Form 424B4 Marpai, Inc.

October 28, 2021 9:46 AM EDT

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 Filed Pursuant to Rule 424(b)(4)
 Registration Number 333-258029
6,250,000 Shares
Class A Common Stock
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Marpai, Inc.
This is a firm commitment initial public offering of shares of Class A common stock of Marpai, Inc. We are offering shares of our Class A common stock. The initial public offering price of our shares is $4.00 per share.
Prior to this offering, there has been no public market for our Class A common stock. Our shares of Class A common stock have been approved for listing on The Nasdaq Capital Market under the symbol “MRAI.”
We are an “emerging growth company” and a “smaller reporting company,” each as defined under the federal securities laws and, as such, have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings. See the section titled “Implications of Being an Emerging Growth Company and a Smaller Reporting Company.”
Investing in our Class A common stock involves a high degree of risk. Please read “Risk Factors” beginning on page 25 of this prospectus for a discussion of factors you should consider before buying shares of our Class A common stock.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Share
Total
Public offering price
$ 4.00 $ 25,000,000
Underwriting discounts and commissions(1)
$ 0.28 $ 1,750,000
Proceeds, before expenses, to us
$ 3.72 $ 23,250,000
(1)
See “Underwriting” for a description of the compensation payable to the underwriters We refer you to “Underwriting” beginning on page 122 of this prospectus for additional information regarding underwriters’ compensation.
We have granted a 45-day option to the representative of the underwriters to purchase up to additional shares of Class A common stock from us solely to cover over-allotments, if any, at the public offering price, less underwriting discounts and commissions.
The underwriter expects to deliver the shares of our Class A common stock against payment therefor on or about October 29, 2021, subject to customary closing conditions.
ThinkEquity
The date of this prospectus is October 26, 2021

 
TABLE OF CONTENTS
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F-1
We and the underwriters have not authorized anyone to provide you any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you, and you should rely only on the information contained in this prospectus or in any such free writing prospectus. We and underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are not making an offer to sell nor a solicitation of any offer to buy these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside of the United States: we have not and the underwriters have not taken any action that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of Class A common stock and the distribution of this prospectus outside of the United States.
 
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Our logo and some of our trademarks and tradenames are used in this prospectus. This prospectus also includes trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, trademarks, tradenames and service marks referred to in this prospectus may appear without the ®, TM and SM symbols, but those references are not intended to indicate in any way that we will not assert to the fullest extent under applicable law our rights or the rights of the applicable licensor to these trademarks, tradenames and service marks.
We obtained the statistical data, market data and other industry data and forecasts described in this prospectus from market research, publicly available information and industry publications. Industry publications generally state that they obtain their information from sources that they believe to be reliable, but they do not guarantee the accuracy and completeness of the information. Similarly, while we believe that the statistical data, industry data and forecasts and market research are reliable, we have not independently verified the data, and we do not make any representation as to the accuracy of the information. We have not sought the consent of the sources to refer to their reports appearing or incorporated by reference in this prospectus.
 
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PROSPECTUS SUMMARY
This summary only highlights the more detailed information appearing elsewhere in this prospectus. As this is a summary, it does not contain all of the information that you should consider in making an investment decision. You should read this entire prospectus carefully, including the information under “Risk Factors” and our financial statements and the related notes included elsewhere in this prospectus, before investing. Pursuant to the Amended and Restated Equity Interest Purchase and Reorganization Agreement (the “Purchase and Reorganization Agreement”), Marpai, Inc., a Delaware corporation, has acquired all equity interests of Marpai Health and Continental Benefits. As used in this prospectus, unless the context indicates or otherwise requires, the “Company,” “our Company,” “we,” “us,” and “our” refer to Marpai, Inc., the combined company of Marpai Health, Inc. and its wholly-owned subsidiary EYME Technologies Ltd. and Continental Benefits, LLC and its wholly-owned subsidiary, WellSystems, LLC.
Our Company
Overview
Marpai Inc.’s mission is to positively change healthcare for the benefit of (i) our clients who are self-insured employers that pay for their employees’ healthcare benefits and engage us to administer the latter’s healthcare claims, and we refer to them as our “Clients”; (ii) employees who receive these healthcare benefits from 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, and we refer to them as the “Providers.” We are creating the healthcare payer of the future for self-insured employers in the U.S., what we refer to as the “Payer of the Future.” Through the use of the latest technology and artificial intelligence or “A.I.,” we believe we have the ability to predict costly events, such as who is likely to develop a chronic disease or require a costly operation over the next twelve months. With this knowledge, we aim to optimize care so that employers can save money, while employees can have access to high-quality care and enjoy good healthcare outcomes.
Our company is the combination of Marpai Health, Inc. and Continental Benefits LLC. Marpai Health is our A.I.-focused subsidiary, with a research and development team in Tel Aviv, Israel. Continental Benefits is our healthcare payer subsidiary that provides administration services to self-insured employer groups across the United States. It acts as a third-party administrator or “TPA” handling all administrative aspects of providing healthcare to self-insured employer groups. We have combined these two 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 A.I. technology. This combination allows us to differentiate in the TPA market by delivering something new — a technology-driven service that we believe can lower the overall cost of healthcare while maintaining or improving healthcare outcomes.
Since December 2019, Marpai Health and Continental Benefits have been working together on information exchange and joint development of A.I. models to predict the onset of chronic conditions and up-coming high-cost events such as expensive imaging or orthopedic surgeries. We believe early detection would lead some portion of Continental Benefits’ Members to avoid, delay or better manage their disease. This matters in both cost terms to the employers and in wellbeing for the Members. By recommending our Members to seek appropriate medical consultation with effective providers, we believe our technology can help mitigate the financial and wellbeing costs for employers and Members.
Many states have enacted laws prohibiting physicians from practicing medicine in partnership with non-physicians, such as business corporations. In some states, including New York, these take the form of laws or regulations prohibiting splitting of physician fees with non-physicians or others. As we do not engage in the practice of medicine or fee-splitting with any medical professionals, we do not believe these laws restrict our business. Our activities involve only monitoring and analyzing historical claims data, including our Members’ interactions with licensed healthcare professionals, and recommending healthcare providers and/or sources of treatment. We do not provide medical prognosis or healthcare. In accordance with various states’ corporate practice of medicine laws and states’ laws and regulations which define the practice of medicine, our call center staff are prohibited from providing Members with any evaluation or recommendation concerning a medical condition, diagnosis, prescription, care and/or treatment. Rather, our call center staff can only provide Members with general and publicly available information that is non-specific to the Members’
 
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medical conditions and statistical information about the prevalence of medical conditions within certain populations or under certain circumstances. Our call center staff do not discuss Members’ individual medical conditions and are prohibited from asking Members for any additional protected health information (PHI) as such term is defined under the Health Insurance Portability and Accountability Act (HIPAA). Our call center staff have been trained and instructed to always inform Members that they are not licensed medical professionals, are not providing medical advice, and that Members should reach out to their medical provider for any medical advice.
In the area of high-cost events, like a high-cost image or a surgery, our customer data show large variations in cost for the same procedure, even given the same geography. For example, the median cost of an MRI of the brain may be approximately $1,000 in a given geography, but a significant amount of procedures priced above the median cost 3-5 times the median. By predicting which Members are on trajectories to have high-cost tests or surgeries, we can help guide them to lower cost, but high-quality providers. This saves money for employers, while ensuring Members get the best care.
After having worked together for over a year to identify and collaboratively develop A.I. solutions tailored to the self-insured employer market, Marpai Health started to implement its A.I.-enabled prediction tools as part of Continental Benefits’ patent-pending TopCare program®. In January 2021, our A.I.-powered TopCare program® became live, making it possible for us to offer our Members care management with high-impact predictions. Although our A.I. technology has not yet been integrated with any of our TPA business’ core systems, other than TopCare, to date, we plan to use A.I. in virtually every part of our TPA business. Since the Acquisition on April 1, 2021, Marpai Health and Continental Benefits have been operating as one company under the “Marpai” brand.
Building Blocks for the Payer of the Future
Our vision for the Payer of the Future places the Member at the center of the healthcare experience. We plan to use proprietary technology to innovate and improve operations at every level of a self-insured payer. Our management believes that by placing the latest advancements in user experience and behavioral science at the heart of our offering, we can create a truly personalized and seamless healthcare experience that engages Members and guides them to pathways that lower costs while improving healthcare outcomes.
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Data, technology and A.I. — We plan to incorporate leading technology and A.I. throughout our business and in all of our building blocks. We will apply A.I. and other custom technologies to improve internal operations and to power solutions that we believe can directly lead to improved care and lower cost of claims. We have invested significantly in these capabilities and believe they are a key competitive advantage.

Foundation — The foundation of a TPA includes claims adjudication, benefits design and working with channel partners, like benefits brokers. We plan to leverage technology in all aspects of these foundational building blocks to lower our own costs. These efficiencies will make us more competitive.

Levers — We will combine the foundational elements of a TPA with A.I.-generated alerts, enriched member engagement, care management and telemedicine. This is how we plan to reduce the growth of
 
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long-term healthcare spending while also improving the quality of healthcare, which is commonly known as “bending the cost curve” in our industry.

Better Value/Better Healthcare Outcomes — We plan to monetize our role in the TPA market as the Payer of the Future by capturing a greater share of the TPA value chain, including a greater share of per employee per month (PEPM) fees charged to our Clients while delivering lower overall costs and quality healthcare outcomes for our Members.
Our Industry Opportunity
Rising healthcare costs have been a major trend affecting all participants of the healthcare ecosystem, including employers and their employees. In the United States, per capita healthcare expenditures are expected to more than double from $5,801 in 1990 to $12,000 in 2020, according to our analysis based on the Health System Tracker of the Peterson Center on Healthcare and Kaiser Family Foundation. As a share of GDP, healthcare expenditures grew from 5% of GDP in 1960 to 18% of GDP in 2019, according to Statista, a market and consumer data company.
These increases in healthcare cost have been driven by an increase in chronic diseases and various forms of waste in the system. Overall, it means that healthcare patients now pay more and are often less healthy than they were years ago. At the same time, patients today have adopted the latest online services and consumer electronics, which has led to consumer expectation for fast, quality service.
The growing healthcare costs and expectations for better service represent a significant challenge for companies that “self-insure,” or pay for their employee’s healthcare benefits directly as opposed to buying health insurance for them. According to the Employee Benefit Research Institute, approximately 80% of U.S. companies with 500 or more employees offered self-insured plans in 2018. According to the Everest Group, a research firm, the TPA market is highly fragmented, with the top 10 TPAs in the U.S. commanding just a 3-5% market share and lagging behind in technology adoption, despite technology being a key enabler of differentiation. Several of the largest insurance providers have their own internal claims processing operations. The industry refers to the big 4 as “BUCAs”: Blue Cross and Blue Shield/Anthem, United Health Group, Cigna, and Aetna. While the Company aims to be one of the largest national independent TPAs, we have network agreements with two of the largest health networks offering greater flexibility and choice.
Another major trend is the explosion of data, especially healthcare data. In 2020, approximately 2,413 exabytes of healthcare data will be generated, or 15x more than the 153 exabytes generated in 2013, according to Statista. The expansive volume of data and the latest breakthroughs in A.I., especially in the field of deep learning, are beginning to impact healthcare. Together with consumer-centric design, A.I. can enable more personalized healthcare and improved outcomes.
We aim to be the Payer of the Future for self-insured employers in the U.S. by deploying our A.I. solutions to curb the rising healthcare costs of our Clients and improve the health outcome of our Members.
Our Strategy
Our strategy is to create a proprietary technology platform enabling rapid growth in the healthcare payer market. With the use of A.I., we believe we can achieve our dual goals of lowering the cost of claims for Clients, while maintaining high quality healthcare outcomes for Members.
Today, we have already developed six A.I. modules to predict the following chronic conditions:

Type 2 Diabetes;

Cardio-vascular disease;

Kidney disease;

Chronic obstructive pulmonary disease (COPD);

High-cost imaging of knee; and

Knee replacement.
 
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These modules allow us to identify which members to enroll in care management. In January 2021, our A.I.-powered TopCare program® became live, making it possible for us to offer care management with high-impact predictions. Seventeen Clients have signed up to use this enhanced product offering on a trial basis as a prototype as of October 26, 2021. We plan to continue to develop our technology, expand the number of A.I. modules TopCare® will incorporate as well as other functionalities, and sign up as many Clients who will pay a premium price for this enhanced product offering as possible.
Although our A.I. technology has not yet been integrated with any of our TPA business’ core systems, other than TopCare, to date, we plan to use A.I. in virtually every part of our TPA business by the end of 2022 as follows:

Claims management that will enable accurate auto-adjudication of most claims, which we believe will lower our operating costs and increase our operating efficiency. This will also include detecting and flagging suspicious claims before final adjudication.

Member engagement and self-service options via an intuitive and easy-to-use application, which we believe will also lower the cost to serve Clients and allow Members to interact with us as often as they wish. We will seek to present the best providers in terms of quality and costs, in a manner that is centered around a Member’s needs and geography.

Continuous Provider quality tracking that will enable us to identify the best Providers and also the usual and customary practices and their related costs.

Smart plan design including cost optimization, performance monitoring and risk prediction.
We plan to use a significant amount of the proceeds from this offering to expand our research and development efforts, build technology infrastructure, and greatly expand our A.I. research. We believe that these enhancements are necessary in creating a Payer of the Future in the TPA market, which can expand both organically and through acquisitions.
Our Products and Services
We are a technology-driven healthcare payer focused on providing services to the self-insured employer market. We do not provide medical prognosis and are not engaged in the practice of medicine of any sort.
Our current core product and service offering includes handling all aspects of administration related to a healthcare plan. We typically design for our Client a healthcare benefit plan which precisely outlines the coverage the Client would like to provide to its employees.
We then manage the plan for the Client by providing the following services:

Providing a Client’s employees access to a Provider network via relationships with Aetna, Cigna, and regional networks;

Concierge type services to help Members find Providers and care management as well as to answer questions, such as on claims and benefits;

Validating and adjudicating claims from Clients’ employees, including automated adjudication;

Promoting health and use of high-quality Providers to the Member population across Clients;

Paying claims on behalf of our Clients; and

Stop-loss insurance via one or several A rated carriers.
We do not bear the financial risk with respect to the cost of the claims for any employer. Instead, the self-insured employers and stop-loss insurance companies, if the self-insured employers purchase stop-loss insurance policies to protect themselves from having higher than planned healthcare costs, bear the risk arising from the cost of claims. We also sell a comprehensive offering of ancillary services such as care management, case management, actuarial services, health savings account administration and cost containment services. Our margin on these partner products varies greatly, but each added service makes the overall package for our Clients more robust and increases the likelihood of Client retention.
 
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Our TopCare® Program
Use of A.I. to make predictions about Members’ health provides us a competitive advantage and differentiates us from other TPAs in the market. Since January 2021, our A.I.-powered TopCare program® became live, making it possible for us to offer care management with high-impact predictions. Using our innovative technology, TopCare® allows us to help self-insured employers manage their employees’ healthcare needs proactively. Our A.I. technology is able to process, analyze and store myriad types of data in large scale. Our A.I. models, collectively branded as “FutureSight Advantage”, recognize patterns and detect anomalies, giving us greater insights on a patient’s medical trajectory, although we do not provide medical prognosis, and are not engaged in the practice of medicine of any sort. Alerts generated by our system based on that trajectory allow our call center staff to start outreaching and recommend the best care to an at-risk Member, whether that is a visit to a primary care physician or to a specialist, for a root cause or drill down analysis. With a full disclaimer to the Member that our system does not provide medical advice or prognosis, our call center staff encourages the Member to develop an actionable healthcare plan with licensed medical professionals.
The key components of our TopCare® program include:

Deep Member Profile — We understand Members’ health based on their medical history, demographic information, historical claims, and in some cases, what they have shared with us as their own health risk assessments. All this data is fed through various deep learning modules and automatically processed;

Claims Trajectory — Our A.I. models have studied millions of claims and have mapped out an expected trajectory for Members. The predictions are based on all data on each Member available to us. Currently, the data includes structured data, such as demographic information, historical claims, laboratory test data when available. In the future, we anticipate that the data will include unstructured data, such as medical images, text-based assessments and other types of health records. All of this data is fed into deep learning models for each data type, and subsequently fed into a unified deep learning model which finds patterns and insights across all data and data types available for the Member; and

Alerts — Our A.I. models come to life via alerts, which are triggered by an event such as a particular claim. Each alert is a new data point for each Member, invoking the entire model to update its predictions. Deep learning models are especially superior for finding non-linear patterns and correlations. For example, a new data point X that apparently is completely unrelated to prediction Y, may actually affect the prediction through complex non-linear patterns, which are very difficult for humans and traditional A.I. to find. Deep learning models, however, are capable of finding those patterns, which trigger new actionable alerts. These alerts allow the TopCare® team to begin outreach to an at-risk Member.
Our A.I.-enabled predictions help both Members and their Providers to be proactive and get in front of costly events, so they can predict, prevent, and plan around them. Management believes that our services provide not only lower costs, but also better value for the money spent on healthcare, and therefore greatly reducing any waste related to care coordination and care delivery.
Our Technology
Our technology infrastructure and expertise are core building blocks of our vision to become the Payer of the Future. The Marpai System is our proprietary big data analytics system that provides advanced deep learning capabilities. Management expects to generate and collect troves of data from all aspects of our business including healthcare claims, member engagement, internal operations and customer experience and systematically apply intelligent automation and artificial intelligence to delight our end users, improve healthcare outcomes and lower costs.
 
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The Marpai System
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Mass Scale Data Fusion — Our system fuses massive amounts of data from various sources in many formats into a single environment for analysis.

Data — Our system includes a unified healthcare schema that can ingest and make useful any healthcare data type including claims, social determinants of health and psychographic data, blood test results and pathology and radiology images.

Data Lake — Our system includes a massive data lake with our unified schema that stores and structures healthcare data in order to enable analysis.

A.I. Models — Our system automatically applies our A.I. models to healthcare data to enable pattern recognition, advanced querying and anomaly detection.

Marpai Product — Our system is fully integrated with our user platform and can automatically deliver alerts to our internal staff and, in the future, to Members and other stakeholders.
Recent Developments
We have entered into four Administrative Service Agreements, each effective as of September 1, 2021, with a series of four school districts in Texas whereby we shall serve as a third party administrator for the self-funded employee welfare benefit plans maintained by these school districts. Marpai is implementing health plans, including our A.I.-powered TopCare program, for these school districts. By virtue of these agreements as of September 1, 2021, we have added 4,000 to 5,000 Employee Lives, representing an increase of 19.6% to 24.5% from the 20,400 “Employee Lives” we served as of June 30, 2021.
On September 2, we effected a forward split at a ratio of 4.555821-for-1 to increase our authorized capital shares from 50,000,000 shares of Class A common stock with a par value $0.0001 per share to 227,791,050 shares of Class A common stock with a par value of $0.0001 per share (the “2021 Forward Split”). As a result of the 2021 Forward Split, we now have 11,147,302 shares of Class A common stock issued and outstanding as of the date of this prospectus.
All share numbers, option numbers, warrant numbers, other derivative security numbers and exercise prices appearing in this prospectus have been adjusted to give effect to the 2021 Forward Split, unless otherwise indicated or unless the context suggests otherwise.
Growth Opportunities
We have two key drivers of growth: acquisitive growth and organic growth.
 
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Acquisitive growth — We plan to grow by acquiring other TPAs with limited technology, and we will view them as books of business. Acquisitions will allow us to quickly fuel our near-term growth. However, we will be disciplined in that we will expect all acquired TPAs to adopt our technology platform and be fully integrated into our operations.

