Delaware | | | 7374 | | | 85-3467693 |
(State or other jurisdiction of incorporation or organization) | | | (Primary Standard Industrial Classification Code Number) | | | (I.R.S. Employer Identification Number) |
Dan Barton Chief Executive Officer Medical Outcomes Research Analytics, LLC 41 University Drive, Suite 400 Newtown, Pennsylvania 18940 (267) 757-8707 | | | Darrick M. Mix Peter D. Visalli Duane Morris LLP 30 South 17th Street Philadelphia, PA 19103-4196 (215) 979-1000 | | | Zachary L. Venegas Scott Ogur Helix Technologies, Inc. 5300 DTC Parkway, Suite 300 Greenwood Village, CO 80111 (720) 328-5372 | | | W. David Mannheim Gary M. Brown Nelson Mullins Riley & Scarborough LLP Glenlake One 4140 Parklake Avenue, Suite 200 Raleigh, NC 27612 (919) 329-3800 |
Large accelerated filer | | | | | Accelerated filer | | | ☐ | |
Non-accelerated filer | | | ☒ | | | Smaller reporting company | | | ☒ |
| | | | Emerging growth company | | | ☒ |
Title of each class of securities to be registered | | | Amount to be Registered(1) | | | Proposed Maximum Offering Price Per Share | | | Proposed Maximum Aggregate Offering Price(2) | | | Amount of Registration Fee(3) |
Common Stock, par value $0.001 per share | | | 31,192,879 | | | N/A | | | $70,535,610 | | | $7,695.44 |
Title of each class of securities to be registered | | | Amount to be Registered(1) | | | Proposed Maximum Offering Price Per Share | | | Proposed Maximum Aggregate Offering Price(2) | | | Amount of Registration Fee(3) |
Common Stock, par value $0.001 per share | | | 31,342,879 | | | N/A | | | $72,155,610 | | | $7,872.18 |
(1) | Represents the maximum number of shares of common stock, par value $0.001 per share, of the Registrant estimated to be issuable upon consummation of the merger and the contribution described herein, calculated by totaling (a) the product obtained by multiplying (x) |
(2) | Pursuant to Rules 457(f)(1), 457(f)(2) and 457(c) under the Securities Act and solely for the purpose of calculating the registration fee, the proposed maximum aggregate offering price is the sum of (a) the product obtained by multiplying (x) $0.345 (the average of the high and low bid and ask prices of Helix common stock on December 23, 2020, as reported on the OTCQB, by (y) 165,000,000 shares of Helix common stock (the maximum number of shares of Helix common stock that may be canceled and exchanged in the merger), plus (b) $13,610,610 (the book value of the MOR equity interests that may be contributed in the contribution, as of December 23, 2020). The maximum number of shares of Helix common stock that may be canceled and exchanged in the merger has been recalculated and was increased by 3,000,000 shares to 168,000,000. The additional aggregate offering price attributable to that increase is the sum of (a) the product obtained by multiplying (x) $0.54 (the average of the high and low bid and ask prices of Helix common stock on January 11, 2021, as reported on the OTCQB, by (y) 3,000,000. |
(3) |
(1) | a proposal to adopt of 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 30, 2020, as further amended by Amendment No. 2 to Agreement and Plan of Merger, dated February 9, 2021, by and among Helix, Forian Inc., DNA Merger Sub, Inc. (“Merger Sub”), as may be further amended from time to time, under which Merger Sub will merge with and into Helix , which we refer to as the merger agreement, the terms of which are described in, and a copy of which is included as Appendix A to, the accompanying prospectus/proxy statement; |
(2) | a proposal to approve, in a non-binding advisory vote, certain compensation that may become payable to Helix’s named executive officers in connection with the merger; and |
(3) | a proposal to approve the adjournment, postponement or continuance of the special meeting on one or more occasions, if necessary or appropriate, in order to further solicit additional proxies, in the event that there are not sufficient votes at the time of the special meeting to adopt the merger agreement. |
| | By order of the Board of Directors, | |
| | ||
| | [Insert Signature here] | |
| | ||
Greenwood Village, Colorado | | | Zachary L. Venegas |
| | Chief Executive Officer |
(i) | the failure to complete the merger on anticipated terms and timing, including as a result of a delay in or failure to obtain Helix stockholder approval, and other conditions to the completion of the transaction; |
(ii) | failure to realize the anticipated benefits of the mergers, including as a result of delay in completing the transaction, integrating the businesses of Helix and MOR or implementing any contemplated business separation (if undertaken), receiving the anticipated tax treatment of the merger, unforeseen liabilities, future capital expenditures, revenues, expected cost savings, expected expenses, expected earnings, expected synergies, future prospects, and the failure to implement business and management strategies for the management, expansion and growth of Forian’s businesses following the merger; |
(iii) | pricing trends, including Helix’s and MOR’s ability to achieve economies of scale; |
(iv) | potential litigation relating to the merger that could be instituted against Helix, MOR or their respective directors; |
(v) | the risk that disruptions from the merger will harm Helix’s business, including current plans and operations; |
(vi) | the ability of Helix or MOR to retain and hire key personnel; |
(vii) | potential adverse reactions or changes to business relationships resulting from the completion of the mergers; |
(viii) | uncertainty as to the long-term value of shares of Forian common stock; |
(ix) | legislative, regulatory and economic developments affecting Helix’s and MOR’s businesses; |
(x) | general economic and market developments and conditions; |
(xi) | the evolving legal, regulatory and tax regimes under which Helix and MOR operate; |
(xii) | potential business uncertainty, including changes to existing business relationships, during the pendency of the merger that could affect Helix’s and/or MOR’s financial performance; |
(xiii) | certain restrictions during the pendency of the merger that may impact Helix’s and MOR’s ability to pursue certain business opportunities or strategic transactions; and |
(xiv) | unpredictability and severity of catastrophic events, including, but not limited to, acts of terrorism or outbreak of war or hostilities, natural disasters, the outbreak of coronavirus or similar outbreaks or pandemics, and their effects on economic and business environments in which Helix and MOR operate, as well as Helix’s and MOR’s response to any of the aforementioned factors. |
Q: | Why are Helix stockholders receiving this proxy statement/prospectus? |
A: | On October 16, 2020, we entered into an Agreement and Plan of Merger with Helix Technologies, Inc., or “Helix,” Forian Inc., or “Forian,” DNA Merger Sub, Inc., or “Merger Sub,” and Medical Outcomes Research Analytics, LLC, or “MOR”, as amended by Amendment to Agreement and Plan of Merger, dated December 30, 2020, as further amended by Amendment No. 2 to Agreement and Plan of Merger, dated February 9, 2021, (which, as so amended and as it may be further amended, supplemented, or modified from time to time, we refer to as the “merger agreement”). A copy of the merger agreement is included in this proxy statement/prospectus as Appendix A. Under the merger agreement, Merger Sub will merge with and into Helix (which we refer to as the “merger”), with Helix, following the merger, to be the surviving corporation and a wholly-owned subsidiary of Forian. |
Q: | What vote is required to approve the Helix merger? |
A: | The affirmative vote of holders of a majority of all outstanding shares of Helix common and preferred stock (voting as a single class), entitled to vote on the Helix merger agreement is required for the approval of the Helix merger. As of January |
Q: | What will happen in the merger? |
A: | Forian will acquire Helix by merging Merger Sub with and into Helix, with Helix being the surviving entity in the merger. Following the merger, Helix will be a wholly-owned subsidiary of Forian. Each share of Helix common stock (including any preferred stock converted into common stock) outstanding will be converted into the right to receive 0.05 shares of Forian common stock. No cash consideration will be received by Helix stockholders in the merger, including any cash that otherwise would be received for fractional shares. With respect to fractional shares, no fraction of a share of Forian common stock will be issued in the merger; however, in lieu of fractional shares, each Helix stockholder who would otherwise be entitled to a fraction of a share of Forian common stock (after aggregating all fractional shares of Forian common stock that otherwise would be received by such holder) will be automatically converted into the right to receive one full additional share of Forian common stock. Former Helix stockholders, as a group, will own approximately 28% of Forian’s outstanding common stock immediately following the merger. |
Q: | When do you expect to complete the merger? |
A: | We currently expect to complete the merger during the first quarter of 2021. However, we cannot assure you when or if the merger will occur. Helix must, among other things, obtain the required approvals of Helix stockholders at its special meeting and satisfy the other conditions to the merger described below in “The Merger Agreement—Conditions of the Merger” beginning on page |
Q: | What happens if the merger is not completed? |
A: | If the merger is not completed, holders of Helix common stock will not receive any consideration for their shares in connection with the merger. Instead, Helix will remain an independent public company and its common stock would be expected to continue to be quoted on the OTCQB. In addition, in certain circumstances, a termination fee may be required to be paid by Helix. See “The Merger Agreement—Termination Fee” beginning on page |
Q: | Will Helix be required to submit the Helix merger proposal to its stockholders even if the Helix board of directors has withdrawn or modified its recommendation? |
A: | Yes. Unless the merger agreement is terminated before the Helix special meeting, Helix is required to submit the Helix merger proposal to its stockholders even if the Helix board of directors has withdrawn or modified its recommendation, consistent with the terms of the merger agreement. |
Q: | Is the merger expected to be taxable to Helix stockholders? |
A: | Generally, no. The merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and holders of Helix common stock are not expected to recognize any gain or loss for U. S. federal income tax purposes on the exchange of shares of Helix common stock for shares of Forian common stock in the merger. You should read “Material U.S. Federal Income Tax Consequences of the Merger and the Contribution” beginning on page |
Q: | Who may access the virtual Helix special meeting? |
A: | Only stockholders and their proxy holders will be able to access the virtual special meeting. As indicated, we will not have an in-person special meeting. You will need to enter the 16-digit control number received with your proxy card to enter the special meeting via the online web portal. See “If I vote by proxy, can I still access the special meeting and vote there if I choose?” below. |
Q: | How many votes constitute a quorum in order to hold the Helix special meeting? Do abstentions and “broker non-votes” count? |
A: | Stockholders representing at least a majority of the shares of capital stock entitled to vote at a meeting must be present in present in person or represented by proxy in order to constitute a quorum. Stockholders who participate in the virtual special meeting will be deemed to be present in person. A quorum must exist to conduct any business at the special meeting. If a quorum is not present at the special meeting, any officer entitled to preside at or to act as Secretary of the special meeting will have power to adjourn the special meeting from time to time until a quorum is present. |
Q: | Who may vote at the Helix special meeting? |
A: | Only stockholders of record at the close of business on January |
Q: | Do Helix preferred stockholders have the right to vote on the merger? |
A. | Yes; however, the owners of 100% of the shares of Helix preferred stock that are entitled to notice of and to vote at the Helix special meeting have signed voting and support agreements agreeing to vote in favor of adoption of the merger agreement and the Helix adjournment proposal. Accordingly, it will not be necessary to solicit their proxies in connection with the Helix special meeting. See “THE MERGER – Voting and Support Agreements” beginning on page |
Q: | Who may solicit proxies on Helix’s behalf? |
A: | In addition to solicitation of proxies by Helix by mail, proxies may also be solicited by Helix’s directors and employees personally, and by telephone, facsimile or other means. Helix |
Q: | Will a list of stockholders entitled to vote at the Helix special meeting be available? |
A: | In accordance with Delaware law, a list of Helix stockholders entitled to vote at the special meeting will be available for any purpose germane to the special meeting beginning |
Q: | What am I voting on at the Helix special meeting? |
A: | Helix stockholders are being asked to vote on: |
Q: | What are my choices when voting on the Helix merger proposal and what vote is needed to approve it? |
A: | Regarding the vote to adopt the Helix merger proposal, Helix stockholders may: |
Q: | What are my choices when voting on the Helix merger-related compensation proposal and what vote is needed to approve it? |
A: | Regarding the vote to approve the Helix merger-related compensation proposal, Helix stockholders may: |
Q: | What are my choices when voting on the Helix abstention proposal and what vote is needed to approve it? |
A: | Regarding the vote to approve the Helix abstention proposal, Helix stockholders may: |
Q: | How does the Helix Board of Directors recommend that Helix stockholders vote? |
A: | Please see the information included in this proxy statement/prospectus relating to the proposals to be considered and voted on at the Helix special meeting. The Helix Board of Directors unanimously recommends that Helix stockholders vote: |
Q: | How do Helix stockholders vote? |
A: | If shares are registered with our transfer agent, Equiniti US. (“Equiniti”) directly in the name of a Helix stockholder, that stockholder is considered a stockholder of record with respect to those shares. |
Q: | How do Helix stockholders vote if their shares are held in “street name” by a broker, bank or other nominee? |
A: | If shares are held by a broker, bank or other nominee (this is called “street name”), the broker, bank or other nominee will send you instructions for voting those shares. Many (but not all) brokerage firms, banks and other nominees participate in a program provided through Broadridge that offers Internet and telephone voting options. |
Q: | If a stockholder votes by proxy, can that stockholder still access the Helix special meeting and vote there? |
A: | Yes. If you are a Helix stockholder of record, the method you use to vote will not limit your right to vote at the virtual special meeting if you decide to participate. As indicated, Helix is hosting the special meeting exclusively online at www.virtualshareholdermeeting.com/ |
Q: | If my Helix shares are held in “street name” by a broker, bank or other nominee, may a Helix stockholder still access the Helix special meeting? |
A: | Yes. Beneficial owners whose stock is held for them in street name by their brokers or other nominees may also attend the meeting by going to www.virtualshareholdermeeting.com/ |
Q: | May Helix stockholders ask questions during the special meeting? |
A: | Yes. Questions may be submitted in two ways. Stockholders who want to ask a question before the meeting may do so, beginning at |
Q: | Do Helix stockholders have appraisal or dissenters’ rights? |
A: | Yes. Under applicable Delaware law, Helix stockholders have the right to dissent from the Helix merger proposal and receive the “fair value” of their Helix shares in cash. Perfection of dissenters’ rights is complex. The procedures for exercising dissenters’ rights is described in “APPRAISAL RIGHTS OF HELIX STOCKHOLDERS ” beginning on page |
Q: | What are “broker votes” and “broker non-votes”? |
A: | On certain “routine” matters, brokerage firms have discretionary authority under applicable stock exchange rules to vote their customers’ shares if their customers do not provide voting instructions. When a brokerage firm votes its customers’ shares on a routine matter without receiving voting instructions (referred to as a “broker vote”), these shares are counted both for establishing a quorum to conduct business at the special meeting and in determining the number of shares voted “FOR” or “AGAINST” any “routine” matter. |
Q: | What if a Helix stockholder abstains from voting? |
A: | Helix stockholders have the option to “ABSTAIN” from voting with respect to Proposal 1 – the Helix merger proposal, Proposal 2 – the Helix merger-related compensation proposal and Proposal 3 – the Helix adjournment proposal. If a quorum is present, abstentions will have the same effect as a vote against Proposal 1 but will have no effect on Proposals 2 and 3, because, by abstaining, the stockholder will be deemed to not have cast a vote with respect to such proposals. |
Q: | May a proxy be revoked after it has been delivered? |
A: | Yes. A proxy may be revoked at any time before the polls close by submitting a subsequent proxy with a later date by using the Internet, by telephone or by mail or by sending our Corporate Secretary a written revocation. A proxy also will be considered revoked if the stockholder attends the special meeting and votes via the virtual portal. If shares are held in “street name” by a broker, bank or other nominee, the stockholder must contact their broker, bank or other nominee to change their vote or obtain a proxy to vote their shares if they wish to cast their vote during the virtual special meeting. |
Q: | How will my Helix shares be voted if a proxy card is returned or the stockholder votes via telephone or Internet? What if a proxy card is returned but does not provide voting instructions? What if a stockholder does not complete the telephone or Internet voting procedures without specifying how shares are to be voted? |
A: | The Helix Board of Directors has named Zachary L. Venegas, Helix’s Chief Executive Officer, and Scott Ogur, Helix’s Chief Financial Officer, as official proxy holders. They will vote all proxies, or record an abstention, in accordance with the directions on the proxy. |
Q: | Who will count the votes at the Helix special meeting? |
A: | A representative of Broadridge has been appointed as an inspector of elections for the special meeting. That person will tabulate votes cast by proxy or during the special meeting as well as determine whether a quorum is present. |
Q: | Where can I find voting results of the Helix special meeting? |
A: | Helix will announce preliminary voting results at the special meeting and publish final results on a Current Report on Form 8-K that would be expected to be filed with the SEC within four business days after the special meeting (a copy of which will be available on the “Investor Relations” section of the Helix website, www.helixtechnologies.com, under the link “SEC Filings”). If the final voting results are not available within four business days after the special meeting, Helix will file a Current Report on Form 8-K reporting the preliminary voting results and subsequently file the final voting results in an amendment to the Current Report on Form 8-K within four business days after the final voting results are known. |
Q: | Whom should Helix stockholders contact with questions about the Helix special meeting? |
A: | If a Helix stockholder has any questions about this proxy statement/prospectus or the special meeting, please contact Scott Ogur, Helix’s Chief Financial Officer, at 5300 DTC Parkway, Suite 300, Greenwood Village, CO 80111 or by telephone at (720) 328-5372. |
Q: | What information about Helix is available on the Internet? |
A: | A copy of this proxy statement/prospectus (which contains the official notice of the special meeting) and the proxy card or voting instructions is available for download free of charge at www.proxyvote.com. |
Q: | What do holders of Helix common stock need to do now? |
A: | After you have carefully read this document and have decided how you wish to vote your Helix shares, please vote your shares as soon as possible. If you are a stockholder of record, to vote by proxy card, indicate on your proxy card how you want your shares to be voted with respect to each of the matters indicated. When complete, sign, date and mail your proxy card in the enclosed postage-paid return |
Q: | Why is your vote as a Helix stockholder important? |
A: | Approval of the Helix merger proposal requires the affirmative vote of a majority of the issued and outstanding shares of the Helix common and preferred stock (voting as a single class) entitled to vote at the special meeting. Voting agreements are in place that provide for |
Q: | If you are a Helix stockholder, with shares represented by physical stock certificates, should you send in your Helix stock certificates now? |
A: | No. You should not send in your Helix stock certificates at this time. After completion of the merger, Forian will cause its exchange agent to send you instructions for exchanging Helix stock certificates for the merger consideration. The shares of Forian common stock that Helix stockholders will receive in the merger will be issued in book-entry form. Please do not send in your stock certificates with your proxy card. |
Q: | What should you do if you hold your Helix common stock in book-entry form? |
A: | After the completion of the merger, Forian will cause its exchange agent to send you instructions for receiving the merger consideration and exchanging shares of Helix common stock held in book-entry form for shares of Forian common stock in book-entry form. |
Q: | Can you place my Helix stock certificate(s) into book-entry form prior to the merger? |
A: | Yes. Helix stock certificates can be placed into book-entry form prior to the merger. For more information, please contact Helix’s transfer agent, Equiniti at (303) 282-4800. |
Q: | Who can you contact if you cannot locate your Helix stock certificate(s)? |
A: | If you are unable to locate your original Helix stock certificate(s), you should contact Helix’s transfer agent, Equiniti at (303) 282-4800. |
Q: | What will happen in the contribution? |
A: | Forian, MOR and each equity holder of MOR will enter into a contribution agreement, pursuant to which, immediately prior to the Merger, each equity holder of MOR will contribute their interests in MOR to Forian in exchange for shares of Forian common stock, following the contribution, MOR will become a wholly-owned subsidiary of Forian. A copy of the form of contribution agreement is included in this proxy statement/prospectus as Appendix B. Each unit of MOR will be exchanged for 1.7776 shares of Forian common stock. This document also constitutes a prospectus of Forian because Forian is offering shares of its common stock to equity holders of MOR in exchange for outstanding units of MOR, as consideration for the contribution. |
Q: | When will the contribution be completed? |
A: | The contribution is to occur immediately prior to the merger. We currently expect to complete the merger during the first quarter of 2021. However, we cannot assure you when or if the merger will occur. Helix must, among other things, obtain the required approvals of Helix stockholders at its special meeting to satisfy the other conditions to the merger described below in “The Merger Agreement – Conditions of the Merger” beginning on page |
Q: | What happens if the contribution is not completed? |
A: | If the contribution is not completed, equity holders of MOR will not receive any consideration for their interests in MOR in connection with the proposed contribution. Instead, MOR will remain an independent private company. |
Q: | Is the contribution expected to be taxable to MOR equity holders? |
A: | Generally, no. The contribution is intended to qualify as a transaction described in Section 351(a) of the Code, and equity holders of MOR are not expected to recognize any gain or loss for U. S. federal income tax purposes on the exchange of equity interests in MOR for shares of Forian common stock in the contribution. You should read “Material U.S. Federal Income Tax Consequences of the Merger and the Contribution” beginning on page 81 for a more complete discussion of the U.S. federal income tax consequences of the contribution. Tax matters can be complicated and the tax consequences of the contribution to you will depend on your particular tax situation. You should consult your tax advisor to determine the specific tax consequences of the contribution to you. |
○ | if the Merger is not consummated on or before |
○ | if an applicable law, order, preliminary, temporary or permanent, or other legal restraint or prohibition and no action, proceeding, binding order, decree or determination by any governmental entity is in effect that prevents, enjoins, makes illegal or prohibits the consummation of the merger and the other transactions contemplated by the merger agreement; |
○ | if Helix stockholder approval of the merger is not obtained at the Helix special meeting or any adjournment or postponement thereof at which the vote was taken on the merger; or |
○ | if all of the conditions to closing have been satisfied or waived (other than those conditions that by their nature are to be satisfied (or waived) at the closing, which conditions would be reasonably capable of being satisfied at such time) and Forian is unable to satisfy its obligation to effect the closing at such time because a private offering by MOR of equity interests or other securities of MOR on terms and conditions reasonably acceptable to MOR in its sole discretion, resulting in net proceeds to MOR (after deducting applicable fees, expenses, charges and discounts) in the aggregate amount of at least $11,000,000 cannot be completed prior to the closing date. |
| | As of September 30, 2020 | | | As of December 31, 2019 | |
Book Value Per Share | | | | | ||
MOR - Historical | | | $0.08 | | | $(0.07) |
Forian/MOR - Pro Forma Combined | | | $0.69 | | | $0.95 |
Helix Historical | | | $0.17 | | | $0.70 |
Forian/MOR/Helix – Pro Forma Combined | | | $1.05 | | | $1.52 |
| | For the Nine Months Ended September 30, 2020 | | | For the Year Ended December 31, 2019 | |
Loss Per Common Share/Unit – basic and diluted | | | | | ||
MOR - Historical | | | $(0.26) | | | $(0.24) |
Forian/MOR - Pro Forma Combined | | | $(0.15) | | | $(0.14) |
Helix Historical | | | $(0.46) | | | $(0.12) |
Forian/MOR/Helix – Pro Forma Combined | | | $(1.80) | | | $(0.42) |
Fiscal Year Ended December 31, 2018 | | | High | | | Low |
First Quarter | | | $4.50 | | | $1.35 |
Second Quarter | | | $2.05 | | | $1.30 |
Third Quarter | | | $1.64 | | | $0.98 |
Fourth Quarter | | | $1.45 | | | $0.90 |
Fiscal Year Ended December 31, 2019 | | | High | | | Low |
First Quarter | | | $3.09 | | | $0.95 |
Second Quarter | | | $2.84 | | | $1.03 |
Third Quarter | | | $1.09 | | | $0.59 |
Fourth Quarter | | | $0.75 | | | $0.42 |
Fiscal Year Ended December 31, 2020 | | High | | Low | | High | | Low | ||||
First Quarter | | $0.63 | | $0.11 | | $0.63 | | $0.11 | ||||
Second Quarter | | $0.35 | | $0.10 | | $0.35 | | $0.10 | ||||
Third Quarter | | $0.19 | | $0.09 | | $0.19 | | $0.09 | ||||
Fourth Quarter (through December 24, 2020) | | $0.39 | | $0.10 | ||||||||
Fourth Quarter | | $0.49 | | $0.10 |
Fiscal Year Ending December 31, 2021 | | | High | | | Low |
First Quarter (through February 8, 2021) | | | $1.11 | | | $0.44 |
i. | Reviewed certain governing documents and other corporate organization materials that were deemed pertinent; |
ii. | Reviewed the draft Agreement and Plan of Merger (the “Agreement”) and supporting conversion schedule; |
iii. | Reviewed the MOR Letter of Intent; |
iv. | Examined historical and projected financial information provided by management of Helix and MOR; |
v. | Reviewed other documents and related industry information and statistics that were deemed relevant; |
vi. | Interviewed management concerning Helix’s and MOR’s history, operations, services, customer relationships, employees, competition, outlook, strengths, weaknesses, opportunities, and threats, as well as other aspects of the business MPI considered pertinent; |
vii. | Reviewed publicly available information on selected guideline public companies and guideline precedent transactions; |
viii. | Performed discounted cash flow analyses and sensitized the results based on a range of selected inputs; |
ix. | Performed a guideline publicly traded companies’ analysis in the analysis of value for MOR; |
x. | Considered such other information regarding Helix and MOR and their industry deemed relevant by MPI, including the current economic environment, in general, and the specific economic factors bearing on firms competing in the industry; |
xi. | Conducted studies, analyses, and inquiries as MPI deemed appropriate. |
a) | determined the value of the equity of Helix; |
b) | determined the value of the equity of MOR; and, |
c) | combined the indicated values determined from the analysis of Helix and MOR, adjusting for MOR’s capital raise (As per the DRAFT Agreement and Plan of Merger, at least $11 million of new investment in MOR is being raised and is expected to close concurrently with the Transaction. Based upon information provided by management, MOR shall raise approximately $13 million; and this balance was incorporated in the analysis), to derive the indicated value range of Forian. |
| | Range of Values (000s) | ||||
| | Low | | | High | |
Concluded Enterprise Value | | | $19,849 | | | $31,631 |
Less: Debt | | | $1,076 | | | $1,076 |
Working capital deficiency(a) | | | $3,000 | | | $3,000 |
Plus:Cash (net of contingent claims)(b) | | | $1,002 | | | $1,002 |
Tax Savings on Net Operating Losses(c) | | | — | | | $2,599 |
Preliminary Concluded Total Equity Value | | | $16,775 | | | $31,157 |
Less: FV of Options | | | $781 | | | $1,592 |
FV of Warrants | | | $259 | | | $545 |
Concluded Value of Common Equity | | | $15,735 | | | $29,019 |
a) | Management advised that the projected information provided assumes access to $3 million of working capital funds. |
b) | Cash balance as of September 30, 2020, net of certain contingent obligations related to the divestiture of the Security Operations, as provided by management. |
c) | As per MPI’s analysis of net operating losses existing at October 14, 2020. |
| | MOR Guideline Companies’ Multiples | | | Selected Multiples(a) | ||||||||||
| | Low | | | High | | | Median | | | Low | | | High | |
Implied Enterprise Value as a multiple of: 3-Year Projected Revenue | | | 1.5x | | | 4.6x | | | 3.2x | | | 1.5x | | | 2.0x |
| | Range of Values (000s) | ||||
| | Low | | | High | |
Concluded Enterprise Value | | | $31,210 | | | $43,589 |
Plus: Cash | | | $1,081 | | | $1,081 |
Concluded Value of Common Equity | | | $32,300 | | | $44,500 |
| | Range of Values (000s) ____ | ||||||||||
| | Helix Low | | | Helix Low | | | Helix High | | | Helix High | |
| | MOR High | | | MOR Low | | | MOR High | | | MOR Low | |
Helix Value Range (before options & warrants) | | | $16,800 | | | $16,800 | | | $31,200 | | | $31,200 |
MOR Valuation Range (Pre-Money) | | | $44,500 | | | $32,300 | | | $44,500 | | | $32,300 |
Plus: MOR Capital Raise | | | $13,000 | | | $13,000 | | | $13,000 | | | $13,000 |
Adjusted MOR Valuation (Post-Money) | | | $57,500 | | | $45,300 | | | $57,500 | | | $45,300 |
Less: Transaction fees(a) | | | $630 | | | $630 | | | $630 | | | $630 |
Combined Forian Valuation Range | | | $73,670 | | | $61,470 | | | $88,070 | | | $75,870 |
Less: Value of Options(b) | | | $967 | | | $783 | | | $1,190 | | | $1,001 |
Value of Warrants(b) | | | $324 | | | $259 | | | $403 | | | $336 |
Combined Equity Forian Valuation Range | | | $72,379 | | | $60,428 | | | $86,477 | | | $74,533 |
Forian Shares to be Issued (’000's)(c) | | | 16,951 | | | 16,951 | | | 16,951 | | | 16,951 |
Forian Price Per Share | | | $4.27 | | | $3.56 | | | $5.10 | | | $4.40 |
Forian Shares Issued to Helix ('000's)(d) | | | 4,420 | | | 4,420 | | | 4,420 | | | 4,420 |
Indicated Transaction Proceeds to Helix Stockholders | | | $18,872 | | | $15,756 | | | $22,548 | | | $19,434 |
a) | As per information provided by management. |
b) | As determined by MPI using an option pricing models and assuming terms per the Draft Merger Agreement. |
c) | As per the Draft Merger Agreement and other information provided by management. |
d) | Excluding options and warrants. |
| | Range of Values | ||||
| | Low | | | High | |
Range of Value of Helix (after options & warrants) | | | $15,735,088 | | | $29,021,108 |
Divide: Current Fully Diluted Shares | | | 160,307,826 | | | 160,307,826 |
Range of Value of Shares Tendered (Fully Diluted) | | | $0.10 | | | $0.18 |
Shares of Forian to be received at closing | | | | | 4,420,000 | |
Implied conversion ratio | | | | | 0.027x |
| | Helix Technologies Forecasts | ||||||||||||||||||||||||||||||||||||||||
| | Q3 2020 | | | Q4 2020 | | | Q1 2021 | | | Q2 2021 | | | Q3 2021 | | | Q4 2021 | | | Q1 2022 | | | Q2 2022 | | | Q3 2022 | | | Q4 2022 | | | Q1 2023 | | | Q2 2023 | | | Q3 2023 | | | Q4 2023 | |
Revenue | | | $2,986,878 | | | $3,279,981 | | | $3,732,084 | | | $4,143,587 | | | $4,498,070 | | | $4,864,338 | | | $5,064,264 | | | $5,276,698 | | | $5,502,904 | | | $5,744,318 | | | $5,957,070 | | | $6,180,282 | | | $6,414,664 | | | $6,660,991 |
COGS | | | $765,513 | | | $817,018 | | | $896,571 | | | $974,922 | | | $1,031,942 | | | $1,094,162 | | | $1,274,752 | | | $1,334,363 | | | $1,398,590 | | | $1,467,974 | | | $1,530,342 | | | $1,596,302 | | | $1,666,127 | | | $1,740,111 |
Gross Margin | | | $2,221,365 | | | $2,462,963 | | | $2,835,514 | | | $3,168,665 | | | $3,466,128 | | | $3,770,175 | | | $3,789,512 | | | $3,942,335 | | | $4,104,314 | | | $4,276,344 | | | $4,426,729 | | | $4,583,979 | | | $4,748,537 | | | $4,920,879 |
Operating Expenses | | | $2,656,544 | | | $2,603,045 | | | $2,975,214 | | | $2,875,571 | | | $2,929,231 | | | $2,964,891 | | | $3,228,090 | | | $3,104,785 | | | $3,152,601 | | | $3,196,063 | | | $3,473,815 | | | $3,341,012 | | | $3,405,332 | | | $3,445,606 |
EBIT | | | $(435,178) | | | $(140,081) | | | $(139,700) | | | $293,094 | | | $536,897 | | | $805,285 | | | $561,422 | | | $837,551 | | | $951,714 | | | $1,080,280 | | | $952,913 | | | $1,242,967 | | | $1,343,205 | | | $1,475,273 |
Capitalized Development | | | $366,587 | | | $373,825 | | | $226,234 | | | $263,510 | | | $217,858 | | | $253,270 | | | $245,035 | | | $245,035 | | | $245,035 | | | $245,035 | | | $245,035 | | | $245,035 | | | $245,035 | | | $245,035 |
| | Helix Technologies Forecasts w/ Potential Acquisition | | | Helix Technologies Forecasts (assuming award of state contract) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | Q3 2020 | | Q4 2020 | | Q1 2021 | | Q2 2021 | | Q3 2021 | | Q4 2021 | | Q1 2022 | | Q2 2022 | | Q3 2022 | | Q4 2022 | | Q1 2023 | | Q2 2023 | | Q3 2023 | | Q4 2023 | | | Q3 2020 | | Q4 2020 | | Q1 2021 | | Q2 2021 | | Q3 2021 | | Q4 2021 | | Q1 2022 | | Q2 2022 | | Q3 2022 | | Q4 2022 | | Q1 2023 | | Q2 2023 | | Q3 2023 | | Q4 2023 | |||||||||||||||||||||||||||
Revenue | | $2,986,878 | | $3,309,981 | | $4,400,084 | | $5,101,587 | | $5,616,070 | | $6,202,338 | | $6,739,884 | | $7,326,840 | | $7,967,986 | | $8,668,597 | | $8,969,079 | | $9,282,650 | | $9,610,103 | | $9,952,293 | | $2,986,878 | | $3,309,981 | | $4,400,084 | | $5,101,587 | | $5,616,070 | | $6,202,338 | | $6,739,884 | | $7,326,840 | | $7,967,986 | | $8,668,597 | | $8,969,079 | | $9,282,650 | | $9,610,103 | | $9,952,293 | ||||||||||||||||||||||||||||
COGS | | $915,513 | | $1,087,018 | | $1,166,571 | | $1,264,922 | | $1,296,942 | | $1,334,162 | | $1,768,229 | | $1,923,707 | | $2,093,974 | | $2,280,531 | | $2,367,275 | | $2,458,344 | | $2,554,030 | | $2,654,651 | | $915,513 | | $1,087,018 | | $1,166,571 | | $1,264,922 | | $1,296,942 | | $1,334,162 | | $1,768,229 | | $1,923,707 | | $2,093,974 | | $2,280,531 | | $2,367,275 | | $2,458,344 | | $2,554,030 | | $2,654,651 | ||||||||||||||||||||||||||||
Gross Margin | | $2,071,365 | | $2,222,963 | | $3,233,514 | | $3,836,665 | | $4,319,128 | | $4,868,175 | | $4,971,655 | | $5,403,132 | | $5,874,013 | | $6,388,067 | | $6,601,803 | | $6,824,306 | | $7,056,074 | | $7,297,642 | | $2,071,365 | | $2,222,963 | | $3,233,514 | | $3,836,665 | | $4,319,128 | | $4,868,175 | | $4,971,655 | | $5,403,132 | | $5,874,013 | | $6,388,067 | | $6,601,803 | | $6,824,306 | | $7,056,074 | | $7,297,642 | ||||||||||||||||||||||||||||
