

 The following table
presents the activity in the Company's contract liabilities during the year ended December 31, 2024 (in thousands):

2023
 Balance

 Additions

 Reductions

2024
 Balance

 Contract liabilities:

 Deferred revenue

 $
 2,311

 $
 6,396

 $
 ( 7,747
)

 $

 Total contract liabilities

 $
 2,311

 $
 6,396

 $
 ( 7,747
)

 $

 6. ACCRUED EXPENSES

 Accrued expenses consist
of the following as of December 31, 2024 and December 31, 2023 (in thousands):

 2024

 2023

 Salary and wages

 $
 2,196

 $
 1,910

 Operating expenses

 1,563

 Benefits

 Taxes

 Non-operating expenses

 -

 Total accrued expenses

 $
 3,210

 $
 4,300

 7. NOTES PAYABLE

 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):

 Principal Repayments

 Outstanding Balance

 Year Ended December 31,

 Amount Financed

 Interest Rate

 2024

 2023

 2024

 2023

 Yorkville Convertible Notes

 $
 12,500

 0.0
 %

 $
 9,355

 $
 -

 $
 2,365

 $
 -

 Related Party Note

 1,000

 8.0
 %

 1,000

 -

 -

 -

 2024 Insurance Note

 8.4
 %

 -

 -

 New 2023 Insurance Note

 8.6
 %

 -

 2023 Insurance Note

 9.7
 %

 -

 -

 -

 2022 Insurance Note

 6.7
 %

 -

 -

 -

 $
 10,965

 $

 $
 2,787

 $

 F- 20

 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. 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.

 F- 21

 Related Party Note

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

 Insurance Notes

 The Company finances its
director and officer liability insurance premiums over a term of less than one year. The Company has determined that the carrying amounts
of all of the insurance notes approximate fair value due to the short-term nature of borrowings and current market rates of interest.

 8.
COMMITMENTS AND CONTINGENCIES

 Legal Matters

 The Company is not a party
to any material legal proceedings or pending claims. 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.

 9. LEASES

 The Company leases office
space for its principal office in Dallas, Texas, which was amended in April 2024 to extend the lease term to expire in February 2028.
The lease amendment also included a landlord-provided tenant improvement allowance of up to $ 0.3 million to be applied to the costs of
the construction of leasehold improvements. 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.

 During 2023, the Company
entered into a lease for office space in the United Kingdom for annual payments of $ 0.1 million under a lease that expired in March
2024. The lease was renewed in March 2024, however the Company has excluded this lease from the tables below as the term is twelve
months.

 The following table summarizes
quantitative information about the Company's operating leases for the years ended December 31, 2024 and 2023 (in thousands):

 2024

 2023

 Operating cash flows used in operating leases

 $

 $

 Right-of-use assets exchanged for operating lease liabilities

 $
 1,771

 $

 Weighted average remaining lease term (in years)

 3.2

 1.0

 Weighted average discount rate

 8.5
 %

 8.5
 %

 The following table provides
the components of the Company's lease cost included in general and administrative expense in the consolidated statement of operations
(in thousands):

 2024

 2023

 Operating leases

 Operating lease cost

 $

 $

 Variable lease cost

 Operating lease expense

 1,158

 1,159

 Short-term lease rent expense

 Total rent expense

 $
 1,307

 $
 1,269

 F- 22

 Variable lease cost is primarily
attributable to amounts paid to lessors for utility charges, parking, and property taxes under an office space lease.

future minimum payments under the non-cancelable operating leases were as follows (in thousands):

 Year ended December 31, 2025

 $

 Year ended December 31, 2026

 Year ended December 31, 2027

 Year ended December 31, 2028

 Total

 2,397

 Less: imputed interest

 ( 167
)

 Less: tenant improvement allowance

 ( 327
)

 Operating lease liabilities

 $
 1,903

 10.
STOCKHOLDERS' EQUITY

 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").

 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.

 11.
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.

 2018 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. In May
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.

 F- 23

 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
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. 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. Under
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.

 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. 50,000 RSUs vest when the 180-day VWAP meets or exceeds $ 8.00
per share, 50,000 RSUs vest when the 180-day VWAP meets or exceeds $ 12.00 per share, and 50,000 RSUs are not market-based and will vest
over the continued service period of three years. These market-based conditions must be met in order for portions of the RSU award to
vest, and it is therefore possible that certain awards ultimately would not vest. 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, 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
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.

