| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Cautionary Statement for Forward-Looking Information
The following discussion of our financial condition and results of operations for the three and nine months ended September 30, 2023 and 2022 should be read in conjunction with our unaudited
condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as
our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item
1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 30, 2023. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,”
“believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
Unless expressly indicated or the context requires otherwise, the terms “Forian”, the “Company”, “we”, “us”, and “our” refer to Forian Inc.
Overview
Forian Inc. (the “Company” or “Forian”) was incorporated in Delaware on October 15, 2020 as a wholly owned subsidiary of Medical Outcomes Research Analytics, LLC (“MOR”) for the purpose of effecting the business
combination with Helix Technologies Inc. (“Helix”). Forian provides a unique suite of data management capabilities and proprietary information and analytics solutions to optimize and measure operational, clinical and financial performance for
customers within the healthcare and related industries.
The business combination with Helix was accounted for as a reverse acquisition using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), with the Company deemed the accounting acquirer for financial reporting purposes. Helix provides software and analytics solutions to state governments and licensed operators in
the cannabis industry, primarily through its subsidiary, Bio-Tech Medical Software, Inc. (“BioTrack”), until its sale of BioTrack in 2023.
On February 10, 2023, Helix completed the sale of 100% of the outstanding capital stock of BioTrack; on March 3, 2022, Helix completed the sale of the assets of its security monitoring business; and on October 31,
2022, Helix completed the sale of 100% of the outstanding membership interest of its Engeni LLC subsidiary (these businesses together are referred to as the “Helix Businesses”). As a result of these transactions, Helix has no remaining active
operations and the Company no longer provides products or services to the cannabis industry. The results of the Helix Businesses are presented as discontinued operations in the Condensed Consolidated Statements of Operations and, as such, have been
excluded from continuing operations. Further, the Company reclassified the assets and liabilities of the Helix Businesses to discontinued operations in the Consolidated Balance Sheet as of December 31, 2022. The Company will continue to provide
analytics solutions to customers within the healthcare and related industries.
Financial Operations Overview
The following discussion sets forth certain components of our statements of operations as well as factors that impact those items.
Revenues
Revenues are derived from licensing fees for our proprietary information products. The Company recognizes revenues from information products as performance obligations under customer contracts are satisfied. Services
revenues are primarily from contracts with government agencies and revenue is recognized upon completion of the various milestones within the contract.
Cost of Revenues
Cost of revenues is generated from direct costs associated with the delivery of our products and services to our customers. The cost of revenues relates primarily to labor costs, information licensing, hosting and
infrastructure costs and client service team costs. We record the cost of direct fulfillment as cost of revenues.
Research and Development
Research and development expenses consist primarily of employee-related expenses, subcontractor and third-party consulting fees, and hosted infrastructure costs. We continue to focus our research and development
efforts on adding new features and applications to our product offerings.
Sales and Marketing
Sales and marketing expense is primarily salaries and related expenses, including commissions, for our sales, marketing and product management staff. Marketing program costs are also recorded as sales and marketing
expense including advertising, market research and events (such as trade shows, corporate communications, brand building, etc.). The Company plans to continue to invest in marketing and sales by expanding our selling and marketing staff, building
brand awareness, attracting new clients and sponsoring additional marketing events. The timing of these marketing events will affect our marketing costs in any particular quarter.
General and Administrative Expenses
General and administrative expenses include salaries and benefits and other costs of departments serving administrative functions, such as executives, finance and accounting and human resources. In addition, general
and administrative expense includes non-personnel costs, such as professional fees, legal fees, accounting and finance advisory fees and other supporting corporate expenses not allocated to cost of revenues, product and development or sales and
marketing.
Depreciation and Amortization Expenses
Depreciation and Amortization relate to long lived assets used in our business. Depreciation expense relates primarily to furniture and equipment, and computers.
