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

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

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. ☒ Yes ☐ No

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). ☒ Yes ☐ No

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.

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 ~~November 13, 2023,~~May 9, 2024, there were ~~7,810,625~~10,308,038 shares of the Company’s common stock, par value $0.0001 per share, outstanding.

(1) Reflects 1-for-4 reverse stock split that became effective June 29, 2023. See Note 1 to the unaudited condensed consolidated financial statements.

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

(1) Reflects 1-for-4 reverse stock split that became effective June 29, 2023. See Note 1 to the unaudited condensed consolidated financial statements.

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

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ ~~(DEFICIT) EQUITY~~DEFICIT

(1) Reflects 1-for-4 reverse stock split that became effective June 29, 2023. See Note 1 to the unaudited condensed consolidated financial statements.

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

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Organization

Marpai, Inc.'s (“Marpai” or the “Company”) operations are principally conducted through its wholly-owned subsidiaries, Marpai Health, Inc. (“Marpai Health”), Marpai Administrators LLC (“Marpai Administrators”), and Maestro Health LLC (“Maestro”). 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~~administrator (“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~~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~~members' healthcare claims, (ii) employees who receive these healthcare benefits from ~~its~~our 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 one-for-four reverse stock split of its outstanding shares of common stock. The number of authorized shares was not adjusted in connection with the reverse stock split. Throughout these unaudited condensed consolidated financial statements common stock share and per share information, including employee stock options, restricted stock awards, restricted stock units and warrants, have been revised for all periods presented to give effect to the reverse stock split.

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 condensed 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.~~2023.

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.~~

NOTE 3 – LIQUIDITY AND GOING CONCERN

As shown in the accompanying condensed consolidated financial statements as of ~~September 30, 2023,~~March 31, 2024, the Company had an accumulated deficit of approximately $~~71.7~~81.1 million and negative working capital of approximately $3.6 million. At ~~September 30, 2023,~~March 31, 2024, the Company had long term debt of approximately $~~19.1~~19.7 million and approximately $~~3.0~~0.9 million of unrestricted cash on hand. For the ~~nine~~three months ended ~~September 30, 2023,~~March 31, 2024, the Company recognized a net loss of approximately $~~23.7~~4.3 million and negative cash flows from operations of approximately $~~15.3~~3.6 million.Since inception, the Company has met its cash needs through proceeds from issuing convertible notes, warrants ~~and~~as well as sales of its common stock.

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 the issuance of 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.

On December 14, 2023, the Company, through Maestro, entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Payflex Systems USA, Inc. (“Payflex”), pursuant to which the Company agreed to sell certain assets relating to the consumer directed benefits business. Pursuant to the Asset Purchase Agreement, Payflex agreed to pay the Company $1 million in cash as well as assume certain liabilities. In addition, provided that two customer agreements remain in place by September 1, 2024, and January 1, 2025, respectively, Payflex shall pay an additional contingent fee of $500 thousand per customer agreement. The Asset Purchase Agreement contains customary representations and warranties and covenants. The transaction contemplated by the Asset Purchase Agreement closed on December 14, 2023.

On January 16, 2024, the Company entered into a securities purchase agreement (the “Second SPA”) with certain Company insiders consisting of HillCour Investment Fund, LLC (“HillCour”), an entity controlled by the Company’s Chief Executive Officer, the Company’s Chairman, and one of the Company’s directors, pursuant to which the Company agreed to issue and sell 1,322,100 shares of Common Stock in a private placement, at a purchase price of $0.9201 per share (or the consolidated closing bid price of the Company’s Common Stock on Nasdaq as of January 16, 2024). The securities issued in the Second SPA are exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder. The securities have not been registered under the Securities Act and may not be sold in the United States absent registration or an exemption from registration.

On February 5, 2024, the Company entered into an Agreement of Sale of Future Receipts (the “Libertas Agreement”) with Libertas Funding LLC (“Libertas”). Under the Libertas Agreement, the Company sold to Libertas future receipts totaling $2.2 million for a purchase price of $1.7 million. At the closing of the Libertas Agreement, the Company received cash proceeds of $1.5 million, net of the first payment of $157 thousand.

Pursuant to the terms of the Libertas Agreement, the Company agreed to pay Libertas $57 thousand each week, including interest, based upon an anticipated 20% of its future receivables until such time as $2.2 million has been paid, a period Libertas and the Company

MARPAI, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

estimate to be approximately 11 months. The Libertas Agreement also contains customary affirmative and negative conventions, representations and warranties, and default and terminations provisions.

During the three months ended March 31, 2024, the Company paid $134 thousand of the original balance under the agreement, along with $70 thousand of interest.

On February 7, 2024, the Company entered into Amendment No. 1 to Purchase Agreement (the “AXA Amendment”) with AXA S.A., a French société anonyme (“AXA”). The AXA Amendment amends the Membership Interest Purchase Agreement, dated August 4, 2022 (the “AXA Agreement”), executed by and among the Company, XL America Inc., a Delaware corporation, Seaview Re Holdings Inc., a Delaware corporation and AXA, pursuant to which the Company acquired all the membership interests of Maestro.

Pursuant to the AXA Amendment, the parties agreed to reduce the Base Purchase and the Full Base Amount each Price (as defined in the AXA Agreement) by three million dollars in the aggregate, provided that by December 31, 2024, (i) the Company’s largest shareholder has contributed at least three million dollars in equity, (ii) the Company maintains a listing of its securities on Nasdaq or a nationally recognized stock exchange and (iii) between February 29, 2024 and April 15, 2024, the Company makes all timely payments owed under the AXA Agreement (collectively, the “Reduction Criteria”).

In addition, the AXA Amendment provides that the requirement by the Company to pay AXA an amount equal to thirty five percent of the net proceeds, shall be deferred for any such funds raised in calendar year 2024 such that any such payments shall be paid no later than January 15, 2025, and any amounts due as a result of private offerings of any officers or directors of the Company shall be due and payable no later than December 31, 2025.

The AXA Amendment also provides that the Company shall make three monthly payments of $158 thousand on or prior to February 29, 2024, March 31, 2024 and April 15, 2024 for the 2024 year, as well as make such total accumulated annual payments of $2.3 million, $5.3 million, $13.3 million and $22.3 million in years 2024, 2025, 2026 and 2027 if the Reduction Criteria are met or $2.3 million, $8.3 million, $16.3 million and $25.3 million in years 2024, 2025, 2026 and 2027, respectively. The Company made timely payments of $158 thousand for February, March and April 2024.

On March 7, 2024, the Company entered into a securities purchase agreement with HillCour pursuant to which the Company agreed to issue and sell 910,000 shares of Common Stock in a private placement, at a purchase price of $1.65 per share (or the consolidated closing bid price of the Company’s Common Stock on Nasdaq as of March 7, 2024).

NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~Business Combination~~

~~The Company accounts for business combinations in accordance with the FASB’s 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 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 ~~contingencies~~contingent assets and liabilities at the date of the ~~condensed consolidated~~ financial statements and the reported amounts of revenues and expenses ~~during~~reported in those financial statements. Descriptions of the ~~reporting period. Such~~

~~MARPAI, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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, 2023. Management evaluates the related 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~~assumptions on an ongoing basis using historical experience and ~~equipment, incurred but not reported (“IBNR”) reserves, whether an arrangement is or contains a lease,~~other factors, including the ~~incremental borrowing rate used for operating leases, income tax accruals, the valuation allowance for deferred income taxes,~~current economic environment, and ~~contingent liabilities.~~

~~The Company bases these estimates on historical~~makes adjustments when facts and ~~anticipated results, trends,~~circumstances dictate. As future events and ~~various other assumptions that it believes are reasonable under the circumstances, including assumptions as to future events. Actual~~their effects cannot be determined with precision, actual results could differ significantly from those ~~estimates.~~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.

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,

MARPAI, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

cash in a money market account as required by a credit card company for collateral, and a certificate of deposit ("CD") held for collateral offor 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,~~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~~project-by-project basis over the expected economic life of the underlying software on a straight-line basis, which is generally three to five years. Amortization commences when the software is available for its intended use.

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 one ~~reportable~~ reporting segment and reporting unit; therefore, goodwill is tested for impairment at the consolidated level. First, the Company assesses qualitative factors to determine whether or not it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company conducts a quantitative goodwill impairment test comparing the fair value of the applicable reporting unit with its carrying value. If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, the Company recognizes an impairment loss in the ~~condensed~~ consolidated statement of operations for the amount by which the carrying amount exceeds the fair value of the reporting unit. The Company performs its annual goodwill impairment test at December 31.

During the year ended December 31, 2023, the Company performed qualitative and ~~more frequently if an event occurs or circumstances change~~quantitative analyses, assessing trends in market capitalization, current and future cash flows, revenue growth rates, and the impact of macroeconomic conditions on the Company and its performance. Based on the analysis performed in connection with its annual goodwill impairment test, and primarily due to changes in the Company’s stock price and market capitalization as well as changes in the Company’s executive management team and its overall operational and financial strategy in the fourth quarter of 2023, it was determined that ~~would more likely than not reduce~~goodwill was impaired. As a result, the ~~fair value~~Company recorded a goodwill impairment charge in the amount of ~~goodwill below its carrying value.~~$3.0 million for the year ended December 31, 2023. There was no goodwill impairment for the ~~nine~~three months ended ~~September 30, 2023~~March 31, 2024 and ~~2022.~~2023.

