UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q

☒          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended June 30, 2022

OR

☐          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-40146

FORIAN INC.
(Exact name of registrant as specified in its charter)

Delaware
 
85-3467693
(State of Other Jurisdiction of incorporation or Organization)
 
(I.R.S. Employer Identification No.)

41 University Drive, Suite 400, Newtown, PA
 
18940
(Address of principal executive offices)
 
(Zip code)

Registrant’s telephone number, including area code: (267) 225-6263

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.001 par value per share
 
FORA
 
The Nasdaq Stock Market LLC

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.

Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company ☒
     
Emerging growth company ☒

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 August 10, 2022, there were 32,644,828 shares outstanding of the registrant’s common stock, including shares of unvested restricted stock.




TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION
 
     
Item 1.
1
     
 
1
     
 
2
     
 
3
     
 
5
     
  6
     
Item 2.
31
     
Item 3.
42
     
Item 4.
42
     
PART II
OTHER INFORMATION
43
     
Item 1.
43
     
Item 1A.
44
     
Item 2.
44
     
Item 3.
44
     
Item 4.
44
     
Item 5.
45
     
Item 6.
45
     
46

FORIAN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2022 AND DECEMBER 31, 2021

Item 1.
Financial Statements and Supplementary Unaudited Data

   
June 30,
   
December 31,
 
   
2022
   
2021
 
   
Unaudited
       
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
12,309,300
   
$
18,663,805
 
Marketable securities
   
11,581,855
     
12,399,361
 
Accounts receivable, net
   
2,045,981
     
1,947,540
 
Contract assets
   
1,746,171
     
1,056,891
 
Prepaid expenses
   
1,258,238
     
1,017,927
 
Other assets
   
384,313
     
900,242
 
Total current assets
   
29,325,858
     
35,985,766
 
                 
Property and equipment, net
   
3,148,357
     
1,531,959
 
Intangible assets, net
   
7,913,513
     
9,051,184
 
Goodwill
   
9,099,372
     
9,099,372
 
Right of use assets, net
    735,164       859,637  
Deposits and other assets
   
285,801
     
314,443
 
Total assets
 
$
50,508,065
   
$
56,842,361
 

               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
Current liabilities:
               
Accounts payable
   
876,927
     
1,125,067
 
Accrued expenses
   
3,697,186
     
4,068,109
 
Short-term operating lease liabilities
    246,501       247,325  
Notes payable
   
     
13,122
 
Warrant liability
   
34,618
     
369,234
 
Deferred revenues
   
2,984,880
     
976,268
 
Total current liabilities
   
7,840,112
     
6,799,125
 
                 
Long-term liabilities:
               
Long-term operating lease liabilities
   
491,199
     
611,523
 
Convertible notes payable, net of debt issuance costs ($6,000,000 in principal is held by a related party. Refer to Note 15)
    24,680,429
      24,260,448
 
Total long-term liabilities
   
25,171,628
     
24,871,971
 
                 
Total liabilities
   
33,011,740
     
31,671,096
 
                 
Commitments and contingencies (Note 17)
   
     
 
Stockholders’ equity:
               
Preferred Stock; par value $0.001; 5,000,000 Shares authorized; 0 issued and outstanding as of June 30, 2022 and December 31, 2021
   
     
 
Common Stock; par value $0.001; 95,000,000 Shares authorized; 32,045,011 issued and outstanding as of June 30, 2022 and 31,773,154 issued and outstanding as of December 31, 2021
   
32,045
     
31,773
 
Additional paid-in capital
   
67,572,043
     
57,959,622
 
Accumulated deficit
   
(50,107,763
)
   
(32,820,130
)
Total stockholders’ equity
   
17,496,325
     
25,171,265
 
Total liabilities and stockholders’ equity
 
$
50,508,065
   
$
56,842,361
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

FORIAN INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

   
For the Three Months
 Ended June 30,
   
For the Six Months
Ended June 30,
 
   
2022
   
2021
    2022
    2021
 
                         
Revenues:
                       
Information and Software
 
$
6,084,439
   
$
3,763,671
    $ 11,893,533     $ 5,172,649  
Services
   
398,155
     
492,336
      826,861       588,647  
Other
   
51,664
     
291,978
      205,143       407,298  
Total revenues
   
6,534,258
     
4,547,985
      12,925,537       6,168,594  
                                 
Costs and Expenses:
                               
Cost of revenues
   
1,746,808
     
1,232,790
      3,314,357
      1,690,676
 
Research and development
   
3,387,053
     
1,949,926
      6,609,924       3,447,764  
Sales and marketing
   
1,518,669
     
1,177,035
      2,929,983       1,776,010  
General and administrative
   
4,870,157
     
6,577,696
      10,958,611       9,362,258  
Separation expenses                 5,611,857        
Gain on sale of assets                 (202,159 )      
Depreciation and amortization
   
604,122
     
595,488
      1,209,796       783,072  
Transaction related expenses
   
     
            1,210,279  
Total costs and expenses
   
12,126,809
     
11,532,935
      30,432,369       18,270,059  
                                 
Loss From Operations
   
(5,592,551
)
   
(6,984,950
)
    (17,506,832 )     (12,101,465 )
                                 
Other Income (Expense):
                               
Change in fair value of warrant liability
   
114,776
     
(128,800
)
    334,616       494,827  
Interest and investment income
   
18,954
     
(20,446
)
    23,442       (19,205 )
Interest expense
    (223,576 )    
      (460,687 )    
 
Foreign currency related gains
    253,852
      169,256
      331,828
      145,250
 
Total other income, net
   
164,006
     
20,010
      229,199       620,872  
                                 
Net loss before income taxes
   
(5,428,545
)
   
(6,964,940
)
    (17,277,633 )     (11,480,593 )
Income tax expense
   
(5,000
)
   
      (10,000 )      
                                 
Net Loss
 
$
(5,433,545
)
 
$
(6,964,940
)
  $ (17,287,633 )   $ (11,480,593 )
                                 
Basic and diluted net loss per common share
 
$
(0.17
)
 
$
(0.22
)
  $ (0.54 )   $ (0.42 )
Weighted-average shares outstanding:
   
31,984,208
     
30,996,735
      31,921,761       27,534,359  

The accompanying notes are an integral part of these condensed consolidated financial statements

FORIAN INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)

 
 
Preferred Stock
   
Common Stock
                   
 
 
Shares
   
Par Value @$0.001 per share
   
Shares
   
Par Value @ $0.001 per share
   
Additional Paid In Capital
   
Accumulated Deficit
   
Stockholders’ Equity
 
Balance at January 1, 2022
   
   
$
     
31,773,154
   
$
31,773
   
$
57,959,622
   
$
(32,820,130
)
 
