Marpai, Inc 10-Q for FY2023 Q2
Marpai, Inc. (MRAI)
About this 10-Q
Marpai, Inc filed this 10-Q on August 3, 2023, covering the quarter ended June 30, 2023 (FY2023 Q2).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $10.05M
- up 80.8% from $5.56M a year earlier
- Net loss
- $7.56M
- compared with a net loss of $6.66M a year earlier
- Diluted EPS
- -$1.10
- compared with -$1.34 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from to
Commission File Number:
“
(Exact Name of Registrant as Specified in Its Charter)
|
|
|
|
||
(State or other jurisdiction |
|
(IRS Employer |
(Address of principal executive offices)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
|
|
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
|
|
|
|
|
Large accelerated filer ☐ |
Accelerated filer ☐ |
Smaller reporting company |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b‑2 of the Exchange Act). Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of August 3, 2023, there were
MARPAI, INC.
TABLE OF CONTENTS
|
|
|
|
|
Page |
|
||
Item 1. |
1 |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 |
|
26 |
||
26 |
||
|
||
|
||
27 |
||
28 |
||
i
PART I — FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements.
MARPAI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
|
|
(Unaudited) |
|
|
|
|
||
ASSETS: |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Accounts receivable, net of allowance for credit losses of $ |
|
|
|
|
|
|
||
Unbilled receivable |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Other receivables |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Capitalized software, net |
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
|
||
Security deposits |
|
|
|
|
|
|
||
Other long-term asset |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued expenses |
|
|
|
|
|
|
||
Accrued fiduciary obligations |
|
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
|
||
Current portion of operating lease liabilities |
|
|
|
|
|
|
||
Other short-term liability |
|
|
|
|
|
— |
|
|
Due to related party |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Other long-term liabilities |
|
|
|
|
|
|
||
Operating lease liabilities, net of current portion |
|
|
|
|
|
|
||
Deferred tax liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
STOCKHOLDERS’(DEFICIT) EQUITY |
|
|
|
|
|
|
||
Common stock, $ |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Total stockholders’ (deficit) equity |
|
|
( |
) |
|
|
|
|
Total liabilities and stockholders’ (deficit) equity |
|
$ |
|
|
$ |
|
||
(1)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
MARPAI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue (exclusive of depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales and marketing |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Information technology |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss on disposal of assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Facilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other income |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Foreign exchange (loss) gain |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Loss before provision for income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Income tax expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Net loss per share, basic & fully diluted (1) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average shares of common stock outstanding, basic and |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(1)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
MARPAI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
Additional Paid- |
|
|
Accumulated |
|
|
Total Stockholders’ |
|
|||||
Three months ended June 30, 2023 |
|
Shares (1) |
|
|
Amount |
|
|
In Capital |
|
|
Deficit |
|
|
(Deficit) Equity |
|
|||||
Balance, April 1, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|||
Share-based compensation |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Issuance of common stock upon exercise of stock options |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
||
Issuance of common stock in connection with public offering, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Balance, June 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Three months ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance, April 1, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Share-based compensation |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Issuance of common stock upon vesting of restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||
Common Stock issued to vendors in exchange for services |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Balance, June 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Six months ended June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance, December 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Share-based compensation |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Issuance of common stock upon vesting of restricted stock units |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Common stock issued to vendors in exchange for services |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||
Issuance of common stock upon exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||
Issuance of common stock in connection with public offering, net |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Balance, June 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Six months ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance, December 31, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Share-based compensation |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Issuance of common stock upon vesting of restricted stock units |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Common stock issued to vendors in exchange for services |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Balance, June 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
(1)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
MARPAI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Six months ended June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Loss on disposal of assets |
|
|
|
|
|
|
||
Share-based compensation |
|
|
|
|
|
|
||
Common stock issued to vendors in exchange for services |
|
|
|
|
|
|
||
Amortization of right-of-use asset |
|
|
|
|
|
|
||
Gain on termination of lease |
|
|
|
|
|
— |
|
|
Non-cash interest |
|
|
|
|
|
— |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable and unbilled receivable |
|
|
|
|
|
|
||
Prepaid expense and other assets |
|
|
|
|
|
|
||
Other receivables |
|
|
( |
) |
|
|
|
|
Security deposit |
|
|
( |
) |
|
|
— |
|
Accounts payable |
|
|
|
|
|
( |
) |
|
Accrued expenses |
|
|
( |
) |
|
|
( |
) |
Accrued fiduciary obligations |
|
|
|
|
|
( |
) |
|
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
Due to related party |
|
|
( |
) |
|
|
— |
|
Other liabilities |
|
|
|
|
|
( |
) |
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
||
Capitalization of software development costs |
|
|
— |
|
|
|
( |
) |
Disposal of property and equipment |
|
|
|
|
|
— |
|
|
Purchase of property and equipment |
|
|
— |
|
|
|
( |
) |
Net cash provided by (used in) investing activities |
|
|
|
|
|
( |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from stock options exercises |
|
|
|
|
|
— |
|
|
Proceeds from issuance of common stock in a public offering, net |
|
|
|
|
|
— |
|
|
Net cash provided by financing activities |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
||
Net decrease in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Reconciliation of cash, cash equivalents, and restricted cash reported in |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Total cash, cash equivalents and restricted cash shown in the condensed |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of non-cash activity |
|
|
|
|
|
|
||
Measurement period adjustment to goodwill |
|
$ |
|
|
|
|
||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
MARPAI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Organization
Marpai, Inc.'s (the “Company”) operations are principally conducted through its wholly-owned subsidiaries, Marpai Health, Inc. (“Marpai Health”), Marpai Administrators, and Maestro Health LLC (“Maestro”). Marpai Health is our technology focused subsidiary, with a research and development team in Tel Aviv, Israel. Marpai Administrators and Maestro are our healthcare payer subsidiaries that provide administration services to self-insured employer groups across the United States. They act as a third-party administration (“TPA”) handling all administrative aspects of providing healthcare to self-insured employer groups. The Company has combined these two businesses to create what it believes to be the Payer of the Future, which has not only the licenses, processes and know- how of a payer but also the latest technology. This combination allows the Company to differentiate itself in the TPA market by delivering a technology-driven service that it believes can lower the overall cost of healthcare while maintaining or improving healthcare outcomes. Marpai Captive, Inc. (“Marpai Captive”) was founded in March 2022 as a Delaware corporation. Marpai Captive engages in the captive insurance market and commenced operations in the first quarter of 2023.
Nature of Business
The Company’s mission is to positively change healthcare for the benefit of (i) its clients who are self-insured employers that pay for their employees’ healthcare benefits and engage the Company to administer the latter’s healthcare claims, (ii) employees who receive these healthcare benefits from its clients, and (iii) healthcare providers including doctors, doctor groups, hospitals, clinics, and any other entities providing healthcare services or products.
The Company provides benefits outsourcing services to clients in the United States across multiple industries. The Company’s backroom administration and TPA services are supported by a customized technology platform and a dedicated benefits call center. Under its TPA platform, the Company provides health and welfare administration, dependent eligibility verification, Consolidated Omnibus Budget Reconciliation Act (“COBRA”) administration, and benefit billing services.
The Company continues to monitor the effects of the global macroeconomic environment, including increasing inflationary pressures; supply chain disruptions; social and political issues; regulatory matters, geopolitical tensions; and global security issues. The Company is also mindful of inflationary pressures on its cost base and is monitoring the impact on customer preferences.
