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, 2023

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 9, 2023, there were 32,580,660 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.
29
     
Item 3.
39
     
Item 4.
39
     
PART II
40
     
Item 1.
40
     
Item 1A.
41
     
Item 2.
41
     
Item 3.
41
     
Item 4.
41
     
Item 5.
41
     
Item 6.
41
     
42

FORIAN INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2023 AND DECEMBER 31, 2022

Item 1.
Financial Statements and Supplementary Unaudited Data

   
June 30,
   
December 31,
 
   
2023
   
2022
 
   
Unaudited
       
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
2,902,446
   
$
2,795,743
 
Marketable securities
   
38,344,436
     
17,396,487
 
Accounts receivable, net
   
3,839,828
     
1,809,028
 
Proceeds receivable from sale of discontinued operations, net
    6,501,708        
Contract assets
   
1,810,342
     
2,252,958
 
Prepaid expenses
   
968,130
     
835,786
 
Other assets
   
700,300
     
432,338
 
Current assets of discontinued operations
          1,393,688  
Total current assets
   
55,067,190
     
26,916,028
 
                 
Property and equipment, net
   
96,836
     
75,030
 
Right of use assets, net
    20,836       32,560  
Deposits and other assets
   
164,369
     
196,675
 
Non-current assets of discontinued operations
          19,037,874  
Total assets
 
$
55,349,231
   
$
46,258,167
 

 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
Current liabilities:
               
Accounts payable
   
921,542
     
316,105
 
Accrued expenses
   
4,824,236
     
3,766,789
 
Short-term operating lease liabilities
    20,836       21,600  
Warrant liability
   
2,053
     
4,547
 
Deferred revenues
   
3,262,763
     
2,581,287
 
Current liabilities of discontinued operations
          1,662,247  
Total current liabilities
   
9,031,430
     
8,352,575
 
                 
Long-term liabilities:
               
Long-term operating lease liabilities
   
     
10,960
 
Convertible notes payable, net of debt issuance costs (Note 10) ($6,000,000 in principal is held by a related party. Refer to Note 13)
    25,525,762
      25,106,547
 
Non-current liabilities of discontinued operations
          365,609  
Total long-term liabilities
   
25,525,762
     
25,483,116
 
                 
Total liabilities
   
34,557,192
     
33,835,691
 
                 
Commitments and contingencies (Note 16)
   
     
 
Stockholders’ equity:
               
Preferred Stock; par value $0.001; 5,000,000 Shares authorized; 0 issued and outstanding as of June 30, 2023 and December 31, 2022
   
     
 
Common Stock; par value $0.001; 95,000,000 Shares authorized; 32,452,051 issued and outstanding as of June 30, 2023 and 32,251,326 issued and outstanding as of December 31, 2022
   
32,452
     
32,251
 
Additional paid-in capital
   
74,176,035
     
71,182,326
 
Accumulated deficit
   
(53,416,448
)
   
(58,792,101
)
Total stockholders’ equity
   
20,792,039
     
12,422,476
 
Total liabilities and stockholders’ equity
 
$
55,349,231
   
$
46,258,167
 

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,
 

 
2023
   
2022
    2023
    2022
 
Revenue   $ 4,893,542     $ 3,602,913     $ 9,763,929     $ 7,137,774  

                               
Costs and Expenses:
                               
Cost of revenues
   
1,276,712
     
1,271,402
      2,528,927       2,514,432  
Research and development
   
304,187
     
1,419,519
      835,876       2,509,398  
Sales and marketing
   
1,237,327
     
1,003,104
      2,433,519       1,823,698  
General and administrative
   
3,548,599
     
3,820,730
      7,188,425       9,094,698  
Separation expenses                 599,832       5,417,043  
Depreciation and amortization
   
15,257
     
16,334
      53,687       31,683  
Total costs and expenses
   
6,382,082
     
7,531,089
      13,640,266       21,390,952  

                               
Loss From Continuing Operations
   
(1,488,540
)
   
(3,928,176
)
    (3,876,337 )     (14,253,178 )

                               
Other Income (Expense):
                               