Results of Operations For the Three and Nine Months Ended September 30, 2023 and 2022:
The following table summarizes our condensed results of operations for the periods indicated:
| |
|
For the Three Months Ended September 30,
|
|
|
For the Nine Months Ended September 30,
|
|
| |
|
2023
|
|
|
2022
|
|
|
2023
|
|
|
2022
|
|
|
Revenues
|
|
$
|
5,348,469
|
|
|
$
|
4,310,694
|
|
|
$
|
15,112,398
|
|
|
$
|
11,448,468
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
1,362,555
|
|
|
|
1,339,054
|
|
|
|
3,891,482
|
|
|
|
3,853,486
|
|
|
Research and development
|
|
|
264,781
|
|
|
|
806,108
|
|
|
|
1,100,657
|
|
|
|
3,315,506
|
|
|
Sales and marketing
|
|
|
1,313,212
|
|
|
|
1,080,660
|
|
|
|
3,746,731
|
|
|
|
2,904,358
|
|
|
General and administrative
|
|
|
3,204,591
|
|
|
|
3,908,462
|
|
|
|
10,393,016
|
|
|
|
13,003,158
|
|
|
Separation expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
599,832
|
|
|
|
5,417,043
|
|
|
Depreciation and amortization
|
|
|
10,598
|
|
|
|
16,916
|
|
|
|
64,285
|
|
|
|
48,599
|
|
|
Operating loss from continuing operations
|
|
$
|
(807,268
|
)
|
|
$
|
(2,840,506
|
)
|
|
$
|
(4,683,605
|
)
|
|
$
|
(17,093,682
|
)
|
Comparison of Three Months Ended September 30, 2023 and 2022
Revenues
Revenues for the three months ended September 30, 2023 were $5,348,469, which represented an increase of $1,037,775, or 24%, compared to revenues of $4,310,694 for the three months ended September 30, 2022. The
increase is primarily due to increased sales of information products to new and existing customers in the healthcare industry.
Cost of Revenues
Cost of revenues for the three months ended September 30, 2023 was $1,362,555, which represented an increase of $23,501 compared to total cost of revenues of $1,339,054 for the three months ended September 30, 2022.
Cost of revenues increased at a lower rate than revenue, as many of our data infrastructure costs are fixed or semi-variable in nature. As a result, gross profit as a percentage of revenues increased to 75% for the three months ended September 30,
2023, compared to 69% for the same period in 2022.
Research and Development
Research and development expenses for the three months ended September 30, 2023 were $264,781, which represented a decrease of $541,327 compared to total research and development expenses of $806,108 for the three
months ended September 30, 2022. The decrease is due to lower personnel, subcontracted labor and infrastructure costs related to new product development resulting from the Company’s shift in focus to the healthcare analytics market.
Sales and Marketing
Sales and marketing expenses for the three months ended September 30, 2023 were $1,313,212, which represented an increase of $232,552 compared to total sales and marketing expenses of $1,080,660 for the three months
ended September 30, 2022. The increase is due to higher salary, commission and expenses related to scaling the Company’s products.
General and Administrative
General and administrative expenses for the three months ended September 30, 2023 were $3,204,591, which represented a decrease of $703,871 compared to general and administrative expenses of $3,908,462 for the three
months ended September 30, 2022. The decrease is primarily due to lower personnel costs, consulting and insurance costs.
Comparison of Nine Months Ended September 30, 2023 and 2022
Revenues
Revenues for the nine months ended September 30, 2023 were $15,112,398, which represented an increase of $3,663,930, or 32%, compared to revenues of $11,448,468 for the nine months ended September 30, 2022. The
increase is primarily due to increased sales of information products to new and existing customers in the healthcare industry.
Cost of Revenues
Cost of revenues for the nine months ended September 30, 2023 was $3,891,482, which represented an increase of $37,996 compared to total cost of revenues of 3,853,486 for the nine months ended September 30, 2022. Cost
of revenues increased at a lower rate than revenue, as many of our data infrastructure costs are fixed or semi-variable in nature. As a result, gross profit as a percentage of revenues increased to 74% for the nine months ended September 30, 2023,
compared to 66% for the same period in 2022.
Research and Development
Research and development expenses for the nine months ended September 30, 2023 were $1,100,657, which represented a decrease of $2,214,849 compared to total research and development expenses of $3,315,506 for the nine
months ended September 30, 2022. The decrease is due to lower personnel, subcontracted labor and infrastructure costs related to new product development resulting from the Company’s shift in focus to the healthcare analytics market.
