UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarter ended September 30, 2024
OR
Commission file number: 001-40146
(Exact name of registrant as specified in its charter)
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(State of Other Jurisdiction of incorporation or Organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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(Zip code)
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Registrant’s telephone number, including area code: (267 ) 225-6263
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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The
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically; every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.0405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b 2 of the Exchange Act.
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Large accelerated filer ☐
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Accelerated filer ☐
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b 2 of the Act). Yes ☐ No ☒
As of November 12, 2024, there were 31,016,379 shares outstanding of the registrant’s common stock.
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PART I
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FINANCIAL INFORMATION
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Item 1.
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1 |
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Item 2.
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27 |
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Item 3.
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39 |
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Item 4.
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39 |
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PART II
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40 |
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Item 1.
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40 |
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Item 1A.
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40 |
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Item 2.
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40 |
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Item 3.
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40 |
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Item 4.
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40 |
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Item 5.
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40 |
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Item 6.
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41 |
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| 42 |
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FORIAN INC.
AS OF SEPTEMBER 30, 2024 AND DECEMBER 31, 2023
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September 30,
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December 31,
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2024
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2023
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Unaudited
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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$
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Marketable securities
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Accounts receivable, net
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Proceeds receivable from sale of discontinued operations, net
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Contract assets
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Prepaid expenses
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Other current assets
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Total current assets
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Property and equipment, net
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Right of use assets, net
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Deposits and other assets
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Total assets
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$
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$
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
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$ |
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$ |
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Accrued expenses and other current liabilities
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Warrant liability
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Deferred revenues
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Convertible notes payable, net of debt issuance costs (Note 11) ($
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Total current liabilities
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Long-term liabilities:
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Other long-term liabilities
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Convertible notes payable, net of debt issuance costs (Note 11) ($
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Total long-term liabilities
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Total liabilities
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Commitments and contingencies (Note 16)
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Stockholders’ equity:
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Preferred Stock; par value $
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Common Stock; par value $
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Additional paid-in capital
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Accumulated deficit
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(
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)
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(
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)
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Total stockholders’ equity
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Total liabilities and stockholders’ equity
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$
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$
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
FORIAN INC.
(UNAUDITED)
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For the Three Months Ended September 30,
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For the Nine Months Ended September 30,
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|||||||||||||||
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2024
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2023
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2024 |
2023 |
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| Revenue | $ | $ | $ | $ | ||||||||||||
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Costs and Expenses:
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Cost of revenues
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Research and development
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Sales and marketing
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General and administrative
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Litigation settlements and related expenses
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Depreciation and amortization
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Total costs and expenses
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Operating Loss From Continuing Operations
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(
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)
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(
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( |
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) | ||||||||
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Other Income (Expense):
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||||||||||||||||
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Change in fair value of warrant liability
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Interest and investment income
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| Gain on sale of investment |
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Interest expense
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( |
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| Gain on debt redemption |
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Total other income, net
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Net (loss) income from continuing operations before income taxes
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(
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Income tax benefit (expense)
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(
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Net (loss) income from continuing operations, net of tax
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( |
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| Net loss from discontinued operations | ( |
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| Gain on sale of discontinued operations | ||||||||||||||||
| Income tax effect on discontinued operations | ( |
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| Net (loss) income from discontinued operations, net of tax | ( |
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Net (Loss) Income
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$
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(
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$
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$ | ( |
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Net (loss) income per share:
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Basic
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Continuing operations
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$ | ( |
) | $ | $ | ( |
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Discontinued operations
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$ | $ | ( |
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Net (loss) income per share - basic
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$ | ( |
) | $ | $ | ( |
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Diluted
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Continuing operations
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$ | ( |
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Discontinued operations
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$ | $ | ( |
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Net (loss) income per share - diluted
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$ | ( |
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Weighted-average shares outstanding - basic
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Weighted-average shares outstanding - diluted
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Preferred Stock
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Common Stock
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Shares
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Par Value @
$0.001 per
share
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Shares
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Par Value @
$0.001 per
share
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Additional
Paid In
Capital
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Accumulated
Deficit
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Stockholders’
Equity
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||||||||||||||||||||||
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Balance at January 1, 2024
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$
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$
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$
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$
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(
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)
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$
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|||||||||||||||
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Vesting of Restricted Stock and Stock Awards, net of shares surrendered for taxes
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(
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(
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Issuance of Forian common stock upon exercise of stock options
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(
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Stock-based compensation expense
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Net loss
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—
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—
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(
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(
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Balance at March 31, 2024
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(
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Vesting of Restricted Stock and Stock Awards, net of shares surrendered for taxes
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(
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(
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Issuance of Forian common stock upon exercise of stock options
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(
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Stock based compensation expense
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Net loss
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—
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—
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(
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)
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(
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)
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|||||||||||||||||||
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Balance at June 30, 2024
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(
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)
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||||||||||||||||||||
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Vesting of Restricted Stock and Stock Awards, net of shares surrendered for taxes
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(
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)
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(
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)
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|||||||||||||||||||
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Repurchase and retirement of common stock, net of excise taxes
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(
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)
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(
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)
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(
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)
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(
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|||||||||||||||||
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Stock based compensation expense
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Net loss
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—
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—
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(
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)
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(
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)
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|||||||||||||||||||
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Balance at September 30, 2024
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$
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$
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$
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$
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(
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)
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$
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|
|||||||||||||||
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Preferred Stock
|
Common Stock
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|||||||||||||||||||||||||||
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Shares
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Par Value @
$0.001 per
share
|
Shares
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Par Value @
$0.001
per share
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Additional
Paid In
Capital
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Accumulated
Deficit
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Stockholders’
Equity
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||||||||||||||||||||||
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Balance at January 1, 2023
|
|
$
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|
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$
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$
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$
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(
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)
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$
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|
|||||||||||||||
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Vesting of Restricted Stock and Stock Awards, net of shares surrendered for taxes
|
|
|
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(
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)
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(
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)
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|||||||||||||||||||
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Issuance of Forian common stock upon exercise of stock options
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(
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)
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||||||||||||||||||||
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Stock-based compensation expense
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Net income
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—
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—
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|||||||||||||||||||||
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Balance at March 31, 2023
|
|
|
|
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(
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)
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||||||||||||||||||||
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Vesting of Restricted Stock and Stock Awards, net of shares surrendered for taxes
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|
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(
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)
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(
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)
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|||||||||||||||||||
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Stock based compensation expense
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|||||||||||||||||||||
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Net loss
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—
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—
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(
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)
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(
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)
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|||||||||||||||||||
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Balance at June 30, 2023
|
|
|
|
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(
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)
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|
||||||||||||||||||||
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Vesting of Restricted Stock and Stock Awards, net of shares surrendered for taxes
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|
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(
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)
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(
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)
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|||||||||||||||||||
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Stock based compensation expense
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Net income
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—
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—
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|||||||||||||||||||||
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Balance at September 30, 2023
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$
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$
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$
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$
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(
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)
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$
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
FORIAN INC.
(UNAUDITED)
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For the Nine Months Ended
September 30,
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||||||||
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2024
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2023
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net (loss) income
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$
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(
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)
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$
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Less: Income from discontinued operations
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(Loss) Income from continuing operations
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( |
) | ||||||
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Adjustments to reconcile net (loss) income to net cash used in operating activities:
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Depreciation and amortization
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Amortization on right of use asset
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Amortization of debt issuance costs
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Amortization of discount - proceeds from sale of discontinued operations
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( |
) | ( |
) | ||||
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Accrued interest on convertible notes
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||||||||
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Accretion of discounts on marketable securities
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( |
) | ( |
) | ||||
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Gain on sale of investment
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( |
) | ( |
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Gain on debt redemption
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( |
) | ( |
) | ||||
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Allowance for credit losses
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Stock-based compensation expense
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Change in fair value of warrant liability
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(
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)
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(
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)
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Change in operating assets and liabilities:
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Accounts receivable
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(
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)
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(
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)
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Contract assets
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Prepaid expenses
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(
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)
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Lease liabilities
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( |
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Deposits and other assets
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Accounts payable
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(
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)
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|||||
| Accrued expenses |
( |
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Deferred revenues
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(
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)
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Other liabilities
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( |
) | ||||||
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Net cash (used in) provided by operating activities - continuing operations
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( |
) | ||||||
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Net cash used in operating activities - discontinued operations
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( |
) | ||||||
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Net cash (used in) provided by operating activities
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(
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)
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Additions to property and equipment
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(
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)
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|||||
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Purchase of marketable securities
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(
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)
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(
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)
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||||
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Sale and maturity of marketable securities
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Proceeds from sale of investment
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Net cash from sale of discontinued operations
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Net cash (used in) provided by investing activities - continuing operations
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( |
) | ||||||
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Net cash (used in) provided by investing activities
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(
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)
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|||||
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CASH FLOWS FROM FINANCING ACTIVITIES:
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||||||||
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Tax payments related to shares withheld for vested restricted stock units
|
( |
) | ( |
) | ||||
|
Stock repurchase
|
( |
) | ||||||
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Cash used to redeem convertible notes
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( |
) | ( |
) | ||||
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Net cash used in financing activities - continuing operations
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( |
) | ( |
) | ||||
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Net cash used in financing activities
|
(
|
)
|
(
|
)
|
||||
|
Net change in cash
|
(
|
)
|
|
|||||
|
Cash and cash equivalents, beginning of period
|
|
|
||||||
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Cash and cash equivalents, end of period
|
$
|
|
$
|
|
||||
|
Supplemental disclosure of cash flow information:
|
||||||||
|
Cash paid for interest
|
$ | $ | ||||||
|
Cash (received) paid for taxes
|
$ | ( |
) | $ | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
|
Note 1
|
BUSINESS ORGANIZATION AND NATURE OF OPERATIONS
|
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
life sciences industries.