Organic growth — We believe we will grow organically by providing a highly differentiated TPA solution to employer groups.
Corporate Information
We were incorporated in Delaware in January 2021. We maintain our principal executive offices at 5701 E. Hillsborough Ave., Suite 1417, Tampa, FL 33610. We also maintain an office in Tel Aviv, Israel. Our telephone number is (646) 303-3483. Our website address is www.MarpaiHealth.com. Information contained on our website is not incorporated by reference into this prospectus, and it should not be considered to be part of this prospectus.
Acquisition of Marpai Health, Inc. and Continental Benefits LLC
On April 1, 2021, we entered into the Amended and Restated Equity Interest Purchase and Reorganization Agreement (the “Purchase and Reorganization Agreement”) with all the then stockholders of Marpai Health (including holders of shares underlying convertible notes held by certain current directors and officers of Marpai, Inc. that, at the time, were holders of Marpai Health’s convertible promissory notes in an aggregate principal amount of $3,800,000 (the “Original MH Notes”), Continental Benefits, WellEnterprises USA, LLC, and for the sole purposes of a joinder in connection with Guaranteed Obligations (defined below), HillCour. As part of the Acquisition, approximately $3,800,000 of the Marpai Health’s convertible promissory notes were exchanged for shares of common stock of Marpai Inc. immediately prior to the Acquisition. On May 7, 2021, parties entered into an addendum to the Purchase and Reorganization Agreement to correct the interest calculations on certain Original MH Notes. Pursuant to the terms of the Purchase and Reorganization Agreement, the stockholders of Marpai Health and the sole member of Continental Benefits contributed their respective securities and ownership interests in Marpai Health and Continental Benefits to Marpai, Inc. for a combination of shares of Class A common stock and Class B common stock (collectively, “Common Stock”) of Marpai, Inc. (the “Acquisition”). Options to purchase 1,027,602 shares of Marpai Health common stock and warrants to purchase 1,366,746 shares of Marpai Health common stock were exchanged, on a one to one basis, for options and warrants to purchase shares of our Class A common stock. In addition, pursuant to a Note Exchange Agreement, we issued convertible promissory notes in the aggregate principal amount of $2,198,459 (the “New Notes”) in exchange for certain then outstanding convertible promissory notes of Marpai Health of equivalent amount of outstanding principal and accrued but unpaid interest. The New Notes carry a simple interest rate of 8% per annum over a two-year term and will convert upon the closing of this offering, at a price that is 70% of the per share public offering price in this offering. The SQN Convertible Note (defined below) in the aggregate principal amount of $2.93 million remains outstanding. The holder of the SQN Convertible Note has advised us that it intends to convert $2.5 million of the aggregate principal amount of the SQN Convertible Note into shares of Class A common stock.
The Purchase and Reorganization Agreement required Continental Benefits to not have less than $4.762 million of cash on hand, and to have no debt at the time of closing of the Acquisition.
Pursuant to the Purchase and Reorganization Agreement, Continental Benefits was valued solely for purposes of the Acquisition, on a cash-free and debt-free basis, at $8.5 million. Including the $4.762 million of cash on Continental Benefits’ balance sheet, equity totaled $13.26 million. In addition, pursuant to Purchase and Reorganization Agreement, Marpai Health was valued solely for purposes of the Acquisition, at an assumed pre-money valuation of $35 million.
See “Business – Marpai, Inc.’s Acquisition of Marpai Health and Continental Benefits” for a full description of the Acquisition.
Class B Conversion; Second Amended and Restated Charter
On June 28, 2021, Eli David, Yaron Eitan, Edmundo Gonzalez, Grays West Ventures LLC, HillCour Investment Fund, LLC, and WellEnterprises USA, LLC voluntarily converted an aggregate of 927,817
 
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shares of the Company’s Class B common stock they held into 4,226,968 shares of Class A common stock on a 1:1 basis (“Class B Conversion”). On July 8, 2021, the Company filed its Second Amended and Restated Certificate of Incorporation (“Second Amended and Restated Charter”), under which, the share capital of the Company was revised to include solely shares of Class A common stock. Until such filing of the Company’s Second Amended and Restated Charter, the Company was authorized to issue two classes of common stock, Class A common stock and Class B common stock. The issued and outstanding shares of Class B common stock have been converted into Class A common stock as described above, and the authorized class of Class B common stock was eliminated with the filing of the Second Amended and Restated Charter.
Controlled Company
Concurrently with the Class B Conversion, the Company, (i) HillCour Investment Fund, LLC and WellEnterprises USA, LLC (together, the “HillCour Founding Group”) and (ii) Eli David, Yaron Eitan, Edmundo Gonzalez and Grays West Ventures LLC (collectively, the “Grays Founding Group,” and together with the HillCour Founding Group, the “Co-Founders”) entered into an Agreement Relating to Voting Power Between Co-Founders of Marpai, Inc. and Grant of a Power of Attorney and Proxy (“Power of Attorney and Proxy”). Pursuant to the Power of Attorney and Proxy, the HillCour Founding Group granted the Grays Founding Group the right to vote 1,560,237 shares of the Company’s Class A common stock it held (“Proxy Shares”) on all matters relating to any of the following: (i) change to the composition of the Company’s Board of Directors; (ii) sale of all or substantially all of the Company’s assets or capital stock, or a merger involving the Company; (iii) replacement of the Company’s CEO or other C-level officers; (iv) amendment or approval of any corporate documents or agreements in connection with the Company’s corporate structure or capital raising activities; (v) approval of the Company’s annual budget and business plan; and (vi) the Company’s acquisition, joint venture or other collaborative agreements. Consequently, the HillCour Founding Group and the Grays Founding Group currently have the right to vote 3,913,268 and 3,913,263 shares of the Company’s capital stock, respectively. The Power of Attorney and Proxy also provides that the number of Proxy Shares is subject to adjustment from time to time so as to maintain as much as possible, equal voting power in the Company between the HillCour Founding Group on the one hand and the Grays Founding Group on the other, subject to certain exceptions related to transfer of shares by the parties. The Power of Attorney and Proxy is irrevocable and will remain in full force and effect until the earlier of (i) consummation of the sale of all or substantially all of the Company’s assets, or the acquisition of the Company by a third party (by way of stock acquisition, merger, recapitalization or otherwise), or (ii) the time when the Grays Founding Group collectively owns fewer than 1,882,420 shares of the Company’s capital stock. For as long as this Power of Attorney and Proxy remains in effect, the HillCour Founding Group and the Grays Founding Group are therefore deemed to be a “group” under Rule 13d-5(d) of the Exchange Act.
Pursuant to this Power of Attorney and Proxy, the Co-Founders have also agreed to vote all their shares for the election of (a) Damien Lamendola (or another nominee of the HillCour Founding Group), (b) Edmundo Gonzalez; and (c) Yaron Eitan (or up to two other nominees of the Grays Founding Group) as the Company’s directors. Pursuant to this Power of Attorney and Proxy, the Co-Founders collectively hold an aggregate of more than 70% of the voting power of the Company’s common stock and therefore, the Company is eligible to be classified as a “controlled company” under the rules of the Nasdaq Stock Market and the Company will be eligible to utilize certain exemptions from the corporate governance requirements of the Nasdaq Stock Market. We do not currently intend to avail ourselves of these exemptions.
 
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Organizational Chart of the Company
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Implications of Being an Emerging Growth Company and a Smaller Reporting Company
We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. As an “emerging growth company,” we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include, but are not limited to:

requiring only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s discussion and analysis of financial condition and results of operations” in our Securities Act of 1933, as amended, or the Securities Act, filings;

reduced disclosure about our executive compensation arrangements;

no non-binding advisory votes on executive compensation or golden parachute arrangements; and

exemption from compliance with the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes Oxley Act of 2002, or SOX.
We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an “emerging growth company.” We will continue to remain an “emerging growth company” until the earliest of the following: (i) the last day of the fiscal year following the fifth anniversary of the date of the completion of this offering; (ii) the last day of the fiscal year in which our total annual gross revenue is equal to or more than $1.07 billion; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, or the SEC.
We are also a “smaller reporting company” as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act, and have elected to take advantage of certain of the scaled disclosures available to smaller reporting companies. To the extent that we continue to qualify as a “smaller reporting company” as such term is defined in Rule 12b-2 under the Exchange Act, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an “emerging growth company” may continue to be available to us as a “smaller reporting company,” including exemption from compliance with the auditor attestation requirements pursuant to SOX and reduced disclosure about our executive compensation arrangements. We will continue to be a “smaller reporting company” until we have $250 million or more in public float (based on our Class A common stock) measured as of the last business day of our
 
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most recently completed second fiscal quarter or, in the event we have no public float (based on our Class A common stock) or a public float (based on our Class A common stock) that is less than $700 million, annual revenues of $100 million or more during the most recently completed fiscal year.
We may choose to take advantage of some, but not all, of these exemptions. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold stock. In addition, the JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected to avail ourselves of the extended transition period for complying with new or revised financial accounting standards. As a result of this accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies which may make comparison of our financials to those of other public companies more difficult.
Summary Risk Factors
Our business is subject to numerous risks and uncertainties that you should consider before investing in our company. You should carefully consider the risks described more fully in the section titled “Risk Factors” in this prospectus beginning on page 25, before making a decision to invest in our Class A common stock. If any of these risks actually occurs, our business, financial condition and results of operations would likely be materially adversely affected. These risks, include, but are not limited to, the following:

We and Marpai Health are development stage companies with no operating history and no revenues.

Continental Benefits has had a history of operating losses, and we may not be able to generate sufficient revenue to achieve profitability.

The loss, termination, or renegotiation of any contract with Continental Benefits’ current Clients could materially adversely affect our financial conditions and operating results.

Continental Benefits is party to a number of disputes and lawsuits, and we may be subject to liabilities arisen from these and similar disputes in the future.

Continental Benefits may be subject to penalties from the Internal Revenue Services.

Our success will largely depend on our ability to integrate Marpai Health and Continental Benefits, and effectively manage the combined company.

If our TopCare® program fails to provide accurate and timely predictions, or if it is associated with wasteful visits to Providers or unhelpful recommendations for Members, then this could lead to low customer satisfaction, which could adversely affect our results of operations.

Issues in the use of A.I., including deep learning in our platform and modules, could result in reputational harm or liability.

If the markets for our A.I. modules and TopCare® program fail to grow as we expect, or if self-insured employers fail to adopt our TopCare® program and A.I. modules, our business, operating results, and financial condition could be adversely affected.

We rely on healthcare benefits brokers and consultants as our principal sales channel, and some of these companies are large and have no allegiance to us. If we do not satisfy their employer clients, they may steer not only an unsatisfied client, but others as well, to other TPAs.

Our pricing may change over time and our ability to efficiently price our services will affect our results of operations and our ability to attract or retain Clients.

Our sales cycles can be long and unpredictable, and our sales efforts require a considerable investment of time and expense. If our sales cycle lengthens or we invest substantial resources pursuing unsuccessful sales opportunities, our results of operations and growth would be harmed.

Because Continental Benefits generally recognizes technology and professional services revenue ratably over the term of the contract for our services, a significant downturn in its business may not
 
10

 
be reflected immediately in our results of operations, which increases the difficulty of evaluating our future financial performance.

Continental Benefits has a high annual customer attrition rate historically. The loss, termination, or renegotiation of any contract with Continental Benefits’ current Clients could have a material adverse effect on our financial conditions and operating results.

If we do not have access to A.I. talent or fail to expand our A.I. models, we may not remain competitive, and our revenue and results of operations could suffer.

Failure by our Clients to obtain proper permissions and waivers may result in claims against us or may limit or prevent our use of data, which could harm our business.

Absence of change of control and/or assignment provisions in Continental Benefits’ data privacy policy and Non-Disclosure Agreements with regard to the sharing of confidential information could adversely affect our business.

If our security measures are breached or unauthorized access to client data is otherwise obtained, our product and service offerings may be perceived as not being secure, Clients may reduce the use of or stop using our services, and we may incur significant liabilities.

Global or regional health pandemics or epidemics, including COVID-19, could negatively impact our business operations, financial performance and results of operations.

Potential political, economic and military instability in the State of Israel, where our research and development facilities are located, may adversely affect our results of operations.

Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.

Because a certain portion of our expenses is incurred in currencies other than the US Dollar, our results of operations may be harmed by currency fluctuations and inflation.

Employment and other material contracts we have with our Israeli employees are governed by Israeli laws. Our inability to enforce or obtain a remedy under these agreements could adversely affect our business and financial condition.

Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws against one of our directors or asserting U.S. securities laws claims in Israel.

Unanticipated changes in our effective tax rate and additional tax liabilities, including as a result of our international operations or implementation of new tax rules, could harm our future results.

We rely on third-party providers, including Amazon Web Services, for computing infrastructure, network connectivity, and other technology-related services needed to deliver our service offerings. Any disruption in the services provided by such third-party providers could adversely affect our business and subject us to liability.

We rely on Internet infrastructure, bandwidth providers, data center providers, other third parties, and our own systems for providing services to our users, and any failure or interruption in the services provided by these third parties or our own systems could expose us to litigation, potentially require us to issue credits to our Clients, and negatively impact our relationships with Members or Clients, adversely affecting our brand and our business.

We employ third-party licensed software and software components for use in or with our TopCare® program, and the inability to maintain these licenses or the presence of errors in the software we license could limit the functionality of our TopCare® program and result in increased costs or reduced service levels, which would adversely affect our business.

Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.

We may not be able to adequately defend against piracy of intellectual property in foreign jurisdictions.
 
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We may be sued by third parties for alleged infringement of their proprietary rights or misappropriation of intellectual property.

Our TopCare® program utilizes open-source software, and any failure to comply with the terms of one or more of these open-source licenses could adversely affect our business.

Government regulation of healthcare creates risks and challenges with respect to our compliance efforts and our business strategies.

Our business could be adversely impacted by changes in laws and regulations related to the Internet or changes in access to the Internet generally.

As a “controlled company” under the rules of the Nasdaq Capital Market, we may choose to exempt our company from certain corporate governance requirements that could have an adverse effect on our public shareholders.

Certain of our founding shareholders will continue to own a significant percentage of our Class A common stock and will be able to exert significant control over matters subject to shareholder approval.

An active trading market may not develop for our securities, and you may not be able to sell your Class A common stock at or above the offering price per share.
 
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The Offering
Class A common stock offered by us
6,250,000 shares (or 7,187,500 shares if the underwriters exercise in full their option to purchase additional shares to cover over-allotments, if any) at an initial public offering price of $4.00 per share.
Class A common stock to be outstanding after this offering
18,328,214 shares (or 19,265,714 shares if the underwriters exercise in full their option to purchase additional shares to cover over-allotments, if any)
Option to purchase additional shares
We have granted the underwriters a 45-day option to purchase up to 937,500 additional shares of our Class A common stock from us at the public offering price, less underwriting discounts and commissions.
Representative’s Warrants
We will issue to the representative of the underwriters as compensation, upon closing of this offering, the Representative’s Warrants entitling the representative to purchase a number of shares of Class A common stock equal to 5% of the aggregate number of shares of Class A common stock issued in this offering, including shares of Class A issued pursuant to the exercise of the over-allotment option at an exercise price of 5.00 per share. The Representative’s’ Warrants will have a term of five years and may be exercised at any time and from time to time, in whole or in part, during the four and one half year period commencing 180 days from the effective date of the registration statement of which this prospectus is a part. This prospectus also relates to the offering of the 312,500 shares (or 359,375 shares if the underwriters exercise their full over-allotment option) of Class A common stock issuable upon exercise of the Representative’s Warrants.
Use of proceeds
We estimate that the net proceeds from this offering will be approximately $21.3 million, or approximately $24.8 million if the underwriters exercise their option to purchase additional shares to cover over-allotments, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We plan to use approximately $8.0 million of the net proceeds from this offering to fund our research and development. This amount includes hiring new A.I. scientists and acquiring data from third parties. We plan to use approximately $2.0 million on sales and marketing. We intend to use approximately $0.8 million from the net proceeds of this offering to repay a portion of the principal amount plus accrued interest on the portion of the SQN Convertible Note (as defined below) that the holder thereof has not elected to convert into shares of Class A common stock. We intend to use up to approximately $3.0 million from the net proceeds of this offering to repay $3.0 million of the outstanding balance plus accrued interest of a $3.0 million promissory note dated July 29, 2021 payable to HillCour Investment Fund (the “the HillCour Promissory Note”), and the remaining proceeds of this offering for working capital, general corporate purposes and potential acquisitions. See “Use of Proceeds”
 
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for a more complete description of the intended use of proceeds from this offering.
Risk factors
Investing in our securities involves a high degree of risk and purchasers may lose their entire investment. You should read the “Risk Factors” section of this prospectus beginning on page 25 for a discussion of certain factors to consider carefully before deciding to purchase any shares of our Class A common stock.
NASDAQ Capital Market Symbol
Our Class A common stock has been approved for listing on the Nasdaq Capital Market under the symbol “MRAI.”
Transfer Agent and Registrar
The transfer agent and registrar for our Class A common stock is American Stock Transfer & Trust Company LLC.
The number of shares of our Class A common stock to be outstanding after this offering is based on the shares of Class A common stock to be outstanding as of the date of this prospectus and excludes the following:

1,422,112 shares of Class A common stock issuable upon the exercise of outstanding stock options, at a weighted average exercise price of $1.77 per share;

1,637,305 shares of Class A common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $5.92 per share;

781,250 shares of Class A common stock issuable upon conversion of $2.5 million of the aggregate principal amount SQN Convertible Note by the holder thereof;

81,309 shares of Class A common stock reserved for future issuance under our 2021 Global Stock Incentive Plan; and

312,500 shares of Class A common stock issuable upon the exercise of the Representative’s Warrants.
Unless otherwise indicated, this prospectus reflects and assumes the following:

no exercise of outstanding options or warrants;

no exercise by the underwriters of their option to purchase up to 937,500 additional shares of our Class A common stock from us to cover over-allotments, if any; and

the issuance of 930,912 shares of Class A common stock upon conversion of the (i) New Notes and (ii) the convertible notes in the aggregate principal amount of $300,000 issued in June 2021 (the “June 2021 Notes”) upon the consummation of this offering.
 
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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following summary unaudited pro forma condensed combined financial data, or the summary pro forma data, gives effect to the Acquisition described in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information.” The Acquisition is being accounted for as a business combination, with Marpai Health treated as the “acquirer” and Continental Benefits treated as the “acquired” company for financial reporting purposes. Under the acquisition method of accounting, the total purchase price of an acquisition is allocated to the net tangible and intangible assets based on their estimated fair values. Such valuations are based on available information and certain assumptions that management of Marpai Health believe are reasonable.
The summary unaudited pro forma condensed combined statement of operations data, which have been presented for the six months ended June 30, 2021 and the year ended December 31, 2020, give effect to the transactions summarized below, as if they had occurred on January 1, 2020.
The summary pro forma data have been derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial information of the combined company appearing elsewhere in this prospectus and the accompanying notes. The unaudited pro forma condensed combined financial information is based upon, and should be read in conjunction with, the historical consolidated financial statements of Marpai Inc, Marpai Health and Continental Benefits and related notes included in this prospectus. The summary pro forma data have been presented for informational purposes only and are not necessarily indicative of what the combined company’s financial position or results of operations actually would have been had the Acquisition been completed as of the dates indicated. In addition, the summary pro forma data do not purport to project the future financial position or operating results of the combined company.
The following table presents summary pro forma data after giving effect to the Acquisition:
All share and per share amounts presented herein have been restated to reflect a forward split at a ratio of 4.555821-for-1, which was effected on September 2, 2020, as if it had occurred at the beginning of the earliest period presented.
Year Ended
December 31,
2020
Six Months
Ended
June 30, 2021
Net revenue
$ 18,388,192 $ 7,746,593
Operating loss
(17,131,684) (7,447,870)
Net loss
$ (17,620,431) $ (7,591,285)
Net loss per ordinary share basic and diluted
$ (1.58) $ (0.673)
 
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SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA OF MARPAI, INC.
The accompanying summary selected consolidated financial data include the accounts of Marpai Inc. (the “Company”) and its wholly owned subsidiaries, EYME and Marpai Health, for all the periods presented and Continental Benefits from April 1, 2021, the date of the Acquisition. All references to the Company and Marpai Health for periods prior to the Acquisition are interchangeable as if the Acquisition was in effect for all periods presented in the condensed consolidated financial statements.
The summary consolidated financial information and other data presented below for the six months ended June 30, 2021 and 2020, and as of June 30, 2021, have been derived from our unaudited interim condensed consolidated financial statements included in this prospectus. The summary consolidated financial information for the year ended December 31, 2020 and the summary consolidated balance sheet as of December 31, 2020 have been derived from our audited consolidated financial statements included in this prospectus. Our unaudited condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and reflect, in the opinion of our management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of this data. Our historical results are not necessarily indicative of the results that may be expected in the future. The following summary consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited and audited consolidated financial statements and related notes included elsewhere in this prospectus. Amounts (excluding share data) in the following tables are in U.S. dollars.
We acquired Continental Benefits on April 1, 2021 and our unaudited consolidated financial information for the six months ended June 30, 2021 consolidates the financial information of Continental Benefits from April 1, 2021, the date of the Acquisition. Our results of operations and statements of assets and liabilities may not be comparable between periods as a result of the Acquisition.
All share and per share amounts presented herein have been restated to reflect a forward split at a ratio of 4.555821-for-1, which was effective on September 2, 2021, as if it had occurred at the beginning of the earliest period presented.
STATEMENTS OF OPERATIONS DATA:
For the Year Ended
December 31,
For the Six Months Ended
June 30,
2020
2021
2020
Net revenue
$ $ 3,531,512 $
Cost of revenue (exclusive of depreciation and amortization shown separately below)
(2,720,483)
General and administrative
1,499,376 2,814,950 773,223
Research and development
1,840,772 549,374 1,025,986
Sales and marketing
27,583 1,443,785 5,623
Information and technology
731,230
Facilities
226,892
Depreciation and amortization
420,967 37,885
Other expense
(500,253) (237,419) (215,785)
Loss from operations
(3,867,984) (5,613,588) (2,058,502)
Income tax provision
(150,000)
Net loss
$ (3,867,984) $ (5,463,588) (2,058,502)
Net loss per share
Basic and fully diluted
$ (1.59) $ (0.84) (0.93)
Weighted average number of common shares
Basic and fully diluted
2,428,877 6,528,888 2,211,683
 
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BALANCE SHEET DATA:
As of December 31, 2020
As of June 30, 2021
Current assets
$ 2,180,181 $ 8,621,723
Total assets
6,531,860 26,413,689
Current liabilities
2,649,207 9,001,133
Long term liabilities
7,379,152 8,261,383
Common stock
14 1,115
Total stockholders’ (deficit) equity
$ (3,496,499) $ 9,151,173
 