Sales and Marketing
Sales and marketing expenses for the nine months ended September 30, 2023 were $3,746,731, which represented an increase of $842,373 compared to total sales and marketing expenses of $2,904,358 for the nine months
ended September 30, 2022. The increase is due to higher salary, commission and expenses related to scaling the Company’s products.
General and Administrative
General and administrative expenses for the nine months ended September 30, 2023 were $10,393,016, which represented a decrease of $2,610,142 compared to general and administrative expenses of $13,003,158 for the nine
months ended September 30, 2022. The decrease is primarily due to lower personnel costs, consulting, insurance costs and professional fees resulting from cost synergies.
Separation Expenses
Effective February 10, 2023, the Company’s Chief Executive Officer, President and Class II member of the Board of Directors resigned. In connection with the resignation, the Company entered into a separation agreement
providing for, among other things, (i) salary continuation for 12 months and (ii) accelerated vesting of 106,656 unvested restricted shares of the Company common stock. Separation expenses for the nine months ended September 30, 2023 include $250,000
related to the salary continuation and $349,832 related to the accelerated vesting of stock.
On March 2, 2022, the Company and two advisors agreed not to renew special advisor agreements between the advisors and the Company. The advisors were the former chief executive officer and chief financial officer of
Helix who were granted stock options in conjunction with their respective advisory agreements that were entered into upon the completion of the Helix acquisition. The Company and the advisors mutually agreed not to renew the advisory agreements. The
services provided by these advisors included transition planning and consulting services related to integration of the business operations of Helix and Forian. Per the terms of the agreements, options to purchase 366,166 shares of common stock
continued to vest according to their original terms through March 2, 2023, and unvested stock options to purchase 732,332 shares of common stock were forfeited. The advisors were not required to perform services to the Company beyond the non-renewal
date of March 2, 2022. As a result, the Company recorded $5,417,043 of stock compensation expense during March 2022 related to the options that vested through March 2, 2023.
Non-GAAP Financial Measures
In this Quarterly Report on Form 10-Q we have provided a non-GAAP measure, which we define as financial information that has not been prepared in accordance with U.S. GAAP. The non-GAAP financial measure provided
herein is earnings before interest, taxes, non-cash and other items (“Adjusted EBITDA”), which should be viewed as supplemental to, and not as an alternative for, net income or loss calculated in accordance with U.S. GAAP (referred to below as “net
loss”).
Adjusted EBITDA is used by our management as an additional measure of our Company’s performance for purposes of business decision-making, including developing budgets, managing expenditures and evaluating potential
acquisitions or divestitures. Period-to-period comparisons of Adjusted EBITDA help our management identify additional trends in our Company’s financial results that may not be shown solely by period-to-period comparisons of net loss. In addition, we
may use Adjusted EBITDA in the incentive compensation programs applicable to some of our employees in order to evaluate our Company’s performance. Our management recognizes that Adjusted EBITDA has inherent limitations because of the excluded items,
particularly those items that are recurring in nature. In order to compensate for those limitations, management also reviews the specific items that are excluded from Adjusted EBITDA, but included in net loss, as well as trends in those items
contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
We believe that the presentation of Adjusted EBITDA is useful to investors in their analysis of our results for reasons similar to the reasons why our management finds it useful and because it helps facilitate investor
understanding of decisions made by management in light of the performance metrics used in making those decisions. In addition, as more fully described below, we believe that providing Adjusted EBITDA, together with a reconciliation of net loss to
Adjusted EBITDA, helps investors make comparisons between our Company and other companies that may have different capital structures, different effective income tax rates and tax attributes, different capitalized asset values and/or different forms
of employee compensation. However, Adjusted EBITDA is not intended as a substitute for comparisons based on net loss. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate
their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measures and the corresponding U.S. GAAP measures provided by each company under applicable SEC rules.