The
business combination with Helix in March 2021 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 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 are collectively 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. The Company will continue to provide analytics solutions to customers within the healthcare and life sciences industries. For further discussion on the discontinued operations, refer to Note 4.
|
Note 2
|
BASIS OF PRESENTATION
|
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”). Certain footnotes and other financial information normally required by U.S. GAAP have been condensed or omitted in accordance with instructions to Form 10-Q and Article 8 of
Regulation S-X. In the opinion of management, such statements include all adjustments which are considered necessary for a fair presentation of the condensed consolidated financial statements of the Company as of September 30, 2024. The
operating results presented herein are not necessarily an indication of the results that may be expected for the year. The condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated
financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission (“SEC”) on March 29, 2024.
|
Note 3
|
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of (i) Medical Outcomes Research
Analytics, LLC and (ii) Helix Technologies, Inc. and its wholly owned subsidiaries including Helix Legacy, Inc. (f/k/a Security Grade Protective Services, Ltd.), Green Tree International, Inc. and Bio-Tech Medical Software, Inc. (through
February 10, 2023, on which date 100 % of the outstanding capital stock of Bio-Tech Medical Software, Inc. was sold). All
intercompany transactions have been eliminated in consolidation.
Discontinued Operations
On February 10, 2023, Helix
completed the sale of 100 % of the outstanding capital stock of its wholly owned subsidiary, BioTrack.
As the sale of BioTrack, the
security monitoring business and Engeni, LLC, together, represented a strategic shift that will have a major effect on the Company’s operations and financial results, they have been presented in discontinued operations separate from
continuing operations for the three and nine months ended September 30, 2023, as applicable. The results from operations and gain (loss) on sale of the security monitoring business and Engeni LLC, net, was previously classified as part of
continuing operations as their disposition individually did not have a major impact on the business prior to the sale of BioTrack. For further discussion, refer to Note 4.
Use of Estimates
Preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates, judgements and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses together with amounts disclosed in the related notes to the financial statements. The
significant areas of estimation include but are not limited to accounting for the allowance for credit losses, income taxes, contingencies, discontinued operations and stock-based compensation. Certain of the Company’s estimates could be
affected by external conditions, including those unique to the Company and general economic conditions. It is possible that the external factors could have an effect on the Company’s estimates and could cause actual results to differ from those
estimates.
Reclassifications
Certain reclassifications have been made to the prior
period financial statements to conform to the current quarterly financial statement presentation. Certain litigation related costs that were previously included in general and administrative expenses in the prior period financial statements
have been reclassified to Litigation settlements and related expenses to be consistent with the current presentation.
Fair Value of Financial Instruments
The Company measures the fair value of
financial assets and liabilities based on the guidance of ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements.
ASC 820 defines fair value as the
exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an ordinary transaction between market participants on the measurement
date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be
used to measure fair value:
Level 1 - quoted prices in active markets for identical assets or liabilities;
Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable;
and
Level 3 - inputs that are unobservable.
The carrying value of the Company’s financial instruments, such as cash, marketable securities, accounts
receivable and accrued liabilities and other liabilities approximate fair values due to the short-term nature of these instruments. The estimated fair value of the Company’s warrant liabilities as of September 30, 2024 and December 31, 2023
was $0 and $563 ,
respectively, based on Level 3 inputs. Refer to Note 10.
Cash and Cash Equivalents and Credit Risk
The Company considers all cash accounts that are not
subject to withdrawal restrictions and highly liquid investments with a maturity of three months or less, when purchased, as cash and cash equivalents.
The Company maintains cash with major financial
institutions. Cash held at U.S. bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000
at each institution, as the coverage is based on individually titled accounts. The portion of deposits in excess of FDIC coverage is not protected by such insurance and represents a credit risk to the Company. At times, the Company’s deposits
exceed this coverage.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are recorded at
the invoiced amount, net of allowance for credit losses. The Company determines the allowance for credit losses based on historical write-off experience, customer specific facts and economic conditions.
Outstanding account balances are
reviewed individually for collectability. The allowance for credit losses is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The allowance for credit losses was $225,000 at September 30, 2024 and $0
at December 31, 2023.
Management charges account balances
against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Proceeds Receivable From Sale of Discontinued Operations, Net
In February 2023, the Company received a note for $10,000,000 payable in twelve equal monthly installments as partial
consideration for the sale of BioTrack (see Note 4 – Discontinued Operations). As of September 30, 2024, the note has been fully paid. The Company recognized $0 and $20,712 and $96,164 and $341,205 of amortization of the $410,000
Revenue Recognition
The Company recognizes revenue in
accordance with FASB Topic 606, Revenue from Contracts with Customers (“ASC 606”).
Under ASC 606, the Company recognizes
revenue when (or as) customers obtain control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue following the
five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance
obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation. The Company applies the provisions of ASC 606 to an arrangement when a substantive contract exists and collectability is
probable.
The Company derives revenue primarily
from license fees for the Company’s information products. Information products contracts are generally for a period of one month to
five years . Information products’ customers may access data analytics products through the use of tools provided by the Company or by
utilizing their own tools per the contract. Data products may consist of historical information as it exists at the time of delivery or information that will be updated over a period of time as agreed with the customer. In most cases, the
provision of information products is considered a single performance obligation. In cases where the Company is not obligated to update information over the access period and control over the use of the products passes to the customer when
delivered, revenue is recognized when the information products are made available to the customer. In cases where information updates are provided over the contract term, they are considered highly interrelated with the information product
delivered upon contract inception and revenue is recognized ratably over the life of the contract. Customers are generally invoiced according to monthly, quarterly or annual amounts specified in the contract. Any amounts invoiced in excess of
revenue recognized are recorded as deferred revenue. Revenue recognized in excess of amounts invoiced is recorded as a contract asset.
In some cases, contracts provide for
variable consideration that is contingent upon the occurrence of uncertain future events, which can either increase or decrease the transaction price, including sales of products by customers derived from data analytics products the Company
provides and the volume of data available for future information updates. Variable consideration based on sales of products by customers is recognized in the period of sales, subject to minimum amounts specified in contracts. Variable
consideration is estimated at the expected value or at the most likely amount depending on the type of consideration. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative
revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimate of variable consideration and determination of whether to include estimated amounts in the transaction price are based
largely on an assessment of anticipated performance and all information (historical, current and forecasted) that is reasonably available to the Company and reevaluated each reporting period. The effect of revisions in recognized estimated
variable consideration in excess of minimums are recorded beginning in the period in which the estimates are revised. Actual results could differ from periodic estimates.
Significant judgments and estimates
are sometimes necessary for the determination of whether performance obligations in a contract are distinct and whether they are delivered at a point in time or over time. Judgement is also necessary to assess revenue recognized under
contingent revenue arrangements.
Contract acquisition costs, which
consist of sales commissions paid or payable, are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for initial and renewal contracts are deferred and then amortized on a straight-line
basis over the contract term.
During November 2020, the Company entered into a Master Services Agreement (the “November 2020 Agreement”) with a customer to
provide information services described in certain statements of work under the November 2020 Agreement. As part of the November 2020 Agreement, the Company was granted shares of restricted stock representing approximately 23.4 % of the outstanding common stock of the customer at the time of issuance, vesting in quarterly increments specified in the November 2020
Agreement through December 2023. Concurrently, the Company entered into a Stockholders Agreement specifying its voting and other rights as a stockholder. As a result, the Company determined that it did not exert influence over the customer.
ASC 606-10-32-21 requires an entity to measure the fair value of noncash consideration at contract inception. The fair value of the restricted stock was determined to be $0 on the date of inception. The Company recorded revenue from the customer of $798,724
and $2,395,177 and $647,131
and $1,953,382 for the three and nine months ended September 30, 2024 and 2023, respectively. The Company had outstanding
accounts receivable from this customer of $795,439 and $1,827 at September 30, 2024 and December 31, 2023, respectively.
On July 21, 2023, the customer merged with Vox Merger Sub, Inc. As a result of the merger, the Company received $5,805,858 of cash proceeds, net of holdbacks, in consideration for all of its equity interest in the customer, which was recorded as gain on
sale of investment during the year ended December 31, 2023. Forian may receive additional earnout payments in 2025 and 2026 in an aggregate amount of up to approximately $3,600,000 if certain conditions are met.