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SUMMARY SELECTED CONSOLIDATED DATA OF
CONTINENTAL BENEFITS, LLC PRE-ACQUISITION
The following table summarizes Continental Benefits’ consolidated financial data. We have derived the following statements of operations data for the year ended December 31, 2020 and balance sheet data as of December 31, 2020 from Continental Benefits’ audited consolidated financial statements included elsewhere in this prospectus.
The historical results presented below are not necessarily indicative of the results to be expected for any future period. The following selected financial information should be read in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Continental Benefits Pre-Acquisition” and Continental Benefits’ financial statements and related notes appearing elsewhere in this prospectus.
STATEMENTS OF OPERATIONS DATA:
Year Ended
December 31,
2020
Net sales
$ 18,388,192
Cost and expenses
Cost of revenue (exclusive of depreciation and amortization shown separately below)
13,931,008
Administrative
8,700,352
Information technology
4,223,350
Sales and marketing
2,724,368
Facilities
762,649
Depreciation and amortization
596,152
Total costs and expenses
30,937,879
Operating loss
(12,549,687)
Other non operating income
Interest income
11,506
Other income
Total non operating income
11,506
Net loss
$ (12,538,181)
BALANCE SHEET DATA:
As of December 31, 2020
Current assets
$ 14,143,967
Total assets
17,327,171
Current liabilities
10,608,167
Long term liabilities
1,281,362
Total member’s equity
$ 5,437,642
 
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Introduction
The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X with respect to the financial aspects of the Acquisition, summarized below. For each of the periods presented, the unaudited pro forma condensed combined financial information reflects the combination of historical financial information of Marpai Health and Continental Benefits LLC (“Continental Benefits”), adjusted to give effect to the Acquisition, inclusive of the issuance of shares of common stock to Continental Benefits’ sole member. Hereinafter, Marpai Health and Continental Benefits are collectively referred to as the “Companies,” and the Companies, subsequent to the Acquisition, are referred to herein as the “Combined Company.”
The unaudited pro forma condensed combined financial information does not include an unaudited pro forma consolidated balance sheet as of June 30, 2021 as the Acquisition and related transactions are already reflected in the historical unaudited condensed consolidated balance sheet as of June 30, 2021, included elsewhere in this prospectus.
Description of the Transaction
On April 1, 2021, pursuant to the terms of the Amended and Restated Equity Interest Purchase and Reorganization Agreement, as was further amended on May 7, 2021 (collectively, the “Agreement”), the stockholders of Marpai Health Inc. (“Marpai Health”) and the sole member of Continental Benefits, LLC (“Continental Benefits”) contributed their respective shares and ownership interests in Marpai Health and Continental Benefits to Marpai Inc (the “Company”) in consideration for shares of the Company’s common stock. Additionally, options to purchase 1,027,602 shares of Marpai Health’s common stock and warrants to purchase 1,366,746 shares of Marpai Health’s common stock were exchanged, on a one-to-one basis, for options and warrants to purchase shares of the Company’s common stock (the above transactions shall be referred to as the “Acquisition”). As part of the Acquisition, approximately $3,800,000 of Marpai Health’s convertible promissory notes were exchanged for shares of common stock of the Company immediately prior to the Acquisition. As part of the Acquisition, pursuant to a Note Exchange Agreement, the Company acquired Marpai Health’s certain outstanding convertible promissory notes, with aggregate outstanding principal and accrued but unpaid interest of $2,198,459, in exchange for the issuance of the Company’s convertible promissory notes of equivalent aggregate principal amount. The Agreement called for Continental Benefits to not have less than $4.762 million of cash on hand, and to have no debt at the time of closing of the Acquisition.
According to the Agreement, Continental Benefits is valued, on a cash-free and debt-free basis, at $8.5 million. Including $4.762 million of cash on Continental Benefits’ balance sheet, equity would total $13.26 million. In addition, pursuant to the Agreement, Marpai Health is valued at an assumed pre-money valuation of the last convertible note’s conversion price of $35 million.
For accounting purposes, the acquirer is the entity that has obtained control of another entity and, thus, consummated a business combination. Management has determined that Marpai Health is the accounting acquirer and Continental Benefits is deemed to be the acquired company for financial reporting purposes based on an evaluation of the following facts and circumstances:
1.
Marpai Health’s legacy stockholders hold a majority ownership and voting interest in the Company;
2.
Marpai Health’s senior management team comprise the senior management of the Company; and
3.
Directors appointed by Marpai Health hold a majority of board seats of the Company.
Other factors were considered but they would not change the preponderance of factors indicating that Marpai Health was the accounting acquirer.
The historical combined financial information of the Companies has been adjusted to give effect to pro forma events that are (1) directly attributable to the Acquisition, (2) factually supportable, and (3) with
 
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respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial information should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial information. In addition, the unaudited pro forma condensed combined financial information was based on and should be read in conjunction with the:

Unaudited condensed consolidated financial statements of Marpai Inc. as of and for the six months ended June 30, 2021 and audited consolidated financial statements of Marpai Health as of and for the year ended December 31, 2020 and the related notes, which are included elsewhere in this prospectus;

Unaudited condensed consolidated financial statements of Continental Benefits as of and for the three months ended March 31, 2021 and audited consolidated financial statements of Continental Benefits as of and for the year ended December 31, 2020 and the related notes, which are included elsewhere in this prospectus;
The unaudited pro forma condensed combined financial information does not reflect the costs of any integration activities or benefits that may result from realization of future cost savings from operating efficiencies or revenue synergies that may result from the Acquisition.
The unaudited pro forma condensed combined financial information is based on the assumptions and adjustments that are described in the accompanying notes.
All share and per share amounts presented herein have been restated to reflect a forward split at a ratio of 4.555821-for-1, which was effected on September 2, 2021, as if it had occurred at the beginning of the earliest period presented.
The unaudited pro forma condensed combined financial information has been prepared for illustrative purposes only and are not necessarily indicative of the results of operations in future periods or the results that actually would have been realized had Marpai Health and Continental Benefits been a combined company during the specified periods.
 
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2021
Marpai
Inc(1)
(Historical)
Continental
Benefits(2)
(Historical)
Pro Forma
Adjustments
Notes
Pro Forma
Combined
Net revenue
$ 3,531,512 $ 4,215,081 $ $ 7,746,593
Costs and expenses
Cost of revenue (exclusive of depreciation and amortization shown separately below)
2,720,483 3,096,275 5,816,758
General and administrative
2,814,950 1,045,397 3,860,347
Information technology
731,230 865,966 1,597,196
Research and development
549,374 549,374
Sales and marketing
1,443,785 628,487 2,072,272
Facilities
226,892 184,718 411,610
Depreciation and amortization
420,967 162,373 23,716 (a) 886,906
279,850 (b)
Total costs and expenses
8,907,681 5,983,216 303,566 15,194,463
Operating loss
(5,376,169) (1,768,135) (303,566) (7,447,870)
Other expenses
Interest income (expense)
(276,033) (276,033)
Other income
54,398 16,004 70,402
Foreign exchange loss
(15,784) (15,784)
Loss before provision for income taxes
(5,613,588) (1,752,131) (303,566) (7,669,285)
Income tax benefit
(150,000) (150,000)
Net loss
(5,463,588) (1,752,131) (303,566) (7,519,285)
Net loss per share, basic & fully diluted
(0.84) (0.67)
Weighted average number of
common shares
6,528,888 (c) 11,147,302
(1)
Derived from Marpai, Inc.’s unaudited condensed consolidated statement of operations for the six months ended June 30, 2021, which includes the results of operations for Marpai Health for the six months ended June 30, 2021and Continental Benefits for the three months ended June 30, 2021.
(2)
Derived from Continental Benefits’ unaudited condensed consolidated statement of operations for the three months ended March 31, 2021.
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
 
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2020
Marpai
Health(3)
(Historical)
Continental
Benefits(4)
(Historical)
Pro Forma
Adjustments
Notes
Pro Forma
Combined
Net revenue
$ $ 18,388,192 $ $ 18,388,192
Costs and expenses
Cost of revenue (exclusive of
depreciation and amortization shown
separately below)
13,931,008 13,931,008
General and administrative
1,499,376 8,700,352 10,199,728
Information technology
4,223,350 4,223,350
Research and development
1,840,772 1,840,772
Sales and marketing
27,583 2,724,368 2,751,951
Facilities
762,649 762,649
Depreciation and amortization
596,152 94,866 (a) 1,810,418
1,119,400 (b)
Total costs and expenses
3,367,731 30,937,879 1,214,266 35,519,876
Operating loss
(3,367,731) (12,549,687) (1,214,266) (17,131,684)
Other expenses
Interest income (expense)
(521,140) 11,506 (509,634)
Other income
25,846 25,846
Foreign exchange gain
(4,959) (4,959)
Loss before provision for income taxes
(3,867,984) (12,538,181) (1,214,266) (17,620,431)
Income tax expense
Net loss
(3,867,984) (12,538,181) (1,214,266) (17,620,431)
Net loss per share, basic & fully
diluted
(1.59) (1.58)
Weighted average number of common shares
2,428,877 (c) 11,147,302
(3)
Derived from Marpai Health’s audited consolidated statement of operations for the year ended December 31, 2020.
(4)
Derived from Continental Benefits’ audited consolidated statement of operations for the year ended December 31, 2020.
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
 
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
BASIS OF PRESENTATION AND DESCRIPTION OF THE ACQUISITION
On April 1, 2021, pursuant to the terms of the Purchase and Reorganization Agreement (the “Agreement”), Marpai, Inc. acquired all of the outstanding capital stock of Marpai Health and all of the outstanding membership interests of Continental Benefits. The stockholders of Marpai Health and Continental Benefits contributed their respective ownership interests in Marpai Health and Continental Benefits to Marpai, Inc. for shares of Common Stock of Marpai Inc. (the “Acquisition”). For further details on the Acquisition see the section titled Description of the Transaction.
The unaudited pro forma condensed combined financial information presents the pro forma condensed combined results of operations of the Combined Company based upon the historical financial statements of Marpai Health and Continental Benefits, after giving effect to the Acquisition and are intended to reflect the impact of such on the Combined Company’s consolidated results of operations.
The unaudited pro forma condensed combined statements of operations, which have been presented for the six months ended June 30, 2021 and the year ended December 31, 2020, give effect to the transactions summarized below, as if they had occurred on January 1, 2020. The unaudited pro forma condensed combined statements of operations do not purport to represent, and are not necessarily indicative of, what the actual results of operations of the Combined Company would have been had the Acquisition taken place on January 1, 2020, nor are they indicative of the results of operations of the Combined Company for any future period.
The historical combined financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the Acquisition, (2) factually supportable, and (3) with respect to the pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results.
The Acquisition is being accounted for as a business combination, with Marpai Health treated as the “acquirer” and Continental Benefits treated as the “acquired” company for financial reporting purposes. Under the acquisition method of accounting, the total purchase price of an acquisition is allocated to the net tangible and intangible assets based on their estimated fair values. Such valuations are based on available information and certain assumptions that management of Marpai Health believe are reasonable. The allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed is based on various estimates. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information. Any excess of the purchase price over the fair value of identified tangible and intangible assets acquired and liabilities assumed is recognized as goodwill.
The unaudited pro forma condensed combined financial information does not reflect restructuring or integration activities that have yet to be determined or other costs that may be incurred to achieve cost or growth synergies of the Combined Company. As no assurance can be made that the costs will be incurred or the cost or growth synergies will be achieved, no adjustment has been made.
Further, the unaudited pro forma condensed combined financial information does not necessarily reflect what the Combined Company’s results of operations would have been had the Acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the Combined Company. The actual results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. In addition, the Combined Company’s management believes that income tax effects of the pro forma adjustments on the unaudited pro forma condensed combined financial information would not be meaningful given the Combined Company incurred significant losses during the historical periods presented.
 
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Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations
The condensed consolidated statement of operations of Marpai Inc. for the six months ended June 30, 2021 includes the results of operations of Continental Benefits for the three months ended June 30, 2021, but do not include Continental Benefits results of operations prior to the Acquisition, for the three months ended March 31, 2021. As such, the pro forma adjustments included in the unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2021 are related the three months ended March 31, 2021 as follows:
(a)
Depreciation of property and equipment, net. The following table summarizes the changes in the estimated depreciation expense resulting from the adjustment of property and equipment, net to fair value of $1,601,990:
Three months
ended
March 31,
2021
Year ended
December 31,
2020
Estimated depreciation expense
$ 186,089 $ 691,378
Historical depreciation expense
162,373 596,512
Pro forma adjustments to depreciation expense
$ 23,716 $ 94,866
(b)
The following table summarizes the estimated fair values of Continental Benefits’ identifiable intangible assets, their estimated useful lives and the amortization for presented periods:
Estimated
Fair Value
Estimated
Useful
Life in
Years
Amortization
Three Months
ended
March 31, 2021
Amortization
Year ended
December 31, 2020
Trademarks
$ 1,860,000
10.00
$ 46,712 $ 186,848
Patent and patent applications
700,000
(*)
Customer relationships
3,370,000
7.00
120,907 483,628
Capitalized software
1,230,000
5.00
61,500 246,000
Intangible assets
1,010,000
5.00
50,731 202,924
Total
8,170,000 279,850 1,119,400
Pro forma adjustments to
amortization expense
$ 279,850 $ 1,119,400
(*)
Patents which have yet to be approved by US Patent Office. Useful life is determined upon placement into service after approval.
(c)
Represents the weighted average shares in connection with the issuance of 11,147,302 common shares upon closing of the Acquisition reflecting a forward split at a ratio of 4.555821-for-1, which was effected on September 2, 2021, as if it had occurred at the beginning of the earliest period presented..
 
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RISK FACTORS
Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, before making a decision to invest in our Class A common stock. The risks and uncertainties described below may not be the only ones we face. If any of the risks actually occur, our business, results of operations, financial condition and prospects could be harmed. In that event, the trading price of our Class A common stock could decline, and you could lose part or all of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.
Risks Related to Managing and Growing Our Combined TPA Business
We and Marpai Health are a development stage company with no operating history and no revenues.
On April 1, 2021, Marpai consummated its acquisition of Marpai Health and Continental Benefits.
Marpai Health, Inc. was formed in February 2019. Together with its wholly-owned subsidiary, EYME Technologies Ltd., an Israeli company (“EYME,”) Marpai Health is a development stage company with no operating history and has not yet generated any revenue. As of December 31, 2020 and March 31, 2021, it had an accumulated deficit of approximately $5.5 million, and $7.1 million, respectively, and working capital deficit of $469,026 and $2.7 million, respectively. At March 31, 2021, it had total debt of approximately $9.6 million. Since inception, Marpai Health has funded its capital needs from sale of convertible notes. As of June 30, 2021, Marpai has an accumulated deficit of approximately $11.0 million and working capital deficit of $379,410. At June 30, 2021, it had total debt of approximately $5.7 million and $2.3 million of unrestricted cash on hand.
We expect to derive a significant portion of our revenue from the renewal of Continental Benefits’ existing Client contracts and sales of our added services to its existing Clients. Sale of products and services through Continental Benefits’ TopCare® program is key to our success. We believe that our A.I. models with deep learning functionality and predictive algorithms give us the ability to predict chronic conditions and costly medical procedures, and these factors differentiate us from other TPAs. However, implementing Marpai Health’s prediction tools as part of Continental Benefits’ TopCare® program is a new initiative. There can be no assurances as to how long it will take for our A.I.-enabled TopCare® program to resonate with Continental Benefits’ current Clients, or at all. Even with interested Clients, it will likely take some time for the TopCare® program to yield measurable results.
Continental Benefits had a history of operating losses, and we may not be able to generate sufficient revenue to achieve profitability.
Continental Benefits has suffered significant recurring losses and negative cash flows from operations, and historically has relied on periodic contributions from HillCour for the development of its product and funding of its operating expenses. It incurred net losses of $12.5 million and $11.5 million for the year ended December 31, 2020, and 2019, respectively. It had an accumulated deficit of $56.6 million and $58.4 million as of December 31, 2020 and March 31, 2021, respectively. Compared to the year ended December 31, 2019, Continental Benefits has experienced a decrease of 9.5% in revenue, or approximately $1.9 million. There are no assurances that we can reverse the trend.
In September 2020, FTI Consulting, Inc. (“FTI”), a global consulting firm, was retained to assist with Continental Benefits’ organizational restructuring with a view to reduce its operating expenses and achieve break-even or near-term profitability. In November 2020, FTI recommended an organizational re-design including reducing the ratio of managers to direct reports, eliminating the Program Management Office, counseling out employees due to performance issues and cuts in claims and customer service departments to bring the operating costs more in line with industry norms, which resulted in the elimination of a total of 56 positions. FTI also recommended a number of cost-cutting measures, including rationalizing the IT processes, cancelling IT contracts that were not used, and generally optimizing IT expenditures. We believe that these measures, which were implemented on a rolling-basis through March 2021 immediately prior to the Acquisition, will save us on an annualized basis, approximately $5.5 million in headcount-related expenses and approximately $1.5 million in non-headcount-related expenses. The implementation of the restructuring
 
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and other recommendations will continue after completion of this offering and may take longer than planned. It may also cause business disruptions which may adversely affect customer satisfaction and negatively impact revenues. There can be no assurances that the organizational restructuring and cost-cutting measures, even if fully implemented, will be effective to eliminate Continental Benefits’ operating losses.
We also expect that our operating costs will increase over time as we continue to invest to grow our business and build relationships with Clients, develop our platform, develop new solutions, and operate as a public company. These efforts may prove to be more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. If we are unable to effectively manage these risks and difficulties as we encounter them, our business, financial condition, and results of operations would be adversely affected.
The audited financial statements of both Continental Benefits and Marpai for the year ended December 31, 2020 included an explanatory paragraph relating to liquidity.
For the year ended December 30, 2020, Marpai Health had an accumulated deficit of approximately $5.5 million and working capital deficit of approximately $469,026. Since inception, Marpai Health has relied on the issuance of convertible notes to fund its operating expenses. Its cash requirements are generally for operating activities and debt repayments. Continental Benefits has suffered recurring losses and for the year ended December 31, 2020, it has an accumulated deficit of $56.6 million. It has historically met its cash needs through cash flows from operating activities and periodic contributions from HillCour. For the year ended December 30, 2020 and 2019, HillCour contributed to Continental Benefits approximately $8.8 million and $9.3 million, respectively. In March 2021, in connection with the audit of Marpai Health and Continental Benefits, HillCour gave a support letter (the “March Support Letters”) to each of (i) Marpai Health, agreeing to provide Marpai Health capital to fund its operating expenses until April 2022 if the Company is unable to complete this offering, or secure enough funding or revenue to fund Marpai Health’s operations, which was projected at the time to be approximately between $3.5 million and $4.5 million, and (ii) Continental Benefits, agreeing to provide Continental Benefits capital to fund its operations through April 30, 2022, which was projected at the time to be between $6.5 million and $8.0 million. In May 2021, the two March Support Letters were superseded by a HillCour letter (the “May Support Letter”) which has been superseded by another HillCour letter (the “August Support Letter”) providing that if Marpai, Inc. fails to (i) complete this offering, (ii) raise sufficient capital through private rounds of financings, or (iii) secure sufficient operating cash to fund its operating expenses, HillCour, subject to such further conditions, and in a form to be mutually determined, will provide Marpai, Inc. funding and financial support necessary to pay for its operating expenses so Marpai, Inc. is able to continue to operate in its normal course of business through September 30, 2022. At the time the August Support Letter was executed, Marpai, Inc.’s un-funded operating expenses through September 30, 2022 was estimated to be between $8.0 million and $10.0 million. However, we do not know at this time under what terms the funding will be provided, or if the funding actually needed will exceed the maximum amount of the un-funded operating expenses projected at the time. If sales and profitability do not improve, the cash balances and cash generated from operations may not be sufficient to fund operations after December 31, 2021 without the proceeds from this offering. On July 29, 2021, HillCour Investment Fund LLC provided Marpai a revolving credit facility in return for a promissory note in the principal amount of up to $3,000,000 (the “HillCour Promissory Note’’). With the HillCour Promissory Note, the anticipated revenues generated from operations and the proceeds from this offering, we expect that we will have sufficient cash to fund operations through the next twelve months.
We will continue to seek to raise additional working capital through public equity, private equity or debt financings. If we fail to raise additional working capital, or do so on commercially unfavorable terms, it would materially and adversely affect our business, prospects, financial condition and results of operations, and we may be unable to continue as a going concern. Future reports from our independent registered public accounting firm may also contain statements expressing substantial doubt about our ability to continue as a going concern. If we seek additional financing to fund our business activities in the future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms, if at all.
 