Reverse Stock Split
On June 29, 2023 the Company effectuated a
NOTE 2 - UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim consolidated financial statements furnished reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. The unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for its year ended December 31, 2022.
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Maestro is included as of November 1, 2022, the date of the Acquisition (see Note 5). All significant intercompany balances and transactions have been eliminated in consolidation.
5
MARPAI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses reported in those financial statements. Descriptions of the Company’s significant accounting policies are discussed in the notes to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Management evaluates the related estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates and assumptions resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.
NOTE 3 – LIQUIDITY AND GOING CONCERN
As shown in the accompanying condensed consolidated financial statements as of June 30, 2023, the Company had an accumulated deficit of approximately $
The Company currently projects that it will need additional capital to fund its current operations and capital investment requirements until the Company scales to a revenue level that permits cash self-sufficiency. As a result, the Company needs to raise additional capital or secure debt funding to support on-going operations until such time. This projection is based on the Company’s current expectations regarding revenues, expenditures, cash burn rate and other operating assumptions. The sources of this capital are anticipated to be from the sale of equity and/or debt. Alternatively, or in addition, the Company may seek to sell assets which it regards as non-strategic. Any of the foregoing may not be achievable on favorable terms, or at all. Additionally, any debt or equity transactions may cause significant dilution to existing stockholders.
If the Company is unable to raise additional capital moving forward, its ability to operate in the normal course and continue to invest in its product portfolio may be materially and adversely impacted and the Company may be forced to scale back operations or divest some or all of its assets.
As a result of the above, in connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s (“FASB”) Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that the Company’s liquidity condition raises substantial doubt about the Company’s ability to continue as a going concern through twelve months from the date these unaudited condensed consolidated financial statements are available to be issued. These unaudited condensed consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Combination
The Company accounts for business combinations in accordance with the Financial Accounting Standard Board’s (“FASB”) Accounting Standard Codification (“ASC”) 805, Business Combinations. Accordingly, identifiable tangible and intangible assets acquired, and liabilities assumed are recorded at their estimated fair values, the excess of the purchase consideration over the fair values of net assets acquired is recorded as goodwill, and transaction costs are expensed as incurred. The Company includes the results of operations of the businesses that are acquired as of the acquisition date.
Use of Estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Such
6
MARPAI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
estimates include, but are not limited to, valuation of share-based compensation, accounting for warrants, allowance for credit losses, useful lives of internally developed software, fair values of net assets acquired, goodwill, intangible assets and property and equipment, incurred but not reported (“IBNR”) reserves, whether an arrangement is or contains a lease, the incremental borrowing rate used for operating leases, income tax accruals, the valuation allowance for deferred income taxes, and contingent liabilities.
The Company bases these estimates on historical and anticipated results, trends, and various other assumptions that it believes are reasonable under the circumstances, including assumptions as to future events. Actual results could differ from those estimates.
Restricted Cash
Restricted cash balances are composed of funds held on behalf of clients in a fiduciary capacity, cash held in a separate bank account pledged to a bank as collateral for a bank guarantee provided to the lessor to secure the Company’s obligations under a lease agreement, cash in a money market account as required by a credit card company for collateral, and a certificate of deposit held for collateral of a letter of credit. Fiduciary funds generally cannot be utilized for general corporate purposes and are not a source of liquidity for the Company. A corresponding fiduciary obligation, included in current liabilities in the accompanying condensed consolidated balance sheets, exists for disbursements to be made on behalf of the clients and may be more than the restricted cash balance if payment from customers has not been received.
Capitalized Software
The Company complies with the guidance of ASC Topic 350‑40, “Intangibles—Goodwill and Other—Internal Use Software”, in accounting for its internally developed system projects that it utilizes to provide its services to customers. These system projects generally relate to software of the Company that is not intended for sale or otherwise marketed. Internal and external costs incurred during the preliminary project stage are expensed as they are incurred. Once a project has reached the development stage, the Company capitalizes direct internal and external costs until the software is substantially complete and ready for its intended use. Costs for upgrades and enhancements are capitalized, whereas, costs incurred for maintenance are expensed as incurred. These capitalized software costs are amortized on a project-by- project basis over the expected economic life of the underlying software on a straight-line basis, which is generally to
Goodwill
Goodwill is recognized and initially measured as any excess of the acquisition-date consideration transferred in a business combination over the acquisition-date amounts recognized for the net identifiable assets acquired. Goodwill is not amortized but is tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not result in an impairment of goodwill. The Company operates in
7
MARPAI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Intangible Assets
Intangible assets consist of customer relationships, non-compete agreements, and amounts attributed to patent and patent applications that were acquired through an acquisition and are amortized on a straight-line basis over useful lives ranging from to
Revenue Recognition
Third Party Administrator Revenue
Revenue is recognized when control of the promised services is transferred to the Company’s customers in an amount that reflects the consideration expected to be entitled to in exchange for those services. As the Company completes its performance obligations, it has an unconditional right to consideration, as outlined in the Company’s contracts.
The Company also provides certain performance guarantees under their contracts with customers. Customers may be entitled to receive compensation if the Company fails to meet the guarantees. Actual performance is compared to the contractual guarantee for each measure throughout the period. The Company had performance guarantee liabilities of $
Significant Payment Terms
Generally, the Company’s accounts receivable are expected to be collected in
Consideration paid for services rendered by the Company is nonrefundable. Therefore, at the time revenue is recognized, the Company does not estimate expected refunds for services.
The Company uses the practical expedient and does not account for significant financing components because the period between recognition and collection does not exceed one year for all of the Company’s contracts.
Timing of Performance Obligations
All of the Company’s contracts with customers obligate the Company to perform services. Services provided include health and welfare administration, dependent eligibility verification, COBRA administration, and benefit billing. Revenue is recognized over time as services are provided as the performance obligations are satisfied through the effort expended to research, investigate, evaluate, document, and report claims, and control of these services is transferred to the customer. The Company has the right to receive payment for all services rendered.
Determining and Allocating the Transaction Price
The transaction price of a contract is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer.
To determine the transaction price of a contract, the Company considers its customary business practices and the terms of the contract. For the purpose of determining transaction prices, the Company assumes that the services will be transferred to the customer as promised in accordance with existing contracts and that the contracts will not be canceled, renewed, or modified.
8
MARPAI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company’s contracts with customers have fixed fee prices that are denominated per covered employee per month. The Company includes amounts of variable consideration in a contract’s transaction price only to the extent that it is probable that the amounts will not be subject to significant reversals (that is, downward adjustments to revenue recognized for satisfied performance obligations). In determining amounts of variable consideration to include in a contract’s transaction price, the Company relies on its experience and other evidence that supports its qualitative assessment of whether revenue would be subject to a significant reversal. The Company considers all the facts and circumstances associated with both the risk of a revenue reversal arising from an uncertain future event and the magnitude of the reversal if that uncertain event were to occur.
Captive Revenue
All general insurance premiums pertain to annual policies and are reflected in income on a pro-rata basis.