Change in fair value of warrant liability
   
8,053
     
114,776
      2,494       334,616  
Interest and investment income
   
637,032
     
18,916
      1,019,954       22,711  
Interest expense
    (210,758 )     (208,648 )     (419,214 )     (419,981 )
Total other income, net
   
434,327
     
(74,956
)
    603,234       (62,654 )

                               
Loss from continuing operations before income taxes
   
(1,054,213
)
   
(4,003,132
)
    (3,273,103 )     (14,315,832 )
Income tax expense
   
(36,187
)
   
(5,000
)
    (66,096 )     (10,000 )
Loss from continuing operations, net of tax     (1,090,400 )     (4,008,132 )     (3,339,199 )     (14,325,832 )

                               
Loss from discontinued operations           (1,425,413 )     (94,427 )     (3,163,960 )
Gain on sale of discontinued operations                 11,531,849       202,159  
Income tax effect on discontinued operations     (32,426 )           (2,722,570 )      
(Loss) Income from discontinued operations, net of tax   $
(32,426 )   $
(1,425,413 )   $ 8,714,852     $
(2,961,801 )

                               
Net (Loss) Income
 
$
(1,122,826
)
 
$
(5,433,545
)
  $ 5,375,653     $ (17,287,633 )

                               
Net (loss) income per share:                                
Basic and diluted                                
Continuing operations
  $ (0.03 )   $ (0.13 )   $ (0.10 )   $ (0.45 )
Discontinued operations
  $

    $
(0.04 )   $ 0.27
    $
(0.09 )
Net (loss) income per share - basic and diluted
 
$
(0.03
)
 
$
(0.17
)
  $ 0.17     $ (0.54 )

                               
Weighted-average shares outstanding - basic and diluted
   
32,260,992
     
31,984,208
      32,369,904       31,921,761  

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 January 1, 2023
   
   
$
     
32,251,326
   
$
32,251
   
$
71,182,326
   
$
(58,792,101
)
 
$
12,422,476
 
Vesting of Restricted Stock and Stock Awards, net of shares surrendered for taxes
   
     
     
199,824
     
200
     
(127,557
)
   
     
(127,357
)
Issuance of Forian common stock upon exercise of stock options
   
     
     
901
     
1
     
(1
)
   
     
 
Stock based compensation expense
   
     
     
     
     
3,121,267
     
     
3,121,267
 
Net income
   
     
     
     
     
     
5,375,653
   
5,375,653
Balance at June 30, 2023
   
   
$
     
32,452,051
   
$
32,452
   
$
74,176,035
   
$
(53,416,448
)
 
$
20,792,039
 

 
 
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
 

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, 2023
   
   
$
     
32,418,842
   
$
32,419
   
$
72,668,484
   
$
(52,293,622
)
 
$
20,407,281
 
Vesting of Restricted Stock and Stock Awards, net of shares surrendered for taxes
   
     
     
33,209
     
33
     
(32,791
)
   
     
(32,758
)
Stock based compensation expense
   
     
     
     
     
1,540,342
     
     
1,540,342
 
Net loss
   
     
     
     
     
     
(1,122,826
)
   
(1,122,826
)
Balance at June 30, 2023
   
   
$
     
32,452,051
   
$
32,452
   
$
74,176,035
   
$
(53,416,448
)
 
$
20,792,039
 

 
 
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
 

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,
 
   
2023
   
2022
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net (loss) income
 
$
5,375,653
   
$
(17,287,633
)
Less: Income (loss) from discontinued operations
    8,714,852       (2,961,801 )
Loss from continuing operations
    (3,339,199 )     (14,325,832 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
   
53,687
     
31,683
 
Amortization on right of use asset
    11,724       801
 
Amortization of debt issuance costs
    2,667       2,666
 
Amortization of discount - proceeds from sale of discontinued operations
    (245,041 )      
Accrued interest on convertible notes
    416,548       417,315
 
Realized and unrealized gain on marketable securities
   
(767,533
)
   
(22,043
)
Stock-based compensation expense
   
3,368,575
     
8,988,172
 
Change in fair value of warrant liability
   
(2,494
)
   