$
25,171,265
 
Vesting of Restricted Stock and Stock Awards, net of shares surrendered for taxes
   
     
     
263,743
     
264
     
(58,349
)
   
     
(58,085
)
Issuance of Forian common stock upon exercise of stock options
   
     
     
8,114
     
8
     
(8
)
   
     
 
Stock based compensation expense
   
     
     
     
     
9,670,778
     
     
9,670,778
 
Net loss
   
     
     
     
     
     
(17,287,633
)
   
(17,287,633
)
Balance at June 30, 2022
   
   
$
     
32,045,011
   
$
32,045
   
$
67,572,043
   
$
(50,107,763
)
 
$
17,496,325
 

 
 
Preferred Stock
   
Common Stock
                   
 
 
Shares
   
Par Value @$0.001 per share
   
Shares
   
Par Value @ $0.001 per share
   
Additional Paid In Capital
   
Accumulated Deficit
   
Stockholders’ Equity
 
Balance at January 1, 2021
   
   
$
     
21,233,039
   
$
21,233
   
$
17,514,907
   
$
(6,269,025
)
 
$
11,267,115
 
Issuance of Forian Common stock in Helix Acquisition
   
     
     
8,408,383
     
8,408
     
18,446,376
     
     
18,454,784
 
Forian Restricted Stock Vesting from MOR unvested restricted stock
   
     
     
343,123
     
343
     
5,102
     
     
5,445
 
Issuance of common stock warrants
   
     
     
     
     
389,976
     
     
389,976
 
Forian shares issued upon exercise of MOR Class B options
   
     
     
10,167
     
10
     
292,820
     
     
292,830
 
Stock based compensation expense
   
     
     
     
     
3,612,728
     
     
3,612,728
 
Issuance of Forian common stock
   
     
     
1,191,743
     
1,192
     
11,967,460
     
     
11,968,652
 
Issuance of Forian common stock upon exercise of stock options
   
     
     
12,266
     
13
     
35,607
     
     
35,620
 
Net loss
   
     
     
     
     
     
(11,480,593
)
   
(11,480,593
)
Balance at June 30, 2021
   
   
$
     
31,198,721
   
$
31,199
   
$
52,264,976
   
$
(17,749,618
)
 
$
34,546,557
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

FORIAN INC. 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
 
 
 
Preferred Stock
   
Common Stock
                   
 
 
Shares
   
Par Value @$0.001 per share
   
Shares
   
Par Value @ $0.001 per share
   
Additional Paid In Capital
   
Accumulated Deficit
   
Stockholders’ Equity
 
Balance at April 1, 2022
   
   
$
     
31,928,701
   
$
31,929
   
$
65,864,050
   
$
(44,674,218
)
 
$
21,221,761
 
Vesting of Restricted Stock and Stock Awards, net of shares surrendered for taxes
   
     
     
108,196
     
108
     
(58,193
)
   
     
(58,085
)
Issuance of Forian common stock upon exercise of stock options
   
     
     
8,114
     
8
     
(8
)
   
     
 
Stock based compensation expense
   
     
     
     
     
1,766,194
     
     
1,766,194
 
Net loss
   
     
     
     
     
     
(5,433,545
)
   
(5,433,545
)
Balance at June 30, 2022
   
   
$
     
32,045,011
   
$
32,045
   
$
67,572,043
   
$
(50,107,763
)
 
$
17,496,325
 

 
 
Preferred Stock
   
Common Stock
                   
 
 
Shares
   
Par Value @$0.001 per share
   
Shares
   
Par Value @ $0.001 per share
   
Additional Paid In Capital
   
Accumulated Deficit
   
Stockholders’ Equity
 
Balance at April 1, 2021
   
   
$
     
29,824,424
   
$
29,824
   
$
37,510,532
   
$
(10,784,678
)
 
$
26,755,678
 
Forian Restricted Stock Vesting from MOR unvested restricted stock
   
     
     
170,288
     
170
     
2,532
     
     
2,702
 
Issuance of Forian common stock
   
     
     
1,191,743
     
1,192
     
11,967,460
     
     
11,968,652
 
Stock based compensation expense
   
     
     
     
     
2,748,845
     
     
2,748,845
 
Issuance of Forian common stock upon exercise of stock options
   
     
     
12,266
     
13
     
35,607
     
     
35,620
 
Net loss
   
     
     
     
     
     
(6,964,940
)
   
(6,964,940
)
Balance at June 30, 2021
   
   
$
     
31,198,721
   
$
31,199
   
$
52,264,976
   
$
(17,749,618
)
 
$
34,546,557
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

FORIAN INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

   
For the Six Months Ended June 30,
 
   
2022
   
2021
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
 
$
(17,287,633
)
 
$
(11,480,593
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
   
1,209,796
     
783,072
 
Amortization on right of use asset
    124,473       94,010
 
Gain on sale of assets
    (202,159 )      
Amortization of debt issuance costs
    2,666      
 
Accrued interest on Convertible Notes
    417,315      
 
Realized and unrealized gain on marketable securities
   
(22,043
)
   
(2,331
)
Provision for doubtful accounts
   
73,402
     
50,813
 
Stock-based compensation expense
   
9,670,778
     
3,618,173
 
Change in fair value of warrant liability
   
(334,616
)
   
(494,827
)
Issuance of warrants in connection with transaction expenses
   
     
389,976
 
Change in operating assets and liabilities:
               
Accounts receivable
   
(184,252
)
   
(929,641
)
Contract assets
   
(689,280
)
   
(108,808
)
Prepaid expenses
   
(240,311
)
   
(594,129
)
Changes in lease liabilities during the period
    (121,148 )     (105,378 )
Deposits and other assets
   
544,571
     
(344,338
)
Accounts payable
   
(248,140
)
   
(1,099,124
)
Accrued expenses
    (370,923 )     1,865,826
 
Deferred revenues
   
2,008,612
     
179,074
 
Net cash used in operating activities
   
(5,648,892
)
   
(8,178,225
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Additions to property and equipment
   
(1,699,530
)
   
(328,303
)
Proceeds from sale of assets
    225,575        
Purchase of marketable securities
   
(23,959,558
)
   
(12,504,788
)
Sale of marketable securities
   
24,799,107
     
11,503,845
 
Cash acquired as part of business combination
   
     
1,310,977
 
Net cash used in investing activities
   
(634,406
)
   
(18,269
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from exercise of MOR Class B options
   