Loss and Loss Adjustment Expenses
The establishment of loss reserves by the policies primary insurer is a reasonably complex and dynamic process influenced by a large variety of factors. These factors principally include past experience with like claims. Consequently, the reserves established are a reflection of the opinions of a large number of persons and the Company is exposed to the possibility of higher or lower than anticipated loss cost due to real expense.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of outstanding shares of common stock for the period, considering the effect of participating securities. Diluted earnings (loss) per share is calculated by dividing net earnings (loss) by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding. During the periods when they are anti-dilutive, shares of common stock equivalents, if any, are not considered in the computation. At June 30, 2023 and 2022, there were
Recently Issued Accounting Pronouncements
In September 2022, the FASB issued ASU No. 2022-04, “Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations,” which is intended to enhance the transparency surrounding the use of supplier finance programs. The amendments in this update require a buyer in a supplier finance program to disclose information about the program's nature, activity during the period, changes from period to period, and potential magnitude. The Company
In October 2021, the FASB issued ASU No. 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. For the Company, the new guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Adoption of the ASU should be applied prospectively. Early adoption is also permitted, including adoption in an interim period. The Company is currently evaluating the impact of this accounting standard update on its condensed consolidated financial statements.
NOTE 5 – ACQUISITION
On November 1, 2022, the Company consummated the acquisition of Maestro. Pursuant to the terms of the Purchase Agreement (“Maestro Agreement”), Marpai agreed to acquire all of the membership interests (the “Units”) of Maestro. In consideration for Marpai’s acquisition of the Units, Marpai agreed to pay the sellers an aggregate purchase price (the “Purchase Price”) of $
9
MARPAI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
on the closing date (the “Base Purchase Price”), which shall be payable on or before April 1, 2024 (the “Payment Date”), and shall accrue interest until such time that is paid, such that on the Payment Date the Purchase Price, plus all accrued and unpaid interest, shall equal $
Any unpaid portion of the Purchase Price shall accrue interest at ten percent (
Notwithstanding the foregoing, Marpai shall be required to make cumulative payments, representing the Adjusted Purchase Price and any additional interest that will accrue on the Adjusted Purchase Price after the Payment Date,, as follows: (i) $
On April 19, 2023, we closed a public offering of
As of June 30, 2023 the outstanding principle balance is $
The following table represents the allocation of the purchase consideration among Maestro’s assets acquired and liabilities assumed at their acquisition-date fair values:
|
|
December 31, 2022 |
|
|
Adjustment |
|
|
June 30, 2023 |
|
|||
Purchase Price |
|
|
|
|
|
|
|
|
|
|||
Purchase Price |
|
$ |
|
|
|
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Purchase Price Allocation |
|
|
|
|
|
|
|
|
|
|||
Cash |
|
$ |
|
|
|
|
|
$ |
|
|||
Restricted cash |
|
|
|
|
|
|
|
|
|
|||
Accounts receivable |
|
|
|
|
|
|
|
|
|
|||
Unbilled receivable |
|
|
|
|
|
|
|
|
|
|||
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
|
|||
Property and equipment |
|
|
|
|
|
( |
) |
|
|
|
||
Operating lease - right of use assets |
|
|
|
|
|
|
|
|
|
|||
Goodwill |
|
|
|
|
|
|
|
|
|
|||
Trademarks |
|
|
|
|
|
|
|
|
|
|||
Customer relationships |
|
|
|
|
|
|
|
|
|
|||
Security deposits |
|
|
|
|
|
|
|
|
|
|||
Account payable |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Accrued expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Accrued fiduciary obligations |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Operating lease liabilities |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Deferred revenue |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Total fair value of net assets acquired and liabilities assumed |
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
10
MARPAI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company recorded a measurement period adjustment to goodwill for the six months ended June 30, 2023 for property and equipment of $
The following table summarizes the estimated fair values of Maestro’s identifiable intangible assets, their estimated useful lives and expected amortization periods:
|
|
|
|
|
Useful |
|
|
|
Acquisition |
|
|
Life in |
|
|
|
Fair Value |
|
|
Years |
|
Trademarks |
|
$ |
|
|
||
Customer relationships |
|
|
|
|
||
The following unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred on January 1, 2022:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||
|
|
June 30, 2022 |
|
|
June 30, 2022 |
|
||
|
|
(pro forma) |
|
|
(pro forma) |
|
||
Revenue |
|
$ |
|
|
$ |
|
||
Net loss |
|
|
( |
) |
|
|
( |
) |
The unaudited pro forma financial information includes adjustments that are directly attributable to the business combination and are factually supportable. The pro forma adjustments include incremental amortization expense of $
The unaudited pro forma results do not reflect any cost saving synergies from operating efficiencies or the effect of the incremental costs incurred in integrating Maestro into the Marpai legacy business.
Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations.
NOTE 6 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following at:
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
Equipment |
|
$ |
|
|
$ |
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
— |
|
|
|
|
|
Total cost |
|
|
|
|
|
|
||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation expense was $
11
MARPAI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – CAPITALIZED SOFTWARE
Capitalized software consists of the following at:
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
Capitalized software |
|
$ |
|
|
$ |
|
||
Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Capitalized software, net |
|
$ |
|
|
$ |
|
||
Amortization expense was $
NOTE 8 – GOODWILL AND INTANGIBLE ASSETS
Goodwill consists of the following:
|
|
Amount |
|
|
Balance as of December 31, 2022 |
|
$ |
|
|
Measurement period adjustment to goodwill (Note 5) |
|
|
|
|
Balance as of June 30, 2023 |
|
$ |
|
|
Intangible assets consist of the following:
|
|
June 30, 2023 |
|
|||||||||||
|
|
Useful |
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|||
|
|
Life |
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|||
Trademarks |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Noncompete agreements |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Customer relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Patents and patent applications |
|
(*) |
|
|
|
|
|
- |
|
|
|
|
||
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
December 31, 2022 |
|
|||||||||||
Trademarks |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Noncompete agreements |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Customer relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|||
Patents and patent applications |
|
(*) |
|
|
|
|
|
— |
|
|
|
|
||
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Amortization expense was $
NOTE 9 – LOSS AND LOSS ADJUSTMENT EXPENSES
The following tables shows changes in aggregate reserves for the Company's loss and loss adjustment expenses:
12
MARPAI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
June 30, |
|
|
June 30, |
|
||
Net reserves at January 1, |
|
$ |
— |
|
|
$ |
— |
|
Incurred loss and loss adjustment expenses |
|
|
|
|
|
|
||
Provisions for insured events of the current year |
|
|
|
|
|
— |
|
|
Change in provision for insured events of prior year |
|
|
— |
|
|
|
— |
|
Total incurred loss and loss adjustment expense |
|
|
|
|
|
— |
|
|
Payments |
|
|
|
|
|
|
||
Loss and loss adjustment expenses attributable to insured events of the current year |
|
|
|
|
|
— |
|
|
Loss and loss adjustment expenses attributable to insured events of the prior year |
|
|
— |
|
|
|
— |
|
Total payments |
|
|
|
|
|
— |
|
|
Net reserves at June 30, |
|
$ |
|
|
$ |
— |
|
|
|
|
June 30, |
|
|
June 30, |
|
||
Net reserves at April 1, |
|
$ |
|
|
$ |
— |
|
|
Incurred loss and loss adjustment expenses |
|
|
|
|
|
|
||
Provisions for insured events of the current year |
|
|
|
|
|
— |
|
|
Change in provision for insured events of prior year |
|
|
— |
|
|
|
— |
|
Total incurred loss and loss adjustment expense |
|
|
|
|
|
— |
|
|
Payments |
|
|
|
|
|
|
||
Loss and loss adjustment expenses attributable to insured events of the current year |
|
|
|
|
|
— |
|
|
Loss and loss adjustment expenses attributable to insured events of the prior year |
|
|
— |
|
|
|
— |
|
Total payments |
|
|
|
|
|
— |
|
|
Net reserves at June 30, |
|
$ |
|
|
$ |
— |
|
|
For the three and six month periods ended June 30, 2023, initial reserves were established for the start of the Company's captive operations.