(334,616
)
Change in operating assets and liabilities:
               
Accounts receivable
   
(2,030,800
)
   
(475,568
)
Contract assets
   
442,616
     
(689,281
)
Prepaid expenses
   
(132,344
)
   
(250,660
)
Changes in lease liabilities during the year
    (11,724 )     (801 )
Deposits and other assets
   
(235,656
)
   
544,571
 
Accounts payable
   
605,437
     
200,371
 
Accrued expenses
    (236,088 )     (266,399 )
Deferred revenues
   
681,476
     
1,793,532
 
Net cash used in operating activities - continuing operations
    (1,418,149 )     (4,386,089 )
Net cash used in operating activities - discontinued operations
    (59,075 )     (1,355,306 )
Net cash used in operating activities
   
(1,477,224
)
   
(5,741,395
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Additions to property and equipment
   
(75,493
)
   
(45,367
)
Purchase of marketable securities
   
(61,573,237
)
   
(23,959,558
)
Sale of marketable securities
    41,392,821       24,799,107  
Net cash from sale of discontinued operations
   
21,967,193
     
225,577
 
Net cash provided by investing activities - continuing operations
    1,711,284       1,019,759  
Net cash used in investing activities - discontinued operations
          (1,654,163 )
Net cash used in (provided by) investing activities
   
1,711,284
     
(634,404
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Payments on notes payable and financing arrangements
   
     
(13,122
)
Payment of employee withholding tax related to restricted stock units
    (127,357 )     (58,085 )
Net cash used in financing activities - continuing operations
    (127,357 )     (71,207 )
Net cash used in financing activities
   
(127,357
)
   
(71,207
)
                 
Net change in cash
   
106,703
     
(6,447,006
)
                 
Cash and cash equivalents, beginning of period
   
2,795,743
     
17,938,490
 
                 
Cash and cash equivalents, end of period
 
$
2,902,446
   
$
11,491,484
 
                 
Supplemental disclosure of cash flow information:
               
Cash paid for interest
  $     $  
Cash paid for taxes
  $ 1,423,000     $ 2,550  

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 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 related 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 provides 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 together are 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. Further, the Company reclassified the assets and liabilities of the Helix Businesses to discontinued operations in the Consolidated Balance Sheet as of December 31, 2022. The Company will continue to provide analytics solutions to customers within the healthcare and related 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 June 30, 2023. 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, 2022, as filed with the Securities and Exchange Commission (“SEC”) on March 30, 2023.
 
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 (ii) Helix Technologies, Inc. and its wholly owned subsidiaries including Helix TCS, LLC (through December 31, 2022), Security Consultants Group, LLC (through December 31, 2022), Helix Legacy, Inc. (f/k/a Security Grade Protective Services, Ltd.), Bio-Tech Medical Software, Inc (through February 10, 2023), and Engeni, LLC (including Engeni S.A. (“Engeni SA”), which is 99% owned by Engeni, LLC) (through October 31, 2022). Effective October 31, 2022, 100% of the outstanding membership interest of Engeni, LLC held by Helix was sold. Effective December 31, 2022, (i) Security Consultants Group, LLC was merged with and into Helix TCS, LLC and (ii) Helix TCS, LLC was merged with and into Helix Legacy, Inc. On February 10, 2023, 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.

On March 3, 2022, the Company sold certain assets, consisting of customer contracts, accounts receivable, and other property related to its security monitoring services. On October 31, 2022, the Company sold 100% of its outstanding membership interest of Engeni, LLC for a note with payments of up to $100,000 if certain conditions are met.

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 six months ended June 30, 2023 and 2022, 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.


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. The Company sold all of the assets of its operations in Argentina, Engeni LLC and Engeni SA, during October 2022. The financial results of the Company’s Argentina operations are included in discontinued operations for the three and six months ended June 30, 2022. During the three and six months ended June 30, 2022, sales in Argentina, which are included in discontinued operations, were less than 1% of the Company’s consolidated sales. The hyperinflationary conditions did not have a material impact on the Company’s business during the three and six months ended June 30, 2022.