Contract assets and deferred revenues consist of the following as of September 30, 2024 and December 31, 2023:
|
|
Contract Assets
|
Contract
Liability
|
||||||||||||||
|
|
Costs of
obtaining
contracts
|
Unbilled
revenue
|
Total
|
Deferred
Revenue
|
||||||||||||
|
Balance at January 1, 2023
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Beginning deferred revenue balance recognized
during the period
|
|
|
|
(
|
)
|
|||||||||||
|
Net change due to timing of billings, payments and
recognition
|
(
|
)
|
(
|
)
|
(
|
)
|
|
|||||||||
|
Balance at December 31, 2023
|
|
|
|
|
||||||||||||
|
Beginning deferred revenue balance recognized
during the period
|
|
|
|
(
|
)
|
|||||||||||
|
Net change due to timing of billings, payments and
recognition
|
(
|
)
|
(
|
)
|
(
|
)
|
|
|||||||||
|
Balance at September 30, 2024
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Transaction price allocated to remaining performance
obligations represents contracted revenue that has not yet been recognized, which includes unearned revenue and unbilled amounts that will be recognized as revenue in future periods. The amount of deferred revenue recognized for the three and
nine months ended September 30, 2024 and 2023 was $1,546,640 and $2,163,551 and $1,976,210 and $2,483,339 , respectively. The majority of the Company’s noncurrent remaining performance obligations will be recognized over the next 36 months .
The transaction price allocated to
remaining performance obligations consisted of the following:
|
|
September 30,
2024
|
December 31, 2023
|
||||||
|
Estimated next
|
$
|
|
$
|
|
||||
|
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
Segment Information
FASB ASC 280, Segment
Reporting (“ASC 280”), establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the chief executive officer, who reviews the
financial performance and the results of operations of the segments prepared in accordance with U.S. GAAP when making decisions about allocating resources and assessing performance of the Company.
As discussed above, the Company disposed of its
businesses servicing the cannabis industry in 2023, and has reclassified its historical results as discontinued operations. As such, the Company’s continuing operations are comprised of a single reportable segment providing analytic and
information services to the healthcare and life sciences industries.
Customer Concentration
During the three and nine months ended
September 30, 2024, the Company had two 17.0 % and 11.8 % and 16.7 % and 12.4 % of revenue,
respectively. At September 30, 2024, the Company had three 22.4 %, 13.1 % and 13.0 % of accounts receivable.
During the three and nine months
ended September 30, 2023, the Company had two 12.1 % and 11.5 % and 12.9 % and 12.2 % of revenue,
respectively. At September 30, 2023, the Company had four 23.2 %, 14.0 %, 13.3 % and 10.9 % of accounts
receivable.
Vendors and Licensors
The Company licenses certain
information assets from third parties as a key input to certain Information and Software products. Any disruptions associated with these suppliers could have a material short-term impact on the business while alternate sources are
secured. The information licenses specify content deliverables and specified use rights for a fixed fee and time period. Payment terms for information licenses generally consist of upfront payments and annual licensing fees. The Company
expenses the contract costs over the expected period of benefit and records any differences between amounts expensed and payments incurred as other assets or liabilities on a contract by contract basis. Payments for licensed information,
including the changes in related assets and liabilities, are classified within “Net cash provided by operating activities” on the condensed consolidated statements of cash flows. In cases where the Company pays variable fees based on
content usage, such costs are expensed as incurred.
On July 31, 2024, the Company was informed by one of its information vendors that effective
December 31, 2024, the vendor will no longer include certain data within the information products it licenses to the Company. The vendor stated this was due to clarifications and updates to the licensing relationship between the vendor
and one of its data suppliers. The Company is currently evaluating the potential impact on its contractual relationship with the vendor and any impact on customer performance commitments and the availability of alternate sources of
comparable data.
On September 23, 2024, the
Company was informed by one of its information vendors that it was exercising the right to terminate the agreement with the Company effective September 25, 2024, based on restrictions imposed by the information vendor’s upstream licensor.
As a result, the Company recorded an adjustment of $542,389 included in cost of revenues during the quarter ended September 30,
2024, representing previously recorded charges under the contract that will not be paid. The Company continues to evaluate any impact on customer performance commitments and the availability of alternate sources of comparable data.
There can be no assurance that
alternate sources of comparable data can be obtained, and if so, on terms and conditions substantially equivalent to those under its existing agreements.
Vendor Concentration
During the three months ended
September 30, 2024, the Company had two vendors representing 16.2 % and 10.7 % of purchases and expenses and during the
nine months ended September 30, 2024, the Company had four vendors representing 24.4 %, 13.7 %, 10.8 % and 12.6 %, respectively, of purchases and
expenses.
During the three months ended
September 30, 2023, the Company had one vendor representing 15.8 % of purchases and expenses and during the nine months ended September 30, 2023, the Company had two vendors representing 14.0 % and 12.4 % of purchases and expenses.
Property and Equipment, Net
Property and equipment are stated
at cost, net of accumulated depreciation, which is recorded commencing at the in-service date using the straight-line method at rates sufficient to charge the cost of depreciable assets to operations over their estimated useful lives, which
are 1 to 7
years. Maintenance and repairs are charged to operations as incurred.
Contingencies
Occasionally, the Company may be
involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred and the amount can be
reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s condensed consolidated financial statements. Contingencies are inherently unpredictable and the
assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.
Advertising
Advertising costs are expensed as incurred and included in sales and marketing expenses and amounted to $16,073 and $76,579 and $9,655 and $45,075 for the three and nine months ended September 30, 2024 and 2023, respectively.
Net Income (Loss) per Share
The calculation of earnings per
share is based on the weighted average number of common shares or common stock equivalents outstanding during the applicable period. The dilutive effect of common stock equivalents is excluded from basic earnings per share and is included
in the calculation of diluted earnings per share, unless their impact is antidilutive to the “control number,” which is income (loss) from operations. Convertible notes, employee stock options, employee restricted stock awards and similar
equity instruments granted by the Company are treated as potential ordinary shares outstanding in computing diluted earnings per share. Diluted shares outstanding are calculated using the as if converted method for convertible notes and the
treasury stock method for other potentially dilutive securities. Under the as if converted method, the dilutive impact of securities is calculated as if conversion occurred at the beginning of the reporting period. Under the treasury stock
method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized and the amount of benefits that would be recorded in common shares when the
award becomes deductible for tax purposes are assumed to be used to repurchase shares.
Distinguishing Liabilities from Equity
The Company relies on the guidance provided by ASC
Topic 480, Distinguishing Liabilities from Equity and ASC 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity (“ASC 815-40”), to classify
certain redeemable and/or convertible instruments. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is
mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.
Once the Company determines that a financial instrument
should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet (“temporary equity”). The Company will determine
temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e. at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.
Initial Measurement
The Company records its financial instruments
classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received.
Subsequent Measurement – Financial instruments classified as liabilities
The Company records the fair value of its financial
instruments classified as liabilities at each subsequent measurement date. The changes in fair value of its financial instruments classified as liabilities are recorded as other expense/income.
Stock-based Compensation
The Company’s 2020 Equity
Incentive Plan (“2020 Plan”) permits the grant of stock options, restricted stock awards and/or restricted stock units. A total of 4,000,000
shares of Company common stock were originally authorized and reserved for issuance under the 2020 Plan. On June 15, 2022, the Company’s stockholders approved an amendment to the 2020 Plan, which amended the 2020 Plan to increase the number
of shares available for issuance by 2,400,000 shares to a total of 6,400,000 shares. Stock options represent the right to purchase Company common stock at the exercise price on the date of grant of the stock option at a future date.
Restricted stock awards are grants of shares of Company common stock. Restricted stock units represent the right to receive shares of Company common stock on future specified dates. Stock options, restricted stock awards and restricted
stock units granted contain restrictions that cause them to be subject to substantial risk of forfeiture and restrict their exercise, sale or other transfer by the grantee until they vest. The terms of the stock options, restricted stock
awards and units granted under the 2020 Plan are determined by the Board of Directors in the agreement evidencing the award, including the number of shares, period of restriction or vesting schedule and other terms. The fair value of the
stock options, restricted stock awards and restricted stock units is based on the underlying grant date fair value of Company common stock. The fair value is then expensed over the requisite service periods of the awards, net of
forfeitures, which is generally the service period and the related amount is recognized in the condensed consolidated statements of operations.
Income Taxes
The Company accounts for income
taxes in accordance with FASB ASC 740 (“ASC 740”). Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The provision for income taxes
represents Federal and state and local income taxes. The effective rate differs from statutory rates due to the effect of state and local income taxes, tax benefit of R&D credits and certain nondeductible expenses. Our effective tax
rate will change from quarter to quarter based on recurring and non-recurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation and state and local income taxes. In addition, changes in
judgment from the evaluation of new information resulting in the recognition, derecognition, or re-measurement of a tax position taken in a prior annual period is recognized separately in the quarter of the change.
