Forian Inc. [FORA] Filings

10-Q 1 brhc10044000_10q.htm 10-Q

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 September 30, 2022

☐ 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 November 10, 2022, there were 32,556,713 shares outstanding of the registrant’s common stock, including shares of unvested restricted stock.

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PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021	1

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	2

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (unaudited)	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	43

PART II	OTHER INFORMATION	44

Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3.	Defaults Upon Senior Securities	44

Item 4.	Mine Safety Disclosures	45

Item 5.	Other Information	45

Item 6.	Exhibits	45

Signatures		46

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FORIAN INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021

Item 1.

Financial Statements and Supplementary Unaudited Data

	September 30,			December 31,
	2022			2021
	Unaudited
ASSETS
Current assets:
Cash and cash equivalents	$	1,585,594		$	18,663,805
Marketable securities		19,046,961			12,399,361
Accounts receivable, net		3,553,323			1,947,540
Contract assets		1,978,181			1,056,891
Prepaid expenses		1,205,630			1,017,927
Other assets		436,101			900,242
Total current assets		27,805,790			35,985,766

Property and equipment, net		2,870,667			1,531,959
Intangible assets, net		7,344,677			9,051,184
Goodwill		9,099,372			9,099,372
Right of use assets, net		706,272			859,637
Deposits and other assets		274,532			314,443
Total assets	$	48,101,310		$	56,842,361

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable		896,916			1,125,067
Accrued expenses		4,557,385			4,068,109
Short-term operating lease liabilities		265,474			247,325
Notes payable		—			13,122
Warrant liability		26,079			369,234
Deferred revenues		2,685,027			976,268
Total current liabilities		8,430,881			6,799,125

Long-term liabilities:
Long-term operating lease liabilities		444,996			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)		24,893,488			24,260,448
Total long-term liabilities		25,338,484			24,871,971

Total liabilities		33,769,365			31,671,096

Commitments and contingencies (Note 18)		—			—
Stockholders’ equity:
Preferred Stock; par value $0.001; 5,000,000 Shares authorized; 0 issued and outstanding as of September 30, 2022 and December 31, 2021		—			—
Common Stock; par value $0.001; 95,000,000 Shares authorized; 32,138,000 issued and outstanding as of September 30, 2022 and 31,773,154 issued and outstanding as of December 31, 2021		32,138			31,773
Additional paid-in capital		69,535,194			57,959,622
Accumulated deficit		(55,235,387	)		(32,820,130	)
Total stockholders’ equity		14,331,945			25,171,265
Total liabilities and stockholders’ equity	$	48,101,310		$	56,842,361

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

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FORIAN INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021

Revenues:
Information and Software	$	6,780,680		$	4,489,177		$	18,674,213		$	9,661,826
Services		341,173			269,753			1,168,034			858,400
Other		54,475			202,825			259,618			610,123
Total revenues		7,176,328			4,961,755			20,101,865			11,130,349

Costs and Expenses:
Cost of revenues		1,839,996			1,337,981			5,154,353			3,028,657
Research and development		3,259,511			2,612,184			9,869,435			6,059,948
Sales and marketing		1,525,286			1,088,203			4,455,269			2,864,213
General and administrative		4,659,959			6,673,723			15,618,570			16,035,981
Separation expenses		—			—			5,611,857			—
Gain on sale of assets		—			—			(202,159	)		—
Depreciation and amortization		842,933			598,565			2,052,729			1,381,637
Transaction related expenses		—			—			—			1,210,279
Total costs and expenses		12,127,685			12,310,656			42,560,054			30,580,715

Loss From Operations		(4,951,357	)		(7,348,901	)		(22,458,189	)		(19,450,366	)

Other Income (Expense):
Change in fair value of warrant liability		8,539			251,778			343,155			746,605
Interest and investment income		89,160			1,903			112,602			4,601
Interest expense		(198,738	)		(79,422	)		(659,425	)		(101,325	)
Foreign currency related gains (losses)		(65,228	)		152,920			266,600			298,170
Total other income (expense), net		(166,267	)		327,179			62,932			948,051

Net loss before income taxes		(5,117,624	)		(7,021,722	)		(22,395,257	)		(18,502,315	)
Income tax expense		(10,000	)		—			(20,000	)		—