     
292,830
 
Payments on notes payable and financing arrangements
   
(13,122
)
   
(2,747
)
Payment of employee withholding tax related to restricted stock units
    (58,085 )      
Proceeds from exercise of common stock options
          35,620  
Proceeds from sale of common stock
          11,968,652  
Net cash (used in) provided by financing activities
   
(71,207
)
   
12,294,355
 
                 
                 
Net change in cash
   
(6,354,505
)
   
4,097,861
 
                 
Cash and cash equivalents, beginning of period
   
18,663,805
     
665,463
 
                 
Cash and cash equivalents, end of period
 
$
12,309,300
   
$
4,763,324
 
                 
Supplemental disclosure of cash flow information:
               
Cash paid for interest
  $     $ 724  
Cash paid for taxes
  $ 2,550     $  
Non-cash Investing Activities:
               
Non-cash consideration for Helix acquisition
  $     $ 18,454,784  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

FORIAN INC.
NOTES TO 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 (as defined below). All activity of the Company through March 2, 2021 relates only to MOR. MOR was established on May 6, 2019 in Delaware. The Company provides innovative software solutions, proprietary data and predictive analytics to optimize the operational, clinical and financial performance of its customers within the healthcare and cannabis industries. The Company’s mission is to provide its customers with the best-in-class critical technology services through a single integrated platform that enables its customers to operate their businesses more safely, efficiently and profitably and to serve its customers and its customers’ stakeholders and constituencies more comprehensively. The Company represents the unique convergence of proprietary healthcare and consumer data, innovative data management capabilities and intelligent data science with a leading cannabis technology platform yielding the combined power to drive innovation and transparency across the industries it serves.

On March 2, 2021 (the “Merger Closing Date”), pursuant to the Agreement and Plan of Merger, dated as of October 16, 2020, as amended by Amendment to Agreement and Plan of Merger, dated as of December 31, 2020, as further amended by Amendment No. 2 to Agreement and Plan of Merger, dated February 9, 2021 (together, the “Merger Agreement”), by and among Helix Technologies, Inc. (“Helix”), the Company and DNA Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), Merger Sub merged with and into Helix, with Helix being the surviving corporation as a wholly owned subsidiary of the Company (the “Merger”). Each share of Helix common stock was exchanged for 0.05 shares of Company common stock in the Merger. Helix provides traceability and point of sale technology, analytics solutions and other products to customers within each vertical of the cannabis industry to help them improve the performance of their business.

Immediately prior to the Merger Closing Date, pursuant to the Equity Interest Contribution Agreement, dated March 2, 2021 (the “Contribution Agreement”), by and among the Company, MOR and each equity holder of MOR, such equity holders contributed their interests in MOR to the Company in exchange for shares of Company common stock (the “Contribution” and, together with the Merger, the “Business Combination”). Upon the closing of the Contribution, MOR became a wholly owned subsidiary of the Company. Each unit of MOR was exchanged for 1.7776 shares of Company common stock in the Merger, subject to adjustments pursuant to the Contribution Agreement.

Pursuant to the Merger Agreement, while the Company is the legal acquirer, the Merger 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”). As such, MOR is deemed to be the accounting acquirer for financial reporting purposes.

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 June 30, 2022. 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, 2021, as filed with the Securities and Exchange Commission (“SEC”) on March 31, 2022.

The Contribution was completed on March 2, 2021 and the combination of MOR and Forian was accounted for as a transaction between entities under common control pursuant to ASC 805-50. Accordingly, the combination of Forian and MOR results in a change in reporting entity and the financial statements are presented as though the combination of Forian and MOR occurred as of the beginning of the periods presented. Additionally, the results of Helix are included in the accompanying condensed consolidated financial statements beginning on March 2, 2021, the Merger Closing Date.

Note 3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The condensed consolidated financial statements of the Company include the accounts of (i) Medical Outcomes Research Analytics, LLC and its wholly owned subsidiaries COR Analytics, LLC and MOR Analytics, LLC, and (ii) Helix Technologies, Inc. and its wholly owned subsidiaries Helix TCS, LLC, Security Consultants Group, LLC, Security Grade Protective Services, Ltd., Bio-Tech Medical Software, Inc., Engeni LLC (including Engeni S.A. (“Engeni SA”), which is 99% owned by Engeni LLC), Green Tree International, Inc., Boss Security Solutions, Inc., BT UCS, Inc. and AIE Exchange Canada, Inc. Effective October 7, 2021, AIE Exchange Canada, Inc. was voluntarily dissolved. Effective December 31, 2021, (i) each of COR Analytics, LLC and MOR Analytics, LLC was merged with and into Medical Outcomes Research Analytics, LLC and (ii) each of BT UCS, Inc. and BOSS Security Solutions was merged with and into Security Grade Protective Services, Ltd., which entity was re-domesticated from Colorado to Delaware and renamed Helix Legacy, Inc. All intercompany transactions have been eliminated in consolidation. The financial results of Helix and its subsidiaries are included in the condensed consolidated financial statements beginning on March 2, 2021, the Merger Closing Date.

Foreign Currency

ASC Topic 830-10, Foreign Currency Matters (“ASC 830-10”), requires the use of highly inflationary accounting when a country has experienced a cumulative inflation of approximately 100% or more over a 3-year period. Under highly inflationary accounting, financial statements are remeasured into the reporting currency with resulting gains and losses included in earnings. The Company acquired a subsidiary as part of the Helix acquisition that operates in Argentina, which has been designated a highly inflationary economy. Accordingly, the Company has remeasured the financial statements of the subsidiary under ASC 830-10 as if the US dollar is its functional currency with resulting gains or losses as other income or expense. During the three and six months ended June 30, 2022 and 2021, sales in Argentina represented less than 1% of the Company’s consolidated sales. Assets held in Argentina as of June 30, 2022 and December 31, 2021 represented less than 1% of the Company’s consolidated assets. While the hyperinflationary conditions did not have a material impact on the Company’s business during the three and six months ended June 30, 2022, in the future, we may incur larger currency devaluations.

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 related notes to the financial statements. The significant areas of estimation include, but are not limited to, accounting for allowance for doubtful accounts, income taxes, depreciation, amortization of intangible assets, contingencies 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 period financial statement presentation. Foreign currency related gains were reclassified from other comprehensive income to other income (expense) for Engeni SA, the Company’s Argentinian subsidiary, which operates in a highly inflationary country.

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 liability as of June 30, 2022 and December 31, 2021 was $34,618 and $369,234, respectively, based on Level 3 inputs.

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. 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 Doubtful Accounts

Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and economic conditions.