For the three and nine months
ended September 30, 2024, the Company recognized net income tax benefit of $95,896 and net income tax expense of $14,865 . For the three and nine months ended September 30, 2023, the Company recognized net income tax expenses of $93,191 and $159,287 ,
respectively. The Company claims R&D tax credits on eligible R&D expenditures. The R&D tax credits are recognized as a reduction to income tax expense.
The Company recognized a taxable
gain on sale of discontinued operations for the nine months ended September 30, 2023, which resulted in utilization of certain available federal and state net operating loss carryforwards. As a result, the Company recorded income taxes
related to discontinued operations of $3,834,122 after utilization of federal and state net operating losses during the nine
months ended September 30, 2023. Income taxes related to discontinued operations for the three months ended September 30, 2023 result from adjustments to estimates impacting intraperiod tax allocations.
The Company files a consolidated
U.S. income tax return and tax returns in certain state and local jurisdictions. As of September 30, 2024, the Company is not currently under any examination in any tax jurisdiction.
Tax contingencies are recorded, if
needed, to address potential exposure involving tax positions the Company has taken that could be challenged by tax authorities. These potential exposures could result from applications of various statutes, rules, regulations and
interpretations. Any estimates of tax contingencies contain assumptions and judgments about potential actions by taxing jurisdictions. Any interest and penalties related to uncertain tax positions would be included as part of the income tax
provision. The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of or changes in tax laws, regulations and interpretations thereof as well as other
factors.
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 twelve months and (ii) accelerated vesting of 106,656
unvested restricted shares of Company common stock. Separation expenses for the nine months ended September 30, 2023, include $250,000 related to the salary continuation and $349,832
related to the accelerated vesting of stock.
In addition, the Company records normal
course of business severance expenses in the operating expense line item related to its employees’ activities.
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 periods 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 improves 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. 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. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2023-07 on its condensed consolidated financial statements and related disclosures.
In November 2024, the FASB
issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Topic 220): Disaggregation of Income Statement Expenses. This guidance requires additional disclosure of certain amounts included
in the expense captions presented on the Statement of Operations as well as disclosures about selling expenses. The ASU is effective on a prospective basis, with the option for retrospective application, for annual periods beginning after
December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted for annual financial statements that have not yet been issued. The Company is currently evaluating the impact of ASU 2024-03 on
its condensed consolidated financial statements and related disclosures.
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.
|
Note 4
|
DISCONTINUED OPERATIONS
|
Helix Businesses Discontinued Operations
On February 10, 2023, Helix completed the sale of 100 % of the outstanding capital stock of its wholly owned subsidiary, BioTrack, in exchange for $30,000,000 , consisting of $20,000,000 paid at closing and $10,000,000 paid in twelve unconditional
monthly installments thereafter. In March 2022, Helix sold its security monitoring business and in October 2022, Helix sold its Argentinian subsidiary Engeni LLC. The security monitoring business, BioTrack and Engeni are collectively referred to as
the “Helix Businesses.” As a result of these transactions, as of February 10, 2023, the Company no longer provides products or services to the cannabis industry. The Company continues to provide analytics solutions to customers in the healthcare
and life sciences industries.
The Helix Businesses have been presented in discontinued operations separate from continuing operations for
the three and nine months ended September 30, 2023.
The Company recorded a gain on the sale of the outstanding capital stock of its
BioTrack business of $11,531,849 and a loss from discontinued operations of $94,427 during the nine months ended September 30, 2023, which is included as part of discontinued operations. The Company also recorded income
taxes related to discontinued operations of $1,111,552 and $3,834,122 during the three and nine months ended September 30, 2023.
The following table summarizes the major income and expense line items of the Helix Businesses as reported in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023, through the date of
sale:
|
|
For the Three Months
Ended September 30, 2023
|
For the Nine
Months
Ended September 30, 2023
|
||||||
|
Income and expense line items related to Helix Businesses:
|
||||||||
|
Revenues:
|
||||||||
|
Information and Software
|
$
|
|
$
|
|
||||
|
Services
|
|
|
||||||
|
Total revenues
|
|
|
||||||
|
|
||||||||
|
Costs and Expenses:
|
||||||||
|
Cost of revenues
|
|
|
||||||
|
Research and development
|
|
|
||||||
|
Sales and marketing
|
|
|
||||||
|
General and administrative
|
|
|
||||||
|
Depreciation and amortization
|
|
|
||||||
|
Total costs and expenses
|
|
|
||||||
|
|
||||||||
|
Net loss from discontinued operations for Helix Businesses before income taxes
|
|
(
|
)
|
|||||
|
Gain on sale of discontinued operations
|
|
|
||||||
|
Income tax expense
|
(
|
)
|
(
|
)
|
||||
|
|
||||||||
|
Net gain from discontinued operations, net of tax for Helix Businesses
|
$
|
(
|
)
|
$
|
|
|||
|
Note 5
|
MARKETABLE SECURITIES
|
Marketable securities are stated at estimated fair value based upon current market quotes (level 1 inputs) and are classified as
available-for-sale. Realized gains and losses are included in investment income. Unrealized gains and losses are immaterial and therefore the Company has presented such amounts within investment income in the condensed consolidated statements of operations. Marketable securities consists of U.S. Treasury Bills. As of September 30, 2024 and December
31, 2023, marketable securities consisted of the following:
|
September 30,
2024
|
December 31, 2023
|
|||||||
|
United States Treasury Bills
|
||||||||
|
Amortized Cost
|
$
|
|
$
|
|
||||
|
Fair Market Value
|
$
|
|
$
|
|
||||
|
Note 6
|
PREPAID EXPENSES AND OTHER CURRENT ASSETS
|
The Company has various agreements which require upfront and periodic payments. The Company records the expenses related to these agreements ratably over the annual terms. As of September 30, 2024 and December 31, 2023,
the Company’s balance sheet reflected prepaid expenses of $697,780 and $1,077,233 , respectively, primarily relating to various software and information licenses and insurance policies with durations ranging from 3 months to 1 year .
Included
in other current assets as of September 30, 2024, are income taxes receivable of $531,749 , deferred license costs of $554,704 and amounts receivable from employees of $95,697 .
Included
in other current assets
as of December 31, 2023, are income taxes receivable of $1,890,391 , deferred license costs of $381,820 and amounts receivable from employees of $236,364 .
|
Note 7
|
PROPERTY AND EQUIPMENT, NET
|
As of September 30, 2024 and December 31, 2023, property and equipment were comprised of the following:
|
September 30,
2024
|
December 31, 2023
|
|||||||
|
Personal computing equipment
|
$
|
|
$
|
|
||||
|
Office equipment and capitalized software
|
|
|
||||||
|
Total
|
|
|
||||||
|
Less: Accumulated depreciation
|
(
|
)
|
(
|
)
|
||||
|
Property and equipment, net
|
$
|
|
$
|
|
||||
|
Note 8
|
DEPOSITS AND OTHER ASSETS
|
As of September 30, 2024 and December 31, 2023, deposits and other assets included $1,496,158 and $1,390,156 of assets related to information license
vendors, respectively (see Note 3 – Summary of Significant Accounting Policies – Vendors and Licensors).
|
Note 9
|
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
|
As of September 30, 2024 and December 31, 2023 accrued expenses were comprised of the following:
|
September 30,
2024
|
December 31,
2023
|
|||||||
|
Employee compensation
|
$ | $ | ||||||
| Information Contracts (see Note 3 - Vendors and Licensors) |
||||||||
|
Accrued expenses
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
|
Note 10
|
WARRANT LIABILITY
|
In conjunction with the business combination with Helix, outstanding warrants to
purchase Helix common stock were converted to warrants to purchase Company common stock. As the warrant holders have the option to receive cash in lieu of common stock in certain circumstances, the Company determined that the warrants require
classification as a liability pursuant to ASC 815-40. In accordance with the applicable accounting guidance, the outstanding warrants are recognized as a warrant liability on the condensed consolidated balance sheet and were measured at their
inception date fair value (the closing date of the business combination with Helix) and subsequently remeasured to fair value at each reporting period with changes being recorded in the condensed consolidated statements of operations. As of September 30, 2024 and 2023, the Company had 6,875 and 55,121 warrants outstanding classified as liabilities, respectively. During the nine months ended September 30,
2024 and 2023, 44,079 and 46,935
warrants expired, respectively.
