TAMPA, Fla., May 2, 2024 /PRNewswire/ -- Marpai, Inc. ("Marpai" or the "Company") (Nasdaq: MRAI), an independent national Third-Party Administration (TPA) company transforming the $22 billion TPA market supporting self-funded employer health plans with affordable, intelligent, healthcare, today announced the implementation of a comprehensive cost reduction program and the sublease of one of its properties. These initiatives are expected to generate $3 million in annual savings and position the Company for c ...

TAMPA, Fla., April 24, 2024 /PRNewswire/ -- Marpai, Inc. ("Marpai" or the "Company") (Nasdaq: MRAI), an independent national Third-Party Administration (TPA) company transforming the $22 billion TPA market supporting self-funded employer health plans with affordable, intelligent, healthcare, today announced the strategic hiring of two industry-renowned salespeople, significantly strengthening its sales force with a focus on accelerating its growth trajectory. These appointments underscore Marpai's commitmen ...

PART I [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Marpai is a technology-driven TPA leveraging AI to help self-insured employers reduce healthcare costs and improve health outcomes - Marpai is a national technology-driven healthcare Third Party Administrator (TPA) that uses artificial intelligence (AI) and data analytics to help self-insured employers lower healthcare costs and improve health outcomes for their employees and families[14](index=14&type=chunk) - The company's mission is to positively change healthcare for its Clients (self-insured employers), Members (employees and their families), and Providers (healthcare service entities)[14](index=14&type=chunk) - Marpai's revenue is derived from three main sources: Health Plan Administration services, Ancillary In-House services (e.g., Clinical Care Management, Repricing Insights, Marpai PACCS, MarpaiRx), and Third-Party Vendor services[19](index=19&type=chunk)[23](index=23&type=chunk)[26](index=26&type=chunk) - A key company goal is to be a leader in affordable, intelligent healthcare for self-funded employers, utilizing AI to drive operational efficiencies and increase profitability, and developing a 'plug and play' roadmap for future TPA acquisitions[30](index=30&type=chunk) [Our Business](index=5&type=section&id=Our%20Business) - Marpai is a national technology-driven healthcare Third Party Administrator (TPA) that uses artificial intelligence (AI) and data analytics to help self-insured employers lower healthcare costs and improve health outcomes for their employees and families[14](index=14&type=chunk) - The company's mission is to positively change healthcare for its Clients (self-insured employers), Members (employees and their families), and Providers (healthcare service entities)[14](index=14&type=chunk) [Market Overview](index=5&type=section&id=Market%20Overview) - U.S. healthcare spending reached **$5 trillion** in 2022, creating significant opportunities for technology and service providers to manage costs and improve member experience[15](index=15&type=chunk) - Small and mid-sized enterprises (SMEs) are increasingly adopting self-insuring through captive and consortium models to gain greater control over healthcare spending and capture margins[16](index=16&type=chunk) [Market Opportunities](index=5&type=section&id=Market%20Opportunities) - Since 1999, there has been a nearly **47%** increase in employee lives shifting to self-funded plans, indicating a growing market for Marpai's services[18](index=18&type=chunk) - Marpai aims to transform the self-funded employer health plan market using technology and its 'Marpai Saves' network to reduce costs and enhance outcomes[18](index=18&type=chunk) [Our Products and Services](index=5&type=section&id=Our%20Products%20and%20Services) - Marpai generates revenue from Health Plan Administration services, In-House Ancillary services, and Third-Party Vendor services[19](index=19&type=chunk) [Health Plan Administration Services](index=5&type=section&id=Health%20Plan%20Administration%20Services) - Core services include designing and managing healthcare benefit plans, providing network access (Aetna, Cigna), member support, claims validation and adjudication, health promotion, and sourcing stop-loss insurance[20](index=20&type=chunk)[22](index=22&type=chunk) - Marpai does not bear the financial risk for claims costs; this risk is borne by self-insured clients and their stop-loss insurance providers[22](index=22&type=chunk) [In-House Ancillary Services](index=7&type=section&id=In-House%20Ancillary%20Services) - In-house ancillary services include Clinical Care Management (nurse-led proactive guidance), Repricing Insights (negotiation for out-of-network claims, saving clients up to **60%**), Marpai PACCS (pharmacy savings for specialty/high-cost medications, up to **75%** savings), and MarpaiRx (new national pharmacy benefit management program with transparent rebates)[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk) [Third Party Services](index=7&type=section&id=Third%20Party%20Services) - Third-party services revenue is primarily from network access fees charged by provider networks (e.g., Aetna, Cigna) and other cost containment services, with a relatively small contribution to gross profit as most revenue is passed through to vendors[26](index=26&type=chunk) [Company Goals](index=7&type=section&id=Company%20Goals) - Marpai aims to be the leader in affordable, intelligent healthcare for self-funded employers, delivering enhanced quality, lower costs, and improved outcomes through AI-driven efficiencies[30](index=30&type=chunk) - The company plans to apply lessons from the Maestro Health acquisition to develop a 'plug and play' roadmap for integrating future TPA acquisitions, capitalizing on the fragmented TPA market[30](index=30&type=chunk) [Maestro Health](index=7&type=section&id=Maestro%20Health) - Maestro Health, acquired by Marpai, is a TPA offering an end-to-end health plan solution that integrates care management and cost containment[29](index=29&type=chunk)[34](index=34&type=chunk) - Maestro Health provides self-funded insurance administration, benefits administration, enrollment, ACA compliance, consumer-directed health care account administration, medical management, and consolidated billing solutions on a single platform[31](index=31&type=chunk)[32](index=32&type=chunk) [Acquisition of Maestro Health](index=9&type=section&id=Acquisition%20of%20Maestro%20Health) - Marpai acquired all membership interests of Maestro Health on November 1, 2022, for an aggregate purchase price of **$19.9 million**, payable by April 1, 2024, with accrued interest bringing the total to **$22.1 million**[33](index=33&type=chunk)[35](index=35&type=chunk) - An amendment on February 7, 2024, reduced the purchase price by **$3 million** if certain criteria are met by December 31, 2024, including a **$3 million** equity contribution from the largest shareholder, Nasdaq listing maintenance, and timely payments[37](index=37&type=chunk) - Payment terms were restructured, deferring the **35%** net proceeds requirement for 2024 funds to January 15, 2025, and setting annual cumulative payments for 2024-2027[38](index=38&type=chunk)[39](index=39&type=chunk) [Government Regulation](index=9&type=section&id=Government%20Regulation) - The healthcare industry is highly regulated by extensive and complex federal, state, and local laws, including those related to fraud and abuse, privacy, and data security[42](index=42&type=chunk) [Overview](index=11&type=section&id=Overview) - The healthcare industry is highly regulated and subject to significant changes as third-party payers increase efforts to control costs, utilization, and delivery of services[42](index=42&type=chunk) [Fraud and Abuse](index=11&type=section&id=Fraud%20and%20Abuse) - Federal and state fraud and abuse laws (e.g., Anti-Kickback Law, Stark Law, False Claims Act, Healthcare Fraud Statute) regulate service provision, claims submission, and financial relationships, imposing significant civil and criminal penalties for non-compliance[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) [State and Federal Privacy and Data Security Laws](index=11&type=section&id=State%20and%20Federal%20Privacy%20and%20Data%20Security%20Laws) - HIPAA and HITECH govern the collection, use, disclosure, and security of Protected Health Information (PHI) for covered entities and business associates, imposing breach notification obligations and significant penalties for violations[50](index=50&type=chunk)[52](index=52&type=chunk) - Additional state and federal laws, such as the CAN-SPAM Act, TCPA, FTC Act, and CCPA/CPRA, regulate privacy, data protection, and sensitive information, with most states also having data security and breach notification laws[53](index=53&type=chunk)[54](index=54&type=chunk) [State Managed Care Laws](index=13&type=section&id=State%20Managed%20Care%20Laws) - State insurance and managed care laws regulate contractual relationships, utilization review, and TPA activities, with varying requirements for networks, contracting, finance, reporting, and service standards[55](index=55&type=chunk) [State Laws Governing Licensure of Healthcare Professionals](index=13&type=section&id=State%20Laws%20Governing%20Licensure%20of%20Healthcare%20Professionals) - State laws require licensure for healthcare professionals providing services, including via electronic means, and may implicate prohibitions on the corporate practice of medicine[56](index=56&type=chunk) - As a TPA, Marpai must maintain active TPA licenses in all operating states; its Wisconsin license was not renewed on August 1, 2023, and alternatives are being pursued[57](index=57&type=chunk) [Employees](index=13&type=section&id=Employees) - As of December 31, 2023, Marpai had **162** full-time employees, none of whom are unionized. Headcount reductions occurred due to attrition, elimination of duplicate positions, and the sale of a non-core operation[58](index=58&type=chunk) [Competition](index=13&type=section&id=Competition) - Marpai operates in a highly competitive market, competing with large health insurance players (Aetna, Cigna, United Healthcare) and other technology-driven TPAs like Collective Health, Bind Health Insurance, Bright Health Group, Oscar Health, and Centivo[59](index=59&type=chunk)[60](index=60&type=chunk) - The company's target market of self-insured employers could shrink if more employers abandon self-insurance[59](index=59&type=chunk) - Marpai believes its AI-enabled predictions differentiate its solution by steering members to appropriate providers sooner, aiming to reduce long-term healthcare spending while improving quality[62](index=62&type=chunk) [Item 1A. Risk Factors](index=15&type=section&id=Item%201A.%20Risk%20Factors) Significant risks include going concern doubt, operating losses, customer attrition, AI accuracy, regulatory compliance, and stock volatility - The company's independent registered public accounting firm has included an explanatory paragraph regarding substantial doubt about Marpai's ability to continue as a going concern[67](index=67&type=chunk)[72](index=72&type=chunk) - Marpai has a history of operating losses and negative cash flows, with an accumulated deficit of **$76.7 million** and negative working capital of **$3.8 million** as of December 31, 2023[67](index=67&type=chunk)[229](index=229&type=chunk) - The company expects to need additional capital to fund operations and investments, which may be costly, difficult to obtain, and could dilute shareholder ownership[68](index=68&type=chunk)[71](index=71&type=chunk) - Marpai faces risks from high customer attrition rates (**10%** in 2023, down from **33%** in 2022), potential failure of AI guidance programs to provide accurate predictions or cost savings, and intense competition in the healthcare TPA market[73](index=73&type=chunk)[75](index=75&type=chunk)[84](index=84&type=chunk) - The business is highly dependent on third-party providers for computing infrastructure (e.g., Amazon Web Services) and internet infrastructure, making it vulnerable to service disruptions and security breaches[106](index=106&type=chunk)[109](index=109&type=chunk) - Compliance with extensive and evolving government regulations in healthcare, including fraud and abuse laws, privacy laws (HIPAA, HITECH, CCPA), and state licensing requirements, poses significant risks and challenges[131](index=131&type=chunk)[132](index=132&type=chunk)[150](index=150&type=chunk) [Summary Risk Factors](index=15&type=section&id=Summary%20Risk%20Factors) - Key risks include substantial doubt about going concern, history of operating losses, need for additional capital, customer attrition, potential failure of AI predictions, issues with AI use, market adoption of AI modules, reliance on brokers, pricing changes, long sales cycles, and delayed revenue recognition[64](index=64&type=chunk) [Financial and Liquidity Risks](index=17&type=section&id=Financial%20and%20Liquidity%20Risks) - The company's independent registered public accounting firm's audit report for December 31, 2023, contains an explanatory paragraph regarding substantial doubt about its ability to continue as a going concern[67](index=67&type=chunk)[72](index=72&type=chunk) - As of December 31, 2023, Marpai had an accumulated deficit of **$76.7 million**, negative working capital of **$3.8 million**, **$0.6 million** in short-term debt, **$19.4 million** in long-term debt, and **$1.1 million** in unrestricted cash[67](index=67&type=chunk)[229](index=229&type=chunk) - Marpai incurred a net loss of **$28.8 million** and negative cash flows from operations of **$15.7 million** for the year ended December 31, 2023[67](index=67&type=chunk) - The company projects a need for additional capital to fund operations and investments, with no assurance that financing or asset sales will be available on favorable terms or at all, potentially leading to scaling back operations or asset divestment[68](index=68&type=chunk)[69](index=69&type=chunk)[71](index=71&type=chunk) [Operational and Business Model Risks](index=19&type=section&id=Operational%20and%20Business%20Model%20Risks) - Marpai experienced a **10%** customer attrition rate in 2023, an improvement from **33%** in the prior period, but faces ongoing risk of client loss due to poor integration, transition to fully funded programs, or acquisitions[73](index=73&type=chunk) - The company is involved in several disputes and lawsuits, which can be time-consuming, costly, and potentially have a material adverse effect on its business[74](index=74&type=chunk) - Risks exist if the TopCare® program's AI predictions are inaccurate or lead to wasteful provider visits, potentially causing low customer satisfaction and contract terminations, as the economic models for savings are yet to be proven with actual case data[75](index=75&type=chunk)[76](index=76&type=chunk) - Failure to obtain or renew regulatory approvals and licenses in various states (e.g., Wisconsin TPA license) could impact the ability to provide services and affect revenues[77](index=77&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk) - Issues with AI, including flawed algorithms, insufficient or biased datasets, or controversial data practices, could result in reputational harm, legal liability, and competitive disadvantages[80](index=80&type=chunk)[81](index=81&type=chunk) - The market for AI modules and member guidance programs may not grow as expected, or self-insured employers may not adopt Marpai's solutions, impacting revenue and financial condition[82](index=82&type=chunk)[83](index=83&type=chunk) - Marpai operates in a highly competitive industry