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 the allowance for doubtful accounts, income taxes, depreciation, amortization of intangible assets, 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 period financial statement presentation. Certain personnel, information licensing and data processing costs that were previously classified in research and development expenses when the Company’s healthcare information business was in its start-up stage were reclassified to cost of revenues and general and administrative expenses in the condensed consolidated statements of operations.

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 June 30, 2023 and December 31, 2022 was $2,053 and $4,547, respectively, based on Level 3 inputs. Refer to Note 9.

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 $0 and $78,422 at June 30, 2023 and December 31, 2022, respectively.

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

Proceeds from sale of discontinued operations, net

Proceeds from sale of discontinued operations consists of eight remaining monthly payments due through February 10, 2024 resulting from the sale of BioTrack, aggregating $6,666,667, less an unamortized discount of $164,958. The Company recognized $190,000 and $245,041 of amortization of the $410,000 discount in interest and investment income for the three and six months ended June 30, 2023, respectively.

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. 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. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually.

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.

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.

All of the Company’s previously reported goodwill related to discontinued operations and has been classified as non-current assets of discontinued operations at December 31, 2022. See Note 4 – Discontinued Operations.

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 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. 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 does 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 $654,489, $1,306,251, $377,276, and $754,466 for the three and six months ended June 30, 2023 and 2022, respectively. The Company has outstanding accounts receivable from this customer of $1,331,759 and $469,786 at June 30, 2023 and December 31, 2022, respectively. See Note 17.

 Contract assets and deferred revenues consist of the following as of June 30, 2023:

 
 
Contract Assets
   
Contract
Liability
 
 
 
Costs of
obtaining
contracts
   
Unbilled
revenue
   
Total
   
Deferred
Revenue
 
Balance at January 1, 2022
 
$
70,278
   
$
986,613
   
$
1,056,891
   
$
637,563
 
Beginning deferred revenue balance recognized during the period
   
     
     
     
(637,562
)
Net change due to timing of billings, payments and recognition
   
87,738
     
1,108,329
     
1,196,067
     
2,581,286
 
Balance at December 31, 2022
   
158,016
     
2,094,942
     
2,252,958
     
2,581,287
 
Beginning deferred revenue balance recognized during the period
   
     
     
     
(2,168,625
)
Net change due to timing of billings, payments and recognition
   
69,183
     
(511,799
)
   
(442,616
)
   
2,850,101
 
Balance at June 30, 2023
 
$
227,199
   
$
1,583,143
   
$
1,810,342
   
$
3,262,763
 

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, 2023
   
December 31, 2022
 
Estimated next twelve months
 
$
16,980,376
   
$
15,790,233
 
Thereafter
   
22,499,147
     
22,192,028
 
Total
 
$
39,479,523
   
$
37,982,261
 

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.

Customer Concentration


During the three and six months ended June 30, 2023 and 2022, the Company had two customers representing 13.4% and 12.6% of revenue. At June 30, 2023, the Company had three customers representing 34.7%, 14.3% and 11.8% of accounts receivable.  

During the three months ended June 30, 2022, the Company had two customers representing 17.0% and 10.5% of revenue. During the six months ended June 30, 2022, the Company had three customers representing 15.8%, 10.6% and 10.3% of revenue. At December 31, 2022, the Company had three customers representing 25.9%, 14.8% and 14.6% of accounts receivable.

Concentration of Vendors

The Company licenses certain information assets from third parties as a key input to certain Information and Software products. Any disruption associated with these suppliers could have a material short-term impact on the business while alternate sources are secured.

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, 2023 and 2022.

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. The Company begins to capitalize these costs when preliminary development efforts are successfully completed, management has authorized and committed project funding and it is probable that the project will be completed and the software would be used as intended. Capitalization ceases upon completion of all substantial testing. Such costs are amortized when placed in service, on a straight-line basis over the estimated useful life of the related asset, generally estimated to be three years. Product development costs not pertaining to the application development stage are expensed 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 $20,294, $35,419, $0 and $2,000 for the three and six months ended June 30, 2023 and 2022, respectively.