The following is an explanation of the items excluded by us from Adjusted EBITDA but included in net loss from continuing operations:
|
• |
Depreciation and Amortization. Depreciation and amortization expense is a non-cash expense relating to capital expenditures and intangible assets arising from acquisitions that
are expensed on a straight-line basis over the estimated useful life of the related assets. We exclude depreciation and amortization expense from Adjusted EBITDA because we believe that (i) the amount of such expenses in any specific period
may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired tangible and
intangible assets. Accordingly, we believe that this exclusion assists management and investors in making period-to-period comparisons of operating performance. Investors should note that the use of tangible and intangible assets contributed
to revenue in the periods presented and will contribute to future revenue generation and should also note that such expense will recur in future periods.
|
|
• |
Stock-Based Compensation Expense. Stock-based compensation expense is a non-cash expense arising from the grant of stock-based awards to employees. We believe that excluding the
effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in our Company’s operating performance because (i) the amount of such expenses in any specific period may not
directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants in connection with
acquisitions. Stock-based compensation expense includes certain separation expenses related to the vesting of stock options. Effective February 10, 2023, the Company’s Chief Executive Officer, President and Class II member of the Board of
Directors resigned. In connection with the resignation, the Company entered into a separation agreement providing for, among other things, accelerated vesting of 106,656 unvested restricted shares of the Company common stock. Stock based
compensation expense for the three months ended March 31, 2023 includes $349,832 related to the accelerated vesting of stock. On March 2, 2022, we and the former chief executive officer and the former chief financial officer of Helix mutually
agreed not to renew special advisor agreements. Per the terms of the agreements, options to purchase 366,166 shares of common stock continued to vest according to their original terms through March 2, 2023, and unvested stock options to
purchase 732,332 shares of common stock were forfeited. The advisors were not required to perform services to the Company beyond the non-renewal date of March 2, 2022. As a result, we recorded $5,417,043 of stock compensation expenses during
March 2022 related to the options that vested through the twelve months ending March 2, 2023. We believe that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between
our Company’s operating performance and the operating performance of other companies that may use different forms of employee compensation or different valuation methodologies for their stock-based compensation. Investors should note that
stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods. Investors should also note
that such expenses will recur in the future.
|
|
• |
Interest Expense. Interest expense is associated with the convertible notes entered into on September 1, 2021 in the amount of $24,000,000 (the “Notes”). The Notes are due on
September 1, 2025 and accrue interest at an annual rate of 3.5%. We exclude interest expense from Adjusted EBITDA (i) because it is not directly attributable to the performance of our business operations and, accordingly, its exclusion
assists management and investors in making period-to-period comparisons of operating performance and (ii) to assist management and investors in making comparisons to companies with different capital structures. Investors should note that
interest expense associated with the Notes will recur in future periods.
|
|
• |
Investment Income. Investment income is associated with the level of marketable debt securities and other interest-bearing accounts in which we invest. Interest and investment
income can vary over time due to a variety of financing transactions, changes in interest rates, cash used to fund operations and capital expenditures and acquisitions that we have entered into or may enter into in the future. We exclude
interest and investment income from Adjusted EBITDA (i) because these items are not directly attributable to the performance of our business operations and, accordingly, their exclusion assists management and investors in making
period-to-period comparisons of operating performance and (ii) to assist management and investors in making comparisons to companies with different capital structures. Investors should note that interest income will recur in future periods.
|
|
• |
Other Items. We engage in other activities and transactions that can impact our net loss. In the periods being reported, these other items included (i) change in fair value of
warrant liability which related to warrants assumed in the acquisition of Helix; (ii) gain on sale of investment which relates to the sale of a minority equity interest; and (iii) gain on debt redemption which relates to a gain on the early
retirement of a portion of our convertible notes. We exclude these other items from Adjusted EBITDA because we believe these activities or transactions are not directly attributable to the performance of our business operations and,
accordingly, their exclusion assists management and investors in making period-to-period comparisons of operating performance. Investors should note that some of these other items may recur in future periods.
|
|
• |
Severance expenses. Effective February 10, 2023, the Company’s Chief Executive Officer, President and Class II member of the Board of Directors resigned. In connection with the
resignation, the Company entered into a separation agreement providing for, among other things, (i) salary continuation for twelve months and (ii) accelerated vesting of 106,656 unvested restricted shares of the Company common stock.