 On February 29, 2024, the
Company amended the terms of the January 3, 2024 RSU grant to its then-CFO to provide for identical vesting terms to those provided in
the February 29, 2024 RSU grant. The Company determined the amended RSU grant represents a modification of the original award, however,
the incremental compensation cost of the amendment was not material.

 F- 24

 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.

 A summary of RSU activities
for the year ended December 31, 2024 are presented below:

 Number of

 Shares

 Weighted

 Average
 Grant Date
 Fair Value
 per Share

 Nonvested as of January 1, 2024

 58,197

 $
 4.65

 Granted

 550,000

 $
 1.98

 Vested

 ( 129,097
)

 $
 0.99

 Forfeited

 ( 309,699
)

 $
 2.24

 Nonvested as of December 31, 2024

 169,401

 $
 1.73

 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.

 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 Company's stock
options generally vest ratably annually over 3 years and have a contractual term of 10 years. In applying the Black Scholes option pricing
model, the Company used the following assumptions for stock options granted during the years ended December 31, 2024 and 2023:

 Year ended

2024

 Year ended

2023

 Fair value of common stock

 $
 1.51

 $
 4.57

 Expected term (years)

 4.8

 6.0

 Volatility (annual)

 %

 %

 Risk-free rate

 4.2
 %

 3.6
 %

 Dividend yield (per share)

 %

 %

 F- 25

 A summary of stock options
activity for the year ended December 31, 2024 is presented below:

 Stock Options

 Weighted
 Average
 Exercise
 Price

 Weighted
 Average
 Remaining
 Contractual Life
 (in years)

 Aggregate
 Intrinsic Value
 (in thousands)

 Outstanding at January 1, 2024

 3,598,944

 $
 2.20

 6.5

 $
 8,087

 Options granted

 643,437

 $
 1.55

 Options forfeited

 156,156
)

 $
 3.88

 Options cancelled

 ( 209,880
)

 $
 3.56

 Options exercised

 ( 281,857
)

 $
 1.07

 Outstanding as of December 31, 2024

 3,594,488

 $
 2.01

 6.0

 3,825

 Options vested and exercisable as of December 31, 2024

 2,941,842

 $
 1.87

 5.5

 3,285

 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.

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.

 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.

 12. 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:

 2024

 2023

 Federal income tax rate

 21.00
 %

 21.00
 %

 State income tax benefit

 ( 0.65
)%

 ( 0.10
)%

 Impact of non-U.S. Earnings

 ( 0.63
)%

 0.10
 %

 Permanent items

 ( 7.34
)%

 ( 8.20
)%

 Return to provision adjustments

 ( 0.05
)%

 0.00
 %

 Non-deductible stock compensation

 ( 1.03
)%

 ( 1.10
)%

 Non-deductible executive compensation

 ( 1.35
)%

 0.00
 %

 Tax Credits

 0.16
 %

 0.00
 %

 Difference and changes in tax rates

 0.06
 %

 0.00
 %

 Other

 0.01
 %

 0.00
 %

 Change in valuation allowance

 ( 11.95
)%

 ( 11.82
)%

 Effective income tax rate

 ( 1.78
)%

 ( 0.10
)%

 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.

 F- 26

 Components of Income Tax Expense/(Benefit)

 The components of income
tax expense/(benefit) for the years ended December 31, 2024 and 2023 are as follows (in thousands):

 2024

 2023

 Current

 US Federal

 $

 $
 ( 5
)

 US State

 Total current provision

 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.