Outstanding account balances are reviewed individually for collectability. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Allowance for doubtful accounts was $286,416 and $350,991 at June 30, 2022 and December 31, 2021, respectively.

Management charges account balances against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Long-Lived Assets, Including Definite Lived Intangible Assets

Long-lived assets, other than goodwill and other indefinite-lived intangibles, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. Definite-lived intangible assets primarily consist of customer relationships, software technology and trade names. For long-lived assets used in operations, impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted, probability-weighted future cash flows. The Company measures the impairment loss based on the difference between the carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to fair value.

Goodwill

Goodwill consists of the excess of cost over the fair value of net assets acquired in business combinations. Goodwill is not amortized. Instead, it is tested annually for impairment, or more frequently if events occur or circumstances change that would more likely than not reduce its fair value below its carrying amount. All goodwill is reported in the Information and Software reporting unit.

Goodwill is evaluated for impairment annually or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The qualitative factors considered by Forian may include, but are not limited to, general economic conditions, the Company’s outlook, market performance of the Company’s industry and recent and forecasted financial performance. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that a reporting unit’s fair value is less than its carrying amount. Otherwise, no further impairment testing is required. The Company has the option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount and to determine whether further action is needed. If, after assessing the totality of events or circumstances, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the quantitative impairment test is unnecessary. An impairment charge is recognized when the fair value of the Company’s goodwill is less than its carrying amount. No impairment losses have been recognized during the periods presented.

Business Combinations

The Company accounts for its business combinations under the provisions of ASC Topic 805-10, which requires that the purchase method of accounting be used for all business combinations. Assets acquired and liabilities assumed, including non-controlling interests, are recorded at the date of acquisition at their respective fair values. ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred. If the business combination provides for contingent consideration, the Company records the contingent consideration at fair value at the acquisition date and any changes in fair value after the acquisition date are accounted for as measurement-period adjustments. Changes in fair value of contingent consideration resulting from events after the acquisition date, such as earn-outs, are recognized as follows: (i) if the contingent consideration is classified as equity, the contingent consideration is not re-measured and its subsequent settlement is accounted for within equity; or (ii) if the contingent consideration is classified as a liability, the changes in fair value are recognized in earnings.

Revenue Recognition

The Company recognizes revenue in accordance with Financial Accounting Standards Board (“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 generates revenue from the following categories of offerings: Information and Software subscriptions, Services and Other products.

The Company derives Information and Software revenue primarily from license fees for the Company’s Information products and subscription revenue for the Company’s Software 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 non-cancellable periods of the contract. Customers are generally invoiced according to monthly 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.

Software revenue is primarily comprised of subscriptions to point of sale and business intelligence products and related hosting services. Subscription revenue is considered a single performance obligation recognized ratably over the term of the contract, beginning when access to the applicable software is provided to the customer. Customers are typically billed at the beginning of each month under agreements, which the customer may cancel with 30 days’ notice. When collection of fees occurs in advance of service delivery, revenue recognition is deferred until such services commence. Revenue for implementation fees is recognized as training and installation services are performed.

Services revenues are primarily from fixed price contracts with government agencies where amounts are billed upon completion of the milestones within the contract. Revenue is recognized as the company satisfies its performance obligations under the contract. In the event that a contract does not specifically allocate revenue to the satisfaction of specific performance obligations or milestones, the transaction price is allocated based on the percentage of time spent, or expected to be spent, to meet each performance obligation. Initial customization of the software to meet state specific requirements and the training to appropriately utilize the software are generally recognized upon completion of the customization and acceptance by the state agency. Support and service revenues are then recognized over a predetermined period of time as defined in the contract. Contract renewals may include an annual service fee that is recognized over the time period defined in the contract.

Other revenues are primarily from security monitoring services offerings and the provision of web marketing services. Contracts for these services have a stated transaction price for monthly services and are recognized as the services are provided.

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. 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.

Contract assets and deferred revenues consist of the following as of June 30, 2022:

 
 
Contract Assets
   
Contract Liability
 
 
 
Costs of obtaining contracts
   
Unbilled revenue
   
Total
   
Deferred Revenue
 
Balance at January 1, 2021
 
$
53,784
   
$
142,917
   
$
196,701
   
$
158,884
 
Acquired from Helix
   
     
20,128
     
20,128
     
320,936
 
Acquired balances recognized during period
   
     
(20,128
)
   
(20,128
)
   
(263,787
)
Beginning deferred revenue balance recognized during the period
   
     
     
     
(158,884
)
Net change due to timing of billings, payments and recognition
   
16,494
     
843,696
     
860,190
     
919,119
 
Balance at December 31, 2021
   
70,278
     
986,613
     
1,056,891
     
976,268
 
Beginning deferred revenue balance recognized during the period
   
     
     
     
(773,629
)
Net change due to timing of billings, payments and recognition
   
115,488
   
573,792
     
689,280
     
2,782,241
 
Balance at June 30, 2022
 
$
185,766
   
$
1,560,405
   
$
1,746,171
   
$
2,984,880
 

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 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:

 
 
June 30, 2022
   
December 31, 2021
 
Estimated next twelve months
 
$
12,827,702
   
$
8,525,736
 
Thereafter
   
10,590,820
     
11,424,934
 
Total
 
$
23,418,522
   
$
19,950,670
 

Remaining performance obligations include $2,984,880 and $976,268 of billed and deferred revenue at June 30, 2022 and December 31, 2021, respectively.

The Company’s disaggregated revenue categories as of June 30, 2022 and 2021 are as follows:

 
 
For the Three Months Ended
June 30,
   
For the Six Months Ended
June 30,
 
 
 
2022
   
2021
    2022     2021  
Healthcare Information
 
$
3,602,913
   
$
1,382,511
    $ 7,137,774     $ 1,956,347  
Software Subscriptions
   
2,481,526
     
2,381,160
      4,755,759       3,216,302  
Services
   
398,155
     
492,336
      826,861       588,647  
Other
   
51,664
     
291,978
      205,143       407,298  
Total
 
$
6,534,258
   
$
4,547,985
    $ 12,925,537     $ 6,168,594  

Segment Information

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.

Customer Concentration

The Company did not have any customers that exceeded 10% of total revenue for the three and six months ended June 30, 2022 or 2021.

Concentration of Vendors

The Company licenses certain information assets from third parties as a key input to certain Information and Software Products. While information licensing fees represented less than 10% of the Company’s operating expenses for the three and six months ended June 30, 2022 and 2021, any disruption associated with these suppliers could have a material short-term impact on the business while alternate sources are secured.