MARPAI, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED 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 five to ten years. The Company’s intangible assets are reviewed for impairment when events or circumstances indicate their carrying amounts may not be recoverable. The Company reviews the recoverability of its intangible assets by comparing the carrying value of such assets to the related undiscounted value of the projected cash flows associated with the assets, or asset group. If the carrying value is found to be greater, the Company records an impairment loss for the excess of book value over fair ~~value.~~value. No impairment of the Company’s intangible assets was recorded for the ~~nine months ended September 30, 2023 and 2022.~~

During the three and nine months ended September 30, 2023, the Company identified triggering events that may indicate the carrying amount of goodwill and intangible assets are not recoverable. The triggering events identified included the decline in the Company’s stock price and the Company’s shortening cash reach. As a result of identifying these potential indicators of impairment, the Company performed a quantitative goodwill impairment analysis for the three months ended ~~September 30, 2023,~~March 31, 2024 and ~~the analysis determined that the fair value of the Company’s reporting unit exceeded its carrying value, so~~ 2023.

no ~~goodwill impairment loss was recorded. During the three and nine months ended September 30, 2023, the Company also determined that its intangible assets were~~ no~~t impaired.~~ The continuation of operating losses, negative cash flows from operations, negative working capital, and ~~decreases in the Company’s market capitalization~~inability to secure planned funding from capital raising activities could result in impairment to goodwill and/or intangible assets that could be material to the consolidated financial statements in future periods. The Company will continue to monitor these events and circumstances each reporting ~~period and perform the required quantitative impairment tests, as applicable.~~period.

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 $~~163,093~~202, thousand, which is included in accrued expenses on the accompanying condensed consolidated balance sheet as of ~~September 30, 2023.~~March 31, 2024.

Significant Payment Terms

Generally, the Company’s accounts receivable are expected to be collected in 30 days in accordance with the underlying payment terms. Invoices for services are typically sent to the customer on the 15th day of the month prior to the service month with a 10-day payment term. The Company does not offer discounts if the customer pays some or all of the invoiced amount prior to the due date.

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.

~~MARPAI, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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.

MARPAI, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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~~numerous 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 ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ there were ~~1,123,173~~1,583,723 and ~~994,999~~1,048,351 common stock equivalents, respectively. For the ~~nine~~three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ these potential shares were excluded from the shares used to calculate diluted net loss per share as their effect would have been antidilutive.

Recently Issued Accounting Pronouncements

In ~~September 2022,~~November 2023, the FASB issued ASU ~~No. 2022-04, “Liabilities—Supplier Finance Programs (Subtopic 405-50)~~2023-07, “Segment Reporting (Topic 280): ~~Disclosure of Supplier Finance Program Obligations,~~Improvements to Reportable Segment Disclosures,” which ~~is intended~~will add required disclosures of significant expenses for each reportable segment, as well as certain other disclosures to ~~enhance~~help investors understand how the ~~transparency surrounding the use~~Chief Operating Decision Maker evaluates segment expenses and operating results. The new standard will also allow disclosure of ~~supplier finance programs.~~multiple measures of segment profitability, if those measures are used to allocate resources and assess performance. 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,~~will be effective for public companies for fiscal years beginning after December 15, 2023 and ~~potential magnitude. The Company~~ ~~adopted~~ ~~the guidance when it became effective on~~ ~~January 1, 2023, except~~ for ~~the rollforward requirement, which becomes effective January 1,~~interim reporting periods beginning after December 15, 2024. The ~~Company does~~adoption of this standard is not ~~have any supplier finance programs, and accordingly the adoption did~~ notexpected to have a material impact on the Company’s ~~condensed~~ consolidated financial statements and ~~the Company does not believe the impact of adopting the rollforward requirement in this accounting standard update will be material to the condensed consolidated financial statements.~~related disclosures.

In ~~October 2021,~~December 2023, the FASB issued ASU ~~No. 2021-08, “Accounting~~2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. The standard will be effective 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 effectivepublic companies for

~~MARPAI, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

fiscal years beginning after December 15, ~~2023, including interim periods within those fiscal years. Adoption of the ASU should be applied prospectively.~~2024. Early adoption is ~~also permitted, including adoption in an interim period.~~permitted. The Company is currently evaluating the impact of this accounting standard update on its ~~condensed~~ consolidated financial statements.

NOTE 65 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following at:

(in thousands)


	September 30, 2023			December 31, 2022			March 31, 2024			December 31, 2023
Equipment	$	49,905		$	402,675		$	141		$	141
Furniture and fixtures		753,133			1,007,699			621			621
Leasehold improvements		—			745,453
Total cost		803,038			2,155,827			762			762
Accumulated depreciation		(140,830	)		(649,745	)		(183	)		(151	)
Property and equipment, net	$	662,208		$	1,506,082		$	579		$	611

Depreciation expense was $~~306,852~~32 thousand and $~~164,800~~154 ~~for the nine months ended September 30, 2023 and 2022, respectively. Depreciation expense was $38,350~~ ~~and $82,066~~thousand for the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively.

NOTE 76 – CAPITALIZED SOFTWARE

Capitalized software consists of the following at:

(in thousands)


	September 30, 2023			December 31, 2022			March 31, 2024			December 31, 2023
Capitalized software	$	5,656,885		$	8,094,385		$	8,094		$	8,094
Accumulated amortization		(2,913,938	)		(3,505,679	)		(6,582	)		(5,967	)
Capitalized software, net	$	2,742,947		$	4,588,706		$	1,512		$	2,127

Amortization expense was $~~1,845,759~~615 thousand and $~~1,703,699~~616 ~~for the nine months ended September 30, 2023 and 2022, respectively. Amortization expense was $615,253~~ ~~and $568,195~~thousand for the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively.

NOTE 87 – ~~GOODWILL AND~~ INTANGIBLE ASSETS

~~Goodwill consists of the following:~~

Amount

Balance as of December 31, 2022

$
5,837,060

Measurement period adjustment to goodwill (Note 5)

198,140

Balance as of September 30, 2023

$
6,035,200

~~MARPAI, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Intangible assets consist of the following:

September 30, 2023

Useful

Gross Carrying

Accumulated

Net Carrying

Life

Amount

Amortization

Amount

Trademarks

5-10 Years

$
2,320,000

$
(526,674
)

$
1,793,326

Noncompete agreements

5 Years

990,000

(495,000
)

495,000

Customer relationships

5-7 Years

3,760,000

(1,196,858
)

2,563,142

Patents and patent applications

(*)

650,450

-

650,450

$
7,720,450

$
(2,218,532
)

$
5,501,918

December 31, 2022

Trademarks

5-10 Years

$
2,320,000

$
(292,671
)

$
2,027,329

Noncompete agreements

5 Years

990,000

(346,500
)

643,500

Customer relationships

5-7 Years

3,760,000

(758,000
)

3,002,000

Patents and patent applications

(*)

650,450

—

650,450

$
7,720,450

$
(1,397,171
)

$
6,323,279

(in thousands)


	March 31, 2024
	Useful	Gross Carrying		Accumulated			Net			Net Carrying
	Life	Amount		Amortization			Disposal			Amount
Trademarks	5-10 Years	$	2,320	$	(683	)	$	—		$	1,637
Noncompete agreements	5 Years		990		(594	)		—			396
Customer relationships	5-7 Years		3,760		(1,485	)		(51	)		2,224
Patents and patent applications	5 Years		650		(33	)		—			617
		$	7,720	$	(2,795	)	$	(51	)	$	4,874


	December 31, 2023
Trademarks	5-10 Years	$	2,320	$	(605	)	$	—		$	1,715
Noncompete agreements	5 Years		990		(545	)		—			445
Customer relationships	5-7 Years		3,760		(1,342	)		(51	)		2,367
Patents and patent applications	(*)		650		—			—			650
		$	7,720	$	(2,492	)	$	(51	)	$	5,177

(*)

Patents have yet to be approved by the United States Patent and Trademark Office. Useful life is determined upon placement into service after approval.

MARPAI, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Amortization expense was $~~821,361~~303 thousand and $~~575,357~~274 ~~for the nine months ended September 30, 2023 and 2022, respectively. Amortization expense was $273,787~~ ~~and $191,786~~thousand for the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively.

NOTE 98 – LOSS AND LOSS ADJUSTMENT EXPENSES

The following tables shows changes in aggregate reserves for the Company's loss and loss adjustment expenses:

September 30,
2023

September 30,
2022

Net reserves at January 1,

$
—

$
—

Incurred loss and loss adjustment expenses

  Provisions for insured events of the current year

205,238

—

  Change in provision for insured events of prior year

—

—

  Total incurred loss and loss adjustment expense

205,238

—

Payments

  Loss and loss adjustment expenses attributable to insured events of the current year

4,268

—

  Loss and loss adjustment expenses attributable to insured events of the prior year

—

—

  Total payments

4,268

—

Net reserves at September 30,

$
200,970

$
—

(in thousands)

~~MARPAI, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~


	September 30, 2023		September 30, 2022		2024		2023
Net reserves at July 1,	$	143,147	$	—
Net reserves at January 1					$	266	$	—
Incurred loss and loss adjustment expenses
Provisions for insured events of the current year		57,823		—		5		84
Change in provision for insured events of prior year		—		—		89		—
Total incurred loss and loss adjustment expense		57,823		—		94		84
Payments
Loss and loss adjustment expenses attributable to insured events of the current year		—		—		5		—
Loss and loss adjustment expenses attributable to insured events of the prior year		—		—		119		—
Total payments		—		—		124		—
Net reserves at September 30,	$	200,970	$	—
Net reserves at March 31					$	236	$	84

~~For the three and nine month periods ended September 30, 2023, initial reserves were established for the start of the Company's captive operations.~~

NOTE 109 – REVENUE

Disaggregation of Revenue

The following tables illustrates the disaggregation of revenue by similar products:

For the three months period

September 30,
2023

September 30,
2022

TPA services

$
8,638,615

$
4,938,105

Captive insurance

90,537

—

Total

$
8,729,152

$
4,938,105

~~For the nine months period~~(in thousands)


	September 30, 2023		September 30, 2022		March 31, 2024		March 31, 2023
TPA services	$	28,212,995	$	16,713,420	$	7,364	$	9,583
Captive insurance		235,181		—		21		89
Total	$	28,448,176	$	16,713,420	$	7,385	$	9,672

NOTE 1110 – SHARE-BASED COMPENSATION

Global Stock Incentive Plan

On May 31, ~~2022,~~2023, the shareholders of the Company approved the Company’s Board of Directors proposal to increase the Company’s 2020 Global Incentive Plan (the “Plan”) by an additional ~~1,575,000~~500,000 shares, thus bringing the total number of stock options, restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) that may be issued pursuant to the Plan to ~~1,950,855~~.