NOTE 10 – REVENUE
Disaggregation of Revenue
The following tables illustrates the disaggregation of revenue by similar products:
For the three months period
|
|
June 30, |
|
|
June 30, |
|
||
TPA services |
|
$ |
|
|
$ |
|
||
Captive insurance |
|
|
|
|
|
— |
|
|
Total |
|
$ |
|
|
$ |
|
||
For the six months period
|
|
June 30, |
|
|
June 30, |
|
||
TPA services |
|
$ |
|
|
$ |
|
||
Captive insurance |
|
|
|
|
|
— |
|
|
Total |
|
$ |
|
|
$ |
|
||
13
MARPAI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – SHARE-BASED COMPENSATION
Global Stock Incentive Plan
On May 31, 2022, the shareholders of the Company approved the Company’s Board of Directors proposal to increase the Company’s Global Incentive Plan (the “Plan”) by
On May 31, 2023, the shareholders of the Company approved the Company’s Board of Directors proposal to increase the Company’s Global Incentive Plan (the “Plan”) by an additional
Under the term of the Plan, on the grant date, the Board of Directors determines the vesting schedule of each stock option and RSUs on an individual basis. All stock options expire ten (
Stock Options
The fair value of options and share awards granted under the stock option plan during the six months ended June 30, 2023 was estimated at the date of grant using the Black-Scholes option pricing model and the following assumptions for grants:
|
|
January 2023 |
|
|
Risk-free interest rates |
|
|
% |
|
Expected life |
|
|
||
Expected volatility |
|
|
% |
|
Expected dividend yield |
|
|
% |
|
The following table summarizes the stock option activity:
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Aggregate |
|
||||
|
|
Number of |
|
|
Weighted Average |
|
|
Remaining |
|
|
Intrinsic |
|
||||
|
|
Options |
|
|
Exercise Price |
|
|
Contractual Term |
|
|
Value |
|
||||
Balance at January 1, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forfeited/Cancelled |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
||||
Balance at June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Exercisable at June 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The following table summarizes the Company’s non-vested stock options:
|
|
|
|
|
Weighted-Average |
|
||
|
|
Non-vested Options |
|
|
Grant Date Fair |
|
||
|
|
Outstanding |
|
|
Value |
|
||
At January 1, 2023 |
|
|
|
|
$ |
|
||
Options granted |
|
|
|
|
|
|
||
Options forfeited/cancelled |
|
|
( |
) |
|
|
|
|
Options exercised |
|
|
( |
) |
|
|
|
|
Options vested |
|
|
( |
) |
|
|
|
|
At June 30, 2023 |
|
|
|
|
$ |
|
||
14
MARPAI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2023 and 2022, the Company recognized $
Restricted Stock Awards
In July 2019, the Board of Directors of the Company authorized grants of restricted stock awards (“RSAs”) through a restricted stock award purchase agreement to certain founders, consultants, and advisors of the Company. Certain grants to the Company’s founders were fully vested at the date of incorporation, other grants vest over a
The following table summarizes the restricted stock awards activity:
|
|
|
|
|
Weighted-Average |
|
||
|
|
|
|
|
Grant Date Fair |
|
||
|
|
Outstanding |
|
|
Value |
|
||
Outstanding at January 1, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
— |
|
|
|
— |
|
Forfeited/cancelled |
|
|
— |
|
|
|
— |
|
Vested |
|
|
( |
) |
|
|
|
|
Outstanding at June 30, 2023 |
|
|
|
|
$ |
|
||
For the six months ended June 30, 2023 and 2022, the Company recognized $
Restricted Stock Units
On June 14, 2022, the Board of Directors of the Company authorized the grant of
On February 28, 2023, the Company issued
The following table summarizes the restricted stock units activity:
|
|
Outstanding |
|
|
Value |
|
||
Outstanding at January 1, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Forfeited/cancelled |
|
|
— |
|
|
|
— |
|
Vested |
|
|
( |
) |
|
|
|
|
Outstanding at June 30, 2023 |
|
|
|
|
$ |
|
||
15
MARPAI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2023 and 2022, the Company recognized $
NOTE 12 – WARRANTS
Upon closing of the Company's public offering (Note 16), the Company issued to the underwriter, warrants to purchase
The table below summarizes the Company’s warrant activities:
|
|
Number of |
|
|
|
|
|
|
|
|||
|
|
Warrants to |
|
|
Exercise Price |
|
|
Weighted |
|
|||
|
|
Purchase Common |
|
|
Range Per |
|
|
Average |
|
|||
|
|
Shares |
|
|
Share |
|
|
Exercise Price |
|
|||
Balance at January 1, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|||
Forfeited |
|
|
|
|
|
— |
|
|
|
— |
|
|
Exercised |
|
|
|
|
|
— |
|
|
|
— |
|
|
Balance at June 30, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Balance at January 1, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|||
Granted |
|
|
|
|
|
— |
|
|
|
|
||
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at June 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|||
NOTE 13 – SEGMENT INFORMATION
Research and development activities are conducted through the Company’s wholly owned subsidiary, EYME Technologies, Ltd., in Israel. Geographic long-lived asset information presented below is based on the physical location of the assets at the end of year. All of the Company’s revenues are derived from customers located in the United States.
Long-lived assets including goodwill, intangible assets, capitalized software, property and equipment and operating lease right-of-use, by geographic region, are as follows at:
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
United States |
|
$ |
|
|
$ |
|
||
Israel |
|
|
|
|
|
|
||
Total long-lived assets |
|
$ |
|
|
$ |
|
||
NOTE 14 – RELATED PARTY TRANSACTIONS
The Company receives consulting services and marketing services from various shareholders and directors. The total cost of these consulting services for the three months ended June 30, 2023 and 2022 was approximately $
16
MARPAI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On December 30, 2020, the Company received an advance from a certain investor for reimbursement of certain expenses. This is recorded as due to related party on the accompanying condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022 in the amount of $
NOTE 15 – ACCRUED EXPENSES
Accrued expenses consisted of the following:
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
|
|
|
|
|
|
|
||
Employee compensation |
|
$ |
|
|
$ |
|
||
Accrued bonuses |
|
|
|
|
|
|
||
Performance guarantee liabilities |
|
|
|
|
|
|
||
Other accrued expenses and liabilities |
|
|
|
|
|
|
||
Accrued expenses |
|
$ |
|
|
$ |
|
||
NOTE 16 – STOCKHOLDERS’ (DEFICIT) EQUITY
On April 19, 2023, the Company closed its public offering of
During the six months ended June 30, 2023, the Company issued
NOTE 17 – INCOME TAXES
The effective tax rate was
At December 31, 2022, the Company had federal and state net operating losses (“NOLs”) in the amount of $
Income tax expense is recorded using the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to temporary differences between amounts reported for income tax purposes and financial statement purposes, using current tax rates. A valuation allowance is recognized if it is anticipated that some or all of a deferred tax asset will not be realized. The Company must assess the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent that the Company believes that recovery is not likely, it must establish a valuation allowance. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets.
The Company and its subsidiaries’ income tax returns since 2019 are open to review by the tax authorities.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “Inflation Reduction Act") that includes, among other provisions, changes to the U.S. corporate income tax system, including a fifteen percent minimum tax based on "adjusted financial statement income,” and a one percent excise tax on net repurchases of stock after December 31, 2022. The Company is continuing to evaluate the Inflation Reduction Act and its requirements, as well as the application to its business.