Operating Expenses | | $2,656,544 | | $2,603,045 | | $2,975,214 | | $2,875,571 | | $2,929,231 | | $2,964,891 | | $3,248,090 | | $3,124,785 | | $3,172,601 | | $3,216,063 | | $3,513,815 | | $3,381,012 | | $3,445,332 | | $3,485,606 | | $2,656,544 | | $2,603,045 | | $2,975,214 | | $2,875,571 | | $2,929,231 | | $2,964,891 | | $3,248,090 | | $3,124,785 | | $3,172,601 | | $3,216,063 | | $3,513,815 | | $3,381,012 | | $3,445,332 | | $3,485,606 | ||||||||||||||||||||||||||||
EBIT | | $(585,178) | | $(380,081) | | $258,300 | | $961,094 | | $1,389,897 | | $1,903,285 | | $1,723,565 | | $2,278,348 | | $2,701,412 | | $3,172,003 | | $3,087,988 | | $3,443,294 | | $3,610,742 | | $3,812,036 | | $(585,178) | | $(380,081) | | $258,300 | | $961,094 | | $1,389,897 | | $1,903,285 | | $1,723,565 | | $2,278,348 | | $2,701,412 | | $3,172,003 | | $3,087,988 | | $3,443,294 | | $3,610,742 | | $3,812,036 | ||||||||||||||||||||||||||||
Capitalized Development | | $366,587 | | $373,825 | | $226,234 | | $263,510 | | $217,858 | | $253,270 | | $245,035 | | $245,035 | | $245,035 | | $245,035 | | $245,035 | | $245,035 | | $245,035 | | $245,035 | | $366,587 | | $373,825 | | $226,234 | | $263,510 | | $217,858 | | $253,270 | | $245,035 | | $245,035 | | $245,035 | | $245,035 | | $245,035 | | $245,035 | | $245,035 | | $245,035 |
| | Annual P&L | | | | | Year-Over-Year % Change | ||||||||||||||||||||||||||||||||
| | 2019 | | | 2020 | | | 2021 | | | 2022 | | | 2023 | | | 2024 | | | 2025 | | | | | 2020 | | | 2021 | | | 2022 | | | 2023 | | | 2024 | ||
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||
Product | | | — | | | — | | | 810,000 | | | 7,200,000 | | | 14,916,000 | | | 21,843,745 | | | 24,604,763 | | | | | 0% | | | 0% | | | 789% | | | 107% | | | 46% | |
Data | | | — | | | 475,415 | | | 3,983,333 | | | 8,056,667 | | | 20,010,000 | | | 37,805,299 | | | 53,427,149 | | | | | 0% | | | 738% | | | 102% | | | 148% | | | 89% | |
Services | | | — | | | 20,000 | | | 2,910,001 | | | 5,758,333 | | | 9,156,668 | | | 14,153,180 | | | 17,386,772 | | | | | 0% | | | 14450% | | | 98% | | | 59% | | | 55% | |
Other | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | |
Total Revenue | | | — | | | 495,415 | | | 7,703,334 | | | 21,015,000 | | | 44,082,668 | | | 73,802,224 | | | 95,418,684 | | | | | 0% | | | 1455% | | | 173% | | | 110% | | | 67% | |
Cost of Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||
Product | | | — | | | 245,693 | | | 1,111,763 | | | 1,748,251 | | | 1,203,105 | | | 2,933,934 | | | 5,404,331 | | | | | 0% | | | 353% | | | 57% | | | -31% | | | 144% | |
Data | | | — | | | 180,079 | | | 367,500 | | | 431,250 | | | 1,044,750 | | | 4,161,730 | | | 7,374,293 | | | | | 0% | | | 104% | | | 17% | | | 142% | | | 298% | |
Services | | | — | | | 164,602 | | | 1,919,100 | | | 4,536,855 | | | 5,284,889 | | | 7,665,201 | | | 12,234,064 | | | | | 0% | | | 1066% | | | 136% | | | 16% | | | 45% | |
Other | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | |
Total Cost of Revenue | | | — | | | 590,373 | | | 3,398,363 | | | 6,716,356 | | | 7,532,744 | | | 14,760,866 | | | 25,012,688 | | | | | 0% | | | 476% | | | 98% | | | 12% | | | 96% | |
| | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Gross Profit | | | — | | | (94,958) | | | 4,304,971 | | | 14,298,643 | | | 36,549,924 | | | 59,041,359 | | | 70,405,995 | | | | | 0% | | | 4634% | | | 232% | | | 156% | | | 62% | |
Gross Margin | | | 0% | | | -19% | | | 56% | | | 68% | | | 83% | | | 80% | | | 74% | | | | | -19% | | | 75% | | | 12% | | | 15% | | | -3% | |
Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||
Sales & Marketing | | | 47,578 | | | 512,789 | | | 2,832,679 | | | 4,992,725 | | | 6,917,094 | | | 8,118,245 | | | 10,496,055 | | | | | 978% | | | 452% | | | 76% | | | 39% | | | 17% | |
Research & Development | | | 860,722 | | | 1,968,732 | | | 4,032,418 | | | 4,095,684 | | | 4,204,802 | | | 4,428,133 | | | 5,725,121 | | | | | 129% | | | 105% | | | 2% | | | 3% | | | 5% | |
General & Administrative | | | 336,884 | | | 1,074,117 | | | 2,854,702 | | | 3,458,155 | | | 3,569,853 | | | 2,952,089 | | | 3,816,747 | | | | | 219% | | | 166% | | | 21% | | | 3% | | | -17% | |
Total Expenses | | | 1,245,185 | | | 3,555,638 | | | 9,719,800 | | | 12,546,564 | | | 14,691,750 | | | 15,498,467 | | | 20,037,924 | | | | | 186% | | | 173% | | | 29% | | | 17% | | | 5% | |
Operating Profit | | | (1,245,185) | | | (3,650,596) | | | (5,414,829) | | | 1,752,080 | | | 21,858,175 | | | 43,542,891 | | | 50,368,072 | | | | | -193% | | | -48% | | | 132% | | | 1148% | | | 99% | |
Operating Margin | | | 0% | | | -737% | | | -70% | | | 8% | | | 50% | | | 59% | | | 53% | | | | | -737% | | | 667% | | | 79% | | | 41% | | | 9% | |
| | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||
Other Income | | | 3,330 | | | 5,770 | | | — | | | — | | | — | | | — | | | — | | | | | 73% | | | -100% | | | 0% | | | 0% | | | 0% | |
Other Expenses/Tax Provision | | | — | | | 113,369 | | | — | | | 678,546 | | | 6,651,160 | | | 11,988,780 | | | 17,628,825 | | | | | 0% | | | -100% | | | 0% | | | 880% | | | 80% | |
Net Income | | | (1,241,854) | | | (3,758,195) | | | (5,414,829) | | | 1,073,534 | | | 15,207,015 | | | 31,554,111 | | | 32,739,247 | | | | | -203% | | | -44% | | | 120% | | | 1317% | | | 107% | |
Net Income | | | 0% | | | -759% | | | -70% | | | 5% | | | 34% | | | 43% | | | 34% | | | | | -759% | | | 688% | | | 75% | | | 29% | | | 8% |
| | ACTUALS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
| | 3Q19 | | | 4Q19 | | | 1Q20 | | | 2Q20 | | | 3Q20 | | | 4Q20 | | | 1Q21 | | | 2Q21 | | | 3Q21 | | | 4Q21 | | | 1Q22 | | | 2Q22 | | | 3Q22 | | | 4Q22 | | | 1Q23 | | | 2Q23 | | | 3Q23 | | | 4Q23 | |
Product | | | — | | | — | | | — | | | — | | | — | | | — | | | 30,000 | | | 150,000 | | | 240,000 | | | 390,000 | | | 1,101,000 | | | 1,533,000 | | | 2,029,000 | | | 2,537,000 | | | 2,997,000 | | | 3,465,000 | | | 3,993,000 | | | 4,461,000 |
Data | | | — | | | — | | | 66,666 | | | 108,749 | | | 180,000 | | | 120,000 | | | 533,333 | | | 740,000 | | | 1,150,000 | | | 1,560,000 | | | 1,480,000 | | | 1,480,000 | | | 2,100,000 | | | 2,996,667 | | | 3,690,000 | | | 4,420,000 | | | 5,233,333 | | | 6,666,667 |
Services | | | — | | | — | | | — | | | — | | | — | | | 20,000 | | | 556,667 | | | 631,667 | | | 801,666 | | | 920,001 | | | 1,256,666 | | | 1,376,667 | | | 1,510,000 | | | 1,615,000 | | | 1,710,000 | | | 2,060,001 | | | 2,518,333 | | | 2,868,334 |
Other | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | — | | | — | | | 66,666 | | | 108,749 | | | 180,000 | | | 140,000 | | | 1,120,000 | | | 1,521,667 | | | 2,191,666 | | | 2,870,001 | | | 3,837,666 | | | 4,389,667 | | | 5,639,000 | | | 7,148,667 | | | 8,397,000 | | | 9,945,001 | | | 11,744,666 | | | 13,996,001 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Product | | | — | | | — | | | — | | | — | | | 69,963 | | | 175,729 | | | 282,403 | | | 265,092 | | | 289,634 | | | 274,634 | | | 531,942 | | | 398,915 | | | 416,197 | | | 401,197 | | | 401,383 | | | 265,165 | | | 267,447 | | | 269,110 |
Data | | | — | | | — | | | — | | | 79 | | | — | | | 180,000 | | | 180,000 | | | 187,500 | | | — | | | — | | | 187,500 | | | 243,750 | | | — | | | — | | | 243,750 | | | 267,000 | | | 267,000 | | | 267,000 |
Services | | | — | | | — | | | — | | | — | | | — | | | 164,602 | | | 325,326 | | | 378,296 | | | 576,478 | | | 639,000 | | | 1,094,647 | | | 979,193 | | | 1,231,507 | | | 1,231,507 | | | 1,599,133 | | | 1,220,241 | | | 1,231,507 | | | 1,234,007 |
Other | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | — | | | — | | | — | | | 79 | | | 69,963 | | | 520,331 | | | 787,729 | | | 830,887 | | | 866,112 | | | 913,635 | | | 1,814,090 | | | 1,621,858 | | | 1,647,704 | | | 1,632,704 | | | 2,244,266 | | | 1,752,406 | | | 1,765,954 | | | 1,770,117 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | — | | | — | | | 66,666 | | | 108,670 | | | 110,037 | | | (380,331) | | | 332,271 | | | 690,780 | | | 1,325,554 | | | 1,956,366 | | | 2,023,576 | | | 2,767,809 | | | 3,991,296 | | | 5,515,962 | | | 6,152,734 | | | 8,192,595 | | | 9,978,712 | | | 12,225,883 | |
| | 0% | | | 0% | | | 100% | | | 100% | | | 61% | | | -283% | | | 22% | | | 32% | | | 47% | | | 66% | | | 53% | | | 63% | | | 71% | | | 77% | | | 73% | | | 82% | | | 85% | | | 87% | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Sales & Marketing | | | 7,000 | | | 40,578 | | | 46,352 | | | 26,207 | | | 55,721 | | | 384,510 | | | 564,349 | | | 604,016 | | | 745,257 | | | 919,058 | | | 1,200,819 | | | 1,208,078 | | | 1,255,401 | | | 1,328,427 | | | 1,600,478 | | | 1,719,704 | | | 1,779,520 | | | 1,817,392 |
Research & Develop- ment | | | 575,379 | | | 285,343 | | | 377,167 | | | 555,617 | | | 280,973 | | | 754,975 | | | 1,049,416 | | | 1,001,606 | | | 1,013,198 | | | 968,198 | | | 1,335,122 | | | 954,790 | | | 925,386 | | | 880,386 | | | 1,412,194 | | | 1,011,290 | | | 913,808 | | | 867,511 |
General & Administra- tive | | | 1,974 | | | 334,911 | | | 144,583 | | | 94,472 | | | 327,122 | | | 507,940 | | | 1,083,678 | | | 543,021 | | | 571,426 | | | 656,577 | | | 1,312,532 | | | 695,514 | | | 725,055 | | | 725,055 | | | 1,437,054 | | | 731,178 | | | 699,119 | | | 702,503 |
| | 584,353 | | | 660,832 | | | 568,101 | | | 676,296 | | | 663,816 | | | 1,647,425 | | | 2,697,443 | | | 2,148,642 | | | 2,329,881 | | | 2,543,834 | | | 3,848,473 | | | 2,858,382 | | | 2,905,841 | | | 2,933,868 | | | 4,449,725 | | | 3,462,172 | | | 3,392,447 | | | 3,387,406 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | (584,353) | | | (660,832) | | | (501,435) | | | (567,625) | | | (553,779) | | | (2,027,756) | | | (2,365,172) | | | (1,457,862) | | | (1,004,327) | | | (587,467) | | | (1,824,897) | | | (90,573) | | | 1,085,454 | | | 2,582,095 | | | 1,703,008 | | | 4,730,423 | | | 6,586,266 | | | 8,838,478 | |
| | 0% | | | 0% | | | -752% | | | -522% | | | -332% | | | -1494% | | | -246% | | | -143% | | | -97% | | | -30% | | | -48% | | | -2% | | | 19% | | | 36% | | | 20% | | | 48% | | | 56% | | | 63% | |
S&M % of Revenue | | | 0% | | | 0% | | | 70% | | | 24% | | | 34% | | | 283% | | | 56% | | | 49% | | | 46% | | | 35% | | | 31% | | | 28% | | | 22% | | | 19% | | | 19% | | | 17% | | | 15% | | | 13% |
R&D % of Revenue | | | 0% | | | 0% | | | 566% | | | 511% | | | 156% | | | 555% | | | 104% | | | 82% | | | 62% | | | 36% | | | 35% | | | 22% | | | 16% | | | 12% | | | 17% | | | 10% | | | 8% | | | 6% |
G&A % of Revenue | | | 0% | | | 0% | | | 217% | | | 87% | | | 203% | | | 373% | | | 108% | | | 44% | | | 35% | | | 25% | | | 34% | | | 16% | | | 13% | | | 10% | | | 17% | | | 7% | | | 6% | | | 5% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | 1,979 | | | 1,352 | | | 4,963 | | | 744 | | | 63 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | — | | | — | | | — | | | 58,781 | | | 54,588 | | | | | | | | | | | — | | | — | | | — | | | 208,317 | | | 470,229 | | | 316,389 | | | 848,617 | | | 2,348,940 | | | 3,137,214 | |||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | (582,374) | | | (659,480) | | | (496,472) | | | (625,662) | | | (608,303) | | | (2,027,756) | | | (2,365,172) | | | (1,457,862) | | | (1,004,327) | | | (587,467) | | | (1,824,897) | | | (90,573) | | | 877,137 | | | 2,111,866 | | | 1,386,619 | | | 3,881,806 | | | 4,237,326 | | | 5,701,264 | |
| | 0% | | | 0% | | | -745% | | | -575% | | | -362% | | | -1494% | | | -246% | | | -143% | | | -97% | | | -30% | | | -48% | | | -2% | | | 16% | | | 30% | | | 17% | | | 39% | | | 36% | | | 41% |
1Q24 | | | 2Q24 | | | 3Q24 | | | 4Q24 | | | 1Q25 | | | 2Q25 | | | 3Q25 | | | 4Q25 |
5,269,853 | | | 5,341,981 | | | 5,537,998 | | | 5,693,914 | | | 6,310,183 | | | 6,095,244 | | | 6,095,786 | | | 6,103,551 |
8,209,121 | | | 8,863,142 | | | 9,551,373 | | | 11,181,662 | | | 12,772,490 | | | 12,907,196 | | | 13,128,509 | | | 14,618,953 |
3,037,060 | | | 3,338,946 | | | 3,769,132 | | | 4,008,043 | | | 4,002,460 | | | 4,188,035 | | | 4,535,920 | | | 4,660,357 |
— | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
16,516,034 | | | 17,544,068 | | | 18,858,503 | | | 20,883,619 | | | 23,085,133 | | | 23,190,476 | | | 23,760,215 | | | 25,382,861 |
| | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | ||||||||
708,478 | | | 718,858 | | | 825,593 | | | 681,007 | | | 1,098,227 | | | 1,129,678 | | | 1,511,917 | | | 1,664,509 |
856,895 | | | 1,010,087 | | | 1,216,409 | | | 1,078,339 | | | 1,661,809 | | | 1,759,709 | | | 1,859,019 | | | 2,093,756 |
1,857,731 | | | 1,772,372 | | | 1,942,742 | | | 2,092,356 | | | 2,681,320 | | | 2,843,426 | | | 3,206,054 | | | 3,503,265 |
— | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
3,423,104 | | | 3,501,317 | | | 3,984,743 | | | 3,851,702 | | | 5,441,357 | | | 5,732,813 | | | 6,576,989 | | | 7,261,530 |
13,092,930 | | | 14,042,752 | | | 14,873,759 | | | 17,031,917 | | | 17,643,776 | | | 17,457,662 | | | 17,183,226 | | | 18,121,331 |
79% | | | 80% | | | 79% | | | 82% | | | 76% | | | 75% | | | 72% | | | 71% |
| | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | ||||||||
1,816,764 | | | 1,929,848 | | | 2,074,435 | | | 2,297,198 | | | 2,539,365 | | | 2,550,952 | | | 2,613,624 | | | 2,792,115 |
990,962 | | | 1,052,644 | | | 1,131,510 | | | 1,253,017 | | | 1,385,108 | | | 1,391,429 | | | 1,425,613 | | | 1,522,972 |
660,641 | | | 701,763 | | | 754,340 | | | 835,345 | | | 923,405 | | | 927,619 | | | 950,409 | | | 1,015,314 |
3,468,367 | | | 3,684,254 | | | 3,960,286 | | | 4,385,560 | | | 4,847,878 | | | 4,870,000 | | | 4,989,645 | | | 5,330,401 |
9,624,563 | | | 10,358,497 | | | 10,913,474 | | | 12,646,357 | | | 12,795,898 | | | 12,587,662 | | | 12,193,581 | | | 12,790,930 |
58% | | | 59% | | | 58% | | | 61% | | | 55% | | | 54% | | | 51% | | | 50% |
11% | | | 11% | | | 11% | | | 11% | | | 11% | | | 11% | | | 11% | | | 11% |
6% | | | 6% | | | 6% | | | 6% | | | 6% | | | 6% | | | 6% | | | 6% |
4% | | | 4% | | | 4% | | | 4% | | | 4% | | | 4% | | | 4% | | | 4% |
| | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | ||||||||
— | | | — | | | — | | | 11,988,780 | | | — | | | — | | | — | | | 17,628,825 |
9,624,563 | | | 10,358,497 | | | 10,913,474 | | | 657,577 | | | 12,795,898 | | | 12,587,662 | | | 12,193,581 | | | (4,837,895) |
58% | | | 59% | | | 58% | | | 3% | | | 55% | | | 54% | | | 51% | | | -19% |
| | ACTUALS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
| | 3Q19 | | | 4Q19 | | | 1Q20 | | | 2Q20 | | | 3Q20 | | | 4Q20 | | | 1Q21 | | | 2Q21 | | | 3Q21 | | | 4Q21 | | | 1Q22 | | | 2Q22 | | | 3Q22 | | | 4Q22 | | | 1Q23 | | | 2Q23 | | | 3Q23 | | | 4Q23 | |
Product | | | — | | | — | | | — | | | — | | | — | | | — | | | 30,000 | | | 150,000 | | | 240,000 | | | 390,000 | | | 1,101,000 | | | 1,533,000 | | | 2,029,000 | | | 2,537,000 | | | 2,997,000 | | | 3,465,000 | | | 3,993,000 | | | 4,461,000 |
Data | | | — | | | — | | | 66,666 | | | 108,749 | | | 180,000 | | | 120,000 | | | 533,333 | | | 740,000 | | | 1,150,000 | | | 1,560,000 | | | 1,480,000 | | | 1,480,000 | | | 2,100,000 | | | 2,996,667 | | | 3,690,000 | | | 4,420,000 | | | 5,233,333 | | | 6,666,667 |
Services | | | — | | | — | | | — | | | — | | | — | | | 20,000 | | | 556,667 | | | 631,667 | | | 801,666 | | | 920,001 | | | 1,256,666 | | | 1,376,667 | | | 1,510,000 | | | 1,615,000 | | | 1,710,000 | | | 2,060,001 | | | 2,518,333 | | | 2,868,334 |
Other | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | — | | | — | | | 66,666 | | | 108,749 | | | 180,000 | | | 140,000 | | | 1,120,000 | | | 1,521,667 | | | 2,191,666 | | | 2,870,001 | | | 3,837,666 | | | 4,389,667 | | | 5,639,000 | | | 7,148,667 | | | 8,397,000 | | | 9,945,001 | | | 11,744,666 | | | 13,996,001 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Product | | | — | | | — | | | — | | | — | | | 69,963 | | | 175,729 | | | 282,403 | | | 265,092 | | | 289,634 | | | 274,634 | | | 531,942 | | | 398,915 | | | 416,197 | | | 401,197 | | | 401,383 | | | 265,165 | | | 267,447 | | | 269,110 |
Data | | | — | | | — | | | — | | | 79 | | | — | | | 180,000 | | | 180,000 | | | 187,500 | | | — | | | — | | | 187,500 | | | 243,750 | | | — | | | — | | | 243,750 | | | 267,000 | | | 267,000 | | | 267,000 |
Services | | | — | | | — | | | — | | | — | | | — | | | 164,602 | | | 325,326 | | | 378,296 | | | 576,478 | | | 639,000 | | | 1,094,647 | | | 979,193 | | | 1,231,507 | | | 1,231,507 | | | 1,599,133 | | | 1,220,241 | | | 1,231,507 | | | 1,234,007 |
Other | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
| | — | | | — | | | — | | | 79 | | | 69,963 | | | 520,331 | | | 787,729 | | | 830,887 | | | 866,112 | | | 913,635 | | | 1,814,090 | | | 1,621,858 | | | 1,647,704 | | | 1,632,704 | | | 2,244,266 | | | 1,752,406 | | | 1,765,954 | | | 1,770,117 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | — | | | — | | | 66,666 | | | 108,670 | | | 110,037 | | | (380,331) | | | 332,271 | | | 690,780 | | | 1,325,554 | | | 1,956,366 | | | 2,023,576 | | | 2,767,809 | | | 3,991,296 | | | 5,515,962 | | | 6,152,734 | | | 8,192,595 | | | 9,978,712 | | | 12,225,883 | |
| | 0% | | | 0% | | | 100% | | | 100% | | | 61% | | | -283% | | | 22% | | | 32% | | | 47% | | | 66% | | | 53% | | | 63% | | | 71% | | | 77% | | | 73% | | | 82% | | | 85% | | | 87% | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
Sales & Marketing | | | 7,000 | | | 40,578 | | | 46,352 | | | 26,207 | | | 55,721 | | | 384,510 | | | 564,349 | | | 604,016 | | | 745,257 | | | 919,058 | | | 1,200,819 | | | 1,208,078 | | | 1,255,401 | | | 1,328,427 | | | 1,600,478 | | | 1,719,704 | | | 1,779,520 | | | 1,817,392 |
Research & Develop- ment | | | 575,379 | | | 285,343 | | | 377,167 | | | 555,617 | | | 280,973 | | | 754,975 | | | 1,049,416 | | | 1,001,606 | | | 1,013,198 | | | 968,198 | | | 1,335,122 | | | 954,790 | | | 925,386 | | | 880,386 | | | 1,412,194 | | | 1,011,290 | | | 913,808 | | | 867,511 |
General & Administra- tive | | | 1,974 | | | 334,911 | | | 144,583 | | | 94,472 | | | 327,122 | | | 507,940 | | | 1,083,678 | | | 543,021 | | | 571,426 | | | 656,577 | | | 1,312,532 | | | 695,514 | | | 725,055 | | | 725,055 | | | 1,437,054 | | | 731,178 | | | 699,119 | | | 702,503 |
| | 584,353 | | | 660,832 | | | 568,101 | | | 676,296 | | | 663,816 | | | 1,647,425 | | | 2,697,443 | | | 2,148,642 | | | 2,329,881 | | | 2,543,834 | | | 3,848,473 | | | 2,858,382 | | | 2,905,841 | | | 2,933,868 | | | 4,449,725 | | | 3,462,172 | | | 3,392,447 | | | 3,387,406 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | (584,353) | | | (660,832) | | | (501,435) | | | (567,625) | | | (553,779) | | | (2,027,756) | | | (2,365,172) | | | (1,457,862) | | | (1,004,327) | | | (587,467) | | | (1,824,897) | | | (90,573) | | | 1,085,454 | | | 2,582,095 | | | 1,703,008 | | | 4,730,423 | | | 6,586,266 | | | 8,838,478 | |
| | 0% | | | 0% | | | -752% | | | -522% | | | -332% | | | -1494% | | | -246% | | | -143% | | | -97% | | | -30% | | | -48% | | | -2% | | | 19% | | | 36% | | | 20% | | | 48% | | | 56% | | | 63% | |
S&M % of Revenue | | | 0% | | | 0% | | | 70% | | | 24% | | | 34% | | | 283% | | | 56% | | | 49% | | | 46% | | | 35% | | | 31% | | | 28% | | | 22% | | | 19% | | | 19% | | | 17% | | | 15% | | | 13% |
R&D % of Revenue | | | 0% | | | 0% | | | 566% | | | 511% | | | 156% | | | 555% | | | 104% | | | 82% | | | 62% | | | 36% | | | 35% | | | 22% | | | 16% | | | 12% | | | 17% | | | 10% | | | 8% | | | 6% |
G&A % of Revenue | | | 0% | | | 0% | | | 217% | | | 87% | | | 203% | | | 373% | | | 108% | | | 44% | | | 35% | | | 25% | | | 34% | | | 16% | | | 13% | | | 10% | | | 17% | | | 7% | | | 6% | | | 5% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | 1,979 | | | 1,352 | | | 4,963 | | | 744 | | | 63 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | — | | | — | | | — | | | 58,781 | | | 54,588 | | | | | | | | | | | — | | | — | | | — | | | 208,317 | | | 470,229 | | | 316,389 | | | 848,617 | | | 2,348,940 | | | 3,137,214 | |||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||
| | (582,374) | | | (659,480) | | | (496,472) | | | (625,662) | | | (608,303) | | | (2,027,756) | | | (2,365,172) | | | (1,457,862) | | | (1,004,327) | | | (587,467) | | | (1,824,897) | | | (90,573) | | | 877,137 | | | 2,111,866 | | | 1,386,619 | | | 3,881,806 | | | 4,237,326 | | | 5,701,264 | |
| | 0% | | | 0% | | | -745% | | | -575% | | | -362% | | | -1494% | | | -246% | | | -143% | | | -97% | | | -30% | | | -48% | | | -2% | | | 16% | | | 30% | | | 17% | | | 39% | | | 36% | | | 41% |
1Q24 | | | 2Q24 | | | 3Q24 | | | 4Q24 | | | 1Q25 | | | 2Q25 | | | 3Q25 | | | 4Q25 |
5,269,853 | | | 5,341,981 | | | 5,537,998 | | | 5,693,914 | | | 6,310,183 | | | 6,095,244 | | | 6,095,786 | | | 6,103,551 |
8,209,121 | | | 8,863,142 | | | 9,551,373 | | | 11,181,662 | | | 12,772,490 | | | 12,907,196 | | | 13,128,509 | | | 14,618,953 |
3,037,060 | | | 3,338,946 | | | 3,769,132 | | | 4,008,043 | | | 4,002,460 | | | 4,188,035 | | | 4,535,920 | | | 4,660,357 |
— | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
16,516,034 | | | 17,544,068 | | | 18,858,503 | | | 20,883,619 | | | 23,085,133 | | | 23,190,476 | | | 23,760,215 | | | 25,382,861 |
| | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | ||||||||
708,478 | | | 718,858 | | | 825,593 | | | 681,007 | | | 1,098,227 | | | 1,129,678 | | | 1,511,917 | | | 1,664,509 |
856,895 | | | 1,010,087 | | | 1,216,409 | | | 1,078,339 | | | 1,661,809 | | | 1,759,709 | | | 1,859,019 | | | 2,093,756 |
1,857,731 | | | 1,772,372 | | | 1,942,742 | | | 2,092,356 | | | 2,681,320 | | | 2,843,426 | | | 3,206,054 | | | 3,503,265 |
— | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
3,423,104 | | | 3,501,317 | | | 3,984,743 | | | 3,851,702 | | | 5,441,357 | | | 5,732,813 | | | 6,576,989 | | | 7,261,530 |
13,092,930 | | | 14,042,752 | | | 14,873,759 | | | 17,031,917 | | | 17,643,776 | | | 17,457,662 | | | 17,183,226 | | | 18,121,331 |
79% | | | 80% | | | 79% | | | 82% | | | 76% | | | 75% | | | 72% | | | 71% |
| | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | ||||||||
1,816,764 | | | 1,929,848 | | | 2,074,435 | | | 2,297,198 | | | 2,539,365 | | | 2,550,952 | | | 2,613,624 | | | 2,792,115 |
990,962 | | | 1,052,644 | | | 1,131,510 | | | 1,253,017 | | | 1,385,108 | | | 1,391,429 | | | 1,425,613 | | | 1,522,972 |
660,641 | | | 701,763 | | | 754,340 | | | 835,345 | | | 923,405 | | | 927,619 | | | 950,409 | | | 1,015,314 |
3,468,367 | | | 3,684,254 | | | 3,960,286 | | | 4,385,560 | | | 4,847,878 | | | 4,870,000 | | | 4,989,645 | | | 5,330,401 |
9,624,563 | | | 10,358,497 | | | 10,913,474 | | | 12,646,357 | | | 12,795,898 | | | 12,587,662 | | | 12,193,581 | | | 12,790,930 |
58% | | | 59% | | | 58% | | | 61% | | | 55% | | | 54% | | | 51% | | | 50% |
11% | | | 11% | | | 11% | | | 11% | | | 11% | | | 11% | | | 11% | | | 11% |
6% | | | 6% | | | 6% | | | 6% | | | 6% | | | 6% | | | 6% | | | 6% |
4% | | | 4% | | | 4% | | | 4% | | | 4% | | | 4% | | | 4% | | | 4% |
| | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | ||||||||
— | | | — | | | — | | | 11,988,780 | | | — | | | — | | | — | | | 17,628,825 |
9,624,563 | | | 10,358,497 | | | 10,913,474 | | | 657,577 | | | 12,795,898 | | | 12,587,662 | | | 12,193,581 | | | (4,837,895) |
58% | | | 59% | | | 58% | | | 3% | | | 55% | | | 54% | | | 51% | | | -19% |
| | | | | | | | | | | | | | | | Quarter-Over-Quarter % Change | | | | | Assumptions | | | Growth Input | | | | | | | |||||||||||||||||||||||||||||||||
3Q20 | | | 4Q20 | | | 1Q21 | | | 2Q21 | | | 3Q21 | | | 4Q21 | | | 1Q22 | | | 2Q22 | | | 3Q22 | | | 4Q22 | | | 1Q23 | | | 2Q23 | | | 3Q23 | | | 4Q23 | | | 1Q24 | | | 2Q24 | | | 3Q24 | | | 4Q24 | | | 1Q25 | | | 2Q25 | | | 3Q25 | | | 4Q25 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Revenue continued revenue growth trend | | | | | | | |||||||||||||||||||||||||||||
0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 3570% | | | 922% | | | 745% | | | 551% | | | 172% | | | 126% | | | 97% | | | 76% | | | 54% | | | 39% | | | 28% | | | 20% | | | 14% | | | 10% | | | 7% | | | 5% |
0% | | | 0% | | | 700% | | | 580% | | | 539% | | | 1200% | | | 178% | | | 100% | | | 83% | | | 92% | | | 149% | | | 199% | | | 149% | | | 122% | | | 101% | | | 83% | | | 68% | | | 56% | | | 46% | | | 37% | | | 31% | | | 25% |
0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 4500% | | | 126% | | | 118% | | | 88% | | | 76% | | | 36% | | | 50% | | | 67% | | | 78% | | | 62% | | | 50% | | | 40% | | | 32% | | | 25% | | | 20% | | | 16% | | | 13% |
0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | | | | | | | | | | | | | | | ||||||||
0% | | | 0% | | | 1580% | | | 1299% | | | 1118% | | | 1950% | | | 243% | | | 188% | | | 157% | | | 149% | | | 119% | | | 127% | | | 108% | | | 96% | | | 97% | | | 76% | | | 61% | | | -100% | | | -100% | | | -100% | | | -100% | | | 0% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | COGS maintained % of revenue | | | | ||||||||||||||||||||||||||||||||
0% | | | 0% | | | 0% | | | 0% | | | 314% | | | 56% | | | 88% | | | 50% | | | 44% | | | 46% | | | -25% | | | -34% | | | -36% | | | -33% | | | | | | | | | | | | | | | | | ||||||||
0% | | | 0% | | | 0% | | | 237242% | | | 0% | | | -100% | | | 4% | | | 30% | | | 0% | | | 0% | | | 30% | | | 10% | | | 0% | | | 0% | | | | | | | | | | | | | | | | | ||||||||
0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 288% | | | 236% | | | 159% | | | 114% | | | 93% | | | 46% | | | 25% | | | 0% | | | 0% | | | | | | | | | | | | | | | | | ||||||||
0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | | | | | | | | | | | | | | | ||||||||
0% | | | 0% | | | 0% | | | 1051656% | | | 1138% | | | 76% | | | 130% | | | 95% | | | 90% | | | 79% | | | 24% | | | 8% | | | 7% | | | 8% | | | 53% | | | 100% | | | 126% | | | -100% | | | -100% | | | -100% | | | -100% | | | 0% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
0% | | | 0% | | | 398% | | | 536% | | | 1105% | | | 614% | | | 509% | | | 301% | | | 201% | | | 182% | | | 204% | | | 196% | | | 150% | | | 122% | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
696% | | | 848% | | | 1118% | | | 2205% | | | 1237% | | | 139% | | | 113% | | | 100% | | | 68% | | | 45% | | | 33% | | | 42% | | | 42% | | | 37% | | | | | | | | | | | | | | | | | ||||||||
-51% | | | 165% | | | 178% | | | 80% | | | 261% | | | 28% | | | 27% | | | -5% | | | -9% | | | -9% | | | 6% | | | 6% | | | -1% | | | -1% | | | | | | | | | | | | | | | | | ||||||||
16475% | | | 52% | | | 650% | | | 475% | | | 75% | | | 29% | | | 21% | | | 28% | | | 27% | | | 10% | | | 9% | | | 5% | | | -4% | | | -3% | | | | | | | | | | | | | | | | | ||||||||
14% | | | 149% | | | 375% | | | 218% | | | 251% | | | 54% | | | 43% | | | 33% | | | 25% | | | 15% | | | 16% | | | 21% | | | 17% | | | 15% | | | -22% | | | 6% | | | 17% | | | -100% | | | -100% | | | -100% | | | -100% | | | 0% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
5% | | | -207% | | | -372% | | | -157% | | | -81% | | | 71% | | | 23% | | | 94% | | | 208% | | | 540% | | | 193% | | | 5323% | | | 507% | | | 242% | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 11% | | | 11% | | | 11% | | | 11% | | | 11% | | | 11% | | | 11% | | | 11% | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 6% | | | 6% | | | 6% | | | 6% | | | 6% | | | 6% | | | 6% | | | 6% | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 4% | | | 4% | | | 4% | | | 4% | | | 4% | | | 4% | | | 4% | | | 4% | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
-97% | | | -100% | | | -100% | | | -100% | | | -100% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | | | | | | | | | | | | | | | ||||||||
0% | | | 0% | | | 0% | | | -100% | | | -100% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 0% | | | 1028% | | | 567% | | | | | | | | | | | | | | | | | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
-4% | | | -207% | | | -376% | | | -133% | | | -65% | | | 71% | | | 23% | | | 94% | | | 187% | | | 459% | | | 176% | | | 4386% | | | 383% | | | 170% | | | 594% | | | 167% | | | 158% | | | -100% | | | -100% | | | -100% | | | -100% | | | 0% |
-362% | | | -1494% | | | 499% | | | 433% | | | 266% | | | 1464% | | | 198% | | | 140% | | | 112% | | | 60% | | | 64% | | | 41% | | | 21% | | | 11% | | | | | | | | | | | | | | | | |
Name | | Cash | | Equity(1) | | Total | | Cash | | Equity(1) | | Total | ||||||
Zachary Venegas | | 200,000 | | $24,325 | | $— | | 200,000 | | $219,325 | | $419,325 | ||||||
Scott Ogur | | 180,000 | | $— | | $180,000 | | 180,000 | | $— | | $180,000 |
(1) | Represents acceleration of options for Mr. |
Name | | | Option Date | | | Current Ex. Price | | | Curr. Exp. Date | | | Helix Shares (#) | | | Forian Shares (#) | | | Ex. Price as adj. in Merger |
Mr. Venegas | | | 3/15/18 | | | $1.90 | | | 3/28/28 | | | 450,000 | | | 12,289 | | | $69.57 |
| | 3/15/18 | | | $2.09 | | | 3/28/23 | | | 40,000 | | | 1,092 | | | $76.53 | |
| | 3/19/19 | | | $2.59 | | | 3/19/24 | | | 114,000 | | | 3,113 | | | $94.84 | |
| | 3/19/19 | | | $2.35 | | | 3/19/29 | | | 386,000 | | | 10,541 | | | $86.04 | |
| | 6/19/20 | | | $0.167 | | | 6/19/25 | | | 500,000 | | | 13,655 | | | $6.11 | |
| | 10/14/20 | | | $0.1045 | | | 10/14/25 | | | 300,000 | | | 8,193 | | | $3.83 | |
Mr. Ogur | | | 3/19/19 | | | $2.59 | | | 3/19/24 | | | 114,000 | | | 3,113 | | | $94.84 |
| | 3/19/19 | | | $2.35 | | | 3/19/29 | | | 186,000 | | | 5,079 | | | $86.04 | |
| | 2/21/20 | | | $0.385 | | | 2/21/25 | | | 200,000 | | | 5,462 | | | $13.10 | |
Garvis Toler | | | 3/31/20 | | | $0.115 | | | 3/31/25 | | | 400,000 | | | 10,924 | | | $4.21 |
Steve Janjic | | | 12/27/19 | | | $0.52 | | | 12/27/24 | | | 100,000 | | | 2,731 | | | $19.04 |
○ | if the Merger is not consummated on or before |
○ | if an applicable law, order, preliminary, temporary or permanent, or other legal restraint or prohibition and no action, proceeding, binding order, decree or determination by any governmental entity is in effect that prevents, enjoins, makes illegal or prohibits the consummation of the merger and the other transactions contemplated by the merger agreement; |
○ | if Helix stockholder approval of the merger is not obtained at the Helix special meeting or any adjournment or postponement thereof at which the vote was taken on the merger; or |
○ | if all of the conditions to closing have been satisfied or waived (other than those conditions that by their nature are to be satisfied (or waived) at the closing, which conditions would be reasonably capable of being satisfied at such time) and Forian is unable to satisfy its obligation to effect the closing at such time because a private offering by MOR of equity interests or other securities of MOR on terms and conditions reasonably acceptable to MOR in its sole discretion, resulting in net proceeds to MOR (after deducting applicable fees, expenses, charges and discounts) in the aggregate amount of at least $11,000,000 cannot be completed prior to the closing date. |
Location | | | Monthly Rent | | | Lease Term | | | Expiration Date |
5300 DTC Parkway, Suite 300, Greenwood Village, CO 80111 | | | $6,011 to $6,718 | | | 5 years | | | 2/28/2021 |
6750 North Andrews Avenue, Suite 325, Fort Lauderdale, FL 33309 | | | $19,380 to $20,560 | | | 34 months | | | 11/30/2021 |
6750 North Andrews Avenue, Suite 325, Fort Lauderdale, FL 33309 | | | $15,200 to $16,127 | | | 3 years | | | 12/31/2024 |
921 Lakeridge Way, Suite 301, Olympia, WA 98502 | | | $3,500 to $3,713 | | | 3 years | | | 2/28/2021 |
Name and Principal Position | | Fiscal Year | | Base Salary ($) | | All Other Compensation ($) | | Total ($) | | Fiscal Year | | Base Salary ($) | | Option Awards ($) | | Total ($) | ||||||||
Zachary Venegas President/CEO, Director | | | 2019 | | 200,000 | | 975,736 | | 1,175,736 | | | 2020 | | 200,000 | | 101,364 | | 301,364 | ||||||
| 2018 | | 200,000 | | 629,200 | | 829,200 | | 2019 | | 200,000 | | 975,736 | | 1,175,736 | |||||||||
Scott Ogur CFO, Director | | | 2019 | | 180,000 | | 575,136 | | 755,136 | | | 2020 | | 180,000 | | 67,710 | | 247,710 | ||||||
| 2018 | | 135,000 | | — | | 135,000 | | 2019 | | 180,000 | | 575,136 | | 755,136 | |||||||||
Patrick Vo CEO, BioTrackTHC(1) | | | 2019 | | 114,507 | | — | | 114,507 | |||||||||||||||
| 2018 | | 102,000 | | — | | 102,000 | |||||||||||||||||
Terence J. Ferraro Chief Software Architect, BioTrackTHC | | | 2019 | | 175,000 | | — | | 175,000 | | | 2020 | | 175,000 | | — | | 175,000 | ||||||
| 2018 | | 102,000 | | — | | 102,000 | | 2019 | | 175,000 | | — | | 175,000 |
Name | | | Stock Underlying Option | | | Option Exercise Price | | | Option Expiration Date |
Zachary Venegas | | | 40,000 shares of common stock | | | $2.09* | | | 3/28/2023 |
Zachary Venegas | | | 450,000 shares of common stock | | | $1.90 | | | 3/28/2028 |
Zachary Venegas | | | 114,000 shares of common stock | | | $2.59* | | | 3/19/2024 |
Zachary Venegas | | | 386,000 shares of common stock | | | $2.35 | | | 3/19/2029 |
Zachary Venegas | | | 500,000 shares of common stock | | | $0.167* | | | 6/19/2025 |
Zachary Venegas | | | 300,000 shares of common stock | | | $0.1045* | | | 10/14/2025 |
Scott Ogur | | | 114,000 shares of common stock | | | $2.59* | | | 3/19/2024 |
Scott Ogur | | | 186,000 shares of common stock | | | $2.35 | | | 3/19/2029 |
Scott Ogur | | | 200,000 shares of common stock | | | $0.385* | | | 2/21/2025 |
* | Represents 110% of the fair market value of Helix’s common stock on the day of issuance. |
Plan Category | | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted-average exercise price of outstanding options, warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans |
Equity compensation plans approved by security holders | | | | | | | |||
Helix TCS, Inc. 2017 Omnibus Stock Plan | | | 1,835,000 | | | $1.97 | | | 2,400,055 |
Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan | | | 5,398,018 | | | $0.62 | | | 286,140 |
| | For the Year Ended December 31, | | | Change | |||||||
| | 2019 | | | 2018 | | | Dollars | | | Percentage | |
Revenue | | | $10,862,695 | | | $5,318,128 | | | $5,544,567 | | | 104% |
Cost of revenue | | | 4,684,969 | | | 2,792,875 | | | 1,892,094 | | | 68% |
Gross margin | | | 6,177,726 | | | 2,525,253 | | | 3,652,473 | | | 145% |
Operating expenses | | | 16,114,859 | | | 12,777,804 | | | 3,337,055 | | | 26% |
Loss from operations | | | (9,937,133) | | | (10,252,551) | | | 315,418 | | | -3% |
Other income, net | | | 647,730 | | | 2,759,052 | | | (2,111,322) | | | -77% |
Loss from continuing operations | | | $(9,289,403) | | | $(7,493,499) | | | $(1,795,904) | | | 24% |
Loss from discontinued operations | | | (290,766) | | | (472,303) | | | 181,537 | | | -38% |
Net loss | | | $(9,580,169) | | | $(7,965,802) | | | $(1,614,367) | | | 20% |
Changes in foreign currency translation adjustment | | | $(97,892) | | | $17,991 | | | $(115,883) | | | -644% |
Convertible preferred stock beneficial conversion feature accreted as a deemed dividend | | | — | | | (22,202,194) | | | 22,202,194 | | | -100% |
Net loss attributable to common shareholders | | | $(9,678,061) | | | $(30,150,005) | | | $20,471,944 | | | -68% |
| | For the Year Ended December 31, | | | Change | |||||||
| | 2018 | | | 2017 | | | Dollars | | | Percentage | |
Revenue | | | $5,318,128 | | | $787,080 | | | $4,531,048 | | | 576% |
Cost of revenue | | | 2,792,875 | | | 405,470 | | | 2,387,405 | | | 589% |
Gross margin | | | 2,525,253 | | | 381,610 | | | 2,143,643 | | | 562% |
Operating expenses | | | 12,777,804 | | | 3,851,294 | | | 8,926,510 | | | 232% |
Loss from operations | | | (10,252,551) | | | (3,469,684) | | | (6,782,867) | | | 195% |
Other income (expense), net | | | 2,759,052 | | | (6,882,705) | | | 9,641,757 | | | -140% |
Loss from continuing operations | | | $(7,493,499) | | | $(10,352,389) | | | $2,858,890 | | | -28% |
Loss from discontinued operations | | | (472,303) | | | (313,598) | | | (158,705) | | | 51% |
Net loss | | | $(7,965,802) | | | $(10,665,987) | | | $2,700,185 | | | -25% |
Changes in foreign currency translation adjustment | | | $17,991 | | | $— | | | $17,991 | | | 100% |
Convertible preferred stock beneficial conversion feature accreted as a deemed dividend | | | (22,202,194) | | | (22,210,520) | | | 8,326 | | | -1% |
Net loss attributable to common shareholders | | | $(30,150,005) | | | $(32,876,507) | | | $2,726,502 | | | -8% |
| | For the Year Ended December 31, | | | Change | |||||||
| | 2018 | | | 2017 | | | Dollars | | | Percentage | |
Revenue | | | $5,318,128 | | | $787,080 | | | $4,531,048 | | | 576% |
Cost of revenue | | | 2,792,875 | | | 405,470 | | | 2,387,405 | | | 589% |
Gross margin | | | 2,525,253 | | | 381,610 | | | 2,143,643 | | | 562% |
Operating expenses | | | 12,777,804 | | | 3,851,294 | | | 8,926,510 | | | 232% |
Loss from operations | | | (10,252,551) | | | (3,469,684) | | | (6,782,867) | | | 195% |
Other income (expense), net | | | 2,759,052 | | | (6,882,705) | | | 9,641,757 | | | -140% |
Loss from continuing operations | | | $(7,493,499) | | | $(10,352,389) | | | $2,858,890 | | | -28% |
Loss from discontinued operations | | | (472,303) | | | (313,598) | | | (158,705) | | | 51% |
Net loss | | | $(7,965,802) | | | $(10,665,987) | | | $2,700,185 | | | -25% |
Changes in foreign currency translation adjustment | | | $17,991 | | | $— | | | $17,991 | | | 100% |
Convertible preferred stock beneficial conversion feature accreted as a deemed dividend | | | (22,202,194) | | | (22,210,520) | | | 8,326 | | | -1% |
Net loss attributable to common shareholders | | | $(30,150,005) | | | $(32,876,507) | | | $2,726,502 | | | -8% |
| | December 31, 2019 | | | December 31, 2018 | | | Change | |
Current assets | | | $3,518,224 | | | $1,923,353 | | | $1,594,871 |
Current liabilities | | | 6,934,725 | | | 4,157,005 | | | 2,777,720 |
Working capital | | | $(3,416,501) | | | $(2,233,652) | | | $(1,182,849) |
| | December 31, 2018 | | | December 31, 2017 | | | Change | |