During the three and six months ended June 30, 2022, the Company had two vendors representing 22% and 15% and 21% and 16% of purchases for outside development and cloud computing services, respectively.

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.

The Company reviews for the impairment of long-lived assets annually and whenever events and or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Such indicators include, among others, the nature of the asset, the projected future economic benefit of the asset, historical and future cash flows and profitability measurements. An impairment loss would be recognized when the value of the undiscounted estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than the carrying value. There were no impairment losses recognized during the three and six months ended June 30, 2022 and 2021.

Software Development Costs

The Company accounts for costs incurred in the development of computer software in accordance with ASC Subtopic 350-40, Intangibles – Goodwill and Other – Internal-Use Software and ASC Subtopic 985-20, Software –Costs of Software to be Sold, Leased or Marketed. Product development costs are primarily related to Company personnel and contractors for design and evaluating software development, testing, bug fixes, and other maintenance activities. Product development costs incurred in the application development stage for internal use software are subject to capitalization and subsequent amortization, and possible impairment. Product development costs not pertaining to the application development stage are expensed as incurred. The Company capitalized software development costs of $1,624,991 and $266,410 during the six months ended June 30, 2022 and 2021, respectively.

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 $49,314 and $81,496 for the three and six months ended June 30, 2022, respectively, and $16,063 and $20,998 for the three and six months ended June 30, 2021, respectively.

Net Loss per Share

Net loss per share of common stock is computed by dividing net loss by the weighted average number of common shares outstanding during the period. At June 30, 2022, the Company had potentially dilutive securities that could be exercised or converted into common stock. Refer to Note 14 for the Company’s disclosure on such potential dilution. Further, as the Company has incurred net losses for the three and six months ended June 30, 2022 and 2021, respectively, the diluted loss per share is the same as basic loss per share for the periods presented.

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 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

MOR was organized as a limited liability company and became a wholly owned subsidiary of the Company upon completion of the Merger with Helix on March 2, 2021. As a result, the Company was treated as a partnership for federal and state income tax purposes through March 2, 2021. Accordingly, the Company’s taxable income, deductions, assets and liabilities are reported by the members on their respective income tax returns. Therefore, no provision for federal or state income tax has been made by the Company for all business activity from its inception through March 2, 2021.

After March 2, 2021, 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.

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.

The Company recorded a provision for state taxes of $5,000 and $10,000 for the three and six months ended June 30, 2022, respectively, and $0 for the three and six months ended June 30, 2021.

Gain on Sale of Assets

On March 3, 2022, the Company sold certain assets, consisting of customer contracts, accounts receivable, and other property related to its security monitoring services for $225,575 resulting in a gain of $202,159, which is included in operating expenses in the condensed consolidated statements of operations for the six months ended June 30, 2022.

Separation Expenses

During March 2022, the Company transferred certain development activities from its Engeni SA subsidiary to outsourced development facilities. As a result, the Company incurred $194,814 in severance and related costs to be recorded as a charge to operating expenses in 2022 during the six months ended June 30, 2022.

On March 2, 2022, the Company and two advisors agreed not to renew special advisor agreements between the advisors and the Company. The advisors were the former chief executive officer and the former chief financial officer of Helix who were granted stock options in conjunction with their respective advisory agreements that were entered into upon the completion of the Helix acquisition. The Company and the advisors mutually agreed not to renew the advisory agreements. The services provided by these advisors included transition planning and consulting services related to integration of the business operations of Helix and Forian. Per the terms of the agreements, options to purchase 366,166 shares of common stock will continue to vest according to their original terms through March 2, 2023, and unvested stock options to purchase 732,332 shares of common stock were forfeited. The advisors are not required to perform services to the Company beyond the non-renewal date of March 2, 2022. As a result, the Company recorded $5,417,043 of stock compensation expenses related to the options that will vest over the twelve months ending March 2, 2023 during March 2022.

Foreign Currency Related Gains

Foreign currency related gains result from foreign currency transactions and translation gains related to our Engeni SA subsidiary.

Recent Accounting Pronouncements

In October 2021, the FASB issued Accounting Standards Update No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). The FASB issued ASU 2021-08 to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to recognition of an acquired contract liability and payment terms and their effect on subsequent revenue recognized by the acquirer. The amendment is effective for financial statements for interim and annual periods beginning after December 15, 2022. The adoption of this standard is not expected to have a material impact on the condensed consolidated financial statements.

The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements.
 
Note 4
BUSINESS COMBINATION

On March 2, 2021, pursuant to the Merger and the Merger Agreement, Forian acquired 100% of the issued and outstanding capital stock, options and warrants of Helix.

The total purchase consideration for the Merger was $18,454,784. The purchase consideration is equal to the product of (i) the total outstanding Helix common shares and common share equivalents for in-the-money warrants to purchase Helix common stock and vested stock options multiplied by the merger exchange ratio of 0.05 shares of Company common stock for 1 share of Helix common stock and (ii) $2.158 per share, which represented the fair value of Company common stock on the acquisition date.

The Merger was accounted for as a business combination in accordance with ASC 805. The Company has determined fair values of the assets acquired and liabilities assumed in the Merger.

The following table summarizes the purchase price allocations relating to the Merger:

Total purchase price
 
$
18,454,784
 
         
Assets acquired:
       
Cash
   
1,310,977
 
Accounts receivable, net
   
488,453
 
Prepaid expenses
   
215,064
 
Contract assets
   
20,128
 
Other assets
   
450,000
 
Property and equipment
   
146,559
 
Software Technology
   
5,279,000
 
Trade Names and Trademarks
   
386,000
 
Customer Relationships
   
5,269,000
 
Right of use assets
    1,082,684  
Deposits and other assets
   
58,950
 
Total assets acquired
 
$
14,706,815
 
         
Liabilities assumed:
       
Accounts payable
 
$
681,879
 
Accrued expenses
    1,972,663  
Short-term lease liabilities
    295,364  
Deferred revenues
   
320,936
 
Warrant liability
   
1,247,715
 
Notes payable and financing arrangements
   
20,801
 
Other long-term liabilities
   
812,045
 
Total liabilities assumed
 
$
5,351,403
 
Estimated fair value of net assets acquired:
 
$
9,355,412
 
         
Goodwill
 
$
9,099,372
 

The estimates for useful lives of the identified intangibles are 8 years for Trade Names and Trademarks, 5 years for Customer Relationships and 2 and 7 years for Software Technology Intangibles with a weighted average useful life of 5.47 years.

Transaction costs incurred in connection with the Business Combination amounted to $0 and $1,210,279 for the six months ended June 30, 2022 and 2021, respectively.