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Continental Benefits has a high annual customer attrition rate historically. The loss, termination, or renegotiation of any contract with Continental Benefits’ current Clients could have a material adverse effect on our financial conditions and operating results.
Continental Benefits’ largest two Clients collectively represented approximately 9.2% and 8.3% of its total gross revenue in 2020 and 2019, respectively. For the twelve months ended December 31, 2020 and 2019, its customer attrition rates were approximately 33.8% and 24.2%, respectively. We believe many Clients left due to poor customer service. Although we believe many root causes driving customer attrition have been identified, remedial actions are still in process, and not all of them will be fully implemented during 2021. If we fail to reverse the upward trend of Continental’s customer attrition rate, our future revenue growth will suffer, and we may encounter difficulty in recruiting new clients due to erosion of customer confidence. Some Clients with renewal dates in late 2021 may opt to leave as they may have had a sub-optimal experience pre-acquisition. If this happens, our revenue will decrease and our results of operations will be adversely affected. Besides, there can be no assurances that all Clients will like the cost-cutting measures taken as part of Continental Benefits’ corporate restructuring efforts. If Continental Benefits’ existing Clients do not continue or renew their contracts with us or decide to renew at lower fee levels or decline to purchase additional products and services from us, it could have a material adverse effect on our business, financial condition, and results of operations. The loss, termination, or renegotiation of any contract with Continental Benefits’ current Clients could have a material adverse effect on our financial condition and operating results.
Continental Benefits is party to a number of disputes and lawsuits, and we may be subject to liabilities arisen from these and similar disputes in the future.
In the normal course of the claims administration services business, we expect to be named from time to time as a defendant in lawsuits by the insureds or claimants contesting decisions by us or our Clients with respect to the settlement of their healthcare claims. Continental Benefits’ Clients have brought claims for indemnification on the basis of alleged actions on its part or on the part of its agents or employees in rendering services to Clients. We are subject to a number of disputes and lawsuits of which Continental Benefits is currently a subject. Any future lawsuits against us can be disruptive to our business. The defense of the lawsuits will be time-consuming and require attention of our senior management and financial resources, and there can be no assurances that the resolution of any such litigation will not have a material adverse effect on our business, financial condition and results of operations. See section titled, “Business — Legal Proceedings.”
Even though pursuant to the Purchase and Reorganization Agreement, WellEnterprises USA, LLC, has agreed to assume all liabilities of Continental Benefits that relate to benefits claims in excess of $50,000 or that have been outstanding in excess of 180 days, in each case as of April 1, 2021, Continental Benefits will ultimately be responsible for any damages that may arise from these lawsuits. To the extent that WellEnterprises USA, LLC is unable or unwilling to satisfy any such liabilities, we will be required to do so. One of our directors, Mr. Damien Lamendola is the majority shareholder of HillCour Holding Corporation, which owns HillCour.
Pursuant to the Purchase and Reorganization Agreement, $500,000 was deposited into an escrow account on April 30, 2021 to indemnify parties for fraud, breach of any representation or warranty, breach or non-performance of any post-closing covenant or agreement. However, there can be no assurances that future lawsuits may not arise. If we are exposed to liabilities in excess of the amount held in escrow, our financial condition can be materially adversely affected. See section titled “Business — Marpai, Inc.’s Acquisition of Marpai Health and Continental Benefits” below.
Continental Benefits may be subject to penalties from the Internal Revenue Service.
In September 2020, Continental Benefits received Notice 972CGs from the IRS regarding certain tax penalties related to prior year 1099 tax filings. Based on the opinion of Continental Benefits’ counsel, although Continental Benefits is in the process of appealing, the full amount of penalties and interest of $1,532,185 has been accrued as of December 31, 2020. The penalties were a result of Continental Benefits’ failure to list accurate taxpayer identification numbers for certain of its contractors. Continental Benefits disputed these assessments. The Company recently received a letter dated March 8, 2021 from the IRS
 
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that granted a $678,780 waiver for the full amount of the 1099 penalties the tax year 2018. In June 2021, the Company received written confirmation from the IRS that all outstanding penalties have been waived and that nothing is due to the IRS from the Company. The Company has completely reversed the accrual as of June 30, 2021.
Even though under the Purchase and Reorganization Agreement, WellEnterprises, LLC has agreed to assume all Continental Benefits’ liabilities related to tax matters based upon facts and circumstances that occurred prior to the closing of the Acquisition, Continental Benefits shall ultimately be responsible for any damages that may arise from the Notice 972CG, as well as any other penalties the IRS may assess. To the extent that WellEnterprises, LLC is unable or unwilling to satisfy any such liabilities, we will be required to do so. See section titled, “Business — Legal Proceedings.”
Our success will largely depend on our ability to integrate Marpai Health and Continental Benefits, and effectively manage the combined company.
Although Marpai Health and Continental Benefits have been working together on product design and development since the beginning of 2020, they have not operated as a combined company before April 1, 2021. We have no combined corporate culture or institutional knowledge prior to April 1, 2021. There are significant risks associated with our ability to integrate successfully the two companies and effectively manage the combined business. For instance, we are required to onboard most of Continental Benefits’ 105 employees and contractors, and adopt and implement new benefits programs for all of them. Setting up programs and processes as such can distract management from other business operations of the combined company. We must maintain active TPA licenses in all states that are not expressly exempt from requiring a TPA license where we conduct business.
We also may not achieve the anticipated benefits from the Acquisition due to a number of factors, including, but not limited to:

inability to integrate or benefit from the technologies or services in a profitable manner;

unanticipated costs or liabilities associated with the Acquisition;

difficulty integrating the two companies’ accounting systems, operations, and personnel;

difficulties and additional expenses associated with supporting Continental Benefits’ legacy technology platform and hosting infrastructure;

difficulty converting Continental Benefits’ existing Clients onto our combined platform and contract terms; and

failure to create one highly functioning corporate culture.
Because we lack an operating history as a combined company, you have no basis upon which to evaluate our ability to execute our business plan and strategies in an evolving industry. If our business prospects fail to materialize, we may never generate any operating revenues.
If our TopCare® program fails to provide accurate and timely predictions, or if it is associated with wasteful visits to Providers or unhelpful recommendations for Members, then this could lead to low customer satisfaction, which could adversely affect our results of operations.
When our A.I. models make a prediction, we advise the Member to reach out to his or her primary care physician or make suggestions to the Member on the best providers in the area via our TopCare® program since we do not provide medical prognosis. However, Members may not follow our advice or accept our suggestions. We believe that not taking our recommendations will lead to higher claims costs to our Clients. If claim costs remain the same or are not lower than those before we were hired, our Clients may be dissatisfied with our services, terminate or refuse to renew contracts with us.
In addition, our A.I. models may not always work as planned, and the predictions could have many false positives. These errors may lead to wasteful visits to the Providers, Clients’ dissatisfaction and attrition, which may lead to loss of revenue. Our economic models assume that the costs stemming from these false positives is a small fraction of the total savings that may be achieved by preventing or better managing chronic
 
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conditions and steering Members who will have high-cost medical procedures to high-quality, lower cost providers. This assumption, however, has yet to be proven. To date, we have no actual case data to support this assumption.
Issues in the use of A.I., including deep learning in our platform and modules could result in reputational harm or liability.
As with many developing technologies, A.I. presents risks and challenges that could affect its further development, adoption, and use, and therefore our business. A.I. algorithms may be flawed. Datasets may be insufficient, of poor quality, or contain biased information. Inappropriate or controversial data practices by data scientists, engineers, and end-users of our systems could impair the acceptance of A.I. solutions. If the recommendations, forecasts, or analyses that A.I. applications assist in producing are deficient or inaccurate, we could be subjected to competitive harm, potential legal liability, and brand or reputational harm. Some A.I. scenarios could present ethical issues. If we enable or offer A.I. solutions that are controversial because of their purported or real impact on human rights, privacy, employment, or other social issues, we may experience brand or reputational harm.
If the markets for our A.I. modules and TopCare® program fail to grow as we expect, or if self — insured employers fail to adopt our TopCare® program and A.I. modules, our business, operating results, and financial condition could be adversely affected.
It is difficult to predict self-insured employer adoption rates and demand for our A.I. modules and TopCare® program, the entry of competitive platforms, or the future growth rate and size of the healthcare technology and TPA markets. We expect that a significant portion of our revenue will come from our A.I. modules with deep learning functionality and predictive algorithms and our TopCare® program. Although demand for healthcare technology, deep learning (an advanced form of A.I.), and data analytics platforms and A.I. applications has grown in recent years, the market for these platforms and applications continues to evolve. There can be no assurances that this market will continue to grow or, even if it does grow, that Clients will choose our A.I. modules, TopCare® program, or platform. Our future success will depend largely on our ability to penetrate the existing market for healthcare technology driven by TPAs, as well as the continued growth and expansion of what we believe to be an emerging market for healthcare administration focused on A.I. platforms and applications that are faster, easier to adopt, and easier to use.
Our ability to penetrate the TPA market depends on a number of factors, including the cost, performance, and perceived value associated with our A.I. modules, as well as Clients’ willingness to adopt a different approach to data analysis. We plan to spend considerable resources to educate Clients about digital transformation, A.I., and deep learning in general and our A.I. modules in particular. However, there can be no assurances that these expenditures will help our A.I. modules and TopCare® program achieve widespread market acceptance. Furthermore, prospective Clients may have made significant investments in legacy healthcare analytics software systems and may be unwilling to invest in new platforms and applications. If the market fails to grow or grows more slowly than we currently expect or self-insured employers fail to adopt our A.I. modules and TopCare® program, our business, operating results, and financial condition could be adversely affected.
We operate in a highly competitive industry, and the size of our target market may not remain as large as we anticipate.
The market for healthcare solutions is very competitive. We compete with almost 1,000 TPAs, all of whom are vying for the same business — the management of healthcare benefits for self-insured employers. There is only one TPA at a time for every employer wanting to provide health benefits via a self-insured model, and an employer may remain with the same TPA for many years. This means that although the market is very large, not all of it is accessible by us in any one year.
We provide administrative services to only self-insured employers who provide healthcare benefits to their employees. These self-insured employers can always elect to abandon self-insurance and simply buy medical insurance from one of the large players such as, Aetna, Cigna, or United Healthcare. There can be no assurances that our Clients or prospective Clients will remain self-insured for any given period of time. If the number of employers which choose to self-insure declines, the size of our targeted market will shrink.
 
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In addition to the very large health insurance companies, there are new players in the market such as, Collective Health, Clover Health, Bind Health Insurance, Bright Health Group, Oscar and Centivo. These companies have raised hundreds of millions of dollars and have greater financial and personnel resources than we do and are pursuing a business strategy similar to ours and share our vision to use technology to transform the healthcare payer space. We believe that like us, Collective Health and Clover Health are also targeting at self-insured employers.
We rely on healthcare benefits brokers and consultants as our principal sales channel, and some of these companies are large and have no allegiance to us. If we do not satisfy their employer clients, they may steer not only an unsatisfied client, but others as well, to other TPAs.
Brokers such as Lockton Companies, Inc., the world’s largest privately held insurance brokerage firm, are a key sales channel for us to reach the self-insured employer market. These brokers work with many insurance companies and TPAs at the same time. Brokers and consultants earn their fees by also charging employers on a per employee per month (“PEPM”) basis. As they often own the relationship with the employer, they may view our fees as competitive to how much they can earn. They may steer our Clients to another TPA if they believe doing so can maximize their own fees. If we do not deliver competitive pricing, quality customer service, and high member satisfaction, these brokers can take the business they brought us to another TPA anytime. Due to the brokers’ power to influence employer groups, the brokers play an outsized role in our industry, and may exert pressure on our pricing or influence the service levels we offer to our Clients, all of which can lead to lower price PEPM for us, or an increase in our customer service staffing and other operating costs.
Our pricing may change over time and our ability to efficiently price our services will affect our results of operations and our ability to attract or retain Clients.
Our current pricing model, like most in the industry, is based on a PEPM fee. In the future, we may change our pricing model to capture more market share. We may also enter different pricing schemes with Clients, including but not limited to shared savings. In a shared savings pricing model, we share the risk with the Client. For example, if the Clients’ claims cost is $10 million, we may estimate that we can bring that down to $9,000,000 with our service offering. Instead of charging a fixed PEPM fee, we would earn revenue from a share of the cost savings in a shared savings model. In the example above, if the share were 30% and we managed to achieve a reduction of $1 million, we would earn $300,000 as a shared savings fee.
Since there is no guarantee how much savings, if any, will actually be achieve, shared savings puts some of our revenue at risk. If cost savings are not achieved by many of our Clients, our revenue and results of operations will most likely suffer.
Our sales cycles can be long and unpredictable, and our sales efforts require a considerable investment of time and expense. If our sales cycle lengthens or we invest substantial resources pursuing unsuccessful sales opportunities, our results of operations and growth would be harmed.
Our sales process entails planning discussions with prospective Clients, analyzing their existing solutions and identifying how these prospective Clients can use and benefit from our services. The sales cycle for a new Client, from the time of prospect qualification to completion of the sale, may take as long as a year. We spend substantial time, effort and money in our sales efforts without any assurance that our efforts will result in the sale of our services.
In addition, our sales cycle and timing of sales can vary substantially from Client to Client because of various factors, including the discretionary nature of prospective Clients’ purchasing and budget decisions, the announcement or planned introduction of product and service offerings by us or our competitors, and the purchasing approval processes of prospective Clients. If our sales cycle lengthens or we invest substantial resources pursuing unsuccessful sales opportunities, our results of operations and growth would be harmed.
Because Continental Benefits generally recognizes technology and professional services revenue ratably over the term of the contract for our services, a significant downturn in its business may not be reflected immediately in our results of operations, which increases the difficulty of evaluating our future financial performance.
Continental Benefits generally recognizes technology and professional services revenue ratably over the term of a contract, which is typically one year. As a result, a substantial portion of Continental Benefits’
 
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revenue is generated from contracts entered into during prior periods. Consequently, a decline in new contracts in any quarter may not affect our results of operations in that quarter but could reduce our revenue in future quarters. Additionally, the timing of renewals or non-renewals of a contract during any quarter may only affect our financial performance in future quarters. For example, the non-renewal of a subscription agreement late in a quarter will have minimal impact on revenue for that quarter but will reduce our revenue in future quarters. Accordingly, the effect of significant declines in sales may not be reflected in our short-term results of operations, which would make these reported results less indicative of our future financial results. By contrast, a non-renewal occurring early in a quarter may have a significant negative impact on revenue for that quarter and we may not be able to offset a decline in revenue due to non-renewal with revenue from new contracts entered into in the same quarter. In addition, we may be unable to quickly adjust our costs in response to reduced revenue.
The success and growth of our business depends upon our ability to continuously innovate and develop new products and technologies.
Our solution is a technology-driven platform that relies on innovation to remain competitive. The process of developing new technologies and products is complex, and we develop our own A.I. and deep learning, healthcare technologies, and other tools to differentiate our platform and A.I. modules. In addition, our dedication to incorporating technological advancements into our platform requires significant financial and personnel resources and talent. Our development efforts with respect to these initiatives could distract management from current operations and could divert capital and other resources from other growth initiatives important to our business. We operate in an industry experiencing rapid technological change and frequent platform introductions. We may not be able to make technological improvements as quickly as demanded by self-insured employers and our Clients, which could harm our ability to attract new Clients and therefore, our market share. In addition, we may not be able to effectively implement new technology-driven products and services as projected.
If we do not have access to A.I. talent or fail to expand our A.I. models, we may not remain competitive, and our revenue and results of operations could suffer.
Our risks as a development stage company are compounded by our heavy dependence on emerging and sometimes unproven technologies such as A.I. and deep learning, which are characterized by extensive research efforts and rapid technological progress. If we fail to anticipate or respond adequately to technological developments, our ability to operate profitably could suffer. We cannot assure you that research and discoveries by other companies will not render our technologies or potential products or services uneconomical, or result in products superior to those we develop, or that any technologies, products or services we develop will be preferred to any existing or newly-developed technologies, products or services.
Our success depends on our ability to innovate and provide more tools that can help employers save healthcare claims costs while maintaining good healthcare outcomes for their employees and their families. However, access to A.I. talent, especially with respect to deep learning in healthcare, is very limited. The competition for talent is not so much from other payers in the healthcare space as it is from the big technology companies such as, Google, Amazon, and Facebook and technology start-ups. Our growth is highly dependent on our ability to access this limited pool of talent. Our Chief Science Advisor, Dr. Eli (Omid) David is a lecturer in deep learning at Bar-Ilan University in Israel and a leading researcher in A.I. We believe his university connection as well as his reputation and previous work experience with other technology companies will help attract key deep learning talent to us. However, there is no assurance that that will be enough. If the right talent pool is not readily available to us, it may impact our ability to innovate and differentiate ourselves in the market with new products and services, which could in turn adversely affect our revenue and results of operations.
Our product development relies heavily on access to large healthcare data sets. We have developed six A.I. modules to predict chronic conditions and high-cost medical procedures. Our ability to offer a comprehensive solution that helps employers save on healthcare claims costs is directly related to our ability to expand to other modules as well as to constantly make improvements on our existing modules. Access to certain data in healthcare in large scale can be challenging. Electronic health records, for example, are stored in myriad systems and there is no single standard for what one contains. Moreover, payers generally do not
 
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have access to electronic health records at scale, although they may have access to some limited data to support a claim. Our models currently rely heavily on claims data, which is the type of data that payers mostly have. We plan to improve our A.I. predictions by incorporating other data types in the future. However, there can be no assurances that we will be able to do so and our failure to incorporate other data types may limit our ability to compete in the market.
Failure by our Clients to obtain proper permissions and waivers may result in claims against us or may limit or prevent our use of data, which could harm our business.
We require our Clients to provide necessary notices and to obtain necessary permissions and waivers for use and disclosure of the information that we receive, and we require contractual assurances from them that they have done so and will do so. If they do not obtain necessary permissions and waivers, then our use and disclosure of information that we receive from them or on their behalf may be restricted or prohibited by state, federal or international privacy or data protection laws, or other related privacy and data protection laws. This could impair our functions, processes, and databases that reflect, contain, or are based upon such data and may prevent the use of such data, including our ability to provide such data to third parties that are incorporated into our service offerings. Furthermore, this may cause us to breach obligations to third parties to whom we may provide such data, such as third-party service or technology providers that are incorporated into our service offerings. In addition, this could interfere with or prevent data sourcing, data analyses, or limit other data-driven activities that benefit us. Moreover, we may be subject to claims, civil and/or criminal liability or government or state attorneys general investigations for use or disclosure of information by reason of lack of valid notice, permission, or waiver. These claims, liabilities or government or state attorneys general investigations could subject us to unexpected costs and adversely affect our financial condition and results of operations.
If our security measures are breached or unauthorized access to client data is otherwise obtained, our product and service offerings may be perceived as not being secure, Clients may reduce the use of or stop using our services, and we may incur significant liabilities.
Our business involves the storage and transmission of our Members’ proprietary information, including personal or identifying information regarding members and their protected health information (“PHI”). As a result, unauthorized access or security breaches to our system or platform as a result of third-party action, employee error, malfeasance, or otherwise could result in the loss or inappropriate use of information, litigation, indemnity obligations, damage to our reputation, and other liability including but not limited to government or state Attorney General investigations. Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until after they are launched against a target, we may not be able to anticipate these techniques or implement adequate preventative measures. Moreover, the detection, prevention, and remediation of known or unknown security vulnerabilities, including those arising from third-party hardware or software, may result in additional direct or indirect costs and management time.
Any or all of these issues could adversely affect our ability to attract new Clients, cause existing Clients to elect not to renew their contracts, result in reputational damage, or subject us to third-party lawsuits, regulatory fines, mandatory disclosures, or other action or liability, which could adversely affect our results of operations. Our general liability insurance may not be adequate to cover all potential claims to which we are exposed and may not be adequate to indemnify us for liability that may be imposed, or the losses associated with such events, and in any case, such insurance may not cover all of the specific costs, expenses, and losses we could incur in responding to and remediating a security breach. A security breach of another significant provider of cloud-based solutions may also negatively impact the demand for our product and service offerings.
If we are not able to enhance our reputation and brand recognition, we may not be able to execute our business strategy as planned.
We believe that enhancing our reputation and brand recognition is critical to maintaining our relationships with Continental Benefits’ existing Clients and to our ability to attract new Clients. The promotion of our Marpai brand may require us to make substantial investments and we anticipate that, as
 
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our market becomes increasingly competitive, these marketing initiatives may become increasingly difficult and expensive. Our marketing activities may not be successful or yield increased revenue, and to the extent that these activities yield increased revenue, the increased revenue may not offset the expenses we incur and our results of operations could be harmed. In addition, any factor that diminishes our reputation or that of our management, including failing to meet the expectations of our Clients, or any adverse publicity surrounding one of our investors or Clients, could make it substantially more difficult for us to attract new Clients. If we do not successfully enhance our reputation and brand recognition, our business may not grow and we could lose our relationships with Continental Benefits’ existing clients, which would harm our business, results of operations, and financial condition.
We may acquire other companies or technologies, which could divert our management’s attention, result in dilution to our stockholders, and otherwise disrupt our operations and we may have difficulty integrating any such acquisitions successfully or realizing the anticipated benefits therefrom, any of which could have an adverse effect on our business, financial condition, and results of operations.
We may seek to acquire or invest in businesses, applications, and services, or technologies that we believe could complement or expand our product and service offerings, enhance our A.I. capabilities, or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated. We may have difficulty integrating other technologies, other team members, or selling our TopCare® program to acquired Clients and we may not be able to achieve the intended benefits from any such acquisition.
In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our results of operations based on this impairment assessment process, which could adversely affect our results of operations.
Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our results of operations. In addition, if an acquired business fails to meet our expectations, our business, financial condition, and results of operations may suffer.
Global or regional health pandemics or epidemics, including COVID-19, could negatively impact our business operations, financial performance and results of operations.
Our business and financial results could be negatively impacted by the recent outbreak of COVID-19 or other pandemics or epidemics. The severity, magnitude and duration of the current COVID-19 pandemic is uncertain, rapidly changing and hard to predict. During 2020, COVID-19 has significantly impacted economic activity and markets around the world, and it could negatively impact our business in numerous ways, including but not limited to those outlined below:

the number of employers who will choose to self-insure or remain to be self-insured may decline;

Clients and prospective Clients may be less willing to pay the added fees for our TopCare® program due to significant capital constraints as a result of COVID-19 and the macro-economic environment;

Clients may have difficulty gaining timely access to sufficient credit or obtaining credit on reasonable terms, which could impair their ability to make timely payments to us;

disruptions or uncertainties related to the COVID-19 outbreak for a sustained period of time could result in delays or modifications to our strategic plans and initiatives and hinder our ability to achieve our business objectives.

illness, travel restrictions or workforce disruptions could negatively affect our business processes.

government or regulatory responses to pandemics could negatively impact our business. Mandatory lockdowns or other restrictions could materially adversely impact our operations and results.
 