Current assets | | | $1,923,353 | | | $1,519,714 | | | $403,639 |
Current liabilities | | | 4,157,005 | | | 4,808,995 | | | (651,990) |
Working capital | | | $(2,233,652) | | | $(3,289,281) | | | $1,055,629 |
| | For the Year Ended December 31, | ||||
| | 2019 | | | 2018 | |
Net cash used in operating activities | | | $(3,668,522) | | | $(1,811,228) |
Net cash provided by (used in) investing activities | | | (175,528) | | | (1,712,930) |
Net cash provided by financing activities | | | 3,006,501 | | | 4,209,451 |
| | For the Year Ended December 31, | ||||
| | 2018 | | | 2017 | |
Net cash used in operating activities | | | $(3,668,522) | | | $(1,811,228) |
Net cash provided by (used in) investing activities | | | 175,528 | | | (1,712,930) |
Net cash provided by financing activities | | | 3,006,501 | | | 4,209,451 |
| | December 31, 2019 | | | December 31, 2018 | | | Change | |
Current assets | | | $3,518,224 | | | $1,923,353 | | | $1,594,871 |
Current liabilities | | | 6,934,725 | | | 4,157,005 | | | 2,777,720 |
Working capital | | | $(3,416,501) | | | $(2,233,652) | | | $(1,182,849) |
| | December 31, 2018 | | | December 31, 2017 | | | Change | |
Current assets | | | $1,923,353 | | | $1,519,714 | | | $403,639 |
Current liabilities | | | 4,157,005 | | | 4,808,995 | | | (651,990) |
Working capital | | | $(2,233,652) | | | $(3,289,281) | | | $1,055,629 |
| | For the Year Ended December 31, | ||||
| | 2019 | | | 2018 | |
Net cash used in operating activities | | | $(3,668,522) | | | $(1,811,228) |
Net cash provided by (used in) investing activities | | | (175,528) | | | (1,712,930) |
Net cash provided by financing activities | | | 3,006,501 | | | 4,209,451 |
| | For the Year Ended December 31, | ||||
| | 2018 | | | 2017 | |
Net cash used in operating activities | | | $(3,668,522) | | | $(1,811,228) |
Net cash provided by (used in) investing activities | | | 175,528 | | | (1,712,930) |
Net cash provided by financing activities | | | 3,006,501 | | | 4,209,451 |
| | For the Three Months Ended September 30, | | | Change | |||||||
| | 2020 | | | 2019 | | | Dollars | | | Percentage | |
Revenue | | | $2,893,058 | | | $2,737,568 | | | $155,490 | | | 6% |
Cost of revenue | | | 918,150 | | | 1,318,825 | | | (400,675) | | | -30% |
Gross margin | | | 1,974,908 | | | 1,418,743 | | | 556,165 | | | 39% |
Operating expenses | | | 43,611,028 | | | 4,141,254 | | | 39,469,774 | | | 953% |
Loss from operations | | | (41,636,120) | | | (2,722,511) | | | (38,913,609) | | | 1,429% |
Other (expense) income, net | | | (482,422) | | | (1,608,218) | | | (2,090,640) | | | -130% |
Loss from discontinued operations | | | $(70,259) | | | $(141,276) | | | $71,017 | | | -50% |
Net loss | | | $(42,188,801) | | | $(1,255,569) | | | $(40,933,232) | | | 3,260% |
Changes in foreign currency translation adjustment | | | $62,069 | | | $(118,003) | | | $180,072 | | | -153% |
Net loss attributable to common shareholders | | | $(42,126,732) | | | $(1,373,572) | | | $40,753,160 | | | 2,967% |
| | For the Nine Months Ended September 30, | | Change | | | For the Year Ended December 31, | | Change | |||||||||||||||
| | 2020 | | 2019 | | Dollars | | Percentage | | | 2018 | | 2017 | | Dollars | | Percentage | |||||||
Revenue | | $8,800,352 | | $7,757,066 | | $1,043,286 | | 13% | | $5,318,128 | | $787,080 | | $4,531,048 | | 576% | ||||||||
Cost of revenue | | 2,848,674 | | 3,594,491 | | (745,817) | | -21% | | 2,792,875 | | 405,470 | | 2,387,405 | | 589% | ||||||||
Gross margin | | 5,951,678 | | 4,162,575 | | 1,789,103 | | 43% | | 2,525,253 | | 381,610 | | 2,143,643 | | 562% | ||||||||
Operating expenses | | 52,055,830 | | 11,929,552 | | 40,126,277 | | 336% | | 12,777,804 | | 3,851,294 | | 8,926,510 | | 232% | ||||||||
Loss from operations | | (46,104,152) | | (7,766,977) | | (38,337,174) | | 493% | | (10,252,551) | | (3,469,684) | | (6,782,867) | | 195% | ||||||||
Other (expense) income, net | | (2,210,877) | | 642,813 | | (2,938,043) | | -457% | ||||||||||||||||
Other income (expense), net | | 2,759,052 | | (6,882,705) | | 9,641,757 | | -140% | ||||||||||||||||
Loss from continuing operations | | $(7,493,499) | | $(10,352,389) | | $2,858,890 | | -28% | ||||||||||||||||
Loss from discontinued operations | | $(65,141) | | $(160,798) | | $169,200 | | -105% | | (472,303) | | (313,598) | | (158,705) | | 51% | ||||||||
Net loss | | $(48,380,170) | | $(7,284,962) | | $(41,106,017) | | 564% | | $(7,965,802) | | $(10,665,987) | | $2,700,185 | | -25% | ||||||||
Changes in foreign currency translation adjustment | | $110,264 | | $(114,346) | | $224,610 | | -196% | | $17,991 | | $— | | $17,991 | | 100% | ||||||||
Convertible preferred stock beneficial conversion feature accreted as a deemed dividend | | (22,202,194) | | (22,210,520) | | 8,326 | | -1% | ||||||||||||||||
Net loss attributable to common shareholders | | $(48,269,906) | | $(7,399,308) | | $(40,881,407) | | 552% | | $(30,150,005) | | $(32,876,507) | | $2,726,502 | | -8% |
| | For the Year Ended December 31, | | | Change | |||||||
| | 2018 | | | 2017 | | | Dollars | | | Percentage | |
Revenue | | | $5,318,128 | | | $787,080 | | | $4,531,048 | | | 576% |
Cost of revenue | | | 2,792,875 | | | 405,470 | | | 2,387,405 | | | 589% |
Gross margin | | | 2,525,253 | | | 381,610 | | | 2,143,643 | | | 562% |
Operating expenses | | | 12,777,804 | | | 3,851,294 | | | 8,926,510 | | | 232% |
Loss from operations | | | (10,252,551) | | | (3,469,684) | | | (6,782,867) | | | 195% |
Other income (expense), net | | | 2,759,052 | | | (6,882,705) | | | 9,641,757 | | | -140% |
Loss from continuing operations | | | $(7,493,499) | | | $(10,352,389) | | | $2,858,890 | | | -28% |
Loss from discontinued operations | | | (472,303) | | | (313,598) | | | (158,705) | | | 51% |
Net loss | | | $(7,965,802) | | | $(10,665,987) | | | $2,700,185 | | | -25% |
Changes in foreign currency translation adjustment | | | $17,991 | | | $— | | | $17,991 | | | 100% |
Convertible preferred stock beneficial conversion feature accreted as a deemed dividend | | | (22,202,194) | | | (22,210,520) | | | 8,326 | | | -1% |
Net loss attributable to common shareholders | | | $(30,150,005) | | | $(32,876,507) | | | $2,726,502 | | | -8% |
| | September 30, 2020 | | December 31, 2019 | | Change | | | December 31, 2019 | | December 31, 2018 | | Change | |||||
Current assets | | $4,573,684 | | $3,518,224 | | $1,055,460 | | $3,518,224 | | $1,923,353 | | $1,594,871 | ||||||
Current liabilities | | 5,914,154 | | 6,934,725 | | (1,020,571) | | 6,934,725 | | 4,157,005 | | 2,777,720 | ||||||
Working capital | | $(1,340,470) | | $(3,416,501) | | $2,076,031 | | $(3,416,501) | | $(2,233,652) | | $(1,182,849) |
| | December 31, 2018 | | | December 31, 2017 | | | Change | |
Current assets | | | $1,923,353 | | | $1,519,714 | | | $403,639 |
Current liabilities | | | 4,157,005 | | | 4,808,995 | | | (651,990) |
Working capital | | | $(2,233,652) | | | $(3,289,281) | | | $1,055,629 |
| | For the Nine Months Ended September 30, | | | For the Year Ended December 31, | |||||||
| | 2020 | | 2019 | | | 2019 | | 2018 | |||
Net cash used in operating activities | | $(738,678) | | $(2,769,048) | | $(3,668,522) | | $(1,811,228) | ||||
Net cash provided by (used in) investing activities | | 482,517 | | (895,406) | | (175,528) | | (1,712,930) | ||||
Net cash provided by financing activities | | 1,260,966 | | 4,212,525 | | 3,006,501 | | 4,209,451 |
| | For the Year Ended December 31, | ||||
| | 2018 | | | 2017 | |
Net cash used in operating activities | | | $(3,668,522) | | | $(1,811,228) |
Net cash provided by (used in) investing activities | | | 175,528 | | | (1,712,930) |
Net cash provided by financing activities | | | 3,006,501 | | | 4,209,451 |
| | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | |||||||
| | 2020 | | | 2019 | | | 2020 | | | 2019 | |
Net Loss | | | $(42,188,801) | | | $(1,255,569) | | | $(48,380,170) | | | $(7,284,962) |
Interest expense | | | 355,176 | | | 538,591 | | | 1,029,686 | | | 1,227,271 |
Depreciation & amortization | | | 1,049,235 | | | 1,179,597 | | | 3,320,641 | | | 3,516,418 |
Loss on impairment of intangible assets | | | 39,963,107 | | | — | | | 41,333,085 | | | — |
Share based compensation expense | | | 549,012 | | | 352,341 | | | 1,620,616 | | | 1,241,741 |
Change in fair value of convertible note | | | 321,915 | | | (430,766) | | | 1,104,856 | | | (288,425) |
Change in fair value of convertible note - related party | | | — | | | (491,442) | | | (498,233) | | | 213,828 |
Change in fair value of warrant liability | | | (67,039) | | | (1,224,601) | | | (682,717) | | | (3,462,746) |
| | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | |||||||
| | 2020 | | | 2019 | | | 2020 | | | 2019 | |
Change in fair value of contingent consideration | | | 111,902 | | | — | | | 1,536,324 | | | 880,050 |
Loss (gain) on issuance of warrants | | | — | | | — | | | (2,000) | | | 787,209 |
Other expense | | | — | | | — | | | (37,507) | | | — |
Adjusted EBITDA | | | $94,800 | | | $(1,331,849) | | | $344,874 | | | $(3,169,616) |
Location | | | Monthly Rent | | | Lease Term | | | Expiration Date |
5300 DTC Parkway, Suite 300, Greenwood Village, CO 80111 | | | $6,011 to $6,718 | | | 5 years | | | 2/28/2021 |
6750 North Andrews Avenue, Suite 325, Fort Lauderdale, FL 33309 | | | $19,380 to $20,560 | | | 34 months | | | 11/30/2021 |
6750 North Andrews Avenue, Suite 325, Fort Lauderdale, FL 33309 | | | $15,200 to $16,127 | | | 3 years | | | 12/31/2024 |
921 Lakeridge Way, Suite 301, Olympia, WA 98502 | | | $3,500 to $3,713 | | | 3 years | | | 2/28/2021 |
Name and Principal Position | | | Fiscal Year | | | Base Salary ($) | | | Option Awards ($) | | | Total ($) |
Zachary Venegas President/CEO, Director | | | 2020 | | | 200,000 | | | 101,364 | | | 301,364 |
| 2019 | | | 200,000 | | | 975,736 | | | 1,175,736 | ||
Scott Ogur CFO, Director | | | 2020 | | | 180,000 | | | 67,710 | | | 247,710 |
| 2019 | | | 180,000 | | | 575,136 | | | 755,136 | ||
Terence J. Ferraro Chief Software Architect, BioTrackTHC | | | 2020 | | | 175,000 | | | — | | | 175,000 |
| 2019 | | | 175,000 | | | — | | | 175,000 |
Name | | | Stock Underlying Option | | | Option Exercise Price | | | Option Expiration Date |
Zachary Venegas | | | 40,000 shares of common stock | | | $2.09* | | | 3/28/2023 |
Zachary Venegas | | | 450,000 shares of common stock | | | $1.90 | | | 3/28/2028 |
Zachary Venegas | | | 114,000 shares of common stock | | | $2.59* | | | 3/19/2024 |
Zachary Venegas | | | 386,000 shares of common stock | | | $2.35 | | | 3/19/2029 |
Zachary Venegas | | | 500,000 shares of common stock | | | $0.167* | | | 6/19/2025 |
Zachary Venegas | | | 300,000 shares of common stock | | | $0.1045* | | | 10/14/2025 |
Scott Ogur | | | 114,000 shares of common stock | | | $2.59* | | | 3/19/2024 |
Scott Ogur | | | 186,000 shares of common stock | | | $2.35 | | | 3/19/2029 |
Scott Ogur | | | 200,000 shares of common stock | | | $0.385* | | | 2/21/2025 |
* | Represents 110% of the fair market value of Helix’s common stock on the day of issuance. |
Plan Category | | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted-average exercise price of outstanding options, warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans |
Equity compensation plans approved by security holders | | | | | | | |||
Helix TCS, Inc. 2017 Omnibus Stock Plan | | | 1,835,000 | | | $1.97 | | | 2,400,055 |
Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan | | | 5,398,018 | | | $0.62 | | | 286,140 |
| | Common Stock | | | Series A Preferred Stock | | | Series B Preferred Stock | | | |||||||||||
Name of Beneficial Owner | | | # of Shares | | | % Owned | | | # of Shares | | | % Owned | | | # of Shares | | | % Owned | | | Total % of Voting Power |
5% Beneficial Shareholders | | | | | | | | | | | | | | | |||||||
RSF4, LLC(1) | | | 13,544,722 | | | 10.5% | | | — | | | 0.0% | | | 13,784,201 | | | 100.0% | | | 19.1% |
Helix Opportunities, LLC(2) | | | 21,918,152 | | | 17.0% | | | 1,000,000 | | | 100.0% | | | — | | | 0.0% | | | 16.0% |
RSF5, LLC(1) | | | 13,544,722 | | | 10.5% | | | — | | | — | | | 13,784,201 | | | 100.0% | | | 19.1% |
Nightstone Unlimited, Inc. | | | 5,207,100 | | | 4.1% | | | — | | | 0.0% | | | — | | | 0.0% | | | 3.6% |
Minds Eye Trust | | | 6,420,000 | | | 5.0% | | | — | | | 0.0% | | | — | | | 0.0% | | | 4.5% |
Officers and Directors | | | | | | | | | | | | | | | |||||||
Zachary Venegas(2)(3) | | | 22,724,818 | | | 17.6% | | | 1,000,000 | | | 100.0% | | | — | | | 0.0% | | | 16.5% |
Scott Ogur(2)(4) | | | 22,218,152 | | | 17.3% | | | 1,000,000 | | | 100.0% | | | — | | | 0.0% | | | 16.2% |
Andrew Schweibold(1) | | | 16,385,593 | | | 12.7% | | | — | | | 0.0% | | | 13,784,201 | | | 100.0% | | | 21.0% |
Satyavrat Joshi | | | — | | | 0.0% | | | — | | | 0.0% | | | — | | | 0.0% | | | 0.0% |
Paul Hodges | | | 2,500,483 | | | 1.9% | | | — | | | 0.0% | | | — | | | 0.0% | | | 1.7% |
Garvis Toler III(5) | | | 200,000 | | | 0.2% | | | — | | | 0.0% | | | — | | | 0.0% | | | 0.1% |
Steve Janjic(6) | | | 661,796 | | | 0.5% | | | — | | | 0.0% | | | — | | | | | 0.5% | |
Officers and Directors as a Group (7 persons) | | | 42,772,690 | | | 33.0% | | | 1,000,000 | | | 100.0% | | | 13,784,201 | | | 0.0% | | | 39.9% |
| | For the Year Ended December 31, | | | Change | |||||||
| | 2019 | | | 2018 | | | Dollars | | | Percentage | |
Revenue | | | $10,862,695 | | | $5,318,128 | | | $5,544,567 | | | 104% |
Cost of revenue | | | 4,684,969 | | | 2,792,875 | | | 1,892,094 | | | 68% |
Gross margin | | | 6,177,726 | | | 2,525,253 | | | 3,652,473 | | | 145% |
Operating expenses | | | 16,114,859 | | | 12,777,804 | | | 3,337,055 | | | 26% |
Loss from operations | | | (9,937,133) | | | (10,252,551) | | | 315,418 | | | -3% |
Other income, net | | | 647,730 | | | 2,759,052 | | | (2,111,322) | | | -77% |
Loss from continuing operations | | | $(9,289,403) | | | $(7,493,499) | | | $(1,795,904) | | | 24% |
Loss from discontinued operations | | | (290,766) | | | (472,303) | | | 181,537 | | | -38% |
Net loss | | | $(9,580,169) | | | $(7,965,802) | | | $(1,614,367) | | | 20% |
Changes in foreign currency translation adjustment | | | $(97,892) | | | $17,991 | | | $(115,883) | | | -644% |
Convertible preferred stock beneficial conversion feature accreted as a deemed dividend | | | — | | | (22,202,194) | | | 22,202,194 | | | -100% |
Net loss attributable to common shareholders | | | $(9,678,061) | | | $(30,150,005) | | | $20,471,944 | | | -68% |
| | For the Year Ended December 31, | | | Change | |||||||
| | 2018 | | | 2017 | | | Dollars | | | Percentage | |
Revenue | | | $5,318,128 | | | $787,080 | | | $4,531,048 | | | 576% |
Cost of revenue | | | 2,792,875 | | | 405,470 | | | 2,387,405 | | | 589% |
Gross margin | | | 2,525,253 | | | 381,610 | | | 2,143,643 | | | 562% |
Operating expenses | | | 12,777,804 | | | 3,851,294 | | | 8,926,510 | | | 232% |
Loss from operations | | | (10,252,551) | | | (3,469,684) | | | (6,782,867) | | | 195% |
Other income (expense), net | | | 2,759,052 | | | (6,882,705) | | | 9,641,757 | | | -140% |
Loss from continuing operations | | | $(7,493,499) | | | $(10,352,389) | | | $2,858,890 | | | -28% |
Loss from discontinued operations | | | (472,303) | | | (313,598) | | | (158,705) | | | 51% |
Net loss | | | $(7,965,802) | | | $(10,665,987) | | | $2,700,185 | | | -25% |
Changes in foreign currency translation adjustment | | | $17,991 | | | $— | | | $17,991 | | | 100% |
Convertible preferred stock beneficial conversion feature accreted as a deemed dividend | | | (22,202,194) | | | (22,210,520) | | | 8,326 | | | -1% |
Net loss attributable to common shareholders | | | $(30,150,005) | | | $(32,876,507) | | | $2,726,502 | | | -8% |
| | December 31, 2019 | | | December 31, 2018 | | | Change | |
Current assets | | | $3,518,224 | | | $1,923,353 | | | $1,594,871 |
Current liabilities | | | 6,934,725 | | | 4,157,005 | | | 2,777,720 |
Working capital | | | $(3,416,501) | | | $(2,233,652) | | | $(1,182,849) |
| | December 31, 2018 | | | December 31, 2017 | | | Change | |
Current assets | | | $1,923,353 | | | $1,519,714 | | | $403,639 |
Current liabilities | | | 4,157,005 | | | 4,808,995 | | | (651,990) |
Working capital | | | $(2,233,652) | | | $(3,289,281) | | | $1,055,629 |
| | For the Year Ended December 31, | ||||
| | 2019 | | | 2018 | |
Net cash used in operating activities | | | $(3,668,522) | | | $(1,811,228) |
Net cash provided by (used in) investing activities | | | (175,528) | | | (1,712,930) |
Net cash provided by financing activities | | | 3,006,501 | | | 4,209,451 |
| | For the Year Ended December 31, | ||||
| | 2018 | | | 2017 | |
Net cash used in operating activities | | | $(3,668,522) | | | $(1,811,228) |
Net cash provided by (used in) investing activities | | | 175,528 | | | (1,712,930) |
Net cash provided by financing activities | | | 3,006,501 | | | 4,209,451 |
Location | | | Monthly Rent | | | Lease Term | | | Expiration Date |
5300 DTC Parkway, Suite 300, Greenwood Village, CO 80111 | | | $6,011 to $6,718 | | | 5 years | | | 2/28/2021 |
6750 North Andrews Avenue, Suite 325, Fort Lauderdale, FL 33309 | | | $19,380 to $20,560 | | | 34 months | | | 11/30/2021 |
6750 North Andrews Avenue, Suite 325, Fort Lauderdale, FL 33309 | | | $15,200 to $16,127 | | | 3 years | | | 12/31/2024 |
921 Lakeridge Way, Suite 301, Olympia, WA 98502 | | | $3,500 to $3,713 | | | 3 years | | | 2/28/2021 |
Name and Principal Position | | | Fiscal Year | | | Base Salary ($) | | | Option Awards ($) | | | Total ($) |
Zachary Venegas President/CEO, Director | | | 2020 | | | 200,000 | | | 101,364 | | | 301,364 |
| 2019 | | | 200,000 | | | 975,736 | | | 1,175,736 | ||
Scott Ogur CFO, Director | | | 2020 | | | 180,000 | | | 67,710 | | | 247,710 |
| 2019 | | | 180,000 | | | 575,136 | | | 755,136 | ||
Terence J. Ferraro Chief Software Architect, BioTrackTHC | | | 2020 | | | 175,000 | | | — | | | 175,000 |
| 2019 | | | 175,000 | | | — | | | 175,000 |
Name | | | Stock Underlying Option | | | Option Exercise Price | | | Option Expiration Date |
Zachary Venegas | | | 40,000 shares of common stock | | | $2.09* | | | 3/28/2023 |
Zachary Venegas | | | 450,000 shares of common stock | | | $1.90 | | | 3/28/2028 |
Zachary Venegas | | | 114,000 shares of common stock | | | $2.59* | | | 3/19/2024 |
Zachary Venegas | | | 386,000 shares of common stock | | | $2.35 | | | 3/19/2029 |
Zachary Venegas | | | 500,000 shares of common stock | | | $0.167* | | | 6/19/2025 |
Zachary Venegas | | | 300,000 shares of common stock | | | $0.1045* | | | 10/14/2025 |
Scott Ogur | | | 114,000 shares of common stock | | | $2.59* | | | 3/19/2024 |
Scott Ogur | | | 186,000 shares of common stock | | | $2.35 | | | 3/19/2029 |
Scott Ogur | | | 200,000 shares of common stock | | | $0.385* | | | 2/21/2025 |
* | Represents 110% of the fair market value of Helix’s common stock on the day of issuance. |
Plan Category | | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted-average exercise price of outstanding options, warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans |
Equity compensation plans approved by security holders | | | | | | | |||
Helix TCS, Inc. 2017 Omnibus Stock Plan | | | 1,835,000 | | | $1.97 | | | 2,400,055 |
Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan | | | 5,398,018 | | | $0.62 | | | 286,140 |
| | For the Year Ended December 31, | | | Change | |||||||
| | 2019 | | | 2018 | | | Dollars | | | Percentage | |
Revenue | | | $10,862,695 | | | $5,318,128 | | | $5,544,567 | | | 104% |
Cost of revenue | | | 4,684,969 | | | 2,792,875 | | | 1,892,094 | | | 68% |
Gross margin | | | 6,177,726 | | | 2,525,253 | | | 3,652,473 | | | 145% |
Operating expenses | | | 16,114,859 | | | 12,777,804 | | | 3,337,055 | | | 26% |
Loss from operations | | | (9,937,133) | | | (10,252,551) | | | 315,418 | | | -3% |
Other income, net | | | 647,730 | | | 2,759,052 | | | (2,111,322) | | | -77% |
Loss from continuing operations | | | $(9,289,403) | | | $(7,493,499) | | | $(1,795,904) | | | 24% |
Loss from discontinued operations | | | (290,766) | | | (472,303) | | | 181,537 | | | -38% |
Net loss | | | $(9,580,169) | | | $(7,965,802) | | | $(1,614,367) | | | 20% |
Changes in foreign currency translation adjustment | | | $(97,892) | | | $17,991 | | | $(115,883) | | | -644% |
Convertible preferred stock beneficial conversion feature accreted as a deemed dividend | | | — | | | (22,202,194) | | | 22,202,194 | | | -100% |
Net loss attributable to common shareholders | | | $(9,678,061) | | | $(30,150,005) | | | $20,471,944 | | | -68% |
| | For the Year Ended December 31, | | | Change | |||||||
| | 2018 | | | 2017 | | | Dollars | | | Percentage | |
Revenue | | | $5,318,128 | | | $787,080 | | | $4,531,048 | | | 576% |
Cost of revenue | | | 2,792,875 | | | 405,470 | | | 2,387,405 | | | 589% |
Gross margin | | | 2,525,253 | | | 381,610 | | | 2,143,643 | | | 562% |
Operating expenses | | | 12,777,804 | | | 3,851,294 | | | 8,926,510 | | | 232% |
Loss from operations | | | (10,252,551) | | | (3,469,684) | | | (6,782,867) | | | 195% |
Other income (expense), net | | | 2,759,052 | | | (6,882,705) | | | 9,641,757 | | | -140% |
Loss from continuing operations | | | $(7,493,499) | | | $(10,352,389) | | | $2,858,890 | | | -28% |
Loss from discontinued operations | | | (472,303) | | | (313,598) | | | (158,705) | | | 51% |
Net loss | | | $(7,965,802) | | | $(10,665,987) | | | $2,700,185 | | | -25% |
Changes in foreign currency translation adjustment | | | $17,991 | | | $— | | | $17,991 | | | 100% |
Convertible preferred stock beneficial conversion feature accreted as a deemed dividend | | | (22,202,194) | | | (22,210,520) | | | 8,326 | | | -1% |
Net loss attributable to common shareholders | | | $(30,150,005) | | | $(32,876,507) | | | $2,726,502 | | | -8% |
| | December 31, 2019 | | | December 31, 2018 | | | Change | |
Current assets | | | $3,518,224 | | | $1,923,353 | | | $1,594,871 |
Current liabilities | | | 6,934,725 | | | 4,157,005 | | | 2,777,720 |
Working capital | | | $(3,416,501) | | | $(2,233,652) | | | $(1,182,849) |
| | December 31, 2018 | | | December 31, 2017 | | | Change | |
Current assets | | | $1,923,353 | | | $1,519,714 | | | $403,639 |
Current liabilities | | | 4,157,005 | | | 4,808,995 | | | (651,990) |
Working capital | | | $(2,233,652) | | | $(3,289,281) | | | $1,055,629 |
| | For the Year Ended December 31, | ||||
| | 2019 | | | 2018 | |
Net cash used in operating activities | | | $(3,668,522) | | | $(1,811,228) |
Net cash provided by (used in) investing activities | | | (175,528) | | | (1,712,930) |
Net cash provided by financing activities | | | 3,006,501 | | | 4,209,451 |
| | For the Year Ended December 31, | ||||
| | 2018 | | | 2017 | |
Net cash used in operating activities | | | $(3,668,522) | | | $(1,811,228) |
Net cash provided by (used in) investing activities | | | 175,528 | | | (1,712,930) |
Net cash provided by financing activities | | | 3,006,501 | | | 4,209,451 |
| | For the Three Months Ended September 30, | | | Change | |||||||
| | 2020 | | | 2019 | | | Dollars | | | Percentage | |
Revenue | | | $2,893,058 | | | $2,737,568 | | | $155,490 | | | 6% |
Cost of revenue | | | 918,150 | | | 1,318,825 | | | (400,675) | | | -30% |
Gross margin | | | 1,974,908 | | | 1,418,743 | | | 556,165 | | | 39% |
Operating expenses | | | 43,611,028 | | | 4,141,254 | | | 39,469,774 | | | 953% |
Loss from operations | | | (41,636,120) | | | (2,722,511) | | | (38,913,609) | | | 1,429% |
Other (expense) income, net | | | (482,422) | | | (1,608,218) | | | (2,090,640) | | | -130% |
Loss from discontinued operations | | | $(70,259) | | | $(141,276) | | | $71,017 | | | -50% |
Net loss | | | $(42,188,801) | | | $(1,255,569) | | | $(40,933,232) | | | 3,260% |
Changes in foreign currency translation adjustment | | | $62,069 | | | $(118,003) | | | $180,072 | | | -153% |
Net loss attributable to common shareholders | | | $(42,126,732) | | | $(1,373,572) | | | $40,753,160 | | | 2,967% |
| | For the Nine Months Ended September 30, | | | Change | |||||||
| | 2020 | | | 2019 | | | Dollars | | | Percentage | |
Revenue | | | $8,800,352 | | | $7,757,066 | | | $1,043,286 | | | 13% |
Cost of revenue | | | 2,848,674 | | | 3,594,491 | | | (745,817) | | | -21% |
Gross margin | | | 5,951,678 | | | 4,162,575 | | | 1,789,103 | | | 43% |
Operating expenses | | | 52,055,830 | | | 11,929,552 | | | 40,126,277 | | | 336% |
Loss from operations | | | (46,104,152) | | | (7,766,977) | | | (38,337,174) | | | 493% |
Other (expense) income, net | | | (2,210,877) | | | 642,813 | | | (2,938,043) | | | -457% |
Loss from discontinued operations | | | $(65,141) | | | $(160,798) | | | $169,200 | | | -105% |
Net loss | | | $(48,380,170) | | | $(7,284,962) | | | $(41,106,017) | | | 564% |
Changes in foreign currency translation adjustment | | | $110,264 | | | $(114,346) | | | $224,610 | | | -196% |
Net loss attributable to common shareholders | | | $(48,269,906) | | | $(7,399,308) | | | $(40,881,407) | | | 552% |
| | September 30, 2020 | | | December 31, 2019 | | | Change | |
Current assets | | | $4,573,684 | | | $3,518,224 | | | $1,055,460 |
Current liabilities | | | 5,914,154 | | | 6,934,725 | | | (1,020,571) |
Working capital | | | $(1,340,470) | | | $(3,416,501) | | | $2,076,031 |
| | For the Nine Months Ended September 30, | ||||
| | 2020 | | | 2019 | |
Net cash used in operating activities | | | $(738,678) | | | $(2,769,048) |
Net cash provided by (used in) investing activities | | | 482,517 | | | (895,406) |
Net cash provided by financing activities | | | 1,260,966 | | | 4,212,525 |
| | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | |||||||
| | 2020 | | | 2019 | | | 2020 | | | 2019 | |
Net Loss | | | $(42,188,801) | | | $(1,255,569) | | | $(48,380,170) | | | $(7,284,962) |
Interest expense | | | 355,176 | | | 538,591 | | | 1,029,686 | | | 1,227,271 |
Depreciation & amortization | | | 1,049,235 | | | 1,179,597 | | | 3,320,641 | | | 3,516,418 |
Loss on impairment of intangible assets | | | 39,963,107 | | | — | | | 41,333,085 | | | — |
Share based compensation expense | | | 549,012 | | | 352,341 | | | 1,620,616 | | | 1,241,741 |
Change in fair value of convertible note | | | 321,915 | | | (430,766) | | | 1,104,856 | | | (288,425) |
Change in fair value of convertible note - related party | | | — | | | (491,442) | | | (498,233) | | | 213,828 |
Change in fair value of warrant liability | | | (67,039) | | | (1,224,601) | | | (682,717) | | | (3,462,746) |
Change in fair value of contingent consideration | | | 111,902 | | | — | | | 1,536,324 | | | 880,050 |
Loss (gain) on issuance of warrants | | | — | | | — | | | (2,000) | | | 787,209 |
Other expense | | | — | | | — | | | (37,507) | | | — |
Adjusted EBITDA | | | $94,800 | | | $(1,331,849) | | | $344,874 | | | $(3,169,616) |
| | Common Stock | | | Series A Preferred Stock | | | Series B Preferred Stock | | | |||||||||||
Name of Beneficial Owner | | | # of Shares | | | % Owned | | | # of Shares | | | % Owned | | | # of Shares | | | % Owned | | | Total % of Voting Power |
5% Beneficial Shareholders | | | | | | | | | | | | | | | |||||||
RSF4, LLC(1) | | | 33,330,734 | | | 22.7% | | | — | | | 0.0% | | | 13,784,201 | | | 100.0% | | | 29.1% |
RSF5, LLC(1) | | | 33,330,734 | | | 22.7% | | | — | | | — | | | 13,784,201 | | | 100.0% | | | 29.1% |
Rose Capital Fund I, LP | | | 33,330,734 | | | 22.7% | | | | | | | | | | | 29.1% | ||||
Officers and Directors | | | | | | | | | | | | | | | |||||||
Zachary Venegas(2) | | | 13,724,818 | | | 9.3% | | | 1,000,000 | | | 100.0% | | | — | | | 0.0% | | | 9.1% |
Scott Ogur(3) | | | 9,300,000 | | | 6.3% | | | | | 0.0% | | | — | | | 0.0% | | | 5.7% | |
Andrew Schweibold(1) | | | 33,330,734 | | | 22.7% | | | — | | | 0.0% | | | 13,784,201 | | | 100.0% | | | 29.1% |
Satyavrat Joshi | | | — | | | 0.0% | | | — | | | 0.0% | | | — | | | 0.0% | | | 0.0% |
Paul Hodges | | | 2,500,483 | | | 1.7% | | | — | | | 0.0% | | | — | | | 0.0% | | | 1.5% |
Garvis Toler III(4) | | | 200,000 | | | 0.1% | | | — | | | 0.0% | | | — | | | 0.0% | | | 0.1% |
Steve Janjic(5) | | | 661,796 | | | 0.4% | | | — | | | 0.0% | | | — | | | | | 0.4% | |
Officers and Directors as a Group (7 persons) | | | 42,772,690 | | | 40.6% | | | 1,000,000 | | | 100.0% | | | 13,784,201 | | | 0.0% | | | 46.0% |
(1) | RSF4, LLC, RSF5, LLC and Rose Capital Fund I, LP are solely managed by Rose Capital Fund I GP, LLC (“Rose GP”). Rose GP has the sole power to vote or sell the shares of our Series B Preferred Stock held by RSF4, LLC. Rose GP is owned 50% by Andrew Schweibold and 50% by Jonathan Rosenthal. As a result of the foregoing, Rose GP, Schweibold and Rosenthal may be deemed to be beneficial owners of the shares of our Series B Preferred Stock held by RSF4, LLC. |
(2) | Includes shares owned by Helix Opportunities, LLC, of which Mr. Venegas owns 100% and (ii) options to purchase up to 806,666 shares of Helix Common Stock. |
(3) | Consists of (i) his direct ownership of 9,000,000 shares of Helix Common Stock and (ii) options to purchase up to 300,000 shares of Helix Common Stock. |
(4) | Consists of options to purchase up to 200,000 shares of Helix Common Stock. |
(5) | Consists of (i) 586,796 shares of Common Stock and (ii) options to purchase up to 75,000 shares of Helix Common Stock. |
Location | | | Monthly Rent | | | Lease Term | | | Expiration Date |
5300 DTC Parkway, Suite 300, Greenwood Village, CO 80111 | | | $6,011 to $6,718 | | | 5 years | | | 2/28/2021 |
6750 North Andrews Avenue, Suite 325, Fort Lauderdale, FL 33309 | | | $19,380 to $20,560 | | | 34 months | | | 11/30/2021 |
6750 North Andrews Avenue, Suite 325, Fort Lauderdale, FL 33309 | | | $15,200 to $16,127 | | | 3 years | | | 12/31/2024 |
921 Lakeridge Way, Suite 301, Olympia, WA 98502 | | | $3,500 to $3,713 | | | 3 years | | | 2/28/2021 |
Name and Principal Position | | | Fiscal Year | | | Base Salary ($) | | | Option Awards ($) | | | Total ($) |
Zachary Venegas President/CEO, Director | | | 2020 | | | 200,000 | | | 101,364 | | | 301,364 |
| 2019 | | | 200,000 | | | 975,736 | | | 1,175,736 | ||
Scott Ogur CFO, Director | | | 2020 | | | 180,000 | | | 67,710 | | | 247,710 |
| 2019 | | | 180,000 | | | 575,136 | | | 755,136 | ||
Terence J. Ferraro Chief Software Architect, BioTrackTHC | | | 2020 | | | 175,000 | | | — | | | 175,000 |
| 2019 | | | 175,000 | | | — | | | 175,000 |
Name | | | Stock Underlying Option | | | Option Exercise Price | | | Option Expiration Date |
Zachary Venegas | | | 40,000 shares of common stock | | | $2.09* | | | 3/28/2023 |
Zachary Venegas | | | 450,000 shares of common stock | | | $1.90 | | | 3/28/2028 |
Zachary Venegas | | | 114,000 shares of common stock | | | $2.59* | | | 3/19/2024 |
Zachary Venegas | | | 386,000 shares of common stock | | | $2.35 | | | 3/19/2029 |
Zachary Venegas | | | 500,000 shares of common stock | | | $0.167* | | | 6/19/2025 |
Zachary Venegas | | | 300,000 shares of common stock | | | $0.1045* | | | 10/14/2025 |
Scott Ogur | | | 114,000 shares of common stock | | | $2.59* | | | 3/19/2024 |
Scott Ogur | | | 186,000 shares of common stock | | | $2.35 | | | 3/19/2029 |
Scott Ogur | | | 200,000 shares of common stock | | | $0.385* | | | 2/21/2025 |
* | Represents 110% of the fair market value of Helix’s common stock on the day of issuance. |
Plan Category | | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted-average exercise price of outstanding options, warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans |
Equity compensation plans approved by security holders | | | | | | | |||
Helix TCS, Inc. 2017 Omnibus Stock Plan | | | 1,835,000 | | | $1.97 | | | 2,400,055 |
Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan | | | 5,398,018 | | | $0.62 | | | 286,140 |
| | For the Year Ended December 31, | | | Change | |||||||
| | 2019 | | | 2018 | | | Dollars | | | Percentage | |
Revenue | | | $10,862,695 | | | $5,318,128 | | | $5,544,567 | | | 104% |
Cost of revenue | | | 4,684,969 | | | 2,792,875 | | | 1,892,094 | | | 68% |
Gross margin | | | 6,177,726 | | | 2,525,253 | | | 3,652,473 | | | 145% |
Operating expenses | | | 16,114,859 | | | 12,777,804 | | | 3,337,055 | | | 26% |
Loss from operations | | | (9,937,133) | | | (10,252,551) | | | 315,418 | | | -3% |
Other income, net | | | 647,730 | | | 2,759,052 | | | (2,111,322) | | | -77% |
Loss from continuing operations | | | $(9,289,403) | | | $(7,493,499) | | | $(1,795,904) | | | 24% |
Loss from discontinued operations | | | (290,766) | | | (472,303) | | | 181,537 | | | -38% |
Net loss | | | $(9,580,169) | | | $(7,965,802) | | | $(1,614,367) | | | 20% |
Changes in foreign currency translation adjustment | | | $(97,892) | | | $17,991 | | | $(115,883) | | | -644% |
Convertible preferred stock beneficial conversion feature accreted as a deemed dividend | | | — | | | (22,202,194) | | | 22,202,194 | | | -100% |
Net loss attributable to common shareholders | | | $(9,678,061) | | | $(30,150,005) | | | $20,471,944 | | | -68% |
| | For the Year Ended December 31, | | | Change | |||||||
| | 2018 | | | 2017 | | | Dollars | | | Percentage | |
Revenue | | | $5,318,128 | | | $787,080 | | | $4,531,048 | | | 576% |
Cost of revenue | | | 2,792,875 | | | 405,470 | | | 2,387,405 | | | 589% |
Gross margin | | | 2,525,253 | | | 381,610 | | | 2,143,643 | | | 562% |
Operating expenses | | | 12,777,804 | | | 3,851,294 | | | 8,926,510 | | | 232% |
Loss from operations | | | (10,252,551) | | | (3,469,684) | | | (6,782,867) | | | 195% |
Other income (expense), net | | | 2,759,052 | | | (6,882,705) | | | 9,641,757 | | | -140% |
Loss from continuing operations | | | $(7,493,499) | | | $(10,352,389) | | | $2,858,890 | | | -28% |
Loss from discontinued operations | | | (472,303) | | | (313,598) | | | (158,705) | | | 51% |
Net loss | | | $(7,965,802) | | | $(10,665,987) | | | $2,700,185 | | | -25% |
Changes in foreign currency translation adjustment | | | $17,991 | | | $— | | | $17,991 | | | 100% |
Convertible preferred stock beneficial conversion feature accreted as a deemed dividend | | | (22,202,194) | | | (22,210,520) | | | 8,326 | | | -1% |
Net loss attributable to common shareholders | | | $(30,150,005) | | | $(32,876,507) | | | $2,726,502 | | | -8% |
| | December 31, 2019 | | | December 31, 2018 | | | Change | |
Current assets | | | $3,518,224 | | | $1,923,353 | | | $1,594,871 |
Current liabilities | | | 6,934,725 | | | 4,157,005 | | | 2,777,720 |
Working capital | | | $(3,416,501) | | | $(2,233,652) | | | $(1,182,849) |
| | December 31, 2018 | | | December 31, 2017 | | | Change | |
Current assets | | | $1,923,353 | | | $1,519,714 | | | $403,639 |
Current liabilities | | | 4,157,005 | | | 4,808,995 | | | (651,990) |
Working capital | | | $(2,233,652) | | | $(3,289,281) | | | $1,055,629 |
| | For the Year Ended December 31, | ||||
| | 2019 | | | 2018 | |
Net cash used in operating activities | | | $(3,668,522) | | | $(1,811,228) |
Net cash provided by (used in) investing activities | | | (175,528) | | | (1,712,930) |
Net cash provided by financing activities | | | 3,006,501 | | | 4,209,451 |
| | For the Year Ended December 31, | ||||
| | 2018 | | | 2017 | |
Net cash used in operating activities | | | $(3,668,522) | | | $(1,811,228) |
Net cash provided by (used in) investing activities | | | 175,528 | | | (1,712,930) |
Net cash provided by financing activities | | | 3,006,501 | | | 4,209,451 |
| | For the Three Months Ended September 30, | | | Change | |||||||
| | 2020 | | | 2019 | | | Dollars | | | Percentage | |
Revenue | | | $2,893,058 | | | $2,737,568 | | | $155,490 | | | 6% |
Cost of revenue | | | 918,150 | | | 1,318,825 | | | (400,675) | | | -30% |
Gross margin | | | 1,974,908 | | | 1,418,743 | | | 556,165 | | | 39% |
Operating expenses | | | 43,611,028 | | | 4,141,254 | | | 39,469,774 | | | 953% |
Loss from operations | | | (41,636,120) | | | (2,722,511) | | | (38,913,609) | | | 1,429% |
Other (expense) income, net | | | (482,422) | | | (1,608,218) | | | (2,090,640) | | | -130% |
Loss from discontinued operations | | | $(70,259) | | | $(141,276) | | | $71,017 | | | -50% |
Net loss | | | $(42,188,801) | | | $(1,255,569) | | | $(40,933,232) | | | 3,260% |
Changes in foreign currency translation adjustment | | | $62,069 | | | $(118,003) | | | $180,072 | | | -153% |
Net loss attributable to common shareholders | | | $(42,126,732) | | | $(1,373,572) | | | $40,753,160 | | | 2,967% |
| | For the Nine Months Ended September 30, | | | Change | |||||||
| | 2020 | | | 2019 | | | Dollars | | | Percentage | |
Revenue | | | $8,800,352 | | | $7,757,066 | | | $1,043,286 | | | 13% |
Cost of revenue | | | 2,848,674 | | | 3,594,491 | | | (745,817) | | | -21% |
Gross margin | | | 5,951,678 | | | 4,162,575 | | | 1,789,103 | | | 43% |
Operating expenses | | | 52,055,830 | | | 11,929,552 | | | 40,126,277 | | | 336% |
Loss from operations | | | (46,104,152) | | | (7,766,977) | | | (38,337,174) | | | 493% |
Other (expense) income, net | | | (2,210,877) | | | 642,813 | | | (2,938,043) | | | -457% |
Loss from discontinued operations | | | $(65,141) | | | $(160,798) | | | $169,200 | | | -105% |
Net loss | | | $(48,380,170) | | | $(7,284,962) | | | $(41,106,017) | | | 564% |
Changes in foreign currency translation adjustment | | | $110,264 | | | $(114,346) | | | $224,610 | | | -196% |
Net loss attributable to common shareholders | | | $(48,269,906) | | | $(7,399,308) | | | $(40,881,407) | | | 552% |
| | September 30, 2020 | | | December 31, 2019 | | | Change | |
Current assets | | | $4,573,684 | | | $3,518,224 | | | $1,055,460 |
