| 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 months ended March 31, 2024 and 2023 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, 2023, as
filed with the SEC on March 29, 2024. 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,” “Forian,” “we” or “us”) 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 life sciences 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 provided software and analytics solutions to state governments and licensed operators
within 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 are referred to collectively 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. The Company will continue to provide analytics solutions to customers within the healthcare and life sciences industries.
Financial Operations Overview
The following discussion sets forth certain components of the Company’s statements of operations as well as factors that impact those items.
Revenues
Revenues are derived from licensing fees for the Company’s proprietary information products. The Company recognizes revenues from information products as performance obligations under customer
contracts are satisfied. Sales for the three months ended March 31, 2024 by country as a percentage of total sales were: United States, 87%; Canada, 5%; and Australia, 8%,
compared to sales for the three months ended March 31, 2023 by country as a percentage of total sales which were: United States, 93%; and Australia, 7%.
Cost of Revenues
Cost of revenues is generated from direct costs associated with the delivery of the Company’s products and services to its customers. The cost of revenues relates primarily to labor costs,
information licensing, hosting and infrastructure costs and client service team costs. The Company records 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. The Company continues to focus
research and development efforts on adding new features and applications to its product offerings.
Sales and Marketing
Sales and marketing expense is primarily salaries and related expenses, including commissions, for 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 investing in marketing and sales by expanding selling and marketing
staff, building brand awareness, attracting new clients and sponsoring additional marketing events. The timing of these marketing events may affect marketing costs in any particular quarter.
General and Administrative Expenses
General and administrative expenses include salaries, 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 the Company’s business. Depreciation expense relates primarily to furniture and equipment and computers.
Results of Operations For the Three Months Ended March 31, 2024 and 2023
The following table summarizes the condensed results of operations for the periods indicated:
| |
|
For the Three Months Ended March 31,
|
|
| |
|
2024
|
|
|
2023
|
|
|
Revenues
|
|
$
|
4,877,378
|
|
|
$
|
4,870,387
|
|
| |
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
1,703,357
|
|
|
|
1,252,215
|
|
|
Research and development
|
|
|
389,889
|
|
|
|
531,689
|
|
|
Sales and marketing
|
|
|
1,055,141
|
|
|
|
1,196,192
|
|
|
General and administrative
|
|
|
3,492,454
|
|
|
|
3,639,826
|
|
|
Separation expenses
|
|
|
—
|
|
|
|
599,832
|
|
|
Depreciation and amortization
|
|
|
8,887
|
|
|
|
38,430
|
|
|
Operating loss from continuing operations
|
|
$
|
(1,772,350
|
)
|
|
$
|
(2,387,797
|
)
|
Comparison of Three Months Ended March 31, 2024 and 2023
Revenues
Revenues for the three months ended March 31, 2024 were $4,877,378, which represented an increase of $6,991, compared to revenues of $4,870,387 for the three months ended March 31, 2023. The increase is primarily due to increased sales of
information products to new and existing customers in the healthcare industry offset by the impact of attrition of a larger customer.
Cost of Revenues
Cost of revenues for the three months ended March 31, 2024 was $1,703,357, which represented an increase of $451,142 compared to total cost of revenues of $1,252,215 for the three months ended March 31, 2023. Cost of
revenues increased primarily due to incremental information sources added during the fourth quarter of 2023 to be incorporated into the Company’s product offerings. As a result, gross profit as a percentage of revenues decreased to 65% for the for the three months ended March 31, 2024, compared to 74% for the same
period in 2023. Information licensing costs are generally semi-variable in nature, providing operating leverage as the Company increases revenue.
Research and Development
Research and development expenses for the three months ended March 31, 2024 were $389,889, which represented a decrease
of $141,800 compared to total research and development expenses of $531,689 for the three months ended March 31, 2023. The decrease is
due to lower personnel, subcontracted labor and infrastructure costs related to new product development, which resulted from the Company’s shift in focus to the healthcare analytics market.
Sales and Marketing
Sales and marketing expenses for the three months ended March 31, 2024 were $1,055,141, which represented a decrease of
$141,051 compared to total sales and marketing expenses of $1,196,192 for the three months ended March 31, 2023. The decrease is due to
lower salaries and expenses related to scaling the Company’s products.