with nearly **1,000** health insurance entities, and the target market size could shrink if employers abandon self-insurance[84](index=84&type=chunk)[85](index=85&type=chunk) - Reliance on healthcare benefits brokers as a principal sales channel poses risks, as brokers may steer clients to other TPAs if not satisfied with Marpai's services or if it maximizes their own fees[87](index=87&type=chunk) - Changes in pricing models, such as adopting shared savings, could put revenue at risk if expected cost savings are not achieved[88](index=88&type=chunk)[89](index=89&type=chunk) - Long and unpredictable sales cycles require considerable investment without guaranteed success, potentially harming results and growth[90](index=90&type=chunk)[91](index=91&type=chunk) - Revenue recognition ratably over contract terms means a business downturn may not be immediately reflected, making future financial performance evaluation difficult[92](index=92&type=chunk) - The success and growth of the business depend on continuous innovation and development of new products and technologies, requiring significant resources and talent in a rapidly changing industry[93](index=93&type=chunk) - Failure to access AI talent or expand AI models could lead to a loss of competitiveness and negatively impact revenue and operations[94](index=94&type=chunk) - Reliance on claims data for AI models and challenges in incorporating other data types (e.g., electronic health records) may limit competitive ability[95](index=95&type=chunk)[97](index=97&type=chunk) - Clients' failure to obtain proper permissions and waivers for data use could result in claims against Marpai or limit its ability to use data, harming the business[98](index=98&type=chunk) - Security breaches or unauthorized access to client data could damage reputation, reduce service use, and incur significant liabilities, as techniques for unauthorized access constantly evolve[99](index=99&type=chunk)[100](index=100&type=chunk) - Failure to enhance reputation and brand recognition could hinder business strategy, requiring substantial and potentially unsuccessful marketing investments[101](index=101&type=chunk) - Acquisitions could divert management attention, dilute stockholders, disrupt operations, and be difficult to integrate successfully, potentially leading to impairment charges[102](index=102&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk) [Technology and Intellectual Property Risks](index=22&type=section&id=Technology%20and%20Intellectual%20Property%20Risks) - Marpai relies on third-party providers like Amazon Web Services for computing infrastructure, and any disruption in these services could adversely affect its business and lead to liabilities[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) - Dependence on internet infrastructure, bandwidth providers, and data centers means failures or interruptions could lead to litigation, client credits, and negative impacts on relationships and brand[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk) - The use of third-party licensed software and components in its member guidance program means inability to maintain licenses or software errors could limit functionality and increase costs[119](index=119&type=chunk)[120](index=120&type=chunk) - Failure to protect intellectual property rights (e.g., patents, trade secrets) could impair the ability to protect proprietary technology and brand, potentially leading to costly litigation or loss of competitive advantage[121](index=121&type=chunk)[122](index=122&type=chunk)[125](index=125&type=chunk) - Defending against intellectual property piracy in foreign jurisdictions is challenging due to varying laws and the presence of competitors with large R&D programs[126](index=126&type=chunk) - Marpai may be sued by third parties for alleged infringement of proprietary rights or misappropriation of intellectual property, leading to significant expenses, damages, or operational changes[127](index=127&type=chunk) - Non-compliance with open-source software licenses used in its member guidance program could adversely affect the business by requiring public release of proprietary code, re-engineering products, or discontinuing sales[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk) [Regulatory and Compliance Risks](index=32&type=section&id=Regulatory%20and%20Compliance%20Risks) - Government regulation of the healthcare industry is complex and evolving, posing risks and challenges to compliance efforts and business strategies, particularly as new data analytics solutions are developed[131](index=131&type=chunk)[150](index=150&type=chunk) - Non-compliance with False Claims Laws, Anti-Kickback and Anti-Bribery Laws, Corporate Practice of Medicine Laws, and Medical Professional Regulation could lead to significant civil or criminal penalties, contract invalidation, and adverse effects on business[132](index=132&type=chunk)[142](index=142&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - Health Data Privacy Laws (HIPAA, HITECH, state laws) impose strict standards on PHI, and Marpai's role as a business associate means it is liable for breaches, including those by subcontractors, potentially leading to enforcement actions and reputational damage[132](index=132&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk)[143](index=143&type=chunk)[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk) - There is a risk that the FDA could regulate Marpai's AI products as medical devices, subjecting the company to extensive pre- and post-market requirements, software development controls, and quality assurance processes[145](index=145&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) - Failure to obtain and maintain proper TPA licensure and authorizations (e.g., Wisconsin license) could restrict business operations[154](index=154&type=chunk) - Changes in healthcare laws and regulations, such as the Patient Protection and Affordable Care Act (ACA), could significantly impact the industry and Marpai's business, with uncertain future effects[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk) - Changes in laws and regulations related to the Internet, or changes in Internet access generally, could adversely impact Marpai's business by requiring platform modifications, increasing costs, or reducing demand for Internet-based services[158](index=158&type=chunk)[159](index=159&type=chunk)[160](index=160&type=chunk) [Public Company and Stock-Related Risks](index=40&type=section&id=Public%20Company%20and%20Stock-Related%20Risks) - Being a public company strains resources, diverts management attention, and increases legal, accounting, and financial compliance costs, potentially affecting the ability to attract and retain executive management and board members[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) - Issuance of additional capital stock for financing, acquisitions, or incentive plans will dilute existing stockholders' ownership interests and could cause the per-share value of common stock to decline[166](index=166&type=chunk)[167](index=167&type=chunk) - Marpai does not intend to pay dividends, meaning returns on investment depend solely on stock price appreciation[168](index=168&type=chunk) - The company has been notified by Nasdaq of non-compliance with listing requirements (MVLS below **$35 million**) and faces potential delisting if compliance is not regained by May 28, 2024[169](index=169&type=chunk)[170](index=170&type=chunk)[183](index=183&type=chunk) - The market price of common stock may be volatile and decline regardless of operating performance due to various factors, including market conditions, financial projections, competition, and external events[171](index=171&type=chunk)[173](index=173&type=chunk) - A possible 'short squeeze' could lead to extreme price volatility unrelated to company performance[174](index=174&type=chunk) - Provisions in charter documents and Delaware law could make company acquisition more difficult, limit stockholder attempts to replace the Board, and potentially limit the market price of Class A common stock[174](index=174&type=chunk)[175](index=175&type=chunk) - Bylaws designate Delaware courts as the exclusive forum for certain litigation, potentially limiting stockholders' ability to choose a favorable judicial forum and discouraging lawsuits[176](index=176&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) - As a 'controlled company' (**38.8%** voting power held by certain shareholders), Marpai may be exempt from certain Nasdaq corporate governance requirements, potentially affording shareholders fewer protections[185](index=185&type=chunk)[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk) [Item 1B. Unresolved Staff Comments](index=48&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) Marpai Inc. has no unresolved staff comments from the SEC - The company has no unresolved staff comments[189](index=189&type=chunk) [Item 1C. Cybersecurity](index=48&type=section&id=Item%201C.%20Cybersecurity) Marpai's board and Audit Committee oversee a comprehensive cybersecurity program based on NIST/ISO, covering governance, safeguards, and incident response - Marpai's board of directors and Audit Committee oversee the cybersecurity risk management program, which is integrated into overall risk management and based on recognized frameworks (NIST, ISO)[190](index=190&type=chunk)[192](index=192&type=chunk)[194](index=194&type=chunk) - The cybersecurity program includes periodic assessments and testing (audits, vulnerability testing), technical safeguards (firewalls, intrusion detection), incident response plans, third-party risk management, and regular employee training[191](index=191&type=chunk)[192](index=192&type=chunk) - The Chief Information Security Officer (CISO) implements the program and monitors threats, reporting to the Audit Committee[195](index=195&type=chunk) - Cybersecurity threats have not materially affected the company's business strategy, results of operations, or financial condition[196](index=196&type=chunk) [Risk Management and Strategy](index=48&type=section&id=Risk%20Management%20and%20Strategy) - Marpai's cybersecurity program is a critical element of its overall risk management, focusing on governance, a collaborative approach, technical safeguards, incident response and recovery planning, third-party risk management, and education/awareness[191](index=191&type=chunk)[192](index=192&type=chunk) - The company conducts periodic assessments, audits, and vulnerability testing, engaging third parties to evaluate cybersecurity measures and adjust policies as needed[191](index=191&type=chunk) [Governance](index=49&type=section&id=Governance) - The board of directors and Audit Committee oversee cybersecurity risk management, receiving regular presentations and reports on threats, developments, and incidents[194](index=194&type=chunk) - The CISO works with multidisciplinary teams to implement the cybersecurity program, monitor threats, and report incidents to the Audit Committee[195](index=195&type=chunk) [Item 2. Properties](index=50&type=section&id=Item%202.%20Properties) Marpai leases principal offices in Tampa, Florida, and additional spaces in Charlotte, NC, and Chicago, IL, with 2023 net lease expense of **$1.48 million** - Marpai's principal executive offices are leased in Tampa, Florida, with the lease expiring in June 2024 (base rent ~**$4,910/month**)[197](index=197&type=chunk) - Additional corporate office spaces are leased in Charlotte, North Carolina (**31,475 sq ft**, ~**$46,000/month**, lease expires August 2030) and Chicago, Illinois (**5,820 sq ft**, ~**$24,000/month**, lease expires September 2028), both acquired with Maestro Health[198](index=198&type=chunk) - Net lease expense for the fiscal year ended December 31, 2023, was **$1,479,399**[199](index=199&type=chunk) - The company believes its current office space is adequate for its needs[200](index=200&type=chunk) [Item 3. Legal Proceedings](index=50&type=section&id=Item%203.%20Legal%20Proceedings) Marpai is subject to ordinary course litigation but is not currently a party to any material legal proceedings, with one CMS complaint under industry-wide investigation - Marpai is subject to litigation in the ordinary course of its TPA business, including lawsuits by insured members contesting claims decisions and indemnification claims from clients[201](index=201&type=chunk) - Currently, there are no legal proceedings whose outcome is believed to be material to the company's business, results of operations, cash flows, or financial condition[201](index=201&type=chunk) - A CMS complaint alleges that Marpai Administrators uses a clearinghouse (Zelis) that charges percentage-based fees for Electronic Funds Transfer (EFT) transactions, potentially violating HIPAA[202](index=202&type=chunk) - CMS is investigating this as an industry-wide concern, and the complaint remains open but is not escalating or requiring additional information from Marpai Administrators at this time[203](index=203&type=chunk) [CMS/Zelis Litigation](index=50&type=section&id=CMS%2FZelis%20Litigation) - CMS notified Marpai Administrators of a complaint on September 3, 2020, alleging the use of a clearinghouse (Zelis) that charges percentage-based fees for EFT transactions, potentially violating HIPAA[202](index=202&type=chunk) - CMS views this as an industry-wide concern and is investigating; the complaint remains open but does not currently require further action from Marpai Administrators[203](index=203&type=chunk) [Item 4. Mine Safety Disclosures](index=50&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Marpai Inc. is not subject to mine safety disclosures - Mine Safety Disclosures are not applicable to Marpai Inc[204](index=204&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=51&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Marpai's common shares trade on Nasdaq (MRAI), with **10.3 million** shares outstanding held by 38 record holders as of March 26, 2024 - Marpai's common shares trade on the Nasdaq Capital Market under the symbol **MRAI**[206](index=206&type=chunk) - As of March 26, 2024, there were **10,300,548** common shares issued and outstanding, held by **38** record holders[4](index=4&type=chunk)[206](index=206&type=chunk) [Item 6. Reserved](index=51&type=section&id=Item%206.