Current liabilities | | | 5,914,154 | | | 6,934,725 | | | (1,020,571) |
Working capital | | | $(1,340,470) | | | $(3,416,501) | | | $2,076,031 |
| | For the Nine Months Ended September 30, | ||||
| | 2020 | | | 2019 | |
Net cash used in operating activities | | | $(738,678) | | | $(2,769,048) |
Net cash provided by (used in) investing activities | | | 482,517 | | | (895,406) |
Net cash provided by financing activities | | | 1,260,966 | | | 4,212,525 |
| | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | |||||||
| | 2020 | | | 2019 | | | 2020 | | | 2019 | |
Net Loss | | | $(42,188,801) | | | $(1,255,569) | | | $(48,380,170) | | | $(7,284,962) |
Interest expense | | | 355,176 | | | 538,591 | | | 1,029,686 | | | 1,227,271 |
Depreciation & amortization | | | 1,049,235 | | | 1,179,597 | | | 3,320,641 | | | 3,516,418 |
Loss on impairment of intangible assets | | | 39,963,107 | | | — | | | 41,333,085 | | | — |
Share based compensation expense | | | 549,012 | | | 352,341 | | | 1,620,616 | | | 1,241,741 |
Change in fair value of convertible note | | | 321,915 | | | (430,766) | | | 1,104,856 | | | (288,425) |
Change in fair value of convertible note - related party | | | — | | | (491,442) | | | (498,233) | | | 213,828 |
Change in fair value of warrant liability | | | (67,039) | | | (1,224,601) | | | (682,717) | | | (3,462,746) |
Change in fair value of contingent consideration | | | 111,902 | | | — | | | 1,536,324 | | | 880,050 |
Loss (gain) on issuance of warrants | | | — | | | — | | | (2,000) | | | 787,209 |
Other expense | | | — | | | — | | | (37,507) | | | — |
Adjusted EBITDA | | | $94,800 | | | $(1,331,849) | | | $344,874 | | | $(3,169,616) |
| | Common Stock | | | Series A Preferred Stock | | | Series B Preferred Stock | | | |||||||||||
Name of Beneficial Owner | | | # of Shares | | | % Owned | | | # of Shares | | | % Owned | | | # of Shares | | | % Owned | | | Total % of Voting Power |
5% Beneficial Shareholders | | | | | | | | | | | | | | | |||||||
RSF4, LLC(1) | | | 33,330,734 | | | 22.7% | | | — | | | 0.0% | | | 13,784,201 | | | 100.0% | | | 29.1% |
RSF5, LLC(1) | | | 33,330,734 | | | 22.7% | | | — | | | — | | | 13,784,201 | | | 100.0% | | | 29.1% |
Rose Capital Fund I, LP | | | 33,330,734 | | | 22.7% | | | | | | | | | | | 29.1% | ||||
Officers and Directors | | | | | | | | | | | | | | | |||||||
Zachary Venegas(2) | | | 13,724,818 | | | 9.3% | | | 1,000,000 | | | 100.0% | | | — | | | 0.0% | | | 9.1% |
Scott Ogur(3) | | | 9,300,000 | | | 6.3% | | | | | 0.0% | | | — | | | 0.0% | | | 5.7% | |
Andrew Schweibold(1) | | | 33,330,734 | | | 22.7% | | | — | | | 0.0% | | | 13,784,201 | | | 100.0% | | | 29.1% |
Satyavrat Joshi | | | — | | | 0.0% | | | — | | | 0.0% | | | — | | | 0.0% | | | 0.0% |
Paul Hodges | | | 2,500,483 | | | 1.7% | | | — | | | 0.0% | | | — | | | 0.0% | | | 1.5% |
Garvis Toler III(4) | | | 200,000 | | | 0.1% | | | — | | | 0.0% | | | — | | | 0.0% | | | 0.1% |
Steve Janjic(5) | | | 661,796 | | | 0.4% | | | — | | | 0.0% | | | — | | | | | 0.4% | |
Officers and Directors as a Group (7 persons) | | | 42,772,690 | | | 40.6% | | | 1,000,000 | | | 100.0% | | | 13,784,201 | | | 0.0% | | | 46.0% |
(1) | RSF4, LLC, RSF5, LLC and Rose Capital Fund I, LP are solely managed by Rose Capital Fund I GP, LLC (“Rose GP”). Rose GP has the sole power to vote or sell the shares of our Series B Preferred Stock held by RSF4, LLC. Rose GP is owned 50% by Andrew Schweibold and 50% by Jonathan Rosenthal. As a result of the foregoing, Rose GP, Schweibold and Rosenthal may be deemed to be beneficial owners of the shares of our Series B Preferred Stock held by RSF4, LLC. |
(2) | Includes shares owned by Helix Opportunities, LLC, of which Mr. Venegas owns 100% and (ii) options to purchase up to 806,666 shares of Helix Common Stock. |
(3) | Consists of (i) his direct ownership of 9,000,000 shares of Helix Common Stock and (ii) options to purchase up to 300,000 shares of Helix Common Stock. |
(4) | Consists of options to purchase up to 200,000 shares of Helix Common Stock. |
(5) | Consists of (i) 586,796 shares of Common Stock and (ii) options to purchase up to 75,000 shares of Helix Common Stock. |
Location | | | Monthly Rent | | | Lease Term | | | Expiration Date |
5300 DTC Parkway, Suite 300, Greenwood Village, CO 80111 | | | $6,011 to $6,718 | | | 5 years | | | 2/28/2021 |
6750 North Andrews Avenue, Suite 325, Fort Lauderdale, FL 33309 | | | $19,380 to $20,560 | | | 34 months | | | 11/30/2021 |
6750 North Andrews Avenue, Suite 325, Fort Lauderdale, FL 33309 | | | $15,200 to $16,127 | | | 3 years | | | 12/31/2024 |
921 Lakeridge Way, Suite 301, Olympia, WA 98502 | | | $3,500 to $3,713 | | | 3 years | | | 2/28/2021 |
Name and Principal Position | | | Fiscal Year | | | Base Salary ($) | | | Option Awards ($) | | | Total ($) |
Zachary Venegas President/CEO, Director | | | 2020 | | | 200,000 | | | 101,364 | | | 301,364 |
| 2019 | | | 200,000 | | | 975,736 | | | 1,175,736 | ||
Scott Ogur CFO, Director | | | 2020 | | | 180,000 | | | 67,710 | | | 247,710 |
| 2019 | | | 180,000 | | | 575,136 | | | 755,136 | ||
Terence J. Ferraro Chief Software Architect, BioTrackTHC | | | 2020 | | | 175,000 | | | — | | | 175,000 |
| 2019 | | | 175,000 | | | — | | | 175,000 |
Name | | | Stock Underlying Option | | | Option Exercise Price | | | Option Expiration Date |
Zachary Venegas | | | 40,000 shares of common stock | | | $2.09* | | | 3/28/2023 |
Zachary Venegas | | | 450,000 shares of common stock | | | $1.90 | | | 3/28/2028 |
Zachary Venegas | | | 114,000 shares of common stock | | | $2.59* | | | 3/19/2024 |
Zachary Venegas | | | 386,000 shares of common stock | | | $2.35 | | | 3/19/2029 |
Zachary Venegas | | | 500,000 shares of common stock | | | $0.167* | | | 6/19/2025 |
Zachary Venegas | | | 300,000 shares of common stock | | | $0.1045* | | | 10/14/2025 |
Scott Ogur | | | 114,000 shares of common stock | | | $2.59* | | | 3/19/2024 |
Scott Ogur | | | 186,000 shares of common stock | | | $2.35 | | | 3/19/2029 |
Scott Ogur | | | 200,000 shares of common stock | | | $0.385* | | | 2/21/2025 |
* | Represents 110% of the fair market value of Helix’s common stock on the day of issuance. |
Plan Category | | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | | Weighted-average exercise price of outstanding options, warrants and rights | | | Number of securities remaining available for future issuance under equity compensation plans |
Equity compensation plans approved by security holders | | | | | | | |||
Helix TCS, Inc. 2017 Omnibus Stock Plan | | | 1,835,000 | | | $1.97 | | | 2,400,055 |
Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan | | | 5,398,018 | | | $0.62 | | | 286,140 |
| | For the Year Ended December 31, | | | Change | |||||||
| | 2019 | | | 2018 | | | Dollars | | | Percentage | |
Revenue | | | $10,862,695 | | | $5,318,128 | | | $5,544,567 | | | 104% |
Cost of revenue | | | 4,684,969 | | | 2,792,875 | | | 1,892,094 | | | 68% |
Gross margin | | | 6,177,726 | | | 2,525,253 | | | 3,652,473 | | | 145% |
Operating expenses | | | 16,114,859 | | | 12,777,804 | | | 3,337,055 | | | 26% |
Loss from operations | | | (9,937,133) | | | (10,252,551) | | | 315,418 | | | -3% |
Other income, net | | | 647,730 | | | 2,759,052 | | | (2,111,322) | | | -77% |
Loss from continuing operations | | | $(9,289,403) | | | $(7,493,499) | | | $(1,795,904) | | | 24% |
Loss from discontinued operations | | | (290,766) | | | (472,303) | | | 181,537 | | | -38% |
Net loss | | | $(9,580,169) | | | $(7,965,802) | | | $(1,614,367) | | | 20% |
Changes in foreign currency translation adjustment | | | $(97,892) | | | $17,991 | | | $(115,883) | | | -644% |
Convertible preferred stock beneficial conversion feature accreted as a deemed dividend | | | — | | | (22,202,194) | | | 22,202,194 | | | -100% |
Net loss attributable to common shareholders | | | $(9,678,061) | | | $(30,150,005) | | | $20,471,944 | | | -68% |
| | For the Year Ended December 31, | | | Change | |||||||
| | 2018 | | | 2017 | | | Dollars | | | Percentage | |
Revenue | | | $5,318,128 | | | $787,080 | | | $4,531,048 | | | 576% |
Cost of revenue | | | 2,792,875 | | | 405,470 | | | 2,387,405 | | | 589% |
Gross margin | | | 2,525,253 | | | 381,610 | | | 2,143,643 | | | 562% |
Operating expenses | | | 12,777,804 | | | 3,851,294 | | | 8,926,510 | | | 232% |
Loss from operations | | | (10,252,551) | | | (3,469,684) | | | (6,782,867) | | | 195% |
Other income (expense), net | | | 2,759,052 | | | (6,882,705) | | | 9,641,757 | | | -140% |
Loss from continuing operations | | | $(7,493,499) | | | $(10,352,389) | | | $2,858,890 | | | -28% |
Loss from discontinued operations | | | (472,303) | | | (313,598) | | | (158,705) | | | 51% |
Net loss | | | $(7,965,802) | | | $(10,665,987) | | | $2,700,185 | | | -25% |
Changes in foreign currency translation adjustment | | | $17,991 | | | $— | | | $17,991 | | | 100% |
Convertible preferred stock beneficial conversion feature accreted as a deemed dividend | | | (22,202,194) | | | (22,210,520) | | | 8,326 | | | -1% |
Net loss attributable to common shareholders | | | $(30,150,005) | | | $(32,876,507) | | | $2,726,502 | | | -8% |
| | December 31, 2019 | | | December 31, 2018 | | | Change | |
Current assets | | | $3,518,224 | | | $1,923,353 | | | $1,594,871 |
Current liabilities | | | 6,934,725 | | | 4,157,005 | | | 2,777,720 |
Working capital | | | $(3,416,501) | | | $(2,233,652) | | | $(1,182,849) |
| | December 31, 2018 | | | December 31, 2017 | | | Change | |
Current assets | | | $1,923,353 | | | $1,519,714 | | | $403,639 |
Current liabilities | | | 4,157,005 | | | 4,808,995 | | | (651,990) |
Working capital | | | $(2,233,652) | | | $(3,289,281) | | | $1,055,629 |
| | For the Year Ended December 31, | ||||
| | 2019 | | | 2018 | |
Net cash used in operating activities | | | $(3,668,522) | | | $(1,811,228) |
Net cash provided by (used in) investing activities | | | (175,528) | | | (1,712,930) |
Net cash provided by financing activities | | | 3,006,501 | | | 4,209,451 |
| | For the Year Ended December 31, | ||||
| | 2018 | | | 2017 | |
Net cash used in operating activities | | | $(3,668,522) | | | $(1,811,228) |
Net cash provided by (used in) investing activities | | | 175,528 | | | (1,712,930) |
Net cash provided by financing activities | | | 3,006,501 | | | 4,209,451 |
| | For the Three Months Ended September 30, | | | Change | |||||||
| | 2020 | | | 2019 | | | Dollars | | | Percentage | |
Revenue | | | $2,893,058 | | | $2,737,568 | | | $155,490 | | | 6% |
Cost of revenue | | | 918,150 | | | 1,318,825 | | | (400,675) | | | -30% |
Gross margin | | | 1,974,908 | | | 1,418,743 | | | 556,165 | | | 39% |
Operating expenses | | | 43,611,028 | | | 4,141,254 | | | 39,469,774 | | | 953% |
Loss from operations | | | (41,636,120) | | | (2,722,511) | | | (38,913,609) | | | 1,429% |
Other (expense) income, net | | | (482,422) | | | (1,608,218) | | | (2,090,640) | | | -130% |
Loss from discontinued operations | | | $(70,259) | | | $(141,276) | | | $71,017 | | | -50% |
Net loss | | | $(42,188,801) | | | $(1,255,569) | | | $(40,933,232) | | | 3,260% |
Changes in foreign currency translation adjustment | | | $62,069 | | | $(118,003) | | | $180,072 | | | -153% |
Net loss attributable to common shareholders | | | $(42,126,732) | | | $(1,373,572) | | | $40,753,160 | | | 2,967% |
| | For the Nine Months Ended September 30, | | | Change | |||||||
| | 2020 | | | 2019 | | | Dollars | | | Percentage | |
Revenue | | | $8,800,352 | | | $7,757,066 | | | $1,043,286 | | | 13% |
Cost of revenue | | | 2,848,674 | | | 3,594,491 | | | (745,817) | | | -21% |
Gross margin | | | 5,951,678 | | | 4,162,575 | | | 1,789,103 | | | 43% |
Operating expenses | | | 52,055,830 | | | 11,929,552 | | | 40,126,277 | | | 336% |
Loss from operations | | | (46,104,152) | | | (7,766,977) | | | (38,337,174) | | | 493% |
Other (expense) income, net | | | (2,210,877) | | | 642,813 | | | (2,938,043) | | | -457% |
Loss from discontinued operations | | | $(65,141) | | | $(160,798) | | | $169,200 | | | -105% |
Net loss | | | $(48,380,170) | | | $(7,284,962) | | | $(41,106,017) | | | 564% |
Changes in foreign currency translation adjustment | | | $110,264 | | | $(114,346) | | | $224,610 | | | -196% |
Net loss attributable to common shareholders | | | $(48,269,906) | | | $(7,399,308) | | | $(40,881,407) | | | 552% |
| | September 30, 2020 | | | December 31, 2019 | | | Change | |
Current assets | | | $4,573,684 | | | $3,518,224 | | | $1,055,460 |
Current liabilities | | | 5,914,154 | | | 6,934,725 | | | (1,020,571) |
Working capital | | | $(1,340,470) | | | $(3,416,501) | | | $2,076,031 |
| | For the Nine Months Ended September 30, | ||||
| | 2020 | | | 2019 | |
Net cash used in operating activities | | | $(738,678) | | | $(2,769,048) |
Net cash provided by (used in) investing activities | | | 482,517 | | | (895,406) |
Net cash provided by financing activities | | | 1,260,966 | | | 4,212,525 |
| | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | |||||||
| | 2020 | | | 2019 | | | 2020 | | | 2019 | |
Net Loss | | | $(42,188,801) | | | $(1,255,569) | | | $(48,380,170) | | | $(7,284,962) |
Interest expense | | | 355,176 | | | 538,591 | | | 1,029,686 | | | 1,227,271 |
Depreciation & amortization | | | 1,049,235 | | | 1,179,597 | | | 3,320,641 | | | 3,516,418 |
Loss on impairment of intangible assets | | | 39,963,107 | | | — | | | 41,333,085 | | | — |
Share based compensation expense | | | 549,012 | | | 352,341 | | | 1,620,616 | | | 1,241,741 |
Change in fair value of convertible note | | | 321,915 | | | (430,766) | | | 1,104,856 | | | (288,425) |
Change in fair value of convertible note - related party | | | — | | | (491,442) | | | (498,233) | | | 213,828 |
Change in fair value of warrant liability | | | (67,039) | | | (1,224,601) | | | (682,717) | | | (3,462,746) |
Change in fair value of contingent consideration | | | 111,902 | | | — | | | 1,536,324 | | | 880,050 |
Loss (gain) on issuance of warrants | | | — | | | — | | | (2,000) | | | 787,209 |
Other expense | | | — | | | — | | | (37,507) | | | — |
Adjusted EBITDA | | | $94,800 | | | $(1,331,849) | | | $344,874 | | | $(3,169,616) |
| | Common Stock | | | Series A Preferred Stock | | | Series B Preferred Stock | | | |||||||||||
Name of Beneficial Owner | | | # of Shares | | | % Owned | | | # of Shares | | | % Owned | | | # of Shares | | | % Owned | | | Total % of Voting Power |
5% Beneficial Shareholders | | | | | | | | | | | | | | | |||||||
RSF4, LLC(1) | | | 33,330,734 | | | 22.7% | | | — | | | 0.0% | | | 13,784,201 | | | 100.0% | | | 29.1% |
RSF5, LLC(1) | | | 33,330,734 | | | 22.7% | | | — | | | — | | | 13,784,201 | | | 100.0% | | | 29.1% |
Rose Capital Fund I, LP | | | 33,330,734 | | | 22.7% | | | | | | | | | | | 29.1% | ||||
Officers and Directors | | | | | | | | | | | | | | | |||||||
Zachary Venegas(2) | | | 13,724,818 | | | 9.3% | | | 1,000,000 | | | 100.0% | | | — | | | 0.0% | | | 9.1% |
Scott Ogur(3) | | | 9,300,000 | | | 6.3% | | | | | 0.0% | | | — | | | 0.0% | | | 5.7% | |
Andrew Schweibold(1) | | | 33,330,734 | | | 22.7% | | | — | | | 0.0% | | | 13,784,201 | | | 100.0% | | | 29.1% |
Satyavrat Joshi | | | — | | | 0.0% | | | — | | | 0.0% | | | — | | | 0.0% | | | 0.0% |
Paul Hodges | | | 2,500,483 | | | 1.7% | | | — | | | 0.0% | | | — | | | 0.0% | | | 1.5% |
Garvis Toler III(4) | | | 200,000 | | | 0.1% | | | — | | | 0.0% | | | — | | | 0.0% | | | 0.1% |
Steve Janjic(5) | | | 661,796 | | | 0.4% | | | — | | | 0.0% | | | — | | | | | 0.4% | |
Officers and Directors as a Group (7 persons) | | | 42,772,690 | | | 40.6% | | | 1,000,000 | | | 100.0% | | | 13,784,201 | | | 0.0% | | | 46.0% |
(1) | RSF4, LLC, RSF5, LLC and Rose Capital Fund I, LP are solely managed by Rose Capital Fund I GP, LLC (“Rose GP”). Rose GP has the sole power to vote or sell the shares of our Series B Preferred Stock held by RSF4, LLC. Rose GP is owned 50% by Andrew Schweibold and 50% by Jonathan Rosenthal. As a result of the foregoing, Rose GP, Schweibold and Rosenthal may be deemed to be beneficial owners of the shares of our Series B Preferred Stock held by RSF4, LLC. |
(2) | Includes shares owned by Helix Opportunities, LLC, of which Mr. Venegas owns 100% and (ii) options to purchase up to 806,666 shares of Helix Common Stock. |
(3) | Consists of (i) his direct ownership of 9,000,000 shares of Helix Common Stock and (ii) options to purchase up to 300,000 shares of Helix Common Stock. |
(4) | Consists of options to purchase up to 200,000 shares of Helix Common Stock. |
(5) | Consists of (i) 586,796 shares of Common Stock and (ii) options to purchase up to 75,000 shares of Helix Common Stock. |
| | Year Ended December 31, | | | Nine Months Ended September 30, | |||||||
| | 2019 | | | 2018(1) | | | 2020 | | | 2019 | |
| | | | | | (Unaudited) | ||||||
Net sales | | | $— | | | — | | | $334,921 | | | $— |
Research and development | | | 827,474 | | | — | | | 1,465,550 | | | 544,375 |
Selling, general and administrative expenses | | | 464,698 | | | — | | | 1,300,350 | | | 224,278 |
Loss from Operations | | | (1,292,172) | | | — | | | (2,430,979) | | | (768,653) |
| | Year Ended December 31, | | | Nine Months Ended September 30, | |||||||
| | 2019 | | | 2018(1) | | | 2020 | | | 2019 | |
| | | | | | (Unaudited) | ||||||
Net sales | | | $— | | | — | | | $334,921 | | | $— |
Research and development | | | 827,474 | | | — | | | 1,465,550 | | | 544,375 |
Selling, general and administrative expenses | | | 464,698 | | | — | | | 1,300,350 | | | 224,278 |
Loss from Operations | | | (1,292,172) | | | — | | | (2,430,979) | | | (768,653) |
(1) | MOR was formed in May 2019 and therefore did not have any operations in 2018. |
| | Year Ended December 31, | | | Nine Months Ended September 30, | |||||||
| | 2019 | | | 2018 | | | 2020 | | | 2019 | |
| | | | | | (Unaudited) | ||||||
Net loss | | | $(1,288,842) | | | — | | | $(2,620,816) | | | $(766,674) |
Net cash used in operating activities | | | (1,032,372) | | | — | | | (2,350,224) | | | (764,725) |
Net cash (used in) provided by investing activities | | | (151,434) | | | — | | | 115,561 | | | (419,505) |
Net cash provided by financing activities | | | 1,184,300 | | | — | | | 3,315,700 | | | 1,184,300 |
Total change in cash and cash equivalents | | | $494 | | | — | | | $1,081,037 | | | $71 |
Name | | | Age | | | Position |
Daniel Barton(1) | | | 55 | | | Chief Executive Officer |
Adam Dublin(2) | | | 55 | | | Chief Strategy Officer, Manager |
Clifford Farren | | | 57 | | | Chief Financial Officer |
Martin J. Wygod(2) | | | 80 | | | Manager |
Max C. Wygod(2) | | | 33 | | | Manager |
(1) | To be a director of Forian at the effective time of the merger. |
(2) | Currently a director of Forian. |
Name and Principal Position | | Fiscal Year | | Salary ($) | | Bonus ($) | | Stock Awards ($)(1) | | Option Awards ($) | | Total ($) | | Fiscal Year | | Salary ($) | | Bonus ($)(1) | | Stock Awards ($)(2) | | All Other Compensation ($)(3) | | Total ($) | ||||||||||||
Max Wygod Executive Chairman and Co-Founder | | 2019 | | — | | — | | — | | — | | — | | 2020 | | 46,875 | | — | | 8,864 | | — | | 55,739 | ||||||||||||
| | | | | | | 2019 | | — | | — | | — | | — | | — | |||||||||||||||||||
| | | | | | |||||||||||||||||||||||||||||||
Adam Dublin Chief Strategy Officer and Co-Founder | | 2019 | | 12,500 | | — | | — | | — | | 12,500 | | 2020 | | 80,199 | | — | | 8,864 | | 33,500 | | 122,563 | ||||||||||||
| | | | | | | 2019 | | 12,500 | | — | | — | | — | | 12,500 | |||||||||||||||||||
| | | | | | |||||||||||||||||||||||||||||||
Dan Barton Chief Executive Officer | | 2019 | | 41,667 | | 20,625 | | 5,661 | | — | | 67,953 | | 2020 | | 309,577 | | — | | 5,145 | | — | | 314,722 | ||||||||||||
| 2019 | | 41,667 | | 20,625 | | 5,661 | | — | | 67,953 |
(1) | The bonuses earned in 2020, if any, is not calculable as of the date hereof. MOR expects to determine the bonuses payable, if any, by March 31, 2021. |
(2) | Amounts reflect the full grant date fair value of profits interests granted, computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual. We provide information regarding the assumptions used to calculate the value of the profits interest awards in Note 5 to our financial statements included in this proxy statement/prospectus. |
(3) | Represents commissions earned in 2020. |
| | Stock Awards | ||||||||||
Name | | | Number of shares or units of stock that have not vested (#) | | | Market value of shares of units of stock that have not vested ($) | | | Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) | | | Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) |
Max Wygod | | | — | | | — | | | — | | | — |
Adam Dublin | | | — | | | — | | | — | | | — |
Dan Barton | | | — | | | — | | | 200,753 | | | 5,661 |
| | Stock Awards | ||||||||||
Name | | | Number of shares or units of stock that have not vested (#) | | | Market value of shares of units of stock that have not vested ($) | | | Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) | | | Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) |
Max Wygod | | | — | | | — | | | 209,588(1) | | | 6,032 |
Adam Dublin | | | — | | | — | | | 209,588(2) | | | 6,032 |
Dan Barton | | | — | | | — | | | 229,875(3) | | | 6,482 |
(1) | On August 31, 2020, Mr. Wygod was granted 307,963 restricted Class B units that vested 43% on the grant date and the remainder vests equally over the sixteen months following the grant date. |
(2) | On August 31, 2020, Mr. Dublin was granted 307,963 restricted Class B units that vested 43% on the grant date and the remainder vests equally over the sixteen months following the grant date. |
(3) | On August 30, 2019, Mr. Barton was granted 334,359 restricted Class B units that vested 25% on the grant date anniversary and the remainder vests equally over the following 36 months. |
Name | | | Age | | | Position |
Mark J. Adler, M.D. | | | 64 | | | Director |
Ian G. Banwell | | | 56 | | | Director |
Jennifer Hajj | | | 36 | | | Director |
Shahir Kassam-Adams | | | 61 | | | Director |
Stanley S. Trotman, Jr. | | | 77 | | | Director |
Alyssa F. Varadhan | | | 40 | | | Director |
Kristiina Vuori, M.D., Ph.D. | | | 53 | | | Director |
Name of Beneficial Owner | | Number of Shares of Common Stock | | Percentage Of Class | | Number of Shares of Common Stock | | Percentage Of Class | ||||
Mark J. Adler, M.D. | | 24,497 | | * | | 23,497 | | * | ||||
Ian G. Banwell(1) | | 98,691 | | * | | 98,691 | | * | ||||
Daniel Barton (2) | | 663,903 | | 2.1% | | 663,903 | | 2.1% | ||||
Adam Dublin (3) | | 2,312,364 | | 7.4% | | 2,312,364 | | 7.4% | ||||
Clifford Farren (4) | | 163,741 | | * | | 163,741 | | * | ||||
Jennifer Hajj | | — | | | — | | ||||||
Shahir Kassam-Adams | | 117,539 | | * | | 117,539 | | * | ||||
Scott Ogur(5) | | 1,148,207 | | 3.7% | | 465,000 | | 1.5% | ||||
Stanley S. Trotman, Jr. | | 23,497 | | * | | 23,497 | | * | ||||
Alyssa Varadhan | | | | — | | |||||||
Kristiina Vuori | | 23,497 | | * | | 23,497 | | * | ||||
Martin J. Wygod(6) | | — | | | 1,896,941 | | 6.1% | |||||
Max C. Wygod(7) | | 2,260,287 | | 7.3% | | 2,260,287 | | 7.3% | ||||
Directors and Officers as a group (14 individuals) | | 6,851,503 | | 22.0% | ||||||||
Directors and Officers as a group (13 individuals) | | 8,048,957 | | 25.8% | ||||||||
Beneficial Owners of more than 5% of our common stock: | | | | | ||||||||
Phyllis Dublin(8) | | 1,802,757 | | 5.8% | | 1,802,757 | | 5.8% | ||||
Edward Spaniel(9) | | 2,405,395 | | 7.7% | | 2,405,395 | | 7.7% | ||||
Anthony Vuolo(10) | | 3,967,154 | | 12.7% | | 3,967,154 | | 12.7% |
* | Represents beneficial ownership of less than one percent (1%). |
(1) | Includes 98,691
The following includes a summary of transactions to which MOR or Helix has been a party in which the amount involved exceeded or will exceed $120,000, and in which any of the Forian directors, executive officers or, to Forian’s knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described under “Information about MOR - Executive and Director Compensation” and“Information about Helix —Executive Compensation.” We also describe below certain other transactions with our directors, executive officers and stockholders. Adam Dublin, who will be Chief Strategy Officer of Forian, was previously a consultant for DRG a current vendor of MOR and will become a vendor of Forian. The contract with DRG terminated on December 11, 2020 and the parties have not agreed to renew the agreement. Pursuant to his consulting agreement, Mr. Dublin may continue to receive up to $750,000 in commission payments over the next two years. It is anticipated that, following the merger, Scott Ogur will be a member of Forian’s board of directors and that each of Messrs. Venegas and Ogur will be consultants to Forian and to Helix. Mr. Venegas is expected to receive a $25,000 per month advisory fee, options to purchase 400,000 shares of Forian common stock that vest over four years, and a potential performance fee of up to 30% of the annualized advisory fee. Mr. Ogur is expected to receive a $22,500 per month advisory fee, options to purchase 400,000 shares of Forian common stock that vest over four years, and a potential performance fee of up to 20% of the annualized advisory fee. As of the date hereof the proposed consulting agreements with Mr. Ogur and Mr. Venegas have not been finalized or executed. This section contains information about the special meeting of Helix stockholders that has been called to consider and adopt the merger agreement. Together with this document, Helix is also sending its stockholders a notice of the special meeting and a form of proxy that is solicited by the Helix board of directors. The special meeting will be held on At the Helix special meeting, Helix stockholders will be asked to consider and vote on the following:
Completion of the merger is conditioned on approval of the Helix merger proposal. Completion of the merger is not conditioned on the approval of the Helix adjournment proposal. If you were a record holder of Helix common stock at the close of business on the record date of the Helix special meeting, a proxy card is enclosed for your use. Helix requests that you vote your shares as promptly as possible by (i) visiting the internet site listed on the Helix proxy card, (ii) calling the toll-free number listed on the Helix proxy card or (iii) submitting your Helix proxy card by mail by using the provided self-addressed, stamped envelope. Information and applicable deadlines for voting through the internet or by telephone are set forth on the enclosed proxy card. When the accompanying proxy is returned properly executed, the shares of Helix common stock represented by it will be voted at the Helix special meeting or any adjournment or postponement of the meeting in accordance with the instructions contained in the proxy card. Your internet or telephone vote authorizes the named proxies to vote your shares in the same manner as if you had marked, signed and returned a proxy card. If a proxy is returned without an indication as to how the shares of Helix common stock represented are to be voted with regard to a particular proposal, the Helix common stock represented by the proxy will be voted in accordance with the recommendation of the Helix board of directors and, therefore, “FOR” the Helix merger proposal, “FOR” the Helix merger-related compensation proposal, and “FOR” the Helix adjournment proposal. As of the date hereof, the Helix board of directors has no knowledge of any business that will be presented for consideration at the Helix special meeting and that would be required to be set forth in this proxy statement/prospectus or the related proxy card other than the matters set forth in Helix’s Notice of Special Meeting of Shareholders. If any other matter is properly presented at the Helix special meeting for consideration, the persons named in the enclosed form of proxy and acting thereunder will vote in accordance with their discretion on such matter. Revocation of Proxies A Helix stockholder may revoke a proxy at any time before it is voted at the meeting by taking any of the following four actions: delivering written notice of revocation to Helix’s Corporate Secretary, delivering a proxy card bearing a later date than the proxy that you wish to revoke; casting a subsequent vote via telephone or the internet, as described above; or attending the virtual special meeting and voting via the virtual portal. Merely attending the virtual meeting will not, by itself, revoke your proxy; you must cast a subsequent vote at the meeting using forms and procedures provided for that purpose. Your last valid vote that we receive before or at the special meeting is the vote that will be counted. If you have instructed a broker, bank or other nominee to vote your shares of Helix common stock, you must follow the directions you receive from your broker, bank or other nominee in order to change or revoke your vote. If you hold shares of Helix common stock through a stock brokerage account, bank or other nominee, you are considered the “beneficial holder” of the shares held for you in what is known as “street name.” The “record holder” of such shares is your broker, bank or other nominee, and not you, and you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your broker, bank or other nominee. Please note that you may not vote shares held in street name by returning a proxy card directly to Helix or by voting in person via the virtual portal at the Helix special meeting unless you have a “legal proxy,” which you must obtain from your broker, bank or other nominee. Please also note that brokers, banks or other nominees who hold shares of Helix common stock on behalf of their customers may not give a proxy to Helix to vote those shares without specific instructions from their customers. If you are a Helix stockholder and you do not instruct your broker, bank or other nominee on how to vote your shares, your broker, bank or other nominee may not vote your shares on any of the Helix proposals. Helix will bear the entire cost of soliciting proxies from its stockholders. In addition to solicitation of proxies by mail, proxies may also be solicited by Helix’s directors and employees personally, and by telephone, electronic transmission, facsimile transmission, or other means. No additional compensation will be paid to these individuals for proxy solicitation nor is it expected to result in more than a minimal cost. Helix may make arrangements directly with banks, brokerage houses, custodians, nominees and fiduciaries to forward solicitation material to the beneficial owners of Helix common stock held of record by them and to obtain authorization for the execution of proxies. Helix may reimburse these institutional holders for their reasonable expenses in connection with these activities. Helix Recommendation of the Helix Board of Directors The Helix board of directors unanimously recommends that Helix stockholders vote “FOR” the approval of the Helix merger proposal, “FOR” the approval of the Helix merger-related compensation proposal, and “FOR” the approval of the Helix adjournment proposal. The record date for the Helix special meeting is January Each share of Helix common stock outstanding on the record date of the Helix special meeting is entitled to one vote on each proposal and any other matter coming before the Helix special meeting. At the close of business on the record date for the Helix special meeting, Helix directors and executive officers and their affiliates were entitled to vote, in the aggregate No business may be transacted at the Helix special meeting unless a quorum is present. Shareholders who hold shares representing at least a majority of the shares entitled to vote at the Helix special meeting must be present in person or by proxy to constitute a quorum. If a quorum is not present, which is not expected in view of the provisions of the voting agreements that are in place, the chairman may adjourn the meeting to solicit additional proxies. In addition, if fewer shares are voted than the number of shares required to obtain the necessary Helix stockholder approvals, then the special meeting may be adjourned to allow additional time for obtaining additional proxies, if the approval of a majority of the votes cast at the special meeting on the Helix adjournment proposal is obtained. No notice of an adjourned meeting need be given if the time and place of the adjourned meeting are announced at the special meeting unless, after the adjournment, a new record date is fixed for the adjourned meeting, in which case a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. At any adjourned meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the adjourned meeting. All shares of Helix common and preferred stock represented at the Helix special meeting, either in person or by proxy, including failures to vote and abstentions, will be treated as present for purposes of determining the presence or absence of a quorum. Your vote is important. If you were a record holder of Helix common stock on the record date of the Helix special meeting, please sign and return the enclosed proxy card, or vote via the internet or telephone, regardless of whether or not you plan to attend the Helix special meeting in person. Proxies submitted through the specified internet website or by phone must be received by 11:59 p.m., Eastern Time, on Only stockholders and their proxy holders will be able to access the virtual special meeting. As indicated, we are hosting the special meeting exclusively online at www.virtualshareholdermeeting.com/ Beneficial owners whose stock is held for them in street name by their brokers or other nominees may also attend the meeting by going to www.virtualshareholdermeeting.com/ Helix is asking its stockholders to approve the Helix merger proposal. For a detailed discussion of the merger, including the terms and conditions of the merger agreement, see “The Merger Agreement,” beginning on page Approval of the Helix merger proposal requires the affirmative vote of a majority of the issued and outstanding shares of Helix common and preferred stock entitled to vote at the Helix special meeting. Failures to vote, broker non-votes and abstentions will have the same effect as votes against this proposal. As of January The Helix board of directors unanimously recommends that Helix stockholders vote “FOR” approval of the Helix merger proposal. See “The Merger – As required by Section 14A of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, Helix is providing its stockholders with the opportunity to approve, in a non-binding advisory vote, certain compensation that may become payable to its named executive officers in connection with the merger, which is based on or related to the merger and the agreements and understandings concerning such compensation, by voting on the following resolution: “RESOLVED, that the compensation that may be paid or become payable to the named executive officers of Helix in connection with or as a result of the merger, and the agreements or understandings pursuant to which such compensation may be paid or become payable, in each case as disclosed in the section entitled “The Merger – Interests of Certain Helix Directors and Executive Officers in the Merger – Certain Compensation for Helix Named Executive Officers,” and the related table and narrative, are hereby APPROVED on a non-binding, advisory basis.” Approval of the Helix merger-related compensation proposal is not a condition to completion of the merger. The vote on this proposal is a vote separate and apart from the vote on the Helix merger proposal. Accordingly, a holder of Helix common stock may vote against this Helix merger-related compensation proposal and vote to approve the Helix merger proposal or vice versa. Because this proposal is advisory in nature only, a vote for or against approval will not be binding on either Helix or Forian, regardless of whether the other proposals are approved. The compensation that is subject to this proposal is a contractual obligation of Helix. If the merger is approved and completed, such compensation may be paid, subject only to the conditions applicable thereto, even if stockholders fail to approve this proposal. If the merger is not completed, the Helix board of directors will consider the results of the vote in making future executive compensation decisions. The approval of the Helix merger-related compensation proposal requires the approval of a majority of the votes cast on this proposal at the Helix special meeting, assuming a quorum. Failures to vote, broker non-votes and abstentions will have no effect on the vote for this proposal. The Helix board of directors unanimously recommends that Helix stockholders vote “FOR” approval of the Helix merger-related compensation proposal. The Helix special meeting may be adjourned to another time or place if there are insufficient votes represented at the Helix special meeting to constitute a quorum necessary to conduct business at the Helix special meeting or if there are insufficient votes necessary to obtain the approval of the Helix merger proposal. In that event, you will be asked to vote only upon the Helix adjournment proposal and will not be asked to vote on the Helix merger proposal or the Helix merger-related compensation proposal at the special meeting. Helix requests that its stockholders authorize the holder of any proxy solicited by the Helix board of directors on a discretionary basis to vote in favor of adjourning the Helix special meeting to another time or place, if determined necessary or appropriate by Helix, to solicit additional proxies (including the solicitation of proxies from Helix stockholders who have previously voted). Approval of this proposal is not a condition to the closing of the merger. Generally, if the special meeting is adjourned, no notice of the adjourned meeting is required to be given to stockholders, other than an announcement at the special meeting of the place, date and time to which the meeting is adjourned. The approval of the Helix adjournment proposal requires the approval of a majority of the votes cast on this proposal at the Helix special meeting, regardless of whether or not there is a quorum. Failures to vote, broker non-votes and abstentions will have no effect on the vote for this proposal. The Helix board of directors believes that if the number of shares of its common stock present in person or represented by proxy at the Helix special meeting and voting in favor of the approval of the Helix merger proposal is insufficient to approve such proposal, it is in the best interests of the Helix stockholders to enable the board of directors, for a limited period of time, to continue to seek to obtain a sufficient number of additional votes to approve such proposal. The Helix board of directors unanimously recommends that stockholders vote “FOR” the approval of the Helix adjournment proposal. The unaudited pro forma condensed combined financial information is presented to illustrate the estimated effects of the merger between Forian, Merger Sub and Helix and the contribution between Forian and MOR (we refer to the merger and the contribution collectively as the “business combination”). MOR and Helix have historical operating businesses, and Forian was incorporated to be the parent company, following the completion of the merger and the contribution. The contribution agreement will be entered into immediately prior to closing of the merger. The merger will be accounted for using acquisition accounting, in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). As such, the assets and liabilities of Helix, as of the completion of the merger, will be recorded at their fair values as well as any identifiable intangible assets. Any remaining excess purchase price will be allocated to goodwill, will not be amortized and will be evaluated for impairment annually. Consolidated financial statements of Forian issued after the consummation of the merger will reflect such values. MOR was determined to be the accounting acquirer based upon the terms of the merger and other factors, such as relative voting rights and the composition of the combined company’s board of directors and senior management. The historical financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are directly attributable to the merger, factually supportable, and with respect to the statements of operations, expected to have a continuing impact on the combined company, as follows: The unaudited pro forma condensed combined balance sheet as of September 30, 2020 was prepared based on (i) the historical unaudited condensed consolidated balance sheet of MOR as of September 30, 2020 and (ii) the historical unaudited condensed balance sheet of Helix as of September 30, 2020. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2019 was prepared based on (i) the historical audited consolidated statement of operations of MOR from inception (May 6, 2019) to December 31, 2019 and (ii) the historical audited statement of operations of Helix for the year ended December 31, 2019. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2020 was prepared based on (i) the historical unaudited condensed consolidated statement of operations of MOR for the nine months ended September 30, 2020 and (ii) the historical unaudited condensed statement of operations of Helix for the nine months ended September 30, 2020. Forian is a Delaware corporation and was formed by MOR on October 15, 2020, for the purpose of effecting the merger and the contribution and all activity for Forian since its inception has been insignificant. To date, Forian has not conducted any activities other than those incidental to its formation and the matters contemplated by the merger agreement in connection with the merger and the contribution agreement in connection with the contribution. As of the completion of the business combinations, Helix and MOR will each become subsidiaries of Forian. On December 1, 2020, MOR completed a private offering of 3,388,947 Series S-1 Preferred Units of membership interests in MOR for an aggregate purchase price of $13,000,000. The Series S-1 Preferred Units will be exchanged for shares of Forian common stock in connection with the contribution. While Forian will be the legal acquirer, the merger will be 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”). MOR will be deemed to be the accounting acquirer for financial accounting purposes. The unaudited pro forma condensed combined financial information set forth below primarily gives effect to the following: the consummation of the merger between Helix and merger sub; the consummation of the contribution from MOR; the application of the acquisition method of accounting in connection with the merger and the contribution; the conversion of Helix convertible notes and preferred stock into Forian common stock; and the exclusion of discontinued operations of Helix in the condensed combined statements of operations. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial information. The unaudited pro forma condensed combined balance sheet data gives effect to the business combination as if it had occurred on September 30, 2020. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2020 and the year ended December 31, 2019 give effect to the business combination as if it had occurred on January 1, 2019. The unaudited pro forma condensed combined financial information has been presented for informational purposes only and is not necessarily indicative of what the combined company's financial position or results of operations actually would have been had the business combination been completed as of the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the combined company. The historical consolidated financial information has been adjusted in the accompanying unaudited pro forma condensed combined financial information to give effect to unaudited pro forma events that are directly attributable to the merger, factually supportable and, with respect to the unaudited pro forma condensed combined statement of operations, expected to have a continuing impact on the results of operations of the combined company. The accompanying unaudited pro forma condensed combined statements of operations do not include any pro forma adjustments to reflect certain expected financial benefits of the merger, such as tax savings, cost synergies or revenue synergies, or the anticipated costs to achieve those benefits, including the cost of integration activities, or restructuring actions which may be achievable or the impact of any non-recurring activity and one-time transaction related costs. The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting under existing GAAP, which are subject to change. MOR will be deemed the accounting acquirer in the business combination for accounting purposes and Helix will be treated as the acquiree, based on a number of factors considered at the time of preparation of this proxy statement/prospectus, including control over the post-merger company as evidenced by the composition of executive management and the board of directors as well as the relative equity ownership after the closing of the business combination. The application of acquisition accounting of is dependent upon the working capital positions at the closing of the business combination, is dependent on other factors such as the share price of Helix immediately prior to the closing of the merger, and is dependent on certain valuations and other studies that have yet to progress to a stage where there is sufficient information for a definitive measurement. The combined company will complete the valuations and other studies upon completion of the business combination and will finalize the purchase price allocation as soon as practicable within the measurement period, but in no event later than one year following the closing date of the merger. The assets and liabilities of Helix and other pro forma adjustments have been measured based on various preliminary estimates using assumptions that Forian, MOR and Helix believe are reasonable, based on information that is currently available. Accordingly, the pro forma adjustments are preliminary. Differences between these preliminary estimates and the final acquisition accounting could be significant, and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial information and the combined company's future results of operation and financial position. The unaudited pro forma condensed combined financial information has been compiled in a manner consistent with the accounting policies adopted by MOR. Upon completion of the merger, the combined company will perform a detailed review of Helix accounting policies and will conform the combined company policies. The combined company may identify additional differences between the accounting policies of the companies that, when conformed, could have a material impact on the consolidated financial statements of the combined company. Additionally, certain financial information of Helix as presented in its historical consolidated financial statements has been reclassified to conform to the historical presentation in MOR’s financial statements for purposes of preparation of the unaudited pro forma condensed combined financial information. There were no transactions between MOR and Helix during the periods presented in the unaudited pro forma condensed combined financial information. This unaudited pro forma condensed combined financial information was derived from and should be read in conjunction with the accompanying notes, as well as the following historical financial statements and the related notes of MOR and Helix: Separate historical audited financial statements of Helix as of and for the years ended December 31, 2019 and 2018, and unaudited condensed financial statements of Helix as of September 30, 2020 and for the nine-month periods ended September 30, 2020 and 2019 and the related notes included elsewhere in this proxy statement/prospectus; and Separate historical audited consolidated financial statements of MOR as of December 31, 2019 and from inception (May 6, 2019) to December 31, 2019, and unaudited condensed consolidated financial statements of MOR as of and for the nine-month period ended September 30, 2020 and as of and from inception (May 6, 2020) to September 30, 2019 and the related notes included elsewhere in this proxy statement/prospectus. FORIAN, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 2020 (in thousands)
FORIAN, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2019 (in thousands, except share and per share amounts)
FORIAN, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2020 (in thousands, except share and per share amounts)
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On October 16, 2020, Helix, Forian, and MOR entered into an Agreement and Plan of Merger, as amended by Amendment to Agreement and Plan of Merger, dated December 30, 2020, as further amended by Amendment No. 2 to Agreement and Plan of Merger, dated February 9, 2021 (which, as it may be amended, supplemented, or modified from time to time, and is referred to as the “merger agreement”) providing for the merger of a subsidiary of Forian with and into Helix (which we refer to as the “merger”), with Helix, following the merger, to be the surviving corporation and a wholly-owned subsidiary of Forian. Immediately prior to the consummation of the Helix merger, Forian and MOR will engage in a contribution transaction, pursuant to which the holders of the equity interests of MOR will contribute and exchange their MOR ownership interests for Forian common stock. This contribution will result in MOR also becoming a wholly owned subsidiary of Forian. As a result of the merger and the contribution, the holders of equity interests of MOR, including shares reserved for future issuance under MOR equity participation plans, as of immediately prior to the merger effective date will collectively own approximately 72% of the outstanding shares of the common stock of the combined company. Each MOR unit, will be converted into the right to receive 1.7776 shares of Forian common stock, or approximately 23.0 million Forian shares. The holders of Helix common stock as of immediately prior to the effective time will collectively own approximately 28% of the outstanding shares of the common stock of the combined company, including shares reserved for future issuance under Helix stock option plans. Helix common stock (including those resulting from the convertible notes and preferred stock and the notes but excluding dissenting shares and certain excluded shares as described in the enclosed proxy statement/prospectus) will be converted into the right to receive 0.05 shares of Forian common stock, or approximately 8.9 million Forian shares.
The unaudited pro forma condensed combined financial information is prepared in accordance with Article 11 of SEC Regulation S-X. All amounts in these notes to unaudited pro forma condensed combined financial information are in thousands, except per share amounts. The historical financial information has been adjusted in the accompanying unaudited pro forma condensed combined financial information to give effect to unaudited pro forma events that are: directly attributable to the merger; directly attributable to the contribution; factually supportable; and with respect to the unaudited pro forma condensed combined statement of operations, expected to have a continuing impact on the results of operations of the combined company. Only transactions and activity that were deemed factually supportable under Article 11 of Regulation S-X have been reflected in preparation of these pro forma financial statements, which may cause pro forma cash and other balances to differ materially from the expected amounts at merger close. The pro forma financial information contemplates certain financing transactions by MOR prior to the merger in order satisfy closing conditions as defined in the merger agreement to meet the targeted ownership structure of 72% and 28%, respectively. The merger will be treated as a business combination for accounting purposes, with MOR as the deemed accounting acquirer and Helix as the deemed accounting acquiree. Therefore, the historical basis of MOR’s assets and liabilities will not be remeasured as a result of the merger. In identifying MOR as the acquiring entity, the companies considered the structure of the merger, the contribution, relative outstanding share ownership at closing and the composition of the combined company's board of directors and senior management. The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting in accordance with ASC 805, which requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date. The acquisition method of accounting uses the fair value concepts defined in ASC Topic 820, “Fair Value 161 Measurement” (“ASC 820”). Fair value is defined in ASC 820 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market participants are assumed to be buyers or sellers in the most advantageous market for the asset or liability. Fair value measurement for an asset assumes the highest and best use by these market participants. Fair value measurements can be highly subjective and it is possible the application of reasonable judgment could develop different assumptions resulting in a range of alternative estimates using the same facts and circumstances. Fair value estimates were determined based on preliminary discussions between Forian, MOR and Helix management, and a preliminary valuation of Helix assets and liabilities using September 30, 2020 as the measurement date. The allocation of the aggregate merger consideration used in the preliminary unaudited pro forma condensed combined financial information is based on preliminary estimates. The estimates and assumptions are subject to change as of the effective time of the merger. Refer to Note 5 for additional information. For pro forma purposes, the valuation of consideration transferred is based on, among other things, the number of Helix common shares outstanding as of September 30, 2020 and fair value price per share of Forian as of December The unaudited pro forma condensed combined balance sheet data gives effect to the business combination as if it had occurred on September 30, 2020. The unaudited pro forma condensed combined statements of operations data gives effect to the business combination as if it had occurred on January 1, 2019. The pro forma financial information also excludes the discontinued operations reported in Helix historical condensed consolidated statements of operations and other comprehensive loss for nine-months ended September 30, 2020 and for the year ended December 31, 2019. The unaudited pro forma condensed combined financial information is presented solely for informational purposes and is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the periods or dates indicated, nor is it necessarily indicative of the future results of the combined company. The unaudited pro forma condensed combined financial information has not been adjusted to give effect to certain expected financial benefits of the business combination, such as tax savings, cost synergies or revenue synergies, or the anticipated costs to achieve these benefits, including the cost of integration activities. The unaudited pro forma condensed combined financial information does not reflect possible adjustments related to restructuring or integration activities that have yet to be determined or transaction or other costs following the combination that are not expected to have a continuing impact on the business of the combined company. Further, one-time transaction-related expenses anticipated to be incurred prior to, or concurrent with, the closing of the business combination are not included in the unaudited pro forma combined statement of operations. However, the impact of such transaction expenses is reflected in the unaudited pro forma condensed combined balance sheet as a decrease to cash and an increase to accumulated deficit. The unaudited pro forma condensed combined financial information is rounded in thousands and therefore subtotal and total amounts may differ due to rounding differences.
The unaudited pro forma condensed combined financial information has been compiled in a manner consistent with the accounting policies of MOR. Following the merger, the combined company will conduct a review of accounting policies of Helix in an effort to determine if differences in accounting policies require further reclassification of results of operations or reclassification of assets or liabilities to conform to MOR’s accounting policies and classifications. As a result of that review, the combined company may identify differences among the accounting policies of the companies that, when conformed, could have a material impact on the unaudited pro forma condensed combined financial information.
Certain financial information of Helix has been reclassified to conform to the historical presentation in MOR's financial statements as set forth below:
Fair Value of Total Estimated Consideration Transferred The fair value of preliminary purchase consideration expected to be transferred on the closing date includes the value of the estimated number of shares of the combined company to be owned by Helix shareholders prior to the closing of the merger. The value of Helix warrants and stock options is assumed at the intrinsic value. The fair value per share of Forian common stock was assumed for pro forma purposes to be $2.16 per share. The fair value of Forian common stock was determined by utilizing fair value of MOR established by the private placement of 26% of MOR for $13 million which was completed in December 2020 as follows:
Although changes in the fair value of Forian Common Stock will impact the fair value of total estimated purchase consideration transferred, they will not impact the 72%/28% split specified in the Merger Agreement.
Purchase Price Allocation The following is a preliminary estimate of the allocation of the purchase price to acquired identifiable assets and assumed liabilities, which includes preliminary purchase accounting adjustments to reflect the fair value of intangible assets acquired at the time of the merger.
The intangibles identified relate to customer lists, software and tradename. The valuation is internally developed and these are valued on a preliminary basis. Changes in fair values could result in material adjustments in the purchase price allocation and resulting goodwill. The preliminary estimated fair value of intangibles of $11,836 which is an increase of $2,068 over Helix’s book value of intangible assets prior to the merger. The acquired identified intangible assets are expected to be comprised of the following:
The fair value estimate for all identifiable intangible assets is preliminary and is based on assumptions that market participants would use in pricing an asset, based on the most advantageous market for the asset (i.e., its highest and best use). This preliminary fair value estimate could include assets that are not intended to be used, may be sold, or are intended to be used in a manner other than their best use. The final determination of fair value of intangible assets, as well as estimated useful lives, remains subject to change. The finalization may have a material impact on the valuation of intangible assets and the purchase price allocation, which is expected to be finalized subsequent to the merger. A 10% change in the valuation of intangible assets would cause a corresponding increase or decrease to goodwill of approximately $1,184 at the merger date and a corresponding increase or decrease to amortization expense of approximately $189 and $251, respectively, the nine months ended September 30, 2020 and for the year ended December 31, 2019, assuming an overall weighted-average useful life of approximately 4.7 years. The final purchase consideration will be based on the fair value per share of the Forian common shares issued immediately prior to the effective time of the merger. Accordingly, the purchase consideration
The following provides explanations of the various adjustments to the unaudited pro forma condensed combined balance sheet as of September 30, 2020:
Represents the conversion of MOR member interests to Forian common stock in the merger. MOR members receive approximately 20.5 million shares of Forian common stock with a par value of $.001 per share in exchange for member interests which total $17,520 comprised of $4,520 historical carrying value as of September 30, 2020 and $13,000 from the private placement completed in December 2020. Refer to Note 6(a). Represents the completion of the merger with Helix. Helix common and preferred stockholders receive approximately 8.2 million shares of Forian stock with an estimated value of $17,759 based on the estimated fair value of Forian common stock per share of $2.158. The merger with Helix results in the elimination of balances related to Helix warrant liability, common and preferred stock, paid-in capital, accumulated deficit and accumulated comprehensive income and in Forian recording identified intangibles of $11,836 and a goodwill of $2,779. (1) Explanation of shares issued in the merger:
(2) Adjustments to additional paid-in capital are as follows:
(3) Adjustments to accumulated deficit as follows:
(4) Adjustments to remove Helix’s accumulated other comprehensive income
The following provides explanations of the various adjustments to the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2020 and for the year ended December 31, 2019:
The unaudited pro forma weighted average number of basic and diluted shares outstanding for the nine-months ended September 30, 2020 and for the year ended December 31, 2019 is calculated as follows:
The following description of the material terms of the common stock and preferred stock of Forian is not complete and is qualified in its entirety by reference to the Forian charter and the Forian bylaws, in each case that will be in effect as of the effective time. This description is subject to the detailed provisions of, and is qualified by reference to, the Forian charter and the Forian bylaws attached as exhibits to this proxy statement/prospectus and are incorporated herein by reference. Authorized Capital Stock The total number of shares of capital stock which Forian will have authority to issue is 100,000,000 shares. This authorized capital stock consists of 95,000,000 shares of common stock and 5,000,000 shares of preferred stock, each having a par value of $0.001 per share. Following completion of the merger and the contribution we expect that there will be 31,871,262 shares of Forian common stock outstanding. Common Stock The shares of Forian common stock to be issued in the merger and the contribution will be duly authorized, validly issued, fully paid and non-assessable. Each holder of a share of Forian common stock will be entitled to one vote for each share upon all questions presented to the holders of Forian common stock, and the common stock will have the exclusive right to vote for the election of directors and for all other purposes (subject to the express terms of the preferred stock). The Forian stockholders will have no preemptive rights and no rights to convert their common stock into any other securities. There will also be no redemption or sinking fund provisions applicable to the Forian common stock. Forian stockholders will be entitled to receive dividends as may be declared from time to time by the Forian board out of funds legally available therefor. Forian stockholders are entitled to share pro rata, upon any liquidation or dissolution of Forian, in all remaining assets available for distribution to stockholders after payment or providing for Forian’s liabilities and the liquidation preference of any outstanding Forian preferred stock. The rights, preferences and privileges of the Forian stockholders are subject to and may be adversely affected by the rights of holders of any series of Forian preferred stock that Forian may designate and issue at the effective time and in the future. Prior to the consummation of the merger, application will be made to list the Forian common stock on Nasdaq under the symbol “FORA.” Additional Classes or Series of Preferred Stock The Forian charter will permit the Forian board, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series of preferred stock with such designations, powers, preferences, special rights, qualifications, limitations and restrictions as the Forian board may determine from time to time. Accordingly, without action by the stockholders, the Forian board may designate and authorize the issuance of additional classes or series of Forian preferred stock having voting rights, dividend rights, conversion rights, redemption provisions (including sinking fund provisions) and rights in liquidation, dissolution or winding up that are superior to those of Forian common stock. Charter and Bylaw Provisions; Takeover Statutes A number of provisions in the Forian charter, the Forian bylaws and the DGCL may make it more difficult to acquire control of Forian or remove its management. For additional detail on these provisions, please see “Comparison of Rights of Stockholders—Forian Stockholder Rights—Required Vote for a Sale of MOR” beginning on page Structure of Board Our certificate of incorporation and bylaws provides that our board is classified into three classes of directors with the classes to be as nearly equal in number as possible, and with each director serving a three-year term. As a result, a third party may be discouraged from making a tender offer or otherwise attempting to obtain control of us as it is more difficult and time consuming for stockholders to replace a majority of the directors on a classified board. Removal of Directors In accordance with the DGCL and subject to the rights of the holders of any class or series of preferred stock, the entire Forian board or any individual director may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least a majority of the shares of stock entitled to vote in the election of the director or directors to be so removed. Advance Notice of Proposals and Nominations The Forian bylaws provide that stockholders must give timely written notice to bring business before an annual meeting of stockholders or to nominate candidates for election as directors at an annual meeting of stockholders. Generally, to be timely, a stockholder’s notice will be required to be delivered to the principal executive offices of Forian not later than the 90th day nor earlier than the 120th day prior to the one (1)-year anniversary of the preceding year’s annual meeting; provided, however, that if the date of the annual meeting is more than thirty (30) days before or more than thirty (30) days after such anniversary date, notice by the stockholder to be timely must be so received no earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. The Forian bylaws also specify the form and content of a stockholder’s notice. For additional detail on these provisions, please see “Comparison of Rights of Stockholders—Forian Stockholder Rights—Advance Notice Requirements for Stockholder Nominations and Other Provisions” beginning on page Limits on Special Meetings The Forian bylaws and charter provide that special meetings of stockholders may be called at any time by the chairperson of the board of directors, the chief executive officer, or by a majority of the members of the board of directors, or by a committee of the board of directors which has been duly designated by the board of directors and whose powers and authority, as provided in a resolution of the board of directors or in these bylaws, include the power to call such meetings, but such special meetings may not be called by any other person or persons. Amendment of the Forian Bylaws The Forian board will be authorized to adopt, amend or repeal the Forian bylaws by a majority vote. Forian stockholders also will have the power to amend, alter, change, adopt and repeal the Forian bylaws, provided, however, that in addition to any vote of the holders of any class or series of stock of Forian required by law, such action by stockholders will require the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of the capital stock entitled to vote generally in the election of directors, voting together as a single class. Preferred Stock Please see “—Additional Classes or Series of Preferred Stock” above. Forian’s ability to issue an indeterminate number of shares of the authorized shares of preferred stock with such rights, privileges and preferences as the Forian board may fix may have the effect of delaying or preventing a takeover or other change of control of Forian. Takeover Statutes Section 203 of the DGCL generally prohibits “business combinations,” including mergers, sales and leases of assets, issuances of securities and similar transactions by a corporation or a subsidiary with an interested stockholder who beneficially owns 15% or more of a corporation’s voting stock, within three (3) years after the person or entity becomes an interested stockholder, unless: (i) the board of directors of the target corporation has approved, before the acquisition time, either the business combination or the transaction that resulted in the person becoming an interested stockholder, (ii) upon consummation of the transaction that resulted in the person becoming an interested stockholder, the person owns at least 85% of the corporation’s voting stock (excluding shares owned by directors who are officers and shares owned by employee stock plans in which participants do not have the right to determine confidentially whether shares will be tendered in a tender or exchange offer) or (iii) after the person or entity becomes an interested stockholder, the business combination is approved by the board of directors and authorized at a meeting of stockholders by the affirmative vote of at least 662∕3% of the outstanding voting stock not owned by the interested stockholder. Forian does not expect to opt out of the protections of Section 203 of the DGCL. As a result, the statute will apply to Forian. Exclusive Forum The Forian bylaws provide that unless Forian consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if and only if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, any state court located within the State of Delaware or, if and only if all such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law (i) any derivative action or proceeding brought on behalf of Forian; (ii) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or other employee of Forian, to Forian or its stockholders; (iii) any action or proceeding asserting a claim against the corporation or any current or former director, officer or other employee of Forian, arising out of or pursuant to any provision of the DGCL, the certificate of incorporation or the bylaws of Forian (as each may be amended from time to time); (iv) any action or proceeding to interpret, apply, enforce or determine the validity of the certificate of incorporation or the bylaws of Forian (including any right, obligation, or remedy thereunder); (v) any action or proceeding as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware; and (vi) any action asserting a claim against Forian or any director, officer or other employee of Forian, governed by the internal affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. The foregoing forum provisions do not apply to suits brought to enforce a duty or liability created by the Securities Act, or the Securities Exchange Act of 1934, as amended, or any other claim for which the federal courts have exclusive jurisdiction. The Forian bylaws also provide that, unless Forian consents in writing to the selection of an alternative forum, the federal district courts of the United States of America are the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. The Forian charter also provides that unless Forian consents in writing to the selection of an alternative forum, the federal district courts of the District of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. If the transactions are completed, Helix stockholders will receive shares of Forian stock in connection with the merger and become stockholders of Forian and members of MOR will receive shares of Forian stock in connection with the contribution and become stockholders of Forian. The following is a summary of certain differences between (i) the current rights of Helix stockholders under Delaware law, the Helix certificate of incorporation and the Helix amended and restated bylaws, (ii) the current rights of members of MOR under Delaware law, the MOR certificate of formation and the MOR amended and restate limited liability company agreement and (iii) the current rights of Forian stockholders under Delaware law, the Forian certificate of incorporation and the Forian bylaws. The following summary is not a complete statement of the rights of stockholders of the three companies or a complete description of the specific provisions referred to below. This summary is qualified in its entirety by reference to the DGCL and Helix’s, MOR’s and Forian’s governing documents (which we urge you to read carefully and in their entirety). To find out where copies of these documents can be obtained, see “Where You Can Find More Information” beginning on page Forian and Helix are each incorporated under the laws of the State of Delaware and, accordingly, the rights of Forian stockholders and Helix stockholders are both governed by the DGCL and other applicable Delaware law. MOR was formed under the laws of the State of Delaware and, accordingly, the rights of members of MOR are governed by the Delaware Limited Liability Company Act. As a result of the merger, Helix stockholders will receive shares of Forian stock and become Forian stockholders. Thus, following the merger, the rights of Helix stockholders who become Forian stockholders in connection with the merger will continue to be governed by the DGCL and the other applicable Delaware law and will be governed by the Forian charter and the Forian bylaws. As a result of the contribution, MOR members will receive shares of Forian stock and become Forian stockholders. Thus, following the contribution, the rights of MOR members who become Forian stockholders in connection with the contribution will be governed by the DGCL and the other applicable Delaware law and will be governed by the Forian charter and the Forian bylaws.
