Forian(FORA) - 2023 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements This section presents Forian Inc.'s unaudited condensed consolidated financial statements and explanatory notes for the periods ended March 31, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets | Item | March 31, 2023 | December 31, 2022 | | :----------------------------------- | :------------- | :---------------- | | ASSETS | | | | Total current assets | $55,313,863 | $26,916,028 | | Total assets | $55,634,738 | $46,258,167 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $9,907,060 | $8,352,575 | | Total long-term liabilities | $25,320,397 | $25,483,116 | | Total liabilities | $35,227,457 | $33,835,691 | | Total stockholders' equity | $20,407,281 | $12,422,476 | | Total liabilities and stockholders' equity | $55,634,738 | $46,258,167 | - Total assets increased by $9,376,571 (20.3%) from December 31, 2022, to March 31, 2023, primarily driven by an increase in marketable securities and proceeds receivable from the sale of discontinued operations[8] - Total stockholders' equity increased by $7,984,805 (64.3%) from December 31, 2022, to March 31, 2023, mainly due to net income and stock-based compensation[9][14] Condensed Consolidated Statements of Operations | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $4,870,387 | $3,534,861 | | Total costs and expenses | $7,258,184 | $13,859,863 | | Loss From Continuing Operations | $(2,387,797) | $(10,325,002) | | Total other income, net | $168,907 | $12,302 | | Loss from continuing operations, net of tax | $(2,248,799) | $(10,317,700) | | Income (loss) from discontinued operations, net of tax | $8,747,278 | $(1,536,388) | | Net Income (Loss) | $6,498,479 | $(11,854,088) | | Net income (loss) per share - basic and diluted | $0.19 | $(0.37) | - The company reported a net income of $6,498,479 for Q1 2023, a significant improvement from a net loss of $(11,854,088) in Q1 2022, primarily driven by a gain on the sale of discontinued operations[12] - Revenue from continuing operations increased by 37.8% year-over-year, from $3,534,861 in Q1 2022 to $4,870,387 in Q1 2023[12][147] Condensed Consolidated Statements of Stockholders' Equity | Item | Balance at Jan 1, 2023 | Net Income | Stock-based Compensation | Balance at Mar 31, 2023 | | :----------------------------------- | :--------------------- | :--------- | :----------------------- | :---------------------- | | Common Stock (Par Value @ $0.001) | $32,251 | $0 | $167 | $32,419 | | Additional Paid-In Capital | $71,182,326 | $0 | $1,580,925 | $72,668,484 | | Accumulated Deficit | $(58,792,101) | $6,498,479 | $0 | $(52,293,622) | | Total Stockholders' Equity | $12,422,476 | $6,498,479 | $1,580,925 | $20,407,281 | - Total stockholders' equity increased from $12,422,476 at January 1, 2023, to $20,407,281 at March 31, 2023, primarily due to net income of $6,498,479 and stock-based compensation expense of $1,580,925[14] Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(1,228,426) | $(3,825,878) | | Net cash used in investing activities | $(633,003) | $(667,515) | | Net cash used in financing activities | $(94,599) | $(13,122) | | Net change in cash | $(1,956,028) | $(4,506,515) | | Cash and cash equivalents, end of period | $839,715 | $13,431,975 | - Net cash used in operating activities decreased by $2,597,452, from $(3,825,878) in Q1 2022 to $(1,228,426) in Q1 2023, indicating improved operational cash burn[16][168] - Cash and cash equivalents at the end of Q1 2023 were $839,715, a decrease from $2,795,743 at the beginning of the period[16] Notes to Unaudited Condensed Consolidated Financial Statements Note 1 Business Organization and Nature of Operations Forian Inc., formed in 2020, now focuses exclusively on healthcare data management and analytics after divesting cannabis businesses - Forian Inc. was formed in October 2020 through a business combination with Helix Technologies Inc[17] - The company has divested its cannabis industry-related businesses (BioTrack, security monitoring, and Engeni LLC) in 2022-2023, and now focuses solely on healthcare and related industries[19][138] Note 2 Basis of Presentation Financial statements are prepared under U.S. GAAP, condensed per Form 10-Q, with management believing all necessary adjustments are included - Financial statements are prepared under U.S. GAAP, with condensations and omissions per Form 10-Q instructions[20] Note 3 Summary of Significant Accounting Policies This note outlines significant accounting policies, including consolidation, discontinued operations, revenue recognition, and stock-based compensation - The company's consolidated financial statements include Medical Outcomes Research Analytics, LLC and Helix Technologies, Inc. and its subsidiaries, with intercompany transactions eliminated[21] - The sales of BioTrack, the security monitoring business, and Engeni, LLC are classified as discontinued operations due to representing a strategic shift[24] - Revenue is primarily derived from license fees for information products, recognized when customers obtain control of promised goods or services, often ratably over the contract term[44] - Separation expenses for Q1 2023 include $250,000 for salary continuation and $349,832 for accelerated vesting of restricted stock due to the CEO's resignation[77] - In Q1 2022, separation expenses