Net Loss	$	(5,127,624	)	$	(7,021,722	)	$	(22,415,257	)	$	(18,502,315	)

Basic and diluted net loss per common share	$	(0.16	)	$	(0.22	)	$	(0.70	)	$	(0.64	)
Weighted-average shares outstanding:		32,088,358			31,332,735			31,978,719			28,814,825

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

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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		—		—		339,742		340		(58,425	)		—			(58,085	)
Issuance of Forian common stock upon exercise of stock options		—		—		8,114		8		(8	)		—			—
Issuance of Forian common stock upon exercise of warrants		—		—		16,990		17		(17	)		—			—
Stock based compensation expense		—		—		—		—		11,634,022			—			11,634,022
Net loss		—		—		—		—		—			(22,415,257	)		(22,415,257	)
Balance at September 30, 2022		—	$	—		32,138,000	$	32,138	$	69,535,194		$	(55,235,387	)	$	14,331,945

	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		—		—		671,641		671		9,987		—			10,658
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		—		—		—		—		6,235,021		—			6,235,021
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		—		—		18,110		19		48,551		—			48,570
Net loss		—		—		—		—		—		(18,502,315	)		(18,502,315	)
Balance at September 30, 2021		—	$	—		31,533,083	$	31,533	$	54,905,098	$	(24,771,340	)	$	30,165,291

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

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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 July 1, 2022		—	$	—		32,045,011	$	32,045	$	67,572,043		$	(50,107,763	)	$	17,496,325
Vesting of Restricted Stock and Stock Awards, net of shares surrendered for taxes		—		—		75,999		76		(76	)		—			—
Issuance of Forian common stock upon exercise of warrants		—		—		16,990		17		(17	)		—			—
Stock based compensation expense		—		—		—		—		1,963,244			—			1,963,244
Net loss		—		—		—		—		—			(5,127,624	)		(5,127,624	)
Balance at September 30, 2022		—	$	—		32,138,000	$	32,138	$	69,535,194		$	(55,235,387	)	$	14,331,945

	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 July 1, 2021		—	$	—		31,198,721	$	31,199	$	52,264,976	$	(17,749,618	)	$	34,546,557
Forian Restricted Stock Vesting from MOR unvested restricted stock		—		—		328,518		328		4,885		—			5,213
Stock based compensation expense		—		—		—		—		2,622,293		—			2,622,293
Issuance of Forian common stock upon exercise of stock options		—		—		5,844		6		12,944		—			12,950
Net loss		—		—		—		—		—		(7,021,722	)		(7,021,722	)
Balance at September 30, 2021		—	$	—		31,533,083	$	31,533	$	54,905,098	$	(24,771,340	)	$	30,165,291

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

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FORIAN INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Nine Months Ended September 30,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(22,415,257	)	$	(18,502,315	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,052,729			1,381,637
Amortization on right of use asset		153,365			166,489
Gain on sale of assets		(202,159	)		—
Amortization of debt issuance costs		3,999			444
Accrued interest on Convertible Notes		629,041			70,000
Realized and unrealized gain on marketable securities		(110,914	)		(3,295	)
Provision for doubtful accounts		142,846			89,130
Stock-based compensation expense		11,634,022			6,245,679
Change in fair value of warrant liability		(343,155	)		(746,605	)
Unrealized foreign currency related (gains) and losses		14,803			(15,030	)
Issuance of warrants in connection with transaction expenses		—			389,976
Change in operating assets and liabilities:
Accounts receivable		(1,761,038	)		(1,757,660	)
Contract assets		(921,290	)		(147,651	)
Prepaid expenses		(187,703	)		(576,836	)
Changes in lease liabilities during the period		(148,378	)		(186,383	)
Deposits and other assets		504,052			(120,732	)
Accounts payable		(228,151	)		(234,152	)
Accrued expenses		481,159			559,770
Deferred revenues		1,708,759			202,337
Net cash used in operating activities		(8,993,270	)		(13,185,197	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment		(1,695,937	)		(640,080	)
Proceeds from sale of assets		225,575			—
Purchase of marketable securities		(42,929,102	)		(24,903,107	)
Sale of marketable securities		36,392,416			24,009,003
Cash acquired as part of business combination		—			1,310,977
Net cash used in investing activities		(8,007,048	)		(223,207	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of MOR Class B options		—			292,830
Payments on notes payable and financing arrangements		(13,122	)		(5,551	)
Payment of employee withholding tax related to restricted stock units		(58,085	)		—
Proceeds from exercise of common stock options		—			48,570
Proceeds from sale of common stock		—			11,968,652
Proceeds from the issuance of convertible notes payable		—			23,978,670
Net cash (used in) provided by financing activities		(71,207	)		36,283,171