Net Income (Loss) per Share

The calculation of earnings per share is based on the weighted average number of ordinary shares or ordinary stock equivalents outstanding during the applicable period. The dilutive effect of ordinary 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 loss from continuing operations. Employee equity share options 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 based on the average share price for each fiscal period using the treasury stock method. 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 ordinary 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 six months ended June 30, 2023 and 2022, the Company recognized net income tax expense of $36,187, $66,096, $5,000 and $10,000, 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 during the for the six months ended June 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 $2,722,570 after utilization of federal and state net operating losses during the six months ended June 30, 2023. Income taxes related to discontinued operations for the three months ended June 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 June 30, 2023, the Company is not subject to examination in any tax jurisdictions.

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.

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted and signed into law. Regarded as the reduced version of the proposed Build Back Better Act, the IRA contains two main corporate income tax provisions, including a 15% minimum tax on the average annual adjusted financial statement income of corporations with profits over $1 billion over a three-year period, as well as a 1% excise tax on the corporate stock buybacks by domestic publicly traded corporations. The Company is currently evaluating the impact of the IRA on its financial statements for tax year 2023 but does not expect a material impact to the Company’s tax position.

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 six months ended June 30, 2023 include $250,000 related to the salary continuation and $349,832 related to the accelerated vesting of stock. There were no such expenses incurred for the three months ended June 30, 2023.

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 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 continued to vest according to their original terms through March 2, 2023, and unvested stock options to purchase 732,332 shares of common stock were forfeited. The advisors were not required to perform services to the Company beyond the non-renewal date of March 2, 2022. As a result, the Company recorded $5,417,043 of stock compensation expense during March 2022 related to the options that vested through  March 2, 2023.

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 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. ASU 2021-08 was adopted on January 1, 2023. The adoption of ASU 2021-08 did not 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
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 $30.0 million, consisting of $20.0 million paid at closing and $10.0 million paid in twelve unconditional monthly installments thereafter. In March 2022, Helix sold its security monitoring business and in October 2022, 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 related industries.


The Company recognized a gain on sale of BioTrack of $11,531,849 and a loss from discontinued operations of $94,427 during the six months ended June 30, 2023, which is included as part of discontinued operations. The Company also recorded income taxes related to discontinued operations of $32,426 and $2,722,570 during the three and six months ended June 30, 2023, respectively.


The Company recorded a gain on the sale of assets related to its security monitoring business of $202,159 during the six months ended June 30, 2022. The amount was reclassified to discontinued operations in 2023 as it was part of a strategic shift which became significant to the Company’s operations upon the sale of BioTrack.


The following table summarizes the major classes of assets and liabilities of the Helix Businesses as reported on the consolidated balance sheets as of December 31, 2022:

   
December 31, 2022
 
Carrying amounts of assets associated with Helix Businesses included as part of discontinued operations:
     
Cash and cash equivalents
 
$
524,155
 
Accounts receivable, net
   
738,510
 
Prepaid expenses
   
131,023
 
Current assets of discontinued operations
 
$
1,393,688
 
         
Property and equipment, net
   
2,500,376
 
Intangible assets, net
   
6,775,841
 
Goodwill
   
9,099,372
 
Right of use assets, net
   
603,636
 
Deposits and other assets
   
58,649
 
Non-current assets of discontinued operations
 
$
19,037,874
 
         
Carrying amounts of liabilities associated with Helix Businesses included as part of discontinued operations:
       
Accounts payable
 
$
258,960
 
Accrued expenses
   
661,981
 
Short-term operating lease liabilities
   
243,888
 
Deferred revenues
   
497,418
 
Current liabilities of discontinued operations
 
$
1,662,247
 
         
Long-term operating lease liabilities
   
365,609
 
Non-current liabilities of discontinued operations
 
$
365,609
 

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 six months ended June 30, 2023 and 2022:

   
For the Three Months Ended
June 30,
   
For the Six Months Ended
June 30,
 
   
2023
   
2022
    2023     2022  
Income and expense line items related to Helix Businesses:
                       
Revenues:
                       
Information and Software
 
$
   
$
2,495,901
    $ 1,121,677     $ 4,770,134  
Services
   
     
399,655
      179,798       828,361  
Other
</