 Deferred Income Taxes

 The main components of deferred
tax assets/(liabilities) for the periods ended December 31, 2024 and 2023, are as follows (in thousands):

 2024

 2023

 Deferred income tax assets:

 Net operating loss carryforwards

 $
 4,518

 $
 2,419

 Capitalized research expenses

 Lease liabilities

 -

 Tax credits

 Other

 Total deferred income tax assets

 6,661

 4,512

 Deferred income tax liabilities:

 Right-of-use assets

 ( 412
)

 ( 163
)

 Lease liabilities

 ( 75
)

 -

 Other

 -

 -

 Total deferred income tax liabilities

 $
 ( 487
)

 $
 ( 163
)

 Net deferred income tax assets

 $
 6,174

 $
 4,349

 Valuation allowance

 ( 6,174
)

 ( 4,349
)

 Deferred income tax assets, net of valuation allowance

 -

 -

 Valuation Allowance Considerations

 ASC 740, "Income Taxes"
requires that a valuation allowance be established when it is "more likely than not" that all, or a portion of, deferred tax
assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration of all the information
available, management believes that uncertainty exists with respect to future realization of its deferred tax assets and has, therefore,
established a full valuation allowance as of December 31, 2024, and 2023. The net change in valuation allowance for the years ended December
31, 2024 and 2023 was an increase of $ 1.8 million and $ 3.0 million, respectively.

 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.

 F- 27

 Net Operating Losses

 As of December 31, 2024
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
utilization.

 Section 382
of the Internal Revenue Code limits the utilization of U.S. net operating loss ("NOL") carryforwards following a change of
control. 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 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. 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.

 13. NET LOSS PER COMMON SHARE

 Basic and diluted net loss
per common share attributable to common stockholders are the same for the years ended December 31, 2024 and 2023, since the inclusion
of all potential shares of common stock outstanding would have been anti-dilutive due to the Company's net loss.

 The table below summarizes
potentially dilutive securities that were excluded from the computation of net loss per common share as of the periods presented because
including them would be anti-dilutive.

 2024

 2023

 Common stock options

 3,594,484

 3,578,579

 Common stock warrants

 8,507,311

 8,507,311

 Unvested restricted stock units

 169,399

 58,197

 Unvested restricted stock

 -

 -

 Potentially dilutive securities

 12,271,194

 12,144,087

 14. RELATED PARTY TRANSACTIONS

 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
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
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.

 15. 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.

 F- 28

 (b)

 Exhibits: 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

 Exhibit Number

 Description

 2.1 **

 Business Combination Agreement, by and among Rosecliff Acquisition Corp I, Merger Sub I, Merger Sub II and Spectral MD Holdings, Ltd., dated as of April 11, 2023 (incorporated by reference to Annex A of the Registration Statement on Form S-4 (File No. 333-271566)).

 3.1**

 Second Amended and Restated Certificate of Incorporation of Spectral AI, Inc. (incorporated by reference to the Registrant's Current Report on Form 8-K filed with the SEC on September 15, 2023).

 3.2**

 Amended and Restated Bylaws of Spectral AI, Inc. (incorporated by reference to the Registrant's Current Report on Form 8-K filed with the SEC on September 15, 2023).

 4.1**

 Warrant Agreement, dated February 11, 2021, between Rosecliff Acquisition Corp I and Continental Stock Transfer & Trust Company, as warrant agent (incorporated by reference to the Registrant's Current Report on Form 8-K filed with the SEC on February 17, 2021)

 4.2**

 Description of the Registrant's Securities (incorporated by reference to the Registrant's Annual Report on Form 10-K filed on March 31, 2022)

 4.3**

 Amended and Restated Registration Rights & Lock-up Agreement (incorporated by reference to the Registrant's Current Report on Form 8-K filed with the SEC on September 15, 2023).

 4.4**

 Registration Rights Agreement, dated December 26, 2023, between the Registrant and B. Riley Principal Capital II, LLC (incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K filed with the SEC on December 27, 2023).

 10.1**

 Form of Indemnification Agreement (incorporated by reference to the Registrant's Current Report on Form 8-K filed with the SEC on September 15, 2023).

 10.2**

 Sponsor Warrants Purchase Agreement, dated February 11, 2021, between the Registrant and the Sponsor (incorporated by reference to the Registrant's Current Report on Form 8-K filed with the SEC on February 17, 2021)

 10.3**

 BARDA Award/Contract, July 1, 2019, by and between Spectral MD, Inc. and ASPR-BARDA (incorporated by reference to Exhibit 10.14 of the Registration Statement on Form S-4 (File No. 333-271566)).

 10.4**

 Amendment of the Solicitation/Modification of the BARDA Contract, dated August 26, 2022, by and between Spectral MD, Inc. and ASPR-BARDA (incorporated by reference to Exhibit 10.15 of the Registration Statement on Form S-4 (File No. 333-271566)).

