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

1
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

2
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

3
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

4
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

5
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.

6
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.

7
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.

8
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.

9
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.

10
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
  

11
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.

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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.

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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.

14
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.

15
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.
16
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
)

17
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.

18
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.

19
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
 

20
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.

21
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.
22
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.

23
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.
24
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  

25
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.

26
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
  
                                 
Centrally Managed Costs
                                
Revenue
  
$
—
    
$
—
    
$
—
    
$
—
  
Costs and expenses
    
4,252,080
      
4,322,291
      
14,605,764
      
7,261,636
  
Loss from operations
  
$
(4,252,080
)
  
$
(4,322,291
)
  
$
(14,605,764
)
  
$
(7,261,636
)
Total other income/(expense)
    
164,006
      
(149,002
)
    
229,149
      
475,954
  
Loss before income taxes
  
$
(4,088,074
)
  
$
(4,471,293
)
  
$
(14,376,615
)
  
$
(6,785,682
)
Income tax expense
    (5,000 )     —       (10,000 )     —  
Net loss
   $ (4,093,074 )   $ (4,471,293 )   $ (14,386,615 )   $ (6,785,682 )
                                 
Totals
                                
Revenue
  
$
6,534,258
    
$
4,547,985
    
$
12,925,537
    
$
6,168,594
  
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
)
Total other income/(expense)
    
164,006
      
20,010
      
229,199
      
620,872
  
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
)

Approximately 98% of the Company’s revenues were attributable to customers in the United States for the three and six months ended June 30, 2022. Approximately 98% of revenues were attributable to customers in the United States for the three and six months ended June 30, 2021.

27
Note 17
COMMITMENTS AND CONTINGENCIES

Operating Leases
The Company accounts for leases in accordance with ASC Topic 842, Leases (“ASC 842”). All contracts are evaluated to determine whether or not they represent a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company has operating leases primarily consisting of facilities with remaining lease terms of one year to five years. The lease term represents the period up to the early termination date unless it is reasonably certain that the Company will not exercise the early termination option. Certain leases include rental payments that are adjusted periodically based on changes in consumer price and other indices.
Leases are classified as finance or operating in accordance with the guidance in ASC 842. The Company does not hold any finance leases.
The Company is obligated under operating lease agreements for office facilities in (i) Florida (two), (ii) Washington, (iii) Colorado and (iv) Argentina that expire in (i) December 2024, (ii) December 2022, (iii) February 2026 and (iv) July 2024, respectively. The Company also has two short-term leases related to offices in Pennsylvania and Massachusetts. These short-term leases are currently leased on a month-to-month basis. A short-term lease is a lease with a term of 12 months or less and does not include the option to purchase the underlying asset that we would expect to exercise. The Company has elected to adopt the short-term lease exemption in ASC 842 and as such have not recognized a “right of use” asset or lease liability for these short-term leases.
The Company’s lease agreements generally do not provide an implicit borrowing rate, therefore an internal incremental borrowing rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments.
Supplemental cash flow information and non-cash activity related to leases for the six months ended June 30, 2022 and 2021 were as follows:
 
  
For the Six Months Ended June 30,
  
 
  
2022
    
2021
  
Cash used in operating leases
  
$
 154,234
    
$
 120,615
  
ROU assets obtained in exchange for new operating lease liabilities
  
$
 —
    
$
 1,082,684
  

ROU lease assets and lease liabilities for the Company’s operating leases were recorded in the condensed consolidated balance sheet as follows:

 
  
June 30, 2022
    
December 31, 2021
  
Right of use assets, net
  
$
735,164
    
$
859,637
  
                 
Short-term operating lease liabilities
  
$
246,501
    
$
247,325
  
Long-term operating lease liabilities
    
491,199
      
611,523
  
Total lease liabilities
  
$
737,700
    
$
858,848
  
Weighted average remaining lease term (in years)
    
2.86
      
3.32
  
Weighted average discount rate
    
8.49
%
    
8.5%


28
The components of lease expense were as follows for each of the periods presented:

   
For the Three Months
Ended June 30,
   
For the Six Months Ended
June 30,
  
   
2022
    
2021
     2022
     2021
  
Operating lease expense
  
$
78,781
    
$
81,935
    
$
 157,562     $
 109,247  
Short-term lease expense
  $ 58,522     $ 26,541     $
 118,409     $
 34,493  
Total operating lease costs
   $ 137,303     $ 108,476     $
 275,971     $
 143,740  

Future lease payments included in the measurement of lease liabilities on the condensed consolidated balance sheet as of June 30, 2022, for the following five fiscal years and thereafter were as follows:
   
June 30, 2022
  
2022 (Remaining)
  
$
154,235
  
2023
    
286,670
  
2024
    
291,161
  
2025
    
85,726
  
2026
    
14,287
  
Total future minimum lease payments
  
$
832,079
  
Less imputed interest
    
(94,379
)
Total
  
$
737,700
  

Service Agreements
The Company entered into certain service agreements that provide for future minimum payments. The terms of these agreements vary in length. The following table shows the remaining payment obligations under these licenses as of June 30, 2022:
   