Unaudited Pro Forma Financial Information

The following table represents the revenue, net loss and loss per share effect of the acquired company, as reported on a pro forma basis as if the acquisition occurred on January 1, 2020. These pro forma results are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the first day of the periods presented, nor does the pro forma financial information purport to represent the results of operations for future periods.

 
 
For the Six Months
Ended June 30,
 
Description
 
2021
 
Revenues
 
$
8,177,506
 
Net loss
 
$
(14,224,446
)
Net loss per share:
       
Basic and diluted-as pro forma (unaudited)
 
$
(0.47
)

The pro forma financial information for all periods presented above has been calculated after adjusting the results of the Company and Helix to reflect the business combination accounting effects resulting from this acquisition, including the amortization expense from acquired intangible assets included in the pro forma financial information presented above. The Forian historical condensed consolidated financial statements have been adjusted in the pro forma combined financial statements to give effect to pro forma events that are directly attributable to the business combination and factually supportable. The pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the periods presented.

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 Statement of Operations. The Company invests in short-term U.S. Treasuries and money market mutual funds. As of June 30, 2022 and 2021, the fair value of these investments approximated cost.

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 June 30, 2022 and December 31, 2021, the Company’s balance sheet reflected other prepaid expenses of $1,258,238 and $1,017,927, respectively, primarily relating to various software licenses and insurance policies with durations ranging from 3 months to 1 year.

Included in other current assets as of June 30, 2022 are amounts receivable from employees totaling $384,313.

Note 7
PROPERTY AND EQUIPMENT, NET

As of June 30, 2022 and December 31, 2021, property and equipment were comprised of the following:

   
June 30, 2022
   
December 31, 2021
 
   

       
Personal computing equipment
 
$
195,089
   
$
131,137
 
Furniture and equipment
   
127,802
     
119,381
 
Software development costs
   
2,985,827
     
1,338,044
 
Vehicles
   
     
25,876
 
Total
   
3,308,718
     
1,614,438
 
Less: Accumulated depreciation and amortization
   
(160,361
)
   
(82,479
)
Property and equipment, net
 
$
3,148,357
   
$
1,531,959
 

Depreciation and amortization expense for the three and six months ended June 30, 2022 was $35,286 and $72,125, respectively, and for the three and six months ended June 30, 2021 was $28,275 and $38,986, respectively. Amortization of software development costs for the three and six months ended June 30, 2022 was $10,467 and $43,726, respectively, and for the three and six months ended June 30, 2021 was $2,680.

Note 8
INTANGIBLE ASSETS, NET

The following tables summarize the Company’s intangible assets as of June 30, 2022 and December 31, 2021:

   
Estimated
Useful Life
(Years)
   
Gross Carrying
Amount at
December 31,
2021
   
Accumulated
Amortization
   
Net Book
Value at
June 30,
2022
 
Customer Relationships
   
5
   
$
5,269,000
   
$
(1,400,056
)
 
$
3,868,944
 
Software Technology
   
2
     
1,170,000
     
(776,825
)
   
393,175
 
Software Technology
   
7
     
4,109,000
     
(779,519
)
   
3,329,481
 
Tradenames and Trademarks
   
8
     
386,000
     
(64,087
)
   
321,913
 
           
$
10,934,000
   
$
(3,020,487
)
 
$
7,913,513
 

   
Estimated
Useful Life
(Years)
   
Gross Carrying
Amount at
March 2,
2021
   
Accumulated
Amortization
   
Net Book
Value at
December 31,
2021
 
Customer Relationships
   
5
   
$
5,269,000
   
$
(872,501
)
 
$
4,396,499
 
Software Technology
   
2
     
1,170,000
     
(484,355
)
   
685,645
 
Software Technology
   
7
     
4,109,000
     
(486,011
)
   
3,622,989
 
Tradenames and Trademarks
   
8
     
386,000
     
(39,949
)
   
346,051
 
           
$
10,934,000
   
$
(1,882,816
)
 
$
9,051,184
 

The Company uses the straight-line method to determine the amortization expense for its definite lived intangible assets. Amortization expense related to the purchased intangible assets was $568,836 and $1,137,671 for the three and six months ended June 30, 2022, respectively, and $567,213 and $744,086 for the three and six months ended June 30, 2021, respectively.

The estimated future amortization expense for the next five years and thereafter is as follows:

Years Ending December 31,
 
Future amortization expense
 
2022 (Remaining)
 
$
1,136,379
 
2023
   
1,789,695
 
2024
   
1,689,050
 
2025
   
1,689,050
 
2026
   
816,549
 
Thereafter
   
792,790
 
Total
 
$
7,913,513
 

Note 9
ACCRUED EXPENSES

As of June 30, 2022 and December 31, 2021, accrued expenses were comprised of the following:

   
June 30, 2022
   
December 31, 2021
 
Accrued salary, commission and bonus
  $
1,828,832
    $
2,046,584
 
Accrued expenses
   
1,868,354

   
2,021,525
 
Total
 
$
3,697,186
   
$
4,068,109
 

Note 10
WARRANT LIABILITY

In conjunction with the Merger, 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 are measured at their inception date fair value (the closing date of the Merger) and subsequently re-measured at each reporting period with changes being recorded in the condensed consolidated statement of operations. As of June 30, 2022, the Company had 92,058 warrants outstanding classified as liabilities.

The fair value of the Company’s warrant liability was calculated using the Black-Scholes model and the following assumptions:

   
As of June 30, 2022
     As of December 31, 2021  
Fair value of company's common stock
 
$
4.39
    $ 9.02
 
Dividend yield
   
0
%     0%
 
Expected volatility
   
80% - 102
%
    118% - 149%  
Risk Free interest rate
   
2.63% - 2.95
%
    0.06% - 0.97%  
Expected life (years)
   
1.41
      1.82
 
Exercise price
 
$
8.00 - $28.00
    $
8.00 - $28.00  
Fair value of financial instruments - warrants
 
$
34,618
    $
369,234
 

The change in fair value of the financial instruments – warrants is as follows:

   
Amount
 
Balance as of January 1, 2022
 
$
369,234
 
         
Change in fair value of warrant liability
   
(334,616
)
         
Balance as of June 30, 2022
 
$
34,618
 

   
Amount
 
Balance as of January 1, 2021
 
$
 
         
Fair value of warrant liability assumed in connection with Helix Merger
    1,247,715  
         
Change in fair value of warrant liability
   
(494,827
)
         
Balance as of June 30, 2021
 
$
752,888
 

   
Amount
 
Balance as of April 1, 2022
 
$
149,394
 
         
Change in fair value of warrant liability
   
(114,776
)
         
