| 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 for the three and six months ended June 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 Six Months Ended June 30, 2023 and 2022:
The following table summarizes our condensed results of operations for the periods indicated:
| |
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
| |
|
2023
|
|
|
2022
|
|
|
2023
|
|
|
2022
|
|
|
Revenues
|
|
$
|
4,893,542
|
|
|
$
|
3,602,913
|
|
|
$
|
9,763,929
|
|
|
$
|
7,137,774
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
1,276,712
|
|
|
|
1,271,402
|
|
|
|
2,528,927
|
|
|
|
2,514,432
|
|
|
Research and development
|
|
|
304,187
|
|
|
|
1,419,519
|
|
|
|
835,876
|
|
|
|
2,509,398
|
|
|
Sales and marketing
|
|
|
1,237,327
|
|
|
|
1,003,104
|
|
|
|
2,433,519
|
|
|
|
1,823,698
|
|
|
General and administrative
|
|
|
3,548,599
|
|
|
|
3,820,730
|
|
|
|
7,188,425
|
|
|
|
9,094,698
|
|
|
Separation expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
599,832
|
|
|
|
5,417,043
|
|
|
Depreciation and amortization
|
|
|
15,257
|
|
|
|
16,334
|
|
|
|
53,687
|
|
|
|
31,683
|
|
|
Loss from continuing operations
|
|
$
|
(1,488,540
|
)
|
|
$
|
(3,928,176
|
)
|
|
$
|
(3,876,337
|
)
|
|
$
|
(14,253,178
|
)
|
Comparison of Three Months Ended June 30, 2023 and 2022
Revenues
Revenues for the three months ended June 30, 2023 were $4,893,542, which represented an increase of $1,290,629,
or 36%, compared to revenues of $3,602,913 for the three months ended June 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 June 30, 2023 was $1,276,712, which represented an increase of $5,310
compared to total cost of revenues of $1,271,402 for the three months ended June 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 three months ended March 31, 2023, compared to 65% for the same period in 2022.
Research and Development
Research and development expenses for the three months ended June 30, 2023 were $304,187, which represented an decrease of $1,115,332 compared to total research and development expenses of $1,419,519 for the three months ended June 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 June 30, 2023 were $1,237,327, which represented an increase of $234,223 compared to total sales and marketing expenses of $1,003,104 for the three months ended June 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 June 30, 2023 were $3,548,599, which represented a decrease of $272,131 compared to general and administrative expenses of $3,820,730 for the three months ended June 30, 2022. The decrease is primarily due to lower
personnel costs, consulting and insurance costs.
Comparison of Six Months Ended June 30, 2023 and 2022
Revenues
Revenues for the six months ended June 30, 2023 were $9,763,929, which represented an increase of $2,626,155,
or 37%, compared to revenues of $7,137,774 for the six months ended June 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 six months ended June 30, 2023 was $2,528,927, which represented an increase of $14,495
compared to total cost of revenues of 2,514,432 for the six months ended June 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 six months ended June 30, 2023,
compared to 65% for the same period in 2022.
Research and Development
Research and development expenses for the six months ended June 30, 2023 were $835,876, which represented an decrease of $1,673,522 compared to total research and development expenses of $2,509,398 for the six months ended June 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 six months ended June 30, 2023 were $2,433,519, which represented an increase of $609,821 compared to total sales and marketing expenses of $1,823,698 for the six months ended June 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 six months ended June 30, 2023 were $7,188,425, which represented a decrease of $1,906,273 compared to general and administrative expenses of $9,094,698 for the six months ended June 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 six months ended June 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; and (ii) other income which consists of profits on marketable security investments. 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 six months ended June 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 June 30,
|
|
|
For the Six Months Ended June 30,
|
|
| |
|
2023
|
|
|
2022
|
|
|
2023
|
|
|
2022
|
|
|
Revenue
|
|
$
|
4,893,542
|
|
|
$
|
3,602,913
|
|
|
$
|
9,763,929
|
|
|
$
|
7,137,774
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(1,090,400
|
)
|
|
|
(4,008,132
|
)
|
|
$
|
(3,339,199
|
)
|
|
$
|
(14,325,832
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
15,257
|
|
|
|
16,334
|
|
|
|
53,687
|
|
|
|
31,683
|
|
|
Stock based compensation expense
|
|
|
1,540,342
|
|
|
|
1,374,194
|
|
|
|
3,368,575
|
|
|
|
8,988,172
|
|
|
Change in fair value of warrant liability
|
|
|
(8,053
|
)
|
|
|
(114,776
|
)
|
|
|
(2,494
|
)
|
|
|
(334,616
|
)
|
|
Interest and investment income
|
|
|
(637,032
|
)
|
|
|
(18,916
|
)
|
|
|