June 30, 2022
  
   

 
Year ending December 31, 2022
  
$
353,844
  
Year ending December 31, 2023
    
1,741,439
  
Year ending December 31, 2024     1,887,595  
Year ending December 31, 2025     1,600,000  
Year ending December 31, 2026     400,000  
   
$
5,982,878
  

Legal Proceedings

From time to time the Company may be involved in claims that arise during the ordinary course of business. For any matters where management currently believes it is probable that the Company will incur a loss and that the probable loss or range of loss can be reasonably estimated, the Company records reserves in the condensed consolidated financial statements based on its best estimates of such loss. In other instances, because of the uncertainties related to either the probable outcome or the amount or range of loss, management is unable to make a reasonable estimate of a liability, if any. Regardless of the outcome, litigation can be costly and time consuming, and it can divert management’s attention from important business matters and initiatives, negatively impacting the Company’s overall operations. Although the results of litigation and claims cannot be predicted with certainty, the Company does not currently have any pending litigation to which it is a party or to which its property is subject that we believe to be material, except for the below.

29
Audet v. Green Tree International, et. al.

On February 14, 2020, John Audet filed a complaint in 15th Judicial Circuit in and for Palm Beach County, Florida against multiple parties, including Green Tree International (“GTI”), an indirect subsidiary of the Company, claiming that he owned 10% of GTI. The complaint seeks unspecified monetary damages equivalent to the value a 10% shareholder of GTI would have received in the subsequent Helix and Forian transactions, along with an equitable accounting and constructive trust to determine if Audet suffered any loss of profit distributions. The case is in the process of discovery and no trial schedule has been established. Each of the parties’ motions for summary judgment were recently denied. The Company believes the lawsuit is wholly without merit and will vigorously defend the claims in the lawsuit.

Nykiah Thomas v. Security Consultants Group, LLC d/b/a Helix TCS, Helix Technologies, Inc. and Shamson Sundra

On July 16, 2021, Nykiah Thomas, individually and on behalf of M’Seiya Thomas, a minor, filed a complaint in the District Court, City and County of Denver, Colorado, against Security Consultants Group, LLC d/b/a Helix TCS and Helix Technologies, Inc., subsidiaries of Forian, and Shamson Sundra, a former employee of Security Consultants Group, LLC, alleging negligence in the performance of security services in connection with a school shooting at STEM School Highlands Ranch that occurred on May 7, 2019. In January 2022, the parties reached an agreement in principle to settle this dispute. In May 2022, the settlement agreement was approved by the Court and the parties entered into a Stipulation for Dismissal with Prejudice. The lawsuit was dismissed with prejudice by the Court in an order dated July 1, 2022.


Grant Whitus et al. v. Forian Inc., Zachary Venegas and Scott Ogur



On July 30, 2021, four former Helix employees filed a lawsuit in the Arapahoe County, Colorado District Court against the Company and Helix’s former managers asserting claims of breach of contract, promissory estoppel, breach of the covenant of good faith and fair dealing, civil theft and conversion, fraudulent misrepresentation, civil conspiracy, and unjust enrichment / quantum meruit, all relating to the plaintiffs’ claims that they were promised equity interest in Helix or compensation that they never received. The original complaint was never served, and in November 2021 the plaintiffs filed and served an amended complaint adding a fifth plaintiff, and seeking over $27.5 million in damages as well as attorneys’ fees and costs. The Company removed the matter to the United States District Court for the District of Colorado in December 2021 and both the Company and the individual defendants filed motions to dismiss on January 20, 2022. Plaintiffs subsequently amended their complaint on April 21, 2022, adding Helix TCS LLC and Helix Technologies, Inc. as defendants and advancing additional claims for breach of fiduciary duty and violation of the Colorado Wage Claims Act. The Company and the individual defendants filed their separate motions to dismiss on June 1, 2022, and briefing of those motions was completed on July 13, 2022. Although the motions are still pending, the Court ordered the parties to begin discovery. The Company intends to defend vigorously against the claims in the lawsuit.

Note 18
SUBSEQUENT EVENTS

The Company entered into a new lease agreement for office space in Hingham, Massachusetts, commencing on July 1, 2022. The lease has an initial term of two years, and base rent per year is approximately $22,000.

30
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement for Forward-Looking Information

The following discussion of our financial condition and results of operations for the three and six months ended June 30, 2022 and 2021, respectively should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 31, 2022. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Unless expressly indicated or the context requires otherwise, the terms “Forian”, the “Company”, “we”, “us”, and “our” refer to Forian Inc.