included $5,417,043 in stock compensation due to non-renewal of advisor agreements for former Helix executives[78] Note 4 Discontinued Operations This note details the 2022-2023 sale of Helix Businesses, exiting the cannabis industry, with financial results presented as discontinued operations - Helix completed the sale of BioTrack on February 10, 2023, for $30.0 million ($20.0 million cash at closing, $10.0 million in twelve monthly installments)[83] - The company recognized a gain on sale of BioTrack of $11,531,849 and a loss from discontinued operations of $94,427 during Q1 2023[84] | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Total revenues (Helix Businesses) | $1,301,475 | $2,856,418 | | Total costs and expenses (Helix Businesses) | $1,395,902 | $4,647,856 | | Net gain (loss) from discontinued operations, net of tax | $8,747,278 | $(1,536,388) | Note 5 Marketable Securities Marketable securities, primarily short-term U.S. Treasuries, are classified as available-for-sale and significantly increased in Q1 2023 - Marketable securities are valued using Level 1 inputs (current market quotes) and consist of short-term U.S. Treasuries and money market mutual funds[88] | Item | March 31, 2023 | December 31, 2022 | | :----------------------- | :------------- | :---------------- | | Cost | $38,854,166 | $17,234,633 | | Fair Market Value | $39,164,720 | $17,396,487 | Note 6 Prepaid Expenses and Other Current Assets Prepaid expenses, mainly for software and insurance, decreased in Q1 2023, while other current assets include employee receivables | Item | March 31, 2023 | December 31, 2022 | | :---------------- | :------------- | :---------------- | | Prepaid expenses | $425,986 | $835,786 | - Other current assets as of March 31, 2023, include $342,986 receivable from employees[92] Note 7 Property and Equipment, Net Net property and equipment increased in Q1 2023 due to software development, with a corresponding rise in depreciation and amortization | Item | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Property and equipment, net | $112,093 | $75,030 | | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Depreciation and amortization expense | $38,430 | $15,349 | Note 8 Accrued Expenses Accrued expenses significantly increased in Q1 2023, primarily driven by the recognition of income taxes payable | Item | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Accrued salary, commission and bonus | $1,659,762 | $2,112,482 | | Income taxes payable | $2,746,515 | $0 | | Accrued expenses (other) | $2,017,259 | $1,654,307 | | Total | $6,423,536 | $3,766,789 | Note 9 Warrant Liability Warrant liability, a Level 3 financial instrument, increased in fair value during Q1 2023, calculated using the Black-Scholes model - Warrants to purchase Helix common stock were converted to warrants to purchase Company common stock and are classified as a liability[96] | Item | As of March 31, 2023 | As of December 31, 2022 | | :----------------------------------- | :------------------- | :---------------------- | | Fair value of financial instruments - warrants | $10,106 | $4,547 | | Warrants outstanding | 86,502 | 92,058 | - The change in fair value of warrant liability for Q1 2023 was $5,559, compared to $(219,840) for Q1 2022[97] Note 10 Convertible Notes The company holds $24.0 million in 3.5% Convertible Promissory Notes due 2025, convertible into common stock and warrants at $11.98 per share | Item | March 31, 2023 | December 31, 2022 | | :----------------------------------- | :------------- | :---------------- | | Principal outstanding | $24,000,000 | $24,000,000 | | Convertible note payable, net of debt issuance costs | $25,315,003 | $25,106,547 | - The Notes accrue interest at an annual rate of 3.5% and are convertible into common stock and warrants at an exercise price of $11.98 per share[100] | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Interest expense related to the Notes | $208,456 | $210,000 | Note 11 Stock-Based Compensation This note details stock-based compensation plans, with $15.4 million unrecognized expense as of March 31, 2023, and significant Q1 expenses from executive separations | Item | March 31, 2023 | December 31, 2022 | | :----------------------------------- | :------------- | :---------------- | | Unvested Restricted Shares and Units | 910,720 | 551,258 | | Outstanding Stock Options | 4,634,302 | 3,983,808 | - Stock-based compensation expense for Q1 2023 was $1,580,925, including $349,832 related to accelerated vesting for the former CEO's resignation[109][111] - Stock-based compensation expense for Q1 2022 was $7,904,584, including $5,417,043 related to options vesting for former Helix executives due to non-renewal of advisor agreements[110][111] Note 12 Net Income (Loss) Per Share The company reported basic and diluted net income per share of $0.19 for Q1 2023, a significant improvement from Q1 2022, driven by discontinued operations income | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net Income (Loss) | $6,498,479 | $(11,854,088) | | Basic and diluted loss from continuing operations per share | $(0.08) | $(0.32) | | Basic and diluted income (loss) from discontinued operations per share | $0.27 | $(0.05) | | Net loss per common share - basic and diluted | $0.19 | $(0.37) | | Weighted average common shares outstanding | 32,300,237 | 