%20Reserved) Item 6 is reserved in this report - Item 6 is reserved[207](index=207&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=52&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Marpai, an AI-driven TPA, saw 2023 revenue increase due to acquisition but also higher net loss; liquidity is a concern, requiring additional capital - Marpai is a national technology-driven healthcare TPA that uses AI and data analytics to help self-insured employers lower healthcare costs and improve health outcomes[209](index=209&type=chunk) Key Financial Highlights (Years Ended December 31) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :----------------------------------- | :----------- | :----------- | :----------- | :--------- | | Revenue | $37,155,050 | $24,341,874 | $12,813,176 | 53% | | Total Costs and Expenses | $65,132,033 | $51,298,729 | $13,833,304 | 27% | | Operating Loss | $(27,976,983) | $(26,956,855) | $(1,020,128) | 4% | | Total Other Expense | $(1,065,055) | $(32,667) | $(1,032,388) | 3160% | | Net Loss | $(28,751,900) | $(26,468,390) | $(2,283,510) | 9% | | Net Loss Per Share (Basic & Diluted) | $(4.14) | $(5.23) | $1.09 | -21% | | Weighted Average Common Shares | 6,951,669 | 5,059,959 | 1,891,710 | 37% | - Revenue increased by **53%** in 2023, primarily due to the acquisition of Maestro Health (**$16.7 million**) and new services, partially offset by a **$4.1 million** decline from a terminated client contract[212](index=212&type=chunk) - The net loss increased by **9%** in 2023, driven by higher general and administrative expenses, facilities costs, and goodwill impairment, partially offset by reductions in sales and marketing, IT, and R&D expenses[227](index=227&type=chunk) - As of December 31, 2023, Marpai had an accumulated deficit of **$76.7 million**, negative working capital of **$3.8 million**, and **$1.1 million** in unrestricted cash, raising substantial doubt about its ability to continue as a going concern[229](index=229&type=chunk)[233](index=233&type=chunk) Cash Flow Summary (Years Ended December 31) | Cash Flow Activity | 2023 | 2022 | | :----------------------------------- | :----------- | :----------- | | Net cash used in operating activities | $(15,749,206) | $(35,239,299) | | Net cash (used in) provided by investing activities | $1,026,912 | $32,422,576 | | Net cash provided by financing activities | $5,096,562 | $196 | | Net decrease in cash, cash equivalents and restricted cash | $(9,625,732) | $(2,816,527) | [Representation in the Financial Statements of Marpai, Inc.](index=52&type=section&id=Representation%20in%20the%20Financial%20Statements%20of%20Marpai%2C%20Inc.) - The consolidated financial statements include Marpai Health (and its subsidiary EYME) and Marpai Administrators for all periods, Maestro Health since its acquisition on November 1, 2022, and Marpai Captive since its inception[210](index=210&type=chunk) [Results of Operations – Comparison of the Years ended December 31, 2023 and 2022](index=52&type=section&id=Results%20of%20Operations%20%E2%80%93%20Comparison%20of%20the%20Years%20ended%20December%2031%2C%202023%20and%202022) Consolidated Statements of Operations Summary | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------------------------- | :----------- | :----------- | :----------- | :--------- | | Revenue | $37,155,050 | $24,341,874 | $12,813,176 | 53% | | Cost of revenue | $24,239,117 | $17,136,330 | $7,102,787 | 41% | | General and administrative | $19,176,895 | $12,318,529 | $6,858,366 | 56% | | Sales and marketing | $6,596,981 | $6,938,513 | $(341,532) | -5% | | Information technology | $5,834,255 | $6,372,795 | $(538,540) | -8% | | Research and development | $1,311,695 | $3,708,068 | $(2,396,373) | -65% | | Depreciation and amortization | $3,896,833 | $3,538,237 | $358,596 | 10% | | Impairment of goodwill | $3,017,600 | — | $3,017,600 | n/a | | Facilities | $2,472,192 | $1,012,827 | $1,459,365 | 144% | | Loss on disposal of asset | $335,106 | $273,430 | $61,676 | 23% | | Gain on Sale of Business Unit | $(1,748,641) | — | $(1,748,641) | n/a | | Operating Loss | $(27,976,983) | $(26,956,855) | $(1,020,128) | 4% | | Interest expense, net | $(1,527,449) | $(266,778) | $(1,260,671) | 473% | | Net Loss | $(28,751,900) | $(26,468,390) | $(2,283,510) | 9% | | Net loss per share | $(4.14) | $(5.23) | $1.09 | -21% | [Revenue and Cost of Revenue](index=52&type=section&id=Revenue%20and%20Cost%20of%20Revenue) - Total revenue increased by **53%** to **$37.16 million** in 2023 from **$24.34 million** in 2022, primarily driven by the Maestro Health acquisition (**$16.68 million**) and new services, partially offset by a **$4.08 million** decline from a terminated client contract[212](index=212&type=chunk) - Cost of revenue increased by **41%** to **$24.24 million** in 2023 from **$17.14 million** in 2022, mainly due to Maestro Health's costs (**$8.80 million**) and a large new customer, partially offset by a **$2.87 million** reduction from the terminated contract[214](index=214&type=chunk)[215](index=215&type=chunk) - Cost of revenues includes service fees (vendor fees), direct labor for claims management, processing, customer support, and care/case management[216](index=216&type=chunk) [Research and Development Expenses](index=54&type=section&id=Research%20and%20Development%20Expenses) - R&D expenses decreased by **65%** to **$1.31 million** in 2023 from **$3.71 million** in 2022, primarily due to reduced expenditures in EYME (lower R&D employees), a decrease in employee stock-based compensation, and no allocation of the President of Production and Development's time to R&D in 2023[217](index=217&type=chunk) [General and Administrative Expenses](index=54&type=section&id=General%20and%20Administrative%20Expenses) - G&A expenses increased by **56%** to **$19.18 million** in 2023 from **$12.32 million** in 2022, mainly due to **$6.76 million** in G&A expenses generated by the Maestro Health acquisition[218](index=218&type=chunk) [Sales and Marketing Expenses](index=54&type=section&id=Sales%20and%20Marketing%20Expenses) - Sales and marketing expenses decreased by **5%** to **$6.60 million** in 2023 from **$6.94 million** in 2022, primarily due to reductions in outside marketing and trade show costs, partially offset by **$1.12 million** in expenses from Maestro Health[219](index=219&type=chunk) [Information Technology Expenses](index=54&type=section&id=Information%20Technology%20Expenses) - Information technology expenses decreased by **8%** to **$5.83 million** in 2023 from **$6.37 million** in 2022, due to employee reassignment and no allocation of the President of Production and Development's time to IT, offset by **$2.28 million** in expenses from Maestro Health[220](index=220&type=chunk) [Facilities expenses, depreciation and amortization](index=54&type=section&id=Facilities%20expenses%2C%20depreciation%20and%20amortization) - Facilities expenses increased by **144%** to **$2.47 million** in 2023 from **$1.01 million** in 2022, and depreciation and amortization increased by **10%** to **$3.90 million** from **$3.54 million**, primarily due to Maestro Health's facilities (**$1.26 million**) and D&A (**$0.38 million**) expenses[221](index=221&type=chunk) [Loss on Disposal of Assets](index=54&type=section&id=Loss%20on%20Disposal%20of%20Assets) - Loss on disposal of assets increased to **$335,106** in 2023 from **$273,430** in 2022, mainly due to the disposal of furniture and leasehold improvement assets no longer needed as lease terms ended[222](index=222&type=chunk) [Gain on Sale of Business Unit](index=54&type=section&id=Gain%20on%20Sale%20of%20Business%20Unit) - Marpai realized a **$1,748,641** gain on the sale of its non-core FSA/HSA business unit in 2023[223](index=223&type=chunk) [Interest Expense, net](index=54&type=section&id=Interest%20Expense%2C%20net) - Net interest expense increased by **473%** to **$1.53 million** in 2023 from **$0.27 million** in 2022, primarily due to interest accrued on debt related to the Maestro Health acquisition[224](index=224&type=chunk)[225](index=225&type=chunk) [Net Loss](index=56&type=section&id=Net%20Loss) - Net loss increased to **$28.75 million** in 2023 from **$26.47 million** in 2022, driven by higher G&A, facilities, and goodwill impairment, partially offset by reduced sales & marketing, IT, and R&D expenses[227](index=227&type=chunk) - Loss per share decreased to **$4.14** in 2023 from **$5.23** in 2022, mainly due to an increase in the weighted average number of shares outstanding from new issuances in April 2023[228](index=228&type=chunk) [Liquidity and Capital Resources](index=56&type=section&id=Liquidity%20and%20Capital%20Resources) - As of December 31, 2023, Marpai had an accumulated deficit of **$76.7 million**, **$0.6 million** in short-term debt, **$19.4 million** in long-term debt, **$1.1 million** in unrestricted cash, and negative working capital of **$3.8 million**[229](index=229&type=chunk) - The company has historically financed operations through convertible notes, warrants, and equity sales, and projects a need for additional capital to fund current operations and investments[230](index=230&type=chunk)[232](index=232&type=chunk) - Management's assessment of liquidity raises substantial doubt about the company's ability to continue as a going concern for the next twelve months[233](index=233&type=chunk) - In December 2023, Marpai sold its consumer-directed benefits business for **$1 million** cash and potential contingent fees of **$1 million**, and issued **150,000** shares in a private placement for **$1.97** per share[234](index=234&type=chunk)[235](index=235&type=chunk) - In January 2024, the company sold **1,322,100** shares in a private placement to insiders for **$0.9201** per share and entered into an Agreement of Sale of Future Receipts for **$1.7 million**[236](index=236&type=chunk)[237](index=237&type=chunk) - In March 2024, Marpai sold **910,000** shares in a private placement to HillCour Investment Fund, LLC for **$1.65** per share[238](index=238&type=chunk) [Cash Flows](index=58&type=section&id=Cash%20Flows) Cash Flow Summary (Years Ended December 31) | Cash Flow Activity | 2023 | 2022 | | :----------------------------------- | :----------- | :----------- | | Net cash used in operating activities | $(15,749,206) | $(35,239,299) | | Net cash (used in) provided by investing activities | $1,026,912 | $32,422,576 | | Net cash provided by financing activities | $5,096,562 | $196 | | Net decrease in cash, cash equivalents and restricted cash | $(9,625,732) | $(2,816,527) | [Net Cash Used in Operating Activities](index=58&type=section&id=Net%20Cash%20Used%20in%20Operating%20Activities) - Net cash used in operating activities decreased by **$19.49 million** to **$15.75 million** in 2023, primarily due to a net loss of **$28.75 million**, partially offset by **$10.66 million** in non-cash items and a **$2.34 million** decrease in net working capital[241](index=241&type=chunk) [Net Cash Provided by Investing Activities](index=58&type=section&id=Net%20Cash%20Provided%20by%20Investing%20Activities) - Net cash provided by investing activities decreased by **$31.40 million** to **$1.03 million** in 2023, mainly due to the cash and restricted cash acquired in the Maestro Health acquisition in 2022, partially offset by **$1 million** from the sale of a business unit in 2023[242](index=242&type=chunk) [Net Cash Provided by Financing Activities](index=58&type=section&id=Net%20Cash%20Provided%20by%20Financing%20Activities) - Net cash provided by financing activities increased significantly to **$5.10 million** in 2023 from **$196** in 2022, primarily from common stock issuances in a public offering, offset by **$1.66 million** in AXA Loan repayments[243](index=243&type=chunk) [Critical Accounting Estimates](index=58&type=section&id=Critical%20Accounting%20Estimates) - The preparation of financial statements requires management to make estimates and assumptions affecting reported amounts, including valuation of share-based compensation, warrants, credit losses, software useful lives, fair values of acquired assets, goodwill, intangible assets, IBNR reserves, leases, and income tax accruals[244](index=244&type=chunk)[245](index=245&type=chunk) [Capitalized Software](index=58&type=section&id=Capitalized%20Software) - Costs for internally developed software used for services are capitalized during the development stage and amortized on a straight-line basis over an expected economic life of **three to five years**, commencing when the software is ready for use[246](index=246&type=chunk)[247](index=247&type=chunk) [Goodwill](index=60&type=section&id=Goodwill) - Goodwill is recognized as the excess of acquisition consideration over net identifiable assets, not amortized, and tested for impairment annually or more frequently if triggering events occur[248](index=248&type=chunk) - Marpai recorded a goodwill impairment charge of approximately **$3.0 million** in 2023, following a qualitative and quantitative analysis that indicated impairment[248](index=248&type=chunk) [Income Taxes](index=60&type=section&id=Income%20Taxes) - Income taxes are accounted for using an asset and liability approach, recognizing deferred tax assets and liabilities for future tax consequences of temporary differences, net operating losses, and tax credits[249](index=249&type=chunk) - Deferred tax assets are reviewed for realizability, with valuation allowances established based on historical operating losses and projected future taxable income[249](index=249&type=chunk) - The company follows ASC Topic 740-10-65-1 for uncertain income tax positions, with no uncertain tax positions or related interest/penalties requiring accrual as of December 31, 2023 and 2022[250](index=250&type=chunk) [Revenue Recognition](index=60&type=section&id=Revenue%20Recognition) - Revenue is recognized when control of promised services is transferred to customers, reflecting the consideration expected in exchange for those services[251](index=251&type=chunk) - Performance obligations, including health and welfare administration and cost containment, are satisfied over time as services are provided, with fixed fees typically denominated per employee per month[252](index=252&type=chunk)[255](index=255&type=chunk) - Variable consideration is included in the transaction price only if it is probable that the amounts will not be subject to significant reversals[255](index=255&type=chunk) [Share-Based Compensation](index=60&type=section&id=Share-Based%20Compensation) - Share-based awards for employees and non-employees are accounted for under ASC Topic 718 and ASU 2018-07, with compensation expense measured at grant date fair value and recognized over the vesting period[256](index=256&type=chunk)[257](index=257&type=chunk) - Fair value of stock options is estimated using a Black-Scholes option-pricing model, considering factors like expected volatility, expected life, risk-free interest rate, and expected dividends[258](index=258&type=chunk) [Recently Issued and Adopted Accounting Pronouncements](index=62&type=section&id=Recently%20Issued%20and%20Adopted%20Accounting%20Pronouncements) - Marpai is evaluating ASU 2021-08 (Accounting for Contract Assets and Liabilities), ASU 2022-04 (Supplier Finance Programs), ASU 2022-03 (Fair Value Measurement of Equity Securities), ASU 2023-07 (Segment Reporting), and ASU 2023-09 (Income Tax Disclosures)[489](index=489&type=chunk)[490](index=490&type=chunk)[491](index=491&type=chunk)[492](index=492&type=chunk)[493](index=493&type=chunk) - The adoption of most of these new accounting standards is not expected to have a material impact on the company's consolidated financial statements, except for ASU 2023-09 on income tax disclosures, which is currently being evaluated[489](index=489&type=chunk)[490](index=490&type=chunk)[491](index=491&type=chunk)[492](index=492&type=chunk)[493](index=493&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=62&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Marpai Inc. has no quantitative or qualitative disclosures about market risk to report - Quantitative and Qualitative Disclosures About Market Risk are not applicable to Marpai Inc[26

FOR IMMEDIATE RELEASE EXH 99.1 MARPAI REPORTS FOURTH QUARTER AND FULL YEAR 2023 FINANCIAL RESULTS Full Year Benefit of Maestro Acquisition and Q4 Corrective Actions Driving Financial Improvement Tampa, March 26, 2024, Marpai, Inc. ("Marpai" or the "Company") (Nasdaq: MRAI), an independent national Third-Party Administration (TPA) company transforming the $22 billion TPA market supporting self-funded employer health plans with affordable, intelligent, healthcare, today announced financial results for the fou ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-40904 MARPAI, INC. (Exact Name of Registrant as Specified in Its Charter) (State or other jurisdiction of incorporation) Delaware 86-1 ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-40904 MARPAI, INC. (Exact Name of Registrant as Specified in Its Charter) (State or other jurisdiction of incorporation) Indicate by check ...