The validity of the shares of Forian common stock to be issued in the merger will be passed upon by Duane Morris LLP. Certain U.S. federal income tax consequences relating to the merger will also be passed upon for Helix by Duane Morris LLP. Helix The consolidated financial statements of Helix as of December 31, 2019 and 2018 included and for each of the years in the two year period ended December 31, 2019 have been included in this proxy statement/prospectus at pages F-3 - F-11 - in reliance on the reports of BF Borgers CPA PC, an independent registered public accounting firm, which report is included herein. Such consolidated financial statements have been so included in reliance on the reports of such firm, given upon the authority of said firm as experts in auditing and accounting. Medical Outcomes Research Analytics, LLC The consolidated financial statements of Medical Outcomes Research Analytics, LLC as of December 31, 2019 and for the period from inception (May 6, 2019) through December 31, 2019 included in this proxy statement/prospectus have been audited by Marcum LLP, an independent registered public accounting firm, as stated in its report, appearing herein and elsewhere in this proxy statement/prospectus. Such financial statements are included in reliance upon the report of such firm given upon its authority as experts in accounting and auditing. If the merger is completed, Helix will not have public stockholders and there will be no public participation in any future meeting of stockholders. However, if the merger is not completed or if Helix is otherwise required to do so under applicable law, Helix will hold a 2021 annual meeting of stockholders. Any stockholder nominations or proposals for other business intended to be presented at Helix’s next annual meeting must be submitted to Helix as set forth below. All stockholder proposals and notices discussed below must be mailed to Corporate Secretary, Helix Technologies, Inc., 5300 DTC Parkway, Suite 300, Greenwood Village, CO 80111. Stockholder proposals and director nominations that are not included in our proxy materials will not be considered at any annual meeting of stockholders unless such proposals have complied with the requirements of our amended and restated Bylaws. Rule 14a-8 Stockholder Proposals at 2021 Annual Meeting Proposals of eligible stockholders that comply with Exchange Act Rule 14a-8 Non-Rule 14a-8 Proposals at 2021 Annual Special Meeting If required, Helix anticipates that its 2021 Annual Meeting would be held in May 2021. If a stockholder desires to submit a proposal for consideration at the 2021 Annual Meeting, written notice of such stockholder’s intent to make such a proposal must be given and received by Helix’s Corporate Secretary at Helix’s principal executive offices either by personal delivery or by U.S. mail no earlier than Forian filed with the SEC under the Securities Act the registration statement on Form S-4 to register the shares of Forian common stock to be issued to Helix stockholders in connection with the merger. The registration statement, including the exhibits and schedules thereto, contains additional relevant information about Forian and its common stock. The rules and regulations of the SEC allow Forian to omit certain information included in the registration statement from this proxy statement/prospectus. This proxy statement/prospectus is part of the registration statement and is a prospectus of Forian in addition to being Helix’s proxy statement for its special meeting. Helix files annual, quarterly and special reports, proxy statements and other business and financial information with the SEC under the Exchange Act. The SEC maintains a website at http://www.sec.gov where you can access reports, proxy information and registration statements, and other information regarding registrants that file electronically with the SEC. Helix also posts its SEC filings on its web site, which is www.helixtechnologies.com. Information contained on the Helix website is not incorporated by reference into this proxy statement/prospectus, and you should not consider information contained in its website as part of this proxy statement/prospectus.
In order to allow Forian Inc. (“Forian”) and Helix Technologies, Inc. (“Helix”) to file with the Securities and Exchange Commission (the “Commission”) a registration statement that contains a proxy statement/prospectus that includes Helix’s historical financial statements, the Commission’s rules require that the most recently filed annual financial statements be recast to reflect any subsequent changes in accounting principles or presentation that are being applied retrospectively. As a result, Helix has recast some of the financial information presented in its Annual Report on Form 10-K for the year ended December 31, 2019 (filed with the Commission on March 30, 2020) (the “2019 Form 10-K”) to reflect certain changes in accounting principles or basis of presentation that are being applied retrospectively. Specifically, Helix has recast its consolidated financial statements as of December 31, 2019 and for each of the two years then ended and the related Management’s Discussion and Analysis of Results of Operations and Financial Condition, to reflect the presentation of certain businesses sold during 2020 as discontinued operations. These changes have already been reflected in Helix’s most recent Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 (filed with the Commission on November 16, 2020) (the “September 2020 Form 10-Q”). Except as related to the transactions and matters that have led to the recast financial information presented herein, the disclosures contained herein have not been updated for other transactions and/or events from those disclosures contained in the Company’s 2019 Form 10-K; accordingly, the financial information herein should be read in connection with the Company’s recently filed September 2020 Form 10-Q.
F-1 To the shareholders and the board of directors of Helix TCS, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Helix TCS, Inc. as of December 31, 2019 and 2018, the related statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Substantial Doubt about the Company’s Ability to Continue as a Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /S/ BF Borgers CPA PC BF Borgers CPA PC We have served as the Company’s auditor since 2016 Lakewood, CO March 30, 2020 F-2 CONSOLIDATED BALANCE SHEETS
See accompanying notes to the consolidated financial statements. F-3
See accompanying notes to the consolidated financial statements. F-4 CONSOLIDATED STATEMENTS OF OPERATIONS
See accompanying notes to the consolidated financial statements. F-5
See accompanying notes to the consolidated financial statements. F-6 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
See accompanying notes to the consolidated financial statements. F-7
See accompanying notes to the consolidated financial statements. F-8
See accompanying notes to the consolidated financial statements. F-9 CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes to the consolidated financial statements. F-10
See accompanying notes to the consolidated financial statements. F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Helix Technologies, Inc. (the “Company” or “Helix”) was incorporated in Delaware on March 13, 2014. Pursuant to the acquisition of the assets of Helix TCS, LLC, as discussed below, we changed our name from Jubilee4 Gold, Inc. to Helix TCS, Inc. effective October 25, 2015. Effective June 5, 2020, the Company changed its name from Helix TCS, Inc. to Helix Technologies, Inc. Effective October 25, 2015, we entered into an acquisition and exchange agreement with Helix TCS, LLC. We closed the transaction contemplated under the acquisition and exchange agreement on December 23, 2015 and Helix TCS, LLC was merged into and with Helix. Effective October 1, 2015, for accounting purposes, as part of an acquisition amounting to a reorganization dated December 21, 2015, Helix Opportunities LLC exchanged 100% of Helix TCS, LLC and its wholly-owned subsidiaries, Security Consultants Group, LLC and Boss Security Solutions, Inc. to the Company in exchange for 20 million common shares and 1 million convertible preferred shares of the Company. The acquisition of Helix was treated as a recapitalization for financial accounting purposes. Jubilee4 Gold, Inc. is considered the acquiree for accounting purposes and their historical financial statements before the Acquisition Agreement were replaced with the historical financial statements of the Company. The common stock account of the Company continues post-merger, while the retained earnings of the acquiree is eliminated. Furthermore, on April 11, 2016, the Company acquired the assets of Revolutionary Software, LLC (“Revolutionary”). On March 3, 2018, Helix and its wholly owned subsidiary, Helix Acquisition Sub, Inc. (“BioTrackTHC Merger Sub”), entered into an Agreement and Plan of Merger (the “BioTrackTHC Merger Agreement”) with Bio-Tech Medical Software, Inc. (“BioTrackTHC”) and Terence J. Ferraro, as the representative of the BioTrackTHC stockholders, pursuant to which BioTrackTHC Merger Sub merged with and into BioTrackTHC (the “BioTrackTHC Merger”). On June 1, 2018 (the “BioTrackTHC Closing Date”), in connection with closing the BioTrackTHC Merger, the Company issued 38,184,985 unregistered shares of its common stock to BioTrackTHC stockholders, of which 1,852,677 shares were held back to satisfy indemnification obligations in the BioTrackTHC Merger Agreement, if necessary. The Company also assumed the Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan (“BioTrackTHC Stock Plan”), pursuant to which options exercisable in the amount of 8,132,410 shares of common stock are outstanding. As a result, BioTrackTHC stockholders owned approximately 48% of the Company on a fully diluted basis as of the BioTrackTHC Closing Date. On August 3, 2018 (the “Engeni Closing Date”), the Company and its wholly owned subsidiary, Engeni Merger Sub, LLC (“Engeni Merger Sub”), entered into an Agreement and Plan of Merger (the “Engeni Merger Agreement”) with Engeni LLC (“Engeni US”), Engeni S.A (“Engeni SA”), Scott Zienkewicz, Nicolas Heller and Alberto Pardo Saleme (the Engeni US members), and Scott Zienkewicz, as the representative of the Engeni US members. Pursuant to the Engeni Merger Agreement, Engeni Merger Sub merged with and into Engeni US, with Engeni US surviving the merger as a wholly-owned subsidiary of the Company (the “Engeni Merger”). On the Engeni Closing Date, in connection with closing the Engeni Merger Agreement, the Company issued 366,700 shares of Company common stock to Engeni US members. Furthermore, the Company subsequently issued Engeni US members 733,300 shares of Company common stock on April 2, 2019. On April 1, 2019 (“Tan Security Closing Date”), the Company entered into a Membership Interest and Stock Purchase Agreement (the “Tan Security Acquisition Agreement”) with Tan’s International Security and Tan’s International LLC (collectively, “Tan Security”). Pursuant to the Tan Security Acquisition Agreement, the Company purchased all membership interests and capital stock of Tan Security and collectively holds 100% of the interests of Tan Security (the “Tan Security Acquisition”). F-12 On February 5, 2019, the Company and its wholly owned subsidiary, Merger Sub, entered into an Agreement and Plan of Merger (the “Amercanex Merger Agreement”) with Green Tree International, Inc. (“GTI”) and Steve Janjic, as the representative of the GTI shareholders, pursuant to which Merger Sub merged with and into GTI (the “GTI Merger”). On September 10, 2019 (the “GTI Closing Date”), the Company closed the GTI Merger and entered into an Addendum No. 1 to the Amercanex Merger Agreement acknowledging and approving certain events that occurred since signing as well as implementing various related amendments to the Amercanex Merger Agreement. In connection with closing the GTI Merger, the Company issued 16,765,727 unregistered shares of Company common stock to GTI shareholders, of which 4,140,274 shares were held back to satisfy indemnification obligations in the Amercanex Merger Agreement, if necessary. On July 31, 2020, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Invicta Security CA Corporation, a Delaware corporation (“Buyer”), Invicta Services LLC, a Delaware limited liability company (“Invicta”), Boss Security Solutions, Inc., a Colorado corporation (“Boss”), Security Consultants Group, LLC, a Colorado limited liability company (“SCG”), Tan’s International LLC, a California limited liability company (“Tan LLC”), and Tan’s International Security, Inc., a California corporation (“Tan Security”, collectively with Boss, SCG and Tan LLC, the “Sellers” or the “discontinued entities” or individually a “Seller”). Pursuant to the terms and conditions of the Agreement, the Sellers sold, assigned, transferred, and delivered to Buyer the Assets (as defined in the Agreement) and Buyer paid aggregate consideration of $1,750,000 and assumed the Assumed Liabilities (as defined in the Agreement). The Assets included but were not limited to the right, title and interest in and to all assets and property, tangible and intangible, of every kind and description, used in, related to or necessary for the security guarding and protective guarding services business conducted by the Sellers. The Agreement contained certain customary representations and warranties made by the parties. The Sellers and Helix agreed to various customary covenants, including, among others, covenants regarding non-competition, the use and disclosure of confidential information, and the non-solicitation of business relationships. As collateral for Sellers’ indemnification obligations, Buyer held back $600,000 of the consideration pursuant to Section 2.3 of the Agreement. Please refer to the Discontinued Operations footnote in the accompanying financial statements for a further description.
The Company believes that there is substantial doubt about the Company’s ability to continue as a going concern. The Company believes that its available cash balance as of the date of this filing will not be sufficient to fund its anticipated level of operations for at least the next 12 months. The Company believes that its ability to continue operations depends on its ability to sustain and grow revenue and results of operations as well as its ability to access capital markets when necessary to accomplish the Company’s strategic objectives. The Company believes that the Company will continue to incur losses for the immediate future. The Company expects to finance future cash needs from the results of operations and, depending on the results of operations, the Company will need additional equity or debt financing until the Company can achieve profitability and positive cash flows from operating activities, if ever. At December 31, 2019, the Company had a working capital deficit of approximately $3,416,501, as compared to working capital deficit of approximately $2,233,652 at December 31, 2018. The increase of $1,182,849 in the Company’s working capital from December 31, 2018 to December 31, 2019 was primarily the result of an increase in the Company’s convertible notes payable, net of discount – related party and accounts payable and accrued expenses, partially offset by a decrease in contingent consideration and an increase in accounts receivable, net. At December 31, 2018, the Company had a working capital deficit of approximately $2,141,652, as compared to working capital deficit of approximately $3,289,281 at December 31, 2017. The increase of $1,147,629 in the Company’s working capital from December 31, 2017 to December 31, 2018 was primarily the result of a decrease in the Company’s obligation to issue warrants, a decrease in the balance of the Company’s convertible notes payable, an increase in prepaid expenses and other current assets, and an increase in accounts receivable, partially offset by an increase in contingent consideration and accounts payable and accrued liabilities. The Company’s future capital requirements for its operations will depend on many factors, including the profitability of its businesses, the number and cash requirements of other acquisition candidates that the Company pursues, and the costs of operations. The Company has been investing in upgrading the capabilities of F-13 BioTrackTHC. The Company’s management has taken several actions to ensure that it will have sufficient liquidity to meet its obligations for the next twelve months, including growing and diversifying its revenue streams, selectively reducing expenses, and considering additional funding. Additionally, if the Company’s actual revenues are less than forecasted, the Company anticipates that variable expenses will also decline, and the Company’s management can implement expense reduction as necessary. The Company is evaluating other measures to further improve its liquidity, including the sale of equity or debt securities. Lastly, the Company may elect to reduce certain related-party and third-party debt by converting such debt into common shares. The Company’s management believes that these actions will enable the Company to meet its liquidity requirements for the next twelve months. There is no assurance that the Company will be successful in any capital-raising efforts that it may undertake to fund operations during 2020 and beyond. The Company plans to generate positive cash flow from its BioTrackTHC and Engeni software operations to address some of the liquidity concerns. The Company also plans to generate positive cash flows from the acquisition of Green Tree made during 2019. However, to execute the Company’s business plan, service existing indebtedness and implement its business strategy, the Company anticipates that it will need to obtain additional financing from time to time and may choose to raise additional funds through public or private equity or debt financings, borrowings from affiliates or other arrangements. The Company cannot be sure that any additional funding, if needed, will be available on terms favorable to the Company or at all. Furthermore, any additional capital raised through the sale of equity or equity-linked securities may dilute the Company’s current stockholders’ ownership and could also result in a decrease in the market price of the Company’s common stock. The terms of those securities issued by the Company in future capital transactions may be more favorable to new investors and may include the issuance of warrants or other derivative securities, which may have a further dilutive effect. The Company also may be required to recognize non-cash expenses in connection with certain securities it issues, such as convertible notes and warrants, which may adversely impact the Company’s operating results and financial condition. Furthermore, any debt financing, if available, may subject the Company to restrictive covenants and significant interest costs. There can be no assurance that the Company will be able to raise additional capital, when needed, to continue operations in their current form.
Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, which include Helix TCS, LLC (“Helix TCS”), Security Consultants Group, LLC (“Security Consultants”), Boss Security Solutions, Inc. (“Boss Security”), Security Consultants Group Oregon, LLC (“Security Oregon”), Security Grade, BioTrackTHC (since June 1, 2018), Engeni US (since August 3, 2018), Tan Security (since April 1, 2019) and Green Tree International, Inc. (since September 10, 2019). Security Consultants, Boss, Security Oregon, and Tan Security comprise the Company’s guarding business. This business segment was sold on July 31, 2020 and is classified as a Discontinued Operation in the accompanying financial statements. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Changes in estimates and assumptions are reflected in reported results in the period in which they become known. Use of estimates includes the following: 1) allowance for doubtful accounts, 2) estimated useful lives of property, equipment and intangible assets, 3) intangibles impairment, 4) valuation of convertible notes payable and 5) revenue recognition. Actual results could differ from estimates. Cash Cash consists of checking accounts. The Company considers all highly-liquid investments purchased with a maturity of three months or less at the time of purchase to be cash equivalents. The Company has no cash equivalents as of December 31, 2019, 2018 or 2017. F-14 Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and economic conditions. Management charges balances off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company determines when receivables are past due, or delinquent based on how recently payments have been received. 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 $156,709, $55,659, and $3,000 at December 31, 2019, 2018 and 2017, respectively. Long-Lived Assets, Including Definite Lived Intangible Assets Long-lived assets, other than goodwill and other indefinite-lived intangibles, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. Definite-lived intangible assets primarily consist of non-compete agreements and customer relationships. 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, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. Helix reviews goodwill for possible impairment annually during the fourth quarter, or whenever events or circumstances indicate that the carrying amount may not be recoverable. The impairment model prescribes a two-step method for determining goodwill impairment. However, an entity is permitted to first assess qualitative factors to determine whether the two-step goodwill impairment test is necessary. The qualitative factors considered by Helix may include, but are not limited to, general economic conditions, Helix’s outlook, market performance of Helix’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. In the first step, Helix determines the fair value of its reporting unit using a discounted cash flow analysis. If the net book value of the reporting unit exceeds its fair value, Helix then performs the second step of the impairment test, which requires allocation of the reporting unit’s fair value to all of its assets and liabilities using the acquisition method prescribed under authoritative guidance for business combinations with any residual fair value being allocated to goodwill. An impairment charge is recognized when the implied fair value of Helix’s goodwill is less than its carrying amount. Assumptions and estimates used in the evaluation of impairment may affect the carrying value of long-lived assets, which could result in impairment charges in future periods. Such assumptions include projections of future cash flows and the current fair value of the asset. It was determined that during the first quarter of 2018, the Company’s entire amount of goodwill attributable to the Security Grade acquisition was impaired. See Note 8 for a further discussion on the impairment. Accounting for Acquisitions In accordance with the guidance for business combinations, the Company determines whether a transaction or other event is a business combination, which requires that the assets acquired, and liabilities assumed constitute a business. Each business combination is then accounted for by applying the acquisition method. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset F-15 acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase. The Company capitalizes acquisition-related costs and fees associated with asset acquisitions and immediately expense acquisition-related costs and fees associated with business combinations. Business Combinations The Company accounts for its business combinations under the provisions of Accounting Standards Codification (“ASC”) Topic 805-10, Business Combinations (“ASC 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: 1) 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 2) if the contingent consideration is classified as a liability, the changes in fair value are recognized in earnings. The estimated fair value of net assets acquired, including the allocation of the fair value to identifiable assets and liabilities, was determined using established valuation techniques. The estimated fair value of the net assets acquired was determined using the income approach to valuation based on the discounted cash flow method. Under this method, expected future cash flows of the business on a stand-alone basis are discounted back to a present value. The estimated fair value of identifiable intangible assets, consisting of software and trade name acquired were determined using the relief from royalty method. The most significant assumptions under the relief from royalty method used to value software and trade names include: estimated remaining useful life, expected revenue, royalty rate, tax rate, discount rate and tax amortization benefit. The discounted cash flow method used to value non-compete agreements includes assumptions such as: expected revenue, term of the non-compete agreements, probability and ability to compete, operating margin, tax rate and discount rate. Management has developed these assumptions on the basis of historical knowledge of the business and projected financial information of the Company. These assumptions may vary based on future events, perceptions of different market participants and other factors outside the control of management, and such variations may be significant to estimated values. Revenue Recognition Under FASB Topic 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains 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 security services revenue is generated from performing armed and unarmed guarding which is contracted for on an hourly basis. Revenues associated with these contracted services are recognized under time-based arrangements as services are provided. The guarding and transportation security business is now a discontinued operation. The Company still provides monitoring services. Additionally, the Company provides transportation security services, which are generally contracted for on a per-run basis and sometimes additional fees and surcharges are also billed to the client depending on the length of the run. Revenues associated with these services are recognized as the transportation service is provided. F-16 As previously noted the Company also generates revenue from developing and licensing seed to sale cannabis compliance software to both private-sector and public-sector (government agencies) businesses that are involved in cannabis related operations. Contracts with government agencies are subject to milestones and revenue is recognized upon completion of the various milestones within the contract. Each public-sector contract is unique and has different milestones, and may also include services such as training, support and software As stated above, the only performance obligations inherent in our private sector contracts are installation and training, and the operability of the software. The first performance obligation is met once the software is installed and setup on the customer’s server and we have trained the applicable customer personnel on the proper use of the software. The effort to install the software is nominal, requiring the software to be remotely downloaded to the client’s server or on a cloud server, and ensuring that all peripheral equipment is properly integrated. Training is done in three sessions to ensure all applicable client personnel are comfortable with the proper use of the software. At that point, the client has use of the software and our remaining performance obligation is to ensure that the software is operating properly for the customers, for which we charge each of them a monthly fee to use the software. We are not contractually required to update the software or provide ongoing customer support, though we periodically perform these activities as part of delivering fully operable software to our private sector customers. Segment Information Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, 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 GAAP when making decisions about allocating resources and assessing performance of the Company. Asset information by operating segment is not presented since the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s consolidated financial statements. F-17 Expenses Cost of Revenue The cost of revenues is the total cost incurred to obtain a sale and the cost of the goods or services sold. Cost of revenues primarily consisted of compensation for employees involved in the creation and development of licensing software. Operating Expenses Operating expenses encompass selling general and administrative expenses, salaries and wages, professional and legal fees and depreciation and amortization. Selling, general and administrative expenses consist primarily of rent/moving expenses, advertising and travel expenses. Salaries and wages is composed of non-revenue generating employees. Professional services are principally comprised of outside legal, audit, information technology consulting, marketing and outsourcing services as well as the costs related to being a publicly traded company. Other Income Other income consisted of a gain on the change in fair value of convertible notes, gain on the change in the fair value of warrant liability, loss on the change in fair value of convertible notes – related party, loss on the change in fair value of contingent consideration, loss on issuance of warrants and interest expense. Property and Equipment Property and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful lives. Useful lives are 3 years for vehicles and 5 years for furniture and equipment. Maintenance and repairs are expensed as incurred and major improvements are capitalized. When assets are sold, or retired, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in loss from operations. 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 consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. Advertising Advertising costs are expensed as incurred and included in selling, general and administrative expenses and amounted to $378,233, $96,420, and $33,151 for the years ended December 31, 2019, 2018 and 2017, respectively. Foreign Currency The local currency is the functional currency for one entity’s operations outside the United States. Assets and liabilities of these operations are translated to U.S. dollars at the exchange rate in effect at the end of each period. Income statement accounts are translated at the average exchange rate prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of other comprehensive loss within shareholders’ equity. Gains and losses from foreign currency transactions are included in net loss for the period. Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect F-18 for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating loss for financial-reporting and tax-reporting purposes. Accordingly, for Federal and state income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance against the related federal and state deferred tax asset for the years ended December 31, 2019, 2018 and 2017. Comprehensive Loss Comprehensive loss consists of consolidated net loss and foreign currency translation adjustments. Foreign currency translation adjustments included in comprehensive loss were not tax-effected as investments in international affiliates are deemed to be permanent. Distinguishing Liabilities from Equity The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity, 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. Share-based Compensation The Company accounts for stock-based compensation to employees in conformity with the provisions of ASC Topic 718, Stock Based Compensation. Stock-based compensation to employees consist of stock option grants and restricted shares that are recognized in the statement of operations based on their fair values at the date of grant. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC Topic 718, based upon the fair-value of the underlying instrument. The equity instruments are valued using the Black-Scholes valuation model. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period which services are received. The Company calculates the fair value of option grants utilizing the Black-Scholes pricing model and estimates the fair value of the stock based upon the estimated fair value of the common stock. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized on a straight- line basis over the requisite service period of the award. Fair Value of Financial Instruments ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”) provides a framework for measuring fair value in accordance with generally accepted accounting principles. F-19 ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC Topic 820 are described as follows: Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 – Inputs that are unobservable for the asset or liability. Certain assets and liabilities of the Company are required to be recorded at fair value either on a recurring or non-recurring basis. Fair value is determined based on the price that would be received for an asset or paid to transfer a liability in an orderly transaction based on market participants. The following section describes the valuation methodologies that the Company used to measure, for disclosure purposes, its financial instruments at fair value. Convertible notes payable The fair value of the Company’s convertible notes payable, approximated the carrying value as of December 31, 2019, 2018 and 2017. Factors that the Company considered when estimating the fair value of its debt included market conditions and the term of the debt. The level of the debt would be considered as Level 2. Additional Disclosures Regarding Fair Value Measurements The carrying value of cash, accounts receivable, prepaid expenses, deposits, accounts payable and accrued liabilities, advances from shareholders and obligation pursuant to acquisition approximate their fair value due to the short-term maturity of those items. Earnings (Loss) per Share The Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the income statement for all entities with complex capital structures. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options and warrants, using the treasury stock method, and convertible debt and convertible securities, using the if-converted method. Basic net loss per share is based on the weighted average number of common and common-equivalent shares outstanding. Potential common shares includable in the computation of fully-diluted per share results are not presented in the consolidated financial statements for the years ended December 31, 2019, 2018 and 2017 as their effect would be anti-dilutive. F-20 The anti-dilutive shares of common stock outstanding for years ended December 31, 2019, 2018 and 2017 were as follows:
Reclassifications Certain reclassifications have been made to the prior period financial statements to conform to the current period financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported. Recent Accounting Pronouncements In February 2016, the FASB issued ASU 2016-.02, Leases (Topic 842) (“Topic 842”) which requires the recognition of right-of-use assets and lease liabilities on the balance sheet. The most prominent of the changes in the standard is the recognition of right-of-use (“ROU”) assets and lease liabilities by lessees for those leases classified as operating leases. The Company adopted the new standard on January 1, 2019 and used the modified retrospective approach with the effective date as the date of initial application. Consequently, prior period balances and disclosures have not been restated. The Company elected certain practical expedients, which among other things, allowed us to carry forward prior conclusions about lease identification and classification. Adoption of the standard resulted in the balance sheet recognition of additional lease assets and lease liabilities of approximately $1,500,000. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company currently has elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in separate lease and non-lease components for all our leases. For additional information regarding the Company’s leases, see Note 20 in the notes to condensed consolidated financial statements. In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company adopted this ASU as of January 1, 2019. The amendments in this ASU did not have a material impact on the Company’s consolidated financial statements. In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220); Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The F-21 amendments in this ASU allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Act and will improve the usefulness of information reported to financial statement users. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of the ASU. The Company adopted this ASU as of January 1, 2019. The amendments in this ASU did not have a material impact on the Company’s consolidated financial statements. In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (ASC 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from nonemployees and applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. ASC 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. This update is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company adopted this ASU as of January 1, 2019. The amendments in this ASU did not have a material impact on the Company’s consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the effect that this update will have on its financial statements and related disclosures Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the Company’s consolidated financial statements and related disclosures effective for public companies for the reporting periods beginning after December 15, 2019.
