Forian(FORA) - 2022 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements for Forian Inc. as of June 30, 2022, show a decrease in total assets to $50.5 million from $56.8 million at year-end 2021, primarily due to a reduction in cash and marketable securities, with total liabilities increasing to $33.0 million, and a higher net loss of $17.3 million for the six months ended June 30, 2022, compared to $11.5 million in the prior year period, driven by increased operating expenses including a one-time separation expense of $5.6 million, resulting in net cash used in operating activities of $5.6 million Condensed Consolidated Balance Sheets As of June 30, 2022, total assets were $50.5 million, a decrease from $56.8 million at December 31, 2021, mainly due to a decline in cash and cash equivalents, while total liabilities increased to $33.0 million from $31.7 million, and total stockholders' equity decreased from $25.2 million to $17.5 million, reflecting the net loss for the period Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $12,309.3 | $18,663.8 | | Total current assets | $29,325.9 | $35,985.8 | | Total assets | $50,508.1 | $56,842.4 | | Liabilities & Equity | | | | Total current liabilities | $7,840.1 | $6,799.1 | | Convertible notes payable, net | $24,680.4 | $24,260.4 | | Total liabilities | $33,011.7 | $31,671.1 | | Total stockholders' equity | $17,496.3 | $25,171.3 | | Total liabilities and stockholders' equity | $50,508.1 | $56,842.4 | Condensed Consolidated Statements of Operations For the second quarter of 2022, revenues grew 43.6% year-over-year to $6.5 million, while net loss improved to $5.4 million from $7.0 million, and for the six-month period, revenues more than doubled to $12.9 million from $6.2 million year-over-year, though the six-month net loss widened to $17.3 million from $11.5 million, largely due to a $5.6 million separation expense and increased research and development costs Statement of Operations Summary (in thousands) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $6,534.3 | $4,548.0 | $12,925.5 | $6,168.6 | | Cost of revenues | $1,746.8 | $1,232.8 | $3,314.4 | $1,690.7 | | Research and development | $3,387.1 | $1,949.9 | $6,609.9 | $3,447.8 | | General and administrative | $4,870.2 | $6,577.7 | $10,958.6 | $9,362.3 | | Separation expenses | $0.0 | $0.0 | $5,611.9 | $0.0 | | Loss From Operations | ($5,592.6) | ($6,985.0) | ($17,506.8) | ($12,101.5) | | Net Loss | ($5,433.5) | ($6,964.9) | ($17,287.6) | ($11,480.6) | | Net loss per share (basic & diluted) | ($0.17) | ($0.22) | ($0.54) | ($0.42) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased from $25.2 million at the beginning of 2022 to $17.5 million as of June 30, 2022, primarily driven by the net loss of $17.3 million for the six-month period, partially offset by $9.7 million in stock-based compensation expense - The accumulated deficit grew from $(32.8) million at the start of 2022 to $(50.1) million by June 30, 2022, reflecting the net loss incurred during the first half of the year[12] - Stock-based compensation expense added $9.7 million to additional paid-in capital during the first six months of 2022[12] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash used in operating activities was $5.6 million, an improvement from $8.2 million used in the same period of 2021, with net cash used in investing activities at $0.6 million primarily for property and equipment additions, and financing activities using a nominal $71,000, resulting in a $6.4 million decrease in cash and cash equivalents, ending the period at $12.3 million Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(5,648.9) | $(8,178.2) | | Net cash used in investing activities | $(634.4) | $(18.3) | | Net cash (used in) provided by financing activities | $(71.2) | $12,294.4 | | Net change in cash | $(6,354.5) | $4,097.9 | | Cash and cash equivalents, end of period | $12,309.3 | $4,763.3 | - The significant cash provided by financing activities in 2021 was due to $12.0 million raised from the sale of common stock, which did not recur in 2022[16] Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's business, which provides software, data, and analytics to the healthcare and cannabis industries, highlighting the March 2021 business combination with Helix Technologies accounted for as a reverse acquisition, significant accounting policies covering revenue recognition where Information and Software revenue grew substantially, and goodwill impairment testing, with disclosure on three reportable segments: Information and Software, Services, and Other, along with details on a $24 million convertible note issuance, stock-based compensation, legal proceedings, and lease commitments - The company provides software solutions, proprietary data, and predictive analytics to customers in the healthcare and cannabis industries[17] - On March 2, 2021, the company completed a business combination with Helix Technologies, which was accounted for as a reverse acquisition with MOR (the company's predecessor) as the accounting acquirer[18][19][20] Disaggregated