Marpai(MRAI) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements The unaudited financial statements for Q1 2025 reveal decreased revenue, a reduced net loss, growing stockholders' deficit, and significant liquidity challenges raising going concern doubts Condensed Consolidated Balance Sheets As of March 31, 2025, total assets were $13.7 million, total liabilities $43.9 million, and stockholders' deficit $30.2 million, reflecting increased restricted cash and convertible debentures Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $729 | $764 | | Restricted cash | $10,780 | $8,468 | | Total assets | $13,718 | $12,878 | | Total current liabilities | $19,794 | $18,982 | | Total liabilities | $43,922 | $40,587 | | Total stockholders' deficit | ($30,204) | ($27,709) | Condensed Consolidated Statements of Operations Q1 2025 revenue decreased 26.6% to $5.4 million, while net loss improved to $3.1 million due to significant reductions in operating expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Revenue | $5,418 | $7,385 | | Total costs and expenses | $7,668 | $11,450 | | Operating loss | ($2,250) | ($4,065) | | Net loss | ($3,069) | ($4,346) | | Net loss per share | ($0.21) | ($0.46) | Condensed Consolidated Statements of Cash Flows Q1 2025 saw net cash used in operating activities significantly reduced to $115 thousand, with $500 thousand from investing and $1.9 million from financing, leading to a $2.3 million net cash increase Cash Flow Summary (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($115) | ($3,585) | | Net cash provided by investing activities | $500 | $0 | | Net cash provided by financing activities | $1,892 | $3,705 | | Net increase in cash, cash equivalents and restricted cash | $2,277 | $120 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail the company's TPA business, disclose substantial doubt about going concern due to accumulated deficit and negative working capital, and cover financing, revenue, compensation, and subsequent events - The company's operations are conducted through its wholly-owned subsidiaries, primarily providing third-party administrator (TPA) services to self-insured employer groups across the United States[19] - Management has determined that the company's liquidity condition raises substantial doubt about its ability to continue as a going concern for the next twelve months. The financial statements do not include any adjustments related to this uncertainty[28] - In January 2025, the company received $3.0 million in proceeds from an additional investment related to its Senior Secured Convertible Debentures[54] - Subsequent to the quarter end, on May 13, 2025, the company appointed a new Chief Operating Officer and issued 730,000 shares of common stock in a private placement at $1.00 per share[84] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 26.6% revenue decline offset by a 44.6% operating loss reduction, while exploring strategic alternatives amidst critical liquidity concerns and a going concern warning - The company's Board of Directors is exploring strategic alternatives, which may include a strategic investment, a business combination like a merger, or a sale of the Company to maximize shareholder value[91] - The company's common stock was suspended from trading on Nasdaq and commenced trading on the OTCQX Market effective May 29, 2024[89] Results of Operations Q1 2025 revenue declined 26.6% to $5.4 million due to customer turnover, yet operating loss improved by $1.8 million to $2.3 million through significant expense reductions Comparison of Operations for Three Months Ended March 31 (in thousands) | Line Item | 2025 | 2024 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Revenue | $5,418 | $7,385 | $(1,967) | (26.6)% | | Cost of revenue | $3,484 | $4,871 | $(1,387) | (28.5)% | | General and administrative | $2,283 | $3,421 | $(1,138) | (33.3)% | | Operating loss | $(2,250) | $(4,065) | $1,815 | (44.6)% | | Net loss | $(3,069) | $(4,346) | $1,277 | (29.4)% | - The decrease in revenue is primarily due to customer turnover, but the company is adapting its approach and expects new initiatives to drive long-term growth[96] - The decrease in Sales and Marketing expenses was due to strategic realignment and headcount reduction in Q2 2024[102] Liquidity and Capital Resources The company faces critical liquidity with $729 thousand unrestricted cash, a $101.9 million accumulated deficit, and negative working capital, raising substantial doubt about its going concern ability - As of March 31, 2025, the company had an accumulated deficit of approximately $101.9 million, unrestricted cash of $729 thousand, and negative working capital of $6.9 million[107] - The company has financed its operations primarily through loans, convertible notes, warrants, and equity sales. Recent financing includes receiving $3.0 million in January 2025 from an additional investment by JGB[108][112] - Management determined that the company's liquidity condition raises substantial doubt about its ability to continue as a going concern, and it may be forced to scale back operations or divest assets if unable to raise additional capital[116][117] Cash Flows Q1 2025 net cash used in operating activities improved to $115 thousand, with $500 thousand from investing and $1.9 million from financing activities Cash Flow Summary (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(115) | $(3,585) | | Net cash provided by investing activities | $500 | $0 | | Net cash provided by financing activities | $1,892 | $3,705 | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company identifies market risks from foreign exchange, interest rates, and inflation, none of which are considered material for Q1 2025 - Foreign exchange risk exists due to operations in Israel, but a hypothetical 10% change in the NIS/USD exchange rate is not expected to have a material impact[125] - Interest rate risk on cash and cash equivalents of $729 thousand is not considered a significant risk by management[126] - Inflation is not believed to have had a material effect on the business, financial condition, or results of operations during Q1 2025[127] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes in internal control over financial reporting during Q1 2025 - Based on an evaluation as of March 31, 2025, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[128] - No changes in internal control over financial reporting occurred during the first quarter of 2025 that materially affected, or are reasonably likely to materially affect, internal controls[130] PART II. OTHER INFORMATION Item 1A. Risk Factors Key risks include significant customer concentration in accounts receivable and uncertainties surrounding the costly and potentially disruptive review of strategic alternatives - The company faces risk from customer concentration. As of March 31, 2025, two customers accounted for 35.4% and 28.1% of accounts receivable, respectively[134] - The ongoing review of strategic alternatives is costly, time-consuming, and disruptive. There is no assurance it will lead to a successful transaction or increase shareholder value, and the uncertainty could negatively impact the business and employee retention[136][137] Item 5. Other Information On May 13, 2025, the company entered an agreement to sell 730,000 shares of common stock in a private placement at $1.00 per share - On May 13, 2025, the company agreed to issue and sell 730,000 shares of common stock in a private placement at $1.00 per share[138] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including the May 13, 2025 Securities Purchase Agreement and Sarbanes-Oxley Act certifications - Key exhibits filed include the May 13, 2025 Securities Purchase Agreement and Sarbanes-Oxley Act certifications by the CEO and CFO[139] Signatures The report was signed and authorized by Damien Lamendola, CEO, and Steve Johnson, CFO, on May 14, 2025 - The report was signed on May 14, 2025, by Damien Lamendola (CEO) and Steve Johnson (CFO)[144]