Overview

The Company was initially incorporated in Delaware on October 15, 2020 as a wholly owned subsidiary of Medical Outcomes Research Analytics, LLC (“MOR”), which was founded in Delaware on May 6, 2019, in connection with the Business Combination described below. On October 16, 2020, the Company entered into a definitive agreement with Helix Technologies, Inc. (“Helix”) and MOR, pursuant to which DNA Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), merged with and into Helix, with Helix surviving the merger as a wholly owned subsidiary of the Company (the “Merger”). On March 2, 2021, the Company entered into a definitive agreement with the equity holders of MOR, pursuant to which the equity holders of MOR 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”). Following consummation of the Business Combination on March 2, 2021, the Company became the parent company of both Helix and MOR. 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.

The Company provides innovative software solutions, proprietary data and predictive analytics to optimize the operational and financial performance of our customers. Given the prior experience of our management team, our initial focus is on stakeholders within the healthcare and cannabis industries. However, we believe the application of our offerings across other verticals to enhance the transparency and efficacy of our customers’ relationships with their communities and customers is equally compelling.

The Company represents the unique convergence of proprietary healthcare, consumer and cannabis data, SaaS analytics, 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 we serve. In MOR, there was early recognition of the opportunity to bring the sophistication of proven data science technology and analytics solutions to a prominent cannabis technology platform provider, creating innovation in both the applications that are key to supporting customer success within the cannabis industry and to the data science powered insights that drive healthcare and other mature regulated growth industries. In Helix, there was realization that the capability set of a technology solutions provider within more evolved sectors together with the track record of the MOR management team offered a unique opportunity to enhance the value that Helix brings to its cannabis customers and to the industry generally.

31
The Company’s mission is to provide our customers with the best-in-class critical technology services through a single integrated Forian platform that enables our customers within the healthcare and cannabis industries to operate their businesses more safely, efficiently and profitably and to serve our customers and our customers’ stakeholders and constituencies more comprehensively.

A novel strain of coronavirus (COVID-19) was first identified in December 2019, and subsequently declared a pandemic by the World Health Organization. Our business has largely operated in a work-from-home environment since the inception of the pandemic and, as a result, has experienced limited business disruption to date. Our management team continues to focus on the highest level of safety measures to protect our employees. We have not experienced a material impact to our financial results to date, however, COVID-19 continues to present significant uncertainty in the future economic outlook for our customers and the markets we serve.

Financial Operations Overview

The following discussion sets forth certain components of our statements of operations as well as factors that impact those items.

Revenues

Revenues are derived from Information and Software Products, Services and Other Products. Information and Software revenues are generated from licensing fees for our proprietary information and software products. The Company recognizes revenues from Information and Software products as performance obligations under customer contracts are satisfied. Services revenues are primarily from contracts with government agencies and revenue is recognized upon completion of the various milestones within 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.

Cost of Revenues

Cost of revenues is generated from direct costs associated with the delivery of our products and services to our customers. The cost of revenues relates primarily to labor costs, hosting and infrastructure costs and client service team costs. We record the cost of direct fulfillment as cost of revenues. Infrastructure and licensed data costs, which are shared across all projects or groups of projects, are not charged to cost of revenues and included in research and development.

Research and Development

Research and development expenses consist primarily of employee-related expenses, subcontractor and third-party consulting fees, data fees, and hosted infrastructure costs. We continue to focus our research and development efforts on adding new features and applications to our product offerings. Once our prototypes are proven, we begin to capitalize costs that qualify with the associated development rather than recording those costs as research and development.

32
Sales and Marketing

Sales and marketing expense is primarily salaries and related expenses, including commissions, for our sales, marketing and product management staff. Marketing program costs are also recorded as sales and marketing expense including advertising, market research, and events (such as trade shows, corporate communications, brand building, etc.). The Company plans to continue to invest in marketing and sales by expanding our selling and marketing staff, building brand awareness, attracting new clients and sponsoring additional marketing events. The timing of these marketing events will affect our marketing costs in any particular quarter.

General and Administrative Expenses

General and administrative expenses include salaries and benefits and other costs of departments serving administrative functions, such as executives, finance and accounting and human resources. In addition, general and administrative expense includes non-personnel costs, such as professional fees, legal fees, accounting and finance advisory fees and other supporting corporate expenses not allocated to cost of revenues, product and development or sales and marketing.

Depreciation and Amortization Expenses

Depreciation and Amortization relate to long lived assets used in our business. Depreciation expense relates primarily to furniture and equipment, computers and vehicles. Amortization expense relates primarily to identifiable intangibles of acquired companies.

Transaction Related Expenses

Transaction related expenses relate to the acquisition of Helix on March 2, 2021 and include professional, legal, accounting and finance advisory fees and other direct expenses.

Results of Operations for the Three and Six Months Ended June 30, 2022 and 2021:

The following table summarizes our condensed results of operations for the periods indicated:

   
For the Three Months Ended,
    
For the Six Months Ended,
  
   
June 30, 2022
    
June 30, 2021
    
June 30, 2022
    
June 30, 2021
  
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
  
Loss from operations
  
$
(5,592,551
)
  
$
(6,984,950
)
  
$
(17,506,832
)
  
$
(12,101,465
)

Comparison of Three Months Ended June 30, 2022 and 2021

33
Revenues

Revenues for the three months ended June 30, 2022 were $6,534,258, which represented an increase of $1,986,273 compared to total revenue of $4,547,985 for the three months ended June 30, 2021. The increase is primarily due to a $2,220,402, or 161%, increase in revenues from the Company’s healthcare information products, partially offset by a decline in Other revenues resulting from the disposition of a non-core security monitoring business in the first quarter of 2022.