General and Administrative
General and administrative expenses for the three months ended March 31, 2024 were $3,492,454, which represented a
decrease of $147,372 compared to general and administrative expenses of $3,639,826 for the three months ended March 31, 2023. The
decrease is primarily due to lower personnel costs, consulting and insurance costs.
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 three months ended March 31, 2023 include $250,000 related to the salary continuation and $349,832 related to the accelerated vesting of stock.
Non-GAAP Financial Measures
In this Quarterly Report on Form 10-Q the Company has provided a non-GAAP measure, which is defined as financial information that has not been prepared in accordance with accounting principles
generally accepted in the United States of America (“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 management as an additional measure of the 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 management identify additional trends in the Company’s financial results that may not be shown solely by period-to-period comparisons of net
loss. In addition, management may use Adjusted EBITDA in the incentive compensation programs applicable to some employees in order to evaluate the Company’s performance. 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.
Management believes that the presentation of Adjusted EBITDA is useful to investors in their analysis of the Company’s results for reasons similar to those believed by management. Additionally,
Adjusted EBITDA helps facilitate investor understanding of decisions made by management in light of the performance metrics used in making those decisions. As more fully described below, management believes that providing Adjusted EBITDA,
together with a reconciliation of net loss to Adjusted EBITDA, helps investors make comparisons between the 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 should 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 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. The Company excludes depreciation and amortization expense from Adjusted EBITDA because management believes that (i) the amount of such
expenses in any specific period may not directly correlate to the underlying performance of the 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, management believes 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. Management believes that
excluding the effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in the Company’s operating performance because (i) the amount of such expenses in any specific
period may not directly correlate to the underlying performance of 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 2023 includes $349,832 related to the accelerated vesting of stock, which is recognized in separation expenses in the condensed consolidated statements of
operations. The Company 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. As a result, management recorded $5,417,043 of stock compensation expenses related to the options that vested through the three months ending March 31, 2023, which is recognized in separation expenses
in the condensed consolidated statements of operations. Management believes that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful
comparisons between the 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 are due on September 1,
2025, and accrue interest at an annual rate of 3.5%. Management excludes interest expense from Adjusted EBITDA (i) because it is not directly attributable to the performance of 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 the Company invests. Interest and
investment income can vary over time due to changes in interest rates and level of investments. Management excludes interest and investment income from Adjusted EBITDA (i) because these items are not directly attributable to the
performance of 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. The Company engages in other activities and transactions that can impact net income (loss). In the periods reported, these other items included (i) change in fair
value of warrant liability relating to warrants assumed in the acquisition of Helix; (ii) gain on sale of investment relating 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 the convertible notes (for further discussion, refer to “Note 10 – Warrant Liability” and “Note 11 – Convertible Notes” to the financial statements). Management excludes these other items from Adjusted EBITDA because
management believes these activities or transactions are not directly attributable to the performance of 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 three months ended March 31, 2023 includes $250,000 related to the salary continuation. Managements excludes these other items from Adjusted EBITDA because management
believes these costs are not recurring and not directly attributable to the performance of 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 its employees’ activities.
|
|
• |
Litigation related expenses. Management excludes
litigation expenses that are extraordinary in nature and are unrelated to the Company’s day-to-day business operations. The nature of these expenses is primarily related to direct and incremental
third-party legal expenses associated with such litigation, which pertains to entities acquired in the Helix merger (for further discussion, refer to “Item 3. Legal Proceedings” and “Note 16 – Commitments and Contingencies” to the financial statements).