~~On May 31, 2023, the shareholders of the Company approved the Company’s Board of Directors proposal to increase the Company’s Plan by an additional~~ ~~500,000~~ ~~shares, thus bringing the total number of stock options, RSUs and RSAs that may be issued pursuant to the Plan to~~ 2,450,855.

~~MARPAI, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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 (10) years from the date of the grant. Vested options expire 90 days after the termination of employment of the grantee.

MARPAI, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stock Options

There were no options granted for the three months ended March 31, 2024. The fair value of options ~~and share awards~~ granted under the Plan during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 was estimated at the date of grant using the Black-Scholes option pricing model and the following assumptions for grants:

August 2023

January 2023

Risk-free interest rates

4.44
%

3.43
%
Expected life

5 years

5 years

Expected volatility

136.99
%

41.00
%
Expected dividend yield

0.00
%

0.00
%


	2023
Risk-free interest rates		3.43	%
Expected life	5 years
Expected volatility		41.00	%
Expected dividend yield		0.00	%

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

931,934

$
5.88

8.91

$
203,295

Granted

717,250

2.56

Forfeited/Cancelled

(207,048
)

6.13

Exercised

(49,522
)

0.008

Balance at September 30, 2023

1,392,614

4.33

8.99

$
1,909

Exercisable at September 30, 2023

617,066

$
5.50

8.61

$
1,909

(in thousands except share and per share data)


						Weighted Average		Aggregate
	Number of			Weighted Average		Remaining		Intrinsic
	Options			Exercise Price		Contractual Term		Value
Balance at January 1, 2024		1,213,957		$	4.43		8.70	$	—
Granted		—			—
Forfeited/Cancelled		(78,325	)		7.11
Exercised		—			—
Balance at March 31, 2024		1,135,632			4.22		5.49	$	187
Exercisable at March 31, 2024		704,005		$	4.98		5.23	$	52

The following table summarizes the Company’s non-vested stock options:


				Weighted-Average					Weighted-Average
	Non-vested Options			Grant Date Fair		Non-vested Options			Grant Date Fair
	Outstanding			Value		Outstanding			Value
At January 1, 2023		507,664		$	2.64
At January 1, 2024							506,522		$	1.67
Options granted		717,250			1.50		—			—
Options forfeited/cancelled		(155,306	)		2.39		(7,830	)		2.75
Options exercised		(9,554	)		5.42		—			—
Options vested		(284,506	)		1.85		(67,065	)		1.70
At September 30, 2023		775,548		$	1.71
At March 31, 2024							431,627		$	1.65

For the ~~nine~~three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ the Company recognized $~~641,628~~121 thousand and $~~655,973~~216 ~~of stock compensation expense relating to stock options, respectively. For the three months ended September 30, 2023 and 2022, the Company recognized $253,392~~ ~~and $172,799~~thousand of stock compensation expense relating to stock options, respectively. As of ~~September 30, 2023,~~March 31, 2024, there was $~~1,323,313~~696 thousand of unrecognized stock compensation expense related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of approximately ~~2.9~~2.5 years.

Restricted Stock Awards

In July 2019, the Board of Directors of the Company authorized grants of ~~restricted stock awards (“RSAs”)~~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 four-year period on each anniversary of the grant date, based on continued employment, and other grants vest based on various milestones. The shares of common stock underlying the RSAs ~~are~~were issued upon grant.

15For the three months ended March 31, 2024 and 2023, the Company recognized $0 and $121 thousand of stock compensation expense relating to RSAs, respectively. As of March 31, 2024, there was $0 of unrecognized compensation expense related to unvested restricted share awards.

MARPAI, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~The following table summarizes the restricted stock awards activity:~~

Weighted-Average

Grant Date Fair

Outstanding

Value

Outstanding at January 1, 2023

55,735

$
5.92

Granted

—

—

Forfeited/cancelled

—

—

Vested

(54,517
)

5.85

Outstanding at September 30, 2023

1,218

$
8.53

~~For the nine months ended September 30, 2023 and 2022, the Company recognized $288,183~~ ~~and $749,086~~ ~~of stock compensation expense relating to RSAs, respectively. For the three months ended September 30, 2023 and 2022, the Company recognized $46,401~~ ~~and $120,891~~ ~~of stock compensation expense relating to RSAs, respectively. As of September 30, 2023, there was $24,447~~ ~~of unrecognized compensation expense related to unvested restricted share awards that is expected to be recognized over a weighted-average period of approximately~~ ~~3 months~~.

Restricted Stock Units

~~On June 14, 2022, the Board of Directors of the Company authorized the grant of~~ ~~356,851~~ ~~RSUs, of which~~ ~~336,538~~ ~~were granted to an officer of the Company who joined the Company in February 2022. Of the RSUs granted to the officer,~~ ~~48,077~~ ~~vested immediately and the balance of~~ ~~288,461~~ vested in equal quarterly installments through February 28, 2023. Under the terms of the officer’s employment agreement, the Company also agreed to guarantee the minimum value of the RSUs on their vesting dates.

~~On February 28, 2023, the Company issued~~ ~~33,387~~ ~~fully vested RSUs to an officer upon his~~ ~~one year~~ ~~anniversary of employment.~~

~~On August 2, 2023, the Company issued~~ ~~28,090~~ ~~fully vested RSUs to an officer.~~

~~On August 16, 2023, the Company issued~~ ~~400,000~~ ~~fully vested on September 7, 2023 RSUs to an advisor, the Company also agreed to guarantee the minimum value of the RSUs on their vesting dates. The Company accrued $548,450~~ ~~in accounts payable in the condensed consolidated balance sheet, reflecting this minimum value obligation as of September 30, 2023, to be paid over~~ ~~three~~ ~~installments.~~

The following table summarizes the restricted stock units activity:

Weighted-Average

Non-vested Options

Grant Date Fair

Outstanding

Value

Outstanding at January 1, 2023

72,957

$
4.44

Granted

580,227

1.58

Forfeited/cancelled

(127,605
)

3.25

Vested

(525,579
)

1.57

Outstanding at September 30, 2023

—

$
—


	Outstanding			Value
Outstanding at January 1, 2024		—		$	—
Granted		350,000			1.78
Forfeited/cancelled		—			—
Vested		(115,000	)		1.73
Outstanding at March 31, 2024		235,000		$	1.81

For the ~~nine~~three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ the Company recognized $~~782,175~~440 thousand and $~~777,637~~286 ~~of stock compensation expense relating to RSUs, respectively. For the three months ended September 30, 2023 and 2022, the Company recognized $421,819~~ ~~and $337,351~~thousand of stock compensation expense relating to RSUs, respectively. As of ~~September 30, 2023,~~March 31, 2024, there was $no2.6 million of unrecognized compensation expense remaining related to unvested restricted share ~~units .~~units.

NOTE 1211 – WARRANTS

~~Upon closing~~The Company has issued warrants as part of ~~the Company's public offering (Note 16), the Company issued to the underwriter, warrants to purchase~~ ~~92,500~~ ~~shares of common stock (the “Underwriter’s Warrants”). The Underwriter’s Warrants are exercisable at a per share exercise price equal to~~

~~MARPAI, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~125% of the public offering price per share in the offering, which was determined to be $5.00. The Underwriter’s Warrants are exercisable at any time, in whole or in part, from October 19, 2023 through April 19, 2028.~~equity offerings and severance packages.

The table below summarizes the Company’s warrant activities:


	Number of						Number of
	Warrants to		Exercise Price		Weighted		Warrants to		Exercise Price		Weighted
	Purchase Common		Range Per		Average		Purchase Common		Range Per		Average
	Shares		Share		Exercise Price		Shares		Share		Exercise Price
Balance at January 1, 2024								644,718	$2.50 to 31.60		$	16.40
Granted								—		—		—
Forfeited								—		—		—
Exercised								—		—		—
Balance at March 31, 2024								644,718	$2.50 to 31.60		$	16.40

Balance at January 1, 2023		412,218	$5.72 to 31.60		$	23.68		412,218	$5.72 to 31.60		$	16.40
Granted		92,500		5.00		5.00		—		—		—
Forfeited		—		—		—		—		—		—
Exercised		—		—		—		—		—		—
Balance at September 30, 2023		504,718	$5.00 to 31.60		$	20.25

Balance at January 1, 2022		412,218	$5.72 to 31.60		$	23.68
Granted		—		—		—
Forfeited		—		—		—
Exercised		—		—		—
Balance at September 30, 2022		412,218	$5.72 to 31.60		$	23.68
Balance at March 31, 2023								412,218	$5.72 to 31.60		$	16.40

NOTE 1312 – 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:

September 30, 2023

December 31, 2022

United States

$
15,661,857

$
17,993,006

Israel

1,800,869

4,103,931

Total long-lived assets

$
17,462,726

$
22,096,937

(in thousands)


	March 31, 2024		December 31, 2023
United States	$	11,493	$	12,015
Israel		801		1,291
Total long-lived assets	$	12,294	$	13,306

MARPAI, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1413 – 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 ~~September 30,~~March 31, 2024, and 2023 ~~and 2022~~ was approximately $0 and $~~44,000, respectively. The total cost of these consulting services for the nine months ended September 30, 2023 and 2022 was approximately $95,000~~52 ~~and $158,000, respectively. The total cost of marketing services for the three months ended September 30, 2023 and 2022 was approximately $~~0 ~~and $~~0~~, respectively. The total cost of marketing services for the nine months ended September 30, 2023 and 2022 was approximately $~~0 ~~and $565,000~~,thousand, respectively. No amounts due to these certain shareholders were included in accounts payable of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.