Balance as of June 30, 2022
 
$
34,618
 

   
Amount
 
Balance as of April  1, 2021
 
$
624,088
 
         
Change in fair value of warrant liability
   
128,800

         
Balance as of June 30, 2021
 
$
752,888
 

Note 11
CONVERTIBLE NOTES

   
June 30, 2022
   
December 31, 2021
 
Principal outstanding
 
$
24,000,000
   
$
24,000,000
 
Add: accrued interest
   
697,315
     
280,000
 
Less: unamortized debt issuance costs
   
(16,886
)
   
(19,552
)
Convertible note payable, net of debt issuance costs
 
$
24,680,429
   
$
24,260,448
 

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 Note 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 $207,315 and $417,315 for the three and six months ended June 30, 2022, respectively, and $0 and $0 for the three and six months ended June 30, 2021, 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 will be deferred and amortized over the term of the Notes. During the three and six months ended June 30, 2022, the Company recognized $1,333 and $2,666 in amortization of debt issuance costs, respectively, and during the three and six months ended June 30, 2021, the Company recognized $0 and $0 in amortization of debt issuance costs, respectively.

Note 12
STOCK-BASED COMPENSATION

Restricted Stock Awards and Restricted Stock Units

Unvested equity interests of MOR were converted into restricted Company common stock based upon the exchange ratio of 1.7776 shares of Company common stock for each 1 MOR unit, subject to any adjustments required under the Contribution Agreement. The information regarding the 2020 Plan below is presented as though the combination occurred as of the beginning of the periods presented.

   
Number of
Restricted Shares
and Units
   
Weighted Average
Grant Date Fair
Value Per Share
 
Unvested at January 1, 2021
   
1,699,676
   
$
1.28
 
Issued
   
454,000
     
11.71
 
Vested
   
(907,545
)
   
0.03
 
Canceled
   
(100,000
)
   
12.18
 
Unvested at December 31, 2021
   
1,146,131
     
3.28
 
Issued
   
     
 
Vested
   
(261,775
)
   
2.32
 
Canceled
   
(11,541
)
   
0.04
 
Unvested at June 30, 2022
   
872,815
   
$
4.34
 

The 872,815 of unvested awards at June 30, 2022 consists of 273,000 restricted stock units and 599,815 shares of restricted stock.

Stock Options

As part of the Merger (see Note 4), 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. The value attributable to service subsequent to the Merger will be recognized as compensation cost by the Company.

The fair value of the stock options was estimated 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 at June 30, 2022 and December 31, 2021 are as follows:

   
June 30,
2022
   
 December 31,
2021
 
Exercise Price
 
$
2.00 to $51.80
    $ 2.00 to $51.80  
Fair value of Company common stock
 
$
2.98 - $15.61
    $ 7.85 to $22.90  
Dividend yield
   
0%
    0%

Expected volatility
   
117% to 188%
    117% to 188%  
Risk Free interest rate
 
0.27% to 2.96%
      0.27% to 1.59%  
Expected life (years) remaining
 
0.34 to 9.87
      0.84 to 10.00  

Stock option activity for the period ended June 30, 2022 is as follows:

   
Shares
Underlying
Options
   
Weighted Average
Exercise Price
   
Weighted Average
Remaining
Contractual Term
(in years)
 
Outstanding at January 1, 2021
   
   
$
     
 
Options assumed in Helix Merger
   
455,089
   
$
15.13
     
3.24
 
Granted
   
3,893,714
   
$
12.73
     
9.31
 
Exercised
   
(29,937
)
 
$
6.03
     
1.02
 
Forfeited and expired
   
(271,893
)
 
$
7.31
     
6.65
 
Outstanding at December 31, 2021
   
4,046,973
   
$
14.25
     
8.75
 
Granted     1,186,250     $ 4.02       9.83  
Exercised     (33,334 )   $ 2.47       3.05  
Forfeited and expired     (956,431 )   $ 15.16       8.46  
Outstanding at June 30, 2022     4,243,458     $ 10.60       8.85  
Vested options at June 30, 2022
   
1,174,374
   
$
11.16
     
7.56
 

The weighted average exercise price and remaining contractual life of exercisable options as of June 30, 2022 is $11.16 and 7.56 years, respectively. The total aggregate intrinsic value of the exercisable options as of June 30, 2022 was approximately $96,844.

Stock Compensation Expense

The grant date fair value per share for the stock options granted was $3.66 and $12.39 for the six months ended June 30, 2022 and 2021, respectively.

On March 2, 2022, the Company and the former chief executive officer and the former chief financial officer of Helix mutually agreed not to renew special advisor agreements between the advisors and the Company. Per the terms of the agreements, options to purchase 366,166 shares of common stock will continue to vest according to their original terms through March 2, 2023, and unvested stock options to purchase 732,332 shares of common stock were forfeited. The advisors are not required to perform services to the Company beyond the non-renewal date of March 2, 2022. As a result, the Company recorded $5,417,043 of stock compensation expenses related to the options that will vest over the twelve months ending March 2, 2023 during March 2022.

At June 30, 2022, the total unrecognized stock compensation expense related to unvested stock option awards and restricted stock awards and restricted stock units granted was $20,195,643, which the Company expects to recognize over a weighted-average period of approximately 3.17 years. Stock compensation expense for the three and six months ended June 30, 2022 and 2021 is as follows:

   
For the Three Months Ended June 30,
    For the Six Months Ended June 30,
 

 
2022
   
2021
    2022     2021  
Services
  $
41,253
    $
4,656
    $
65,160
    $
4,656
 
Research and development
   
144,347
   
83,099
      229,966       137,989  
Sales and marketing
   
190,094
     
174,919
      242,619       206,663  
General and administrative
   
1,390,500
     
2,488,873
      3,715,990       3,268,865  
Separation expenses
                5,417,043        
Total   $
1,766,194     $
2,751,547     $
9,670,778     $
3,618,173  

Total intrinsic value of options exercised in the period ended June 30, 2022 was $26,472. The total fair value of restricted shares vested during the period ended June 30, 2022 was $1,590,188.
 
Note 13
STOCKHOLDERS’ EQUITY

The Condensed Consolidated Statement of Stockholders’ Equity reflects the exchange of MOR Members Equity for Company common stock as of the beginning of the periods presented. See Note 2.

