FORIAN INC. Cautionary Statement for Forward-Looking Information
You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with the financial statements and the
related notes appearing elsewhere in this Annual Report on Form 10-K. This
discussion contains forward-looking statements reflecting our current
expectations that involve risks and uncertainties, including those set forth
under "Cautionary Statement About Forward-Looking Statements." Actual results
and experience could differ materially from the anticipated results and other
expectations expressed in our forward-looking statements as a result of a number
of factors, including but not limited to those discussed in this Item and in
Item 1A - "Risk Factors." Actual results and the timing of events could differ
materially from those discussed in our forward-looking statements as a result of
many factors, including those set forth under "Risk Factors" and elsewhere in
this Annual Report on Form 10-K.
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Overview
The Company was founded onOctober 15, 2020 as a wholly owned subsidiary ofMedical Outcomes Research Analytics, LLC ("MOR"), which was founded onMay 6, 2019 , in connection with the business combination transactions described below. OnOctober 16, 2020 , the Company entered into a definitive agreement withHelix Technologies, Inc. ("Helix") and MOR, pursuant to whichDNA 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"). OnMarch 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 onMarch 2, 2021 , the Company became the parent company of both Helix and MOR. The Company provides innovative software and information solutions and proprietary 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 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 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. Our analytics solutions sit atop a massive and perpetually growing expanse of large-scale data assets. ThroughForian , we provide innovative commercial, Real World Evidence and market access solutions, and proprietary data-driven insights to optimize the operational, clinical and financial performance of our customers, primarily in the healthcare vertical. Helix, primarily through BioTrack, provides traceability and point of sale technology, analytics solutions and other products to government and businesses within the cannabis industry. OnFebruary 10, 2023 , Helix completed the sale of 100% of the outstanding capital stock of its wholly owned subsidiary,Bio-Tech Medical Software, Inc. , aFlorida corporation ("BioTrack"), toBT Assets Group Inc. , aDelaware corporation and a wholly owned subsidiary ofAlleaves Inc. , aDelaware corporation (the "BioTrack Transaction"). As a result of the BioTrack Transaction, as ofFebruary 10, 2023 , the Company no longer provides software solutions to the cannabis industry. The Company will continue to provide analytics solutions to customers in the healthcare and other industries. For further discussion on the BioTrack Transaction refer to "Note 20 - Subsequent Events" in the Notes to Consolidated Financial Statements.
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. 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.
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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.
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 onMarch 2, 2021 and include professional, legal, accounting and finance advisory fees and other direct expenses. 25
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Results of Operations for the Years Ended
The following table summarizes our condensed results of operations for the
periods indicated:
For the Years Ended,
December 31, 2022 December 31, 2021
Revenues $ 28,005,857 $ 16,879,715
Costs and Expenses
Cost of Revenues 6,874,315 4,717,175
Research and development 12,347,637 8,975,745
Sales and marketing 5,870,794 4,142,190
General and administrative 20,529,373 23,464,267
Separation expenses 5,611,857 -
Gain on sale of businesses, net (32,931 ) -
Depreciation and amortization 2,892,543 1,986,816
Transaction related expenses - 1,210,279
Loss from operations $ (26,087,731 ) $ (27,616,757 ) Comparison of Years Ended
Revenues
Revenues for the year endedDecember 31, 2022 were$28,005,857 , which represented an increase of$11,126,142 compared to total revenue of$16,879,715 for the year endedDecember 31, 2021 . The increase is primarily due to a$9,296,297 , or 130%, increase in revenues from the Company's healthcare information products. The remaining increase is due to the inclusion of revenues from the Helix acquisition sinceMarch 2, 2021 . These amounts are 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, and the marketing business our former Engeni SA subsidiary in the fourth quarter of 2022.
Cost of Revenues
Cost of revenues for the year endedDecember 31, 2022 were$6,874,315 , which represented an increase of$2,157,140 compared to total cost of revenues of$4,717,175 for the year endedDecember 31, 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 year ended
Sales and Marketing
Sales and marketing expenses for the year endedDecember 31, 2022 were$5,870,794 , which represented an increase of$1,728,604 compared to total sales and marketing expenses of$4,142,190 for the year endedDecember 31, 2021 . The increase is due to higher salary, commission and expenses related to scaling the Company's products. 26
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General and Administrative
General and administrative expenses for the year endedDecember 31, 2022 were$20,529,373 , which represented a decrease of$2,934,894 compared to general and administrative expenses of$23,464,267 for the year endedDecember 31, 2021 . The decrease is primarily due to a decrease of$1,791,710 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 throughMarch 2, 2022 , which decrease was partially offset by increased expenses related to grants to employees.