17
MARPAI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 – SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date the unaudited condensed consolidated financial statements were available for issuance.
On July 14, 2023, the Company and Mr. Yaron Eitan , who serves as Chairman of the Board agreed to replace the consulting agreement dated April 20, 2021 (the “Consulting Agreement”) with an employment agreement pursuant to which the Company agreed to pay Mr. Eitan an annualized base salary of $
On April 19, 2023, the Company closed a public offering of
On July 31, 2023, the Company entered into an Amendment to the Executive Employment Agreement between the Company and Lutz Finger pursuant to which the Company and Mr. Finger agreed to delay the vesting of certain equity compensation due to Mr. Finger.
18
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF MARPAI, INC.
As used in this report, the terms “we”, “us”, “our”, the “Company”, and “Marpai” mean Marpai, Inc., and our wholly owned subsidiaries, Marpai Captive, Inc. (“Marpai Captive”), Marpai Administrators, LLC (“Marpai Administrators”), Maestro Health, LLC (“Maestro”) and Marpai Health, Inc. (“Marpai Health”) and its wholly owned Israeli subsidiary EYME Technologies, Ltd. (“EYME”), unless otherwise indicated or required by the context.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10‑Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements other than statements of historical fact included in this Form 10‑Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performances, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performances or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to Part II, Item 1A of this Quarterly report and the Risk Factors section of our Annual Report on Form 10-K, filed on March 29, 2023 with the SEC.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10‑Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.
The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Nasdaq Deficiency Letters and Reverse Stock Split
On January 11, 2023, we received a deficiency letter from the Listing Qualifications Department (the “Staff”) of The Nasdaq Capital Market LLC (“Nasdaq”) notifying us that, for the last 30 consecutive business days, the bid price for our common stock had closed below the $1.00 per share minimum bid price requirement for continued inclusion on the Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(a)(1) (the "Bid Price Requirement"). At our Special Meeting of Stockholders held on June 26, 2023, our stockholders approved a proposal to authorize a reverse stock split of the common stock, at a ratio within the range of 1-for-2 to 1-for-5. The Board approved a 1-for-4 reverse split ratio, and on June 26, 2023, we filed a Certificate of Amendment to our Second Amended and Restated Certificate of Incorporation (the “Charter Amendment”) to effect the reverse split effective June 29, 2023. On July 14, 2023, the Company was notified by Nasdaq that we regained compliance with the Bid Price Requirement and the matter was now closed.
On May 31, 2023, we received a notification letter (the “Notice”) from Nasdaq advising us that for the last 30 consecutive business days preceding the date of the Notice, our Market Value of Listed Securities (“MVLS”) has been below the minimum of $35,000,000 required for continued listing on Nasdaq pursuant to Nasdaq Listing Rule 5550(b)(2) (the “MVLS Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(C), we have 180 calendar days, or until November 27, 2023, to regain compliance with the MVLS Requirement (the “Compliance Period”). Our securities will continue to trade on Nasdaq during the Compliance Period. To regain compliance, our securities must trade at or above a level such that the Company’s MVLS closes at or above $35,000,000 for a minimum of ten consecutive business days during the Compliance Period, or we must meet another listing standard as required under Nasdaq rules. If we do not regain compliance by November 27, 2023 (or the second compliance period, if applicable), then Nasdaq staff will provide written notice to us that our securities are subject to delisting. At that time, we may appeal the delisting determination to a Hearings Panel. We intend to monitor its MVLS and may, if appropriate, consider implementing available options to regain compliance with the MVLS Requirement.
19
Overview
We were formed as a Delaware corporation on January 22, 2021 with the intention to facilitate an initial public offering and other related transactions in order to carry on the business of two healthcare entities, Marpai Health and Marpai Administrators. We acquired Maestro on November 1, 2022 to increase the capacity to service the heath industry. Marpai Inc.’s mission is to positively change healthcare for the benefit of (i) our clients who are self-insured employers that pay for their employees’ healthcare benefits and engage the Company to administer the latter’s healthcare claims, to whom the Company refers as “Clients”; (ii) employees who receive these healthcare benefits from its clients, to whom we refer as “Members”, and (iii) healthcare providers including doctors, doctor groups, hospitals, clinics, and any other entities providing healthcare services or products to whom we refer as “Providers”. Our mission is to positively change healthcare for the benefit of Clients, Members and Providers.
Our company is the combination of Marpai Health, Inc., Marpai Administrators, and Maestro. Marpai Health is our technology focused subsidiary, with a research and development team in Tel Aviv, Israel. Marpai Administrators and Maestro are our healthcare payer subsidiaries that provides administration services to self-insured employer groups across the United States. They act as a TPA handling all administrative aspects of providing healthcare to self-insured employer groups. We have combined these three businesses to create what we believe to be the Payer of the Future, which has not only the licenses, processes and know- how of a payer but also the latest technology. This combination allows us to differentiate in the TPA market by delivering a technology-driven service that we believe can lower the overall cost of healthcare while maintaining or improving healthcare outcomes. Marpai Captive was founded in March 2022 as a Delaware corporation. Marpai Captive engages in the captive insurance market and commenced operations in the first quarter of 2023.
After the acquisition of Maestro, we commenced an integration project that combines the operations of Marpai Administrators and Maestro. We expect to complete the integration of the two businesses in 2023 and they will then operate as one business.
Representation in the Financial Statements of Marpai, Inc.
The unaudited condensed consolidated financial statements of Marpai, Inc and the discussion of the results of its operations in this quarterly report, reflect the results of the operations of Marpai Health (and its subsidiary EYME) for all periods presented, the results of Maestro since its acquisition on November 1, 2022 and the results of Marpai Captive since January 1, 2023. The results for the three months and six months ended June 30, 2023, as applicable, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
The Company also continues to monitor the effects of the global macroeconomic environment, including increasing inflationary pressures; supply chain disruptions; social and political issues; regulatory matters, geopolitical tensions; and global security issues. The Company is also mindful of inflationary pressures on its cost base and is monitoring the impact on customer preferences.
20
Results of Operations
Comparison of the Three and Six Months Ended June 30, 2023 and 2022
The following tables set forth our consolidated results of operations for the periods indicated.