(1,019,954
|
)
|
|
|
(22,711
|
)
|
|
Interest expense
|
|
|
210,758
|
|
|
|
208,648
|
|
|
|
419,214
|
|
|
|
419,981
|
|
|
Severance expense
|
|
|
—
|
|
|
|
—
|
|
|
|
250,000
|
|
|
|
—
|
|
|
Income tax expense
|
|
|
36,187
|
|
|
|
5,000
|
|
|
|
66,096
|
|
|
|
10,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA - continuing operations
|
|
$
|
67,059
|
|
|
$
|
(2,537,648
|
)
|
|
$
|
(204,075
|
)
|
|
$
|
(5,233,323
|
)
|
For the Three Months Ended June 30, 2023
Adjusted EBITDA - continuing operations
Adjusted EBITDA for the three months ended June 30, 2023 was $67,059 compared to a loss of $2,537,648 for the three months ended June 30, 2022, an increase of $2,604,707. The increase is primarily due
to higher revenues and the lower research and development and general and administrative expenses discussed above.
For the Six Months Ended June 30, 2023
Adjusted EBITDA - continuing operations
Adjusted EBITDA for the six months ended June 30, 2023 was a loss of $204,075 compared to a loss of $5,233,323 for the six months ended June 30, 2022, a decrease of $5,029,248. The decrease 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 scaling our research and development, sales and marketing, and management infrastructure. The Company’s operations have been
financed primarily from the cash proceeds received from equity issuances and the issuance of the Notes. The Company expects to continue to fund its operations and potential future acquisitions through a combination of cash flow generated from
operating activities, debt financing, and/or additional equity issuances. To date, the Company has not generated sufficient revenues from the licensing of information products to fund all of its operating expenses and as a result the Company has
incurred losses and generated negative cash flows from operations since inception. 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. As of June 30, 2023, the Company’s balance of cash and marketable securities aggregated $41.2 million. Additionally the Company has proceeds
receivable from the BioTrack sale of $6.7 million and principal and accrued interest on the Notes, due September 1, 2025, of $25.5 million outstanding at June 30, 2023.
Cash Flows
The following table summarizes selected information about our sources and uses of cash and cash equivalents for the periods presented:
| |
|
For the Six Months Ended June 30,
|
|
| |
|
2023
|
|
|
2022
|
|
|
Net cash used in operating activities - continuing operations
|
|
$
|
(1,418,149
|
)
|
|
$
|
(4,386,089
|
)
|
|
Net cash provided by investing activities - continuing operations
|
|
|
1,711,284
|
|
|
|
1,019,759
|
|
|
Net cash used in financing activities - continuing operations
|
|
|
(127,357
|
)
|
|
|
(71,207
|
)
|
|
Net increase in cash and cash equivalents - continuing operations
|
|
$
|
165,778
|
|
|
$
|
(3,437,537
|
)
|
Net Cash Used in Operating Activities
Net cash used in operating activities decreased by $2,967,940 for the six months ended June 30, 2023 compared
to the for the six months ended June 30, 2023. The decrease was primarily the result of a decreased
Adjusted EBITDA loss, 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 $1,711,284 increased by $691,525 for the six months ended June 30, 2022 compared to cash used in investing activities of $1,019,759 for the for the six months ended June 30, 2023. This is
primarily the result of an increase in net purchases of marketable securities, offset by an increase in cash received from the sale of discontinued operations.
Net Cash Used in Financing Activities
Net cash used in financing activities of $127,357 for the six months ended June 30, 2022 increased by $56,150 compared to cash used in financing activities of $71,207 for the for the six months ended June 30, 2023. The increase was primarily
related to cash used to fund income tax withholding payments on vesting of employee restricted stock which was settled by surrendering shares to the Company.
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 June 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 June 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 June 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 scheduled to occur between September and December of 2023. 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. Written discovery, which commenced in July 2022, is ongoing. 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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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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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
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Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
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| * |
Filed with this Quarterly Report on Form 10‑Q.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 11, 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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42