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the COVID-19 outbreak has increased volatility and pricing in the capital markets and volatility is likely to continue which could have a material adverse effect on our ability to obtain debt or equity financing to fund operations. Economic uncertainties or downturns in the general economy or the healthcare industry in general could disproportionately affect the demand for our product and service offerings and materially adversely affect our results of operations.
The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by COVID-19, and the duration of such impact, may be difficult to assess or predict, the widespread pandemic has resulted in significant disruption of global financial markets, which could reduce our ability to access capital and negatively affect our future liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 and related government orders and restrictions could materially affect our business and the value of our Class A common stock. The COVID-19 pandemic continues to evolve rapidly. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, healthcare systems, or the global economy as a whole.
These and other impacts of the COVID-19 or other global or regional health pandemics or epidemics could have the effect of heightening many of the other risks described in this “Risk Factors” section. We might not be able to predict or respond to all impacts on a timely basis to prevent near- or long-term adverse impacts to our results. The ultimate impact of these disruptions also depends on events beyond our knowledge or control, including the duration and severity of any outbreak and actions taken by parties other than us to respond to them. Any of these disruptions could have a negative impact on our business operations, financial performance and results of operations, which impact could be material.
Risks Related to Managing Our Research and Development Operations in Israel
Potential political, economic and military instability in the State of Israel, where our research and development facilities are located, may adversely affect our results of operations.
Our executive office, where we conduct primarily all of our research and development activities, is located in Israel. Many of our software and A.I. engineers are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business and operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, Hamas (an Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon). Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could adversely affect our operations and results of operations and could make it more difficult for us to raise capital. To date, Israel faces political tension with respect to its relationships with Turkey, Iran and other Arab neighbor countries. In addition, recent political uprisings and social unrest in various countries in the Middle East and North Africa are affecting the political stability of those countries. This instability may lead to deterioration of the political relationships that exist between Israel and these countries and have raised concerns regarding security in the region and the potential for armed conflict. In Syria, a country bordering Israel, a civil war is taking place. In addition, there are concerns that Iran, which has previously threatened to attack Israel, may step up its efforts to achieve nuclear capability. Iran is also believed to have a strong influence among extremist groups in the region, such as Hamas in Gaza and Hezbollah in Lebanon, as well as a growing presence in Syria. Additionally, the Islamic State of Iraq and Levant, or ISIL, a violent jihadist group whose stated purpose is to take control of the Middle East, remains active. The tension between Israel and Iran and/or these groups may escalate in the future and turn violent. Any potential future conflict could also include missile strikes against parts of Israel, including our offices. Political events in Israel may significantly affect our business, assets or operations. On Israel’s domestic front, there is currently a level of unprecedented political instability, as evidenced by Israel’s fourth general election in two years which took place in March 2021. The Israeli Parliament, or the Knesset, has not approved a budget since 2019, and certain government ministries are without necessary resources and may not receive sufficient funding moving forward. Social unrest, acts of terrorism, regime changes, changes in laws and regulations, political upheaval, and policy changes or enactments could negatively impact our business. Any armed
 
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conflicts, terrorist activities or political instability in the region could adversely affect our research and development activities, ability to innovate, and results of operations.
The relationship between the United States and Israel could be subject to sudden fluctuation and periodic tension particularly in light of the change in the U.S. administration following the 2020 Presidential election. Changes in political conditions in Israel and changes in the state of U.S. relations with Israel are difficult to predict and could adversely affect our operations or cause potential target businesses or their goods and services to become less attractive.
Parties with whom we do business may be disinclined to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary in order to meet our business partners face to face. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements.
Our insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East or for any resulting disruption in our operations. Although the Israeli government has in the past covered the reinstatement value of direct damages that were caused by terrorist attacks or acts of war, we cannot be assured that this government coverage will be maintained or, if maintained, will be sufficient to compensate us fully for damages incurred and the government may cease providing such coverage or the coverage might not suffice to cover potential damages. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts, political instability, terrorism, cyberattacks or any other hostilities involving or threatening Israel would likely negatively affect business conditions generally and could harm our results of operations.
Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military service.
Many Israeli citizens are obligated to perform one month, and in some cases more, of annual military reserve duty until they reach the age of 45 (or older, for reservists with certain occupations) and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future. Any major escalation in hostilities in the region could result in a portion of our employees and service providers being called up to perform military duty for an extended period of time. Our operations could be disrupted by such call-ups. Such disruption could materially adversely affect our business, financial condition and results of operations.
Because a certain portion of our expenses is incurred in currencies other than the US Dollar, our results of operations may be harmed by currency fluctuations and inflation.
Our reporting and functional currency is the U.S. Dollar, but a portion of our operations expenses are denominated in the New Israeli Shekel (“NIS”) — 41% or $1.4 million, in 2020. As a result, we are exposed to some currency fluctuation risks, largely derived from our current and future engagements for payroll and lease obligations in Israel. Fluctuation in the exchange rates of foreign currency has an influence on the cost of goods sold and our operating expenses. For instance, from the time Marpai Health was formed to now, the NIS has increased in value relative to U.S. dollars by over 12%, resulting in a significant increase in our operating expense. We may, in the future, decide to enter into currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rate of the currencies mentioned above in relation to the US Dollar. These measures, however, may not adequately protect us from adverse effects.
There are costs and difficulties inherent in managing cross-border business operations.
Managing a business, operations, personnel or assets in another country is challenging and costly. Any management that we may have (whether based abroad or in the United States) may be inexperienced in cross-border business practices and unaware of significant differences in accounting rules, legal regimes and labor practices. Even with a seasoned and experienced management team, the costs and difficulties inherent in managing cross-border business operations, personnel and assets can be significant (and much higher than in a purely domestic business) and may negatively impact our financial and operational performance.
 
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Employment and other material contracts we have with our Israeli employees are governed by Israeli laws. Our inability to enforce or obtain a remedy under these agreements could adversely affect our business and financial condition.
All employees were asked to sign employment agreements that contain confidentiality, non-compete and assignment of intellectual property provisions. The employment agreements between EYME and its employees in Israel are governed by Israeli laws. The system of laws and the enforcement of existing laws and contracts in Israel may not be as certain in implementation and interpretation as in the United States, leading to a higher than usual degree of uncertainty as to the outcome of any litigation. Our inability to enforce or obtain a remedy under any of these or future agreements could adversely affect our business and financial condition. Delay with respect to the enforcement of particular rules and regulations, including those relating to intellectual property, customs, tax, and labor, could also cause serious disruption to operations abroad and negatively impact our results.
Israeli courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the secrecy of a company’s confidential commercial information or the protection of its intellectual property. If we cannot demonstrate that such interests will be harmed, we may be unable to prevent our competitors from benefiting from the expertise of our former employees or consultants and our ability to remain competitive may be diminished.
Pursuant to Israel’s Severance Pay Law, Israeli employees are entitled to severance pay equal to one month’s salary for each year of employment, or a portion thereof. All of the employees of EYME elected to be included under section 14 of the Severance Pay Law, 1963 (“Section 14”) pursuant to which these employees are entitled only to monthly deposits, at a rate of 8.33% of their monthly salary, made in their name with insurance companies. Total expenses related to severance pay amounted to approximately $80,000 for the year ended December 31, 2020.
Investors may have difficulties enforcing a U.S. judgment, including judgments based upon the civil liability provisions of the U.S. federal securities laws against one of our directors or asserting U.S. securities laws claims in Israel.
One director of ours is not a U.S. citizen and many of our intellectual property assets are located outside the United States. Service of process upon one of our directors and enforcement of judgments obtained in the United States against one of our directors may be difficult to obtain within the United States. We have been informed by our legal counsel in Israel that it may be difficult to assert claims under U.S. securities laws in original actions instituted in Israel or obtain a judgment based on the civil liability provisions of U.S. federal securities laws. Israeli courts may refuse to hear a claim based on a violation of U.S. securities laws against a director of ours because Israel may not be the most appropriate forum to bring such a claim. In addition, even if an Israeli court agrees to hear a claim, it may determine that Israeli law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by Israeli law. There is little binding case law in Israel addressing the matters described above. Israeli courts might not enforce judgments rendered outside Israel, which may make it difficult to collect on judgments rendered against one of our directors.
Moreover, among other reasons, including but not limited to, fraud, a lack of due process, a judgment which is at variance with another judgment that was given in the same matter and if a suit in the same matter between the same parties was pending before a court or tribunal in Israel, an Israeli court will not enforce a foreign judgment if it was given in a state whose laws do not provide for the enforcement of judgments of Israeli courts (subject to exceptional cases) or if its enforcement is likely to prejudice the sovereignty or security of the State of Israel.
Unanticipated changes in our effective tax rate and additional tax liabilities, including as a result of our international operations or implementation of new tax rules, could harm our future results.
We are subject to income taxes in the United States and Israel. Our domestic and international tax liabilities are subject to the allocation of expenses in differing jurisdictions and complex transfer pricing
 
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regulations administered by taxing authorities in various jurisdictions. Tax rates in the jurisdictions in which we operate may change as a result of factors outside of our control or relevant taxing authorities may disagree with our determinations as to the income and expenses attributable to specific jurisdictions. In addition, changes in tax and trade laws, treaties or regulations, or their interpretation or enforcement, have become more unpredictable and may become more stringent, which could materially adversely affect our tax position.
Forecasting our estimated annual effective tax rate is complex and subject to uncertainty, and there may be material differences between our forecasted and actual effective tax rate. Our effective tax rate could be adversely affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses, the valuation of deferred tax assets and liabilities, adjustments to income taxes upon finalization of tax returns, changes in available tax attributes, decision to repatriate non-U.S. earnings for which we have not previously provided for U.S. taxes, and changes in federal, state, or international tax laws and accounting principles.
Finally, we may be subject to income tax audits throughout the world. An adverse resolution of one or more uncertain tax positions in any period could have a material impact on our results of operations or financial condition for that period.
Risks Related to Protecting Our Technology and Intellectual Property
We rely on third-party providers, including Amazon Web Services, for computing infrastructure, network connectivity, and other technology-related services needed to deliver our service offerings. Any disruption in the services provided by such third-party providers could adversely affect our business and subject us to liability.
Our TopCare® program is hosted from and use computing infrastructure provided by third parties, including Amazon Web Services, and other computing infrastructure service providers. Our computing infrastructure service providers have no obligation to renew their agreements with us on commercially reasonable terms or at all. If we are unable to renew these agreements on commercially reasonable terms, or if one of our computing infrastructure service providers is acquired, we may be required to transition to a new provider and we may incur significant costs and possible service interruption in connection with doing so.
Problems faced by our computing infrastructure service providers, including those operated by Amazon Web Services, could adversely affect the experience of our Clients. Amazon Web Services has also had and may in the future experience significant service outages. Additionally, if our computing infrastructure service providers are unable to keep up with our growing needs for capacity, this could have an adverse effect on our business. For example, a rapid expansion of our business could affect our service levels or cause our third-party hosted systems to fail. Our agreements with third-party computing infrastructure service providers may not entitle us to service level credits that correspond with those we offer to our Clients.
Any changes in third-party service levels at our computing infrastructure service providers, or any related disruptions or performance problems with our product and service offering, could adversely affect our reputation and may damage our clients’ stored files, result in lengthy interruptions in our services, or result in potential losses of client data. Interruptions in our services might reduce our revenue, cause us to issue refunds to clients for prepaid and unused subscriptions, subject us to service level credit claims and potential liability, allow our clients to terminate their contracts with us, or adversely affect our renewal rates.
We rely on Internet infrastructure, bandwidth providers, data center providers, other third parties, and our own systems for providing services to our users, and any failure or interruption in the services provided by these third parties or our own systems could expose us to litigation, potentially require us to issue credits to our Clients, and negatively impact our relationships with Members or Clients, adversely affecting our brand and our business.
In addition to the services we provide from our offices, we serve our Clients primarily from third-party data-hosting facilities. These facilities are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunications failures, and similar events. They are also subject to break-ins, sabotage, intentional acts of vandalism, and similar misconduct. Their systems and servers could also be subject to hacking, spamming, ransomware, computer viruses or other malicious software, denial of service attacks, service disruptions, including the inability to process certain transactions, phishing attacks and unauthorized
 
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access attempts, including third parties gaining access to Members’ accounts using stolen or inferred credentials or other means, and may use such access to prevent use of Members’ accounts. Despite precautions taken at these facilities, the occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice, or other unanticipated problems at two or more of the facilities could result in lengthy interruptions in our services. Even with our disaster recovery arrangements, our services could be interrupted.
Our ability to deliver our Internet- and telecommunications-based services is dependent on the development and maintenance of the infrastructure of the Internet and other telecommunications services by third parties. This includes maintenance of a reliable network backbone with the necessary speed, data capacity, and security for providing reliable Internet access and services and reliable mobile device, telephone, facsimile, and pager systems, all at a predictable and reasonable cost. We have experienced and expect that we will experience interruptions and delays in services and availability from time to time.
We rely on internal systems as well as third-party vendors, including data center, bandwidth, and telecommunications equipment or service providers, to provide our services. We do not maintain redundant systems or facilities for some of these services. In the event of a catastrophic event with respect to one or more of these systems or facilities, we may experience an extended period of system unavailability, which could negatively impact our relationship with users or clients. To operate without interruption, both we and our service providers must guard against:

damage from fire, power loss, and other natural disasters;

communications failures;

security breaches, computer viruses, ransomware, and similar disruptive problems; and

other potential interruptions.
Any disruption in the network access, telecommunications, or co-location services provided by these third-party providers or any failure of or by these third-party providers or our own systems to handle the current or higher volume of use could significantly harm our business. We exercise limited control over these third-party vendors, which increases our vulnerability to problems with the services they provide.
Any errors, failures, interruptions, or delays experienced in connection with these third-party technologies and information services or our own systems could negatively impact our relationships with users and clients, adversely affect our brands and business, and expose us to third-party liabilities. The insurance coverage under our policies may not be adequate to compensate us for all losses that may occur. In addition, we cannot provide assurance that we will continue to be able to obtain adequate insurance coverage at an acceptable cost.
The reliability and performance of the Internet may be harmed by increased usage or by denial-of-service attacks. The Internet has experienced a variety of outages and other delays as a result of damages to portions of its infrastructure, and it could face outages and delays in the future. These outages and delays could reduce the level of Internet usage as well as the availability of the Internet to us for delivery of our Internet-based services.
We typically provide service level commitments under our client contracts. If we fail to meet these contractual commitments, we could be obligated to provide credits or refunds for prepaid amounts related to unused subscription services or face contract terminations, which could adversely affect our results of operations.
Finally, recent changes in law could impact the cost and availability of necessary Internet infrastructure. Increased costs and/or decreased availability would negatively affect our results of operations.
We employ third-party licensed software and software components for use in or with our TopCare® program, and the inability to maintain these licenses or the presence of errors in the software we license could limit the functionality of our TopCare® program and result in increased costs or reduced service levels, which would adversely affect our business.
Our software applications might incorporate or interact with certain third-party software and software components (other than open-source software), such as claims processing software, obtained under licenses
 
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from other companies. We pay these third parties a license fee or royalty payment. We anticipate that we will continue to use such third-party software in the future.
Although we believe that there are commercially reasonable alternatives to the third-party software we currently make available, this may not always be the case, or it may be difficult or costly to replace. Furthermore, these third parties may increase the price for licensing their software, which could negatively impact our results of operations. Our use of additional or alternative third-party software could require clients to enter into license agreements with third parties. In addition, if the third-party software we make available has errors or otherwise malfunctions, or if the third-party terminates its agreement with us, the functionality of our TopCare® program may be negatively impacted and our business may suffer.
Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.
Our success and ability to compete depend largely upon our intellectual property. To date, we have three patent applications pending in the U.S. We take reasonable steps to protect our intellectual property, especially when working with third parties. However, the steps we take to protect our intellectual property rights may be inadequate. For example, other parties, including our competitors, may independently develop similar technology, duplicate our services, or design around our intellectual property and, in such cases, we may not be able to assert our intellectual property rights against such parties. Further, our contractual arrangements may not effectively prevent disclosure of our confidential information or provide an adequate remedy in the event of unauthorized disclosure of our confidential information, and we may be unable to detect the unauthorized use of, or take appropriate steps to enforce, our intellectual property rights.
We make business decisions about when to seek patent protection for a particular technology and when to rely upon trade secret protection, and the approach we select may ultimately prove to be inadequate. Even in cases where we seek patent protection, there is no assurance that the resulting patents will effectively protect every significant feature of our model, technology, or proprietary information, or provide us with any competitive advantages. Moreover, we cannot guarantee that any of our pending patent application will issue or be approved. The United States Patent and Trademark Office and various foreign governmental patent agencies also require compliance with a number of procedural, documentary, fee payment, and other similar provisions during the patent application process and after a patent has issued. There are situations in which noncompliance can result in abandonment or lapse of the patent, or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If this occurs, our competitors might be able to enter the market, which would have a material adverse effect on our business. Effective trademark, copyright, patent, and trade secret protection may not be available in every country in which we conduct business. Further, intellectual property law, including statutory and case law, particularly in the United States, is constantly developing, and any changes in the law could make it harder for us to enforce our rights.
In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. An adverse determination of any litigation proceedings could put our intellectual property at risk of being invalidated or interpreted narrowly and could put our related pending patent applications at risk of not issuing. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential or sensitive information could be compromised by disclosure in the event of litigation. In addition, during the course of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our Class A common stock. Negative publicity related to a decision by us to initiate such enforcement actions against a client or former client, regardless of its accuracy, may adversely impact our other client relationships or prospective client relationships, harm our brand and business, and could cause the market price of our Class A common stock to decline. Our failure to secure, protect, and enforce our intellectual property rights could adversely affect our brand and our business.
 