~~On December 30, 2020,~~In January 2024 and March 2024, the Company ~~received~~entered into security purchase agreements with an ~~advance from a certain investor for reimbursement of certain expenses. This is recorded as due to related party on~~entity controlled by the ~~accompanying condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022 in the amount of $~~0 ~~and $3,201, respectively.~~Company's Chief Executive Officer (see Note 3).

~~MARPAI, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

NOTE 1514 – ACCRUED EXPENSES

Accrued expenses consisted of the following:

September 30, 2023

December 31, 2022

Employee compensation

$
1,597,212

$
1,433,327

Accrued bonuses

1,696,875

1,712,009

Performance guarantee liabilities

163,093

244,029

Other accrued expenses and liabilities

1,202,227

1,885,351

Accrued expenses

$
4,659,407

$
5,274,716

(in thousands)


	March 31, 2024		December 31, 2023

Employee compensation	$	961	$	1,202
Accrued bonuses		526		178
Performance guarantee liabilities		202		165
Other accrued expenses and liabilities		1,387		1,271
Accrued expenses	$	3,076	$	2,816

NOTE ~~16 – STOCKHOLDERS’ (DEFICIT) EQUITY~~

~~On April 19, 2023, the Company closed its 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 (Note 5), $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. On September 18, 2023 Marpai paid the Seller $200,000~~ ~~and the parties agreed that the balance of $947,376~~ will be paid at the earlier of (i) October 18, 2023, and (ii) within 48 hours of the closing of certain funding initiatives that Marpai was engaged in. On October 24 2023, the Seller agreed to change the aforementioned October 18, 2023 date to November 15 ~~2023.~~

~~During the nine months ended September 30, 2023, the Company issued~~ ~~25,000~~ ~~shares of common stock to a vendor in consideration for services.~~

~~NOTE 17~~ – INCOME TAXES

The effective tax rate was 0% for the ~~nine~~three months ended ~~September 30, 2023~~March 31, 2024 and ~~2022.~~2023. The effective tax rate differs from the federal tax rate of 21% for the ~~nine~~three months ended ~~September 30,~~March 31, 2024 and 2023 ~~and 2022~~ due primarily to the full valuation allowance on deferred tax assets, and other discrete items.

At December 31, ~~2022,~~2023, the Company had federal and state net operating losses (“NOLs”) in the amount of approximately $~~29,547,000~~48.2 million and $~~26,649,000~~39.7 ~~respectively. These~~million. While the federal NOLs ~~expire from~~ ~~2031~~ to ~~2041~~ ~~or have indefinite lives. However,~~carryforward indefinitely, the Tax Cuts & Jobs Act of 2017 limits the amount of federal net operating loss ~~the Company can utilize~~utilized each year after December 31, 2020, to 80% of taxable income. The state NOLs start expiring in 2031.

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~~remain subject to ~~review~~examination by ~~the~~ tax ~~authorities.~~jurisdictions.

NOTE 16 – LITIGATION AND LOSS CONTINGENCIES

~~On August 16, 2022,~~From time to time, the ~~U.S.~~Company may be subject to other legal proceedings, claims, investigations, and government ~~enacted~~inquiries (collectively, legal proceedings) in the ~~Inflation Reduction Act~~ordinary course of ~~2022 (the “Inflation Reduction Act") that includes,~~business. It may receive claims from third parties asserting, among other ~~provisions, changes to~~things, infringement of their intellectual property rights, defamation, labor and employment rights, privacy, and contractual rights. There are no currently pending legal proceedings that the ~~U.S. corporate income tax system, including~~Company believes will have a ~~fifteen percent minimum tax based~~material adverse impact on ~~"adjusted~~the Company’s business or condensed consolidated 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.statements.

1815

MARPAI, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1817 – SUBSEQUENT EVENTS

Management has evaluated subsequent events through the date the unaudited condensed consolidated financial statements were available for issuance.

On April 15, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with each of the purchasers that are parties thereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”) and JGB Collateral LLC, a Delaware limited liability company, as collateral agent for the Purchasers (the “Agent”). Pursuant to the Purchase Agreement, the Company agreed to sell to the Purchasers Senior Secured Convertible Debentures (the “Debentures”) in an aggregate principal amount of $11.8 million, for a total purchase price of $11.0 million. The Purchase Agreement contains customary representations, warranties and covenants. The transactions contemplated by the Purchase Agreement were consummated on April 15, 2024 (the “Closing Date”). On April 15, 2024, the Company received the first $6 million.

As of March 31, 2024, approximately $1.6 million was due to Libertas, which is included in other short-term liabilities on the condensed consolidated balance sheet. In April 2024, the balance was paid to Libertas.

On May 6, 2024, the Company held its 2024 Annual Meeting of Stockholders (the “2024 Annual Meeting”). At the 2024 Annual Meeting, the Company’s stockholders approved the Company's 2024 Global Stock Incentive Plan and the amendment to the Company's Certificate of Incorporation to include 2,000,000 shares of preferred stock.

1916

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, Marpai Administrators, Maestro Health, and 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~~26, 2024 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

OnAs we previously disclosed, on May 31, 2023, ~~we received a notification letter (the “Notice”~~Nasdaq Listing Qualifications staff (“Staff”) ~~from The Nasdaq Capital Market LLC (“Nasdaq”) advising~~notified us that ~~for~~ the ~~last 30 consecutive business days preceding the date~~market value of ~~the Notice,~~ our ~~Market Value of Listed Securities~~listed securities (“MVLS”) ~~has been~~was below the minimum ~~of $35,000,000~~$35.0 million required for continued listing ~~on Nasdaq pursuant to Nasdaq~~as set forth in Listing Rule 5550(b)(2) ~~(the “MVLS Requirement”)~~. In accordance with ~~Nasdaq~~ Listing Rule 5810(c)(3)(C), we ~~have~~were provided 180 calendar days, or until November 27, 2023, to regain ~~compliance~~compliance. On November 28, 2023, the Staff notified us that it had determined to delist us as we did not comply with the MVLS ~~Requirement (the “Compliance Period”). Our securities will continue~~requirement for listing on Nasdaq. On November 29, 2023, we requested a hearing. A hearing on the matter was held on February 22, 2024, where we presented our compliance plan. Subject to ~~trade on Nasdaq during~~our meeting certain requirements by March 31, 2024, 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 toHearings Panel granted 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 optionsan extension until May 28, 2024, to regain compliance with the MVLS ~~Requirement.~~requirement or satisfy any of the alternative requirements in Listing Rule 5550(b).

~~On October 6, 2023, we received a notification letter from Nasdaq indicating that we did not satisfy~~Notwithstanding the requirement for continued listing on the Nasdaq Capital Market under the Bid Price Requirement. We became deficient with Rule 5550(a)(2) as of October 6, 2023, as the closing bid price of our common stock was less than $1.00 per share for 30 consecutive business days prior to the date of the notice.

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have 180 days, or until April 3, 2024, to comply with the Bid Price Requirement by maintaining a closing bid price of at least $1.00 per share for at least 10 consecutive business days during this 180 day period. In the event that we do not regain compliance within this 180 day period, we may be eligible to seek an additional compliance period of 180 calendar days if we meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and provide written notice to Nasdaq of our intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary.

~~We intend to monitor the closing bid price of our common stock and consider our available options in the event that the closing bid price of our common stock remains below $1.00 per share. There~~foregoing, there can be no assurance that we will be able to meet these deadlines or ultimately regain compliance with ~~the minimum bid price requirement or maintain compliance with the other listing requirements.~~all applicable requirements for continued listing.

Overview

We ~~were formed as~~are a ~~Delaware corporation on January 22, 2021,~~national technology-driven healthcare third party administration (“TPA”), which uses AI and data analytics combined with ~~the intention~~cost containment programs to ~~facilitate an initial public offering~~help our Clients lower their cost of healthcare by enabling better health outcomes for their employees 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.’sfamilies. Our mission is to positively change healthcare for the benefit of (i) our ~~clients~~Clients who are self-insured employers that pay for their employees’ healthcare benefits and engage ~~the Company~~us to administer the latter’s healthcare claims, and we refer to ~~whom the Company refers~~them as our “Clients”;, (ii) employees and their family members who receive these healthcare benefits from ~~its clients, to whom~~our Clients, and we refer to them as our “Members”, and (iii) healthcare providers including, doctors, doctor groups, hospitals, clinics, and any other entities providing healthcare services or products, ~~to whom~~and we refer to them as ~~“Providers”. Our mission is to positively change~~the “Providers.” We provide affordable, intelligent, healthcare programs for ~~the benefit of Clients, Members and Providers.~~self-insured employers in

~~Our company is~~ 17

the ~~combination of Marpai Health, Inc., Marpai Administrators,~~U.S. We provide administrative services, and ~~Maestro. Marpai Administrators and Maestro are our healthcare payer subsidiaries that provides administration services~~act as TPA to self-insured ~~employer groups across the United States. They act~~employers who provide healthcare benefits to their employees. Most of our Clients are small and medium-sized companies 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 2022well as ~~a Delaware corporation. Marpai Captive engages in the captive insurance market and commenced operations in the first quarter of 2023.~~local government entities.