The fair value of the Company’s warrant liability, measured at
Level 3 in the fair value hierarchy, was calculated using the Black-Scholes model using the following inputs:
|
As of September 30, 2024
|
As of December 31, 2023 | |||||||
|
Fair value of Company’s common stock
|
$
|
|
$ | |||||
|
Dividend yield
|
|
|
||||||
|
Expected volatility
|
|
|
||||||
|
Risk free interest rate
|
|
|
||||||
|
Expected life (years)
|
|
|||||||
|
Exercise price
|
$
|
|
$ | |||||
|
Fair value of financial instruments - warrants
|
$
|
|
$ | |||||
The following table summarizes the change in fair value of the Company’s financial instruments – warrants, measured at Level 3 in the fair value hierarchy:
|
Amount
|
||||
|
Balance as of January 1, 2024
|
$
|
|
||
|
Change in fair value of warrant liability
|
(
|
)
|
||
|
Balance as of September 30, 2024
|
$
|
|
||
|
Amount
|
||||
|
Balance as of January 1, 2023
|
$
|
|
||
|
Change in fair value of warrant liability
|
(
|
)
|
||
|
Balance as of September 30, 2023
|
$
|
|
||
|
Amount
|
||||
|
Balance as of July 1, 2024
|
$
|
|
||
|
Change in fair value of warrant liability
|
(
|
)
|
||
|
Balance as of September 30, 2024
|
$
|
|
||
|
Amount
|
||||
|
Balance as of July 1, 2023
|
$
|
|
||
|
Change in fair value of warrant liability
|
(
|
)
|
||
|
Balance as of September 30, 2023
|
$
|
|
||
|
Note 11
|
CONVERTIBLE NOTES
|
|
September 30, 2024
|
December 31, 2023
|
|||||||
|
Principal outstanding
|
$
|
|
$
|
|
||||
|
Add: accrued interest
|
|
|
||||||
|
Less: unamortized debt issuance costs
|
(
|
)
|
(
|
)
|
||||
|
Convertible note payable, net of debt issuance costs
|
$
|
|
$
|
|
||||
On
September 1, 2021, the Company entered into a Note Purchase Agreement with certain accredited investors and a director of the Company, pursuant to which the Company issued at 100 % of par value $24,000,000 in aggregate principal balance of 3.5 % Convertible Promissory Notes due September 1, 2025 (the “Notes”), convertible into (i) shares of Company common stock and (ii) warrants to purchase
shares of Company common stock equal to 20 % of the principal amount of the Notes divided by the conversion price of the Notes (the
“Warrants”). The Notes will mature on the fourth-year anniversary of the date of issuance, which time is also the termination date of the Warrants, if issued. The conversion price of the Notes and the exercise price of the Warrants is $11.98 per share, which was the consolidated closing bid price of the Company common stock as reported by Nasdaq on August 31, 2021, the most recently
completed trading day preceding the Company entering into the Note Purchase Agreement with investors with respect to the Notes. The holders of the Notes may, at any time, convert all or a portion of the Notes plus accrued interest (subject to a
minimum principal amount of $100,000 ) at the conversion price. The Company may redeem all or a portion of any Notes then outstanding at
any time after the first anniversary of issuance at a price of 112.5 % of par value plus accrued interest. In the event of a change of
control of the Company, the Company may redeem all Notes then outstanding at a price of 108 % of par value plus accrued interest.
Interest expense on the Notes is payable upon maturity or earlier redemption unless the Notes are converted prior to such time. In the event the holders of the Notes convert all or a portion of the Notes, the related accrued interest is converted
at the conversion price. Interest expense related to the Notes was $194,082 and $583,685 and $210,000 and $626,548 for the three and nine months ended September 30, 2024 and 2023, respectively.
The Company evaluated the embedded features in accordance with
ASC 815-15-25 and determined embedded features are all clearly and closely related to the debt host instrument and therefore are not required to be bifurcated and separately measured at fair value. The Warrants were not issued in connection with the
Notes and issuance of the Warrants is contingent upon conversion of the Notes at the option of the Holder, therefore no portion of the proceeds are allocated to the Warrants.
The Company incurred debt issuance costs associated with the
Notes in the amount of $21,330 , which were deferred and are being amortized over the term of the Notes. During the three and nine months
ended September 30, 2024 and 2023, the Company recognized $1,333 and $3,999 and $1,333 and $3,999 in amortization of debt
issuance costs, respectively, which is recognized in interest expense in the consolidated statements of operations.
On February 28, 2024, the Company redeemed $1,000,000 in principal and $87,356 of
accrued interest thereon for an aggregate redemption price of $950,000 resulting in a gain of $137,356 , which was included in other income and expense in the Condensed Consolidated Statements of Operations.
|
Note 12
|
STOCK-BASED COMPENSATION
|
Restricted Stock Awards and Restricted Stock Units
The table below includes issuances of restricted stock awards
and units under the 2020 Plan and unvested equity interests of MOR which were converted into restricted common stock.
|
Number of Restricted
Shares and Units
|
Weighted Average
Grant Date Fair Value
Per Share
|
|||||||
|
Unvested at January 1, 2023
|
|
$
|
|
|||||
|
Issued
|
|
|
||||||
|
Vested
|
(
|
)
|
|
|||||
|
Canceled
|
(
|
)
|
|
|||||
|
Unvested at December 31, 2023
|
|
|
||||||
|
Issued
|
|
|
||||||
|
Vested
|
(
|
)
|
|
|||||
|
Canceled
|
(
|
)
|
|
|||||
|
Unvested at September 30, 2024
|
|
$
|
|
|||||
The 848,500 of unvested awards at September 30, 2024 consisted of 848,500 restricted stock units and 0 shares of restricted stock.
Stock Options
As part of the business combination with Helix, the Company
assumed the Helix TCS, Inc. Omnibus Stock Incentive Plan and the Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan, each as amended, pursuant to which options exercisable at prices between $2.00 and $51.80 per share for 455,089 shares of Company common stock were outstanding. As of September 30, 2024, options to purchase 210,493 shares of common stock remain outstanding.
The fair value of the stock options was estimated at Level 3
in the fair value hierarchy using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application
of management’s judgement. The
assumptions used to calculate the grant date fair value of the options granted during the nine months ended September 30, 2024 and 2023, are as follows:
|
For the Nine Months Ended September 30,
|
||||||||
|
2024
|
2023
|
|||||||
|
Exercise Price
|
$ |
|
|
$ |
|
|
||
|
Fair value of Company common stock
|
$ |
|
|
$ |
|
|
||
|
Dividend yield
|
|
|
||||||
|
Expected volatility
|
|
|
||||||
|
Risk Free interest rate
|
|
|
||||||
|
Expected life (years) remaining
|
|
|
||||||
The following
summarizes option activity under the Company’s stock plan for the nine months ended September 30, 2024 and for the year ended December 31, 2023:
|
Shares Underlying
Options
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining
Contractual Term
(in years)
|
||||||||||
|
Outstanding at January 1, 2023
|
|
$
|
|
|
||||||||
|
Granted
|
|
$
|
|
|
||||||||
|
Exercised
|
(
|
)
|
$
|
|
|
|||||||
|
Forfeited and expired
|
(
|
)
|
$
|
|
|
|||||||
|
Outstanding at December 31, 2023
|
|
$
|
|
|
||||||||
| Granted | $ | |||||||||||
| Exercised | ( |
) | $ | |||||||||
| Forfeited and expired | ( |
) | $ | |||||||||
| Outstanding at September 30, 2024 | $ | |||||||||||
|
Vested options at September 30, 2024
|
|
$
|
|
|
||||||||
The weighted average exercise price and remaining contractual life of exercisable
options as of September 30, 2024 is $8.69 and 6.64 respectively. The total aggregate intrinsic value of the exercisable options as of September 30, 2024 was approximately $0 .
Stock Compensation Expense
The weighted-average grant date fair value per share for the stock options granted
was $2.00 and $3.24
for the nine months ended September 30, 2024 and 2023, respectively.
On 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 nine months ended September 30, 2023 includes $349,832 related to the accelerated vesting of stock, which is included in “separation expenses” in the condensed consolidated statements of operations.