Severance expenses for the nine months ended September 30, 2023 includes $250,000 related to the salary continuation. We exclude these other items from Adjusted EBITDA because we believe these costs are not recurring and not directly
attributable to the performance of our business operations and, accordingly, their exclusion assists management and investors in making period-to-period comparisons of operating performance. In addition, the Company records normal course of
business severance expenses in the operating expense line item related to our employees’ activities.
|
|
• |
Income tax expense. We exclude the income tax expense from Adjusted EBITDA (i) because we believe that the income tax expense is not directly attributable to the underlying
performance of our business operations and, accordingly, its exclusion assists management and investors in making period-to-period comparisons of operating performance and (ii) to assist management and investors in making comparisons to
companies with different tax attributes.
|
Limitations on the use of non-GAAP financial measures
There are limitations to using non-GAAP financial measures because non-GAAP financial measures are not prepared in accordance with U.S. GAAP and may be different from non-GAAP financial measures provided by other
companies.
The non-GAAP financial measures are limited in value because they exclude certain items that may have a material impact upon our reported financial results. In addition, they are subject to inherent limitations as they
reflect the exercise of judgments by management about which items are adjusted to calculate our non-GAAP financial measures. We compensate for these limitations by analyzing current and future results on a U.S. GAAP basis as well as a non-GAAP basis
and also by providing U.S. GAAP measures in our public disclosures.
Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP. We encourage investors and others to review our financial
information in its entirety, not to rely on any single financial measure to evaluate our business and to view our non-GAAP financial measures in conjunction with the most directly comparable U.S. GAAP financial measures.
The following table reconciles the specific items excluded from U.S. GAAP metrics in the calculation of Adjusted EBITDA for the periods shown below:
| |
|
For the Three Months Ended September 30,
|
|
|
For the Nine Months Ended September 30,
|
|
| |
|
2023
|
|
|
2022
|
|
|
2023
|
|
|
2022
|
|
|
Revenue
|
|
$
|
5,348,469
|
|
|
$
|
4,310,694
|
|
|
$
|
15,112,398
|
|
|
$
|
11,448,468
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) from continuing operations
|
|
|
5,453,643
|
|
|
|
(2,966,053
|
)
|
|
|
2,114,444
|
|
|
|
(17,291,885
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
10,598
|
|
|
|
16,916
|
|
|
|
64,285
|
|
|
|
48,599
|
|
|
Stock based compensation expense
|
|
|
1,551,997
|
|
|
|
1,592,848
|
|
|
|
4,920,572
|
|
|
|
10,581,021
|
|
|
Change in fair value of warrant liability
|
|
|
(1,594
|
)
|
|
|
(8,539
|
)
|
|
|
(4,088
|
)
|
|
|
(343,155
|
)
|
|
Interest and investment income
|
|
|
(646,832
|
)
|
|
|
(88,972
|
)
|
|
|
(1,666,786
|
)
|
|
|
(111,683
|
)
|
|
Interest expense
|
|
|
211,333
|
|
|
|
213,060
|
|
|
|
630,547
|
|
|
|
633,041
|
|
|
Gain on sale of investment
|
|
|
(5,805,858
|
)
|
|
|
—
|
|
|
|
(5,805,858
|
)
|
|
|
—
|
|
|
Gain on debt redemption
|
|
|
(111,151
|
)
|
|
|
—
|
|
|
|
(111,151
|
)
|
|
|
—
|
|
|
Severance expense
|
|
|
—
|
|
|
|
—
|
|
|
|
250,000
|
|
|
|
—
|
|
|
Income tax expense
|
|
|
93,191
|
|
|
|
10,000
|
|
|
|
159,287
|
|
|
|
20,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA - continuing operations
|
|
$
|
755,327
|
|
|
$
|
(1,230,740
|
)
|
|
$
|
551,252
|
|
|
$
|
(6,464,062
|
)
|
For the Three Months Ended September 30, 2023
Adjusted EBITDA - continuing operations
Adjusted EBITDA for the three months ended September 30, 2023 was $755,327 compared to a loss of $1,230,740 for the three months ended September 30, 2022, an increase of $1,986,067. The increase is primarily due to
higher revenues and the lower research and development and general and administrative expenses discussed above.