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.~~presented. The results for the three months ~~and nine months~~ ended ~~September 30, 2023,~~March 31, 2024, as applicable, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2023.~~

We also continue 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. We are also mindful of inflationary pressures on our cost base and are monitoring the impact on customer preferences.

2024.

Results of Operations

Comparison of the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2024 and 2023 ~~and 2022~~

The following tables set forth our consolidated results of operations for the periods indicated.

Three Months Ended September 30,

2023

2022

Change

%

Revenue

$
8,729,152

$
4,938,105

$
3,791,047

76.8
%
Costs and expenses

Cost of revenue (exclusive of depreciation and
amortization shown separately below)

5,691,278

3,625,415

2,065,863

57.0
%
General and administrative

4,986,185

2,717,905

2,268,280

83.5
%
Sales and marketing

1,842,018

1,053,814

788,204

74.8
%
Information technology

1,269,088

1,538,136

(269,048
)

(17.5
)%
Research and development

267,269

781,750

(514,481
)

(65.8
)%
Depreciation and amortization

927,390

842,047

85,343

10.1
%
Loss on disposal of assets

6,604

—

6,604

—

Facilities

767,603

193,494

574,109

296.7
%
Total costs and expenses

15,757,435

10,752,561

(5,004,874
)

(46.5
)%
Operating loss

(7,028,283
)

(5,814,456
)

1,213,827

(20.9
)%
Other income and (expenses)

Other income (expense), net

130,453

56,274

74,179

131.8
%
Interest expense

(383,756
)

(2,908
)

(380,848
)

13,096.6
%
Foreign exchange gain (loss)

(13,794
)

(18,770
)

4,976

(26.5
)%
Total other income (expense)

(267,097
)

34,596

301,693

872.0
%
Loss before income taxes

(7,295,380
)

(5,779,860
)

1,515,520

(26.2
)%
Income tax expense

—

—

—

—

Net loss

(7,295,380
)

(5,779,860
)

1,515,520

(26.2
)%
Net loss per share, basic and fully diluted

(0.98
)

(1.14
)

(0.16
)

14.2
%

(dollars in thousands)

Nine Months Ended September 30,

2023

2022

Change

%

Revenue

$
28,448,176

$
16,713,420

$
11,734,756

70.2
%
Costs and expenses

Cost of revenue (exclusive of depreciation and
amortization shown separately below)

18,529,768

12,323,770

6,205,998

50.4
%
General and administrative

15,937,675

7,940,014

7,997,661

100.7
%
Sales and marketing

5,494,446

4,829,718

664,728

13.8
%
Information technology

4,775,340

3,862,142

913,198

23.6
%
Research and development

1,290,910

2,684,014

(1,393,104
)

(51.9
)%
Depreciation and amortization

2,973,972

2,443,856

530,116

21.69
%
Loss on disposal of assets

350,192

60,471

289,721

479.1
%
Facilities

1,917,628

586,430

1,331,198

227.0
%
Total costs and expenses

51,269,931

34,730,415

(16,539,516
)

(47.6
)%
Operating loss

(22,821,755
)

(18,016,995
)

4,804,760

(26.7
)%
Other income and (expenses)

Other income, net

231,357

95,565

135,792

142.1
%
Interest expense, net

(1,102,045
)

(7,415
)

(1,094,630
)

14762.4
%
Foreign exchange (loss) gain

(32,407
)

(5,461
)

(26,946
)

493.4
%
Total other (expense) income

(903,095
)

82,689

(985,784
)

(1192.2
)%
Loss before income taxes

(23,724,850
)

(17,934,306
)

(5,790,544
)

32.3
%
Income tax expense

—

—

—

—

Net loss

(23,724,850
)

(17,934,306
)

(5,790,544
)

32.3
%
Net loss per share, basic and fully diluted

(3.62
)

(3.58
)

(0.04
)

1.0
%


	Three Months Ended March 31,
	2024			2023			Change			%

Revenue	$	7,385		$	9,672		$	(2,287	)		(23.6	)%
Costs and expenses
Cost of revenue (exclusive of depreciation and amortization shown separately below)		4,871			6,409			(1,538	)		(24.0	)%
General and administrative		3,421			5,226			(1,805	)		(34.5	)%
Sales and marketing		602			2,179			(1,577	)		(72.4	)%
Information technology		1,124			2,187			(1,063	)		(48.6	)%
Research and development		7			500			(493	)		(98.6	)%
Depreciation and amortization		951			1,044			(93	)		(8.9	)%
Facilities		474			650			(176	)		(27.1	)%
Total costs and expenses		11,450			18,195			(6,745	)		(37.1	)%
Operating loss		(4,065	)		(8,523	)		4,458			(52.3	)%
Other income and (expenses)
Other income (expense), net		120			50			70			140.0	%
Interest expense		(398	)		(385	)		(13	)		3.4	%
Foreign exchange loss		(3	)		(15	)		12			(80.0	)%
Total other expense		(281	)		(350	)		69			(19.7	)%
Loss before income taxes		(4,346	)		(8,873	)		4,527			(51.0	)%
Income tax expense		—			—			—			—
Net loss	$	(4,346	)	$	(8,873	)	$	4,527			(51.0	)%
Net loss per share, basic and fully diluted	$	(0.46	)	$	(1.68	)	$	1.22			(72.4	)%

Comparison of the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2024 and 2023 ~~and 2022~~

Revenues and Cost of Revenue

During the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ our total revenue was ~~$8,729,152~~$7.4 million and ~~$4,938,105,~~$9.7 million, respectively, representing ~~an increase~~a decrease in revenue of ~~$3,791,047.~~$2.3 million. The ~~main reason for the increase in revenues was~~decline is primarily due to ~~the~~customer turnover. The market is evolving, and we are adapting our approach to better serve our customers' needs. While we have seen some customer turnover, we're confident that our new initiatives will lead to long-term revenue generated by Maestro amounting to $4,446,257 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022), and new services offered to existing clients, amounting to $149,365, partially offset by a decline of $958,672 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 nine months ended September 30, 2023 and 2022, our total revenue was $28,448,176 and $16,713,420, respectively, representing an increase in revenue of $11,734,756. The main reason for the increase in revenues was due to the revenue generated by Maestro amounting to $15,157,941 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022), and new services offered to existing clients amounting to $149,365, partially offset by a decline of $3,738,447 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.growth.

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 ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ our cost of revenue exclusive of depreciation and amortization was ~~$5,691,278~~$4.9 million and ~~$3,625,415,~~$6.4 million, respectively, representing ~~an increase~~a decrease of ~~$2,065,863. The main reason for~~$1.5 million, in line with the ~~increase~~decrease in the cost of revenue was due to the cost of revenue generated by Maestro amounting to $2,437,535(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 $268,416 due to vendor alignment between Maestro and Marpai, partially offset by the reduction in the cost of revenues amounting to $696,006 relating to the termination of the customer contract described above.revenue.

During the nine months ended September 30, 2023 and 2022, our cost of revenue exclusive of depreciation and amortization was $18,529,768 and $12,323,770, respectively, representing an increase of $6,205,998. The main reason for the increase in the cost of revenue was due to the cost of revenue generated by Maestro amounting to $7,976,153 (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 $857,297 due to vendor alignment between Maestro and Marpai, partially offset by the reduction in the cost of revenues amounting to $2,841,477 relating to the termination of the customer contract described above.18

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.

General and Administrative Expenses

We incurred $3.4 million of general and administrative expenses for the three months ended March 31, 2024 compared to $5.2 million for the three months ended March 31, 2023, a decrease of $1.8 million. The reason for the decrease is due to (i) the actions taken throughout 2023 to aligning the two TPA companies into one amounting to approximately $1.4 million in savings and, (ii) the elimination of non-value added services amounting to approximately $225 thousand in savings.

Sales and Marketing Expenses

We incurred $602 thousand of sales and marketing expenses for the three months ended March 31, 2024 compared to $2.2 million for the three months ended March 31, 2023, a decrease of $1.6 million. The reason for the decrease is due to the actions taken throughout 2023 to aligning the two TPA companies into one amounting to approximately $1.6 million in savings.

Information Technology Expenses

We incurred $1.1 million of information technology expenses for the three months ended March 31, 2024 compared to $2.2 million for the three months ended March 31, 2023, a decrease of $1.1 million. The reason for the decrease is due to the actions taken throughout 2023 to aligning the two TPA companies into one amounting to approximately $1.0 million in savings.

Research and Development Expenses

We incurred ~~$267,269~~$7 thousand of research and development expenses for the three months ended ~~September 30, 2023~~March 31, 2024 compared to ~~$781,750~~$500 thousand for the three months ended ~~September 30, 2022,~~March 31, 2023, a decrease of ~~$514,481.~~$493 thousand. The decrease is attributable to ~~(i) decreased expenditures in EYME~~adapting our approach to better serve our customers' needs by elimination of non-value added development projects amounting to approximately $423,168, associated primarily with a lower number of research and development employees in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, (ii) a decrease in employee stock based compensation of $47,598, and (iii) in 2022, the President of Production and Development’s time was split and allocated with $138,911 being included in research and development expenses, but no allocation was made for research and development in 2023 due to change in the President of Production and Development’s job responsibilities.

We incurred $1,290,910 of research and development expenses for the nine months ended September 30, 2023 compared to $2,684,014 for the nine months ended September 30, 2022, a decrease of $1,393,104. The decrease is attributable to (i) decreased expenditures in EYME amounting to approximately $675,030, associated primarily with a lower number of research and development employees in the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022, (ii) a decrease in employee stock based compensation of $268,950, and (iii) in 2022, the President of Production and Development’s time was split and allocated with

$449,124 being included in research and development expenses, but no allocation was made for research and development in 2023 due to change in the President of Production and Development’s job responsibilities.