Revenue by Category (Six Months Ended June 30) | Revenue Category | 2022 | 2021 | | :--- | :--- | :--- | | Healthcare Information | $7,137,774 | $1,956,347 | | Software Subscriptions | $4,755,759 | $3,216,302 | | Services | $826,861 | $588,647 | | Other | $205,143 | $407,298 | | Total | $12,925,537 | $6,168,594 | - In September 2021, the company issued $24 million in 3.5% Convertible Promissory Notes due 2025, with a conversion price of $11.98 per share[107] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the significant revenue growth in the first half of 2022 primarily to increased sales of healthcare information products, with the wider net loss driven by strategic investments in research and development to scale products, higher sales and marketing expenses, and a one-time $5.6 million separation expense related to former Helix advisors, resulting in an Adjusted EBITDA loss of $6.6 million for the six-month period, while liquidity remains strong with $23.9 million in cash and marketable securities as of June 30, 2022, supported by a $24 million convertible note issuance in 2021 Results of Operations Summary (Six Months Ended June 30) | Metric (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Revenues | $12,925.5 | $6,168.6 | | Loss from operations | $(17,506.8) | $(12,101.5) | | Net loss | $(17,287.6) | $(11,480.6) | - Revenue for the six months ended June 30, 2022, increased by $6.8 million year-over-year, primarily driven by a $5.2 million increase in sales of healthcare information products[174] - Separation expenses of $5.6 million were recorded in H1 2022, consisting of severance and accelerated stock compensation related to the non-renewal of advisory agreements with former Helix executives[180] Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Line Item | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(5,433.5) | $(6,964.9) | $(17,287.6) | $(11,480.6) | | Depreciation and amortization | $604.1 | $595.5 | $1,209.8 | $783.1 | | Stock based compensation expense | $1,766.2 | $2,751.5 | $9,670.8 | $3,618.2 | | Other Adjustments | $(160.0) | $80.0 | $(223.6) | $690.4 | | Adjusted EBITDA | $(3,222.2) | $(3,637.9) | $(6,633.6) | $(6,489.9) | Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not required for smaller reporting companies - The company has indicated that this disclosure is not required[214] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were ineffective as of June 30, 2022, due to material weaknesses in internal controls over financial reporting previously disclosed in the 2021 Form 10-K, with active remediation efforts underway including hiring additional personnel and consultants, and upgrading its accounting and finance systems - The company identified material weaknesses in its internal controls over financial reporting, leading to the conclusion that disclosure controls and procedures were ineffective as of June 30, 2022[217] - Remediation efforts are underway, including hiring more staff, engaging outside consultants, and upgrading accounting systems to strengthen internal controls[219][220] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is involved in several legal proceedings, including 'Audet v. Green Tree International' where a plaintiff claims 10% ownership of a subsidiary, and 'Grant Whitus et al. v. Forian Inc.' where former Helix employees are seeking over $27.5 million for alleged unpaid equity and compensation, with the company believing these lawsuits are without merit and intending to defend against them vigorously, while a separate negligence lawsuit, 'Nykiah Thomas v. Security Consultants Group,' was settled and dismissed in July 2022 - Audet v. Green Tree International: A lawsuit where the plaintiff claims 10% ownership of GTI, a subsidiary, and seeks unspecified monetary damages, with the company believing the suit is without merit[224] - Grant Whitus et al. v. Forian Inc.: A lawsuit filed by former Helix employees claiming breach of contract and other charges related to promised equity or compensation, seeking over $27.5 million in damages, with the company defending vigorously against the claims[226] - Nykiah Thomas v. Security Consultants Group: A negligence lawsuit related to a school shooting was settled and dismissed with prejudice in July 2022[225] Item 1A. Risk Factors This item is not required for smaller reporting companies - The company has indicated that this disclosure is not required[227] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[228] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[229] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[230] Item 5. Other Information The company reported no other information - None[232] Item 6. Exhibits This section lists the exhibits filed with the quarterly report, including the Certificate of Incorporation, Bylaws, an amendment to the 2020 Equity Incentive Plan, and certifications from the CEO and CFO as required by the Sarbanes-Oxley Act - Exhibits filed include corporate governance documents, amendments to equity plans, and required CEO/CFO certifications[233]