|
|
Three Months Ended June 30, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
% |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
10,046,980 |
|
|
$ |
5,556,506 |
|
|
$ |
4,490,474 |
|
|
|
80.8 |
% |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue (exclusive of depreciation and |
|
|
6,429,688 |
|
|
|
4,151,560 |
|
|
|
2,278,128 |
|
|
|
54.9 |
% |
General and administrative |
|
|
5,725,071 |
|
|
|
2,319,977 |
|
|
|
3,405,094 |
|
|
|
146.8 |
% |
Sales and marketing |
|
|
1,473,311 |
|
|
|
2,216,788 |
|
|
|
(743,477 |
) |
|
|
(33.5 |
)% |
Information technology |
|
|
1,319,443 |
|
|
|
1,189,733 |
|
|
|
129,710 |
|
|
|
10.9 |
% |
Research and development |
|
|
523,432 |
|
|
|
1,309,157 |
|
|
|
(785,725 |
) |
|
|
(60.0 |
)% |
Depreciation and amortization |
|
|
1,002,946 |
|
|
|
776,411 |
|
|
|
226,535 |
|
|
|
29.18 |
% |
Loss on disposal of assets |
|
|
343,588 |
|
|
|
60,471 |
|
|
|
283,117 |
|
|
|
468.19 |
% |
Facilities |
|
|
500,189 |
|
|
|
196,341 |
|
|
|
303,848 |
|
|
|
154.8 |
% |
Total costs and expenses |
|
|
17,317,668 |
|
|
|
12,220,438 |
|
|
|
(5,097,230 |
) |
|
|
(41.7 |
)% |
Operating loss |
|
|
(7,270,688 |
) |
|
|
(6,663,932 |
) |
|
|
606,756 |
|
|
|
(9.1 |
)% |
Other income and (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other income (expense), net |
|
|
50,451 |
|
|
|
(9,706 |
) |
|
|
60,157 |
|
|
|
(619.8 |
)% |
Interest expense |
|
|
(333,279 |
) |
|
|
(562 |
) |
|
|
(332,717 |
) |
|
|
59202.3 |
% |
Foreign exchange gain (loss) |
|
|
(3,104 |
) |
|
|
9,418 |
|
|
|
(12,522 |
) |
|
|
(133.0 |
)% |
Total other income (expense) |
|
|
(285,932 |
) |
|
|
(850 |
) |
|
|
285,082 |
|
|
|
(33539.1 |
)% |
Loss before income taxes |
|
|
(7,556,620 |
) |
|
|
(6,664,782 |
) |
|
|
891,838 |
|
|
|
(13.4 |
)% |
Income tax expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net loss |
|
|
(7,556,620 |
) |
|
|
(6,664,782 |
) |
|
|
891,838 |
|
|
|
(13.4 |
)% |
Net loss per share, basic and fully diluted |
|
|
(1.10 |
) |
|
|
(1.34 |
) |
|
|
(0.24 |
) |
|
|
17.8 |
% |
|
|
Six Months Ended June 30, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
% |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
19,719,024 |
|
|
$ |
11,775,315 |
|
|
$ |
7,943,709 |
|
|
|
67.5 |
% |
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenue (exclusive of depreciation and |
|
|
12,838,490 |
|
|
|
8,698,355 |
|
|
|
4,140,135 |
|
|
|
47.6 |
% |
General and administrative |
|
|
10,951,490 |
|
|
|
5,222,109 |
|
|
|
5,729,381 |
|
|
|
109.7 |
% |
Sales and marketing |
|
|
3,652,428 |
|
|
|
3,775,904 |
|
|
|
(123,476 |
) |
|
|
(3.3 |
)% |
Information technology |
|
|
3,506,252 |
|
|
|
2,324,006 |
|
|
|
1,182,246 |
|
|
|
50.9 |
% |
Research and development |
|
|
1,023,641 |
|
|
|
1,902,264 |
|
|
|
(878,623 |
) |
|
|
(46.2 |
)% |
Depreciation and amortization |
|
|
2,046,582 |
|
|
|
1,601,809 |
|
|
|
444,773 |
|
|
|
27.77 |
% |
Loss on disposal of assets |
|
|
343,588 |
|
|
|
60,471 |
|
|
|
283,117 |
|
|
|
468.19 |
% |
Facilities |
|
|
1,150,025 |
|
|
|
392,936 |
|
|
|
757,089 |
|
|
|
192.7 |
% |
Total costs and expenses |
|
|
35,512,496 |
|
|
|
23,977,854 |
|
|
|
(11,534,642 |
) |
|
|
(48.1 |
)% |
Operating loss |
|
|
(15,793,472 |
) |
|
|
(12,202,539 |
) |
|
|
3,590,933 |
|
|
|
(29.4 |
)% |
Other income and (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other income, net |
|
|
100,905 |
|
|
|
39,291 |
|
|
|
61,614 |
|
|
|
156.8 |
% |
Interest expense, net |
|
|
(718,289 |
) |
|
|
(4,507 |
) |
|
|
(713,782 |
) |
|
|
15837.2 |
% |
Foreign exchange (loss) gain |
|
|
(18,613 |
) |
|
|
13,309 |
|
|
|
(31,922 |
) |
|
|
(239.9 |
)% |
Total other (expense) income |
|
|
(635,997 |
) |
|
|
48,093 |
|
|
|
(684,090 |
) |
|
|
(1422.4 |
)% |
Loss before income taxes |
|
|
(16,429,469 |
) |
|
|
(12,154,446 |
) |
|
|
(4,275,023 |
) |
|
|
35.2 |
% |
Income tax expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net loss |
|
|
(16,429,469 |
) |
|
|
(12,154,446 |
) |
|
|
(4,275,023 |
) |
|
|
35.2 |
% |
Net loss per share, basic and fully diluted |
|
|
(2.70 |
) |
|
|
(2.46 |
) |
|
|
(0.25 |
) |
|
|
10.0 |
% |
21
Comparison of the Three and Six Months Ended June 30, 2023 and 2022
Revenues and Cost of Revenue
During the three months ended June 30, 2023 and 2022, our total revenue was $10,046,980 and $5,556,506, respectively, representing an increase in revenue of $4,490,475. The main reason for the increase in revenues was due to the revenue generated by Maestro amounting to $5,674,259 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022), partially offset by a decline of $1,452,708 in revenue due to the termination by the Company, effective September 2022, of a contract with a client that failed to meet its contractual obligations.
During the six months ended June 30, 2023 and 2022, our total revenue was $19,719,024 and $11,775,315, respectively, representing an increase in revenue of $7,943,709. The main reason for the increase in revenues was due to the revenue generated by Maestro amounting to $10,711,683 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022), partially offset by a decline of $2,779,775 in revenue due to the termination by the Company, effective September 2022, of a contract with a client that failed to meet its contractual obligations.
Total revenues consist of fees that we charge our customers in consideration for administering their self-insured healthcare plans as well as fees that we receive for ancillary services such as care management, case management, cost containment services, and other services provided to our customers by us or other vendors.
During the three months ended June 30, 2023 and 2022, our cost of revenue exclusive of depreciation and amortization was $6,429,688 and $4,151,560, respectively, representing an increase of $2,278,128. The main reason for the increase in the cost of revenue was due to the cost of revenue generated by Maestro amounting to $2,780,535 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022), and increased computer and telephone costs of $377,012 due to vendor alignment between Maestro and Marpai, partially offset by the reduction in the cost of revenues amounting to $1,073,555 relating to the termination of the customer contract described above.
During the six months ended June 30, 2023 and 2022, our cost of revenue exclusive of depreciation and amortization was $12,838,490 and $8,698,355, respectively, representing an increase of $4,140,134. The main reason for the increase in the cost of revenue was due to the cost of revenue generated by Maestro amounting to $5,538,618 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022), increased computer and telephone costs of $588,881 due to vendor alignment between Maestro and Marpai, partially offset by the reduction in the cost of revenues amounting to $2,145,471 relating to the termination of the customer contract described above.
Total cost of revenues consists of (i) service fees, which primarily include vendor fees associated with the client’s benefit program selections, (ii) the direct labor cost associated with claim management and processing services, and (iii) direct labor costs associated with providing customer support and services to the clients, members, and other external stakeholders.
Research and Development Expenses
We incurred $523,432 of research and development expenses for the three months ended June 30, 2023 compared to $1,309,157 for the three months ended June 30, 2022, a decrease of $785,725. The decrease is attributable to (i) decreased expenditures in EYME amounting to approximately $217,459, associated primarily with a lower number of research and development employees in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022, (ii) a decrease in employee stock based compensation of $258,053, and (iii) in 2022, the President of Production and Development’s time was split and allocated with $300,811 being included in research and development expenses, but no allocation was made for research and development in 2023 due to change in presidents job responsibilities.