At September 30, 2024, the total unrecognized stock compensation
expense related to unvested stock option awards and restricted stock awards and restricted stock units granted was $7,790,409 , which
the Company expects to recognize over a weighted-average period of approximately 3.75 years. Stock compensation expense
for the three and nine months ended September 30, 2024 and 2023 was as follows:
|
For the Three Months Ended September 30,
|
For the Nine Months Ended September 30,
|
|||||||||||||||
|
2024
|
2023
|
2024 | 2023 | |||||||||||||
|
Services
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Research and development
|
|
|
||||||||||||||
|
Sales and marketing
|
|
|
||||||||||||||
|
General and administrative
|
|
|
||||||||||||||
| Separation expenses |
||||||||||||||||
| Subtotal |
||||||||||||||||
| Discontinued operations |
( |
) | ||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Total intrinsic value of options exercised during the period
ended September 30, 2024 was $8,375 . The total fair value of restricted shares vested during the three and nine month periods ended
September 30, 2024 was $38,381 and $765,045 ,
respectively.
|
Note 13
|
NET INCOME (LOSS) PER SHARE
|
The following table sets forth the computation of the basic and diluted net income
(loss) per share:
|
For the Three Months Ended September 30,
|
For the Nine Months Ended September 30,
|
|||||||||||||||
|
2024
|
2023
|
2024
|
2023
|
|||||||||||||
|
Net (Loss) Income:
|
||||||||||||||||
|
Net (loss) income from continuing operations
|
$
|
(
|
)
|
$
|
|
$ | ( |
) | $ | |||||||
|
Net (loss) income from discontinued operations
|
|
(
|
)
|
|||||||||||||
|
Net (Loss) Income
|
$
|
(
|
)
|
$
|
|
$ | ( |
) | $ | |||||||
|
|
||||||||||||||||
|
Basic net (loss) income from continuing operations per share attributable to common shareholders:
|
$
|
(
|
)
|
$
|
|
$ | ( |
) | $ | |||||||
|
Basic net (loss) income from discontinued operations per share:
|
|
(
|
)
|
|||||||||||||
|
Net (loss) income per common share
|
$
|
(
|
)
|
$
|
|
$ | ( |
) | $ | |||||||
|
|
||||||||||||||||
|
Diluted net (loss) income per share:
|
||||||||||||||||
|
Net (loss) income from continuing operations
|
$
|
(
|
)
|
$
|
|
$ | ( |
) | $ | |||||||
| Effect of assumed conversions: |
||||||||||||||||
| Add back: net expenses related to convertible notes |
||||||||||||||||
|
Net (loss) income from continuing operation after the effect of assumed conversions
|
$
|
(
|
)
|
$
|
|
$ | ( |
) | $ | |||||||
|
|
||||||||||||||||
|
Net (loss) income from discontinued operations
|
$ |
$
|
(
|
)
|
$ | $ | ||||||||||
|
|
||||||||||||||||
|
Weighted average common shares outstanding - basic and diluted
|
|
|
||||||||||||||
|
Plus: Dilutive effect of convertible notes - as if converted method
|
||||||||||||||||
|
Plus: Dilutive effect of restricted stock awards and stock options – treasury stock method
|
||||||||||||||||
|
Weighted average common shares outstanding assuming dilution
|
||||||||||||||||
|
|
||||||||||||||||
|
Diluted net (loss) income from continuing operations per common share
|
(
|
)
|
|
( |
) | |||||||||||
|
Diluted net (loss) income from discontinued operations per common share
|
|
(
|
)
|
|||||||||||||
|
Net (loss) income per common share
|
$
|
(
|
)
|
$
|
|
$ | ( |
) | $ | |||||||
The following table sets forth all
outstanding potentially dilutive securities which were not included in the calculation of diluted earnings per share because their impact would have been antidilutive to the Company’s “control number,” which is loss from continuing operations.
|
For the Nine Months Ended September 30,
|
||||||||
|
2024
|
2023
|
|||||||
|
Potentially dilutive securities:
|
||||||||
|
Warrants
|
|
|
||||||
|
Stock options
|
|
|
||||||
|
Convertible notes
|
|
|
||||||
|
Unvested restricted stock awards and units
|
|
|
||||||
|
Total
|
|
|
||||||
|
Note 14
|
RELATED PARTY TRANSACTIONS
|
Adam
Dublin, the Company’s Chief Strategy Officer, was previously a consultant for a current vendor of the Company. Mr. Dublin’s consultancy with the vendor ended on December 11, 2020, and the parties agreed not to renew the consulting agreement.
Pursuant to Mr. Dublin’s consulting agreement with the vendor, Mr. Dublin received payments from the vendor for the three and nine months ended September 30, 2024 and 2023 of $0 and $60,025 and $28,215 and $204,297 , respectively, as he is entitled to runoff
commissions on accounts he sold.
On September 1, 2021, the Company issued, at 100 % of par value, $24,000,000 in aggregate principal balance of 3.5 %
Convertible Promissory Notes due 2025 convertible into (i) shares of Company common stock and (ii) warrants to purchase shares of Company common stock equal to 20 % of the principal amount of the Notes divided by the conversion price to a select group of institutional and accredited investors, which included a director of the Company who held
$6,000,000 of the Notes until his death on April 11, 2024, which notes are held by the spouse of the deceased director. See Note 11
for additional information.
On September 4, 2024, the Company entered a customer agreement with an entity controlled by one of its directors providing for products and services over a three year period for variable consideration with aggregate minimum billings of $1,200,000 .
Revenues for the three and nine month periods ended September 30, 2024, include $15,126
|
Note 15
|
LEASES
|
Operating Leases
The Company accounts for leases in accordance with ASC Topic 842, Leases (“ASC 842”).
All contracts are evaluated to determine whether or not they represent a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company has operating leases primarily
consisting of facilities with remaining lease terms of 1 -2 years . The lease term represents the period up to the early termination date unless it is reasonably certain that the Company will not exercise the early termination option. Certain leases include rental payments
that are adjusted periodically based on changes in consumer price and other indices.
Leases
are classified as finance or operating in accordance with the guidance in ASC 842. The Company does not hold any finance leases.
The
Company renewed its lease agreement for office space in Hingham, Massachusetts, commencing on July 1, 2024. The lease has an initial term of two years
and base rent per year is approximately $25,000 .
The Company is also obligated under a short-term lease related to offices in Pennsylvania. This short-term lease is currently
leased on a month-to-month basis. A short-term lease is a lease with a term of 12 months or less and does not include the option to purchase the underlying asset that the Company would expect to exercise. The Company has elected to adopt the
short-term lease exemption in ASC 842 and as such has not recognized a “right of use” asset or lease liability for these short-term leases.
The Company’s lease agreements generally do not provide an implicit borrowing rate; therefore an internal incremental borrowing
rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments.
Supplemental cash flow information and non-cash activity related to leases are as follows:
|
|
For the Nine
Months Ended September 30,
|
|||||||
|
|
2024
|
2023
|
||||||
|
Cash used in operating leases
|
$ | $ | ||||||
| ROU assets obtained in exchange for new lease obligations |
$ |
$ |
||||||
ROU lease assets and lease liabilities for the Company’s operating leases were recorded in the condensed consolidated balance sheet as follows:
|
|
September 30, 2024 |
December 31, 2023
|
||||||
|
Right of use assets, net
|
$
|
|
$
|
|
||||
|
Short-term operating lease liabilities
|
$
|
|
$
|
|
||||
| Long-term operating lease liabilities |
||||||||
|
Total lease liabilities
|
$
|
|
$
|
|
||||
| Weighted average remaining lease term (in years) |
||||||||
|
Weighted average discount rate
|
|
|
|
|
||||
Long-term operating lease liabilities are included in other long-term liabilities on the Company’s condensed consolidated balance
sheets.
The
components of lease expense were as follows for each of the periods presented, which are included in general and administrative expenses in the condensed consolidated statements of operations:
|
For the Three Months Ended September 30,
|
For the Nine Months Ended September 30,
|
|||||||||||||||
|
2024
|
2023
|
2024 | 2023 | |||||||||||||
|
Operating lease expense
|
$
|
|
$
|
|
$ | $ | ||||||||||
| Short-term lease expense |
||||||||||||||||
|
Total operating lease costs
|
$ | $ | $ | $ | ||||||||||||
Future lease payments included in the measurement of lease liabilities on the condensed consolidated balance sheet as of September 30, 2024, were as
follows:
|
September 30,
2024
|
||||
|
2024 (remaining)
|
$
|
|
||
| 2025 |
||||
| 2026 |
||||
|
Total future minimum lease payments
|
||||
|
Less imputed interest
|
(
|
)
|
||
|
Total
|
$
|
|
||
| Note 16 |
COMMITMENTS AND CONTINGENCIES
|
Service and License Agreements
The Company entered into certain service and license agreements that provide for future minimum payments. The terms of these agreements vary in length. The following table shows the remaining payment obligations under
these agreements as of September 30, 2024:
|
September 30,
2024
|
||||
|
Year ending December 31, 2024
|
$ | |||
|
Year ending December 31, 2025
|
||||
| Year ending December 31, 2026 | ||||
| Thereafter | ||||
| $ | ||||
Commitments and contingencies includes $1,030,556
recorded in accrued expenses and other liabilities, representing information license liabilities various licensing agreements (see Note 3 – Summary of Significant Accounting Policies – Vendors and Licensors).
Legal Proceedings
From time to time the Company may be involved in claims that arise during the ordinary course of business. For any matters where management currently believes it is probable that the Company will incur a loss and that the probable
loss or range of loss can be reasonably estimated, the Company records reserves in the condensed consolidated financial statements based on its 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 the Company’s overall operations. Although the results of litigation and claims cannot be predicted with certainty, the Company does not currently have any pending or
recently resolved litigation to which it is a party or to which its 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. On November 22, 2023, the Company entered into a Settlement Agreement and Release with the fifth
plaintiff, which included a release of the Company and its subsidiaries and all related parties. That plaintiff filed a stipulation dismissing her claims on December 12, 2023. On May 31, 2024, the remaining parties entered into a Settlement
Agreement and Release, which included a release of the Company and its subsidiaries and all related parties. Plaintiffs filed a Stipulation of Dismissal on June 7, 2024. The Court entered a Minute Order dismissing the case with prejudice on
June 7, 2024.