PART I. FINANCIAL INFORMATION [Unaudited Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Unaudited Q1 2023 financial statements reveal increased revenue and expenses, alongside management's substantial doubt about the company's going concern ability Condensed Consolidated Balance Sheet (Unaudited) | Account | March 31, 2023 ($) | December 31, 2022 ($) | | :--- | :--- | :--- | | **Total Current Assets** | $20,078,211 | $26,537,849 | | **Total Assets** | **$42,226,225** | **$49,949,620** | | **Total Current Liabilities** | $17,457,902 | $17,359,844 | | **Total Liabilities** | $44,136,975 | $43,815,295 | | **Total Stockholders' (Deficit) Equity** | **($1,910,750)** | **$6,134,325** | | Cash and cash equivalents | $6,174,538 | $13,764,508 | | Accumulated deficit | ($56,866,949) | ($47,994,100) | Condensed Consolidated Statements of Operations (Unaudited) | Account | Three months ended March 31, 2023 ($) | Three months ended March 31, 2022 ($) | | :--- | :--- | :--- | | **Revenue** | **$9,672,045** | **$6,218,809** | | Total costs and expenses | $18,194,827 | $11,757,416 | | **Operating loss** | **($8,522,782)** | **($5,538,607)** | | **Net loss** | **($8,872,849)** | **($5,489,664)** | | Net loss per share, basic & fully diluted | ($0.42) | ($0.28) | Condensed Consolidated Statements of Cash Flows (Unaudited) | Cash Flow Activity | Three months ended March 31, 2023 ($) | Three months ended March 31, 2022 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | ($6,539,764) | ($3,327,712) | | Net cash provided by (used in) investing activities | $3,213 | ($494,370) | | Net cash provided by financing activities | $221 | $0 | | **Net decrease in cash, cash equivalents and restricted cash** | **($6,536,330)** | **($3,822,082)** | - The company operates through subsidiaries Marpai Health, Marpai Administrators, and Maestro, aiming to be a technology-driven 'Payer of the Future' for self-insured employers, with Marpai Captive commencing operations in Q1 2023[20](index=20&type=chunk) - The company has an accumulated deficit of **$56.9 million** and negative operating cash flows of **$6.5 million** in Q1 2023, leading management to express **substantial doubt about its ability to continue as a going concern**[29](index=29&type=chunk)[32](index=32&type=chunk) - Maestro was acquired on November 1, 2022, for a purchase price of **$19.9 million**, which will total **$22.1 million** by the April 1, 2024 payment date due to accrued interest[61](index=61&type=chunk) - A public offering on April 19, 2023, raised **$7.4 million** gross proceeds (**$6.4 million** net) from **7.4 million shares** at **$1.00 per share**, with **35%** of net proceeds used for Maestro acquisition debt repayment[105](index=105&type=chunk)[107](index=107&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion highlights Q1 2023 revenue growth from the Maestro acquisition, offset by increased expenses and operating losses, raising substantial doubt about going concern Comparison of Operations: Q1 2023 vs Q1 2022 | Metric | Q1 2023 ($) | Q1 2022 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $9,672,045 | $6,218,809 | 55.5% | | Cost of Revenue | $6,408,801 | $4,546,795 | 41.0% | | General and administrative | $5,226,419 | $2,902,133 | 80.1% | | Sales and marketing | $2,179,117 | $1,559,116 | 39.8% | | Information technology | $2,186,809 | $1,134,273 | 92.8% | | Operating loss | ($8,522,782) | ($5,538,607) | 53.9% | | Net loss | ($8,872,849) | ($5,489,664) | 61.6% | - The **55.5% increase in revenue** was primarily due to the Maestro acquisition, which contributed **$5,037,425** in revenue, partially offset by a **$1,455,122** decline from a terminated client contract[119](index=119&type=chunk) - Increases in General & Administrative, Sales & Marketing, and Information Technology expenses were all primarily driven by the inclusion of Maestro's operations following its acquisition on November 1, 2022[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk) - As of March 31, 2023, the company had **$6.2 million** in unrestricted cash and a working capital of **$2.6 million**, with a net loss of **$8.9 million** and negative operating cash flow of **$6.5 million** for the quarter, leading management to conclude there is **substantial doubt about the company's ability to continue as a going concern**[129](index=129&type=chunk)[133](index=133&type=chunk) - The company is seeking to raise additional funds through equity or debt securities, as failure to do so may force it to scale back operations or divest assets[132](index=132&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company identifies foreign exchange, interest rate, and inflation as primary market risks, none of which had a material impact on Q1 2023 financial statements - Foreign exchange risk exists due to operations in Israel with expenses denominated in New Israeli Shekel (NIS), though a hypothetical **10%** change in the NIS/USD exchange rate is not expected to have a material impact[142](index=142&type=chunk) - Interest rate risk on cash and cash equivalents (**$6.2 million** as of March 31, 2023) is not considered a significant risk by management[143](index=143&type=chunk) - Inflation is believed not to have had a material effect on the business, financial condition, or results of operations during the quarter[144](index=144&type=chunk) [Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, deemed the company's disclosure controls and procedures effective as of March 31, 2023, with no material changes to internal control over financial reporting during Q1 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were **effective** as of the end of the fiscal quarter ended March 31, 2023[145](index=145&type=chunk) - No changes in internal control over financial reporting occurred during the first quarter of 2023 that materially affected, or are reasonably likely to materially affect, internal controls[148](index=148&type=chunk) PART II. OTHER INFORMATION [Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q1 2023, Marpai, Inc. issued 100,000 shares of common stock to service providers as compensation, claiming exemption from registration under Section 4(a)(2) of the Securities Act - In Q1 2023, the Company issued **100,000 shares** of common stock to service providers as compensation in lieu of cash[151](index=151&type=chunk) - The issuance was made under the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933[151](index=151&type=chunk) [Exhibits](index=26&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Interactive Data Files (XBRL) - The report includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[152](index=152&type=chunk) - Interactive Data Files (Inline XBRL) are furnished as part of the filing[152](index=152&type=chunk) Signatures [Signatures](index=27&type=section&id=Signatures) The quarterly report was officially signed and authorized on May 10, 2023, by the Chief Executive Officer and Chief Financial Officer - The report was signed on May 10, 2023, by Edmundo Gonzalez (Chief Executive Officer) and Yoram Bibring (Chief Financial Officer)[157](index=157&type=chunk)

Marpai, Inc. (NASDAQ:MRAI) Q4 2023 Earnings Conference Call March 30, 2023 8:30 AM ET Company Participants Edmundo Gonzalez - Co-Founder & CEO Yoram Bibring - CFO Simon Li - Corporate VP & Co-Founder Conference Call Participants Allen Klee - Maxim Group Operator Good day, and thank you for standing by. Welcome to the Marpai Fourth Quarter and Full-Year 2022 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to Simon Li, who is Vice President with Marpai. Please g ...

[PART I](index=5&type=section&id=PART%20I) [Business Overview](index=5&type=section&id=Item%201.%20Business) Marpai Inc. is a technology-driven healthcare payer utilizing AI and data analytics to reduce costs and improve outcomes for self-insured employers and their employees [Our Business](index=5&type=section&id=Our%20Business) Marpai is a technology-driven healthcare payer using AI and data analytics to lower healthcare costs and improve outcomes - Marpai is a technology-driven healthcare payer using AI and data analytics to lower healthcare costs and improve outcomes for self-insured employers, employees, and providers[14](index=14&type=chunk) - The company provides administrative services (TPA) to over **200 small and medium-sized clients**, serving over **73,000 members** in **44 states and D.C.**[14](index=14&type=chunk) - As of December 31, 2022, no single client represents more than **6.2% of annual revenue**[14](index=14&type=chunk) [Industry Trends in the Healthcare Payer](index=5&type=section&id=Industry%20Trends%20in%20the%20Healthcare%20Payer) U.S. healthcare expenditures are rising, driving self-insurance and the adoption of AI and value-based care models - U.S. healthcare expenditures grew from **5% of GDP in 1960 to 18.3% in 2021**, driving an increase in self-insured companies[18](index=18&type=chunk) - Advancements in AI and medical foundation models enable higher prediction accuracy for applications like identifying 'high cost bloomers' and forecasting patient risk[18](index=18&type=chunk) - Value-based care (VBC) is an increasingly popular reimbursement model, expected to grow from **40-45 million in 2022 to 70-80 million in 2027**[18](index=18&type=chunk) - Chronic diseases account for **75% of U.S. aggregate healthcare spending**, and waste (e.g., care coordination, delivery failure, pricing) can be up to **30% of medical spending**[17](index=17&type=chunk)[20](index=20&type=chunk) [Market Opportunities](index=7&type=section&id=Market%20Opportunities) Marpai estimates a total addressable market of up to $63 billion, driven by employer-sponsored self-funded health plans and new service offerings - Marpai estimates its total addressable market (TAM) to be up to **$63 billion**[22](index=22&type=chunk) - The total spending on healthcare via employer-sponsored self-funded health plans is estimated at **$1.4 trillion**, covering **65% of American workers**[21](index=21&type=chunk) - Recently acquired products from Maestro Health are expected to complement traditional administrative fees and enhance revenue per employee, driving TAM expansion[22](index=22&type=chunk) [Our Recent Acquisition of Maestro Health](index=7&type=section&id=Our%20Recent%20Acquisition%20of%20Maestro%20Health) Marpai acquired Maestro Health to integrate TPA services, clinical care management, and cost containment, enhancing revenue per member - Marpai acquired Maestro Health on **November 1, 2022**, integrating a similar TPA business serving over **60 clients and 20,000 employees**[23](index=23&type=chunk) - The acquisition brought in-house product lines including Clinical Care Management, Out of Network Claims Processing, and Pharmacy Cost Containment[24](index=24&type=chunk)[26](index=26&type=chunk) - These value-added services are expected to increase revenue per member and will be marketed to Marpai's existing and new client base[25](index=25&type=chunk) [Our Flagship Program – Marpai Cares](index=9&type=section&id=Our%20Flagship%20Program%20%E2%80%93%20Marpai%20Cares) Marpai Cares leverages AI and analytics to optimize self-funded health plans by identifying at-risk members and guiding them to high-value care - Marpai Cares aims to maximize self-funded health plan value by creating the healthiest member population within a client's budget, for a competitive administration fee[27](index=27&type=chunk) - The program uses AI and advanced analytics to analyze member data, identify at-risk 'cost bloomers,' connect members to clinical solutions, guide them to high-value providers, and promote preventive care[28](index=28&type=chunk)[30](index=30&type=chunk)[34](index=34&type=chunk) - The acquisition of Maestro Health brought in-house Clinical Care Management, complementing Marpai's approach to active care management for high-risk members[28](index=28&type=chunk)[29](index=29&type=chunk) [Our Products and Services](index=9&type=section&id=Our%20Products%20and%20Services) Marpai generates revenue from health plan administration, in-house ancillary services, and third-party vendor services, without bearing claims risk - Marpai's revenues are derived from Health Plan Administration Services, in-house ancillary services, and third-party vendor services[32](index=32&type=chunk) - Health Plan Administration includes designing plans, providing network access (Aetna, Cigna), member support, claims adjudication, health promotion, and sourcing stop-loss insurance[33](index=33&type=chunk)[43](index=43&type=chunk) - In-house ancillary services include Clinical Care Management (nurse-led guidance, **3x-9x ROI**), Repricing Insights (out-of-network claims negotiation, up to **60% savings**), Marpai PACCS (pharmacy cost containment, up to **75% savings**), and MarpaiRx (transparent pharmacy benefit management)[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) - Marpai does not bear the financial risk for claims; this risk is borne by self-insured employers and stop-loss insurance companies[36](index=36&type=chunk) [Our Strategy](index=11&type=section&id=Our%20Strategy) Marpai's strategy focuses on client base growth through brokers, upselling ancillary services, and significant AI R&D for a value-based ecosystem - Marpai primarily distributes services through healthcare brokers and focuses on competitive bids to grow its client base[42](index=42&type=chunk)[46](index=46&type=chunk) - A key strategy post-Maestro Health acquisition is upselling ancillary services to existing and new customers[46](index=46&type=chunk) - Significant R&D investment is focused on AI to predict costly events, identify 'cost bloomers,' and create a value-based ecosystem by aggregating lives for best-in-class vendors[47](index=47&type=chunk)[48](index=48&type=chunk)[50](index=50&type=chunk) - The value-based ecosystem is expected to become commercial in **2023** and expand substantially in the coming years, generating revenue through participation in vendor fees[51](index=51&type=chunk) [Marpai Captive, Inc.](index=13&type=section&id=Marpai%20Captive%2C%20Inc.) Marpai Captive, Inc. was founded in March 