Cost of Revenues

Cost of revenues increased by $514,018 for the three months ended June 30, 2022 from $1,232,790 for the three months ended June 30, 2021. The increase is due to higher cost of revenues from the Company’s information products and increased support costs related to sales of software subscriptions.

Research and Development

Research and development expenses for the three months ended June 30, 2022 were $3,387,053, which represented an increase of $1,437,127 compared to total research and development expenses of $1,949,926 for the three months ended June 30, 2021. The increase is due to higher personnel, subcontracted labor, data licensing and processing expenses related to scaling the Company’s products.

Sales and Marketing

Sales and marketing expenses for the three months ended June 30, 2022 were $1,518,669, which represented an increase of $341,634 compared to total sales and marketing expenses of $1,177,035 for the three months ended June 30, 2021. The increase is due to higher salary, commission and expenses related to scaling the Company’s products.

General and Administrative

General and administrative expenses for the three months ended June 30, 2022 were $4,870,157, which represented a decrease of $1,707,539 compared to general and administrative expenses of $6,577,696 for the three months ended June 30, 2021. The decrease is primarily due to a decrease of $1,098,373 in stock-based compensation expenses related to the departure of the former chief executive officer and the former chief financial officer of Helix, who were advisors to the Company through March 2, 2022, and lower consulting and salary costs resulting from efficiencies in administrative functions.

Comparison of Six Months Ended June 30, 2022 and 2021

Revenues

Revenues for the six months ended June 30, 2022 were $12,925,537, representing an increase of $6,756,943 over $6,168,594 for the six months ended June 30, 2021. The increase in revenues was primarily from sales of healthcare information products which increased $5,181,427 to $7,137,774 for the six months ended June 30, 2022 compared to $1,956,347 in the same period last year. The remaining increase is due to the inclusion of revenues from the Helix acquisition since March 2, 2021.

Cost of Revenues

Cost of revenues increased by $1,623,681 for the six months ended June 30, 2022 from $1,690,676 for the six months ended June 30, 2021. The increase is due to higher support costs for the Company’s software subscription products and higher sales of the Company’s Information products.

34
Research and Development

Research and development expenses for the six months ended June 30, 2022 were $6,609,924, which represented an increase of $3,162,160 compared to total research and development expenses of $3,447,764 for the six months ended June 30, 2021. The increase is primarily due to higher personnel, subcontracted labor, data licensing and processing expenses related to new product development.

Sales and Marketing

Sales and marketing expenses for the six months ended June 30, 2022 were $2,929,983, which represented an increase of $1,153,973 compared to total sales and marketing expenses of $1,776,010 for the six months ended June 30, 2021. The increase is primarily due to higher salary, commission and consulting expenses related to scaling the Company’s products.

General and Administrative

General and administrative expenses for the six months ended June 30, 2022 were $10,958,611, which represented an increase of $1,596,353 compared to general and administrative expenses of $9,362,258 for the six months ended June 30, 2021. The increase is due to higher stock-based compensation expenses related to equity awards granted to key Helix employees and new Company hires after we became a public company on March 2, 2021, which contributed approximately 28% of the increase, and higher expenses related to scaling the Company’s management organization and inclusion of the Helix acquisition since March 2, 2021.

Separation Expenses

Separation expenses for the six months ended June 30, 2022 were $5,611,857, consisting of $194,814 of severance expenses related to the transfer of development activities from our Engeni SA subsidiary and $5,417,043 related to the continued vesting of stock options through March 2, 2023 related to the separation of two advisors to the Company, in accordance with the terms of their original advisory agreements. 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 the 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.

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 our 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.

35
Transaction Related Expenses

Transaction related expenses for the six months ended June 30, 2022 were $0, which represented a decrease of $1,210,279 compared to transaction related expenses of $1,210,279 for the six months ended June 30, 2021. These 2021 expenses related to the acquisition of Helix, which was completed on March 2, 2021.

Non-GAAP Financial Measures

In this Quarterly Report on Form 10-Q we have provided a non-GAAP measure, which we define as financial information that has not been prepared in accordance with U.S. GAAP. The non-GAAP financial measure provided herein is earnings before interest, taxes, non-cash and other items (“Adjusted EBITDA”), which should be viewed as supplemental to, and not as an alternative for, net income or loss calculated in accordance with U.S. GAAP (referred to below as “net loss”).