The Company classified related legal and settlement expenses as “Litigation and related
expenses” within Operating loss from continuing operations. Any insurance reimbursements related to the settlements are treated as gain contingencies and will be recorded when all contingencies are resolved.
|
Note 17
|
SUBSEQUENT EVENTS
|
On
October 4, 2024, the Company purchased and retired 100,000 shares of common stock of the Company in a private transaction for $218,500 . The purchase price per share was equal to the closing price of the Company’s common stock on The Nasdaq Stock Market LLC on the date the
transaction was consummated.
On
October 31, 2024, the Company entered into a Membership Interest Assignment Agreement (the “Assignment Agreement”), by and among Cowen Inc. (“Cowen”), IMcK Holdings LLC (“Minority Seller” and together with Cowen, the “Sellers”), Kyber Data
Science, LLC (“Kyber”) and the Company, pursuant to which the Company acquired all outstanding equity interests of Kyber (the “Transferred Interests”) from the Sellers, effective October 31, 2024 (the “Transaction”). Pursuant to the terms of
the Assignment Agreement, at the closing, Sellers transferred and assigned all of the Transferred Interests to the Company in consideration of the Company’s assumption of Kyber’s ordinary course liabilities. The Assignment Agreement also
contains a customary post-closing working capital adjustment, if applicable. All outstanding Class B Units of Kyber were cancelled prior to the closing of the Transaction and no consideration was paid to the Class B Unit holders.
On
November 8, 2024, the Company’s Board of Directors approved the grant of restricted stock units to employees representing 826,000
shares of common stock of the Company vesting over a four year period.
On
November 12 and 13, 2024, the Company entered into a Convertible Promissory Note Redemption Agreement with certain holders of Notes, pursuant to which the Company redeemed $16,000,000 in aggregate principal amount of outstanding Notes and $1,791,041
of accrued interest thereon for an aggregate redemption price of $17,648,408 resulting in an anticipated gain of $142,633 .
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Cautionary Statement for Forward-Looking Information
The following discussion of our financial condition and results of operations for the three and nine months ended September 30, 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 September 30, 2024 by country as a percentage of total sales were: United States (90.7%) and Australia (9.3%) compared to sales for the three months ended September 30, 2023 by
country as a percentage of total sales which were: United States (87.0%), Canada (6.0%) and Australia (7.0%).
Sales for the nine months ended September 30, 2024 by country as a percentage of total sales were: United States (89.8%), Canada (1.7%) and Australia (8.5%) compared to sales for
the nine months ended September 30, 2023 by country as a percentage of total sales which were: United States (89.1%), Canada (3.8%) and Australia (7.2%).
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.
On July 31, 2024, the Company was informed by one of its information vendors that effective December 31, 2024, the vendor will no longer include certain data within the
information products it licenses to the Company. The vendor stated this was due to clarifications and updates to the licensing relationship between the vendor and one of its data suppliers. The Company is currently evaluating the potential impact on
its contractual relationship with the vendor and any impact on customer performance commitments and the availability of alternate sources of comparable data. There can be no assurance that alternate sources of comparable data can be obtained, and if
so, on terms and conditions substantially equivalent to those under its existing agreement.
On September 23, 2024, the Company was informed by one of its information vendors that it was exercising the right to terminate the agreement with the Company effective September
25, 2024, based on restrictions imposed by the information vendor’s upstream licensor. As a result, the Company recorded an adjustment of $542,389 included in cost of revenues during the quarter ended September 30, 2024, representing previously
recorded charges under the contract that will not be paid. The Company continues to evaluate any impact on customer performance commitments and the availability of alternate sources of comparable data.
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.
Litigation Settlements and Related Expenses
Litigation settlements and related expenses result from the defense and settlement of legacy claims assumed in the Helix merger.
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 and Nine Months Ended September 30, 2024 and 2023
The following table summarizes the condensed results of operations for the periods indicated:
|
For the Three Months Ended September 30,
|
For the Nine Months Ended September 30,
|
|||||||||||||||
|
2024
|
2023
|
2024
|
2023
|
|||||||||||||
|
Revenues
|
$
|
4,686,312
|
$
|
5,348,469
|
$
|
14,340,791
|
$
|
15,112,398
|
||||||||
|
Costs and Expenses
|
||||||||||||||||
|
Cost of revenues
|
1,402,920
|
1,362,555
|
4,913,195
|
3,891,482
|
||||||||||||
|
Research and development
|
291,962
|
264,781
|
989,052
|
1,100,657
|
||||||||||||
|
Sales and marketing
|
956,983
|
1,313,212
|
3,029,783
|
3,746,731
|
||||||||||||
|
General and administrative
|
2,822,253
|
2,887,771
|
9,771,343
|
9,641,536
|
||||||||||||
|
Separation expenses
|
—
|
—
|
—
|
599,832
|
||||||||||||
|
Litigation settlements and related expenses
|
1,394
|
316,820
|
1,152,670
|
751,480
|
||||||||||||
|
Depreciation and amortization
|
6,629
|
10,598
|
23,405
|
64,285
|
||||||||||||
|
Operating loss from continuing operations
|
$
|
(795,829
|
)
|
$
|
(807,268
|
)
|
$
|
(5,538,657
|
)
|
$
|
(4,683,605
|
)
|
||||
Comparison of Three Months Ended September 30, 2024 and 2023
Revenues
Revenues for the three months ended September 30, 2024 were $4,686,312, which represented a
decrease of $662,157 compared to revenues of $5,348,469 for the three months ended September 30, 2023. The decrease is primarily due to lower revenues resulting from the expiration of certain customer contracts and attrition due to the inability of certain customers to complete planned financings, partially offset by new customer sales.
Cost of Revenues
Cost of revenues for the three months ended September 30, 2024 was $1,402,920, which represented an increase of $40,365 compared to total cost of revenues of $1,362,555 for the
three months ended September 30, 2023. Cost of revenues increased primarily due to higher information licensing expenses related to expansion of the Company’s data sources, partially offset by an adjustment related to the cancellation of an inbound
information contract (see Note 3 - Summary of Significant Accounting Policies - Vendors and Licensors). As a result, gross profit as a percentage of revenues decreased to 70% for the for the three months ended September 30, 2024 compared to 75% 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 September 30, 2024 were $291,962, which represented an increase of $27,181 compared to total research and development expenses of $264,781 for the three months
ended September 30, 2023. The increase is due to higher personnel costs compared to the same period last year.
Sales and Marketing
Sales and marketing expenses for the three months ended September 30, 2024 were $956,983, which represented a decrease of $356,229 compared to total sales and marketing expenses of $1,313,212 for the three months ended
September 30, 2023. The decrease is due to lower severance, salaries and commissions related to changes in sales force composition implemented during the third quarter of 2023, and the impact of lower
revenues.
General and Administrative
General and administrative expenses for the three months ended September 30, 2024 were $2,822,253, which represented a decrease of $65,518 compared to general and administrative expenses of $2,887,771 for the three months ended
September 30, 2023. The decrease is primarily due to lower salaries and professional expenses partially offset by higher bad debt expense.
Litigation Settlements and Related Expenses
Litigation settlements and administrative expenses for the three months ended September 30, 2024 were $1,394 which
represented a decrease of $315,426 compared to litigation settlements and administrative expenses of $316,820 for the three months ended September 30, 2023. Litigation settlements and related expenses result from the defense and settlement of legacy claims assumed in the Helix merger (see “Note 16 - Commitments and Contingencies - Legal Proceedings” to the financial statements).
Comparison of Nine Months Ended September 30, 2024 and 2023
Revenues
Revenues for the for the nine months ended September 30, 2024 were $14,340,791, which represented a decrease of $771,607 compared to revenues of $15,112,398 for the nine months ended September 30, 2023. The decrease
is primarily due to lower revenues resulting from the expiration of certain customer contracts and attrition due to the inability of certain customers to complete planned financings, partially offset by new customer sales.
Cost of Revenues
Cost of revenues for the nine months ended September 30, 2024 was $4,913,195, which represented an increase of $1,021,713 compared to total cost of revenues of $3,891,482 for the
nine months ended September 30, 2023. Cost of revenues increased primarily due to higher information licensing expenses related to expansion of the Company’s data sources, partially offset by an adjustment related to the cancellation of an inbound
information contract (see Note 3 - Summary of Significant Accounting Policies - Vendors and Licensors). As a result, gross profit as a percentage of revenues decreased to 66% for the nine months ended September 30, 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 nine months ended September 30, 2024 were $989,052, which represented a decrease of $111,605 compared to total research and development expenses of $1,100,657 for the nine months
ended September 30, 2023. The decrease is due to 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 nine months ended September 30, 2024 were $3,029,783, which represented a decrease of $716,948 compared to total sales and marketing expenses of $3,746,731 for the nine months ended
September 30, 2023. The decrease is due to lower severance, salaries and commissions related to changes in sales force composition implemented during the third quarter of 2023, and the impact of lower
revenues.