We incurred $1,023,641 of research and development expenses for the six months ended June 30, 2023 compared to $1,902,264 for the six months ended June 30, 2022, a decrease of $878,623. The decrease is attributable to (i) decreased expenditures in EYME amounting to approximately $251,862, associated primarily with a lower number of research and development employees in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022, (ii) a decrease in employee stock based compensation of $316,547, and (iii) in 2022, the President of Production and Development’s time was split and allocated with $300,811 being included in research and development expenses, but no allocation was made for research and development in 2023 due to change in presidents job responsibilities. .
22
General and Administrative Expenses
We incurred $5,725,071 of general and administrative expenses for the three months ended June 30, 2023 compared to $2,319,977 for the three months ended June 30, 2022, an increase of $3,405,094. The reason for the increase is due to (i) general and administrative expenses generated by Maestro amounting to $2,638,099 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022), (ii) an increase in legal and professional fees expenses of $140,482 due to exploration of equity possibilities and additional audit services, and (iii) an increase in Marpai Administrators’ employee cost of approximately $550,000 severance and expanded leadership.
We incurred $10,951,490 of general and administrative expenses for the six months ended June 30, 2023 compared to $5,222,109 for the six months ended June 30, 2022, an increase of $5,729,381. The reason for the increase is due to (i) general and administrative expenses generated by Maestro amounting to $4,589,304 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022), (ii) an increase in legal and professional fees expenses of $256,566 due to exploration of equity possibilities and additional audit services, and (iii) an increase in Marpai Administrators’ employee cost of approximately $1,100,000 severance and expanded leadership.
Sales and Marketing Expenses
We incurred $1,473,311 of sales and marketing expenses for the three months ended June 30, 2023 compared to $2,216,788 for the three months ended June 30, 2022, a decrease of $743,477. This decrease was primarily due to (i) reduction in outside marketing cost of $458,207, (ii) decreased expenditures amounting to approximately $190,000, associated with a lower number of sales and marketing employees, (iii) a decrease in employee stock based compensation of $346,743, all partially offset by sales and marketing expenses generated by Maestro amounting to $329,805 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022).
We incurred $3,652,428 of sales and marketing expenses for the six months ended June 30, 2023 compared to $3,775,904 for the six months ended June 30, 2022, a decrease of $123,476. This decrease was primarily due to a reduction in outside marketing cost of $1,044,329, partially offset by sales and marketing expenses generated by Maestro amounting to $968,563 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022).
Information Technology Expenses
We incurred $1,319,443 of information technology expenses for the three months ended June 30, 2023 compared to $1,189,733 for the three months ended June 30, 2022, an increase of $129,710. This increase was primarily due to information technology expenses generated by Maestro amounting to $520,609 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022), offset by the allocation in 2022 of the President of Production and Development’s time of $300,811 being included in information technology expenses but no allocation was made to information technology in 2023, as well as a reduction in employee expenses of approximately $90,000.
We incurred $3,506,252 of information technology expenses for the six months ended June 30, 2023 compared to $2,324,006 for the six months ended June 30, 2022, an increase of $1,182,246. This increase was primarily due to information technology expenses generated by Maestro amounting to $1,683,517 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022).
Depreciation and Amortization
We incurred $1,002,946 of depreciation and amortization expenses for the three months ended June 30, 2023 compared to $776,411 for the three months ended June 30, 2022, an increase of $226,535. This increase was primarily due to (i) depreciation and amortization expense generated by Maestro amounting to $104,151 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022), and (ii) the increase in depreciation of leasehold improvements to match the ending of the lease term of approximately $100,000.
We incurred $2,046,582 of depreciation and amortization expenses for the six months ended June 30, 2023 compared to $1,601,809 for the six months ended June 30, 2022, an increase of $444,773. This increase was primarily due to (i) depreciation and amortization expense generated by Maestro amounting to $228,672 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022), (ii) the increase in depreciation of leasehold improvements to match the ending of the lease term of approximately $100,000, and (iii) the increase in amortization of software expense in the amount of $94,114.
23
Loss on Disposal of Assets
We incurred $343,588 of loss on disposal of assets for the three months ended June 30, 2023 compared, to $60,471 for the three months ended June 30, 2022, an increase of $283,117. This increase was primarily due to disposal of furniture and leasehold improvement assets that were no longer needed as the lease terms ended.
We incurred $343,588 of loss on disposal of assets for the six months ended June 30, 2023 compared, to $60,471 for the six months ended June 30, 2022, an increase of $283,117. This increase was primarily due to disposal of furniture and leasehold improvement assets that were no longer needed as the lease terms ended.
Interest Expense, net
We incurred $333,279 of interest expense for the three months ended June 30, 2023 compared to $562 for the three months ended June 30, 2022, an increase of $332,717. Interest expense increased primarily due to the interest accrued on outstanding debt relating to the acquisition of Maestro which closed on November 1, 2022.
We incurred $718,289 of interest expense for the six months ended June 30, 2023 compared to $4,507 for the six months ended June 30, 2022, an increase of $713,782. Interest expense increased primarily due to the interest accrued on outstanding debt relating to the acquisition of Maestro which closed on November 1, 2022.
Liquidity and Capital Resources
As of June 30, 2023, the Company had an accumulated deficit of approximately $64.4 million, unrestricted cash and cash equivalents of approximately $8.7 million and working capital of approximately $1.5 million. For the six months ended June 30, 2023, the Company recognized a net loss of approximately $16.4 million and negative cash flows from operations of approximately $8.7 million.
The Company has spent most of its cash resources on funding its operating activities. Through June 30, 2023, the Company has financed its operations primarily with the proceeds from the issuance of convertible promissory notes and warrants as sales of its equity securities.
On April 19, 2023, we closed a public offering of 1,850,000 shares of common stock at a public offering price of $4.00 per share, for gross proceeds of $7.4 million. After deducting underwriters' discounts and offering expenses, the net proceeds from the public offering were approximately $6.4 million. In accordance with the terms of the Maestro share purchase agreement, $2,294,751 or 35% of the net proceeds from the offering were expected to be used to pay down the debt to the seller. Based on an agreement reached with the seller on July 18, 2023, 50% of the amount due or $1,147,376 was paid to the seller on July 19, 2023 and the balance will be paid no later than September 18, 2023.
Management continues to evaluate additional funding alternatives and is seeking to raise additional funds through the issuance of equity or debt securities.
If we are unable to raise additional capital moving forward, our ability to operate in the normal course and continue to invest in its product portfolio may be materially and adversely impacted and we may be forced to scale back operations or divest some or all of our assets.
As a result of the above, in connection with our assessment of going concern considerations in accordance with Financial Accounting Standard Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that our liquidity condition raises substantial doubt about our ability to continue as a going concern through twelve months from the date these condensed consolidated financial statements are available to be issued. These condensed consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should we be unable to continue as a going concern.
24
Cash Flows
The following tables summarizes selected information about our sources and uses of cash and cash equivalents for the six months ended June 30, 2023 and 2022:
Comparison of the Six Months Ended June 30, 2023 and 2022
|
|
Six Months Ended June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net cash used in operating activities |
|
$ |
(8,739,102 |
) |
|
$ |
(10,122,604 |
) |
Net cash provided by (used in) investing activities |
|
|
17,946 |
|
|
|
(619,990 |
) |
Net cash provided by financing activities |
|
|
6,431,879 |
|
|
|
— |
|
Net decrease in cash and cash equivalents and restricted cash |
|
$ |
(2,289,277 |
) |
|
$ |
(10,742,594 |
) |
Net Cash Used in Operating Activities
Net cash used in operating activities totaled $8,739,102 for the six months ended June 30, 2023, a decrease of $1,383,502 as compared to $10,122,604 for the six months ended June 30, 2022. Net cash used in operating activities was primarily driven by our net loss for the period of $16,429,471 net of (i) non-cash items totaling $5,317,156 and (ii) decrease in net working capital items amounting to $2,373,210.