|
|
• |
Income tax expense. Management excludes the income tax expense from Adjusted EBITDA (i) because management believes that the income tax expense is not directly attributable to
the underlying performance of 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 reported financial results. In addition, they are subject to inherent
limitations as they reflect the exercise of judgment by management about which items are adjusted to calculate non-GAAP financial measures. Management compensates 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 the Company’s 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. Management encourages investors and
others to review the Company’s financial information in its entirety, not to rely on any single financial measure to evaluate the business and to view 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 March 31,
|
|
| |
|
2024
|
|
|
2023
|
|
|
Revenue
|
|
$
|
4,877,378
|
|
|
$
|
4,870,387
|
|
| |
|
|
|
|
|
|
|
|
|
Net Income (loss) from continuing operations
|
|
|
(1,212,615
|
)
|
|
|
(2,248,799
|
)
|
| |
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
8,887
|
|
|
|
38,430
|
|
|
Stock based compensation expense
|
|
|
1,658,915
|
|
|
|
1,828,233
|
|
|
Change in fair value of warrant liability
|
|
|
(113
|
)
|
|
|
5,559
|
|
|
Interest and investment income
|
|
|
(675,157
|
)
|
|
|
(382,922
|
)
|
|
Interest expense
|
|
|
198,963
|
|
|
|
208,456
|
|
|
Gain on sale of investment
|
|
|
(48,612
|
)
|
|
|
—
|
|
|
Gain on debt redemption
|
|
|
(137,356
|
)
|
|
|
—
|
|
|
Severance expense
|
|
|
—
|
|
|
|
250,000
|
|
|
Litigation related expenses
|
|
|
208,965
|
|
|
|
84,351
|
|
|
Income tax expense
|
|
|
102,540
|
|
|
|
29,909
|
|
|
Adjusted EBITDA - continuing operations
|
|
$
|
104,417
|
|
|
$
|
(186,783
|
)
|
Comparison of Three Months Ended March 31, 2024 and 2023
Adjusted EBITDA - continuing operations
Adjusted EBITDA for the three months ended March 31, 2024 was $104,417 compared to a loss of $186,783 for the three months ended March 31, 2023, an increase of $291,200. The increase is primarily due to higher revenues and the lower research and
development and general and administrative expenses discussed above, as well as a decrease in stock based compensation.
Liquidity and Capital Resources
Since the Company’s inception in 2020, most of the Company’s resources have been devoted to building research and development, sales, marketing and management infrastructure, resulting in net
losses and negative cash flows from operations through 2022. However, the Company has generated a net loss of $1,212,615, net cash used from operating activities of $2,208,070 and Adjusted EBITDA of $104,417 for the three months ended March 31, 2024 resulting from higher revenues from its healthcare
information business and lower operating expenses from the streamlining of its 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 $30,000,000 consisting of $20,000,000 in cash at closing and twelve unconditional monthly payments aggregating $10,000,000 thereafter. On July 21, 2023, the Company
sold a minority equity interest in a customer for cash proceeds of $5,805,858 and future contingent earnout payments aggregating up to $3,600,000 in 2025 and 2026. These transactions have provided additional
cash and liquidity to the Company. As of March 31, 2024, the Company’s balance of cash and marketable securities aggregated $47,434,985 and outstanding principal and
accrued interest on the Notes, due September 1, 2025, aggregated $23,981,788. The Company expects to continue to fund its 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 sources and uses of cash and cash equivalents for the periods presented:
| |
|
For the Three Months Ended March 31,
|
|
| |
|
2024
|
|
|
2023
|
|
|
Net cash used in operating activities - continuing operations
|
|
$
|
(2,208,070
|
)
|
|
$
|
(1,201,777
|
)
|
|
Net cash used in investing activities - continuing operations
|
|
|
(1,774,425
|
)
|
|
|
(633,003
|
)
|
|
Net cash used in financing activities - continuing operations
|
|
|
(1,031,363
|
)
|
|
|
(94,599
|
)
|
|
Net increase in cash and cash equivalents - continuing operations
|
|
$
|
(5,013,858
|
)
|
|
$
|
(1,929,379
|
)
|
Net Cash Used In Operating Activities
Net cash used in operating activities of $2,208,070 increased by $1,006,293 for the three
months ended March 31, 2024 compared to cash used in operating activities of $1,201,777 for the three months ended March 31, 2023. This primarily is the result of
changes in working capital accounts related to the timing of cash flows from operations.
Net Cash Used In Investing Activities
Net cash used in investing activities of $1,774,425 increased by $1,141,422 for the three months ended March 31, 2024 compared to cash used in investing activities of $633,003 for the three months ended March 31, 2023. This is primarily the result of a decrease in net purchases of marketable securities of 17,958,000, and a decrease in cash received from the sale of discontinued
operations of 19,223,527.