Adjusted EBITDA is used by our management as an additional measure of our Company’s performance for purposes of business decision-making, including developing budgets, managing expenditures and evaluating potential acquisitions or divestitures. Period-to-period comparisons of Adjusted EBITDA help our management identify additional trends in our Company’s financial results that may not be shown solely by period-to-period comparisons of net income. In addition, we may use Adjusted EBITDA in the incentive compensation programs applicable to some of our employees in order to evaluate our Company’s performance. Our management recognizes that Adjusted EBITDA has inherent limitations because of the excluded items, particularly those items that are recurring in nature. In order to compensate for those limitations, management also reviews the specific items that are excluded from Adjusted EBITDA, but included in net income, as well as trends in those items contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We believe that the presentation of Adjusted EBITDA is useful to investors in their analysis of our results for reasons similar to the reasons why our management finds it useful and because it helps facilitate investor understanding of decisions made by management in light of the performance metrics used in making those decisions. In addition, as more fully described below, we believe that providing Adjusted EBITDA, together with a reconciliation of net loss to Adjusted EBITDA, helps investors make comparisons between our Company and other companies that may have different capital structures, different effective income tax rates and tax attributes, different capitalized asset values and/or different forms of employee compensation. However, Adjusted EBITDA is not intended as a substitute for comparisons based on net loss. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measures and the corresponding U.S. GAAP measures provided by each company under applicable SEC rules.

The following is an explanation of the items excluded by us from Adjusted EBITDA but included in net loss:


 •
Depreciation and Amortization. Depreciation and amortization expense is a non-cash expense relating to capital expenditures and intangible assets arising from acquisitions that are expensed on a straight-line basis over the estimated useful life of the related assets. We exclude depreciation and amortization expense from Adjusted EBITDA because we believe that (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired tangible and intangible assets. Accordingly, we believe that this exclusion assists management and investors in making period-to-period comparisons of operating performance. Investors should note that the use of tangible and intangible assets contributed to revenue in the periods presented and will contribute to future revenue generation and should also note that such expense will recur in future periods.

36

 •
Stock-Based Compensation Expense. Stock-based compensation expense is a non-cash expense arising from the grant of stock-based awards to employees. We believe that excluding the effect of stock-based compensation from Adjusted EBITDA assists management and investors in making period-to-period comparisons in our Company’s operating performance because (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of the timing of grants of new stock-based awards, including grants in connection with acquisitions. Additionally, we believe that excluding stock-based compensation from Adjusted EBITDA assists management and investors in making meaningful comparisons between our Company’s operating performance and the operating performance of other companies that may use different forms of employee compensation or different valuation methodologies for their stock-based compensation. Investors should note that stock-based compensation is a key incentive offered to employees whose efforts contributed to the operating results in the periods presented and are expected to contribute to operating results in future periods. Investors should also note that such expenses will recur in the future.


•
Interest Expense. Interest expense is associated with the Notes entered into on September 1, 2021 in the amount of $24,000,000. The Notes are due on September 1, 2025 and accrue interest at an annual rate of 3.5%. We exclude interest expense from Adjusted EBITDA (i) because it is not directly attributable to the performance of our business operations and, accordingly, its exclusion assists management and investors in making period-to-period comparisons of operating performance and (ii) to assist management and investors in making comparisons to companies with different capital structures. Investors should note that interest expense associated with the Notes will recur in future periods.


•
Investment Income. Investment income is associated with the level of marketable debt securities and other interest-bearing accounts in which we invest. Interest and investment income can vary over time due to a variety of financing transactions, changes in interest rates, cash used to fund operations and capital expenditures and acquisitions that we have entered into or may enter into in the future. We exclude interest and investment income from Adjusted EBITDA (i) because these items are not directly attributable to the performance of our business operations and, accordingly, their exclusion assists management and investors in making period-to-period comparisons of operating performance and (ii) to assist management and investors in making comparisons to companies with different capital structures. Investors should note that interest income will recur in future periods.


•
Foreign Currency Related Gains. Foreign currency related gains result from foreign currency transactions and translation gains related to our Engeni SA subsidiary. We exclude foreign currency related gains from Adjusted EBITDA (i) because these items are not directly attributable to the performance of our business operations and, accordingly, their exclusion assists management and investors in making period-to-period comparisons of operating performance and (ii) to assist management and investors in making comparisons to companies with different capital structures. Investors should note that foreign currency related gains will recur in future periods.


•
Other Items. We engage in other activities and transactions that can impact our net loss. In the periods being reported, these other items included (i) change in fair value of warrant liability which related to warrants assumed in the acquisition of Helix; (ii) transaction related expenses which consist of professional fees and other expenses incurred in connection with the acquisition of Helix; and (iii) other income which consists of profits on marketable security investments. We exclude these other items from Adjusted EBITDA because we believe these activities or transactions are not directly attributable to the performance of our business operations and, accordingly, their exclusion assists management and investors in making period-to-period comparisons of operating performance. Investors should note that some of these other items may recur in future periods.

37

 •
Gain on sale of assets. On March 3, 2022, we sold certain assets, consisting of customer contracts, accounts receivable, and other property related to our 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.