~~General and Administrative Expenses~~

We incurred $4,986,185 of general and administrative expenses for the three months ended September 30, 2023 compared to $2,717,905 for the three months ended September 30, 2022, an increase of $2,268,280. The reason for the increase is due to (i) general and administrative expenses generated by Maestro amounting to $1,651,433 (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 $95,446 due to exploration of equity issuance and capital raising initiatives and additional audit services, and (iii) an increase in Marpai Administrators’ employee cost of approximately $450,000 severance and expanded leadership.

We incurred $15,937,675 of general and administrative expenses for the nine months ended September 30, 2023 compared to $7,940,014 for the nine months ended September 30, 2022, an increase of $7,997,661. The reason for the increase is due to (i) general and administrative expenses generated by Maestro amounting to $6,240,737 (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 $358,713 due to exploration of equity issuance and capital raising initiatives and additional audit services, and (iii) an increase in Marpai Administrators’ employee cost of approximately $1,550,000 severance and expanded leadership.

~~Sales and Marketing Expenses~~

We incurred $1,842,018 of sales and marketing expenses for the three months ended September 30, 2023 compared to $1,053,814 for the three months ended September 30, 2022, an increase of $788,204. This increase was primarily due to (i) sales and marketing expenses generated by Maestro amounting to $116,990 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022), (ii) increased expenditures amounting to approximately $338,000, associated with severance expenses and increased employee cost, and (iii) an increase in consulting and contract employee expenses amounting to $438,013, all partially offset by reduction in outside marketing cost of $244,520.

We incurred $5,494,446 of sales and marketing expenses for the nine months ended September 30, 2023 compared to $4,829,718 for the nine months ended September 30, 2022, an increase of $664,728. This increase was primarily due to (i) 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), (ii) increased expenditures amounting to approximately $456,000, associated with severance expenses and increased employee cost, (iii) an increase in consulting and contract employee expenses amounting to $606,638, and (iv) increased stock compensation of $373,676, all partially offset by reduction in outside marketing cost of $244,520.

~~Information Technology Expenses~~

We incurred $1,269,088 of information technology expenses for the three months ended September 30, 2023 compared to $1,538,136 for the three months ended September 30, 2022, a decrease of $269,048. This decrease was primarily due to information technology expenses generated by Maestro amounting to $474,365 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022), offset by employee reassignment due to department reorganization of approximately $530,000, and (ii) the allocation in 2022 of the President of Production and Development’s time of $138,911 being included in information technology expenses but no allocation was made to information technology in 2023.

We incurred $4,775,340 of information technology expenses for the nine months ended September 30, 2023 compared to $3,862,142 for the nine months ended September 30, 2022, an increase of $913,198. This increase was primarily due to information technology expenses generated by Maestro amounting to $2,157,881 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022), offset by employee reassignment due to department reorganization of approximately $335,000, (ii) the allocation in 2022 of the President of Production and Development’s time of $449,125 being included in information technology expenses but no allocation was made to information technology in 2023, and (iii) decreased computer and telephone costs of $373,291 due to vendor alignment between Maestro and Marpai.$493 thousand.

Depreciation and Amortization

We incurred ~~$927,390~~$1.0 million of depreciation and amortization expenses for the three months ended ~~September 30, 2023~~March 31, 2024 compared to ~~$842,047~~$1.0 million for the three months ended ~~September 30, 2022, an increase~~March 31, 2023, a decrease of ~~$85,343.~~$93 thousand. This ~~increase~~decrease was primarily due to ~~(i) depreciation and amortization expense generated by Maestro amounting to $114,336 (which were not included in the operating results of the Company~~

~~prior to its acquisition on November 1, 2022), and (ii) partially offset by~~ a reduction by approximately ~~$29,000~~$122 thousand in the depreciation of assets that were disposed of during the ~~current year.~~

~~We incurred $2,973,972 of depreciation and amortization expenses for~~prior year, partially offset by the nine months ended September 30, 2023 compared to $2,443,856 for the nine months ended September 30, 2022, an increase of $530,116 . This increase was primarily due to (i) depreciation and amortization expense generated by Maestronew patents placed into service during 2024 amounting to ~~$526,454 (which were not included in the operating results of the Company prior to its acquisition on November 1, 2022).~~

~~Loss on Disposal of Assets~~

We incurred $6,604 of loss on disposal of assets for the three months ended September 30, 2023 compared to $0 for the three months ended September 30, 2022, an increase of $6,604. This increase was primarily due to disposal of furniture assets that were no longer needed as the lease terms ended.

We incurred $350,192 of loss on disposal of assets for the nine months ended September 30, 2023 compared to $60,471 for the nine months ended September 30, 2022, an increase of $289,721. This increase was primarily due to disposal of furniture and leasehold improvement assets that were no longer needed as the lease terms ended.approximately $33 thousand.

Interest Expense, net

We incurred ~~$383,756~~$398 thousand of interest expense for the three months ended ~~September 30, 2023~~March 31, 2024 compared to ~~$2,908~~$385 thousand for the three months ended ~~September 30, 2022,~~March 31, 2023, an increase of ~~$380,848.~~$13 thousand. Interest expense increased primarily due to the debt to Libertas Funding LLC (“Libertas”) which was offset by the decrease in interest ~~accrued on outstanding debt relating~~due to AXA S.A., a French société anonyme (“AXA”) for the acquisition of Maestro ~~which closed on November 1, 2022.~~

We incurred $1,102,045 of interest expense for the nine months ended September 30, 2023 compared to $7,415 for the nine months ended September 30, 2022, an increase of $1,094,630. Interest expense increased primarily due to the interest accrued on outstanding debt relating to the acquisition of Maestro which closed on November 1, 2022.being partially paid down in 2023.

Liquidity and Capital Resources

As of ~~September 30, 2023, the Company~~March 31, 2024, we had an accumulated deficit of approximately ~~$71.7~~$81.1 million, unrestricted cash and cash equivalents of approximately ~~$3.0 million~~$851 thousand and negative working capital of approximately $3.6 million. For the ~~nine~~three months ended ~~September 30, 2023, the Company~~March 31, 2024, we recognized a net loss of approximately ~~$23.7~~$4.3 million and negative cash flows from operations of approximately ~~$15.3~~$3.6 million.

~~The Company has~~We have spent most of ~~its~~our cash resources on funding ~~its~~our operating activities. Through ~~September 30, 2023, the Company has~~March 31, 2024, we have financed ~~its~~our operations primarily with the proceeds from the issuance of convertible promissory notes and warrants as well as sales of ~~its~~our equity securities.

On ~~April 19, 2023,~~January 16, 2024, we ~~closed~~entered into a ~~public offering~~securities purchase agreement (the “Second SPA”) with certain insiders consisting of ~~1,850,000~~HillCour Investment Fund, LLC (“HillCour”), an entity controlled by our Chief Executive Officer, our Chairman, and one of our directors, pursuant to which we agreed to issue and sell 1,322,100 shares of ~~common stock~~Common Stock in a private placement, at a ~~public offering~~purchase price of ~~$4.00~~$0.9201 per share ~~for gross proceeds~~(or the consolidated closing bid price of ~~$7.4 million. After deducting underwriters' discounts and offering expenses,~~our Common Stock on Nasdaq as of January 16, 2024). The securities issued in the ~~net proceeds~~Second SPA are exempt from the ~~public offering~~registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant

to Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder. The securities have not been registered under the Securities Act and may not be sold in the United States absent registration or an exemption from registration.

On February 5, 2024, we entered into an Agreement of Sale of Future Receipts (the “Libertas Agreement”) with Libertas to sell future receipts totaling $2.2 million for a purchase price of $1.7 million. The sold amount of future receipts is to be delivered weekly to Libertas at predetermined amounts over a period of nine months. The Libertas Agreement contains an early delivery discount fee for delivering the future receivables before the end of the contract term and an origination fee. Our Chief Executive Officer provided a guarantee for the funding agreement through various entities the Chief Executive Officer controls.

On March 7, 2024, we entered into a securities purchase agreement with HillCour, pursuant to which we agreed to issue and sell 910,000 shares of Common Stock in a private placement, at a purchase price of $1.65 per share (or the consolidated closing bid price of out Common Stock on Nasdaq as of March 7, 2024).

On April 15, 2024, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with each of the purchasers that are parties thereto (each, including its successors and assigns, a “Purchaser” and collectively, the “Purchasers”) and JGB Collateral LLC, a Delaware limited liability company, as collateral agent for the Purchasers (the “Agent”). Pursuant to the Purchase Agreement, we agreed to sell to the Purchasers Senior Secured Convertible Debentures (the “Debentures”) in an aggregate principal amount of $11.8 million, for a total purchase price of $11.0 million. The Purchase Agreement contains customary representations, warranties and covenants. The transactions contemplated by the Purchase Agreement were ~~approximately $6.4 million.~~consummated on April 15, 2024 (the “Closing Date”). The Debentures bear interest at a rate equal to the prime interest rate plus 5.75% per annum (subject to increase upon the occurrence and continuance of an Event of Default (as defined in the Debentures), require monthly principal payments of $140 thousand beginning on October 15, 2024, have a maturity date of April 15, 2027 and are convertible, in whole or in part, at any time after their issuance date at the option of the Purchasers, into shares of our Common Stock at a conversion price equal to $3.00 per share (the “Conversion Price”), subject to adjustment as set forth in the Debentures. The Conversion Price of the Debentures is subject to anti-dilution protection upon subsequent equity issuances, subject to certain exceptions, provided that the Conversion Price shall not be adjusted to a price less than $2.23 per share, the closing price of our Common Stock on The Nasdaq Stock Market LLC on the day immediately preceding the Closing Date. In ~~accordance~~addition, at any time within sixty days after the Closing Date, and provided that $5.0 million remains on deposit in a certain blocked account, the Company may elect to redeem up to an aggregate of $5.0 million of the Debentures.