For the Nine Months Ended September 30, 2023
Adjusted EBITDA - continuing operations
Adjusted EBITDA for the nine months ended September 30, 2023 was $551,252 compared to a loss of $6,464,062 for the nine months ended September 30, 2022, an increase of $7,015,314. The increase is primarily due to
higher revenues and the lower research and development and general and administrative expenses discussed above.
Liquidity and Capital Resources
Since the Company’s inception in 2020, most of the Company’s resources have been devoted to building our research and development, sales marketing, and management infrastructure, and as a result the Company has
incurred losses and generated negative cash flows from operations. However, the Company has generated net cash from operating activities of $1.3 million, and Adjusted EBITDA of $0.6 million for the nine months ended September 30, 2023 resulting from
higher revenues from our healthcare information business and operating expense reductions resulting from the streamlining of our operations after the divestiture of BioTrack. Historically, the Company’s operations have been financed primarily from
cash proceeds received from equity issuances and the issuance of the Notes. On February 10, 2023, the Company sold BioTrack for $30.0 million consisting of $20.0 million in cash at closing and twelve unconditional monthly payments aggregating $10.0
million thereafter. On July 21, 2023, the Company sold a minority equity interest in a customer for cash proceeds of $5.8 million and future contingent earnout payments aggregating up to $3.6 million in 2025 and 2026. These transactions have provided
additional cash and liquidity to the Company. As of September 30, 2023, the Company’s balance of cash and marketable securities aggregated $49.0 million and outstanding principal and accrued interest on the Notes, due September 1, 2025, aggregated
$24.7 million. The Company expects to continue to fund our operations and potential future acquisitions through a combination of cash flow generated from operating activities, available cash and marketable securities, debt financing, and/or
additional equity issuances.
Cash Flows
The following table summarizes selected information about our sources and uses of cash and cash equivalents for the periods presented:
| |
|
For the Nine Months Ended September 30,
|
|
| |
|
2023
|
|
|
2022
|
|
|
Net cash provided by (used in) operating activities - continuing operations
|
|
$
|
1,387,350
|
|
|
$
|
(6,775,497
|
)
|
|
Net cash provided by (used in) investing activities - continuing operations
|
|
|
2,361,052
|
|
|
|
(6,356,478
|
)
|
|
Net cash used in financing activities - continuing operations
|
|
|
(1,107,991
|
)
|
|
|
(71,207
|
)
|
|
Net increase in cash and cash equivalents - continuing operations
|
|
$
|
2,640,411
|
|
|
$
|
(13,203,182
|
)
|
Net Cash Used in Operating Activities
Net cash provided by operating activities increased to $1,387,350 for the nine months ended September 30, 2023 compared to cash used in operating activities of $6,775,497 for the nine months ended September 30, 2022.
The decrease was primarily the result of an increased Adjusted EBITDA, compared to an Adjusted EBITDA loss in the prior year, partially offset by changes in deferred revenue, accounts payable, and other working capital accounts related to the timing
of cash flows from operations.
Net Cash Used in Investing Activities
Net cash provided by investing activities of $2,361,052 increased by $8,717,530 for the nine months ended September 30, 2023 compared to cash used in investing activities of $6,356,478 for the nine months ended
September 30, 2022. This is primarily the result of an increase in net purchases of marketable securities of $103,468,975, offset by an increase in cash received from the sale of discontinued operations of $21,501,841 and the sale of marketable
securities of $78,597,821.
Net Cash Used in Financing Activities
Net cash used in financing activities of $1,107,991 for the nine months ended September 30, 2022 increased by $1,036,784 compared to cash used in financing activities of $71,207 for the nine months ended September 30,
2023. The increase was primarily related to cash used to redeem convertible debt of $960,000 and changes in cash used to fund income tax withholding payments on vesting of employee restricted stock which was settled by surrendering shares to the
Company. On September 12, 2023, the Company redeemed $1,000,000 in principal and $71,151 of accrued interest thereon for an aggregate redemption price of $960,000 resulting in a gain of $111,151, which is included in other income and expense.