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We may not be able to adequately defend against piracy of intellectual property in foreign jurisdictions.
Considerable research in A.I. is being performed in countries outside of the United States, and a number of potential competitors are located in these countries. The laws protecting intellectual property in some of those countries may not provide adequate protection to prevent our competitors from misappropriating our intellectual property. Several of these potential competitors may be further along in the process of product development and also operate large, company-funded research and development programs. As a result, our competitors may develop more competitive or affordable products, or achieve earlier patent protection or product commercialization than we are able to achieve. Competitive products may render any products or product candidates that we develop obsolete.
We may be sued by third parties for alleged infringement of their proprietary rights or misappropriation of intellectual property.
There is considerable patent and other intellectual property development activity in our industry. Our future success depends in part on not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, including so-called non-practicing entities (“NPEs”), may own or claim to own intellectual property relating to our TopCare® program. Not all employees and contractors of Continental Benefits have signed non-compete and non-disclosure agreements with the Company. From time to time, third parties may claim that we are infringing upon their intellectual property rights or that we have misappropriated their intellectual property. For example, in some cases, very broad patents are granted that may be interpreted as covering a wide field of healthcare data storage and analytics solutions or machine learning and predictive modeling methods in healthcare. As competition in our market grows, the possibility of patent infringement, trademark infringement, and other intellectual property claims against us increases. In the future, we expect others to claim that our TopCare® program and underlying technology infringe or violate their intellectual property rights. In a patent infringement claim against us, we may assert, as a defense, that we do not infringe the relevant patent claims, that the patent is invalid or both. The strength of our defenses will depend on the patents asserted, the interpretation of these patents, and our ability to invalidate the asserted patents. However, we could be unsuccessful in advancing non-infringement and/or invalidity arguments in our defense. In the United States, issued patents enjoy a presumption of validity, and the party challenging the validity of a patent claim must present clear and convincing evidence of invalidity, which is a high burden of proof. Conversely, the patent owner need only prove infringement by a preponderance of the evidence, which is a lower burden of proof. We may be unaware of the intellectual property rights that others may claim cover some or all of our technology or services. Because patent applications can take years to issue and are often afforded confidentiality for some period of time there may currently be pending applications, unknown to us, that later result in issued patents that could cover one or more aspects of our technology and services. Any claims or litigation could cause us to incur significant expenses and, whether or not successfully asserted against us, could require that we pay substantial damages, ongoing royalty or license payments, or settlement fees, prevent us from offering our TopCare® program or using certain technologies, require us to re-engineer all or a portion of our platform, or require that we comply with other unfavorable terms. We may also be obligated to indemnify our clients or business partners or pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, modify applications, or refund fees, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations.
Our TopCare® program utilizes open-source software, and any failure to comply with the terms of one or more of these open-source licenses could adversely affect our business.
We use software modules licensed to us by third-party authors under “open-source” licenses in our TopCare® program. Some open-source licenses contain affirmative obligations or restrictive terms that could adversely impact our business, such as restrictions on commercialization or obligations to make available modified or derivative works of certain open-source code. If we were to combine our proprietary software with certain open-source software subject to these licenses in a certain manner, we could, under certain open-source licenses, be required to release or otherwise make available the source code to our
 
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proprietary software to the public. This would allow our competitors to create similar products with lower development effort and time and ultimately could result in a loss of sales for us.
Although we employ practices designed to manage our compliance with open-source licenses and protect our proprietary source code, we may inadvertently use open-source software in a manner we do not intend and that could expose us to claims for breach of contract and intellectual property infringement. If we are held to have breached the terms of an open-source software license, we could be required to, among other things, seek licenses from third parties to continue offering our products on terms that are not economically feasible, pay damages to third parties, to re-engineer our products, to discontinue the sale of our products if re-engineering cannot be accomplished on a timely basis, or to make generally available, in source code form, a portion of our proprietary code, any of which could adversely affect our business, results of operations, and financial condition. The terms of many open-source licenses have not been interpreted by U.S. courts, and, as a result, there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our TopCare® program.
Risks Related to Conducting our Business Under a Complex and Evolving Set of Governmental Regulations
Government regulation of healthcare creates risks and challenges with respect to our compliance efforts and our business strategies.
The healthcare industry is highly regulated and is subject to changing political, legislative, regulatory, and other influences. Existing and new laws and regulations affecting the healthcare industry, or changes to existing laws and regulations, including the potential amendment or repeal of all or parts of the Affordable Care Act (“ACA”), including the effects of court challenges or additional changes to its implementation, the possible enactment of additional federal or state health care reforms and possible changes to other federal, state or local laws or regulations affecting the health care industry, including expanding government-funded healthcare insurance options or implementing a single-payer proposal (often referred to as “Medicare for All”), and also including any such laws or governmental regulations which are adopted in response to the COVID-19 pandemic, could create unexpected liabilities for us, cause us to incur additional costs, and restrict our operations. Reforming the healthcare industry has been a priority for U.S. politicians, and key members of the legislative and executive branches have proposed a wide variety of potential changes and policy goals. Certain changes to laws impacting our industry, or perceived intentions to do so, could affect our business and results of operations.
Many healthcare laws are complex, and their application to specific services and relationships may not be clear. In particular, many existing healthcare laws and regulations, when enacted, did not anticipate the data analytics and improvement services that we provide, and these laws and regulations may be applied to our product and service offerings in ways that we do not anticipate, particularly as we develop and release new and more sophisticated solutions. Our failure to accurately anticipate the application of these laws and regulations, or our other failure to comply with them, could create significant liability for us, result in adverse publicity, and negatively affect our business. Some of the risks we face from healthcare regulation are described below:

False Claims Laws.    There are numerous federal and state laws that prohibit submission of false information, or the failure to disclose information, in connection with submission (or causing the submission) and payment of claims for reimbursement. For example, the federal civil False Claims Act prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, to the U.S. federal government, claims for payment or approval that are false or fraudulent, or knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim. In addition, the government may assert that a claim including items and services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. If our advisory services to clients are associated with action by clients that is determined or alleged to be in violation of these laws and regulations, it is possible that an enforcement agency would also try to hold us accountable. Any determination by a court or regulatory agency that we have violated these laws could subject us to significant civil or criminal penalties, invalidate all or portions of some of our client contracts, require us to change or terminate some portions of our business, require us to refund portions of our
 
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services fees, subject us to additional reporting requirements and oversight under a corporate integrity agreement or similar agreement to resolve allegations of noncompliance with these laws, cause us to be disqualified from serving clients doing business with government payors, and have an adverse effect on our business. Our Clients’ failure to comply with these laws and regulations in connection with our services could result in substantial liability (including, but not limited to, criminal liability), adversely affect demand for our services, and force us to expend significant capital, research and development, and other resources to address the failure.

Health Data Privacy Laws.    There are numerous federal and state laws related to health information privacy. In particular, the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”) and their implementing regulations, which we collectively refer to as “HIPAA,” include privacy standards that protect individual privacy by limiting the uses and disclosures of PHI and implementing data security standards that require covered entities to implement administrative, physical, and technological safeguards to ensure the confidentiality, integrity, availability, and security of PHI in electronic form. In addition to enforcement actions initiated by regulatory bodies under HIPAA, violations or breaches caused by us or our contractors may result in related claims against us by clients, which may be predicated upon underlying contractual responsibilities, and by Members, which may be predicated upon tort law or state privacy claims, as HIPAA does not contain a private right of action. HIPAA also specifies formats that must be used in certain electronic transactions, such as admission and discharge messages and limits the fees that may be charged for certain transactions, including claim payment transactions. By processing and maintaining PHI on behalf of our covered entity clients, we are a HIPAA business associate and mandated by HIPAA to enter into written agreements with our covered entity clients — known as Business Associate Agreements (“BAAs”) — that require us to safeguard PHI. BAAs typically include:

a description of our permitted uses of PHI;

a covenant not to disclose that information except as permitted under the BAA and to require that our subcontractors, if any, are subject to the substantially similar restrictions;

assurances that reasonable and appropriate administrative, physical, and technical safeguards are in place to prevent misuse of PHI;

an obligation to report to our client any use or disclosure of PHI other than as provided for in the BAA;

a prohibition against our use or disclosure of PHI if a similar use or disclosure by our client would violate the HIPAA standards;

the ability of our clients to terminate the underlying support agreement if we breach a material term of the BAA and are unable to cure the breach;

the requirement to return or destroy all PHI at the end of our services agreement; and

access by the Department of Health and Human Services (“HHS”) to our internal practices, books, and records to validate that we are safeguarding PHI.
In addition, we are also required to maintain BAAs, which contain similar provisions, with our subcontractors that access or otherwise process PHI on our behalf.
We may not be able to adequately address the business risks created by HIPAA implementation, and meet the requirements imposed by HIPAA. Furthermore, we are unable to predict what changes to HIPAA or other laws or regulations might be made in the future or how those changes could affect our business or the costs of compliance. For example, in 2018, the HHS Office for Civil Rights published a Request for Information in the Federal Register seeking comments on a number of areas in which HHS is considering making both minor and significant modifications to the HIPAA privacy and security standards to, among other things, improve care coordination. We are unable to predict what, if any, impact the changes in such standards will have on our compliance costs or our product and service offerings.
We will also require large sets of de-identified information to enable us to continue to develop A.I. algorithms that enhance our product and service offerings. If we are unable to secure these rights in Client
 
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BAAs or as a result of any future changes to HIPAA or other applicable laws, we may face limitations on the use of PHI and our ability to use de-identified information that could negatively affect the scope of our product and service offering as well as impair our ability to provide upgrades and enhancements to our services.
We outsource important aspects of the storage and transmission of client and member information, and thus rely on third parties to manage functions that have material cyber-security risks. We attempt to address these risks by requiring outsourcing subcontractors who handle client information to sign BAAs contractually requiring those subcontractors to adequately safeguard PHI in a similar manner that applies to us and in some cases by requiring such outsourcing subcontractors to undergo third-party security examinations as well as to protect the confidentiality of other sensitive client information. In addition, we periodically hire third-party security experts to assess and test our security measures. However, we cannot be assured that these contractual measures and other safeguards will adequately protect us from the risks associated with the storage and transmission of client proprietary information and PHI.
Centers for Medicare & Medicaid Services (“CMS”) takes the position that an electronic fund transfer (“EFT”) payment to a health care provider is a “standard transaction” under HIPAA. As a “standard transaction”, these provider payments may be subject to certain limitations on the fees that may be charged for an EFT payment transaction with a health care provider. We outsource important aspects of our EFT payments to health care providers and thus rely on third parties to manage the EFT transactions and assure that the fees charged comply with HIPAA. The application of HIPAA to EFT payments is complex, and their application to specific value-added services for health care providers may not be clear. Our failure to accurately anticipate the application of HIPAA’s fee restrictions on certain standard transactions could create significant liability for us, resulting in negative publicity, and material adverse effect on our business and operating results.
In addition to the HIPAA privacy and security standards, most states have enacted patient confidentiality laws that protect against the disclosure of confidential medical and other personally identifiable information (“PII”) and many states have adopted or are considering new privacy laws, including legislation that would mandate new privacy safeguards, security standards, and data security breach notification requirements. Such state laws, if more stringent than HIPAA requirements, are not preempted by the federal requirements, and we are required to comply with them. In addition, the Federal Trade Commission, and analogous state agencies, may apply consumer protection laws to the context of data privacy. For example, the Federal Trade Commission has sanctioned companies for unfair trade practices when they failed to implement adequate security protection measures for sensitive personal information, or when they provided inadequate disclosures to consumers about the expansive scope of data mined from consumer activity.
Failure by us to comply with any of the federal and state standards regarding patient privacy and/or privacy more generally may subject us to penalties, including significant civil monetary penalties and, in some circumstances, criminal penalties. In addition, such failure may injure our reputation and adversely affect our ability to retain clients and attract new clients.
Even an unsuccessful challenge by regulatory authorities of our activities could result in adverse publicity and could require a costly response from us.

Anti-Kickback and Anti-Bribery Laws.    There are federal and state laws that prohibit payment for patient referrals, patient brokering, remuneration of members, or billing based on referrals between individuals or entities that have various financial, ownership, or other business relationships with healthcare providers. In particular, the federal Anti-Kickback Statute prohibits offering, paying, soliciting, or receiving anything of value, directly or indirectly, for the referral of members covered by Medicare, Medicaid, and other federal healthcare programs or the leasing, purchasing, ordering, or arranging for or recommending the lease, purchase, or order of any item, good, facility, or service covered by these programs. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Some enforcement activities focus on below or above market payments for federally reimbursable health care items or services as evidence of the intent to provide a kickback. Many states also have similar anti-kickback laws, some of which are applicable to all patients and that are not necessarily limited to items or
 
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services for which payment is made by a federal healthcare program. In addition, the federal physician self-referral prohibition  — the Stark Law — is very complex in its application and prohibits physicians (and certain other healthcare professionals) from making a referral for a designated health service to a provider in which the referring healthcare professional (or spouse or any immediate family member) has a financial or ownership interest, unless an enumerated exception applies. The Stark Law also prohibits the billing for services rendered resulting from an impermissible referral. Many states also have similar anti-referral laws that are not necessarily limited to items or services for which payment is made by a federal healthcare program and may include patient disclosure requirements. Moreover, both federal and state laws prohibit bribery and similar behavior. Any determination by a state or federal regulatory agency that we or any of our clients, vendors, or partners violate or have violated any of these laws could subject us to significant civil or criminal penalties, require us to change or terminate some portions of our business, require us to refund portions of our services fees, subject us to additional reporting requirements and oversight under a corporate integrity agreement or similar agreement to resolve allegations of noncompliance with these laws, cause us to be disqualified from serving clients doing business with government payors, and have an adverse effect on our business. Even an unsuccessful challenge by regulatory authorities of our activities could result in adverse publicity and could require a costly response from us.

Corporate Practice of Medicine Laws and Fee-Splitting Laws.    Many states have enacted laws prohibiting physicians from practicing medicine in partnership with non-physicians, such as business corporations. In addition, many states prohibit certain licensed professionals, such as physicians, from splitting professional fees with non-licensees. As we do not engage in the practice of medicine, we do not contract with providers to render medical care, and we do not split fees with any medical professionals, we do not believe these laws restrict our business. Our activities involve only monitoring and analyzing historical claims data, including our Members’ interactions with licensed healthcare professionals, and recommend the most suitable healthcare providers and/or sources of treatment. We do not provide medical prognosis or healthcare. In accordance with various states’ corporate practice of medicine laws and states’ laws and regulations which define the practice of medicine, our call center staff are prohibited from providing Members with any evaluation of any medical condition, diagnosis, prescription, care and/or treatment. Rather, our call center staff can only provide Members with general and publicly available information that is non-specific to the Members’ medical conditions and statistical information about the prevalence of medical conditions within certain populations or under certain circumstances. Our call center staff do not discuss Members’ individual medical conditions and are prohibited from asking Members for any additional protected health information (PHI) as such term is defined under HIPAA. Our call center staff have been trained and instructed to always inform Members that they are not licensed medical professionals, are not providing medical advice, and that Members should reach out to their medical provider for any medical advice.

Medical professional regulation.    The practice of most healthcare professions requires licensing under applicable state law. In addition, the laws in some states prohibit business entities from practicing medicine. In the future, we may contract with physicians, nurses and nurse practitioners, who will assist our clients with the clients’ care coordination, care management, population health management, and patient safety activities that do not constitute the practice of medicine. We do not intend to provide medical care, treatment, or advice. However, any determination that we are acting in the capacity of a healthcare provider and acted improperly as a healthcare provider may result in additional compliance requirements, expense, and liability to us, and require us to change or terminate some portions of our business, including the use of licensed professionals to conduct the foregoing activities.

Medical Device Laws.    The FDA may regulate medical or health-related software, including machine learning functionality and predictive algorithms, if such software falls within the definition of a “device” under the federal Food, Drug, and Cosmetic Act (“FDCA”). However, the FDA exercises enforcement discretion for certain low-risk software, as described in its guidance documents for Mobile Medical Applications, General Wellness: Policy for Low Risk Devices, and Medical Device Data Systems, Medical Image Storage Devices, and Medical Image Communications Devices. In addition, in December of 2016, President Obama signed into law the 21st Century Cures Act, which included exemptions for certain medical-related software, including software used for administrative
 
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support functions at a healthcare facility, software intended for maintaining or encouraging a healthy lifestyle, EHR software, software for transferring, storing, or displaying medical device data or in vitro diagnostic data, and certain clinical decision support software. The FDA has also issued draft guidance documents to clarify how it intends to interpret and apply the new exemptions under the 21st Century Cures Act. Although we believe that our software products are currently not subject to active FDA regulation, we continue to follow the FDA’s developments in this area. There is a risk that the FDA could disagree with our determination or that the FDA could develop new final guidance documents that would subject our Product to active FDA oversight. If the FDA determines that any of our current or future analytics applications are regulated as medical devices, we would become subject to various requirements under the FDCA and the FDA’s implementing regulations. Depending on the functionality and FDA classification of our analytics applications, we may be required to:

register and list our A.I. products with the FDA;

notify the FDA and demonstrate substantial equivalence to other products on the market before marketing our analytics applications;

submit a de novo request to the FDA to down-classify our analytics applications prior to marketing; or

obtain FDA approval by demonstrating safety and effectiveness before marketing our analytics applications.
The FDA can impose extensive requirements governing pre- and post-market conditions, such as service investigation and others relating to approval, labeling, and manufacturing. In addition, the FDA can impose extensive requirements governing software development controls and quality assurance processes.
The AI algorithm is currently manufactured in Israel by Marpai Labs. The manufacturer is in the process of meeting all FDA importation clearance for the device. Additionally, the manufacturer is in the process of listing itself as a manufacturer with the FDA.
The AI algorithm has undergone testing to follow the Quality System regulation (that includes cGMPs) (good manufacturing practices) and QC controls in the design, development, AI training and testing. Marpai AI algorithms have been validated by our R&D team to determine generalizability, accuracy and reliability and are monitored carefully. Additionally, the algorithms were trained on large, diverse patient datasets to ensure they are not biased and that they perform as assumed across diverse sets of patients and settings. The regulatory landscape is evolving and FDA is in the process of issuing a comprehensive guidance on AI software which may change how our product is regulated.
Many states have licensing and other regulatory requirements requiring licensing of businesses which provide medical review services. These laws typically establish minimum standards for qualifications of personnel, confidentiality, internal quality control, and dispute resolution procedures. To the extent we are governed by these regulations, these regulatory programs may result in increased costs of operation for us, which may have an adverse impact upon our ability to compete with other available alternatives for healthcare cost control. In addition, new laws regulating the operation of managed care provider networks have been adopted by a number of states. These laws may apply to managed care provider networks we have contracts with. To the extent we are governed by these regulations, we may be subject to additional licensing requirements, financial and operational oversight and procedural standards for beneficiaries and providers.
These laws and regulations may change rapidly, and it is frequently unclear how they apply to our business. Any failure of our products or services to comply with these laws and regulations could result in substantial civil or criminal liability and could, among other things, adversely affect demand for our services, force us to expend significant capital, research and development, and other resources to address the failure, invalidate all or portions of some of our contracts with our clients, require us to change or terminate some portions of our business, require us to refund portions of our revenue, cause us to be disqualified from serving clients doing business with government payors, and give our clients the right to terminate our contracts with them, any one of which could have an adverse effect on our business. Additionally, the introduction of new services may require us to comply with additional, yet undetermined, laws and regulations.
 
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The security measures that we and our third-party vendors and subcontractors have in place to ensure compliance with privacy and data protection laws may not protect our facilities and systems from security breaches, acts of vandalism or theft, computer viruses, misplaced or lost data, programming and human errors, or other similar events. Under the HITECH Act, as a business associate, we may also be liable for privacy and security breaches and failures of our subcontractors, in addition to those that may be caused by us. Even though we provide for appropriate protections through our agreements with our subcontractors, we still have limited control over their actions and practices. A breach of privacy or security of individually identifiable health information by a subcontractor may result in an enforcement action, including criminal and civil liability, against us. We are not able to predict the extent of the impact such incidents may have on our business.
Our failure to comply may result in criminal and civil liability because the potential for enforcement action against business associates is now greater. Enforcement actions against us could be costly and could interrupt regular operations, which may adversely affect our business. While we have not received any notices of violation of the applicable privacy and data protection laws and believe we are in compliance with such laws, there can be no assurances that we will not receive such notices in the future, or suffer a breach.
There is ongoing concern from privacy advocates, regulators, and others regarding data protection and privacy issues, and the number of jurisdictions with data protection and privacy laws has been increasing. Also, there are ongoing public policy discussions regarding whether the standards for de-identified, anonymous, or pseudonymized health information are sufficient, and the risk of re-identification sufficiently small, to adequately protect patient privacy. We expect that there will continue to be new proposed laws, regulations, and industry standards concerning privacy, data protection, and information security in the United States, including the California Consumer Privacy Act, which went into effect January 1, 2020, and similar laws which will take effect in Colorado and Virginia in 2023. We cannot yet determine the impact that any such future laws, regulations, and standards may have on our business. Future laws, regulations, standards, and other obligations, and changes in the interpretation of existing laws, regulations, standards, and other obligations could impair our or our clients’ ability to collect, use, or disclose information relating to consumers, which could decrease demand for or the effectiveness of our platform, increase our costs, and impair our ability to maintain and grow our client base and increase our revenue. New laws, amendments to or re-interpretations of existing laws and regulations, industry standards, contractual obligations, and other obligations may require us to incur additional costs and restrict our business operations. In view of new or modified federal, state, or foreign laws and regulations, industry standards, contractual obligations, and other legal obligations, or any changes in their interpretation, we may find it necessary or desirable to fundamentally change our business activities and practices or to expend significant resources to modify our software or platform and otherwise adapt to these changes.
Any failure or perceived failure by us to comply with federal or state laws or regulations, industry standards, or other legal obligations, or any actual or suspected security incident, whether or not resulting in unauthorized access to, or acquisition, release, or transfer of personally identifiable information or other data, may result in governmental enforcement actions and prosecutions, private litigation, fines, and penalties or adverse publicity and could cause our clients to lose trust in us, which could have an adverse effect on our reputation and business. We may be unable to make such changes and modifications in a commercially reasonable manner or at all, and our ability to develop new products and features could be limited. Any of these developments could harm our business, financial condition, and results of operations. Privacy and data security concerns, whether valid or not valid, may inhibit market adoption of our platform.
Further, on February 11, 2019, Office of the National Coordinator for Health Information Technology (“ONC”) and Centers for Medicare & Medicaid Services (“CMS”) proposed complementary new rules to support access, exchange, and use of electronic health information (“EHI”). The proposed rules, some of which have now been finalized and are in effect, are intended to clarify provisions of the 21st Century Cures Act regarding interoperability and “information blocking,” and have created significant new requirements for health care industry participants.
The CMS proposed rule focuses on health plans, payors, and health care providers and proposes measures to enable members to move from health plan to health plan, provider to provider, and have both their clinical and administrative information travel with them.
 