2022 to engage in the captive insurance market, commencing operations in Q1 2023 - Marpai Captive, Inc. was founded in **March 2022** as a Delaware corporation[52](index=52&type=chunk) - It is intended to engage in the captive insurance market and commenced operations in the **first quarter of 2023**[52](index=52&type=chunk) [Marpai Health, Inc.](index=13&type=section&id=Marpai%20Health%2C%20Inc.) Marpai Health, Inc., with its Israeli R&D subsidiary, focuses on developing AI and healthcare technology to predict and prevent costly events - Marpai Health, Inc. was founded in **February 2019**, with its wholly owned Israeli subsidiary EYME Technologies, Ltd. (R&D center with **eight employees**)[53](index=53&type=chunk)[55](index=55&type=chunk) - Its focus is on developing and marketing AI and healthcare technology to analyze data and predict/prevent costly healthcare events[53](index=53&type=chunk) - Acquired a software system and big data analytics platform in **August 2019** for **$3.25 million** (cash, stock, convertible note)[54](index=54&type=chunk) [Marpai Administrators, LLC (formerly Continental Benefits LLC)](index=13&type=section&id=Marpai%20Administrators%2C%20LLC%20(formerly%20Continental%20Benefits%20LLC)) Marpai Administrators, founded in 2013, provides benefits outsourcing and TPA services, serving as Marpai Health's AI products design partner - Marpai Administrators was founded in **November 2013**, providing benefits outsourcing and TPA services supported by a customized technology platform and call center[58](index=58&type=chunk)[59](index=59&type=chunk) - It served as Marpai Health's AI products design partner since **December 2019**[60](index=60&type=chunk) - Acquired by Marpai, Inc. on **April 1, 2021**, as part of an integrated transaction, valued at **$8.5 million** on a cash-free and debt-free basis[60](index=60&type=chunk)[62](index=62&type=chunk)[64](index=64&type=chunk) [Marpai, Inc.'s Acquisition of Marpai Health and Marpai Administrators (formerly Continental Benefits)](index=15&type=section&id=Marpai%2C%20Inc.'s%20Acquisition%20of%20Marpai%20Health%20and%20Marpai%20Administrators%20(formerly%20Continental%20Benefits)) Marpai, Inc. acquired Marpai Health and Marpai Administrators in a tax-free reorganization on April 1, 2021, involving stock exchanges and liability agreements - On **April 1, 2021**, Marpai, Inc. acquired Marpai Health and Marpai Administrators in a tax-free reorganization[62](index=62&type=chunk)[63](index=63&type=chunk)[68](index=68&type=chunk) - The acquisition involved exchanging ownership interests for Marpai, Inc. Class A and Class B common stock, assuming options and warrants, and issuing new notes for outstanding convertible notes[65](index=65&type=chunk) - The seller (WellEnterprises USA, LLC and HillCour, Inc.) agreed to be exclusively responsible for certain pre-closing liabilities of Marpai Administrators[70](index=70&type=chunk) [Class B Conversion](index=19&type=section&id=Class%20B%20Conversion) Certain founding shareholders converted Class B common stock to Class A common stock on June 28, 2021, eliminating the authorized Class B stock - On **June 28, 2021**, certain founding shareholders converted **927,817 shares of Class B common stock** into **4,226,968 shares of Class A common stock**[73](index=73&type=chunk) - This conversion led to the elimination of the authorized Class B common stock[73](index=73&type=chunk) [Power of Attorney and Proxy](index=19&type=section&id=Power%20of%20Attorney%20and%20Proxy) The HillCour Founding Group granted the Grays Founding Group a proxy to vote Class A shares, maintaining equal voting power on key corporate matters - The HillCour Founding Group granted the Grays Founding Group the right to vote **1,560,237 Class A shares** on key corporate matters (e.g., board composition, asset sales, CEO replacement)[74](index=74&type=chunk) - The agreement aims to maintain equal voting power between the HillCour and Grays Founding Groups[74](index=74&type=chunk) - This Power of Attorney and Proxy is irrevocable under certain conditions, such as the consummation of an asset sale or acquisition, or if the Grays Founding Group's ownership falls below a specified threshold[75](index=75&type=chunk) [Directors and Executive Officers](index=20&type=section&id=Directors%20and%20Executive%20Officers) The board was fixed at seven members post-acquisition, including executives and independent directors, with a current management team in place - Following the Marpai Administrators acquisition, the board was fixed at **seven members**, including two former Marpai Health executives, four independent directors, and Damien Lamendola[76](index=76&type=chunk) - Current Management Team | Name | Combined Company Position(s) | Position(s) at Marpai Health | | :-------------- | :------------------------------------- | :------------------------------------ | | Edmundo Gonzalez | Chief Executive Officer, Secretary, and Director | Co-founder, CEO, and Director of Marpai Health | - Other key executive officers include Yoram Bibring (CFO), Gonen Antebi (COO), and Lutz Finger (President, Product and Development)[373](index=373&type=chunk)[374](index=374&type=chunk)[376](index=376&type=chunk) [Marpai Inc.'s acquisition of Maestro Health, LLC](index=20&type=section&id=Marpai%20Inc.'s%20acquisition%20of%20Maestro%20Health%2C%20LLC) Marpai acquired Maestro Health on November 1, 2022, for $19.9 million, integrating its TPA business with care management and cost containment solutions - Marpai acquired Maestro Health on **November 1, 2022**, for an aggregate purchase price of **$19.9 million**, payable by **April 1, 2024**, with interest, totaling **$22.1 million**[78](index=78&type=chunk)[80](index=80&type=chunk) - Maestro Health is a TPA offering an end-to-end health plan solution, integrating care management and cost containment[79](index=79&type=chunk) - Maestro Health's services include self-funded insurance administration, benefits administration, enrollment, ACA compliance, consumer directed health care account administration, medical management, consolidated billing, Out of Network Repricing Solution, and Rx Patient Assistance Program[84](index=84&type=chunk) [Government Regulation](index=22&type=section&id=Government%20Regulation) Marpai operates in a highly regulated healthcare industry, subject to extensive federal and state laws governing privacy, fraud, and TPA licensing - Marpai operates in a highly regulated healthcare industry, subject to extensive federal, state, and local laws, including health care reform (ACA), reimbursement policies, fraud and abuse laws, and privacy/data security laws[86](index=86&type=chunk)[88](index=88&type=chunk)[94](index=94&type=chunk)[102](index=102&type=chunk) - Key regulations include the federal Anti-Kickback Law, Stark Law, False Claims Act, and HIPAA/HITECH, which govern patient information and financial transactions[95](index=95&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk)[102](index=102&type=chunk) - Marpai believes its business does not involve the corporate practice of medicine or fee-splitting, as its call center staff provides general information, not medical advice, and it must maintain TPA licenses in all relevant states[108](index=108&type=chunk)[111](index=111&type=chunk) [Employees](index=26&type=section&id=Employees) As of December 31, 2022, Marpai had 303 full-time employees, with no labor agreements or union representation - As of **December 31, 2022**, Marpai had a total of **303 full-time employees**, with **15** located in Tel Aviv, Israel[112](index=112&type=chunk) - None of the employees are parties to any labor agreements or represented by a labor union[112](index=112&type=chunk) [Competition](index=27&type=section&id=Competition) Marpai faces intense competition from nearly 1,000 TPAs, large health insurers, and new technology-driven players in the healthcare market - Marpai operates in a highly competitive market, competing with almost **1,000 TPAs** and large health insurance companies like Aetna, Cigna, and United Healthcare[114](index=114&type=chunk)[115](index=115&type=chunk) - New technology-driven players such as Collective Health, Bind Health Insurance, Bright Health Group, Oscar Health, and Centivo also pursue similar strategies[115](index=115&type=chunk) - Marpai differentiates its solution through AI-enabled predictions that steer members to appropriate healthcare providers sooner, aiming to reduce long-term healthcare spending while improving quality[116](index=116&type=chunk) [Impact of COVID-19 and Macroeconomic Conditions](index=28&type=section&id=Impact%20of%20COVID-19%20and%20Macroeconomic%20Conditions) Marpai monitors COVID-19 and macroeconomic impacts, which could negatively affect employer participation, client payments, and strategic plans - Marpai monitors the effects of the COVID-19 pandemic and global macroeconomic environment, including inflationary pressures, supply chain disruptions, and geopolitical tensions[117](index=117&type=chunk) - Potential negative impacts include a decline in self-insured employers, reduced client willingness to pay for services, difficulties in timely payments, and disruptions to strategic plans and workforce[172](index=172&type=chunk)[173](index=173&type=chunk) [Available Information](index=28&type=section&id=Available%20Information) Additional company information, including SEC filings and corporate governance documents, is available on Marpai's investor relations website and the SEC's website - Additional information, including SEC filings (10-K, 10-Q, 8-K) and corporate governance documents (Code of Ethics, Board Committee Charters), is available on Marpai's investor relations website (www.marpaihealth.com) and the SEC's website (www.sec.gov)[118](index=118&type=chunk) [Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) Investing in Marpai's Class A common stock involves high risk, including going concern doubts, integration challenges, AI reliance, high attrition, and regulatory complexities [Summary Risk Factors](index=28&type=section&id=Summary%20Risk%20Factors) Marpai faces going concern doubts, integration risks, AI inaccuracies, high customer attrition, intense competition, and geopolitical instability in Israel - The independent auditor's report contains an explanatory paragraph regarding substantial doubt about Marpai's ability to continue as a going concern due to operating losses and the need for additional capital[120](index=120&type=chunk) - Success depends on effectively integrating Marpai Health, Marpai Administrators, and Maestro Health, and managing the combined company[122](index=122&type=chunk) - Risks associated with AI include potential inaccuracies in the TopCare® program, leading to low customer satisfaction, and reputational harm or liability from flawed algorithms or biased data[122](index=122&type=chunk)[141](index=141&type=chunk)[143](index=143&type=chunk) - Marpai Administrators has a historically high annual customer attrition rate (**32.9% in 2022, 25.0% in 2021**), which could materially adversely affect financial conditions and operating results[136](index=136&type=chunk) - The company operates in a highly competitive market with nearly **1,000 TPAs** and large health insurance companies, and relies heavily on healthcare brokers as its principal sales channel[115](index=115&type=chunk)[150](index=150&type=chunk) - Geopolitical instability in Israel, where R&D facilities are located, may adversely affect operations and results[123](index=123&type=chunk)[177](index=177&type=chunk) [Risks Related to Managing and Growing Our TPA Business](index=32&type=section&id=Risks%20Related%20to%20Managing%20and%20Growing%20Our%20TPA%20Business) Marpai faces risks from limited AI program experience, capital needs, high customer attrition, talent acquisition, and data security breaches - Marpai has limited experience with its AI-powered TopCare® program, and initial results may not be indicative of future performance or cost savings[126](index=126&type=chunk)[142](index=142&type=chunk) - The company projects a need for additional capital to fund operations and investments; failure to raise funds could lead to scaling back operations or asset divestment[128](index=128&type=chunk)[130](index=130&type=chunk)[134](index=134&type=chunk) - High customer attrition rates (**32.9% in 2022**) and ongoing lawsuits pose significant threats to financial stability and growth[136](index=136&type=chunk)[137](index=137&type=chunk) - Success depends on continuous innovation and access to limited AI talent, especially in deep learning, to remain competitive[156](index=156&type=chunk)[159](index=159&type=chunk) - Security breaches or unauthorized access to client data could lead to litigation, reputational damage, and significant liabilities[163](index=163&type=chunk)[164](index=164&type=chunk) [Risk Related to the Company's Acquisition of Maestro Health, LLC](index=43&type=section&id=Risk%20Related%20to%20the%20Company's%20Acquisition%20of%20Maestro%20Health%2C%20LLC) Integrating Maestro Health poses risks of unexpected difficulties, higher costs, unknown liabilities, and inaccurate acquisition assumptions - Integrating Maestro's business may be more difficult, costly, or time-consuming than expected, potentially preventing the realization of anticipated benefits like cost savings and synergies[174](index=174&type=chunk) - Maestro may have unknown or contingent liabilities that were not discovered during due diligence, which could adversely affect Marpai's business and financial condition[175](index=175&type=chunk) - Assumptions made during the Maestro acquisition, such as expected revenue growth rates or operating costs, may prove materially inaccurate[176](index=176&type=chunk) [Risks Related to Managing Our Research and Development Operations in Israel](index=44&type=section&id=Risks%20Related%20to%20Managing%20Our%20Research%20and%20Development%20Operations%20in%20Israel) Geopolitical instability in Israel, workforce disruptions, currency fluctuations, and legal enforcement challenges pose risks to R&D operations - Political, economic, and