Critical Accounting Policies and Use of Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. GAAP. We believe that several
accounting policies are important to understanding our historical and future performance. We refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the
time we make the estimate, and different estimates – which also would have been reasonable – could have been used. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience and other market-specific
or other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies and estimates are further discussed in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 30, 2023. There have been no changes to these
policies and estimates other than described below.
Discontinued Operations
In accordance with ASC 205-20 Discontinued Operations, the results of the Helix Businesses are presented as discontinued operations in the Condensed Consolidated Statements of Operations and, as such, have been
excluded from continuing operations. Further, the Company reclassified the assets and liabilities of the Helix Businesses as assets and liabilities of discontinued operations in the Consolidated Balance Sheet as of December 31, 2022, and recorded a
gain on the sale of discontinued operations, net of tax during the three months ended March 31, 2023. The Company evaluated the divestitures in accordance with ASC 205-20 and determined that transactions in aggregate represented a strategic shift
that had a major impact on the Company. Accounting for discontinued operations and the related gain on sale of discontinued operations requires us to make estimates and judgements regarding the allocation of costs and net asset values to discontinued
operations.
Recent Accounting Pronouncements
In October 2021, the FASB issued Accounting Standards Update No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU
2021-08”). The FASB issued ASU 2021-08 to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability
and payment terms and their effect on subsequent revenue recognized by the acquirer. ASU 2021-08 was adopted on January 1, 2023. The adoption of ASU 2021-08 did not have a material impact on the condensed consolidated financial statements.
The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on our financial statements.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” As an “emerging growth company,”
the Company is electing to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards.
Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” the Company is not required to, among other things, (i) provide an auditor’s attestation report on our system of internal
controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply
with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements
(auditor discussion and analysis), and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee
compensation. These exemptions will apply until the fifth anniversary of the business combination or until we no longer meet the requirements for being an “emerging growth company,” whichever occurs first.
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk
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This item is not required.
| Item 4. |
Controls and Procedures
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Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (who is also the Company’s principal
executive officer) and our chief financial officer (who is also the Company’s principal financial and accounting officer), to allow for timely decisions regarding required disclosure. In accordance with Rules 13a-15(b) under the Exchange Act, we
carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures as of September 30, 2023,
which is the end of the three-month period covered by this Quarterly Report on Form 10-Q.
The Company identified material weaknesses in our internal controls over financial reporting as disclosed in Item 9A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed
with the SEC on March 30, 2023. Our chief executive officer and chief financial officer therefore concluded that our disclosure controls and procedures as of the fiscal quarter ended September 30, 2023 remain ineffective to the extent of the material
weaknesses identified.
We have implemented several processes and control procedures in 2022 and 2023, including those outlined below, to remediate the deficiencies noted above.
We currently are assessing and improving the operating effectiveness of these controls to ensure they will operate at an acceptable level of assurance.
We have hired additional personnel and outside consultants to fill accounting functions and expect to hire and train additional personnel. In addition, we are in the process of implementing upgraded accounting and
finance systems, which we expect will enhance our ability to implement appropriate internal controls.
We have contracted an outside consulting firm to assist in the overall evaluation and documentation of the design and operating effectiveness of our internal controls over financial reporting. We are implementing newly
designed controls and testing their operating effectiveness.
We believe these actions, when complete, will remediate the control weaknesses. However, the weaknesses will not be considered fully remediated until the applicable controls operate for a sufficient period of time for
management to test the results for operating effectiveness. Once implemented, we intend to continue periodic testing and reporting of the internal controls to ensure continuity of compliance.
Changes in Internal Control Over Financial Reporting
Except for the items described above, there has been no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that
occurred during the three months ended September 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II – OTHER INFORMATION
| Item 1. |
Legal Proceedings
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From time to time we may be involved in claims that arise during the ordinary course of business. For any matters where management currently believes it is probable that we will incur a loss and that the probable loss
or range of loss can be reasonably estimated, we record reserves in our condensed consolidated financial statements based on our best estimates of such loss. In other instances, because of the uncertainties related to either the probable outcome or
the amount or range of loss, management is unable to make a reasonable estimate of a liability, if any. Regardless of the outcome, litigation can be costly and time consuming, and it can divert management’s attention from important business matters
and initiatives, negatively impacting our overall operations. Although the results of litigation and claims cannot be predicted with certainty, we do not currently have any pending litigation to which we are a party or to which our property is
subject that we believe to be material, except for the below.