31,857,685 | - Potentially dilutive securities, including warrants, stock options, convertible notes, and unvested restricted stock awards/units, totaling 8,156,371 as of March 31, 2023, were excluded from diluted EPS calculation due to their anti-dilutive effect on loss from continuing operations[114] Note 13 Related Party Transactions This note discloses related party transactions, including payments to the Chief Strategy Officer and a director's holding of $6.0 million in convertible notes - Adam Dublin, Chief Strategy Officer, received $49,032 from a former vendor in Q1 2023 ($92,369 in Q1 2022)[115] - A director of the company holds $6,000,000 in principal of the 3.5% Convertible Promissory Notes[117] Note 14 Segment Results Following cannabis business divestiture, Forian Inc.'s continuing operations now comprise a single segment focused on healthcare analytics and information services - The company's continuing operations now consist of a single reportable segment focused on healthcare and other industries, following the disposal of cannabis-related businesses[121] Note 15 Leases The company accounts for operating leases under ASC Topic 842, primarily for facilities, with lease liabilities and ROU assets recorded on the balance sheet | Item | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Right of use assets, net | $27,346 | $32,560 | | Total lease liabilities | $27,346 | $32,560 | | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Total operating lease costs | $10,743 | $450 | - Future minimum lease payments total $29,056, with $17,794 due in the remainder of 2023 and $11,262 in 2024[127] Note 16 Commitments and Contingencies The company has $5.0 million in future payment obligations through 2026 and is vigorously defending two material legal proceedings | Year Ending December 31, | March 31, 2023 | | :----------------------- | :------------- | | 2023 (remaining) | $1,137,595 | | 2024 | $1,887,595 | | 2025 | $1,600,000 | | 2026 | $400,000 | | Total | $5,025,190 | - The company is a defendant in Audet v. Green Tree International, et al., a lawsuit claiming 10% ownership of an indirect subsidiary, seeking unspecified monetary damages[131] - The company is also a defendant in Grant Whitus et al. v. Forian Inc., et al., a lawsuit by former Helix employees seeking over $27.5 million in damages for alleged breach of contract and other claims related to unreceived equity interest or compensation[132] Note 17 Subsequent Events No subsequent events requiring adjustment or disclosure were identified up to the financial statement issuance date - No subsequent events requiring adjustment or disclosure were identified after the balance sheet date up to the issuance of the financial statements[133] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Forian Inc.'s Q1 2023 financial condition and results, including operations, non-GAAP measures, liquidity, and critical accounting policies Overview - Forian Inc. provides data management and proprietary information and analytics solutions to the healthcare and related industries[136] - Following the sale of its Helix Businesses in February 2023, the company no longer operates in the cannabis industry and focuses solely on healthcare analytics[138] Financial Operations Overview - Revenues are primarily derived from licensing fees for proprietary information products and services contracts with government agencies[140] - Cost of revenues includes labor, information licensing, hosting, and infrastructure costs[141] - Research and development focuses on new features and applications, with expenses primarily from employee-related costs, subcontractors, and hosted infrastructure[142] - Sales and marketing expenses include salaries, commissions, advertising, market research, and event costs, with plans for continued investment[143] - General and administrative expenses cover administrative functions, professional fees, and other corporate support[144] Results of Operations for the Three Months Ended March 31, 2023 and 2022 | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change ($) | Change (%) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Revenues | $4,870,387 | $3,534,861 | $1,335,526 | 37.8% | | Cost of revenues | $1,252,215 | $1,243,030 | $9,185 | 0.7% | | Research and development | $531,689 | $1,089,879 | $(558,190) | -51.2% | | Sales and marketing | $1,196,192 | $820,594 | $375,598 | 45.8% | | General and administrative | $3,639,826 | $5,273,968 | $(1,634,142) | -31.0% | | Separation expenses | $599,832 | $5,417,043 | $(4,817,211) | -88.9% | | Loss from continuing operations | $(2,387,797) | $(10,325,002) | $7,937,205 | -76.9% | - Gross profit as a percentage of revenues increased to 74.3% for Q1 2023, up from 64.8% in Q1 2022, due to cost of revenues increasing at a lower rate than revenue[148] - The decrease in General and Administrative expenses was primarily due to lower personnel costs, consulting, and professional fees, including a $729,763 decrease in stock-based compensation related to the departure of former Helix advisors[151] Non-GAAP Financial Measures - Adjusted EBITDA is presented as a non-GAAP measure to supplement U.S. GAAP net income/loss, used by management for decision-making, budgeting, and evaluating performance[154][155] - Adjusted EBITDA excludes depreciation and amortization, stock-based