Net Cash Provided by (Used in) Investing Activities
A total of $17,946 was provided by investing activities in the six months ended June 30, 2023, a decrease of $637,936 as compared to $619,990 in cash used in investing activities for the six months ended June 30, 2022. The primary reason for the decline is the decline in the capitalization of software development costs.
Net Cash Provided by Financing Activities
A total of $6,431,879 was received from financing activities during the six months ended June 30, 2023, comprising of net proceeds provided from a public offering of common stock of $6,431,615 and $264 provided from the exercising of stock options.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the applicable periods. We evaluate our estimates, assumptions and judgments on an ongoing basis. Our estimates, assumptions and judgments are based on historical experience and various other factors that we believe to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our condensed consolidated financial statements, which, in turn, could change the results from those reported.
See Note 4 to our condensed consolidated financial statements included in this Form 10-Q for a description of the significant accounting policies that we use to prepare our consolidated financial statements.
New Accounting Pronouncements
We have considered recently issued accounting pronouncements and do not believe the adoption of such pronouncements will have a material impact on our condensed consolidated financial statements.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) that includes, among other provisions, changes to the U.S. corporate income tax system, including a fifteen percent minimum tax based on "adjusted financial statement income,” and a one percent excise tax on net repurchases of stock after December 31, 2022.
25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign exchange risk
The cash generated from revenue is denominated in U.S. Dollars. Our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are in the United States and Israel. Our results of current and future operations and cash flows are therefore subject to fluctuations due to changes in the exchange rate of the New Israeli Shekel (NIS). The effect of a hypothetical 10% change in the exchange rate of the NIS versus the U.S. Dollar would not have had a material impact on our historical condensed consolidated financial statements for the six months ended June 30, 2023. To date we have not entered into derivative or hedging transactions, but we may do so in the future if our exposure to foreign currency becomes or is expected to become more significant.
Interest rate risk
We had cash and cash equivalents balances of $8,726,150 and $13,764,508 on June 30, 2023 and December 31, 2022, respectively. Currently, management does not view this exposure to be a significant risk.
Inflation Risk
Inflation generally affects us by increasing our labor costs. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the six months ended June 30, 2023.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial and Accounting Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act) as of the end of the fiscal quarter ended June 30, 2023. Based on this evaluation, our Chief Executive Officer and Chief Financial and Accounting Officer have concluded that, during the period covered by this Quarterly Report, our disclosure controls and procedures were effective.
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer or persons performing similar functions, as appropriate, to allow timely decisions.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) during the second quarter ended June 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
PART II – OTHER INFORMATION
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the first quarter of 2023, the Company issued an aggregate of 25,000 shares of its common stock to certain of its service providers as compensation in lieu of cash compensation owed to them for services rendered. The Company claimed exemption from registration
26
under the Securities Act of 1933, as amended (the “Securities Act”) for the foregoing transactions under Section 4(a)(2) of the Securities Act.
ITEM 6. Exhibits.
|
|
|
Exhibit No. |
|
Description |
3.1 |
|
|
10.1**+ |
|
Employment Agreement between Marpai, Inc. and Yaron Eitan, effective July 14, 2023. |
10.2**+ |
|
|
31.1 |
|
|
31.2 |
|
|
32.1* |
|
|
32.2* |
|
|
101* |
|
Interactive Data Files |
101.INS |
|
Inline XBRL Instance Document |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
*Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.
** Filed herewith.
+ Management contract or compensation plan.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
MARPAI, INC. |
|
|
|
|
Date: August 3, 2023 |
|
/s/ Edmundo Gonzalez |
|
Name: |
Edmundo Gonzalez |
|
Title: |
Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
|
|
|
/s/ Yoram Bibring |
|
Name: |
Yoram Bibring |
|
Title |
Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer) |
28
Exhibit 10.1
July 11, 2023
Mr. Yaron Eitan
188 Ludlow Street
Appt 4i
New York, NY 10002
Via Email: yeitan@selway.com
Dear Mr. Eitan,
This letter includes the key elements of our compensation arrangement with you. After you carefully review the content, please indicate your acceptance by signing and dating below, and returning this letter no later than July 14, 2023.
Title: Chairman of the Board
Start Date: July 1, 2023
Compensation: Annualized Base Salary of $168,000 which will be $7,000 per pay period. (24 pay periods annually). Your will be eligible for a variable work schedule in which you will work the hours necessary to complete your duties and to remain benefits eligible.
FLSA Status: Exempt
Office Location: Remote
Benefits: You will be eligible to participate in benefits effective August 1, 2023. Information related to Marpai benefit offerings will be provided under separate email.
This letter is not intended to constitute an employment agreement between you and the Marpai, or to obligate the Marpai to provide any specific terms of employment. Marpai may elect to alter the employment terms described in this letter at any time. Accordingly, your relationship to Marpai throughout your employment will be that of an employee at-will. This means that your employment with Marpai will not be for any definite length of time, and that either you or Marpai may terminate the employment relationship for any reason, with or without prior notice. The at-will status of your employment may not be altered in any way by any oral or written statement made by any employee of Marpai, except for an express written agreement to such effect signed by you and the Chief Executive Officer.
If you have any questions, please feel free to reach out. Please sign below noting your acceptance of this letter no later than July 14, 2023.
Sincerely,
Kim Howe
SVP, Human Resources
Marpai
Accepted by: (name) ____________________________________ Date: _________________
Exhibit 10.2
MARPAI, INC.
July 31, 2023
Via e-mail
Mr. Lutz Finger
Dear Lutz,
You and Marpai, Inc. (the “Company”) are parties to an employment letter agreement effective February 28, 2022, as amended by the letter agreement effective February 27, 2023 (as so amended, the “Employment Agreement”).
This letter (this “Amendment”) modifies the Employment Agreement as set forth below:
In Section 10(a), each instance of the date “August 1, 2023”, is replaced by the date “September 1, 2023”.
All other terms of the Employment Agreement will remain unchanged.
This letter is subject to the approval of the Board of Directors of the Company.
Very truly yours,
I have read and accept this Amendment to the Employment Agreement
By:
Name: Lutz Finger
Table of Contents`
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Rule 13a-14(a)
I, Edmundo Gonzalez, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Marpai, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 3, 2023
|
/s/Edmundo Gonzalez |
|
Edmundo Gonzalez |
|
Chief Executive Officer |
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Rule 13a-14(a)
I, Yoram Bibring, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Marpai, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 3, 2023
|
/s/Yoram Bibring |
|
Yoram Bibring |
|
Chief Financial Officer |
Table of Contents`
Exhibit 32.1
MARPAI, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Marpai, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edmundo Gonzalez, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
|
/s/ Edmundo Gonzalez |
|
|
|
Edmundo Gonzalez |
|
Chief Executive Officer |
|
August 3, 2023 |
Table of Contents`
Exhibit 32.2
MARPAI, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Marpai, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Yoram Bibring, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
|
/s/ Yoram Bibring |
|
|
|
Yoram Bibring |
|
Chief Financial Officer |
|
|
|
August 3, 2023 |