In connection with the ~~terms~~Purchase Agreement, on April 15, 2024, we, certain of our domestic subsidiaries (“Subsidiary Debtors”), the Purchasers and the Agent entered into a Security Agreement (the “Security Agreement”), pursuant to which we and the Subsidiary Debtors granted to the Agent, for the benefit of the ~~Maestro share purchase agreement, $2,294,751 or 35%~~Purchasers, to secure our and the Subsidiary Debtors’ obligations under the Purchase Agreement, the Debentures and the other transaction documents, first priority liens on certain assets (the “Collateral”), in each case subject to permitted liens described in the Security Agreement. In addition, on April 15, 2024, certain of our domestic subsidiaries, our Chairman and Chief Executive Officer, and Hillcour (collectively, the “Guarantors”) entered into Guarantees, pursuant to which they guaranteed all our obligations and each Guarantor under the Purchase Agreement, the Debentures and the other transaction documents.

In connection with the Purchase Agreement, on April 15, 2024, we and the Purchasers entered into a Registration Rights Agreement, pursuant to which we are obligated to register the shares of our Common Stock issuable upon exercise of the ~~net proceeds from~~Debentures by May 30, 2024 (the “Registration Deadline”). If we fail to meet the ~~offering were expected~~Registration Deadline or maintain the effectiveness of the Registration Statement for the required effectiveness period, subject to certain permitted exceptions, we will be ~~used~~required to pay ~~down the debt~~liquidated damages to the ~~Seller. Based on an agreement reached~~Purchasers. We also agreed, among other things, to indemnify the selling holders under the Registration Statement from certain liabilities and to pay all fees and expenses incident to our performance of or compliance with the
Seller on July 18, 2023, 50% of the amount due or $1,147,376 was paid to the Seller on July 19, $200,000 was paid to the Seller on September 18, 2023, and the balance will be paid no later than November 15, 2023. Registration Rights Agreement.

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~~

The 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.

Cash Flows

The following tables summarizes selected information about our sources and uses of cash and cash equivalents for the ~~nine~~three months ended ~~September 30, 2023~~March 31, 2024 and ~~2022:~~2023:

Comparison of the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2024 and 2023 ~~and 2022~~

(in thousands)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2023			2022			2024			2023
Net cash used in operating activities	$	(15,324,191	)	$	(15,339,217	)	$	(3,585	)	$	(6,541	)
Net cash provided by (used in) investing activities		26,914			(880,032	)
Net cash provided by investing activities								—			3
Net cash provided by financing activities		6,432,025			—			3,705			—
Net decrease in cash and cash equivalents and restricted cash	$	(8,865,252	)	$	(16,219,249	)
Net increase (decrease) in cash and cash equivalents and restricted cash							$	120		$	(6,538	)

Net Cash Used in Operating Activities

Net cash used in operating activities totaled ~~$15,324,191~~$3.6 million for the ~~nine~~three months ended ~~September 30, 2023,~~March 31, 2024, a decrease of ~~$15,026~~$3.0 million as compared to ~~$15,339,217~~$6.5 million for the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. The primary reason for the decrease was the reduction in our net loss from prior year. Net cash used in operating activities was primarily driven by our net loss for the period of ~~$23,724,849~~$4.3 million, net of (i) non-cash items totaling ~~$7,766,078~~$2.0 million and (ii) a decrease in net working capital items amounting to ~~$634,580.~~$1.2 million.

Net Cash Provided by ~~(Used in)~~ Investing Activities

A total of ~~$26,914~~$0 was provided by investing activities in the ~~nine~~three months ended ~~September 30, 2023,~~March 31, 2024 a decrease of ~~$906,946~~$3 thousand as compared to ~~$880,032 in cash used in investing activities~~$3 thousand for the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023. The primary reason for the ~~decline is the decline in the capitalization~~decrease was no disposal of ~~software development costs.~~property and equipment.

Net Cash Provided by Financing Activities

A total of ~~$6,432,025~~$3.7 million was received from financing activities during the ~~nine~~three months ended ~~September 30, 2023, comprising~~March 31, 2024, an increase of $3.7 million compared to $0 for the three months ended March 31, 2023. The increase is comprised of net proceeds provided from ~~a public offering~~private offerings of common stock of ~~$6,431,612 and $413 provided~~$2.7 million, net proceeds from the ~~exercising~~sale of ~~stock options.~~accounts receivable of $1.4 million offset by the repayment of the AXA loan of $474 thousand and payments to Libertas of $57 thousand.

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.

2621

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 ~~nine~~three months ended ~~September 30, 2023.~~March 31, 2024. 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 ~~$3,018,424~~$851 thousand and ~~$13,764,508~~$1.1 million on ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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 ~~nine~~three months ended ~~September 30, 2023.~~March 31, 2024.

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 ~~September 30, 2023.~~March 31, 2024. 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 ~~third~~first quarter ended ~~September 30, 2023~~March 31, 2024 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 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed below and in Part I, “Item 1A. Risk Factors” in our 2023 Annual Report, which could materially affect our business, financial condition or future results.

27We have been notified by The Nasdaq Stock Market LLC of our failure to comply with certain continued listing requirements and, if we are unable to regain compliance with all applicable continued listing requirements and standards of Nasdaq, our common stock could be delisted from Nasdaq.

As we previously disclosed, on May 31, 2023, Nasdaq Listing Qualifications staff (“Staff”) notified us that the market value of our listed securities (“MVLS”) was below the minimum $35,000,000 required for continued listing as set forth in Listing Rule 5550(b)(2). In accordance with Listing Rule 5810(c)(3)(C), we were provided 180 calendar days, or until November 27, 2023, to regain compliance. On November 28, 2023, the Staff notified us that it had determined to delist us as we did not comply with the MVLS requirement for listing on Nasdaq. On November 29, 2023, we requested a hearing. A hearing on the matter was held on February 22, 2024, where we presented our compliance plan. Subject to our meeting certain requirements by March 31, 2024, the Hearings Panel granted us an extension until May 28, 2024, to regain compliance with the Market Value of Listed Securities (“MVLS”) requirement of $35,000,000 or satisfy any of the alternative requirements in Listing Rule 5550(b).

Notwithstanding the foregoing, there can be no assurance that we will be able to meet these deadlines or ultimately regain compliance with all applicable requirements for continued listing.

ITEM 6. Exhibits.



Exhibit No.		Description
~~10.1+~~4.1		~~Separation~~Form of Debenture (incorporated by reference to Exhibit 4.1 filed with the Current Report on Form 8-K filed with the SEC on April 17, 2024).
10.1		Securities Purchase Agreement, ~~executed~~dated April 15, 2024, by and ~~between~~among Marpai, Inc., its subsidiaries named therein, the purchasers named therein, and ~~Lutz Finger, dated August 16, 2023~~JGB Collateral, LLC (incorporated by reference to Exhibit 10.1 filed with the Current Report on Form 8-K filed with the SEC on ~~August~~April 17, ~~2023)~~2024).
~~10.2+~~10.2		~~Consulting~~Registration Rights Agreement, ~~executed~~dated April 15, 2024, by and ~~between~~among Marpai, Inc. and ~~Lutz Finger, dated August 16, 2023~~the purchasers named therein (incorporated by reference to Exhibit 10.2 filed with the Current Report on Form 8-K filed with the SEC on ~~August~~April 17, ~~2023.)~~2024).
10.3		Security Agreement, dated April 15, 2024, by and among Marpai, Inc., each of Marpai, Inc.’s specified subsidiaries named therein, the purchasers named therein and JGB Collateral, LLC (incorporated by reference to Exhibit 10.3 filed with the Current Report on Form 8-K filed with the SEC on April 17, 2024).
10.4		Form of Guarantee (incorporated by reference to Exhibit 10.4 filed with the Current Report on Form 8-K filed with the SEC on April 17, 2024).
31.1		Certification Statement of the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
31.2		Certification Statement of the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32.1*		Certification Statement of the Chief Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002
32.2*		Certification Statement of the Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002
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.~~herewith.