Effect of foreign exchange rate changes on cash		(6,686	)		(5,132	)

Net change in cash		(17,078,211	)		22,869,635

Cash and cash equivalents, beginning of period		18,663,805			665,463

Cash and cash equivalents, end of period	$	1,585,594		$	23,535,098

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

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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 September 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.

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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. and 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. Effective October 31, 2022, 100% of the equity interest of Engeni, LLC held by Helix was sold. 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 months ended September 30, 2022 and 2021, sales in Argentina represented less than 1% of the Company’s consolidated sales. During the nine months ended September 30, 2022 and 2021, sales in Argentina represented less than 1% and 2%, respectively, of the Company’s consolidated sales. Assets held in Argentina as of September 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 nine months ended September 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.

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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 former 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 September 30, 2022 and December 31, 2021 was $26,079 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.

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Accounts Receivable and Allowance for Doubtful Accounts

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

Outstanding account balances are reviewed individually for collectability. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Allowance for doubtful accounts was $303,588 and $350,991 at September 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.

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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 the contract. Customers are generally invoiced according to monthly, quarterly or annual amounts specified in the contract. Any amounts invoiced in excess of revenue recognized are recorded as deferred revenue. Revenue recognized in excess of amounts invoiced is recorded as a contract asset.

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.

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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.

During November 2020, the Company entered into a Master Services Agreement (the “November 2020 Agreement”) with a customer to provide information services described in certain statements of work under the November 2020 Agreement. As part of the November 2020 Agreement, the Company was granted shares of restricted stock representing approximately 23.4% of the outstanding stock of the customer, vesting in quarterly increments specified in the November 2020 Agreement through December 2023. Concurrently, the Company entered into a Stockholders Agreement specifying its voting and other rights as a stockholder. As a result, the Company determined that it does not exert influence over the customer. ASC 606-10-32-21 requires an entity to measure the fair value of noncash consideration at contract inception. The fair value of the restricted stock was determined to be $0 on the date of inception. The Company recorded revenue from the customer of $388,393 and $350,000 for the three months ended September 30, 2022 and 2021, respectively, and $1,138,393 and $700,000 for the nine months ended September 30, 2022 and 2021, respectively.

Contract assets and deferred revenues consist of the following as of September 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		—		—			—			(887,798	)
Net change due to timing of billings, payments and recognition		105,358		815,932			921,290			2,596,557
Balance at September 30, 2022	$	175,636	$	1,802,545		$	1,978,181		$	2,685,027

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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:

	September 30, 2022		December 31, 2021
Estimated next twelve months	$	14,657,461	$	8,525,736
Thereafter		14,597,945		11,424,934
Total	$	29,255,406	$	19,950,670

Remaining performance obligations include $2,685,027 and $976,268 of billed and deferred revenue at September 30, 2022 and December 31, 2021, respectively.

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Healthcare Information	$	4,310,694	$	2,146,203	$	11,448,468	$	4,102,550
Software Subscriptions		2,469,986		2,342,974		7,225,745		5,559,276
Services		341,173		269,753		1,168,034		858,400
Other		54,475		202,825		259,618		610,123
Total	$	7,176,328	$	4,961,755	$	20,101,865	$	11,130,349

Segment Information

FASB ASC 280, Segment Reporting (“ASC 280”), establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the chief executive officer, who reviews the financial performance and the results of operations of the segments prepared in accordance with U.S. GAAP when making decisions about allocating resources and assessing performance of the Company.