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The rules, some of which have recently taken effect, may benefit us in that certain EHR vendors will no longer be permitted to interfere with our attempts at integration, but the rules may also make it easier for other similar companies to enter the market, creating increased competition, and reducing our market share. It is unclear at this time what the costs of compliance with the rules will be, and what additional risks there may be to our business, as only portions of the rules have become effective.
Management has limited administrative experience obtaining and maintaining the proper licensure and authorizations required for us to conduct TPA business.
We are required to maintain a Third-Party Administrator License in 43 states and are required to maintain registration as a foreign corporation in every state but Delaware, where we are incorporated. Management has limited experience in administering these licensures and authorizations. Our failure to maintain any Third-Party Administrator License or foreign qualification to do business will prohibit us from doing business in a given state, and/or subject us to fines and other penalties. Our inability to maintain these licenses and qualifications will restrict our ability to conduct our TPA business or otherwise have a material adverse effect on our operations.
The healthcare regulatory and political framework is uncertain and evolving.
Healthcare laws and regulations are rapidly evolving and may change significantly in the future, which could adversely affect our financial condition and results of operations. For example, in March 2010, the Patient Protection and ACA was adopted, which is a healthcare reform measure that provides healthcare insurance for approximately 30 million more Americans. The ACA includes a variety of healthcare reform provisions and requirements that substantially changed the way healthcare is financed by both governmental and private insurers, which may significantly impact our industry and our business. Many of the provisions of the ACA phase in over the course of the next several years, and we may be unable to predict accurately what effect the ACA or other healthcare reform measures that may be adopted in the future, including amendments to the ACA, will have on our business. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the ACA are invalid as well. On December 18, 2019, the Fifth Circuit U.S. Court of Appeals held that the individual mandate is unconstitutional and remanded the case to the lower court to reconsider its earlier invalidation of the full ACA. Pending review, the ACA remains in effect, but it is unclear at this time what effect the latest ruling will have on the status of the ACA. Nevertheless, upon review by the U.S. Supreme Court, the plaintiffs in the Texas action were determined to lack standing, and as such, the case was reversed and remanded.
Our business could be adversely impacted by changes in laws and regulations related to the Internet or changes in access to the Internet generally.
The future success of our business depends upon the continued use of the Internet as a primary medium for communication, business applications, and commerce. Federal or state government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the use of the Internet as a commercial medium. Legislators, regulators, or government bodies or agencies may also make legal or regulatory changes or interpret or apply existing laws or regulations that relate to the use of the Internet in new and materially different ways. Changes in these laws, regulations or interpretations could require us to modify our platform in order to comply with these changes, to incur substantial additional costs or divert resources that could otherwise be deployed to grow our business, or expose us to unanticipated civil or criminal liability, among other things.
In addition, government agencies and private organizations have imposed, and may in the future impose, additional taxes, fees or other charges for accessing the Internet or commerce conducted via the Internet. Internet access is frequently provided by companies that have significant market power and could take actions that degrade, disrupt or increase the cost of our clients’ use of our platform, which could negatively impact our business. Net neutrality rules, which were designed to ensure that all online content is treated the same by Internet service providers and other companies that provide broadband services were repealed by the Federal Communications Commission effective June 2018. The repeal of the net neutrality
 
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rules could force us to incur greater operating expenses or our clients’ use of our platform could be adversely affected, either of which could harm our business and results of operations.
These developments could limit the growth of Internet-related commerce or communications generally or result in reductions in the demand for Internet-based platforms and services such as ours, increased costs to us or the disruption of our business. In addition, as the Internet continues to experience growth in the numbers of users, frequency of use and amount of data transmitted, the use of the Internet as a business tool could be adversely affected due to delays in the development or adoption of new standards and protocols to handle increased demands of Internet activity, security, reliability, cost, ease-of-use, accessibility, and quality of service. The performance of the Internet and its acceptance as a business tool has been adversely affected by “viruses,” “worms,” and similar malicious programs and the Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure. If the use of the Internet generally, or our platform specifically, is adversely affected by these or other issues, we could be forced to incur substantial costs, demand for our platform could decline, and our results of operations and financial condition could be harmed.
Risks Related to Operating as a Public Emerging Growth Company
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified board members.
As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934 (the Exchange Act), the listing standards of Nasdaq and other applicable securities rules and regulations. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting, and financial compliance costs, make some activities more difficult, time-consuming, and costly, and place significant strain on our personnel, systems, and resources. For example, the Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and results of operations. As a result of the complexity involved in complying with the rules and regulations applicable to public companies, our management’s attention may be diverted from other business concerns, which could harm our business, results of operations, and financial condition.
We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
As a result of disclosure of information in filings required of a public company, our business and financial condition is more visible, which may result in an increased risk of threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and results of operations could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business, results of operations, and financial condition.
The individuals who now constitute our senior management team have limited experience managing a publicly-traded company and limited experience complying with the increasingly complex laws pertaining to public companies. Our senior management team may not successfully or efficiently manage our transition to a public company that is subject to significant regulatory oversight and reporting obligations.
We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our Class A common stock less attractive to investors.
We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including:

not being required to have our independent registered public accounting firm attest to our internal control over financial reporting under Section 404 of the Sarbanes Oxley Act;
 
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reduced disclosure obligations regarding executive compensation in our periodic reports and annual report on Form 10-K; and

exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We could be an emerging growth company for up to five years following the completion of this offering. Our status as an emerging growth company will end as soon as any of the following takes place:

the last day of the fiscal year in which we have more than $1.07 billion in annual revenue;

the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates;

the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or

the last day of the fiscal year ending after the fifth anniversary of the completion of this offering.
We cannot predict if investors will find our Class A common stock less attractive if we choose to rely on the exemptions afforded emerging growth companies. If some investors find our Class A common stock less attractive because we rely on any of these exemptions, there may be a less active trading market for our Class A common stock and the market price of our Class A common stock may be more volatile.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies.
If we are unable to implement and maintain effective internal control over financial reporting in the future, our ability to produce accurate financial statements could be impaired, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock may decline.
Our current directors have limited experience with internal control procedures required of U.S. public companies and no current member of our Board of Directors is considered an audit committee financial expert. On the date of this prospectus, we appointed additional directors to our Board, at least one of whom is considered an audit committee financial expert.
As a result of this offering, we will become subject to the information and reporting requirements of the Securities Exchange Act and, in accordance with this law, we will file periodic reports (Form 10-K’s, Form 10-Q’s and Form 8-K’s), proxy statements and other information with the Securities and Exchange Commission. Upon becoming a public reporting company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. We will also be required to establish and maintain effective disclosure controls. In addition, beginning with our first annual report on Form 10-K following this offering, we will be required to furnish a report by management on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We are in the process of designing, implementing and testing the internal control over financial reporting required to comply with this obligation, which process is time consuming, costly and complicated. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting beginning with our annual report on Form 10-K following the date on which we are no longer an “emerging growth company,” which may be up to five full years following the date of this offering. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
 
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There may be deficiencies with our internal controls that require improvements, and we will be exposed to potential risks from legislation requiring companies to evaluate controls under Section 404 of the Sarbanes-Oxley Act of 2002.
It may be time consuming, difficult and costly for us to develop and implement the additional internal controls, processes and reporting procedures required by the Sarbanes-Oxley Act. Currently, as a small company, we maintain our internal controls through a segregation of duties between our executive officers. With the exception of our Chief Financial Officer, our current officers and directors have limited experience in management of a publicly reporting company. This may be inadequate to have effective internal controls as we will rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. We may need to hire additional financial reporting, internal auditing and other finance staff in order to develop and implement appropriate additional internal controls, processes and reporting procedures.
If we fail to comply in a timely manner with the requirements of Section 404 of the Sarbanes-Oxley Act regarding internal control over financial reporting or to remedy any material weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our Class A common stock.
Pursuant to Section 404 of the Sarbanes-Oxley Act and current SEC regulations, following the consummation of this offering, we will be required to prepare assessments regarding internal controls over financial reporting and, furnish a report by our management on our internal control over financial reporting.
We are in the process of determining whether our existing internal controls over financial reporting systems are compliant with Section 404. We will not be required to conduct the evaluation of effectiveness of our internal controls until the end of the fiscal year reported upon in our second annual report on Form 10-K following this offering. In addition, because we are a smaller reporting company, we are not required to obtain the auditor attestation of management’s evaluation of internal controls over financial reporting.
This process of internal control evaluation and testing is likely to result in increased general and administrative expenses and may shift management time and attention from revenue-generating activities to compliance activities. While our management expects to expend significant resources in an effort to complete this important project, there can be no assurance that we will be able to achieve our objective on a timely basis. If it is determined that we are not in compliance with Section 404, we may be required to implement new internal control procedures and re-evaluate our financial reporting. Failure to achieve and maintain an effective internal control environment or complete our Section 404 certifications could have a material adverse effect on our ability to comply with our periodic reporting obligations under the Exchange Act and on our stock price.
In addition, in connection with our on-going assessment of the effectiveness of our internal control over financial reporting, we may discover “material weaknesses” in our internal controls as defined in standards established by the Public Company Accounting Oversight Board, or the PCAOB. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The PCAOB defines “significant deficiency” as a deficiency, or combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.
In the event that a material weakness is identified, we would be required to adopt and implement policies and procedures to address such material weaknesses. We may also need to employ additional qualified personnel to assist us in these efforts. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. We cannot assure you that the measures we will take will remediate any material weaknesses that we may identify or that we will implement and maintain adequate controls over our financial process and reporting in the future.
 
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Risks Related to Investing in Our Class A Common Stock
An active trading market may not develop for our securities, and you may not be able to sell your Class A common stock at or above the offering price per share.
This is the initial public offering of our securities. Prior to this offering, and there was no public market for our Class A common stock.
Our Class A common stock has been approved for listing on the NASDAQ Capital Market. However, we cannot predict the extent to which investor interest in our company will lead to the development of an active trading market in our Class A common stock or how liquid that market might become. If such a market does not develop or is not sustained, it may be difficult for you to sell your shares of Class A common stock at the time you wish to sell them, at a price that is attractive to you, or at all.
The trading market for our Class A common stock in the future could be subject to wide fluctuations in response to several factors, including, but not limited to:

actual or anticipated variations in our results of operations;

our ability or inability to generate revenues or profit;

the number of shares in our public float; and

increased competition.
Furthermore, our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our Class A common stock. Additionally, moving forward we anticipate having a limited number of shares in our public float, and as a result, there could be extreme fluctuations in the price of our Class A common stock. The offering price per share has been determined through negotiation between us and representatives of the underwriter and may not be indicative of the market prices that prevail after this offering. You may not be able to sell your Class A common stock at or above the offering price per share.
Our management has broad discretion in the use of proceeds from our offering and our use may not produce a positive rate of return.
The principal purposes of our offering are to increase our capitalization and financial flexibility, create a public market for our stock and thereby enable access to the public equity markets by our employees and stockholders, obtain additional capital, and strengthen our position in the TPA market. Approximately $3.8 million from the net proceeds of this offering may be used to service our debt obligations. We intend to use up to approximately $3.0 million from the net proceeds of this offering to repay $3.0 million of the outstanding principal amount plus accrued interest on the HillCour Promissory Note, approximately $0.8 million from the net proceeds of this offering to repay $0.8 million of the aggregate principal and accrued interest outstanding on the SQN Convertible Note, approximately $8.0 million on research and development, $2.0 million on sales and marketing. We plan to use the remaining net proceeds for working capital, other general corporate purposes and potential acquisitions. Our management has broad discretion over the specific use of the net proceeds we received in our offering and might not be able to obtain a significant return, if any, on investment of these net proceeds. Investors will need to rely upon the judgment of our management with respect to the use of proceeds. If we do not use the net proceeds that we received in our offering effectively, our business, results of operations, and financial condition could be harmed.
Our issuance of additional capital stock in connection with financings, acquisitions, investments, our 2021 Global Stock Incentive Plan or otherwise will dilute all other stockholders.
We may need to raise additional capital through equity and debt financings in order to fund our operations. If we raise capital through equity financings in the future, that will result in dilution to all other stockholders. We also expect to grant equity awards to employees, directors, and consultants under our 2021 Global Stock Incentive Plan. As part of our business strategy, we may acquire or make investments in complementary companies, products, or technologies and issue equity securities to pay for any such acquisition
 
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or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per-share value of our Class A common stock to decline.
We do not intend to pay dividends on our Class A common stock and, consequently, the ability of Class A common stockholders to achieve a return on investment will depend on appreciation, if any, in the price of our Class A common stock.
You should not rely on an investment in our Class A common stock to provide dividend income. We do not plan to declare or pay any dividends on our capital stock in the foreseeable future. Instead, we intend to retain any earnings to finance the operation and expansion of our business. As a result, Class A common stockholders may only receive a return on investment if the market price of our Class A common stock increases.
Certain of our founding shareholders will continue to own a significant percentage of our Class A common stock and will be able to exert significant control over matters subject to shareholder approval.
Certain of our founding shareholders, including HillCour Investment Fund, LLC, WellEnterprises USA, LLC, Eli David, Yaron Eitan Grays West Ventures LLC and our Chief Executive Officer, Edmundo Gonzalez collectively beneficially own more than 70% of our total voting power through an Agreement Relating to Voting Power Between Co-Founders of Marpai, Inc. and Grant of a Power of Attorney and after this offering is completed the Company will continue to be controlled by these shareholders. Upon the closing of this offering, these shareholders will collectively beneficially own approximately 64.1% of the voting power of our outstanding Class A Common Stock, or approximately 62.3% if the underwriter exercises its option to purchase additional shares of Class A Common Stock from us in full. After this offering, these shareholders will have the ability to substantially influence us through this ownership position. For example, these shareholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. The interests of these shareholders may not always coincide with our corporate interests or the interests of other shareholders, and these shareholders may act in a manner with which you may not agree or that may not be in the best interests of our other shareholders. So long as these shareholders continue to collectively beneficially own a significant amount of our equity, they will continue to be able to strongly influence or effectively control our decisions.
As a “controlled company” under the rules of the Nasdaq Capital Market, we may choose to exempt our company from certain corporate governance requirements that could have an adverse effect on our public shareholders;
Certain of our founding shareholders including HillCour Investment Fund, LLC, WellEnterprises USA, LLC, Eli David, Yaron Eitan Grays West Ventures LLC and our Chief Executive Officer, Edmundo Gonzalez collectively beneficially own more than 70% of our total voting power through an Agreement Relating to Voting Power Between Co-Founders of Marpai, Inc. and Grant of a Power of Attorney and Proxy more fully described herein. Upon the closing of this offering, these shareholders will continue to own a controlling interest in us and we will meet the definition of a “controlled company” under the corporate governance standards for Nasdaq listed companies and we will be eligible to utilize certain exemptions from the corporate governance requirements of the Nasdaq Stock Market. We are a “controlled company” within the meaning of Nasdaq Listing Rule 5615(c). As a controlled company, we qualify for, and our board of directors, the composition of which is and will be controlled by these shareholders may rely upon, exemptions from several of Nasdaq’s corporate governance requirements, including requirements that:

a majority of the board of directors consist of independent directors

compensation of officers be determined or recommended to the board of directors by a majority of its independent directors or by a compensation committee comprised solely of independent directors; and

director nominees be selected or recommended to the board of directors by a majority of its independent directors or by a nominating committee that is composed entirely of independent directors.
 
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As long as our officers and directors, either individually or in the aggregate, own at least 50% of the voting power of our Company, we are a “controlled company” as defined under Nasdaq Marketplace Rules.
Accordingly, to the extent that we may choose to rely on one or more of these exemptions, our shareholders would not be afforded the same protections generally as shareholders of other Nasdaq-listed companies for so long as these shareholders are collectively able to control the composition of our board and our board determines to rely upon one or more of such exemptions.
We do not currently intend to rely on the “controlled company” exemption under the Nasdaq listing rules. However, we may elect to avail ourselves of these exemptions in the future.
If you purchase our securities in this offering, you will incur immediate and substantial dilution in the book value of your investment.
The initial public offering price is substantially higher than the net tangible book value per share of our securities. Investors purchasing shares of Class A common stock in this offering will pay a price per share that substantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing shares in this offering will incur immediate dilution of $3.03 per share, based on the initial public offering price of $4.00 per share.
We might not be able to maintain the listing of our Class A common stock on the NASDAQ Capital Market.
Our Class A common stock has been approved for listing on the NASDAQ Capital Market. However, there can be no assurance that we will be able to maintain the listing standards of that exchange, which includes requirements that we maintain our stockholders’ equity, total value of shares held by unaffiliated stockholders, and market capitalization above certain specified levels. If we fail to conform to the NASDAQ listing requirements on an ongoing basis, our Class A common stock might cease to trade on the NASDAQ Capital Market exchange, and may move to the OTCQB or OTC Pink Markets operated by OTC Markets Group, Inc. These quotation services are generally considered to be markets that are less efficient, and to provide less liquidity in the shares, than the NASDAQ Capital Market.
Future sales of our Class A common stock, or the perception that future sales may occur, may cause the market price of our Class A common stock to decline, even if our business is doing well.
Sales of substantial amounts of our Class A common stock in the public market after this offering, or the perception that these sales may occur, could materially and adversely affect the price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. The shares of Class A common stock sold in this offering will be freely tradable, without restriction, in the public market, except for any shares sold to our affiliates.
In connection with this offering, we, our officers and directors and the holders of our currently outstanding shares of Class A common stock have agreed, subject to certain exceptions, not to sell or transfer any shares of Class A common stock for twelve months from the date of this offering in the case of our officers and directors, and six months from the date of this offering in the case of any other holder of our currently outstanding shares of Class A common stock, without the consent of ThinkEquity LLC. However, ThinkEquity LLC may release these shares from any restrictions at any time. We cannot predict what effect, if any, market sales of shares held by any stockholder or the availability of shares for future sale will have on the market price of our Class A common stock.
Approximately 3,537,703 shares of Class A common stock may be sold in the public market by existing stockholders on or about 181 days after the date of this prospectus, subject to volume and other limitations imposed under the federal securities laws. Sales of substantial amounts of our Class A common stock in the public market after the completion of this offering, or the perception that such sales could occur, could adversely affect the market price of our Class A common stock and could materially impair our ability to raise capital through offerings of our Class A common stock. See the section entitled “Shares Eligible for Future Trading” for a more detailed description of the restrictions on selling shares of our Class A common stock after this offering.
 
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In addition, as of October 26, 2021, we had 1,422,112 options outstanding that, if fully vested and exercised, would result in the issuance of shares of Class A common stock. All of the shares of Class A common stock issuable upon the exercise of stock options and the shares reserved for future issuance under our 2021 Global Stock Incentive Plan will be registered for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance, subject to existing lock-up or market standoff agreements, volume limitations under Rule 144 for our executive officers and directors, and applicable vesting requirements.
The market price of our Class A common stock may be volatile and may decline regardless of our operating performance, and you may lose all or part of your investments.
The market price of our Class A common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

overall performance of the equity markets and/or publicly-listed technology companies;

actual or anticipated fluctuations in our net revenue or other operating metrics;

changes in the financial projections we provide to the public or our failure to meet these projections;

failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet the estimates or the expectations of investors;

the economy as a whole and market conditions in our industry;

political and economic stability in Israel;

exchange rate fluctuations between U.S. dollars and Israeli New Shekel;

rumors and market speculation involving us or other companies in our industry;

announcements by us or our competitors of significant innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;

new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

lawsuits threatened or filed against us;

recruitment or departure of key personnel;

other events or factors, including those resulting from war, incidents of terrorism, or responses to these events; and

the expiration of contractual lock-up or market standoff agreements.
In addition, extreme price and volume fluctuations in the stock markets have affected and continue to affect many technology companies’ stock prices. Often, their stock prices have fluctuated in ways unrelated or disproportionate to the companies’ operating performance. In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because technology and healthcare technology companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.
A possible “short squeeze” due to a sudden increase in demand of our Class A common stock that largely exceeds supply may lead to price volatility in our Class A common stock.
Following this offering, investors may purchase our common stock to hedge existing exposure in our Class A common stock or to speculate on the price of our Class A common stock. Speculation on the price of our Class A common stock may involve long and short exposures. To the extent aggregate short exposure exceeds the number of shares of our Class A common stock available for purchase in the open market, investors with short exposure may have to pay a premium to repurchase our common stock for delivery to lenders of our Class A common stock. Those repurchases may in turn, dramatically increase the price of our
 
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Class A common stock until investors with short exposure are able to purchase additional Class A common stock to cover their short position. This is often referred to as a “short squeeze.” A short squeeze could lead to volatile price movements in our common stock that are not directly correlated to the performance or prospects of our Class A common stock and once investors purchase the shares of Class A common stock necessary to cover their short position the price of our Class A common stock may decline.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and trading volume could decline.
The trading market for our Class A common stock will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for our Class A common stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our stock price and trading volume to decline.
Provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current board of directors and limit the market price of our Class A common stock.
Provisions in our amended and restated certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and bylaws, include provisions that:

permit the board of directors to establish the number of directors and fill any vacancies and newly-created directorships; and;

provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws
Moreover, Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control of our company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our Class A common stock.
Our bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with us.
Our bylaws provide, to the fullest extent permitted by law, that a state or federal court located within the State of Delaware will be the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:

any derivative action or proceeding brought on our behalf;

any action asserting a breach of fiduciary duty;

any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our bylaws; or

any action asserting a claim against us that is governed by the internal affairs doctrine.
This exclusive forum provision will not apply to any causes of action arising under the Securities Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Nothing in our bylaws precludes stockholders that assert claims under the Securities Act or the Exchange Act from bringing such claims in state or federal court, subject to applicable law. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision which will be contained in our
 
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bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition.
Our Amended and Restated Certificate of Incorporation provides that derivative actions brought on our behalf, actions against our directors, officers, employees or agent for breach of fiduciary duty and certain other actions may be brought only in the Court of Chancery in the State of Delaware and the stockholders shall be deemed to have consented to this choice of forum provision, which may have the effect of discouraging lawsuits against our directors, officers, other employees or agents.
Our Amended and Restated Certificate of Incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any stockholder for (a) any derivative action or proceeding brought on our behalf, (b) any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any director, officer, employee or agent of the Company to the Company or the Company’s stockholders, (c) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law (“DGCL”) or the Company’s Certificate of Incorporation or Bylaws, (d) any action to interpret, apply, enforce or determine the validity of the Company’s Certificate of Incorporation or Bylaws, or (e) any action asserting a claim governed by the internal affairs doctrine. The federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint, claim or proceeding asserting a cause of action arising under the Exchange Act or the Securities Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Stockholders cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring or holding any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provision in our Amended and Restated Certificate of Incorporation.
The choice-of-forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers or other employees, and may result in increased costs to a stockholder who has to bring a claim in a forum that is not convenient to the stockholder, which may discourage such lawsuits. Although under Section 115 of the DGCL, exclusive forum provisions may be included in a company’s certificate of incorporation, the enforceability of similar forum provisions in other companies’ certificates or incorporation or bylaws has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the exclusive forum provision of our Amended and Restated Certificate of Incorporation inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors.
 