Net Cash Used In Financing Activities
Net cash used in financing activities of $1,031,363 for the three months ended March 31, 2024 increased by $936,764 compared to cash used in financing activities of $94,599 for the three months ended March 31, 2023. The increase was primarily due to $950,000 cash used to redeem convertible securities.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of the Company’s financial condition and results of operations is based on the Company’s condensed consolidated financial statements that have
prepared in accordance with U.S. GAAP. The Company believes that several accounting policies are important to understanding historical and future performance. The Company refers to these policies as critical because these specific areas generally
require the Company to make judgments and estimates about matters that are uncertain at the time the estimates are made, and different estimates – which also would have been reasonable – could have been used. On an ongoing basis, the Company
evaluates the estimates and judgments. The Company bases the estimates on historical experience and other market-specific or other relevant assumptions that are believed 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 the Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on March 29, 2024.
There have been no changes to these policies and estimates.
Recent Accounting Pronouncements
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, Income
Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires additional disclosures related to rate reconciliation, income taxes paid, and other disclosures. Under ASU
2023-09, for each annual period presented, public entities are required to (1) disclose specific categories in the tabular rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. In
addition, ASU 2023-09 requires all reporting entities to disclose on an annual basis the amount of income taxes paid disaggregated by federal, state, and foreign taxes as well as the amount of income taxes paid by individual jurisdiction. ASU
2023-09 is effective for public business entities for annual periods beginning after December 15, 2024 and can be applied on a prospective basis with an option to apply the standard retrospectively. Early adoption is permitted. The Company is
currently evaluating the impact of ASU 2023-09 on its condensed consolidated financial statements and related disclosures.
In November 2023, the FASB issued Accounting Standards Update No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 improve
reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this update require public companies to disclose on an annual and interim basis, significant segment expenses
that are regularly provided to the chief operating decision maker (CODM) and require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. In
addition, the amendment requires that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required in interim periods and require that a public entity disclose the title and position of
the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. Early adoption is permitted. The Company is currently evaluating the
impact of ASU 2023-07 on its condensed consolidated financial statements and related disclosures. This amendment will go into effect for the fiscal years beginning after December 15, 2023, and interim periods within
fiscal years beginning after December 15, 2024.
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 its 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 its
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 the Company no longer meet the requirements for being an “emerging growth company,” whichever
occurs first.
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
This item is not required.
|
Item 4.
|
Controls and Procedures
|
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 March 31, 2024, 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, 2023, as filed with the SEC on March 29, 2024. Our chief executive officer and chief financial officer therefore concluded that our disclosure controls and
procedures as of the fiscal quarter ended March 31, 2024 remain ineffective to the extent of the material weaknesses identified.
We have implemented several processes and control procedures in 2023, including those outlined below, to remediate the deficiencies noted above and from the prior year.
We currently are assessing and improving the operating effectiveness of these controls to ensure they will operate at an acceptable level of assurance.
We implemented a new ERP system in 2023 and are currently establishing and testing appropriate logical access and other controls regarding the system. We may implement additional
systems to improve our internal controls over financial reporting. Additionally, the divestiture of BioTrack in February 2023 has resulted in a less complex control environment which, coupled with the implementation and effective operation of new
entity level, financial reporting, treasury, accounts payable, and payroll controls, has resulted in a conclusion that our previously identified material weaknesses related to (1) lack of segregation of duties over the cash, accounts payable,
payroll, and financial reporting transaction classes; and (2) evidence of formalization surrounding internal controls and the financial close process are fully remediated.
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 March 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II
– OTHER INFORMATION
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Item 1.
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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. On March 8, 2024, the parties entered into a Settlement Agreement and General Release, which included a
release of GTI, the Company and its subsidiaries and all related parties. The parties filed a Joint Stipulation to Dismiss with Prejudice with respect to this matter on March 18, 2024. The Court entered a Final Order of Dismissal with Prejudice
with respect to this matter on March 27, 2024.
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 pending before the Court. 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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Trading Arrangements of Directors and Executive Officers
During the three months ended March 31, 2024, no director of officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule
10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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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.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.
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 May 14, 2024.
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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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