 10.5**

 Award/Contract for DHA, dated July 1, 2021, by and between Spectral MD, Inc. and U.S. Army Medical Materiel Development Activity (incorporated by reference to Exhibit 10.16 of the Registration Statement on Form S-4 (File No. 333-271566)).

 10.6**

 Amendment of the Solicitation/Modification of the DHA Contract, dated July 1, 2021, by and between Spectral MD, Inc. and U.S. Army medical Materiel Development Activity (incorporated by reference to Exhibit 10.17 of the Registration Statement on Form S-4 (File No. 333-271566)).

 10.7**

 MTEC Research Project Award, dated April 12, 2023, by and between Spectral. MD, Inc. and Advanced Technology International MTEC Consortium Manager (incorporated by reference to Exhibit 10.18 of the Registration Statement on Form S-4 (File No. 333-271566)).

 10.8**

 Sponsor Letter Agreement, dated April 11, 2023, by and among Rosecliff Acquisition I Sponsor LLC, Spectral MD Holdings, Ltd., and Rosecliff Acquisition Corp I (incorporated by reference to Annex F of the Registration Statement on Form S-4 (File No. 333-271566)).

 10.9 **

 Common Stock Purchase Agreement, dated December 26, 2023, between the Registrant and B. Riley Principal Capital II, LLC (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed with the SEC on December 27, 2023).

 10.10**

 Spectral MD, Inc. 2018 Long Term Incentive Plan (incorporated by referenced to Exhibit 99.1 of Registrant's Registration Statement on Form S-8, filed with the SEC on February 9, 2024)

 10.10.1**

 Form of Stock Option Award Agreement under Spectral MD, Inc. 2018 Long-Term Incentive Plan (incorporated by referenced to Exhibit 99.3 of Registrant's Registration Statement on Form S-8, filed with the SEC on February 9, 2024)

 10.10.2**

 Form of RSU Award Agreement under Spectral MD, Inc. 2018 Long-Term Incentive Plan (incorporated by referenced to Exhibit 99.4 of Registrant's Registration Statement on Form S-8, filed with the SEC on February 9, 2024)

 10.11**

 Spectral MD Holdings, Ltd. 2022 Long Term Incentive Plan (incorporated by referenced to Exhibit 99.2 of Registrant's Registration Statement on Form S-8, filed with the SEC on February 9, 2024)

 10.11.1**

 Form of Stock Option Award Agreement under Spectral MD Holdings, Ltd. 2022 Long-Term Incentive Plan (incorporated by referenced to Exhibit 99.5 of Registrant's Registration Statement on Form S-8, filed with the SEC on February 9, 2024)

 10.11.2**

 Form of RSU Award Agreement under Spectral MD Holdings, Ltd. 2022 Long-Term Incentive Plan (incorporated by referenced to Exhibit 99.6 of Registrant's Registration Statement on Form S-8, filed with the SEC on February 9, 2024)

 10.12**

 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)

 14**

 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)

 19**

 Insider Trading Policy (Incorporated by reference to Exhibit 19 of Registrants Form 10-K, filed with the SEC on March 29, 2024)

 List of Subsidiaries of the Registrant as of December 31, 2024.

 23.1

 Consent of KPMG LLP.

 31.1

 Certification of the Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002

 31.2

 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002

 32.1

 18 U.S.C. Section 1350 Certifications of the Principal Executive Officer and the Chief Financial Officer

 97**

 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)

 101.INS

 101.SCH

 101.CAL

 101.DEF

 101.LAB

 101.PRE

 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.

 Item 16. Form 10-K Summary.

 None.

 SIGNATURES

 Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

 Signature

 Title

 Date

 /s/ J. Michael DiMaio

 Chairman of the Board of
 Directors

 J. Michael DiMaio

 ( Principal Executive
 Officer)

 /s/ Vincent Capone

 Chief Financial Officer

 Vincent Capone

 ( Principal Financial Officer, General Counsel

 And Principal Accounting Officer)

 /s/ Richard Cotton

 Richard Cotton

 /s/ Martin Mellish

 Martin Mellish

 /s/ Deepak Sadagopan

 Deepak Sadagopan

 /s/ Erich Spangenberg

 Erich Spangenberg

 /s/ Marion Snyder

 Marion Snyder

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