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Marpai Pre-Acquisition”, Management’s Discussion and Analysis of Financial Condition and Results of Operations of Continental Benefits Pre-Acquisition” and “Business.” These forward-looking statements involve a number of risks and uncertainties. Many of the following risks are, and will be, exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result. We caution readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. These statements are based on current expectations of future events. Such statements include, but are not limited to, statements about future financial and operating results, plans, objectives, expectations and intentions, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, cost savings, objectives of management, business strategies, success of competing drugs, financing, potential growth and market opportunities, product candidates, clinical trial timing and plans, clinical and regulatory pathways for our development programs, the achievement of clinical and commercial milestones, the advancement of our technologies and our proprietary, co-developed and partnered products and product candidates, and other statements that are not historical facts.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “anticipate” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” “possible” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

our ability to integrate two businesses and effectively manage growth;

our ability to protect our intellectual property and continue to innovate;

our expectations around the financial performance of a combined company;

our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our offering;

the potential insufficiency of our disclosure controls and procedures to detect errors or acts of fraud;

the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

the success of competing products or technologies that are or may become available;

our potential ability to obtain additional financing;

our ability to grow the business due to the uncertainty resulting from the recent COVID-19 pandemic or any future pandemic;

our ability to comply with complex and increasing regulations by state and federal authorities;

the impact of healthcare reform legislations;

our ability to maintain the listing of our securities on Nasdaq ;

our public securities’ potential liquidity and trading;

the lack of an established market for our securities;

our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act;

our anticipated use of the proceeds from this offering; and

our financial performance following this offering.
We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate, and financial trends that we believe may affect our
 
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business, prospects, financial condition and results of operations, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this prospectus. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. The forward-looking statements in this prospectus represent our views as of the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus.
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 prospectus, 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. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.
All subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events, except as may be required under applicable law. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this prospectus by these cautionary statements. For all forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
 
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USE OF PROCEEDS
We estimate that the net proceeds from our issuance and sale of 6,250,000 shares of our Class A common stock in this offering at an initial public offering price of $4.00 per share will be approximately $21.3 million, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares in full to cover overallotments, if any, we estimate that our net proceeds will be approximately $24.8 million.
The principal purposes of this offering are to obtain additional capital to support our operations, establish a public market for our Class A common stock and facilitate our future access to the public capital markets. We currently anticipate that we will use the net proceeds from this offering, together with our existing resources, as follows:
We plan to use approximately $8.0 million of the net proceeds from this offering to fund our research and development. This amount includes hiring new A.I. scientists and acquiring data from third parties. We also plan to use approximately $2.0 million on sales and marketing.
In August 2019, in connection with an asset acquisition, Marpai Health issued a convertible note in the principal amount of $2,930,000 (the “SQN Convertible Note”). Interest on the SQN Convertible Note accrues at 6% per annum. It becomes payable on the first day of the month after the 12-month anniversary of the earliest of the following: (i) the consummation of an equity investment in Marpai Health’s capital stock with proceeds of at least $10,000,000, (ii) Marpai Health having continuous positive cash flow for two consecutive calendar quarters, or (iii) October 24, 2021, the second anniversary of the issuance of the SQN Convertible Note. We intend to use up to approximately $0.8 million from the net proceeds of this offering to repay a portion of the principal amount plus accrued interest on the SQN Convertible Note. We also intend to use up to approximately $3.0 million from the net proceeds from this offering to repay the outstanding balance plus accrued interest on the HillCour Promissory Note, and the remaining net proceeds of this offering for working capital, general corporate purposes and potential acquisitions.
We believe that our existing cash and cash equivalents, together with the net proceeds from this offering, will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next 24 months. The amount and timing of our actual expenditures will depend upon numerous factors, including the status of our acquisition strategy, and other factors described under “Risk Factors” in this prospectus, as well as the amount of cash used in our operations. We may find it necessary or advisable to use the net proceeds for other purposes, and we will have broad discretion in the use of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our stock. Pending their use, we plan to invest the net proceeds from this offering in money market funds short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.
 
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DIVIDEND POLICY
We have never declared or paid dividends on our Class A common stock and we do not anticipate paying any cash dividends on our Class A common stock in the foreseeable future. Payment of cash dividends, if any, in the future will be at the discretion of our board of directors and will depend on applicable law and then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business.
 
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CAPITALIZATION
The following table sets forth our cash and cash equivalents as well as capitalization as of June 30, 2021 as follows:

On an actual basis;

On a pro forma basis to give effect to (i) our issuance and sale of 6,250,000 shares of our Class A common stock in this offering at an initial public offering price of $4.00 per share, after deducting estimated underwriting discounts and commissions, estimated offering expenses payable; (ii) conversion of the New Notes (as defined below) and the June 2021 Notes into 908,554 shares of Class A common stock at $2.80 per share upon the consummation of this offering.
The pro forma information below is illustrative only, and our capitalization following the closing of this offering will change based on the actual initial public offering price and other terms of this offering determined at pricing. You should read the information in this table, together with our consolidated financial statements and the related notes appearing elsewhere in this prospectus and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included elsewhere in this prospectus by us.
Actual*
Pro Forma
Cash and cash equivalents
$ 2,339,223 $ 23,691,508
Convertible notes
5,720,161 3,226,211
Stockholders’ equity:
Common stock, $0.0001 par value; 227,791,050 authorized shares, 11,147,302 issued and outstanding, actual and 18,305,855 issued and outstanding, pro forma
1,115 1,831
Additional paid-in capital
20,154,521 44,000,040
Accumulated deficit
(11,004,463) (11,004,463)
Total stockholders’ equity
9,151,173 32,997,408
Total capitalization
$ 14,871,334 $ 36,223,619
The number of shares of our Class A common stock to be outstanding after this offering is based on the 11,147,302 shares of Class A common stock to be outstanding as of the date of this prospectus and excludes the following:

1,422,112 shares of Class A common stock issuable upon the exercise of outstanding stock options, at a weighted average exercise price of $1.77 per share;

1,637,305 shares of Class A common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $5.92 per share;

781,250 shares of Class A common stock issuable upon the conversion of $2.5 million of the aggregate principal amount of the SQN Convertible Note by the holder thereof;

81,309 shares of Class A common stock reserved for future issuance under our 2021 Global Stock Incentive Plan; and

312,500 shares of Class A common stock issuable upon the exercise of the Representative’s Warrants.
*
Adjusted for the 2021 Forward Split.
 
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DILUTION
If you invest in our Class A common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma net tangible book value per share of our Class A common stock immediately after this offering.
Our historical net tangible book value (deficit) as of June 30, 2021 was $(6,150,113), or $(0.55) per share of our Class A common stock. Our historical net tangible book value (deficit) is the amount of our total tangible assets less our total liabilities. Historical net tangible book value per share represents historical net tangible book value (deficit) divided by the number of shares of our Class A common stock outstanding as of June 30, 2021.
After giving effect to our issuance and sale of 6,250,000 shares of Class A common stock in this offering at an initial public offering price of $4.00 per share and after deducting underwriting discounts and commissions, estimated offering expenses payable by us, the conversion of the New Notes and the June 2021 Notes into an aggregate of 908,554 shares of Class A common stock, the pro forma net tangible book value as of June 30, 2021 would have been approximately $17.7 million, or approximately $0.97 per share. This represents an immediate increase in pro forma net tangible book value per share of  $1.52 to our existing stockholders and an immediate dilution in pro forma net tangible book value per share of approximately $3.03 to new investors purchasing Class A common stock in this offering. Dilution per share to new investors purchasing Class A common stock in this offering is determined by subtracting pro forma net tangible book value per share after this offering from the initial public offering price per share paid by new investors.
The following table illustrates this dilution on a per share basis to new investors:
Public offering price per share
$ 4.00
Historical net tangible book value per share as of June 30, 2021
$ (0.55)
Pro forma net tangible book value per share after giving effect to this offering
$ 0.97
Dilution in as adjusted net tangible book value per share to new investors participating in this offering
$ 3.03
If the underwriters exercise their option in full to purchase an additional 937,500 shares of Class A common stock in this offering, the pro forma net tangible book value per share after the offering would be $1.10 per share, the increase in the net tangible book value per share to existing stockholders would be $1.65 per share and the dilution to new investors purchasing our Class A common stock in this offering would be $2.90 per share.
The number of shares of Class A common stock to be outstanding after this offering is based on 11,147,302 shares of Class A common stock outstanding as of the date of this prospectus, and excludes:
The number of shares of our Class A common stock to be outstanding after this offering is based on the shares of Class A common stock to be outstanding as of the date of this prospectus and excludes the following:

1,422,112 shares of Class A common stock issuable upon the exercise of outstanding stock options, at a weighted average exercise price of $1.77 per share;

1,637,305 shares of Class A common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $5.92 per share;

781,250 shares of Class A common stock issuable upon the conversion of $2.5 million of the aggregate principal amount SQN Convertible Note by the holder thereof;

81,309 shares of Class A common stock reserved for future issuance under our 2021 Global Stock Incentive Plan; and

312,500 shares of Class A common stock issuable upon the exercise of the Representative’s Warrants.
To the extent that outstanding exercisable options or warrants are exercised, you may experience further dilution. If all outstanding exercisable options and warrants with exercise prices below $4.00 per share were
 
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exercised, our as adjusted net tangible book value as of June 30, 2021 (calculated on the basis of the assumptions set forth above) would have been approximately $20.7 million, or approximately $1.03 per share, causing immediate dilution of $2.97 per share to new investors purchasing shares in this offering.
In addition, we may choose to raise additional capital due to market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital by issuing equity securities or convertible debt, your ownership will be further diluted.
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF MARPAI, INC.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited interim condensed consolidated financial statements for the six months ended June 30, 2021 and 2020, and the related notes and other financial information included elsewhere in this prospectus.
The following discussion and analysis of Marpai, Inc.’s financial condition and results of operations should be read in conjunction with Marpai, Inc.’s audited balance sheet and the related notes and other financial information included elsewhere in this prospectus.
Overview
Marpai, Inc. was formed as a Delaware corporation on January 22, 2021 with the intention to facilitate an initial public offering and other related transactions in order to carry on the business of two healthcare entities, Marpai Health and Continental Benefits LLC.
Our mission is to positively change healthcare for the benefit of (i) its future clients who are self-insured employers that pay for their employees’ healthcare benefits and will engage us to administer the latter’s healthcare claims, (ii) employees who receive these healthcare benefits from its future Clients, and (iii) healthcare providers including, doctors, doctor groups, hospitals, clinics, and any other entities providing healthcare services or products. For that purpose, on April 1, 2021 we acquired all of the equity interests of Marpai Health and Continental Benefits (“Acquisition”).
Results of Operations
Comparison of the Six Months ended June 30, 2021 and 2020
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Six Months Ends June 30,
2021
2020
Change
%
Revenue
Net revenue
$ 3,531,512 3,531,512 n/a
Costs and Expenses
Cost of revenue (exclusive of depreciation and amortization shown separately below)
2,720,483 2,720,483 n/a
Research and development
549,374 1,025,986 (476,612) -46.5%
General and administrative
2,814,950 773,223 2,041,727 264.1%
Sales and marketing
1,443,785 5,623 1,438,162 25576.4%
Information technology
731,230 731,230 n/a
Facilities
226,892 226,892 n/a
Depreciation and amortization
420,967 37,885 383,082 1011.2%
Total Costs and Expenses
8,907,681
1,842,717
7,064,964
383.4%
Operating Loss
(5,376,169) (1,842,717) (3,533,452) 191.8%
Other income and (expenses)
Interest expense, net
(276,033) (226,330) (49,703) 22.0%
Other income
54,398 12,733 41,665 327.2%
Foreign exchange gain (loss)
(15,784) (2,188) (13,596) 621.4%
Total other income (expense)
(237,419) (215,785) (21,634) 10.0%
Loss before income taxes
(5,613,588) (2,058,502) (3,355,086) 172.7%
Income tax expense
(150,000) (150,000) n/a
Net Loss
(5,463,588) (2,058,502) (3,405,086) 165.4%
Comprehensive Loss
(5,463,588) (2,058,502) (3,405,086) 165.4%
 
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Revenues and Cost of Revenue
During the six months ended June 30, 2021 and 2020, our total revenue was $3,531,512 and $0, respectively. The revenue in the six months ended June 30, 2021 consists of Continental Benefits’ revenues from April 1, 2021, the date of the Acquisition, through June 30, 2021 and is derived from Continental Benefits’ improved TopCare® program adoption with new 2021 clients and for renewed clients.
Total cost of revenues consists of (i) service fees, which primarily include vendor fees associated with the client’s benefit program selections, (ii) the direct labor cost associated with claim management and processing services, and (iii) direct labor costs associated with providing customer support and services to the clients, members, and other external stakeholders.
Research and Development
We incurred $549,374 of research and development expenses for the six months ended June 30, 2021 compared to $1,025,986 for the six months ended June 30, 2020, a decrease of $476,612 or 46.5% on a period-over-period basis. The decrease is attributable to having the software development project reach the development stage in August 2020, which resulted in a substantial portion of the software development costs being capitalized during the six months ended June 30, 2021, while no software development costs were capitalized during the comparative six months ended June 30, 2020.
General and Administrative Expenses
General and administrative expense increased by $2,041,727 for the six months ended June 30, 2021 compared with the six months ended June 30, 2020. The increase for the six months ended June 30, 2021 was primarily due to an increase in accounting and legal services in the amount of $1,156,014 , related to the Acquisition, and Continental Benefits’ general and administrative expenses from April 1, 2021, the date of the Acquisition, through June 30, 2021 in the amount of $690,076
Sales and Marketing
Sales and marketing expense increased by $1,438,162 for the six months ended June 30, 2021 as compared with six months ended June 30, 2020. The increase for the six months ended June 30, 2021 was primarily due to an increase of $883,413 in branding expense, and Continental Benefits’ sales and marketing expenses from April 1, 2021, the date of the Acquisition, through June 30, 2021 in the amount of $554,749.
Interest Expense, net
Interest expense, net increased by $48,516 for the six months ended June 30, 2021 as compared with the three months ended June 30, 2020. The increase resulted from the additional interest expense related to the issuance of convertible notes during the year ended December 31, 2020.
Liquidity and Capital Resources
As shown in the accompanying condensed consolidated financial statements as of June 30, 2021, the Company had an accumulated deficit of $11,004,463 and had a working capital deficit of $379,410. At June 30, 2021, the Company had $2,339,223 of unrestricted cash on hand and no bank debt. We have spent most of our cash resources on research and development activities. We have financed our operations primarily with the proceeds from the sale and issuance of convertible promissory notes.
On April 1, 2021, pursuant to the terms of the Purchase and Reorganization Agreement, and a Note Exchange Agreement, we issued convertible promissory notes in the aggregate principal amount of $2,198,459 (the “New Notes”) in exchange for certain then outstanding convertible promissory notes of Marpai Health of equivalent amount of outstanding principal and accrued but unpaid interest. The New Notes carry a simple interest rate of 8% per annum over a two-year term and the principal and accrued and unpaid interest thereon will convert into an aggregate of 820,365 shares of Class A common stock upon the closing of this offering, at a price that is 70% of the per share public offering price in this offering.
 
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In June 2021, the Company entered into convertible debt agreements with several investors for the issuance of convertible promissory notes in the aggregate principal amount of $300,000 (the “June 2021 Notes”). The June 2021 Notes are due two years from the date, of issuance and accrue interest at 8% per annum, payable in cash at maturity or convertible to shares. The outstanding principal balance and unpaid accrued interest of the notes automatically convert upon the Company’s next equity financing round with gross proceeds to the Company of at least $2,000,000, other than an initial public offering, into the most senior class of shares of the Company issued in such financing round at a price per share equal to a 30% discount on the lowest price per share paid by the investors in such a financing round. The outstanding principal amount of and accrued interest will be converted automatically into unregistered shares of Class A common stock concurrently with the consummation of this offering at a conversion price of $2.80 equal to 70% of the per share public offering price in this offering. At the initial public offering price of $4.00 per share, the June 2021 Notes will convert into an aggregate of 110,547 shares of Class A common stock at the closing of the offering. Unless otherwise automatically converted upon the initial public offering or in a financing round, the June 2021 Notes are convertible in certain situations, at a conversion price based on a maximum company pre-money valuation of the Company $48,262,000 on a fully diluted basis into the most senior class of stock of the Company.
On July 29, 2021, the Company issued to HillCour Investment Fund LLC a promissory note in the principal amount of up to $3,000,000 (the “HillCour Promissory Note”). Interests on the HillCour Promissory Note accrue at 6% per annum. All outstanding principal and accrued interests thereunder shall become due and payable on the earlier of (i) January 29, 2022, or (ii) closing of this offering. As of the date of this prospectus, $3,000,000 of the HillCour Promissory Note has been drawn down. In connection with the issuance of the HillCour Promissory Note, the Company also issued to HillCour Investment Fund, LLC warrants to purchase a number of unregistered Class A common stock equal to the quotient of (i) 30% of the outstanding principal amount of the HillCour Promissory Note as of the date of closing of this offering, divided by (ii) the per share offering price of the Class A common stock in this offering. These warrants will be exercisable into 225,000 unregistered shares of the Company’s Class A common stock at the closing of this offering.
Cash Flows
The following tables summarizes selected information about our sources and uses of cash and cash equivalents for the six months ended June 30, 2021 and 2020:
Comparison of the Six Months Ended June 30, 2021 and 2020
Six Months Ended June 30
2021
2020
Net cash used in operating activities
(4,875,909) (1,051,181)
Net cash used in investing activities
10,385,665 (31,137)
Net cash provided by financing activities
553,333 1,600,000
Net increase in cash and cash equivalents
      $ 6,063,089       $ 517,682
Net Cash Used in Operating Activities
Net cash used in operating activities totaled $4,875,909 for the six months ended June 30, 2021, and increased by $3,824,728 or 363.9% as compared to $1,051,181 for the six months ended June 30, 2020. Net cash used in operating activities for the six months ended June 30, 2021 was primarily driven by our net loss of $5,463,588.
Net Cash Used in Investing Activities
A total of $10,385,665 was provided by investing activities in the six months ended June 30, 2021. The cash was received mainly from the cash and restricted cash acquired as part of the Acquisition, offset by an amount of $972,181 expended during the six months ended June 30, 2021 on capitalized software.
 
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Net Cash Provided by Financing Activities
The amounts $553,333 and $1,600,000 provided by financing activities in the six months periods ended June 30, 2021 and 2020, respectively, were primarily related to proceeds from the sale and issuance of convertible promissory notes to investors and proceeds from issuance of warrants.
Off Balance Sheet Arrangements
We do not have relationships with other organizations or process any transactions that would constitute off balance sheet arrangements.
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 consolidated financial statements.
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF MARPAI HEALTH
Results of Operations
Comparison of the Year ended December 31, 2020 and the Period from February 14, 2019 (Inception) to December 31, 2019
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the year ended
Dec 31 2020
For the period from
Feb 14, 2019
(inception) to
Dec 31 2019
Change
%
Revenue
Net revenue
n/a
Cost of revenue
n/a
Gross Profit
n/a
n/a n/a
Operating Expense
Research and development
1,840,772 674,857 1,165,915 172.8%
General and administrative
1,499,376 890,035 609,341 68.5%
Sales and marketing
27,583 21,610 5,973 27.6%
Total Operating Expense
3,367,731 1,586,502 1,781,229 112.3%
Operating Loss
(3,367,731) (1,586,502) (1,781,229) 112.3%
Other income and (expenses)
Interest expense, net
(521,140) (106,933) (414,207) 387.4%
Other income
25,846 16,902 8,944 52.9%
Foreign exchange gain (loss)
(4,959) 3,642 (8,601) -236.2%
Total other income (expense)
(500,253) (86,389) (413,864) 479.1%
Loss before income taxes
(3,867,984) (1,672,891) (2,195,093) 131.2%
Income tax expense