compensation expense, interest expense, investment income, other items (like warrant liability fair value changes), severance expenses, and income tax expense[158][160] | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss from continuing operations | $(2,248,799) | $(10,317,700) | | Adjustments: | | | | Depreciation and amortization | $38,430 | $15,349 | | Stock based compensation expense | $1,828,233 | $7,613,978 | | Change in fair value of warrant liability | $5,559 | $(219,840) | | Interest and investment income | $(382,922) | $(3,795) | | Interest expense | $208,456 | $211,333 | | Severance expense | $250,000 | $0 | | Income tax expense | $29,909 | $5,000 | | Adjusted EBITDA - continuing operations | $(271,134) | $(2,695,675) | - Adjusted EBITDA loss from continuing operations decreased by $2,424,541, from $(2,695,675) in Q1 2022 to $(271,134) in Q1 2023, reflecting higher revenues and lower R&D and G&A expenses[165] Liquidity and Capital Resources - The company's operations have been financed primarily through equity issuances and convertible notes, and it expects to continue funding operations via cash flow, debt, and/or additional equity[166] - As of March 31, 2023, the company had $40 million in cash and marketable securities, plus $8.8 million in proceeds receivable from the BioTrack sale[166] Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities - continuing operations | $(1,201,777) | $(2,399,452) | | Net cash provided by (used in) investing activities - continuing operations | $(633,003) | $160,378 | | Net cash used in financing activities - continuing operations | $(94,599) | $(13,122) | - Net cash used in operating activities decreased by $1,197,675 in Q1 2023 compared to Q1 2022, driven by a decreased Adjusted EBITDA loss[168] - Net cash used in investing activities increased by $793,381 in Q1 2023, primarily due to increased net purchases of marketable securities, partially offset by cash from discontinued operations sale[169] - Net cash used in financing activities increased by $81,477 in Q1 2023, mainly due to cash used for income tax withholding payments on vesting restricted stock[170] Critical Accounting Policies and Use of Estimates - The company's critical accounting policies involve judgments and estimates, particularly for discontinued operations, which require estimates regarding cost allocation and net asset values[172][174] - The adoption of ASU 2021-08 (Accounting for Contract Assets and Contract Liabilities from Contracts with Customers) on January 1, 2023, did not have a material impact on the financial statements[175] - As an 'emerging growth company' under the JOBS Act, Forian Inc. elects to use the extended transition period for new or revised accounting standards and is exempt from certain reporting requirements[177][178] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not required for the company - This item is not required for the company[179] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were ineffective as of March 31, 2023, due to material weaknesses, with ongoing remediation efforts - Disclosure controls and procedures were deemed ineffective as of March 31, 2023, due to material weaknesses in internal controls over financial reporting[181] - Remediation efforts include hiring additional accounting personnel and outside consultants, and implementing upgraded accounting and finance systems[184][185] - No changes in internal control over financial reporting occurred during Q1 2023 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting, other than the ongoing remediation efforts[187] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is vigorously defending two material legal proceedings, including a 10% ownership claim and a $27.5 million lawsuit by former employees - John Audet filed a complaint claiming 10% ownership of Green Tree International, an indirect subsidiary, seeking monetary damages and an accounting[189] - Four former Helix employees filed a lawsuit seeking over $27.5 million in damages for alleged breach of contract, promissory estoppel, and other claims related to unreceived equity interest or compensation[190] - The company believes both lawsuits are without merit and intends to defend vigorously against the claims[189][190] Item 1A. Risk Factors This item is not required for the company - This item is not required for the company[191] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported - None to report for unregistered sales of equity securities and use of proceeds[192] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - None to report for defaults upon senior securities[193] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[193] Item 5. Other Information No other information was reported under this item - None to report for other information[194] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including various agreements, corporate documents, and required certifications - Exhibits include the Stock Purchase Agreement for Bio-Tech Medical Software, Inc., Certificate of Incorporation, Bylaws, Separation Agreement with Daniel Barton, License Agreement, and various certifications (CEO, CFO, Sarbanes-Oxley Act)[196] Signatures - The report was signed on behalf of Forian Inc. by Max Wygod, Chief Executive Officer, and Michael Vesey, Chief Financial Officer, on May 15, 2023[198][199]