Separation Expenses
Separation expenses for the year endedDecember 31, 2022 were$5,611,857 , consisting of$194,814 of severance expenses related to the transfer of development activities from our former Engeni SA subsidiary, and$5,417,043 related to the continued vesting of stock options throughMarch 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 pursuant to 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 andForian . Per the terms of the agreements, options to purchase 366,166 shares of common stock will continue to vest according to their original terms throughMarch 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 ofMarch 2, 2022 . As a result, the Company recorded$5,417,043 of stock compensation expenses related to the options that vested over the twelve months endedMarch 2, 2023 duringMarch 2022 .
The Company records normal course of business severance expenses in the operating expense line item related to the employee's activities.
Gain on Sale of Businesses, Net
Gain on sale of businesses, net for the year endedDecember 31, 2022 was$32,931 . OnMarch 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 consolidated statements of operations. OnOctober 31, 2022 , the Company sold 100% of its equity interest inEngeni, LLC for a note with payments of up to$100,000 if certain conditions are met. The Company has not recognized any value in connection with the note consideration because, as of the reporting date, it is not probable that any such conditions will be met. The sale resulted in a loss of$169,228 , which is included in operating expenses in the consolidated statements of operations.
Transaction Related Expenses
Transaction related expenses for the year endedDecember 31, 2022 were$0 , which represented a decrease of$1,210,279 compared to transaction related expenses of$1,210,279 for the year endedDecember 31, 2021 . These expenses related to the acquisition of Helix, which was completed onMarch 2, 2021 .
Non-GAAP Financial Measures
In this Annual Report on Form 10-K we have provided a non-GAAP measure, which we define as financial information that has not been prepared in accordance withU.S. generally accepted accounting principles ("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 withU.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. 27
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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 correspondingU.S. GAAP measures provided by each company under applicableSEC 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.
• 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. Stock-based compensation
expense includes certain separation expenses related to the vesting of stock
options. On
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
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
As a result, we recorded
2022 related to the options that will vest over the twelve months ending March
2, 2023. 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.
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• Interest Expense. Interest expense is associated with the convertible notes
entered into on
The Notes are due on
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) Losses, net. Foreign currency related (gains)
losses, net result from foreign currency transactions and translation (gains)
losses related to our former Engeni SA subsidiary. We exclude foreign currency
related (gains) losses, net 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.
• 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.
• Gain on sale of businesses, net. On
consisting of customer contracts, accounts receivable, and other property
related to our security monitoring services for
statements of operations. On
interest in
conditions are met. The Company has not recognized any value in connection with
the note consideration because, as of the reporting date, it is not probable
that any such conditions will be met. The sale resulted in a loss of
which is included in operating expenses in the consolidated statements of
operations.
• Severance expenses. During
activities from our former Engeni SA subsidiary to outsourced development
facilities. As a result, we incurred
which were recorded as a charge to operating expenses in 2022. We exclude these
other items from Adjusted EBITDA because we believe these costs are not
recurring and 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. In addition,
the Company incurred approximately
severance expense included in operating expenses as part of its operations.
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• 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
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
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
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 aU.S. GAAP basis as well as a non-GAAP basis and also by providingU.S. GAAP measures in our public disclosures. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance withU.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 comparableU.S. GAAP financial measures.
The following table reconciles the specific items excluded from
For the Years Ended
December 31,
2022 2021
Revenues:
Information and Software $ 26,185,945 $ 14,952,247
Services 1,545,656 1,122,528
Other 274,256 804,940
Total revenues $ 28,005,857 $ 16,879,715
Net loss $ (25,971,971 ) $ (26,551,105 )
Depreciation and amortization 2,892,543 1,986,816
Stock based compensation expense 13,310,588
9,300,443
Change in fair value of warrant liability (364,687 ) (878,481 ) Transaction related expenses -
1,210,279
Interest and investment (income) expense, net 606,203 315,570 Foreign currency related (gains) losses, net (381,256 ) (525,252 ) Gain on sale of businesses, net (32,931 ) - Severance expense 194,814 - Income tax expense 23,980 22,511 Adjusted EBITDA$ (9,722,717 ) $ (15,119,219 ) Year EndedDecember 31, 2022 30
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Adjusted EBITDA
Adjusted EBITDA for the year ended
Revenues
Revenues for the year endedDecember 31, 2022 were$28,005,857 compared to pro forma revenues of$18,888,627 for the year endedDecember 31, 2021 , which reflects revenues as if the acquisition of Helix had occurred onJanuary 1, 2021 . The increase in pro forma revenue of$9,117,230 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 year endedDecember 31, 2021 were$2,008,912 .
