Marpai(MRAI) - 2023 Q4 - Annual Report

PART I Item 1. Business 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] - 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] - 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][23][26] - 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] Our Business - 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] - 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] Market Overview - 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] - 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] Market Opportunities - 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] - 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] Our Products and Services - Marpai generates revenue from Health Plan Administration services, In-House Ancillary services, and Third-Party Vendor services[19] Health Plan Administration Services - 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][22] - 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] In-House Ancillary Services - 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][24][25] Third Party Services - 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] Company Goals - 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] - 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] Maestro Health - Maestro Health, acquired by Marpai, is a TPA offering an end-to-end health plan solution that integrates care management and cost containment[29][34] - 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][32] Acquisition of Maestro Health - 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][35] - 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] - 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][39] Government Regulation - 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] 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] Fraud and Abuse - 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][44][45][46][47][48][49] State and Federal Privacy and Data Security Laws - 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][52] - 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][54] State Managed Care Laws - 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] State Laws Governing Licensure of Healthcare Professionals - State laws require licensure for healthcare professionals providing services, including via electronic means, and may implicate prohibitions on the corporate practice of medicine[56] - 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] 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] 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][60] - The company's target market of self-insured employers could shrink if more employers abandon self-insurance[59] - 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] Item 1A. Risk Factors 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][72] - 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][229] - 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][71] - 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][75][84] - 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][109] - 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][132][150] Summary Risk Factors - 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] Financial and Liquidity Risks - 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][72] - 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][229] - 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] - 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][69][71] Operational and Business Model Risks - 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] - 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] - 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][76] - 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][78][79] - 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][81] - 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][83] - 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][85] - 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] - Changes in pricing models, such as adopting shared savings, could put revenue at risk if expected cost savings are not achieved[88][89] - Long and unpredictable sales cycles require considerable investment without guaranteed success, potentially harming results and growth[90][91] - Revenue recognition ratably over contract terms means a business downturn may not be immediately reflected, making future financial performance evaluation difficult[92] - 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] - Failure to access AI talent or expand AI models could lead to a loss of competitiveness and negatively impact revenue and operations[94] - Reliance on claims data for AI models and challenges in incorporating other data types (e.g., electronic health records) may limit competitive ability[95][97] - 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] - 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][100] - Failure to enhance reputation and brand recognition could hinder business strategy, requiring substantial and potentially unsuccessful marketing investments[101] - Acquisitions could divert management attention, dilute stockholders, disrupt operations, and be difficult to integrate successfully, potentially leading to impairment charges[102][103][104][105] Technology and Intellectual Property Risks - 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][107][108] - 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][110][111][112][114][115][116][117][118] - 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][120] - 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][122][125] - 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] - 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] - 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][129][130] Regulatory and Compliance Risks - 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][150] - 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][142][144][145][149][150] - 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][135][136][137][138][139][140][141][143][151][152][153] - 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][146][147][148] - Failure to obtain and maintain proper TPA licensure and authorizations (e.g., Wisconsin license) could restrict business operations[154] - 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][156][157] - 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][159][160] Public Company and Stock-Related Risks - 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][163][164] - 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][167] - Marpai does not intend to pay dividends, meaning returns on investment depend solely on stock price appreciation[168] - 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][170][183] - 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][173] - A possible 'short squeeze' could lead to extreme price volatility unrelated to company performance[174] - 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][175] - 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][177][178][179][180][181][182] - 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][186][187][188] Item 1B. Unresolved Staff Comments Marpai Inc. has no unresolved staff comments from the SEC - The company has no unresolved staff comments[189] Item 1C. Cybersecurity 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][192][194] - 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][192] - The Chief Information Security Officer (CISO) implements the program and monitors threats, reporting to the Audit Committee[195] - Cybersecurity threats have not materially affected the company's business strategy, results of operations, or financial condition[196] Risk Management and Strategy - 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][192] - The company conducts periodic assessments, audits, and vulnerability testing, engaging third parties to evaluate cybersecurity measures and adjust policies as needed[191] Governance - The board of directors and Audit Committee oversee cybersecurity risk management, receiving regular presentations and reports on threats, developments, and incidents[194] - The CISO works with multidisciplinary teams to implement the cybersecurity program, monitor threats, and report incidents to the Audit Committee[195] Item 2. Properties 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] - 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] - Net lease expense for the fiscal year ended December 31, 2023, was $1,479,399[199] - The company believes its current office space is adequate for its needs[200] Item 3. Legal Proceedings 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] - 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] - 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] - 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] CMS/Zelis Litigation - 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] - 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] Item 4. Mine Safety Disclosures Marpai Inc. is not subject to mine safety disclosures - Mine Safety Disclosures are not applicable to Marpai Inc[204] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - As of March 26, 2024, there were 10,300,548 common shares issued and outstanding, held by 38 record holders[4][206] Item 6. Reserved Item 6 is reserved in this report - Item 6 is reserved[207] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 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] 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] - 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] - 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][233] 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) | $(2,816,527) | Representation in the Financial Statements of Marpai, Inc. - The consolidated financial statements include Marpai Health (and its subsidiary EYME) and Marpai Administrators for all periods, Maestro Health since its acquisition on November 1, 2022, and Marpai Captive since its inception[210] Results of Operations – Comparison of the Years ended December 31, 2023 and 2022 Consolidated Statements of Operations Summary | Metric | 2023 | 2022 | Change ($) | 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 - 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] - 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][215] - Cost of revenues includes service fees (vendor fees), direct labor for claims management, processing, customer support, and care/case management[216] Research and Development Expenses - 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] General and Administrative Expenses - 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] Sales and Marketing Expenses - 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] Information Technology Expenses - 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] Facilities expenses, depreciation and amortization - 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] Loss on Disposal of Assets - 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] Gain on Sale of Business Unit - Marpai realized a $1,748,641 gain on the sale of its non-core FSA/HSA business unit in 2023[223] Interest Expense, net - 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][225] Net Loss - 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] - 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] Liquidity and Capital Resources - 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] - 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][232] - 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] - 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][235] - 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][237] - In March 2024, Marpai sold 910,000 shares in a private placement to HillCour Investment Fund, LLC for $1.65 per share[238] Cash Flows 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 - 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] Net Cash Provided by Investing Activities - 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] Net Cash Provided by Financing Activities - 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] Critical Accounting Estimates - 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][245] Capitalized Software - 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][247] 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] - Marpai recorded a goodwill impairment charge of approximately $3.0 million in 2023, following a qualitative and quantitative analysis that indicated impairment[248] Income Taxes - 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] - Deferred tax assets are reviewed for realizability, with valuation allowances established based on historical operating losses and projected future taxable income[249] - 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] Revenue Recognition - Revenue is recognized when control of promised services is transferred to customers, reflecting the consideration expected in exchange for those services[251] - 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][255] - Variable consideration is included in the transaction price only if it is probable that the amounts will not be subject to significant reversals[255] Share-Based Compensation - 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][257] - 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] Recently Issued and Adopted Accounting Pronouncements - 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][490][491][492][493] - 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][490][491][492][493] Item 7A. Quantitative and Qualitative Disclosures About Market Risk 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