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Customer Concentration

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

Concentration of Vendors

The Company licenses certain information assets from third parties as a key input to certain Information and Software Products. While information licensing fees represented less than 10% of the Company’s operating expenses for the three and nine months ended September 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 nine months ended September 30, 2022, the Company had two vendors representing 17% and 19% and 20% and 17% 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 nine months ended September 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. The Company begins to capitalize these costs when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software would be used as intended. Capitalization ceases upon completion of all substantial testing. Such costs are amortized when placed in service, on a straight-line basis over the estimated useful life of the related asset, generally estimated to be three years. Product development costs not pertaining to the application development stage are expensed as incurred. The Company capitalized software development costs of $0 and $1,624,991 during the three and nine months ended September 30, 2022, respectively, and $295,143 and $561,553 during the three and nine months ended September 30, 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.

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Advertising

Advertising costs are expensed as incurred and included in sales and marketing expenses and amounted to $68,245 and $100,427 for the three and nine months ended September 30, 2022, respectively, and $18,011 and $39,009 for the three and nine months ended September 30, 2021, respectively.

Net Loss per Share

Net loss per share of common stock is computed by dividing net loss by the weighted average number of common shares outstanding during the period. At September 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 nine months ended September 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.

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Stock-based Compensation

The Company’s 2020 Equity Incentive Plan (“2020 Plan”) permits the grant of stock options, restricted stock awards and/or restricted stock units. A total of 4,000,000 shares of Company common stock were originally authorized and reserved for issuance under the 2020 Plan. On June 15, 2022, the Company’s stockholders approved an amendment to the 2020 Plan, which amended the Plan to increase the number of shares available for issuance by 2,400,000 shares to a total of 6,400,000 shares. Stock options represent the right to purchase Company common stock at the exercise price on the date of grant of the stock option at a future date. Restricted stock awards are grants of shares of Company common stock. Restricted stock units represent the right to receive shares of Company common stock on future specified dates. Stock options, restricted stock awards and restricted stock units granted contain restrictions that cause them to be subject to substantial risk of forfeiture and restrict their exercise, sale or other transfer by the grantee until they vest. The terms of the stock options, restricted stock awards and units granted under the 2020 Plan are determined by the Board of Directors in the agreement evidencing the award, including the number of shares, period of restriction or vesting schedule and other terms. The fair value of the stock options, restricted stock awards and restricted stock units is based on the underlying grant date fair value of Company common stock. The fair value is then expensed over the requisite service periods of the awards, net of forfeitures, which is generally the service period and the related amount is recognized in the condensed consolidated statements of operations.

Income Taxes

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

After March 2, 2021, the Company accounts for income taxes in accordance with FASB ASC 740 (“ASC 740”). Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Tax contingencies are recorded, if needed, to address potential exposure involving tax positions the Company has taken that could be challenged by tax authorities. These potential exposures could result from applications of various statutes, rules, regulations and interpretations. Any estimates of tax contingencies contain assumptions and judgments about potential actions by taxing jurisdictions. Any interest and penalties related to uncertain tax positions would be included as part of the income tax provision. The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of or changes in tax laws, regulations and interpretations thereof as well as other factors.

The Company recorded a provision for state taxes of $10,000 and $20,000 for the three and nine months ended September 30, 2022, respectively, and $0 for the three and nine months ended September 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 nine months ended September 30, 2022.

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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 nine months ended September 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 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 former Engeni SA subsidiary.

Recent Accounting Pronouncements

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

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

Note 4

BUSINESS COMBINATION

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

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

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

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

Total purchase price	$	18,454,784

Assets acquired:
Cash		1,310,977
Accounts receivable, net		488,453
Prepaid expenses		215,064
Contract assets		20,128
Other assets		450,000
Property and equipment		146,559
Software Technology		5,279,000
Trade Names and Trademarks		386,000
Customer Relationships		5,269,000
Right of use assets		1,082,684
Deposits and other assets		58,950
Total assets acquired	$	14,706,815

Liabilities assumed:
Accounts payable	$	681,879
Accrued expenses		1,972,663
Short-term lease liabilities		295,364
Deferred revenues		320,936
Warrant liability		1,247,715
Notes payable and financing arrangements		20,801
Other long-term liabilities		812,045
Total liabilities assumed	$	5,351,403
Estimated fair value of net assets acquired:	$	9,355,412

Goodwill	$	9,099,372

The estimates for useful lives of the identified intangibles are 8 years for Trade Names and Trademarks, 5 years for Customer Relationships and