•
Separation expenses. During March 2022, we transferred certain development activities from our Engeni SA subsidiary to outsourced development facilities. As a result, we incurred $194,814 in severance and related costs to be recorded as a charge to operating expenses in 2022. Additionally, on March 2, 2022, we and the former chief executive officer and the former chief financial officer of Helix mutually agreed not to renew special advisor agreements. 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, we 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. We exclude these other items from Adjusted EBITDA because we believe these costs are not directly attributable to the performance of our business operations and, accordingly, their exclusion assists management and investors in making period-to-period comparisons of operating performance. Investors should note that separation expenses are non-recurring.


•
Income tax expense. MOR was organized as a limited liability company until the completion of the Helix acquisition. As a result, we were treated as a partnership for federal and state income tax purposes through March 2, 2021, and our taxable income and losses are reported by our members on their individual tax returns for such period. Therefore, we did not record any income tax expense or benefit through March 2, 2021. We incurred a net loss for financial reporting and income tax reporting purposes for this year. Accordingly, any benefit for federal and state income taxes benefit has been entirely offset by a valuation allowance against the related deferred tax net assets. We exclude the income tax expense from Adjusted EBITDA (i) because we believe that the income tax expense is not directly attributable to the underlying performance of our business operations and, accordingly, its exclusion assists management and investors in making period-to-period comparisons of operating performance and (ii) to assist management and investors in making comparisons to companies with different tax attributes.

Limitations on the use of non-GAAP financial measures

There are limitations to using non-GAAP financial measures because non-GAAP financial measures are not prepared in accordance with U.S. GAAP and may be different from non-GAAP financial measures provided by other companies.

The non-GAAP financial measures are limited in value because they exclude certain items that may have a material impact upon our reported financial results. In addition, they are subject to inherent limitations as they reflect the exercise of judgments by management about which items are adjusted to calculate our non-GAAP financial measures. We compensate for these limitations by analyzing current and future results on a U.S. GAAP basis as well as a non-GAAP basis and also by providing U.S. GAAP measures in our public disclosures.

38
Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure to evaluate our business and to view our non-GAAP financial measures in conjunction with the most directly comparable U.S. GAAP financial measures.

The following table reconciles the specific items excluded from U.S. GAAP metrics in the calculation of non-GAAP metrics for the periods shown below:

   
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
  
                                 
Net loss
  
$
(5,433,545
)
  
$
(6,964,940
)
  
$
(17,287,633
)
  
$
(11,480,593
)
                                 
Depreciation and amortization
    
604,122
      
595,488
      
1,209,796
      
783,072
  
Stock based compensation expense
    
1,766,194
      
2,751,547
      
9,670,778
      
3,618,173
  
Change in fair value of warrant liability
    
(114,776
)
    
128,800
      
(334,616
)
    
(494,827
)
Transaction related expenses
    
—
      
—
      
—
      
1,210,279
  
Interest and investment income (expense)
    
204,622
      
20,446
      
437,245
      
19,205
  
Foreign currency related (gains) losses
    
(253,852
)
    
(169,256
)
    
(331,828
)
    
(145,250
)
Gain on sale of security monitoring assets
    
—
      
—
      
(202,159
)
    
—
  
Severance expense
    
—
      
—
      
194,814
      
—
  
Income tax expense
    
5,000
      
—
      
10,000
      
—
  
                                 
Adjusted EBITDA
  
$
(3,222,235
)
  
$
(3,637,915
)
  
$
(6,633,603
)
  
$
(6,489,941
)

For the Three Months Ended June 30, 2022

Adjusted EBITDA

Adjusted EBITDA for the three months ended June 30, 2022 was a loss of $3,222,235 compared to a loss of $3,637,915 for the three months ended June 30, 2021, a decrease of $415,680. The decrease is primarily due to higher revenues, partially offset by increased investments in product development, customer service, infrastructure and sales expenses.

For the Six Months Ended June 30, 2022

Adjusted EBITDA

Adjusted EBITDA for the six months ended June 30, 2022 was a loss of $6,633,603 compared to a loss of $6,489,941 for the six months ended June 30, 2021, an increase of $143,662. The increase is primarily due to investments in product development, customer service and infrastructure, partially offset by higher revenues.

39
Revenues

Revenues for the six months ended June 30, 2022 were $12,925,537 compared to pro forma revenues adjusted to include revenues from Helix for the period, for the six months ended June 30, 2021 of $8,177,506. The increase in pro forma revenue of $4,748,031 is primarily due to increased sales of healthcare information products, partially offset by declines in other revenues resulting from the sale of the security monitoring business. Helix pre-acquisition revenues during the six months ended June 30, 2021 were $2,008,912.