Audet v. Green Tree International, et. al.
On February 14, 2020, John Audet filed a complaint in 15th Judicial Circuit in and for Palm Beach County, Florida against multiple parties, including Green Tree International (“GTI”), an indirect subsidiary of the
Company, claiming that he owned 10% of GTI. The complaint seeks unspecified monetary damages equivalent to the value a 10% shareholder of GTI would have received in the subsequent Helix and Forian transactions, along with an equitable accounting and
constructive trust to determine if Audet suffered any loss of profit distributions. The case is in the process of discovery and trial is currently anticipated to occur between January and March of 2024. Each of the parties’ motions for summary
judgment were denied. The Company believes the lawsuit is wholly without merit and intends to defend vigorously against the claims in the lawsuit.
Grant Whitus et al. v. Forian Inc., Zachary Venegas and Scott Ogur
On July 30, 2021, four former Helix employees filed a lawsuit in the Arapahoe County, Colorado District Court against the Company and Helix’s former managers asserting claims of breach of contract,
promissory estoppel, breach of the covenant of good faith and fair dealing, civil theft and conversion, fraudulent misrepresentation, civil conspiracy, and unjust enrichment / quantum meruit, all relating to the plaintiffs’ claims that they were
promised equity interest in Helix or compensation that they never received. The original complaint was never served, and in November 2021, the plaintiffs filed and served an amended complaint adding a fifth plaintiff and seeking over $27.5 million in
damages as well as attorneys’ fees and costs. The Company removed the matter to the United States District Court for the District of Colorado in December 2021, and both the Company and the individual defendants filed motions to dismiss on January 20,
2022. Plaintiffs subsequently amended their complaint on April 21, 2022, adding Helix TCS LLC and Helix Technologies, Inc. as defendants and advancing additional claims for breach of fiduciary duty and violation of the Colorado Wage Claims Act. The
Company and the individual defendants filed separate motions to dismiss on June 1, 2022, which were granted in part and denied in part by the Court on February 28, 2023. Plaintiffs supplemented their complaint on March 3, 2023, consistent with the
Court’s ruling. Discovery has been completed, and dispositive motions are currently due in December 2023. The Company believes the lawsuit is wholly without merit and intends to defend vigorously against the claims in the lawsuit.
This item is not required.
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds
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None.
| Item 3. |
Defaults Upon Senior Securities
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None.
| Item 4. |
Mine Safety Disclosures
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Not applicable.
| Item 5. |
Other Information
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None.
|
|
Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Company’s Form S-4 (Reg. No. 333-250938) filed with the SEC on November 24, 2020, as amended on December 31, 2020,
January 19, 2021, February 1, 2021 and February 9, 2021).
|
|
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Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of the Company’s Form S-4 (Reg. No. 333-250938) filed with the SEC on November 24, 2020, as amended on December 31, 2020, January 19, 2021,
February 1, 2021 and February 9, 2021).
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|
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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|
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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|
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Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101.INS
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Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
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101.SCH
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Inline XBRL Taxonomy Extension Schema Document.
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101.CAL
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Inline XBRL Taxonomy Extension Calculation Linkbase Document.
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101.PRE
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Inline XBRL Taxonomy Extension Presentation Linkbase Document.
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101.LAB
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Inline XBRL Taxonomy Extension Label Linkbase Document.
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|
101.DEF
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Inline XBRL Taxonomy Extension Definition Linkbase Document.
|
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104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
|
| * |
Filed with this Quarterly Report on Form 10‑Q.
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 9, 2023.
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FORIAN INC.
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By:
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/s/ Max Wygod
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Max Wygod
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Chief Executive Officer
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(Principal Executive Officer)
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By:
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/s/ Michael Vesey
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Michael Vesey
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Chief Financial Officer
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(Principal Financial Officer and Principal Accounting Officer)
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45