Adoption of ASC 606 Revenue from Contracts with Customers The Company adopted the new revenue standard, ASC 606, using the modified retrospective method with respect to all non-completed contracts as of January 1, 2018. This method required retrospective application of the new accounting standard to all unfulfilled contracts that were outstanding as of January 1, 2018. The Company has determined that there were no adjustments required with respect to the adoption of ASC 606 with respect to any prior periods. Disaggregation of revenue
The following is a description of the principal activities from which we generate our revenue. Security and Monitoring Revenue Helix provides monitoring of security alarms and cameras, which are charged out at an hourly rate, with invoices typically sent to clients shortly after each month-end for the previous month, with revenue being recognized over time. The customer simultaneously receives and consumes benefits provided by the Helix performance. F-22 Systems Installation Revenue Security systems, including Internet Protocol camera, intrusion alarm systems, perimeter alarm systems, and access controls are installed for clients. Installation jobs are estimated based on the cost of the equipment, the number of man hours expected to complete the work, supplies, travel, and any other ancillary costs. The installation is typically invoiced with 60% of the total price immediately after signing and the balance upon completion of the installation service. The timing of these contracts is short-term in nature and less than 12 months in duration, and revenue is recognized over the term of the contracts, utilizing the cost-to-cost method. Software The Company generates revenue from developing and licensing seed to sale cannabis compliance software to both private-sector and public-sector (government agencies) clients that are involved in cannabis related operations. The Company also generates revenue from on-going training, support and software customization services. The private-sector software entails cultivation tracking, inventory management, point of sale and analytic reporting to assist businesses in meeting their compliance requirements and effectively managing their businesses. Customers within the private sector business are charged an initial one-time installation fee and the revenues associated with these services are recognized upon completion of installation and configuration at a point in time. After the installation and configuration of the software is completed, the customer is invoiced monthly and revenues associated with these services are recognized monthly over a period of time in which the customer continues to use the software and related services. The public-sector software assists government agencies in efficient oversight of cannabis related business under their jurisdiction. Revenues associated with governmental contracts are longer-term in nature and recognized upon completion of certain milestones over a period of time or on a completed-contract basis at a point in time. The Company considers the contract to be complete when all significant costs have been incurred and the customer accepts the project. Costs incurred prior to the customer accepting the project are deferred and reflected on the consolidated balance sheets as prepaid expenses and other current assets. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in accordance with ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Generally, the Company’s contracts include a single performance obligation that is separately identifiable, and therefore, distinct. Under ASC 606, the allocation of transaction price is not necessary if only one performance obligation is identified. Significant Judgments Accounting for long-term contracts involves the use of various techniques to estimate total contract revenue, costs and satisfaction of performance obligation. The Company satisfies its performance obligations and subsequently recognizes revenue, at a point in time, as security and installation services are performed. There were no changes to the significant judgments used by the Company to determine the timing of satisfaction of the performance obligations under ASC 606. Costs to Obtain or Fulfill Contract The Company’s costs to fulfill or obtain contracts with customers primarily consist of commissions and legal costs. The Company provides sales team members with commissions at 0-6%. Although sales commissions are incremental in nature and are only incurred when a contract is obtained, there is no up-front commission paid on the satisfactory obtainment of a contract, resulting in no sales commissions being capitalized at December 31, 2019, 2018 and 2017. The Company also incurs legal costs relating to the drafting and negotiating of contracts with select customers. Because legal costs are not incremental in nature and are incurred regardless of whether a contract is ultimately obtained, there were no legal costs capitalized as of December 31, 2019, 2018 and 2017. F-23
Security Grade Acquisition On June 2, 2017, the Company entered into a Membership Interest Purchase Agreement (the “Agreement”) in which the Company purchased all issued and outstanding Units of Security Grade Protective Services, Ltd. (“Security Grade”), which comprised of 800,000 Class A Units and 200,000 Class B Units. At closing, the Company delivered $800,000 in cash and 207,427 non-qualified stock options (the “Initial Stock Options”). Furthermore, provided that, within the first 60 days following the closing, no material customer identified in the Agreement terminates its contractual relationship with the Company and that all contracts with such material customers are in full force and effect without default or cancellation as of the 60th day following the closing, on the 61st day following the closing, the Company shall deliver an additional $800,000 in cash and issue 207,427 additional stock options (the “Additional Stock Options”). In the event of termination, cancellation or default of any contract with one or more material customer identified in the Agreement within the first 60 days following the closing, the stock options received by the acquiree shall be reduced and/or forfeited to the extent necessary (pro rata based upon their ownership interest in the Company immediately preceding the closing) by a percentage equal to the revenue received by the Company from the terminating customer(s) in the 180 days immediately preceding such termination divided by the revenue received by the Company from all material customers identified in the Agreement in the 180 days immediately preceding such termination. As of December 31, 2019 and 2018, the Company had a liability pursuant to the Agreement of $0 and $101,667, respectively, payable following the closing. The merger is being accounted for as a business combination in accordance with ASC 805. The Company’s allocation of the purchase price was calculated as follows:
The initial stock options are included as part of the purchase price. The Company determined the fair value of the contingent consideration to be $916,643 at June 2, 2017 and recorded it as a liability in its unaudited consolidated balance sheets. The Company satisfied their contingent consideration liability during the F-24 third quarter of 2017. During the year ended December 31, 2018, the Company reached settlement agreements with all six selling members. As a result of these settlements, a gain on reduction of obligation pursuant to acquisition in the amount of $607,415 has been recorded for the year ended December 31, 2018. BioTrackTHC Acquisition In connection with closing the BioTrackTHC Merger, the Company issued 38,184,985 unregistered shares of Company common stock to BioTrackTHC stockholders, of which 1,852,677 shares were held back to satisfy indemnification obligations in the BioTrackTHC Merger Agreement, if necessary. The Company also assumed the BioTrackTHC Stock Plan, pursuant to which options exercisable for 8,132,410 shares of Company common stock are outstanding so that the BioTrackTHC stockholders owned approximately 48% of the Company on a fully diluted basis as of the BioTrackTHC Closing Date. The BioTrackTHC Merger is being accounted for as a business combination in accordance with ASC 805. The Company’s allocation of the purchase price was calculated as follows:
Total acquisition costs for the BioTrackTHC merger incurred during the year ended December 31, 2018 was $116,624, and is included in selling, general and administrative expense in the Company’s consolidated statements of operations. Engeni SA Acquisition On the Engeni Closing Date, in connection with closing the Engeni Merger Agreement, the Company issued 366,700 shares of Company common stock to Engeni US members. Furthermore, the Company may also issue Engeni US members 366,700 and 366,600 shares of Parent common stock upon the achievement of specific objectives. If applicable, the Company will pay Engeni US members the aggregate amount of $100,000, on a pro rata basis, if Engeni SA reaches financial breakeven on or before December 31, 2018, as determined by the Company’s Chief Financial Officer and Scott Zienkewicz. The Engeni Merger is being accounted for as a business combination in accordance with ASC 805. F-25 During the first quarter of 2019, it was determined Engeni SA did not reach financial breakeven and therefore the contingent consideration of $100,000 was deemed by the Company not to be payable and was reduced to zero. In accordance with ASC 805-30-35-1, the Company recognized the change in the fair value of contingent consideration subsequent to the acquisition date in general and administrative expenses. The Company’s allocation of the purchase price was calculated as follows:
The Company determined the fair value of the contingent consideration to be $777,298 at August 3, 2018 and recorded it as a liability in its unaudited condensed consolidated balance sheets. On April 2, 2019, the Company satisfied their contingent consideration liability and issued 733,300 shares of the Company’s common stock to Engeni US members. Tan’s International Security On the Tan Security Closing Date, the Company entered into the Tan Security Acquisition Agreement. Pursuant to the Tan Security Acquisition Agreement, Helix purchased all membership interests and capital stock of Tan Security and collectively holds 100% of the interests of Tan Security. The purchase price of $100,000 in cash plus 250,000 shares of the Company’s restricted common stock will be paid to Rocky Tan as follows: 250,000 shares of Helix Stock at closing. $25,000 at closing $25,000 on the 4-month anniversary of the Tan Security Closing Date $25,000 on the 8-month anniversary of the Tan Security Closing Date $25,000 on the 12-month anniversary of the Tan Security Closing Date The Tan Security Acquisition is being accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the Tan Security Acquisition. These values are subject to change as we perform additional reviews of our assumptions utilized. F-26 The Company has made a provisional allocation of the purchase price of the Tan Security transaction to the assets acquired and the liabilities assumed as of the purchase date. The following table summarizes the provisional purchase price allocations relating to the Tan Security Acquisition:
Green Tree International, Inc. Pursuant to the Amercanex Merger Agreement, the Company issued to the GTI stockholders an amount of unregistered shares of the Company’s common stock equal to $15 million, based on the average closing price of the Company’s common stock over the forty-five (45) trading day period ending three (3) trading days prior to the GTI Closing Date. If revenues of GTI in the second 12 month period following the GTI Closing Date exceed $5 million and are less than or equal to $10 million, the Company shall issue to the GTI shareholders a number of unregistered Helix shares (whether issued or reserved for issuance) equal to the quotient of (a) $5 million divided by (b) Helix share price multiplied by the quotient of (c) the revenues of GTI in the second 12 month period following the GTI Closing Date less $5 million divided by (d) $5 million. To secure the indemnification obligations of the GTI shareholders to the Company under the GTI Merger Agreement, 4,140,274 of the Company shares issued to the GTI shareholders were held back and the Company is entitled to retain such number of the holdback shares as necessary to satisfy those indemnification obligations. 50% of the holdback shares that remain after satisfaction of any indemnification obligations will be released 12 months after the GTI Closing Date of the merger, and the remainder 24 months after the GTI Closing Date of the merger. Additionally, if in the first 12 months following the closing GTI generates less than $1.5 million of revenues, 100% of the holdback shares shall be returned to the Company. In connection with closing the GTI Merger on September 10, 2019, the Company issued 16,765,727 unregistered shares of its common stock to GTI stockholders. In connection with the GTI Merger, Steve Janjic joined the board of directors of the Company. The GTI Merger is being accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the GTI Merger. These values are subject to change as we perform additional reviews of our assumptions utilized. The Company has made a provisional allocation of the purchase price of the GTI transaction to the assets acquired and the liabilities assumed as of the purchase date. The following table summarizes the provisional purchase price allocations relating to the GTI transaction:
F-27
Total acquisition costs for the GTI Merger incurred during the year ended December 31, 2019 was $83,324, and is included in selling, general and administrative expense in the Company’s consolidated statements of operations. Unaudited Pro Forma Results GTI contributed revenues of $0 and a net loss of $73,644 for the period September 10, 2019 through December 31, 2019, included in the Company’s consolidated statements of operations.
On July 31, 2020, the Company disposed of the Boss, SCG, Tan LLC and Tan Security subsidiaries through an Asset Purchase agreement with Invicta. The assets and liabilities of the discontinued entities are reflected as held for sale in the company’s consolidated balance sheet. The operations of the discontinued entities are accounted for as discontinued operations through the date of divestiture. The accompanying consolidated balance sheets include the following carrying amounts of assets and liabilities related to discontinued operations:
F-28 The consolidated statements of operations include the following operating results related to discontinued operations:
7. Property and Equipment, Net At December 31, 2019, 2018 and 2017, property and equipment consisted of the following:
Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was $43,464, 51,150 and $4,297, respectively.
The following table summarizes the Company’s intangible assets:
F-29
The Company uses the straight-line method to determine the amortization expense for its definite lived intangible assets. Amortization expense related to the purchased intangible assets was $4,682,649, $2,979,906 and $422,063 for the years ended December 31, 2019, 2018 and 2017, respectively. The estimated future amortization expense for the next five years and thereafter is as follows:
The following table summarizes the Company’s goodwill as of December 31, 2019, 2018 and 2017:
F-30
Costs, estimated earnings and billings on uncompleted contracts are summarized as follows as of December 31, 2019, 2018 and 2017:
As of December 31, 2019, 2018 and 2017, accounts payable and accrued expenses consisted of the following:
F-31 On May 16, 2018, the Company amended Note Five (“Second Amendment”) with the First Investor. The Second Amendment states that Note Five shall have a maturity of November 16, 2018 and shall be pre-payable at any time at 120% of the unpaid principal and accrued interest balance. The principal amount as of the date of the Second Amendment was $112,305. In November 2018, the Company amended Note Five (“Third Amendment”) with a second investor. The Third Amendment states that Note Five shall have a maturity of November 16, 2019. The principal amount as of the date of the Third Amendment was $115,136. During March 2019, the remaining principal of $112,305 was converted into 155,421 shares of common stock. The interest expense associated with Note Five was $936 and $10,724 for the years ended December 31, 2019 and 2018, respectively. On March 1, 2019, the Company entered into a $450,000 Secured Convertible Promissory Note (“Note Ten”) with an independent investor (the “investor”). The investor provided the Company with $450,000 in cash proceeds, which was received by the Company during the period ended June 30, 2019. Note Ten will mature on March 1, 2020 and bear interest at a rate of 25% per annum, payable by the Company half in cash and half in kind on a quarterly basis. The principal balance of Note Ten is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at the lower of $0.90 per share or a 30% discount to the Company’s 30-day weighted average listed price per share immediately before the date of conversion. In conjunction with Note Ten, the Company issued a warrant to the investor to purchase 160,715 shares of the Company’s common stock at $1.40 per share. The Company evaluated Note Ten in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Ten will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. During 2019, the investor elected their option to partially convert $280,000 in principal of Note Ten into 875,894 shares of the Company’s common stock. As of December 31, 2019, the fair value of Note Ten was $202,125. Accordingly, the Company recorded a change in fair value of $32,125 related to Note Ten for the year ended December 31, 2019. In addition, the company recorded a debt discount relating to the warrants issued in the amount of $355,847 based on the relative fair value of the warrants at inception of Note Ten. Debt discounts amortized to interest expense was $297,352 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $58,495. In May, September, and December 2019, the Company issued 15,625, 16,568 and 19,401 restricted shares of common stock as paid-in-kind (“PIK”) interest payments in the amount of $14,062, $14,063, and $12,029, respectively. Accrued interest expense associated with Note Ten was $3,542 as of December 31, 2019, which includes PIK interest payable. On August 15, 2019, the Company entered into a $400,000 Fixed Convertible Promissory Note (“Note Eleven”) with the investor. The investor provided the Company with $380,000 in cash proceeds, which was received by the Company during the period ended September 30, 2019. The additional $20,000 was retained by the investor for due diligence and legal bills for the transaction and recorded as a debt discount. Note Eleven will mature on May 15, 2020 and bear interest at a rate of 10% per annum, payable by the Company in cash. The principal balance of Note Eleven is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Eleven. In conjunction with Note Eleven, the Company issued a warrant to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. The Company evaluated Note Eleven in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Eleven will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Eleven was $204,444. Accordingly, the Company recorded a change in fair value of $195,556 related to Note Eleven for the year ended December 31, 2019. In addition, the company recorded a debt discount of $38,543 relating to the warrants issued in the amount of $18,543 based on the relative fair value of the warrants themselves at inception of Note Eleven and $20,000 relating to legal fees. Debt discounts amortized to interest expense were $19,412 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $19,131. Accrued interest expense associated with Note Eleven was $17,460 as of December 31, 2019. F-32 On September 16, 2019, the Company entered into a $450,000 Fixed Convertible Promissory Note (“Note Twelve”) with the investor. The investor provided the Company with $427,500 in cash proceeds, which was received by the Company during the period ended December 31, 2019. The additional $22,500 was retained by the investor for due diligence and legal bills for the transaction and was recorded as a debt discount. Note Twelve will mature on June 16, 2020 and bear interest at a rate of 10% per annum, payable by the Company in cash. The principal balance of Note Twelve is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Twelve. In conjunction with Note Twelve, the Company issued a warrant to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. The Company evaluated Note Twelve in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Twelve will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Twelve was $230,000. Accordingly, the Company recorded a change in fair value of ($220,000) related to Note Twelve for the year ended December 31, 2019. In addition, the company recorded a debt discount of $40,183 relating to the warrants issued in the amount of $17,683 based on the residual fair value of the warrants themselves at inception of Note Twelve and $22,500 relating to legal fees. Debt discounts amortized to interest expense were $15,545 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $24,638. Accrued interest expense associated with Note Twelve was $18,285 as of December 31, 2019. On October 11, 2019, the Company entered into a $450,000 Fixed Convertible Promissory Note (“Note Thirteen”) with the investor. The investor provided the Company with $427,500 in cash proceeds, which was received by the Company during the period ended December 31, 2019. The additional $22,500 was retained by the investor for due diligence and legal bills for the transaction and was recorded as a debt discount. Note Thirteen will mature on July 11, 2020 and bear interest at a rate of 10% per annum, payable by the Company in cash. The principal balance of Note Thirteen is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Thirteen. In conjunction with Note Thirteen, the Company issued a warrant to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. The Company evaluated Note Thirteen in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Thirteen will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Thirteen was $230,000. Accordingly, the Company recorded a change in fair value of ($220,000) related to Note Thirteen for the year ended December 31, 2019. In addition, the company recorded a debt discount of $33,943 relating to the warrants issued in the amount of $11,443 based on the residual fair value of the warrants themselves at inception of Note Thirteen and $22,500 relating to legal fees. Debt discounts amortized to interest expense were $10,034 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $23,909. Accrued interest expense associated with Note Thirteen was $16,022 as of December 31, 2019. On December 26, 2019, the Company entered into a $210,526 Fixed Convertible Promissory Note (“Note Fourteen”) with the investor. The investor provided the Company with $200,000 in cash proceeds, which was received by the Company during the period ended December 31, 2019. The additional $10,526 was retained by the investor for due diligence and legal bills for the transaction and was recorded as a debt discount. Note Fourteen will mature on September 26, 2020 and bear interest at a rate of 12% per annum, payable by the Company in cash. The principal balance of Note Fourteen is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor F-33 elects to convert all or part of Note Fourteen. In conjunction with Note Fourteen, the Company issued a warrant to the investor to purchase 12,500 shares of the Company’s common stock at $1.00 per share. The Company evaluated Note Fourteen in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Fourteen will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Fourteen was $107,602. Accordingly, the Company recorded a change in fair value of $102,924 related to Note Fourteen for the year ended December 31, 2019. In addition, the company recorded a debt discount of $15,794 relating to the warrants issued in the amount of $5,268 based on the residual fair value of the warrants themselves at inception of Note Fourteen and $10,526 relating to legal fees. Debt discounts amortized to interest expense were $287 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $15,507. Accrued interest expense associated with Note Fourteen was $463 as of December 31, 2019. On November 15, 2019, the Company entered into a $5,000,000 Unsecured Convertible Promissory Note (“Note Fifteen”) with the investor. The investor provided the Company with $385,000 in cash proceeds, which was received by the Company during the period ended December 31, 2019. Note Fifteen will mature on November 15, 2021 and bear interest at a rate of 12% per annum, payable by the Company in cash. The principal balance of Note Fifteen is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Fifteen. As of December 31, 2019, the balance of Note Fifteen was $385,000. Accrued interest expense associated with Note Fifteen was $5,239 as of December 31, 2019.
Advances from Related Parties The Company had a loan outstanding from a former Company executive. The advance did not accrue interest and had no definite repayment terms. The loan balance was $0, $45,250 and $124,570 for the years ended December 31, 2019, 2018 and 2017, respectively. Convertible Note Payable On March 11, 2016, the Company entered into an Unsecured Convertible Promissory Note (“Note Eight”) with a Director of the Company (the “Related Party Holder”). The Related Party Holder provided the Company with $150,000 in cash, and the Company promised to pay the principal amount, together with interest at an annual rate of 7%, with principal and accrued interest on Note Eight due and payable on December 31, 2017 (unless converted under terms and provisions as set forth below). The principal balance of Note Eight was convertible at the election of the Related Party Holder, in whole or in part, at any time or from time to time, into the Company’s common stock at a forty percent (40%) discount to the average market closing price for the previous five (5) trading days, preceding the date of conversion election. The Company evaluated Note Eight in accordance with ASC 480, Distinguishing Liabilities from Equity and determined that Note Eight will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. On February 20, 2018, the Company entered into an agreement to amend Note Eight (this “Amendment”) with the Related Party Holder. The Company and the Related Party Holder desired to extend the maturity date of Note Eight to August 20, 2018. Note Eight was amended as follows. The Company promises to pay (i) all accrued interest on the unpaid principal amount through December 31, 2017 and (ii) $25,000 in principal within 5 business days of the date of the Amendment. The Company agrees to issue 15,000 shares of restricted Company common stock as an inducement for this amendment within 10 business days of the date of the Amendment. The principal amount of the note will be reduced to $125,000. Unless extended by the Company, converted or prepaid earlier, all unpaid principal and unpaid accrued interest on Note Eight shall be due and payable on August 20, 2018 (the “Maturity Date”). All provisions related to conversion of Note Eight into equity securities of the Company were terminated as part of this Amendment. As of February 20, 2018, the fair value of the liability was $239,343, however due to termination of the conversion of the note into equity securities, Note Eight will be valued in its principal amount of $125,000 and F-34 accordingly the Company recorded a credit regarding the change in fair value of $93,506 for the year ended December 31, 2018. The interest expense associated with Note Eight was $5,806 for the year ended December 31, 2018. Note Eight was paid in full on the Maturity Date. On March 1, 2019, the Company entered into a $1,500,000 Secured Convertible Promissory Note (“Note Nine”) with Rose Capital Fund I, LP (the Related Party Holder”). A Managing Member of the Related Party Holder is also a Director of the Company. The Related Party Holder provided the Company with $1,475,000 in cash proceeds, which was received by the Company during the period ended December 31, 2019. The additional $25,000 was retained by the Related Party Holder for legal bills for the transaction. Note Nine will mature on March 1, 2020 and bear interest at a rate of 25% per annum, payable by the Company half in cash and half in kind on a quarterly basis. The principal balance of Note Nine is convertible at the election of the Related Party Holder, in whole or in part, at any time or from time to time, into the Company’s common stock at the lower of $0.90 per share or a 30% discount to the Company’s 30-day weighted average listed price per share immediately before the date of conversion. In conjunction with Note Nine, the Company issued a warrant to the Related Party Holder to purchase 535,715 shares of the Company’s common stock at $1.40 per share. The Company evaluated Note Nine in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Nine will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Nine was $1,783,454. Accordingly, the Company recorded a change in fair value of $283,454 related to Note Nine for the year ended December 31, 2019. In addition, the company recorded a debt discount relating to the warrants issued in the amount of $1,186,153 based on the relative fair value of the warrants at inception of Note Nine. The additional $25,000 retained by the Related Party Holder for legal bills for the transaction will be recorded as a debt discount. Debt discounts amortized to interest expense were $1,012,059 for the year ended December 31, 2019, respectively. The unamortized discount balance at December 31, 2019 was $199,094. In May and October 2019, the Company issued 52,083 and 83,311 restricted shares of common stock as PIK interest payments in the amount of $46,875 and $45,821, respectively. Accrued interest expense associated with Note Nine was $93,750 as of December 31, 2019, which includes PIK interest payable. As of December 31, 2019, the balance of Note Nine, net of debt discount for warrants and legal bills was $1,584,360. Warrants On March 1, 2019, in connection with the issuance of Note Nine, the Company issued warrants, of which the value was derived and based off the fair value of Note Nine, to the investor to purchase 535,715 shares of the Company’s common stock at $1.40 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after March 1, 2019 and on or before March 1, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Nine are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At inception, March 1, 2019, the fair value of the warrant liability was $1,186,153 while as of December 31, 2019, the fair value of the warrant liability was $182,065. Accordingly, the Company recorded a change in fair value of $1,004,088 during the year ended December 31, 2019, which is reflected in the consolidated statements of operations.
On January 30, 2017, the Company entered into an unsecured promissory note in the amount of $75,000. The unsecured promissory note has a fixed interest rate of 8% and was due and payable on June 30, 2017. In conjunction with the Series B Preferred Stock Purchase Agreement, as discussed in Note 16, the Company satisfied its liability in exchange for Series B Preferred Stock. The interest expense associated with the unsecured promissory note was $0 and $2,570 for the years ended December 31, 2018 and 2017, respectively. F-35 On February 13, 2017, the Company entered into an unsecured promissory note in the amount of $180,000. The unsecured promissory note has a fixed interest rate of 8% and was due and payable on June 30, 2017. In conjunction with the Series B Preferred Stock Purchase Agreement, as discussed in Note 16, the Company satisfied its liability in exchange for Series B Preferred Stock. The interest expense associated with the unsecured promissory note was $0 and $2,570 for the years ended December 31, 2018 and 2017, respectively. On August 29, 2018, the Company entered into an unsecured promissory note in the amount of $250,000. The unsecured promissory note has a fixed interest rate of 7% and is due and payable on July 31, 2019. As of December 31, 2018 the unsecured promissory note was paid off in full. The interest expense associated with the unsecured promissory note was $0 and $3,021 for the years ended December 31, 2019 and 2018, respectively. On January 3, 2019, the Company entered into an unsecured promissory note with the Related Party Holder in the amount of $280,000. The unsecured promissory note has a fixed interest rate of 10% and is due and payable on March 31, 2019. On March 2, 2019, the unsecured promissory note was paid off in full. On July 29, 2019, the Company entered into an unsecured promissory note with the Related Party Holder in the amount of $300,000. The unsecured promissory note has a fixed interest rate of 12% and is due and payable on January 29, 2020.
As of December 31, 2019, 2018 and 2017 Notes payable consisted of the following:
The interest expense associated with the notes payable was $5,874, $5,281 and $ for the years ended December 31, 2019, 2018 and 2017, respectively. In connection with the GTI Merger, the Company assumed a $400,000 Senior Secured Convertible Debenture (the “Convertible Debenture”) (See Note 5). The Convertible Debenture will mature on July 31, 2021 and bears interest at a rate of 10% per annum, payable by the Company to the Lender. In the event that Lender elects to convert the Convertible Debenture into Helix common stock or in the event Helix required the lender to convert the Convertible Debenture into its common stock, the number of shares that shall be issuable upon full conversion of the Convertible Debenture at any time shall be equal to the outstanding principal of the Convertible Debenture divided by $1.00. Pursuant to the terms of the Convertible Debenture, Helix common stock can be transferred to the lender from Steve Janjic, as a shareholder of the Company who receives shares of Helix common stock at the closing, instead of via a new issuance of shares of Helix common stock by Helix to the lender, and the lender agrees to accept such transfer of shares from Mr. Janjic as the issuance of Helix common stock. In addition, the Company shall have the right to require the lender to convert the Convertible Debenture into Helix common stock at any time provided its common stock is listed on a stock exchange other than the U.S. OTCQB, the common stock would be fully traded up on conversion and the trading price of its common stock closes above $1.15 for 20 consecutive trading days on such exchange. The Convertible Debenture will be secured by a general security interest over all of the assets of GTI, however does not apply to those assets owned by Helix or Merger Sub prior to the closing of the GTI Merger. F-36
Common Stock Subscription Agreements The table below reflect shares of restricted common stock issued in relation to Subscription Agreements during the year-ended December 31, 2018:
The table below reflect shares of restricted common stock issued in relation to Subscription Agreements during the year-ended December 31, 2017:
Other Common Stock Issuances In December 2017, the Company issued 126,880 shares of restricted common stock to an investor following a cashless exercise of warrants. In June 2018, the Company issued 38,184,985 shares of common stock as part of the BioTrackTHC acquisition. In June and August of 2018, three selling shareholders of Security Grade exercised their right to purchase 212,633 and 14,189 shares of the Company’s common stock. In July 2018, the Company issued 200,000 shares of restricted common stock to a consultant per a consulting agreement. In August and December 2018, the Company issued 100,000 and 25,000 shares of restricted common stock as part of an agreement entered into with an investor relation consultant. In August 2018, the Company issued 366,700 shares of common stock as part of the Engeni US acquisition. In December 2018, the Company issued 100,000 shares of restricted common stock to a consultant as an inducement to enter into the agreement. In January 2019, the Company issued 20,000 shares of restricted common stock to a consultant per a consulting agreement and recorded shared based compensation expense of $27,400. In March and June 2019, the Company issued 1,255,222 and 166,667 shares of common stock as part of investment unit purchase agreements (see Note 17). F-37 In March and June 2019, certain option holders exercised their rights under the BioTrackTHC Stock Plan and were issued 62,847 and 47,084 shares of common stock, respectively, for no cash proceeds. In March and April 2019, certain option holders exercised their rights under the BioTrackTHC Stock Plan and were issued 6,082 and 57,461 shares of common stock for total proceeds of $4,805 and $21,808, respectively. In April 2019, the Company issued 250,000 shares of common stock as part of the Tan Security acquisition. In April 2019, a selling shareholder of Security Grade exercised their right to purchase 15,101 shares of the Company’s common stock. In April 2019, the Company issued 733,300 shares of common stock in satisfaction of the Engeni contingent consideration (see Note 5). In May, September, October and December 2019, the Company issued 51,594 and 135,394 restricted shares of common stock as PIK interest payments in the amount of $40,154 and $92,696, respectively (see Notes 11 and 12). In August 2019, the Company issued 16,765,727 shares of common stock as part of the GTI acquisition (see Note 5). In November 4, 2019, the Company issued 100,000 shares of restricted common stock resulting from a consulting agreement. Conversion of Convertible Note to Common Stock On February 15, 2018, March 12, 2018 and March 21, 2018, the holder of a 10% fixed secured convertible promissory note issued by the Company elected their option to partially convert $50,000, $50,000 and $75,000 in principal of the convertible note into 46,066, 63,963, and 95,945 shares of the Company’s common stock. On March 7, 2019 and March 28, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $75,882 and $42,055 in principal of the convertible note into 100,000 and 55,421 shares of the Company’s common stock. On October 18, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $20,000 in principal of the convertible note into 56,738 shares of the Company’s common stock. On November 15, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $20,000 in principal of the convertible note into 63,012 shares of the Company’s common stock. On November 7, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $40,000 in principal of the convertible note into 126,024 shares of the Company’s common stock. On November 11, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $100,000 in principal of the convertible note into 315,060 shares of the Company’s common stock. On November 19, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $100,000 in principal of the convertible note into 315,060 shares of the Company’s common stock. Amended Convertible Note On February 20, 2018, the Company entered into an agreement to amend a Convertible Promissory Note with the undersigned holder initially issued to such Holder and dated March 2016. The Company and Holders desired to extend the maturity date of the Note to August 20, 2018. The holder was issued 15,000 shares of the Company’s restricted common stock as part of the amendment. The Note was amended as follows. The Company promises to pay (i) all accrued interest on the unpaid principal amount through December 31, 2017 and (ii) $25,000 in principal within 5 business days of the date of F-38 the Amendment. The Company agrees to issue 15,000 shares of restricted Company common stock as an inducement for this amendment within 10 business days of the date of the Amendment. The principal amount of the note will be reduced to $125,000. Unless extended by the Company, converted or prepaid earlier, all unpaid principal and unpaid accrued interest on this Note shall be due and payable on August 20, 2018 (the “Maturity Date”). All provisions related to conversion of the Note into equity securities of the Company are hereby deleted. On May 16, 2018, the Company entered into a second amendment agreement of a Convertible Promissory Note with the holder of a 10% fixed secured convertible promissory note. The new Maturity Date is November 16, 2018. The new interest rate is 5%. The note is prepayable at 120% of the unpaid balance upon 10 business days’ notice to the holder, which has the option to convert, in whole or in part, during the notice period. The conversion price shall be equal to a 40% discount to the lowest one-day Volume Average Weighted Price (“VWAP”) during the 30 trading days preceding such conversion. 2017 Omnibus Incentive Plan The table below reflects shares issued under the 2017 Omnibus Incentive Plan during the year-ended December 31, 2019.
The table below reflects shares issued under the 2017 Omnibus Incentive Plan during the year-ended December 31, 2018.
Series A convertible preferred stock In October 2015, the Company issued a total of 1,000,000 shares of its Class A Preferred Stock. The Class A Preferred Stock included super majority voting rights and were convertible into 60% of the Company’s common stock. During the third quarter of 2017, the Company modified the conversion rate on the Class A Preferred Stock to a 1:1 ratio. This modification reduced the amount of potentially dilutive Convertible Series A Stock by 15,746,127 shares to a total of 1,000,000 at September 30, 2017. Series B convertible preferred stock Series B Preferred Stock Purchase Agreement On May 17, 2017, the Company sold to accredited investors an aggregate of 5,781,426 Series B Preferred Shares for gross proceeds of $1,875,000 and converted a $500,000 Unsecured Convertible Promissory Note into 1,536,658 Series B Preferred Shares. This tranche of Series B Preferred Shares are convertible into 7,318,084 shares of common stock based on the current conversion price, at a purchase price of $0.325 per share. F-39 In connection with the Series B Preferred Stock Purchase Agreement, the Company is obligated to issue warrants to a third-party for services to purchase 462,195 shares of common stock at $0.325 per share. These warrants have been accounted for as an obligation to issue because as of the balance sheet date the Company did not deliver the warrants though incurred the obligation; accordingly, they were recognized as a liability on the unaudited condensed consolidated balance sheet and cost of issuance of Series B preferred shares on the unaudited condensed consolidated statement of shareholders’ equity. In accordance with the Certificate of Incorporation, there were 9,000,000 authorized Series B Preferred Stock at a par value of $ 0.001. On August 23, 2017 the Certificate of Designations was amended and restated to increase the number of shares of Series B Preferred Stock authorized to be 17,000,000. Conversion: Each Series B Preferred Share is convertible at the option of the holder into such number of shares of the Company’s common stock equal to the number of Series B Preferred Shares to be converted, multiplied by the Preferred Conversation Rate. The Preferred Conversion Rate shall be the quotient obtained by dividing the Preferred Stock Original Issue Price ($0.3253815) by the Preferred Stock Conversation Price in effect at the time of the conversion (the initial conversion price will be equal to the Preferred Stock Original Issue Price, subject to adjustment in the event of stock splits, stock dividends, and fundamental transactions). Based on the current conversion price, the Series B Preferred Shares are convertible into 13,784,201 shares of common stock. A fundamental transaction means: (i) our merger or consolidation with or into another entity, (ii) any sale of all or substantially all of our assets in one transaction or a series of related transactions, (iii) any reclassification of our Common Stock or any compulsory share exchange by which Common Stock is effectively converted into or exchanged for other securities, cash or property; or (iv) sale of shares below the preferred stock conversion price. Each Series B Preferred Share will automatically convert into common stock upon the earlier of (i) notice by the Company to the holders that the Company has elected to convert all outstanding Series B Preferred Shares at any time on or after May 12, 2018; or (ii) immediately prior to the closing of a firmly underwritten initial public offering (involving the listing of the Company’s Common Stock on an Approved Stock Exchange) pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of the Common Stock for the account of the Company in which the net cash proceeds to the Company (before underwriting discounts, commissions and fees) are at least fifty million dollars ($50,000,000). Beneficial Conversion Feature – Series B Preferred Stock (deemed dividend): Each share of Series B Preferred Stock is convertible into shares of common stock, at any time at the option of the holder at any time on or after May 12, 2018. On May 17, 2017, the date of issuances of the Series B, the publicly traded common stock price was $3.98. Based on the guidance in ASC 470-20-20, the Company determined that a beneficial conversion feature exists, as the effective conversion price for the Series B preferred shares at issuance was less than the fair value of the common stock into which the preferred shares are convertible. A beneficial conversion feature based on the intrinsic value at the date of issuances for the Series B preferred shares is scheduled below. For the year ended December 31, 2018, the beneficial conversion amount of $22,202,194 was accreted back to the preferred stock as a deemed dividend and charged to additional paid in capital in the absence of earning as the beneficial conversion feature is amortized over time through the earliest conversion date, May 12, 2018. As of December 31, 2018, the beneficial conversion feature was fully amortized. Provided below is a schedule of the issuances of Series B preferred shares and the amount accredited to deemed dividend at December 31, 2018. F-40
Dividends, Voting Rights and Liquidity Value: Pursuant to the Certificate of Designations, the Series B Preferred Shares shall bear no dividends, except that if the Board shall declare a dividend payable upon the then-outstanding shares of the Company’s common stock. The Series B Preferred Shares vote together with the common stock and all other classes and series of stock of the Company as a single class on all actions to be taken by the stockholders of the Company including, but not limited to, actions amending the certificate of incorporation of the Company to increase the number of authorized shares of the common stock. Upon any dissolution, liquidation or winding up, whether voluntary or involuntary, holders of Series B Preferred Shares are entitled to (i) first receive distributions out of our assets in an amount per share equal to the Stated Value plus all accrued and unpaid dividends, whether capital or surplus before any distributions shall be made on any shares of common stock and (ii) second, on an as-converted basis alongside the common stock. Classification: These Series B Preferred Shares are classified within permanent equity on the Company’s consolidated balance sheet as they do not meet the criteria that would require presentation outside of permanent equity under ASC 480, Distinguishing Liabilities from Equity.