Liquidity and Capital Resources

Since the Company’s inception in 2019, most of the Company’s resources have been devoted to scaling our research and development, sales and marketing, and management infrastructure. The Company’s operations have been financed primarily from the cash proceeds received from equity issuances and the issuance of convertible notes. The Company expects to continue to fund our operations and potential future acquisitions through a combination of cash flow generated from operating activities, debt financing, and/or additional equity issuances. To date, the Company has not generated sufficient revenues from the licensing of information products and software products to fund all of our operating expenses and as a result the Company has incurred losses and generated negative cash flows from operations since inception. On April 12, 2021 the Company entered into a securities purchase agreement with certain accredited investors and certain of the Company’s directors, pursuant to which the Company issued 1,191,743 shares of common stock for aggregate gross proceeds of $12,000,000. On September 1, 2021, the Company raised proceeds of $24 million through the sale of 3.5% convertible promissory notes maturing on September 1, 2025. As of June 30, 2022, the Company’s principal source of liquidity was aggregate cash and marketable securities of $23,891,155.

Cash Flows

The following table summarizes selected information about our sources and uses of cash and cash equivalents for the periods presented:

   
For the Six Months Ended,
  
   
June 30, 2022
    
June 30, 2021
  
Net cash used in operating activities
  
$
(5,648,892
)
  
$
(8,178,225
)
Net cash used in investing activities
    
(634,406
)
    
(18,269
)
Net cash (used in) provided by financing activities
    
(71,207
)
    
12,294,355
  
Net (decrease) increase in cash and cash equivalents
  
$
(6,354,505
)
  
$
4,097,861
  

Net Cash Used in Operating Activities

Net cash used in operating activities decreased by $2,529,333 for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease was primarily the result of changes in deferred revenue, accounts payable, and other working capital accounts related to the timing of cash flows from operations.

Net Cash Used in Investing Activities

Net cash used in investing activities of $634,406 increased by $616,137 for the six months ended June 30, 2022 compared to cash provided by investing activities of $18,269 for the six months ended June 30, 2021. This is primarily the result of an increase in additions to property and equipment of $1,371,227, which was primarily related to capitalized software development costs, offset by changes in net cash transferred to marketable securities, cash from business combinations and asset sales.

40
Net Cash Provided by Financing Activities

Net cash used in financing activities of $71,207 for the six months ended June 30, 2022 decreased by $12,365,562 compared to cash provided by financing activities of $12,294,355 for the six months ended June 30, 2021. The decrease was primarily related to a reduction in cash proceeds received from the sale of common stock.

Off Balance Sheet Arrangements

The Company does not have relationships with other organizations or process any transactions that would constitute off balance sheet arrangements.

Critical Accounting Policies and Use of Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates – which also would have been reasonable – could have been used. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies and estimates are further discussed in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 31, 2022. There have been no changes other than the below:

Goodwill and other intangible assets. Intangible assets arise from acquisitions and principally consist of goodwill, trademarks, customer relationships, and acquired software and technology. Intangible assets, other than goodwill, are amortized on a straight‑line basis over their estimated useful lives, which range from two to eight years.

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.

In testing for goodwill impairment, we may first qualitatively assess whether it is more likely than not (a likelihood of more than 50 percent) that a goodwill impairment exists. If it is determined that a quantitative assessment is required, we will recognize goodwill impairment as the difference between the carrying amount of the reporting unit and its fair value, but not to exceed the carrying amount of goodwill within the reporting unit. Based upon our most recent annual impairment assessment, there were no indicators of impairment, and no impairment losses were recorded.

41
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 our financial statements.

JOBS Act

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” As an “emerging growth company,” the Company is electing to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards.

Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” the Company is not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. These exemptions will apply until the fifth anniversary of the business combination or until we no longer meet the requirements for being an “emerging growth company,” whichever occurs first.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk

This item is not required.

Item 4.
Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (who is also the Company’s principal executive officer), and our chief financial officer (who is also the Company’s principal financial and accounting officer), to allow for timely decisions regarding required disclosure. In accordance with Rules 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures as of June 30, 2022, which is the end of the three-month period covered by this Quarterly Report on Form 10-Q.

42
The Company identified material weaknesses in our internal controls over financial reporting as disclosed in Item 9A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on March 31, 2022. Our chief executive officer and chief financial officer therefore concluded that our disclosure controls and procedures as of the fiscal quarter ended June 30, 2022 remain ineffective to the extent of the material weaknesses identified.

We have implemented several processes and control procedures in 2021, including those outlined below, to remediate the deficiencies noted above. We currently are assessing and improving the operating effectiveness of these controls to ensure they will operate at an acceptable level of assurance.

We have hired additional personnel and outside consultants to fill accounting functions and expect to hire and train additional personnel. In addition, we are in the process of upgrading our accounting and finance systems, which we expect will enhance our ability to implement appropriate internal controls.

We have contracted an outside consulting firm to assist in the overall evaluation and documentation of the design and operating effectiveness of our internal controls over financial reporting. We are implementing newly designed controls and testing their operating effectiveness.

We believe these actions, when complete, will remediate the control weaknesses. However, the weaknesses will not be considered fully remediated until the applicable controls operate for a sufficient period of time for management to test the results for operating effectiveness. Once implemented, we intend to continue periodic testing and reporting of the internal controls to ensure continuity of compliance.