military instability in Israel, where R&D facilities are located, may disrupt operations, hinder capital raising, and affect business relationships[177](index=177&type=chunk)[180](index=180&type=chunk) - The obligation of Israeli citizens to perform military service could lead to workforce disruptions[182](index=182&type=chunk) - Currency fluctuations (e.g., NIS/USD) and inflation can harm results, as a portion of operating expenses are incurred in NIS[183](index=183&type=chunk)[184](index=184&type=chunk) - Difficulties in enforcing Israeli employment contracts and U.S. judgments in Israel pose additional legal and financial risks[186](index=186&type=chunk)[188](index=188&type=chunk) [Risks Related to Protecting Our Technology and Intellectual Property](index=47&type=section&id=Risks%20Related%20to%20Protecting%20Our%20Technology%20and%20Intellectual%20Property) Reliance on third-party infrastructure, service interruptions, intellectual property infringement, and open-source software compliance pose significant technology risks - Reliance on third-party providers like Amazon Web Services for computing infrastructure and network connectivity creates risks of service disruptions, which could adversely affect business and subject Marpai to liability[194](index=194&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk) - Any failure or interruption in Internet infrastructure, bandwidth providers, data center providers, or Marpai's own systems could expose the company to litigation, require issuing credits, and negatively impact relationships with members or clients[197](index=197&type=chunk)[199](index=199&type=chunk)[201](index=201&type=chunk) - Failure to protect intellectual property rights (patents, trade secrets) could impair the ability to protect proprietary technology and brand, especially against foreign piracy, and may lead to costly litigation or loss of competitive advantage[208](index=208&type=chunk)[209](index=209&type=chunk)[210](index=210&type=chunk)[211](index=211&type=chunk) - Marpai may be sued by third parties for alleged infringement of their proprietary rights or misappropriation of intellectual property, leading to significant expenses, damages, or required re-engineering of its platform[213](index=213&type=chunk) - The use of open-source software in the TopCare® program carries risks; failure to comply with licenses could require public release of proprietary source code or other adverse impacts on the business[214](index=214&type=chunk)[215](index=215&type=chunk) [Risks Related to Conducting our Business Under a Complex and Evolving Set of Governmental Regulations](index=53&type=section&id=Risks%20Related%20to%20Conducting%20our%20Business%20Under%20a%20Complex%20and%20Evolving%20Set%20of%20Governmental%20Regulations) Marpai faces risks from complex healthcare regulations, non-compliance penalties, potential FDA medical device classification, and TPA licensing requirements - The healthcare industry's complex and evolving regulatory framework, including federal and state laws, can create unexpected liabilities, increase costs, and restrict operations[216](index=216&type=chunk)[217](index=217&type=chunk)[234](index=234&type=chunk) - Non-compliance with fraud and abuse laws (False Claims, Anti-Kickback, Stark Law) or health data privacy laws (HIPAA, HITECH, state laws) could result in significant civil/criminal penalties, reputational damage, and operational changes[217](index=217&type=chunk)[225](index=225&type=chunk)[226](index=226&type=chunk)[235](index=235&type=chunk)[236](index=236&type=chunk) - There is a risk that Marpai's AI software could be regulated as a medical device by the FDA, subjecting it to extensive requirements for registration, pre-market approval, and quality assurance[230](index=230&type=chunk)[231](index=231&type=chunk)[232](index=232&type=chunk) - Failure to maintain active TPA licenses in all required states or adapt to changes in Internet-related laws and regulations could materially adversely affect operations[242](index=242&type=chunk)[244](index=244&type=chunk)[245](index=245&type=chunk) [Unresolved Staff Comments](index=35&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) This item is not applicable to Marpai Inc. for the reporting period - Not Applicable[282](index=282&type=chunk) [Properties](index=35&type=section&id=Item%202.%20Properties) Marpai leases multiple office spaces across the U.S. and Israel, with total net lease expense of $1,117,193 for fiscal year 2022 - Marpai leases its principal executive and administrative offices in Tampa, Florida (**32,842 sq ft**), with a lease expiring in **November 2023**[283](index=283&type=chunk) - An additional **4,133 sq ft** corporate office space in Tel Aviv, Israel, houses the R&D team, with a lease expiring in **April 2024**[284](index=284&type=chunk) - Through the Maestro Health acquisition, Marpai acquired additional corporate office spaces in Charlotte, NC (**31,475 sq ft**, expiring **Aug 2030**), Chicago, IL (**5,820 sq ft**, expiring **Sep 2028**), and Southfield, MI (**10,019 sq ft**, expiring **Jul 2023**)[286](index=286&type=chunk)[287](index=287&type=chunk) - Net lease expense for the fiscal year ended December 31, 2022, amounted to **$1,117,193**[288](index=288&type=chunk) [Legal Proceedings](index=36&type=section&id=Item%203.%20Legal%20Proceedings) Marpai is subject to ordinary course litigation, with no current proceedings deemed material, though a CMS/Zelis litigation is under review - Marpai is subject to litigation in the ordinary course of its TPA business, but no current legal proceedings are considered material[290](index=290&type=chunk) - A CMS/Zelis litigation involves a complaint that Marpai Administrators uses a clearinghouse charging percentage-based fees for EFT transactions, potentially violating HIPAA[291](index=291&type=chunk) - CMS is investigating this industry-wide concern, and the complaint remains open but is not escalating or requiring additional information from Marpai Administrators at this time[292](index=292&type=chunk) [Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Marpai Inc. for the reporting period - Not applicable[293](index=293&type=chunk) [PART II](index=37&type=section&id=PART%20II) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=37&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Marpai's common shares are listed on the Nasdaq Capital Market under the symbol MRAI. As of March 21, 2023, there were 21,412,580 common shares issued and outstanding, held by 40 record holders - Marpai's shares trade on the Nasdaq Capital Market under the symbol **MRAI**[296](index=296&type=chunk) - As of **March 21, 2023**, there were **21,412,580 common shares** issued and outstanding[297](index=297&type=chunk) - There were **40 holders of record** for common shares as of **March 21, 2023**[297](index=297&type=chunk) [Reserved](index=37&type=section&id=Item%206.%20Reserved) This item is reserved and contains no information - This item is reserved[298](index=298&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Marpai Inc. aims to be the 'Payer of the Future' by combining technology and TPA services, with recent acquisitions and captive operations enhancing capacity [Overview](index=38&type=section&id=Overview) Marpai Inc. combines technology and TPA services to lower healthcare costs, with recent acquisitions and captive operations expanding its capabilities - Marpai Inc. was formed to combine Marpai Health (technology) and Marpai Administrators (TPA services) to create the 'Payer of the Future,' leveraging technology to lower healthcare costs and improve outcomes[300](index=300&type=chunk)[301](index=301&type=chunk) - The acquisition of Maestro Health in **November 2022** increased capacity, and Marpai Captive commenced operations in **Q1 2023**[300](index=300&type=chunk)[301](index=301&type=chunk) - Marpai's call center staff provides general, non-medical information to comply with corporate practice of medicine laws, focusing on guiding members to lower-cost, high-quality providers for high-cost events[302](index=302&type=chunk)[303](index=303&type=chunk) - Integration of Marpai Administrators and Maestro Health is expected to be completed in **2023**[304](index=304&type=chunk) [Representation in the Financial Statements of Marpai, Inc.](index=39&type=section&id=Representation%20in%20the%20Financial%20Statements%20of%20Marpai%2C%20Inc.) Marpai Inc.'s consolidated financial statements include Marpai Health, Marpai Administrators (since April 2021), and Maestro Health (since November 2022) - Marpai Inc.'s consolidated financial statements include Marpai Health (and EYME) for all periods, Marpai Administrators since its acquisition on **April 1, 2021**, and Maestro Health since its acquisition on **November 1, 2022**[306](index=306&type=chunk) [Results of Operations – Comparison of the Years ended December 31, 2022 and 2021](index=39&type=section&id=Results%20of%20Operations%20%E2%80%93%20Comparison%20of%20the%20Years%20ended%20December%2031%2C%202022%20and%202021) Marpai experienced significant revenue growth and increased operating losses in 2022 due to acquisitions and higher expenses, while loss per share decreased - Financial Performance (Years Ended December 31) | Metric | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :---------------------------------------- | :------------ | :------------ | :------------ | :--------- | | Revenue | 24,341,874 | 14,226,794 | 10,115,080 | 71.1% | | Cost of revenue (exclusive of D&A) | 17,136,330 | 10,289,578 | 6,846,752 | 66.5% | | Research and development | 3,708,068 | 1,733,964 | 1,974,104 | 113.8% | | General and administrative | 12,318,529 | 8,055,572 | 4,262,957 | 52.9% | | Sales and marketing | 6,938,513 | 4,965,209 | 1,973,304 | 39.7% | | Information technology | 6,372,795 | 2,492,060 | 3,880,735 | 155.7% | | Facilities | 1,012,827 | 589,926 | 422,901 | 71.7% | | Loss on disposal of asset | 273,430 | — | 273,430 | 100% | | Depreciation and amortization | 3,538,237 | 1,961,733 | 1,576,504 | 80.4% | | Total Costs and Expenses | 51,298,729 | 30,088,042 | 21,210,687 | 70.5% | | Operating Loss | (26,956,855) | (15,861,248) | (11,095,607) | 70.0% | | Net Loss | (26,468,389) | (15,984,835) | (10,483,554) | 65.6% | | Net loss per share, basic and fully diluted | (1.31) | (1.59) | 0.28 | -17.6% | | Weighted average common shares | 20,239,837 | 10,076,494 | 10,163,343 | 100.9% | - Revenue increased by **71.1% ($10.1 million)** in **2022**, primarily due to the inclusion of Marpai Administrators' revenues (since **April 1, 2021**) and Maestro Health's revenues (since **November 1, 2022**)[308](index=308&type=chunk) - Total costs and expenses increased by **70.5% ($21.2 million)** in **2022**, driven by higher cost of revenue and significant increases across R&D, G&A, sales & marketing, and IT expenses due to acquisitions and increased personnel/platform costs[310](index=310&type=chunk)[313](index=313&type=chunk)[314](index=314&type=chunk)[315](index=315&type=chunk)[316](index=316&type=chunk)[317](index=317&type=chunk) - Net loss increased by **65.6% ($10.5 million)** in **2022**, while loss per share decreased by **17.6% ($0.28)** due to a substantial increase in the weighted average number of shares outstanding[319](index=319&type=chunk)[320](index=320&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) Marpai faces substantial doubt about its going concern ability due to operating losses and capital needs, despite cash from the Maestro Health acquisition - Financial Position (as of December 31, 2022) | Metric | Amount | | :------------------------ | :------------- | | Accumulated Deficit | $(48.0) million | | Debt | $20.2 million | | Unrestricted Cash | $13.8 million | | Working Capital | $9.2 million | | Operating Losses (2022) | $(26.5) million | | Negative Cash Flow from Operations (2022) | $(35.2) million | - Marpai's liquidity condition raises substantial doubt about its ability to continue as a going concern through the next twelve months, as noted by management and the independent auditor[326](index=326&type=chunk)[500](index=500&type=chunk)[537](index=537&type=chunk) - The company has historically relied on proceeds from convertible notes, warrants, and its IPO to fund operations and expects to need additional capital through equity, debt, strategic partners, or asset sales[322](index=322&type=chunk)[324](index=324&type=chunk)[534](index=534&type=chunk)[535](index=535&type=chunk) - The Maestro Health acquisition brought **$15.79 million in cash reserves**, and its integration is expected to improve operating results over the next year[323](index=323&type=chunk) [Cash Flows](index=41&type=section&id=Cash%20Flows) Net cash used in operating activities significantly increased in 2022, while investing cash flow rose due to acquisitions, and financing cash flow decreased post-IPO - Cash Flow Summary (Years Ended December 31) | Activity | 2022 ($) | 2021 ($) | Change ($) | | :------------------------------------------------ | :------------ | :------------ | :------------ | | Net cash used in operating activities | (35,239,299) | (10,795,252) | (24,444,047) | | Net cash provided by investing activities | 32,422,576 | 9,643,740 | 22,778,836 | | Net cash provided by financing activities | 196 | 25,267,223 | (25,267,027) | | Net (decrease) increase in cash, cash equivalents and restricted cash | (2,816,527) | 24,115,711 | (26,932,238) | - Net cash used in operating activities increased significantly by **$24.4 million** in **2022**, driven by the net loss[329](index=329&type=chunk) - Net cash provided by investing activities increased by **$22.8 million** in **2022**, primarily due to cash and restricted cash acquired from the Maestro acquisition[330](index=330&type=chunk) - Net cash provided by financing activities decreased substantially by **$25.3 million** in **2022**, as **2021** included significant proceeds from the IPO, while **2022** only saw minor proceeds from option exercises[331](index=331&type=chunk) [Critical Accounting Estimates](index=42&type=section&id=Critical%20Accounting%20Estimates) Marpai's financial