Liquidity and Capital Resources
Since the Company's inception in 2020, 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 the 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. OnApril 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 . OnSeptember 1, 2021 , the Company raised proceeds of$24 million through the sale of the Notes. As ofDecember 31, 2022 , the Company's principal source of liquidity was aggregate cash and marketable securities of$20,716,385 .
Cash Flows
The following table summarizes selected information about our sources and uses of cash and cash equivalents for the periods presented:
Year Ended
December 31, 2022 December 31, 2021
Net cash used in operating activities $ (8,775,565 ) $ (17,249,262 )
Net cash used in investing activities (6,461,045 ) (1,025,155 )
Net cash (used in) provided by financing activities (100,528 ) 36,281,043
Effect of foreign exchange rate changes on cash (6,769 ) (8,284 )
Net (decrease) increase in cash and cash equivalents $
(15,343,907 )
Net cash used in operating activities decreased by$8,473,697 for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . The decrease was primarily the result a decreased Adjusted EBITDA loss, partially offset by changes in deferred revenue, accounts payable, and other working capital accounts related to the timing of cash flows from operations. 31
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Net cash used in investing activities of$6,461,045 increased by$5,435,890 for the year endedDecember 31, 2022 compared to cash used in investing activities of$1,025,155 for the year endedDecember 31, 2021 . This is primarily the result of an increase in net purchases of marketable securities of$4,731,683 as well as additions to property and equipment of$268,413 , which was primarily related to capitalized software development costs.
Net Cash Provided by Financing Activities
Net cash used in financing activities of$100,528 for the year endedDecember 31, 2022 decreased by$36,381,571 compared to cash provided by financing activities of$36,281,043 for the year endedDecember 31, 2021 . The decrease was primarily related to a reduction in cash proceeds received from the sale of common stock and the issuance of the Notes.
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 withU.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.
Our significant accounting policies are described in "Note 3 - Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10K.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. Revenue recognition. We recognize revenue in accordance with Topic 606. For a full description of our revenue recognition accounting policy, see "Note 3 - Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10K. We generate revenues from license fees, subscriptions, and services. Business combinations. We allocate the fair value of the consideration transferred to the assets acquired and liabilities assumed, including trademarks, customer relationships, and acquired software and technology, based on their estimated fair values at the acquisition date. Any residual purchase price is recorded as goodwill. The purchase price allocation requires us to make significant estimates and assumptions, especially at the acquisition date, with respect to intangible assets and deferred revenue obligations. Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Examples of critical estimates used in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:
• future expected cash flows from sales, maintenance agreements, and acquired
developed technologies;
• the acquired company's trade name and customer relationships as well as
assumptions about the period of time the acquired trade name and customer
relationships will continue to be used in our product portfolio;
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• expected costs to develop the in-process research and development into
commercially viable software and estimated cash flows from the projects when
completed; and
• discount rates used to determine the present value of estimated future cash
flows. These estimates are inherently uncertain and unpredictable, and if different estimates were used the purchase price for the acquisition could be allocated to the acquired assets and liabilities differently from the allocation that we have made. In addition, unanticipated events and circumstances may occur, which may affect the accuracy or validity of such estimates, and, if such events occur, we may be required to recognize a loss in the consolidated statement of operations due to an overestimation of the value ascribed to an acquired asset or an increase in the amounts recorded for assumed liabilities.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 straightline 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. Capitalized Software Development Costs. We capitalize certain costs related to the development and enhancement of computer software. In accordance with authoritative guidance, we begin 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. Such costs are amortized when the software is ready for its intended use, on a straight-line basis over the estimated useful life of the related asset, generally estimated to be three years. Costs incurred prior to meeting these criteria together are expensed as incurred and recorded in product development expenses on our consolidated statements of operations. The accounting for website and internal-use software costs requires us to make significant judgement, assumptions and estimates related to the timing and amount of recognized capitalized software development costs. We capitalized software development costs of$1,624,991 and$1,360,836 during the years endedDecember 31, 2022 and 2021, respectively.
Recent Accounting Pronouncements
InOctober 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 afterDecember 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. 33
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JOBS Act
OnApril 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 thePublic 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.
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