Changes in Internal Control Over Financial Reporting

Except for the items described above, there has been no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the three months ended June 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II – OTHER INFORMATION

Item 1.
Legal Proceedings

From time to time we may be involved in claims that arise during the ordinary course of business. For any matters where management currently believes it is probable that we will incur a loss and that the probable loss or range of loss can be reasonably estimated, we record reserves in our condensed consolidated financial statements based on our best estimates of such loss. In other instances, because of the uncertainties related to either the probable outcome or the amount or range of loss, management is unable to make a reasonable estimate of a liability, if any. Regardless of the outcome, litigation can be costly and time consuming, and it can divert management’s attention from important business matters and initiatives, negatively impacting our overall operations. Although the results of litigation and claims cannot be predicted with certainty, we do not currently have any pending litigation to which we are a party or to which our property is subject that we believe to be material, except for the below.

43
Audet v. Green Tree International, et. al.

On February 14, 2020, John Audet filed a complaint in 15th Judicial Circuit in and for Palm Beach County, Florida against multiple parties, including Green Tree International (“GTI”), an indirect subsidiary of the Company, claiming that he owned 10% of GTI. The complaint seeks unspecified monetary damages equivalent to the value a 10% shareholder of GTI would have received in the subsequent Helix and Forian transactions, along with an equitable accounting and constructive trust to determine if Audet suffered any loss of profit distributions. The case is in the process of discovery and no trial schedule has been established. Each of the parties’ motions for summary judgment were recently denied. The Company believes the lawsuit is wholly without merit and will vigorously defend the claims in the lawsuit.

Nykiah Thomas v. Security Consultants Group, LLC d/b/a Helix TCS, Helix Technologies, Inc. and Shamson Sundra

On July 16, 2021, Nykiah Thomas, individually and on behalf of M’Seiya Thomas, a minor, filed a complaint in the District Court, City and County of Denver, Colorado, against Security Consultants Group, LLC d/b/a Helix TCS and Helix Technologies, Inc., subsidiaries of Forian, and Shamson Sundra, a former employee of Security Consultants Group, LLC, alleging negligence in the performance of security services in connection with a school shooting at STEM School Highlands Ranch that occurred on May 7, 2019. In January 2022, the parties reached an agreement in principle to settle this dispute. In May 2022, the settlement agreement was approved by the Court and the parties entered into a Stipulation for Dismissal with Prejudice. The lawsuit was dismissed with prejudice by the Court in an order dated July 1, 2022.

Grant Whitus et al. v. Forian Inc., Zachary Venegas and Scott Ogur

On July 30, 2021, four former Helix employees filed a lawsuit in the Arapahoe County, Colorado District Court against the Company and Helix’s former managers asserting claims of breach of contract, promissory estoppel, breach of the covenant of good faith and fair dealing, civil theft and conversion, fraudulent misrepresentation, civil conspiracy, and unjust enrichment / quantum meruit, all relating to the plaintiffs’ claims that they were promised equity interest in Helix or compensation that they never received. The original complaint was never served, and in November 2021, the plaintiffs filed and served an amended complaint adding a fifth plaintiff and seeking over $27.5 million in damages as well as attorneys’ fees and costs. The Company removed the matter to the United States District Court for the District of Colorado in December 2021, and both the Company and the individual defendants filed motions to dismiss on January 20, 2022. Plaintiffs subsequently amended their complaint on April 21, 2022, adding Helix TCS LLC and Helix Technologies, Inc. as defendants and advancing additional claims for breach of fiduciary duty and violation of the Colorado Wage Claims Act. The Company and the individual defendants filed their separate motions to dismiss on June 1, 2022, and briefing of those motions was completed on July 13, 2022. Although the motions are still pending, the Court ordered the parties to begin discovery. The Company intends to defend vigorously against the claims in the lawsuit.

Item 1A.
Risk Factors

This item is not required.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.
Defaults Upon Senior Securities

None.

Item 4.
Mine Safety Disclosures

Not applicable.

44
Item 5.
Other Information

None.

Item 6.
Exhibits

Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Company’s Form S-4 (Reg. No. 333-250938) filed with the SEC on November 24, 2020, as amended on December 31, 2020, January 19, 2021, February 1, 2021 and February 9, 2021).
Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of the Company’s Form S-4 (Reg. No. 333-250938) filed with the SEC on November 24, 2020, as amended on December 31, 2020, January 19, 2021, February 1, 2021 and February 9, 2021).
First Amendment to 2020 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on June 21, 2022).
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.CAL
Inline XBRL Taxonomy Calculation Linkbase Document.
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*
Filed with this Quarterly Report on Form 10‑Q.

45
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 12, 2022.

 
FORIAN INC.
     
 
By:
/s/ Daniel Barton
   
Daniel Barton
   
Chief Executive Officer
   
(Principal Executive Officer)
     
 
By:
/s/ Michael Vesey
   
Michael Vesey
   
Chief Financial Officer
   
(Principal Financial Officer and Principal Accounting Officer)


46
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