All of MOR’s Class A, Class B vested profit interests’ units, Series S, Series S-1, and vested Restricted Class B units were converted to Company common stock on March 2, 2021 based upon the exchange ratio of 1.7776 shares of Company common stock to 1 MOR member unit, subject to adjustment pursuant to the Contribution Agreement. Unvested Class B profit interest units, unvested restricted Class B units and options to acquire Restricted Class B Units were converted to unvested restricted Company common stock on March 2, 2021 based upon the exchange ratio of 1.7776 shares of Company common stock to 1 MOR member unit, subject to adjustment pursuant to the Contribution Agreement. The applicable vesting provisions of such MOR units carried over to the restricted Company common stock.

In March 2021, the Company issued warrants to purchase 17,031 shares of Company common stock at a per-share purchase price equal to $0.01. The warrants terminate after a period of 2 years from the issuance date. The warrants were issued in exchange for services provided with a fair value of $389,976 included in transaction related expenses for the year ended December 31, 2021.

On April 16, 2021, the Company raised proceeds of $11,968,652, net of transaction expenses of $31,348, resulting from the sale of 1,191,743 shares of Company common stock at an average purchase price equal to $10.21 per share to a select group of institutional and accredited investors. Investors included both unaffiliated investors as well as directors of the Company. Directors purchased 560,461 shares of common stock at a purchase price of $11.33 per share, which amount represented the consolidated closing bid price of Company common stock as reported by the Nasdaq on April 9, 2021, the last trading day prior to execution of the securities purchase agreement. Unaffiliated investors purchased 631,282 shares of Company common stock at a purchase price of $8.95 per share, which price was negotiated on April 9, 2021, and represents an approximately 15% discount to the preceding day’s volume weighted average price.

See Note 4 for additional details on shares issued pursuant to the Merger.

Note 14
NET LOSS PER SHARE

The following table sets forth the computation of the basic and diluted net loss per share:

   
For the Three Months Ended
June 30,
   
For the Six Months Ended
June 30,
 
   
2022
   
2021
   
2022
   
2021
 
Net loss attributable to common shareholders
 
$
(5,433,545
)
 
$
(6,964,940
)
 
$
(17,287,633
)
 
$
(11,480,593
)
                                 
Net loss per share attributable to common shareholders:
                               
Basic
 
$
(0.17
)
 
$
(0.22
)
 
$
(0.54
)
 
$
(0.42
)
Diluted
 
$
(0.17
)
 
$
(0.22
)
 
$
(0.54
)
 
$
(0.42
)
                                 
Weighted average common shares outstanding:
                               
Basic
   
31,984,208
     
30,996,735
     
31,921,761
     
27,534,359
 
Diluted
   
31,984,208
     
30,996,735
     
31,921,761
     
27,534,359
 

The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive:

   
As of June 30,
 
   
2022
   
2021
 
Potentially dilutive securities:
           
Warrants
   
119,087
     
124,087
 
Stock options
   
4,243,458
     
3,703,329
 
Convertible notes
    2,462,212        
Unvested Restricted Stock Awards and Units
   
872,815
     
1,760,551
 
Total
    7,697,572       5,587,967  

Note 15
RELATED PARTY TRANSACTIONS

Adam Dublin, 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 have 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 six months ended June 30, 2022 of $142,266 and $234,635, respectively, and for the three and six months ended June 30, 2021 of $90,065 and $196,149, respectively.

On April 16, 2021, the Company raised net proceeds of $11,968,652 resulting from the sale of Company common stock to a select group of institutional and accredited investors, which included directors of the Company. See Note 13 for additional information.

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 holds $6,000,000 of the Notes. See Note 11 for additional information.

Note 16
SEGMENT RESULTS

The Company provides innovative software solutions, proprietary data and predictive analytics to optimize the operational, clinical and financial performance of its customers within the healthcare and cannabis industries.

FASB ASC Topic 280, “Segment Reporting”, requires that public companies report profits and losses and certain other information on their “reportable operating segments” in their annual and interim financial statements. The internal organization used by the public company’s Chief Operating Decision Maker (CODM) to assess performance and allocate resources determines the basis for reportable operating segments. The Company’s CODM is the Chief Executive Officer. The CODM evaluates financial performance based on Revenues and Operating Income. The CODM does not review assets by operating segment for the purposes of assessing performance or allocated resources.

The Company has three operating and reportable segments, which are consistent with its reporting units as follows:

The “Information and Software” segment licenses information and software products to customers. Revenues in this segment are currently derived from customers in the healthcare or cannabis industries; however, the Company’s information may be licensed to other customer segments as the Company leverages its analytics platform.

The “Services” segment provides implementation, support and training on a contractual basis to customers. Revenues in this segment are primarily generated from the operation of cannabis-related “seed to sale” traceability platforms for government entities. The Company plans to introduce Real World Evidence (RWE) and Data as a Service (DaaS) service offerings in this segment in the future.

The “Other” segment consists of certain other business operations, primarily in security and marketing services.

The following represents selected information for the Company’s reportable segments:

   
For the Three Months
Ended June 30,
   
For the Six Months
Ended June 30,
 
   
2022
   
2021
   
2022
   
2021
 
Information and Software
                       
Revenue
 
$
6,084,439
   
$
3,763,671
   
$
11,893,533
   
$
5,172,649
 
Costs and expenses
   
7,362,160
     
6,514,714
     
14,805,374
   

10,152,316
 
Loss from operations
 
$
(1,277,721
)
 
$
(2,751,043
)
 
$
(2,911,841
)
 
$
(4,979,667
)
Total other income/(expense)
   
     
     
     
 
Loss before income taxes
 
$
(1,277,721
)
 
$
(2,751,043
)
 
$
(2,911,841
)
 
$
(4,979,667
)
                                 
Services
                               
Revenue
 
$
398,155
   
$
492,336
   
$
826,861
   
$
588,647
 
Costs and expenses
   
307,755
     
305,830
     
599,354
     
386,120
 
Income from operations
 
$
90,400
   
$
186,506
   
$
227,507
   
$
202,527
 
Total other income/(expense)
   
     
     
     
 
Income before income taxes
 
$
90,400
   
$
186,506
   
$
227,507
   
$
202,527
 
                                 
                                 
Other
                               
Revenue
 
$
51,664
   
$
291,978
   
$
205,143
   
$
407,298
 
Costs and expenses
   
204,814
     
390,100
     
421,877
     
469,987
 
Income (loss) from operations
 
$
(153,150
)
 
$
(98,122
)
 
$
(216,734
)
 
$
(62,689
)
Total other income/(expense)
   
     
169,012
     
50
     
144,918
 
Income (loss) before income taxes
 
$
(153,150
)
 
$
70,890
   
$
(216,684
)
 
$
82,229