statements rely on critical accounting estimates for share-based compensation, capitalized software, goodwill, income taxes, and revenue recognition - Marpai's financial statements rely on critical accounting estimates for share-based compensation, capitalized software, goodwill, income taxes, and revenue recognition[332](index=332&type=chunk)[333](index=333&type=chunk)[540](index=540&type=chunk) - Internally developed software costs are capitalized during the development stage and amortized over **3-5 years**; goodwill is tested annually for impairment, with no impairment recorded in **2022 or 2021**[334](index=334&type=chunk)[335](index=335&type=chunk)[556](index=556&type=chunk)[557](index=557&type=chunk) - Income taxes are accounted for using an asset and liability approach, with a valuation allowance established based on the realizability of deferred tax assets; revenue is recognized over time based on fixed per-employee-per-month (PEPM) fees[336](index=336&type=chunk)[339](index=339&type=chunk)[559](index=559&type=chunk)[561](index=561&type=chunk) [Recently Issued and Adopted Accounting Pronouncements](index=43&type=section&id=Recently%20Issued%20and%20Adopted%20Accounting%20Pronouncements) Marpai adopted ASU 2020-06 with no material impact and is evaluating ASU 2021-08, while monitoring other pronouncements not expected to be material - Marpai adopted ASU 2020-06 (Convertible Instruments) in **2021** with no material impact, as all convertible debt was converted or repaid[588](index=588&type=chunk)[589](index=589&type=chunk) - The company is monitoring ASU 2020-04/2022-06 (Reference Rate Reform) and ASU 2022-04 (Supplier Finance Programs), neither of which is expected to have a material impact[590](index=590&type=chunk)[591](index=591&type=chunk) - Marpai is currently evaluating the impact of ASU 2021-08 (Accounting for Contract Assets and Contract Liabilities from Contracts with Customers) on its consolidated financial statements[592](index=592&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable to Marpai Inc. for the reporting period - Not applicable[350](index=350&type=chunk) [Financial Statements and Supplementary Data](index=44&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Marpai's consolidated financial statements, including the balance sheets, statements of operations, changes in stockholders' equity, cash flows, and accompanying notes, along with the report of UHY LLP, its independent registered public accounting firm, are presented in this Annual Report - The consolidated financial statements and notes, along with the report of UHY LLP, are included in this Annual Report[351](index=351&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=44&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) Marpai Inc. reports no changes in or disagreements with its accountants on accounting and financial disclosure matters for the reporting period - None[352](index=352&type=chunk) [Controls and Procedures](index=44&type=section&id=Item%209A.%20Controls%20and%20Procedures) Marpai's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2022. A previously identified material weakness in internal control over financial reporting, related to complex transactions and staffing, was remediated in 2022 through additional personnel and enhanced monitoring. As a smaller reporting company, Marpai's management report on internal control over financial reporting was not subject to attestation by its registered public accounting firm - Marpai's CEO and CFO concluded that disclosure controls and procedures were effective as of **December 31, 2022**[353](index=353&type=chunk)[356](index=356&type=chunk) - A previously identified material weakness in internal control over financial reporting, related to inadequate formal accounting policies for complex transactions and insufficient staffing, was remediated in **2022**[358](index=358&type=chunk)[359](index=359&type=chunk)[361](index=361&type=chunk) - Management's report on internal control over financial reporting was not subject to attestation by the registered public accounting firm, as permitted for a smaller reporting company[362](index=362&type=chunk) - No other material changes in internal control over financial reporting occurred during the **fourth quarter of fiscal year 2022**[363](index=363&type=chunk) [Other Information](index=45&type=section&id=Item%209B.%20Other%20Information) This item is not applicable to Marpai Inc. for the reporting period - Not applicable[364](index=364&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=45&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to Marpai Inc. for the reporting period - Not applicable[365](index=365&type=chunk) [PART III](index=46&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=46&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Marpai's leadership team includes Edmundo Gonzalez (CEO), Yoram Bibring (CFO), Gonen Antebi (COO), and Lutz Finger (President, Product and Development). The Board of Directors, with seven members and four independent directors, is chaired by Yaron Eitan. The company has an Audit Committee (chaired by Sagiv Shiv) and a Compensation Committee (chaired by Colleen DiClaudio), both operating under approved charters. An advisory board assists with AI and healthcare business opportunities. Marpai has a Code of Ethics and reports timely Section 16(a) filings [Directors and Executive Officers](index=46&type=section&id=Directors%20and%20Executive%20Officers) Marpai's leadership team comprises key executive officers and a board of directors, with no family relationships among them - Marpai Inc. Directors and Executive Officers | Name | Age | Position | Date First Elected or Appointed | | :-------------- | :-- | :--------------------------------- | :------------------------------ | | Edmundo Gonzalez | 49 | Chief Executive Officer, Secretary, and Director | April 1, 2021 | | Yoram Bibring | 65 | Chief Financial Officer | September 1, 2021 | | Gonen Antebi | 49 | Chief Operating Officer | February 1, 2023 | | Lutz Finger | 51 | President, Product and Development | February 28, 2022 | | Yaron Eitan | 65 | Chairman of the Board of Directors | April 1, 2021 | | Damien Lamendola | 66 | Director | April 1, 2021 | | Sagiv Shiv | 66 | Director | February 1, 2023 | | Mohsen Moazami | 62 | Director | March 30, 2022 | | Vincent Kane | 49 | Director | October 28, 2021 | | Colleen DiClaudio | 44 | Director | October 28, 2021 | - There are no family relationships between any of the directors or officers[390](index=390&type=chunk) [Business Experience](index=46&type=section&id=Business%20Experience) Key executives and directors bring extensive experience in technology, healthcare, finance, and deep learning to Marpai's leadership team - Edmundo Gonzalez (CEO) is a technology entrepreneur and investor with over **20 years of experience**, co-founder of Marpai Health and 340Basics Technologies[370](index=370&type=chunk)[371](index=371&type=chunk)[372](index=372&type=chunk) - Lutz Finger (President, Product and Development) previously led population health at Google Health and was Director of Product Analytics at Snap Inc., also a senior lecturer at Cornell University[376](index=376&type=chunk) - Yaron Eitan (Chairman) is a technology entrepreneur and investor with over **30 years of experience**, specializing in deep learning companies[377](index=377&type=chunk)[378](index=378&type=chunk)[379](index=379&type=chunk) - Damien Lamendola (Director) founded Marpai Administrators and leads strategic operations for multiple healthcare companies[380](index=380&type=chunk)[381](index=381&type=chunk) - Sagiv Shiv (Director) brings financial expertise and capital markets experience as Managing Director and Head of M&A and Advisory Services at Aldwych Capital Partners[388](index=388&type=chunk)[389](index=389&type=chunk) [Number and Terms of Office of Officers and Directors](index=50&type=section&id=Number%20and%20Terms%20of%20Office%20of%20Officers%20and%20Directors) Marpai's Board of Directors has seven members, with officers appointed at the Board's discretion rather than for fixed terms - Marpai's Board of Directors has **seven members**, with **four** deemed 'independent' under SEC and Nasdaq rules[391](index=391&type=chunk)[392](index=392&type=chunk) - Officers are appointed by the Board and serve at its discretion, rather than for specific terms of office[391](index=391&type=chunk) [Director Independence](index=50&type=section&id=Director%20Independence) A majority of Marpai's Board members are independent, as defined by Nasdaq and SEC rules, and hold separate meetings for independent directors - A majority of Marpai's Board is independent, as defined by Nasdaq's listing standards and applicable SEC rules[392](index=392&type=chunk) - Sagiv Shiv, Vincent Kane, Mohsen Moazami, and Colleen DiClaudio are identified as independent directors[392](index=392&type=chunk) - Independent directors hold regularly scheduled meetings at which only independent directors are present[392](index=392&type=chunk) [Committees of the Board](index=50&type=section&id=Committees%20of%20the%20Board) Marpai's Board has an Audit Committee and a Compensation Committee, both operating under approved charters to oversee financial and executive compensation matters - Marpai's Board has two standing committees: an Audit Committee and a Compensation Committee, both operating under approved charters[393](index=393&type=chunk) - The Audit Committee members are Sagiv Shiv (Chairman and financial expert), Colleen DiClaudio, and Vincent Kane, responsible for overseeing audits, compliance, and related party transactions[394](index=394&type=chunk)[395](index=395&type=chunk)[396](index=396&type=chunk) - The Compensation Committee members are Colleen DiClaudio (Chairman), Sagiv Shiv, and Vincent Kane, responsible for reviewing and approving executive compensation and implementing incentive plans[398](index=398&type=chunk)[400](index=400&type=chunk) [Director Nominations](index=50&type=section&id=Director%20Nominations) Marpai's Board, with a majority of independent directors, recommends nominees based on diverse qualifications, and stockholders can also propose candidates - Marpai does not have a standing nominating committee but intends to form one as required by law or Nasdaq rules; currently, a majority of independent directors recommend nominees[403](index=403&type=chunk) - The Board considers educational background, diversity of professional experience, business knowledge, integrity, professional reputation, independence, wisdom, and ability to represent stockholders when evaluating nominees[405](index=405&type=chunk) - Stockholders can recommend director candidates by following the procedures set forth in the company's bylaws[404](index=404&type=chunk) [Compensation Committee Interlocks and Insider Participation](index=50&type=section&id=Compensation%20Committee%20Interlocks%20and%20Insider%20Participation) None of Marpai's executive officers serve on the compensation committee of any entity with executives on Marpai's Board - None of Marpai's executive officers currently serve, or in the past year have served, as a member of the compensation committee of any entity that has one or more executive officers serving on Marpai's Board[406](index=406&type=chunk) [Advisory Board](index=50&type=section&id=Advisory%20Board) Marpai's advisory board assists management with AI and healthcare business opportunities and market strategies, receiving stock options but no cash compensation - Marpai's advisory board assists the management team with sourcing and evaluating AI and healthcare business opportunities and devising market strategies[407](index=407&type=chunk) - Advisors are reimbursed for out-of-pocket expenses and are eligible for stock option awards, but they do not receive cash compensation and have no fiduciary obligations to present business opportunities[407](index=407&type=chunk) - Key advisory board members include Michael Paas (life sciences), Winston Churchill (investor/venture capital), and Ariel Zamir (AI/deep learning)[408](index=408&type=chunk)[409](index=409&type=chunk)[412](index=412&type=chunk) [Code of Ethics](index=51&type=section&id=Code%20of%20Ethics) Marpai has adopted a Code of Ethics for directors, officers, and employees, with amendments or waivers disclosed via Form 8-K and the company website - Marpai has adopted a Code of Ethics applicable to its directors, officers, and employees, requiring the avoidance of conflicts of interest[413](index=413&type=chunk) - Any amendments to or waivers of certain provisions of the Code of Ethics will be disclosed in a Current Report on Form 8-K and on the company's website[413](index=413&type=chunk)[468](index=468&type=chunk) [Delinquent Section 16(a) Reports](index=51&type=section&id=Delinquent%20Section%2016(a)%20Reports) Marpai believes all Section 16(a) filings by its executive officers, directors, and beneficial owners were timely during the past fiscal year - Marpai believes that all Section 16(a) filings by its executive officers, directors, and **10% beneficial owners** were filed on a timely basis during the past fiscal year[415](index=415&type=chunk) [Executive Compensation](index=51&type=section&id=Item%2011.