General and Administrative
General and administrative expenses for the nine months ended September 30, 2024 were $9,771,343, which represented an increase of $129,807 compared to general and administrative expenses of 9,641,536 for the nine months ended September 30, 2023. The increase is primarily due to higher bad debt expense offset by lower salaries and professional expenses.
Litigation Settlements and Related Expenses
Litigation settlements and administrative expenses for the nine months ended September 30, 2024 were $1,152,670 which
represented an increase of $401,190 compared to litigation settlements and administrative expenses of $751,480 for the nine months ended September 30, 2023. Litigation settlements and related expenses result from the defense and settlement of legacy claims assumed in the Helix merger. During the nine months ended September 30, 2024, the Company incurred expenses to settle outstanding claims filed against the Company and certain of its subsidiaries (see “Note 16 – Commitments and Contingencies – Legal
Proceedings” to the financial statements).
Separation Expenses
Effective February 10, 2023, the Company’s Chief Executive Officer, President and Class II member of the Board of Directors resigned. In connection with the resignation, the Company entered into a
separation agreement providing for, among other things, (i) salary continuation for 12 months and (ii) accelerated vesting of 106,656 unvested restricted shares of the Company common stock. Separation expenses for the
nine months ended September 30, 2023 include $250,000 related to the salary continuation and $349,832 related to the accelerated vesting of stock.
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) income 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) income. 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. These expenses were incurred during the three
months ended March 31, 2023, and there were no additional related expenses incurred during the three months ended September 30, 2023. 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.
|
| • |
Interest and Investment Income. Interest and 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 nine months ended September 30, 2023 includes $250,000 related to the salary continuation. Management 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, see “Item 3 Legal
Proceedings” and “Note 16 – Commitments and Contingencies” to the financial statements for further information.
|
| • |
Strategic review related expenses. Management excludes certain professional 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 a strategic review of the Company’s operations.
|
| • |
Contract termination impacts. Management excludes certain 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 the impact of an adjustment related to the cancellation of an inbound information contract. On September 23, 2024, the Company was informed by one of its information vendors that it was exercising the
right to terminate the agreement with the Company effective September 25, 2024, based on restrictions imposed by the information vendor’s upstream licensor. As a result, the Company recorded an adjustment of $542,389 during the quarter ended
September 30, 2024, representing previously recorded charges under the contract that will not be paid.
|
| • |
Income tax (benefit) expense. Management excludes the income tax (benefit) expense from Adjusted EBITDA (i) because management believes that the income tax (benefit) 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 September 30,
|
For the Nine Months Ended September 30,
|
|||||||||||||||
|
2024
|
2023
|
2024
|
2023
|
|||||||||||||
|
Revenue
|
$
|
4,686,312
|
$
|
5,348,469
|
$
|
14,340,791
|
$
|
15,112,398
|
||||||||
|
Net (loss) income from continuing operations
|
(204,907
|
)
|
5,453,643
|
(3,970,781
|
)
|
2,114,444
|
||||||||||
|
Depreciation and amortization
|
6,629
|
10,598
|
23,405
|
64,285
|
||||||||||||
|
Stock based compensation expense
|
1,552,042
|
1,551,997
|
4,873,593
|
4,920,572
|
||||||||||||
|
Change in fair value of warrant liability
|
(20
|
)
|
(1,594
|
)
|
(563
|
)
|
(4,088
|
)
|
||||||||
|
Interest and investment income
|
(658,339
|
)
|
(646,832
|
)
|
(1,951,812
|
)
|
(1,666,786
|
)
|
||||||||
|
Interest expense
|
195,415
|
211,333
|
587,684
|
630,547
|
||||||||||||
|
Gain on sale of investment
|
(32,082
|
)
|
(5,805,858
|
)
|
(80,694
|
)
|
(5,805,858
|
)
|
||||||||
|
Gain on debt redemption
|
—
|
(111,151
|
)
|
(137,356
|
)
|
(111,151
|
)
|
|||||||||
|
Severance expense
|
—
|
—
|
—
|
250,000
|
||||||||||||
|
Litigation related expenses
|
1,394
|
316,820
|
1,152,670
|
751,480
|
||||||||||||
|
Strategic review related expenses
|
(35,931
|
)
|
—
|
399,913
|
—
|
|||||||||||
|
Contract termination impacts
|
(542,389
|
)
|
—
|
(542,389
|
)
|
—
|
||||||||||
|
Income tax (benefit) expense
|
(95,896
|
)
|
93,191
|
14,865
|
159,287
|
|||||||||||
|
Adjusted EBITDA - continuing operations
|
$
|
185,916
|
$
|
1,072,147
|
$
|
368,535
|
$
|
1,302,732
|
||||||||
Comparison of the Three Months Ended September 30, 2024 and 2023
Adjusted EBITDA - continuing operations
Adjusted EBITDA for the three months ended September 30, 2024 was $185,916 compared to $1,072,147 for the three months ended September 30, 2023, a decrease of $886,231. The
decrease is primarily due to lower revenues and higher cost of sales, partially offset by other decreases in operating expenses discussed above.
Comparison of the Nine Months Ended September 30, 2024 and 2023
Adjusted EBITDA - continuing operations
Adjusted EBITDA for the nine months ended September 30, 2024 was $368,535 compared to a gain of $1,302,732 for the nine months ended September 30, 2023, a decrease of $934,197.
The decrease is primarily due to lower revenues and higher cost of sales, partially offset by other decreases in operating expenses discussed above.
Liquidity and Capital Resources
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 September
30, 2024, the Company’s balance of cash and marketable securities aggregated $49,357,888 and outstanding principal and accrued interest on the Notes, due September 1, 2025, aggregated $24,370,509. 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 Nine Months Ended September 30,
|
||||||||
|
2024
|
2023
|
|||||||
|
Net cash (used in) provided by operating activities - continuing operations
|
$
|
(1,467,084
|
)
|
$
|
1,387,350
|
|||
|
Net cash (used in) provided by investing activities - continuing operations
|
(730,177
|
)
|
2,361,052
|
|||||
|
Net cash used in financing activities - continuing operations
|
(1,138,037
|
)
|
(1,107,991
|
)
|
||||
|
Net (decrease) increase in cash and cash equivalents - continuing operations
|
$
|
(3,335,298
|
)
|
$
|
2,640,411
|
|||
Net Cash Used In Operating Activities
Net cash used in operating activities of $1,467,084 increased by $2,854,434 for the nine months
ended September 30, 2024 compared to cash provided by operating activities of $1,387,350 for the nine months ended September 30, 2023.
This primarily is the result of a gain recognized on a non-recurring sale of investments during the nine months ended September 30, 2023. The $5,725,164 decrease in the gain recognized is partially offset by
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 $730,177 increased by $3,091,229 for the nine months
ended September 30, 2024 compared to cash provided by investing activities of $2,361,052 for the nine months ended September 30, 2023. This
is primarily the result of the impact of the reductions of sale proceeds from the sale of an investment and discontinued operations during the three months ended September 30, 2024, offset by changes in net additions to marketable securities.
Net Cash Used In Financing Activities
Net cash used in financing activities of $1,138,037 for the nine months ended September 30, 2024 increased by $30,046 compared to cash used in financing activities of $1,107,991 for the nine months ended September 30, 2023. The
increase was primarily due to the repurchase of stock offset by reductions in tax payments for vested restricted stock units and redemptions of convertible notes.
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.
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation
Disclosures (Topic 220): Disaggregation of Income Statement Expenses. This guidance requires additional disclosure of certain
amounts included in the expense captions presented on the Statement of Operations as well as disclosures about selling expenses. The ASU is effective on a prospective basis, with the option for retrospective application, for annual periods beginning
after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted for annual financial statements that have not yet been issued. The Company is currently evaluating the impact of ASU 2024-03 on its
condensed consolidated financial statements and related disclosures.
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 September 30, 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 September 30, 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 September 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| Item 1. |
Legal Proceedings
|
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.
| Item 1A. |
Risk Factors
|
This item is not required.
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds
|
None.
| Item 3. |
Defaults Upon Senior Securities
|
None.
| Item 4. |
Mine Safety Disclosures
|
Not applicable.
| Item 5. |
Other Information
|
Trading Arrangements of Directors and Executive Officers
During the three months ended September 30, 2024, no director of officer of the Company adopted terminated
| Item 6. |
Exhibits
|
|
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).
|
|
|
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).
|
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
101.INS
|
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).
|
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document.
|
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document.
|
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document.
|
|
104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
|
* Filed with this Quarterly Report on Form 10‑Q.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 13, 2024.
|
FORIAN INC.
|
||
|
By:
|
/s/ Max Wygod
|
|
|
Max Wygod
|
||
|
Chief Executive Officer
|
||
|
(Principal Executive Officer)
|
||
|
By:
|
/s/ Michael Vesey
|
|
|
Michael Vesey
|
||
|
Chief Financial Officer
|
||
|
(Principal Financial Officer and Principal Accounting Officer)
|
||
42