** Filed herewith.

~~+ Management contract or compensation plan.~~

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: ~~November 13, 2023~~May 9, 2024		/s/ Damien Lamendola
	Name:	Damien Lamendola
	Title:	Chief Executive Officer
		(Principal Executive Officer)

		/s/ Steve Johnson
	Name:	Steve Johnson
	Title	Chief Financial Officer
		(Principal Financial and Accounting Officer)

2924



Delaware		86-1916231
(State or other jurisdiction of incorporation)		(IRS Employer Identification Number)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share	MRAI	The Nasdaq Stock Market LLC



Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☒	Emerging growth company ☒


	September 30, 2023			December 31, 2022			March 31, 2024			December 31, 2023
	(Unaudited)						(Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents	$	3,018,424		$	13,764,508		$	851		$	1,147
Restricted cash		11,233,440			9,352,608			12,761			12,345
Accounts receivable, net of allowance for credit losses of $23,458 and $23,458		977,400			1,437,786
Accounts receivable, net of allowance for credit losses of $25 and $25								366			1,124
Unbilled receivable		594,552			350,393			727			768
Due from buyer for sale of business unit								800			800
Prepaid expenses and other current assets		961,182			1,601,920			1,000			901
Other receivables		32,251			30,634
Total current assets		16,817,249			26,537,849			16,505			17,085

Property and equipment, net		662,208			1,506,082			579			611
Capitalized software, net		2,742,947			4,588,706			1,512			2,127
Operating lease right-of-use assets		2,520,453			3,841,810			2,311			2,373
Goodwill		6,035,200			5,837,060			3,018			3,018
Intangible assets, net		5,501,918			6,323,279			4,874			5,177
Security deposits		1,308,908			1,293,166			1,267			1,267
Other long-term asset		21,668			21,668			22			22
Total assets	$	35,610,551		$	49,949,620		$	30,088		$	31,680
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	3,101,229		$	1,457,670		$	3,824		$	4,649
Accrued expenses		4,659,407			5,274,716			3,076			2,816
Accrued fiduciary obligations		9,877,871			9,024,463			9,510			11,573
Deferred revenue		1,261,067			288,499			1,481			661
Current portion of operating lease liabilities		600,104			1,311,295			523			512
Other short-term liability		947,376			—
Due to related party		—			3,201
Other short-term liabilities								1,709			632
Total current liabilities		20,447,054			17,359,844			20,123			20,843

Other long-term liabilities		19,113,390			20,203,700			19,724			19,401
Operating lease liabilities, net of current portion		3,812,609			4,771,871			3,547			3,684
Deferred tax liabilities		1,479,880			1,479,880			1,190			1,190
Total liabilities		44,852,933			43,815,295			44,584			45,118
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’(DEFICIT) EQUITY
Common stock, $0.0001 par value, 227,791,050 shares authorized; 7,810,625 and 5,319,758 issued and outstanding at September 30, 2023 and December 31, 2022, respectively (1)		781			532
COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDERS’ DEFICIT
Common stock, $0.0001 par value, 227,791,050 shares authorized; 10,308,038 shares and 7,960,938 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively (1)								1			1
Additional paid-in capital		62,475,786			54,127,893			66,595			63,307
Accumulated deficit		(71,718,949	)		(47,994,100	)		(81,092	)		(76,746	)
Total stockholders’ (deficit) equity		(9,242,382	)		6,134,325
Total liabilities and stockholders’ (deficit) equity	$	35,610,551		$	49,949,620
Total stockholders’ deficit								(14,496	)		(13,438	)
Total liabilities and stockholders’ deficit							$	30,088		$	31,680


	Common Stock
					Additional Paid-		Accumulated			Total Stockholders’
Three months ended September 30, 2023	Shares (1)		Amount		In Capital		Deficit			(Deficit) Equity
Balance, July 1, 2023		7,255,818	$	725	$	61,754,084	$	(64,423,569	)	$	(2,668,760	)
Share-based compensation		-		-		721,556		-			721,556
Issuance of common stock upon vesting of restricted stock units		524,244		53		-		-			53
Issuance of common stock upon exercise of stock options		21,849		2		146		-			148
Issuance of round up shares in connection with reverse split		8,714		1		-		-			1
Net loss		-		-		-		(7,295,380	)		(7,295,380	)
Balance, September 30, 2023		7,810,625	$	781	$	62,475,786	$	(71,718,949	)	$	(9,242,382	)

Three months ended September 30, 2022
Balance, July 1, 2022		5,170,711	$	517	$	52,750,138	$	(33,680,156	)	$	19,070,499
Share-based compensation		-		-		689,375		-			689,375
Issuance of common stock upon vesting of restricted stock units		61,890		6		19		-			25
Common Stock issued to vendors in exchange for services		1,875		-		7,726		-			7,726
Net loss		-		-		-		(5,779,860	)		(5,779,860	)
Balance, September 30, 2022		5,234,475	$	523	$	53,447,258	$	(39,460,016	)	$	13,987,765

Nine months ended September 30, 2023
Balance, December 31, 2022		5,319,758	$	532	$	54,127,893	$	(47,994,100	)	$	6,134,325
Share-based compensation		-		-		1,836,930		-			1,836,930
Issuance of common stock upon vesting of restricted stock units		557,631		56		-		-			56
Common stock issued to vendors in exchange for services		25,000		2		79,128		-			79,130
Issuance of common stock upon exercise of stock options		49,522		5		408		-			413
Issuance of round up shares in connection with reverse split		8,714		1		-		-			1
Issuance of common stock in connection with public offering, net		1,850,000		185		6,431,427		-			6,431,612
Net loss		-		-		-		(23,724,849	)		(23,724,849	)
Balance, September 30, 2023		7,810,625	$	781	$	62,475,786	$	(71,718,949	)	$	(9,242,382	)

Nine months ended September 30, 2022
Balance, December 31, 2021		5,074,932		507		51,233,615		(21,525,710	)		29,708,412
Share-based compensation		-		-		2,182,696		-			2,182,696
Issuance of common stock upon vesting of restricted stock units		152,044		15		46		-			61
Common stock issued to vendors in exchange for services		7,500		1		30,901		-			30,902
Net loss		-		-		-		(17,934,306	)		(17,934,306	)
Balance, September 30, 2022		5,234,475	$	523	$	53,447,258	$	(39,460,016	)	$	13,987,765



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Unaudited Condensed Consolidated Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2017
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2722
Item 4.	Controls and Procedures	2722
PART II. OTHER INFORMATION
Item 1A.	Risk Factors	22
Item 6.	Exhibits	2823
SIGNATURES		2924


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2023			2022			2023			2022			2024			2023
Revenue	$	8,729,152		$	4,938,105		$	28,448,176		$	16,713,420		$	7,385		$	9,672
Costs and expenses
Cost of revenue (exclusive of depreciation and amortization shown separately below)		5,691,278			3,625,415			18,529,768			12,323,770			4,871			6,409
General and administrative		4,986,185			2,717,905			15,937,675			7,940,014			3,421			5,226
Sales and marketing		1,842,018			1,053,814			5,494,446			4,829,718			602			2,179
Information technology		1,269,088			1,538,136			4,775,340			3,862,142			1,124			2,187
Research and development		267,269			781,750			1,290,910			2,684,014			7			500
Depreciation and amortization		927,391			842,047			2,973,973			2,443,856			951			1,044
Loss on disposal of assets		6,604			—			350,192			60,471
Facilities		767,602			193,494			1,917,626			586,430			474			650
Total costs and expenses		15,757,435			10,752,561			51,269,930			34,730,415			11,450			18,195
Operating loss		(7,028,283	)		(5,814,456	)		(22,821,754	)		(18,016,995	)		(4,065	)		(8,523	)
Other income (expenses)
Other income		130,453			56,274			231,357			95,565			120			50
Interest expense, net		(383,756	)		(2,908	)		(1,102,045	)		(7,415	)		(398	)		(385	)
Foreign exchange loss		(13,794	)		(18,770	)		(32,407	)		(5,461	)		(3	)		(15	)
Loss before provision for income taxes		(7,295,380	)		(5,779,860	)		(23,724,849	)		(17,934,306	)		(4,346	)		(8,873	)
Income tax expense		—			—			—			—			—			—
Net loss	$	(7,295,380	)	$	(5,779,860	)	$	(23,724,849	)	$	(17,934,306	)	$	(4,346	)	$	(8,873	)
Net loss per share, basic & fully diluted (1)	$	(0.98	)	$	(1.14	)	$	(3.62	)	$	(3.58	)	$	(0.46	)	$	(1.68	)
Weighted average shares of common stock outstanding, basic and diluted (1)		7,479,401			5,087,164			6,552,575			5,004,779			9,405,775			5,290,661


	December 31, 2022			Adjustment			September 30, 2023
Purchase Price
Purchase Price	$	19,900,000					$	19,900,000

Purchase Price Allocation
Cash	$	17,081,602					$	17,081,602
Restricted cash		16,306,547						16,306,547
Accounts receivable		321,198						321,198
Unbilled receivable		646,189						646,189
Prepaid expenses and other current assets		1,751,371						1,751,371
Property and equipment		921,680			(159,920	)		761,760
Operating lease - right of use assets		2,555,375						2,555,375
Goodwill		3,454,143			198,140			3,652,283
Trademarks		800,000						800,000
Customer relationships		840,000						840,000
Security deposits		1,240,889						1,240,889
Account payable		(150,328	)					(150,328	)
Accrued expenses		(4,554,280	)		(38,220	)		(4,592,500	)
Accrued fiduciary obligations		(16,306,547	)					(16,306,547	)
Operating lease liabilities		(4,816,490	)					(4,816,490	)
Deferred revenue		(191,349	)					(191,349	)
Total fair value of net assets acquired and liabilities assumed	$	19,900,000		$	—		$	19,900,000


	Three Months Ended			Nine Months Ended
	September 30, 2022			September 30, 2022
	(pro forma)			(pro forma)
Revenue	$	9,687,891		$	31,621,036
Net loss		(9,049,986	)		(29,744,227	)


	Amount
Balance as of December 31, 2022	$	5,837,060
Measurement period adjustment to goodwill (Note 5)		198,140
Balance as of September 30, 2023	$	6,035,200


	September 30, 2023		September 30, 2022
Net reserves at January 1,	$	—	$	—
Incurred loss and loss adjustment expenses
Provisions for insured events of the current year		205,238		—
Change in provision for insured events of prior year		—		—
Total incurred loss and loss adjustment expense		205,238		—
Payments
Loss and loss adjustment expenses attributable to insured events of the current year		4,268		—
Loss and loss adjustment expenses attributable to insured events of the prior year		—		—
Total payments		4,268		—
Net reserves at September 30,	$	200,970	$	—


	August 2023			January 2023
Risk-free interest rates		4.44	%		3.43	%
Expected life	5 years			5 years
Expected volatility		136.99	%		41.00	%
Expected dividend yield		0.00	%		0.00	%

Acquisition

Fair Value

Trademarks

Customer relationships