%20Executive%20Compensation) Marpai's executive compensation includes base salaries, potential bonuses, and significant equity awards for its named executive officers. Independent directors receive an annual fee. The company maintains a 401(k) plan with a company match and a 2021 Global Stock Incentive Plan for equity-based awards, which was expanded in 2022. Employment agreements detail specific compensation, equity vesting, and severance terms for key executives [Summary Compensation Table](index=51&type=section&id=Summary%20Compensation%20Table) Executive compensation for named officers includes salaries, bonuses, and substantial stock awards, with notable increases for new or transitioning roles - Named Executive Officer Compensation (Years Ended December 31) | Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | All Other Compensation ($) | Total ($) | | :-------------------------------------- | :--- | :--------- | :-------- | :--------------- | :------------------------- | :---------- | | Edmundo Gonzalez, CEO and Director | 2022 | 363,464 | — | 212,618 | — | 576,082 | | Edmundo Gonzalez, CEO and Director | 2021 | 218,139 | — | — | 69,667 | 287,806 | | Lutz Finger, President, Product and Development | 2022 | 275,002 | — | 1,494,231 | 450,001 | 2,219,234 | | Lutz Finger, President, Product and Development | 2021 | — | — | — | — | — | | Yoram Bibring, Chief Financial Officer | 2022 | 264,810 | 50,000 | 137,935 | — | 452,745 | | Yoram Bibring, Chief Financial Officer | 2021 | 76,500 | 50,000 | — | — | 126,500 | - Lutz Finger's **2022** compensation includes significant stock awards (**1,346,154 Restricted Stock Units** with a fair value of **$1.11 per share**) and a sign-on bonus[419](index=419&type=chunk)[442](index=442&type=chunk) - Edmundo Gonzalez's salary increased from **2021 to 2022**, reflecting his transition from consultant to Marpai employee on **April 1, 2022**[419](index=419&type=chunk)[430](index=430&type=chunk) [Director Compensation](index=51&type=section&id=Director%20Compensation) Independent directors receive an annual fee of $50,000, paid quarterly, and are reimbursed for reasonable travel and out-of-pocket expenses - Effective **March 30, 2022**, independent directors' compensation was set at an annual fee of **$50,000**, payable quarterly[418](index=418&type=chunk) - Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred for Board meetings[420](index=420&type=chunk) - No other director received or accrued compensation for services as a director in Fiscal Year **2022**, beyond the approved annual fee[421](index=421&type=chunk) [Benefit Plans](index=52&type=section&id=Benefit%20Plans) Marpai offers a 401(k) plan with a 5% company match for full-time employees but does not sponsor pension or deferred compensation plans - Marpai maintains a **401(k) plan** for full-time employees, allowing pre-tax deferrals up to statutory limits, with a **5% company contribution match**[422](index=422&type=chunk) - The company does not sponsor any qualified or non-qualified pension benefit plans, nor any non-qualified defined contribution or deferred compensation plans[423](index=423&type=chunk) [2021 Global Stock Incentive Plan](index=52&type=section&id=2021%20Global%20Stock%20Incentive%20Plan) The 2021 Global Stock Incentive Plan, amended in 2022, authorizes 7,803,421 shares for equity awards to employees, directors, and consultants - The **2021 Global Stock Incentive Plan** was approved in **May 2021** and amended in **May 2022** to increase the total number of shares available for awards to **7,803,421**[424](index=424&type=chunk)[425](index=425&type=chunk) - As of **December 31, 2022**, **3,935,368 stock options** and **1,427,404 RSUs** had been approved for grant under the plan, with specific vesting schedules extending through **2026**[426](index=426&type=chunk) - The plan allows for the grant of incentive stock options, restricted stocks, restricted stock units, and other equity-based awards to employees, directors, and consultants, and is set to expire in **May 2031**[424](index=424&type=chunk) [Director and Officer Liability Insurance](index=52&type=section&id=Director%20and%20Officer%20Liability%20Insurance) Marpai maintains director and officer liability insurance, including employment practices liability, to protect its leadership against lawsuits - Marpai maintains director and officer liability insurance to provide financial protection for its directors and officers against lawsuits related to their services[427](index=427&type=chunk) - The insurance also includes employment practices liability coverage for harassment and discrimination suits[427](index=427&type=chunk) [Employment Agreements](index=53&type=section&id=Employment%20Agreements) Employment agreements for key executives detail base salaries, potential bonuses, equity awards, and severance provisions based on their roles and tenure - Edmundo Gonzalez (CEO) has an at-will employment agreement with a base salary of **$350,000/year** and severance provisions based on tenure[430](index=430&type=chunk)[431](index=431&type=chunk) - Yoram Bibring (CFO) has an at-will agreement with a **$255,000/year** base salary, potential **50% annual bonus**, **125,000 stock options**, and severance of **6-12 months salary/bonus/benefits**[432](index=432&type=chunk)[433](index=433&type=chunk) - Gonen Antebi (COO) has a one-year renewable agreement with a **$325,000/year** base salary, up to **75% bonus**, **$50,000 sign-on bonus**, and options for **300,000 shares** (Initial Award) plus another **300,000** (Additional Award) if renewed[434](index=434&type=chunk)[435](index=435&type=chunk)[436](index=436&type=chunk)[437](index=437&type=chunk) - Lutz Finger (President, Product and Development) has an at-will agreement with a **$325,000/year** base salary, up to **50% bonus**, **$250,000 sign-on bonus** (cash/shares), and initial/additional grants of **$2,000,000 in Class A common stock**[442](index=442&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=55&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) As of March 28, 2023, Marpai's directors and executive officers collectively owned 50.5% of common shares, with Damien Lamendola as the largest beneficial owner - Beneficial Ownership (as of March 28, 2023) | Name of Beneficial Owner | Beneficial Number of Shares | Percentage Of Shares Beneficially Owned | | :------------------------------------------------ | :-------------------------- | :-------------------------------------- | | Edmundo Gonzalez | 1,849,128 | 8.4% | | Yaron Eitan | 1,267,478 | 5.8% | | Yoram Bibring | 87,389 | * | | Gonen Antebi | 92,361 | * | | Damien Lamendola | 6,970,255 | 31.9% | | Sagiv Shiv | — | — | | Colleen DiClaudio | 92,361 | * | | Lutz Finger | 1,339,087 | 6.1% | | Vincent Kane | 134,676 | * | | Mohsen Moazami | 126,388 | * | | All Directors and Executive Officers as a Group (10 Persons) | 11,959,123 | 50.5% | - The total number of common shares issued and outstanding as of **March 28, 2023**, was **21,412,580**[449](index=449&type=chunk) - Beneficial ownership includes shares subject to options, warrants, or rights to purchase/convertible within **60 days**[449](index=449&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=56&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Marpai has engaged in related party transactions, including acquisitions and financial support from entities tied to key directors and shareholders, and is a 'controlled company' [Purchase and Reorganization Agreement](index=56&type=section&id=Purchase%20and%20Reorganization%20Agreement) Marpai's 2021 acquisition of Marpai Health and Marpai Administrators involved key directors and shareholders, with Damien Lamendola becoming a majority beneficial owner - On **April 1, 2021**, Marpai acquired Marpai Health and Marpai Administrators, involving key directors and shareholders like Edmundo Gonzalez, Yaron Eitan, and Damien Lamendola[453](index=453&type=chunk) - Damien Lamendola, the indirect majority owner of WellEnterprises USA, LLC and HillCour, beneficially owns approximately **51.7%** of Marpai, Inc.'s outstanding capital stock post-conversion[453](index=453&type=chunk) [Power of Attorney and Proxy](index=56&type=section&id=Power%20of%20Attorney%20and%20Proxy) A proxy agreement grants significant voting control to founding groups, classifying Marpai as a 'controlled company' under Nasdaq rules - The HillCour Founding Group granted the Grays Founding Group a proxy to vote **1,560,237 Class A common shares** on critical corporate matters, aiming to maintain equal voting power between the two founding groups[454](index=454&type=chunk) - This agreement classifies Marpai as a 'controlled company' under Nasdaq rules, as the Co-Founders collectively hold over **70% of the voting power**[457](index=457&type=chunk) [Transition Services Agreement](index=57&type=section&id=Transition%20Services%20Agreement) Marpai entered a Transition Services Agreement with WellEnterprises and HillCour post-acquisition to provide administrative support to Marpai Administrators - On **April 1, 2021**, Marpai entered into a Transition Services Agreement with WellEnterprises, LLC and HillCour, LLC to provide transitional services to Marpai Administrators post-acquisition[458](index=458&type=chunk) - Services, including treasury and banking, were provided on a cost-incurred basis until **July 1, 2021**, with a total cost of **$18,000** for the year ended **December 31, 2021**[458](index=458&type=chunk)[647](index=647&type=chunk) [HillCour's Financial Support](index=57&type=section&id=HillCour's%20Financial%20Support) HillCour provided financial support to Marpai, including funding operating expenses and a $3 million promissory note with warrants - HillCour provided financial support letters to Marpai, Inc., agreeing to fund operating expenses if sufficient capital was not raised, with support extended to **September 2022**[459](index=459&type=chunk)[460](index=460&type=chunk)[461](index=461&type=chunk) - Marpai, Inc. issued a **$3,000,000 promissory note** to HillCour Investment Fund LLC on **July 29, 2021**, accruing **6% interest**, along with warrants to purchase **225,000 Class A common stock**[462](index=462&type=chunk) [Consulting Agreement](index=57&type=section&id=Consulting%20Agreement) Marpai Health had a consulting agreement with BrightMark Consulting for marketing services, which was terminated but services continued as needed - Marpai Health had a consulting agreement with BrightMark Consulting, LLC (whose CEO was a former Board member) for marketing and branding services[463](index=463&type=chunk) - The agreement was terminated in **March 2021**, with services continuing on an as-needed basis; total payments to BrightMark were **$2,309,000** as of **December 31, 2022**[463](index=463&type=chunk) [Consulting Fees](index=58&type=section&id=Consulting%20Fees) Marpai received consulting services from various shareholders and directors, including Edmundo Gonzalez and Yaron Eitan - Marpai received consulting services from various shareholders and directors, including Edmundo Gonzalez and Yaron Eitan[464](index=464&type=chunk) - Total consulting costs were approximately **$208,000 in 2022** and **$1,100,000 in 2021**[464](index=464&type=chunk) - Yaron Eitan received a monthly retainer of **$15,000**, which increased to **$22,750 per month** from **April 21, 2021**, until **March 31, 2022**[465](index=465&type=chunk) [Sublease](index=58&type=section&id=Sublease) Marpai had a sublease agreement with Emporus Technologies, an affiliate of Chairman Yaron Eitan, which ended on January 1, 2022 - Marpai had a sublease agreement with Emporus Technologies, Ltd., where Yaron Eitan (Chairman) serves as chairman[466](index=466&type=chunk) - The sublease ended on **January 1, 2022**, generating approximately **$69,000 in income** for the year ended **December 31, 2021**[466](index=466&type=chunk) [Policy for Approval of Related Party Transactions](index=58&type=section&id=Policy%20for%20Approval%20of%20Related%20Party%20Transactions) Marpai's Code of Ethics requires avoiding conflicts of interest, with the Audit Committee reviewing and approving related party transactions above specified thresholds - Marpai's Board adopted a Code of Ethics requiring the avoidance of conflicts of interest[467](index=467&type=chunk) - The Audit Committee reviews and approves related party transactions exceeding **$120,000 or 1% of average total assets**, with interested committee members abstaining from voting[469](index=469&type=chunk) [Principal Accountant Fees and Services](index=58&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Marpai paid its independent registered public accounting firm, UHY LLP, $326,800 in total fees for services in 2022, down from $443,170 in 2021. These fees covered audit, audit-related (401(k) plan), and tax services, all of which were pre-approved by the audit committee - Fees Paid to UHY LLP (Years Ended December 31) | Fee Type | 2022 ($) | 2021 ($) | | :----------------- | :------- | :------- | | Audit Fees | 263,250 | 443,170 | | Audit-Related Fees | 12,300 | None | | Tax Fees | 51,250 | None | | All Other Fees | None | None | | Total Fees | 326,800 | 443,170 | - Audit fees covered professional services for the annual consolidated financial statements audit and quarterly reviews[473](index=473&type=chunk) - Audit-related fees were for professional services in connection with the annual **401(k) plan audit**[474](index=474&type=chunk) - All services provided by the independent registered public accounting firm were pre-approved by the audit committee[476](index=476&type=chunk) [PART IV](index=60&type=section&id=PART%20IV) [Exhibit and Financial Statement Schedules](index=60&type=section&id=Item%2015.%20Exhibit%20and%20Financial%20Statement%20Schedules) This section lists all exhibits filed as part of the 10-K report, including various agreements (e.g., Equity Interest Purchase, Employment), corporate documents (Certificate of Incorporation, Bylaws), warrants, promissory notes, and certifications. It also includes the consolidated financial statements and XBRL data - The exhibits include Equity Interest Purchase and Reorganization Agreements, corporate governance documents (Certificate of Incorporation, Bylaws), and various financial instruments such as warrants and convertible promissory notes[480](index=480&type=chunk)[482](index=482&type=chunk)[484](index=484&type=chunk)[488](index=488&type=chunk) - Employment agreements, transition servic

Marpai, Inc. (OTCQX:MRAI) Q3 2022 Earnings Conference Call November 10, 2022 8:30 AM ET Company Participants Edmundo Gonzalez - Co-Founder, CEO, Secretary & Director Yoram Bibring - CFO Conference Call Participants Allen Klee - Maxim Group Operator Good day, and thank you for standing by. Welcome to the Marpai Second Quarter 2022 Earnings Conference Call in which management will also discuss the Maestro Health acquisition. [Operator Instructions]. I would now like to hand the conference over to Simon Lee, V ...