As part of the Membership Interest Purchase Agreement entered into between the Company and Security Grade, on June 2, 2017 (see Note 5), the Company granted to the selling Members the option to purchase up to 414,854 shares of the Company’s common stock at a price of $0.001 per share. Of the 414,854 options granted, 207,427 were vested at closing and equity classified. The vesting of the remaining 207,427 shares were subject to certain milestones being achieved and was initially recognized as contingent consideration, both a component of purchase price. As a result of the milestones being met during the third quarter of 2017, the remaining 207,427 shares have also vested. The options have an expiration date of 36 months from the closing date. The exercise price will be based on the fair market value of the share on the date of grant. On March 15, 2018 the Company awarded Zachary Venegas two options to purchase a total of 490,000 shares of the Company’s common stock at prices ranging from $1.90 to $2.09 per share. These options vested on June 28, 2018 and have expiration dates ranging from March 2023 to March 2028. On February 6, 2019 the Company awarded an executive an option to purchase a total of 100,000 shares of the Company’s common stock at an exercise price $1.51 per share. These options vested on May 6, 2019 and have an expiration date of February 6, 2024. On March 19, 2019 the Company awarded the Chief Financial Officer, two options to purchase a total of 300,000 shares of the Company’s common stock at prices ranging from $2.35 to $2.59 per share. These options shall vest over a three-year period from March 2020 to March 2022 and have expiration dates ranging from March 2024 to March 2029. F-41 On March 19, 2019 the Company awarded the Chief Executive Officer, two options to purchase a total of 500,000 shares of the Company’s common stock at prices ranging from $2.35 to $2.59 per share. These options shall vest over a three-year period from March 2020 to March 2022 and have expiration dates ranging from March 2024 to March 2029. On May 2, 2019, the Company awarded an investor an option to purchase a total of 125,000 shares of the Company’s common stock at an exercise price of $2.03 per share. 62,500 of the options shall vest immediately and 62,500 of the options shall vest on August 2, 2019 provided the marketing agreement between the Company and grantee has not been terminated. These options shall expire on May 1, 2024. In May and June 2019, the Company awarded five employees, options to purchase a total of 50,000and 170,000 shares of the Company’s common stock at prices ranging from $1.05 to $2.03 per share. These options shall vest over a period ranging from September 2019 to June 2020 and have expiration dates ranging from May 2024 to June 2024. On November 1, 2019, the Company awarded an investor an option to purchase a total of 50,000 shares of the Company’s common stock at an exercise price of $.435 per share. All of the options shall vest immediately. These options shall expire on November 1, 2022. On December 1, 2019, the Company awarded an investor an option to purchase a total of 50,000 shares of the Company’s common stock at an exercise price of $.535 per share. All of the options shall vest immediately. These options shall expire on December 1, 2022. On December 27, 2019, the Company awarded various BioTrackTHC employees options to purchase a total of 1,730,000 shares of the Company’s common stock at an exercise price of $.52 per share. 432,500 of the options shall vest immediately and 432,500 of the options shall vest on June 27, 2020, December 27, 2020 and June 27, 2021. These options shall expire on December 27, 2024. The fair value of the stock options was estimated using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgement. The assumptions at the inception date are as follows:
On March 6, 2018, the Company filed a lawsuit in the United States Court for the District of Colorado alleging violations in previously disclosed representations and warranties by the plaintiff as part of the Acquisition. Following the appointment of a registered Public Company Accounting Oversight Board (“PCAOB”) auditor, certain misrepresentations, primarily surrounding the misclassification of certain revenues as being recurring, were discovered, artificially inflating the price of the membership interest in Security Grade. As a result of the settlements with the selling shareholders, 79,486 options previously issued as part of the acquisition were cancelled. As part of the BioTrackTHC Merger Agreement entered into between the Company and BioTrackTHC, on June 1, 2018 (see Note 5), the Company assumed the BioTrackTHC Stock Plan, pursuant to which options exercisable at prices between $0.001 to $1.66 per share for 8,132,410 shares of Company common stock are outstanding so that the BioTrackTHC stockholders owned approximately 48% of the Company on a fully diluted F-42 basis as of the BioTrackTHC Closing Date. Stock option activity for the years ended December 31, 2019, 2018 and 2017 is as follows:
On February 13, 2017, the Company entered into a $183,333 Fixed secured Convertible Promissory Note (“Note Five”) with a fourth investor (the “Fourth Investor”). The Fourth Investor provided the Company with $166,666 in cash, which was received by the Company during the quarter ended March 31, 2017. The additional $16,666 was retained by the Fourth Investor for due diligence and legal bills for the transaction. In conjunction with Note Five, the Company issued a warrant, of which the value was derived and based off the fair value of Note Five, to the fourth investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after February 14, 2017 and on or before February 12, 2022, by delivery to the Company of the Notice of Exercise. On December 11, 2017, the investor exercised their purchase right in a net settlement cashless exercise. In connection with the issuance of the Note Seven the Company issued a warrant (the “Warrant”) to the Purchaser to purchase 150,000 shares of Common Stock pursuant to the terms and provisions thereunder. The Warrant is exercisable at any time within five (5) years of issuance and entitles the Purchaser to purchase 150,000 shares of the Common Stock at an exercise price of the lesser of either i) $1.00 or ii) a 50% discount to the lowest closing bid price thirty (30) trading days immediately preceding conversion, subject to certain adjustments. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after April 26, 2017 and on or before April 26, 2022, by delivery to the Company of the Notice of Exercise. On December 11, 2017, the investor exercised their purchase right in a net settlement cashless exercise. During the year ended December 31, 2018, the Company entered into a Graduated Lock-Up Letter to induce the entering into of a consulting agreement in exchange for 50,000 shares of the Company’s common stock and the granting of 575,000 warrants for the purchase of common stock of the Company. The company recognized compensation expense of $943,000 for the year ended December 31, 2018 relating to the granting of the warrants. On December 12, 2018, the Company sold an aggregate of 222,222 units (the “December 2018 Units”) of the Company’s securities to an investor at a purchase price of $0.90 per unit for total proceeds of $200,000. Each December 2018 Unit consists of one share of the Company’s common stock and a warrant (“December F-43 Warrant”) exercisable to purchase one half of one share of common stock of the Company. As of December 31, 2019, the warrants granted were not exercised. Each December Warrant is exercisable at any time on or after 90 days from the issuance date until the four-year anniversary issuance date. Each December Warrant is exercisable at a price of $1.25 per one half of one share of common stock (thereby requiring the exercise of two warrants to purchase one share of common stock). The Company determined that the December Warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding December Warrants. In accordance with the accounting guidance, the outstanding December Warrants are recognized as a warrant liability on the consolidated balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the consolidated statement of operations. At inception, December 12, 2018, the fair value of the warrant liability was $108,000 while as of December 31, 2019 and 2018, the fair value of the warrant liability was $33,100 and $92,000, respectively. Accordingly, the Company recorded a change in fair value of the warrant liability of $(58,900) and $(16,000) related to the warrants for the years ended December 31, 2019 and 2018, respectively. On March 1, 2019, in connection with the issuance of Note Ten, the Company issued warrants, of which the value was derived and based off the fair value of Note Ten, to the investor to purchase 160,715 shares of the Company’s common stock at $1.40 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after March 1, 2019 and on or before March 1, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Ten are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At inception, March 1, 2019, the fair value of the warrant liability was $355,847 while as of December 31, 2019, the fair value of the warrant liability was $54,620. Accordingly, the Company recorded a change in fair value of the warrant liability of $(301,227) related to Note Ten for the year ended December 31, 2019. On January 10, 2019, the Company entered into an Investment Unit Purchase Agreement (the “First Investment Agreement”) to issue and sell investment units to an investor, in which the investment units consist of one share of the common stock of the Company, and a warrant exercisable for one half share of common stock of the Company at an Exercise Price of $1.25 per share for cash at a price per investment unit of $0.90. On March 5, 2019, the Company sold an aggregate of 1,255,222 units of the Company’s securities to an investor at a purchase price of $0.90 per unit for total proceeds of $1,129,700. In connection with the First Investment Agreement, the investor is entitled to purchase from the Company, at the Exercise Price, at any time on or after 90 days from the issuance date, 627,611 shares of the Company’s common stock (the “March Warrant Shares”). The Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. The fair value of the March Warrant Shares at issuance on January 10, 2019 is in excess of the proceeds received, the warrant liability is required to be recorded at fair value with the excess of the fair value over the proceeds received recognized as a loss in earnings. The gross proceeds from the 1,255,222 investment units at F-44 $0.90 was $1,129,700. The fair value of the March Warrant Shares at issuance was $1,717,506. The amount to be recognized as a loss in earnings is calculated as follows:
As of December 31, 2019, the fair value of the warrant liability was $193,753 and the Company recorded a change in fair value of the warrant liability of $(1,523,753) for the year ended December 31, 2019. On March 11, 2019, the Company issued warrants to an investment bank to purchase a total of 100,000 restricted shares of the Company’s common stock at a per share purchase price of $0.90. The warrants are exercisable at any time nine months after the issuance date within three years of issuance. The Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the consolidated balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the consolidated statement of operations. At inception, March 11, 2019, the fair value of the warrant liability was $198,148, which was recognized as a loss in earnings for the year ended December 31, 2019. As of December 31, 2019, the fair value of the warrant liability was $24,504 and the Company recorded a change in fair value of the warrant liability of $(173,644) related to the warrants for the year ended December 31, 2019. On June 14, 2019, the Company entered into another Investment Unit Purchase Agreement (the “Second Investment Agreement”) to issue and sell investment units to an investor (the “investor”), in which the investment units consist of one share of the common stock of the Company, and a warrant exercisable for one half share of common stock of the Company at an exercise price of $1.25 per share for cash at a price per investment unit of $0.90. On June 24, 2019, the Company sold an aggregate of 166,667 units of the Company’s securities to an investor at a purchase price of $0.90 per unit for total proceeds of $150,000. In connection with the Second Investment Agreement, the investor is entitled to purchase from the Company, at the exercise price, at any time on or after 90 days from the issuance date, 83,333 shares of the Company’s common stock (the “June Warrant Shares”). The gross proceeds from the 166,667 investment units at $0.90 was $150,000. The fair value of the June Warrant Shares at issuance was $83,586 while as of December 31, 2019, the fair value of the warrant liability was $26,881. Accordingly, the Company recorded a change in fair value of the warrant liability of $(56,705) related to the warrants for the year ended December 31, 2019. On August 15, 2019, in connection with the issuance of Note Eleven, the Company issued warrants, of which the value was derived and based off the fair value of Note Eleven, to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after August 15, 2019 and on or before August 15, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Eleven are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At inception, August 15, 2019, the fair value of the warrant liability was $18,542 while as of December 31, 2019, F-45 the fair value of the warrant liability was $9,130. Accordingly, the Company recorded a change in fair value of the warrant liability of $(9,412) related to Note Eleven for the year ended December 31, 2019. On September 16, 2019, in connection with the issuance of Note Twelve, the Company issued warrants, of which the value was derived and based off the fair value of Note Twelve, to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after September 16, 2019 and on or before September 16, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Twelve are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At inception, September 16, 2019, the fair value of the warrant liability was $17,683 while as of December 31, 2019, the fair value of the warrant liability was $9,194. Accordingly, the Company recorded a change in fair value of the warrant liability of $(8,489) related to Note Twelve for the year ended December 31, 2019. On October 11, 2019, in connection with the issuance of Note Thirteen, the Company issued warrants, of which the value was derived and based off the fair value of Note Thirteen, to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after October 11, 2019 and on or before October 11, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Thirteen are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At inception, October 11, 2019, the fair value of the warrant liability was $11,443 while as of December 31, 2019, the fair value of the warrant liability was $9,236. Accordingly, the Company recorded a change in fair value of the warrant liability of $(2,207) related to Note Thirteen for the year ended December 31, 2019. On November 1, 2019, the Company issued warrants to an institution to purchase a total of 100,000 restricted shares of the Company’s common stock at a per share purchase price of $0.435. The warrants are exercisable at any time after the issuance date within five years of issuance. The Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the consolidated balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the consolidated statement of operations. At inception, November 1, 2019, the fair value of the warrant liability was $37,889, which was recognized as a loss in earnings for the year ended December 31, 2019. As of December 31, 2019, the fair value of the warrant liability was $40,063 and the Company recorded a change in fair value of the warrant liability of $2,174 related to the warrants for the year ended December 31, 2019. On December 26, 2019, in connection with the issuance of Note Fourteen, the Company issued warrants, of which the value was derived and based off the fair value of Note Fourteen, to the investor to purchase 12,500 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after December 26, 2019 and on or before December 26, 2024, by delivery to the Company of the Notice of Exercise. F-46 The Company determined that the warrants associated with Note Fourteen are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At inception, December 26, 2019, the fair value of the warrant liability was $5,268 while as of December 31, 2019, the fair value of the warrant liability was $4,687. Accordingly, the Company recorded a change in fair value of the warrant liability of $(581) related to Note Fourteen for the year ended December 31, 2019. A summary of warrant activity is as follows:
Warrant Obligations In connection with the Series B Preferred Stock Purchase Agreement (See Note 15), the Company is obligated to issue warrants to a third-party to purchase 812,073 shares of common stock at $0.325 per share for services rendered. These warrants have been accounted for as warrant obligations and are recognized as a liability on the consolidated balance sheets as of December 31, 2019, 2018 and 2017. For the years ended December 31, 2019, 2018 and 2017, the Company recorded a change in fair value of the warrant obligations of $(676,144), $1,625,398 and $590,436, respectively, and is reflected in the consolidated statements of operations. Although the Company issued warrants during the first quarter of 2018, the rights entitled to the third-party holder of the warrants to purchase shares of the Company’s common stock was not exercised. Upon exercising the right to purchase the Company’s common stock by the third-party, the Company will de-recognize the liability for warrant obligations and reclassify the appropriate amount into equity. The fair value of the Company’s obligation to issue warrants was calculated using the Black-Scholes model and the following assumptions:
F-47 The change in fair value of the financial instruments – warrants is as follows:
2017 Omnibus Incentive Plan The Company’s 2017 Omnibus Incentive Plan (the “2017 Plan”) was adopted by our Board of Directors and a majority of our voting securities on October 17, 2017. The 2017 Plan permits the granting of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and dividend equivalent rights to eligible employees, directors and consultants. We grant options to purchase shares of common stock under the 2017 Plan at no less than the fair value of the underlying common stock as of the date of grant. Options granted under the Plan have a maximum term of ten years. Under the Plan, a total of 5,000,000 shares of common stock are reserved for issuance, of which options to purchase 2,599,945 and 1,004,945 shares of common stock were granted as of December 31, 2019 and December 31, 2018, respectively. Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan On October 22, 2014, BioTrackTHC approved and adopted the BioTrackTHC Stock Plan. The BioTrackTHC Stock Plan set aside and reserved 600,000 shares of BioTrackTHC’s common stock for grant and issuance in accordance with its terms and conditions. Persons eligible to receive awards from the BioTrackTHC Stock Plan include employees (including officers and directors) of BioTrackTHC or its affiliates and consultants who provide significant services to BioTrackTHC or its affiliates (the “Grantees”). The BioTrackTHC Stock Plan permits BioTrackTHC to issue to Grantees qualified and/or non-qualified options to purchase BioTrackTHC’s common stock, restricted common stock, performance units, and performance shares. The term of each award under the BioTrackTHC Stock Plan shall be no more than ten years from the date of grant thereof. BioTrackTHC’s Board of Directors or a committee designated by the Board of Directors is responsible for administration of the BioTrackTHC Stock Plan and has the sole discretion to determine which Grantees will be granted awards and the terms and conditions of the awards granted. The BioTrackTHC Stock Plan will annually increase the number of shares of common stock authorized for issuance thereunder to 15% of the Company’s common stock outstanding as of the first day of each calendar year beginning January 1, 2016 (see Notes 5 and 15). Cash Cash consists of checking accounts. The Company considers all highly-liquid investments purchased with a maturity of three months or less at the Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and economic conditions. Management charges balances off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company determines when receivables are past due, or delinquent based on how recently payments have been received. 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 $156,709, $55,659, and $3,000 at December 31, 2019, 2018 and 2017, respectively. Long-Lived Assets, Including Definite Lived Intangible Assets Long-lived assets, other than goodwill and other indefinite-lived intangibles, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. Definite-lived intangible assets primarily consist of Goodwill Goodwill, which represents the The impairment model prescribes a two-step method for determining goodwill impairment. However, an entity is permitted to first assess qualitative factors to determine whether the two-step goodwill impairment test is necessary. The qualitative factors considered by Helix may include, but are not limited to, general economic conditions, Helix’s outlook, market performance of Helix’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. In the first step, Helix determines the fair value of its reporting unit using a discounted cash flow analysis. If the net book value of the reporting unit exceeds its fair value, Helix then performs the second step of the impairment test, which requires allocation of the reporting unit’s fair value to all of its assets and liabilities using the acquisition method prescribed under authoritative guidance for business combinations with any residual fair value being allocated to goodwill. An impairment charge is recognized when the implied fair value of Helix’s goodwill is less than its carrying amount. Assumptions and estimates used in the evaluation of impairment may affect the carrying value of long-lived assets, which could result in impairment charges in future periods. Such assumptions include projections of future cash flows and the current fair value of the asset. It was determined that during the first quarter of 2018, the Company’s entire amount of goodwill attributable to the Accounting for Acquisitions In accordance with the Business Combinations The Company accounts for its business combinations under the provisions of Accounting Standards Codification (“ASC”) Topic 805-10, Business Combinations (“ASC 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: 1) 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 2) if the contingent consideration is classified as a liability, the changes in fair value are recognized in earnings. The estimated fair value of net assets acquired, including the allocation of the fair value to identifiable assets and liabilities, was determined using established valuation techniques. The estimated fair value of the net assets acquired was determined using the income approach to valuation based on the
Revenue Recognition Under FASB Topic 606, Revenue from Contacts with Customers (“ASC 606”), the Company The security services revenue is generated from performing armed and unarmed guarding which is contracted for on an hourly basis. Revenues associated with these contracted services are recognized under time-based arrangements as services are provided. The guarding and transportation security business is now a discontinued operation. The Company still provides monitoring services. Additionally, the Company provides transportation security services, which are generally contracted for on a per-run basis and sometimes additional fees and surcharges are also billed to the client depending on the length of F-16 As previously noted the Company also generates revenue from developing and licensing seed to sale cannabis compliance software to both private-sector and public-sector (government agencies) businesses that are involved in cannabis related operations. Contracts with government agencies are subject to milestones and revenue is recognized upon completion of Each private sector contract contains a one-time fee for
As stated above, the only performance obligations inherent in our private sector contracts are installation and training, and the operability of the software. The Segment Information Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, 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 Asset information by operating segment is not presented Expenses Cost of Revenue The cost of revenues is the total cost incurred to obtain a sale and the cost of the goods or services sold. Cost of revenues primarily consisted of compensation for employees involved in the creation and development of licensing software. Operating Expenses Operating expenses encompass selling general and administrative expenses, salaries and wages, professional and legal fees and depreciation and amortization. Selling, general and administrative expenses consist primarily of rent/moving expenses, advertising and travel expenses. Salaries and wages is composed of non-revenue generating employees. Professional services are principally comprised of outside legal, audit, information technology consulting, marketing and outsourcing services as well as the costs related to being a publicly traded company. Other Income Other income consisted of a gain on the change in fair value of convertible notes, gain on the change in the fair value of warrant liability, loss on the change in fair value of convertible notes – related party, loss on the change in fair value of contingent consideration, loss on issuance of warrants and interest expense. Property and Equipment Property and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful lives. Useful lives are 3 years for vehicles and 5 years for furniture and equipment. Maintenance and repairs are expensed as incurred and major improvements are capitalized. When assets are sold, or retired, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in loss from operations. 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 consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. Advertising Advertising costs are expensed as incurred and included in selling, general and administrative expenses and amounted to $378,233, $96,420, and $33,151 for the years ended December 31, 2019, 2018 and 2017, respectively. Foreign Currency The local currency is the functional currency for one entity’s operations outside the United States. Assets and liabilities of these operations are translated to U.S. dollars at the exchange rate in effect at the end of each period. Income statement accounts are translated at the average exchange rate prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of other comprehensive loss within shareholders’ equity. Gains and losses from foreign currency transactions are included in net loss for the period. Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect F-18 for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating loss for financial-reporting and tax-reporting purposes. Accordingly, for Federal and state income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance against the related federal and state deferred tax asset for the years ended December 31, 2019, 2018 and 2017. Comprehensive Loss Comprehensive loss consists of consolidated net loss and foreign currency translation adjustments. Foreign currency translation adjustments included in comprehensive loss were not tax-effected as investments in international affiliates are deemed to be permanent. Distinguishing Liabilities from Equity The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity, 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. Share-based Compensation The Company accounts for stock-based compensation to employees in conformity with the provisions of ASC Topic 718, Stock Based Compensation. Stock-based compensation to employees consist of stock option grants and restricted shares that are recognized in the statement of operations based on their fair values at the date of grant. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC Topic 718, based upon the fair-value of the underlying instrument. The equity instruments are valued using the Black-Scholes valuation model. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period which services are received. The Company calculates the fair value of option grants utilizing the Black-Scholes pricing model and estimates the fair value of the stock based upon the estimated fair value of the common stock. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized on a straight- line basis over the requisite service period of the award. Fair Value of Financial Instruments ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”) provides a framework for measuring fair value in accordance with generally accepted accounting principles. F-19 ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC Topic 820 are described as follows: Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 – Inputs that are unobservable for the asset or liability. Certain assets and liabilities of the Company are required to be recorded at fair value either on a recurring or non-recurring basis. Fair value is determined based on the price that would be received for an asset or paid to transfer a liability in an orderly transaction based on market participants. The following section describes the valuation methodologies that the Company used to measure, for disclosure purposes, its financial instruments at fair value. Convertible notes payable The fair value of the Company’s convertible notes payable, approximated the carrying value as of December 31, 2019, 2018 and 2017. Factors that the Company considered when estimating the fair value of its debt included market conditions and the term of the debt. The level of the debt would be considered as Level 2. Additional Disclosures Regarding Fair Value Measurements The carrying value of cash, accounts receivable, prepaid expenses, deposits, accounts payable and accrued liabilities, advances from shareholders and obligation pursuant to acquisition approximate their fair value due to the short-term maturity of those items. Earnings (Loss) per Share The Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the income statement for all entities with complex capital structures. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options and warrants, using the treasury stock method, and convertible debt and convertible securities, using the if-converted method. Basic net loss per share is based on the weighted average number of common and common-equivalent shares outstanding. Potential common shares includable in the computation of fully-diluted per share results are not presented in the consolidated financial statements for the years ended December 31, 2019, 2018 and 2017 as their effect would be anti-dilutive. F-20 The
Reclassifications Certain reclassifications have been made to the prior period financial statements to conform to the current period financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported. Recent Accounting Pronouncements In February 2016, the FASB issued ASU 2016-.02, Leases (Topic 842) (“Topic 842”) which requires the recognition of right-of-use assets and lease liabilities on the balance sheet. The most prominent of the changes in the standard is the recognition of right-of-use (“ROU”) assets and lease liabilities by lessees for those leases classified as operating leases. The Company adopted the new standard on January 1, 2019 and used the modified retrospective approach with the effective date as the date of initial application. Consequently, prior period balances and disclosures have not been restated. The Company elected certain practical expedients, which among other things, allowed us to carry forward prior conclusions about lease identification and classification. Adoption of the standard resulted in the balance sheet recognition of additional lease assets and lease liabilities of approximately $1,500,000. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company currently has elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in separate lease and non-lease components for all our leases. For additional information
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220); Reclassification of In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (ASC 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the effect that this update will have on its financial statements and related disclosures Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the Company’s consolidated financial statements and related disclosures effective for public companies for the reporting periods beginning after December 15, 2019.
Adoption of ASC 606 Revenue from Contracts with Customers The Company adopted the new revenue standard, ASC 606, using the modified retrospective method with respect to all non-completed contracts as of January 1, 2018. This method required retrospective application of the new accounting standard to all unfulfilled contracts that were outstanding as of January 1, 2018. The Company has determined that there were no adjustments required with respect to the adoption of ASC 606 with respect to any prior periods. Disaggregation of revenue
The following is a description of the principal activities from which we generate our revenue. Security and Monitoring Revenue Helix provides monitoring of security alarms and cameras, which are charged out at an hourly rate, with invoices typically sent to clients shortly after each month-end for the previous month, with revenue being recognized over time. The customer simultaneously receives and consumes benefits provided by the Security systems, including Internet Protocol camera, intrusion alarm systems, perimeter alarm systems, and access controls are installed for clients. Installation jobs are estimated based on the cost of the equipment, the number of man hours expected to complete the work, supplies, travel, and any other ancillary costs. The installation is typically invoiced with 60% of the total price immediately after signing and the balance upon completion of the installation service. The timing of these contracts is short-term in nature and less than 12 months in duration, and revenue is recognized over the term of the contracts, utilizing the cost-to-cost method.
The Company generates revenue from developing and licensing seed to sale cannabis compliance software to both private-sector and public-sector (government agencies) clients that are involved in cannabis related operations. The Company also generates revenue from on-going training, support and software customization services. The private-sector software entails cultivation tracking, inventory management, point of sale and analytic reporting to assist businesses in meeting their compliance requirements and effectively managing their businesses. Customers within the private sector business are charged an initial one-time installation fee and the revenues associated with these services are recognized upon completion of installation and configuration at a point in time. After the installation and configuration of the software is completed, the customer is invoiced monthly and revenues associated with these services are recognized monthly over a period of time in which the customer continues to use the software and related services. The public-sector software assists government agencies in efficient oversight of cannabis related business under their jurisdiction. Revenues associated with governmental contracts are longer-term in nature and recognized upon completion of certain milestones over a period of time or on a completed-contract basis at a point in time. The Company considers the contract to be complete when all significant costs have been incurred and the customer accepts the project. Costs incurred prior to the customer accepting the project are deferred and reflected on the consolidated balance sheets as prepaid expenses and other current assets. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in accordance with ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Generally, the Company’s contracts include a single performance obligation that is separately identifiable, and therefore, distinct. Under ASC 606, the allocation of transaction price is not necessary if only one performance obligation is identified. Significant Judgments Accounting for long-term contracts involves the use of various techniques to estimate total contract revenue, costs and satisfaction of performance obligation. The Company satisfies its performance obligations and subsequently recognizes revenue, at a point in time, as security and installation services are performed. There were no changes to the significant judgments used by the Company to determine the timing of satisfaction of the performance obligations under ASC 606. Costs to Obtain or Fulfill Contract The Company’s costs to fulfill or obtain contracts with customers primarily consist of commissions and legal costs. The Company provides sales team members with commissions at 0-6%. Although sales commissions are incremental in nature and are only incurred when a contract is obtained, there is no up-front commission paid on the satisfactory obtainment of a contract, resulting in no sales commissions being capitalized at December 31, 2019, 2018 and 2017. The Company also incurs legal costs relating to the drafting and negotiating of contracts with select customers. Because legal costs are not incremental in nature and are incurred regardless of whether a contract is ultimately obtained, there were no legal costs capitalized as of December 31, 2019, 2018 and 2017.
Security Grade Acquisition On June 2, 2017, the Company entered into a Membership Interest Purchase Agreement (the “Agreement”) in which the Company purchased all issued and outstanding Units of Security Grade Protective Services, Ltd. (“Security Grade”), which comprised of 800,000 Class A Units and 200,000 Class B Units. At closing, the Company delivered $800,000 in cash and 207,427 non-qualified stock options (the “Initial Stock Options”). Furthermore, provided that, within the first 60 days following the closing, no material customer identified in the Agreement terminates its contractual relationship with the Company and that all contracts with such material customers are in full force and effect without default or cancellation as of the 60th day following the closing, on the 61st day following the closing, the Company shall deliver an additional $800,000 in cash and issue 207,427 additional stock options (the “Additional Stock Options”). In the event of termination, cancellation or default of any contract with one or more material customer identified in the Agreement within the first 60 days following the closing, the stock options received by the acquiree shall be reduced and/or forfeited to the extent necessary (pro rata based upon their ownership interest in the Company immediately preceding the closing) by a percentage equal to the revenue received by the Company from the terminating customer(s) in the 180 days immediately preceding such termination divided by the revenue received by the Company from all material customers identified in the Agreement in the 180 days immediately preceding such termination. As of December 31, 2019 and 2018, the Company had a liability pursuant to the Agreement of $0 and $101,667, respectively, payable following the closing. The merger is being accounted for as a business combination in accordance with ASC 805. The Company’s allocation of the purchase price was calculated as follows:
The initial stock options are included as part of the purchase price. The Company determined the fair value of the contingent consideration to be $916,643 at June 2, 2017 and recorded it as a liability in its unaudited balance sheets. The Company satisfied their contingent consideration liability during the
BioTrackTHC
Total acquisition costs for the BioTrackTHC merger incurred during the year ended December 31, 2018 was $116,624, and is included in selling, general and administrative expense in the Company’s consolidated statements of operations. Engeni On the Engeni Closing Date, in connection with closing the Engeni Merger Agreement, the Company issued 366,700 shares of Company common stock to Engeni US members. Furthermore, the Company The Engeni Merger is being accounted for as a business combination in accordance with ASC 805. F-25 During the first quarter of 2019, it was determined Engeni SA did not reach financial breakeven and therefore the contingent consideration of $100,000 was deemed by the Company not to be payable and was reduced to zero. In accordance with ASC 805-30-35-1, the Company recognized the change in the fair value of contingent consideration subsequent to the acquisition date in general and administrative expenses. The Company’s allocation of the purchase price was calculated as follows:
The Company determined the fair value of the contingent consideration to be $777,298 at August 3, 2018 and recorded it as a liability in its unaudited condensed consolidated balance sheets. On April 2, 2019, the Company satisfied their contingent consideration liability and issued 733,300 shares of Tan’s International Security On 250,000 shares of Helix Stock at closing. $25,000 at closing $25,000 on the 4-month anniversary of the Tan Security $25,000 on the 8-month anniversary of the Tan Security $25,000 on the 12-month anniversary of the Tan Security Closing Date The Tan Security Acquisition is being accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the Tan Security Acquisition. These values are subject to change as we perform additional reviews of our assumptions utilized. The Company has made a provisional allocation of the purchase price of the Tan Security transaction to the assets acquired and the liabilities assumed as of the purchase date. The following table summarizes the provisional purchase price allocations relating to the Tan Security Acquisition:
Green Tree International, Inc. Pursuant to the Amercanex Merger Agreement, the Company issued to the GTI stockholders an amount of unregistered shares of the Company’s common stock equal to $15 million, based on the average closing price of the Company’s common stock over the forty-five (45) trading day period ending three (3) trading days prior to the GTI Closing Date. If revenues of GTI in the second 12 month period following the GTI Closing Date exceed $5 million and are less than or equal to $10 million, the Company shall issue to the GTI shareholders a number of unregistered Helix shares (whether issued or reserved for issuance) equal to the quotient of (a) $5 million divided by (b) Helix share price multiplied by the quotient of (c) the revenues of GTI in the second 12 month period following the GTI Closing Date less $5 million divided by (d) $5 million. To secure the indemnification obligations of the GTI shareholders to the Company under the GTI Merger Agreement, 4,140,274 of the Company shares issued to the GTI shareholders were held back and the Company is entitled to retain such number of the holdback shares as necessary to satisfy those indemnification obligations. 50% of the holdback shares that remain after satisfaction of any indemnification obligations will be released 12 months after the GTI Closing Date of the merger, and the remainder 24 months after the GTI Closing Date of the merger. Additionally, if in the first 12 months following the closing GTI generates less than $1.5 million of revenues, 100% of the holdback shares shall be returned to the Company. In connection with closing the GTI Merger on September 10, 2019, the Company issued 16,765,727 unregistered shares of its common stock to GTI stockholders. In connection with the GTI Merger, Steve Janjic joined the board of directors of the Company. The GTI Merger is being accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the GTI Merger. These values are subject to change as we perform additional reviews of our assumptions utilized. The Company has made a provisional allocation of the purchase price of the GTI transaction to the assets acquired and the liabilities assumed as of the purchase date. The following table summarizes the provisional purchase price allocations relating to the GTI transaction:
F-27
Total acquisition costs for the GTI Merger incurred during the year ended December 31, 2019 was $83,324, and is included in selling, general and administrative expense in the Company’s consolidated statements of operations. Unaudited Pro Forma Results GTI contributed revenues of $0 and a net loss of $73,644 for the period September 10, 2019 through December 31, 2019, included in the Company’s consolidated statements of operations.
On July 31, 2020, the Company disposed of the Boss, SCG, Tan LLC and Tan Security subsidiaries through an Asset Purchase agreement with Invicta. The assets and liabilities of the discontinued entities are reflected as held for sale in the company’s consolidated balance sheet. The operations of the discontinued entities are accounted for as discontinued operations through the date of divestiture. The accompanying consolidated balance sheets include the following carrying amounts of assets and liabilities related to discontinued operations:
F-28 The consolidated statements of operations include the following operating results related to discontinued operations:
7. Property and Equipment, Net At December 31, 2019, 2018 and 2017, property and equipment consisted of the following:
Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was $43,464, 51,150 and $4,297, respectively.
The following table summarizes the Company’s intangible assets:
F-29
The Company uses the straight-line method to determine the amortization expense for its definite lived intangible assets. Amortization expense related to the purchased intangible assets was $4,682,649, $2,979,906 and $422,063 for the years ended December 31, 2019, 2018 and 2017, respectively. The estimated future amortization expense for the next five years and thereafter is as follows:
The following table summarizes the Company’s goodwill as of December 31, 2019, 2018 and 2017:
F-30
Costs, estimated earnings and billings on uncompleted contracts are summarized as follows as of December 31, 2019, 2018 and 2017:
As of December 31, 2019, 2018 and 2017, accounts payable and accrued expenses consisted of the following:
F-31 On May 16, 2018, the Company amended Note Five (“Second Amendment”) with the First Investor. The Second Amendment states that Note Five shall have a maturity of November 16, 2018 and shall be pre-payable at any time at 120% of the unpaid principal and accrued interest balance. The principal amount as of the date of the Second Amendment was $112,305. In November 2018, the Company amended Note Five (“Third Amendment”) with a second investor. The Third Amendment states that Note Five shall have a maturity of November 16, 2019. The principal amount as of the date of the Third Amendment was $115,136. During March 2019, the remaining principal of $112,305 was converted into 155,421 shares of common stock. The interest expense associated with Note Five was $936 and $10,724 for the years ended December 31, 2019 and 2018, respectively. On March 1, 2019, the Company entered into a $450,000 Secured Convertible Promissory Note (“Note Ten”) with an independent investor (the “investor”). The investor provided the Company with $450,000 in cash proceeds, which was received by the Company during the period ended June 30, 2019. Note Ten will mature on March 1, 2020 and bear interest at a rate of 25% per annum, payable by the Company half in cash and half in kind on a quarterly basis. The principal balance of Note Ten is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at the lower of $0.90 per share or a 30% discount to the Company’s 30-day weighted average listed price per share immediately before the date of conversion. In conjunction with Note Ten, the Company issued a warrant to the investor to purchase 160,715 shares of the Company’s common stock at $1.40 per share. The Company evaluated Note Ten in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Ten will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. During 2019, the investor elected their option to partially convert $280,000 in principal of Note Ten into 875,894 shares of the Company’s common stock. As of December 31, 2019, the fair value of Note Ten was $202,125. Accordingly, the Company recorded a change in fair value of $32,125 related to Note Ten for the year ended December 31, 2019. In addition, the company recorded a debt discount relating to the warrants issued in the amount of $355,847 based on the relative fair value of the warrants at inception of Note Ten. Debt discounts amortized to interest expense was $297,352 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $58,495. In May, September, and December 2019, the Company issued 15,625, 16,568 and 19,401 restricted shares of common stock as paid-in-kind (“PIK”) interest payments in the amount of $14,062, $14,063, and $12,029, respectively. Accrued interest expense associated with Note Ten was $3,542 as of December 31, 2019, which includes PIK interest payable. On August 15, 2019, the Company entered into a $400,000 Fixed Convertible Promissory Note (“Note Eleven”) with the investor. The investor provided the Company with $380,000 in cash proceeds, which was received by the Company during the period ended September 30, 2019. The additional $20,000 was retained by the investor for due diligence and legal bills for the transaction and recorded as a debt discount. Note Eleven will mature on May 15, 2020 and bear interest at a rate of 10% per annum, payable by the Company in cash. The principal balance of Note Eleven is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Eleven. In conjunction with Note Eleven, the Company issued a warrant to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. The Company evaluated Note Eleven in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Eleven will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Eleven was $204,444. Accordingly, the Company recorded a change in fair value of $195,556 related to Note Eleven for the year ended December 31, 2019. In addition, the company recorded a debt discount of $38,543 relating to the warrants issued in the amount of $18,543 based on the relative fair value of the warrants themselves at inception of Note Eleven and $20,000 relating to legal fees. Debt discounts amortized to interest expense were $19,412 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $19,131. Accrued interest expense associated with Note Eleven was $17,460 as of December 31, 2019. F-32 On September 16, 2019, the Company entered into a $450,000 Fixed Convertible Promissory Note (“Note Twelve”) with the investor. The investor provided the Company with $427,500 in cash proceeds, which was received by the Company during the period ended December 31, 2019. The additional $22,500 was retained by the investor for due diligence and legal bills for the transaction and was recorded as a debt discount. Note Twelve will mature on June 16, 2020 and bear interest at a rate of 10% per annum, payable by the Company in cash. The principal balance of Note Twelve is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Twelve. In conjunction with Note Twelve, the Company issued a warrant to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. The Company evaluated Note Twelve in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Twelve will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Twelve was $230,000. Accordingly, the Company recorded a change in fair value of ($220,000) related to Note Twelve for the year ended December 31, 2019. In addition, the company recorded a debt discount of $40,183 relating to the warrants issued in the amount of $17,683 based on the residual fair value of the warrants themselves at inception of Note Twelve and $22,500 relating to legal fees. Debt discounts amortized to interest expense were $15,545 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $24,638. Accrued interest expense associated with Note Twelve was $18,285 as of December 31, 2019. On October 11, 2019, the Company entered into a $450,000 Fixed Convertible Promissory Note (“Note Thirteen”) with the investor. The investor provided the Company with $427,500 in cash proceeds, which was received by the Company during the period ended December 31, 2019. The additional $22,500 was retained by the investor for due diligence and legal bills for the transaction and was recorded as a debt discount. Note Thirteen will mature on July 11, 2020 and bear interest at a rate of 10% per annum, payable by the Company in cash. The principal balance of Note Thirteen is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Thirteen. In conjunction with Note Thirteen, the Company issued a warrant to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. The Company evaluated Note Thirteen in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Thirteen will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Thirteen was $230,000. Accordingly, the Company recorded a change in fair value of ($220,000) related to Note Thirteen for the year ended December 31, 2019. In addition, the company recorded a debt discount of $33,943 relating to the warrants issued in the amount of $11,443 based on the residual fair value of the warrants themselves at inception of Note Thirteen and $22,500 relating to legal fees. Debt discounts amortized to interest expense were $10,034 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $23,909. Accrued interest expense associated with Note Thirteen was $16,022 as of December 31, 2019. On December 26, 2019, the Company entered into a $210,526 Fixed Convertible Promissory Note (“Note Fourteen”) with the investor. The investor provided the Company with $200,000 in cash proceeds, which was received by the Company during the period ended December 31, 2019. The additional $10,526 was retained by the investor for due diligence and legal bills for the transaction and was recorded as a debt discount. Note Fourteen will mature on September 26, 2020 and bear interest at a rate of 12% per annum, payable by the Company in cash. The principal balance of Note Fourteen is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor F-33 elects to convert all or part of Note Fourteen. In conjunction with Note Fourteen, the Company issued a warrant to the investor to purchase 12,500 shares of the Company’s common stock at $1.00 per share. The Company evaluated Note Fourteen in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Fourteen will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Fourteen was $107,602. Accordingly, the Company recorded a change in fair value of $102,924 related to Note Fourteen for the year ended December 31, 2019. In addition, the company recorded a debt discount of $15,794 relating to the warrants issued in the amount of $5,268 based on the residual fair value of the warrants themselves at inception of Note Fourteen and $10,526 relating to legal fees. Debt discounts amortized to interest expense were $287 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $15,507. Accrued interest expense associated with Note Fourteen was $463 as of December 31, 2019. On November 15, 2019, the Company entered into a $5,000,000 Unsecured Convertible Promissory Note (“Note Fifteen”) with the investor. The investor provided the Company with $385,000 in cash proceeds, which was received by the Company during the period ended December 31, 2019. Note Fifteen will mature on November 15, 2021 and bear interest at a rate of 12% per annum, payable by the Company in cash. The principal balance of Note Fifteen is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Fifteen. As of December 31, 2019, the balance of Note Fifteen was $385,000. Accrued interest expense associated with Note Fifteen was $5,239 as of December 31, 2019.
Advances from Related Parties The Company had a loan outstanding from a former Company executive. The advance did not accrue interest and had no definite repayment terms. The loan balance was $0, $45,250 and $124,570 for the years ended December 31, 2019, 2018 and 2017, respectively. Convertible Note Payable On March 11, 2016, the Company entered into an Unsecured Convertible Promissory Note (“Note Eight”) with a Director of the Company (the “Related Party Holder”). The Related Party Holder provided the Company with $150,000 in cash, and the Company promised to pay the principal amount, together with interest at an annual rate of 7%, with principal and accrued interest on Note Eight due and payable on December 31, 2017 (unless converted under terms and provisions as set forth below). The principal balance of Note Eight was convertible at the election of the Related Party Holder, in whole or in part, at any time or from time to time, into the Company’s common stock at a forty percent (40%) discount to the average market closing price for the previous five (5) trading days, preceding the date of conversion election. The Company evaluated Note Eight in accordance with ASC 480, Distinguishing Liabilities from Equity and determined that Note Eight will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. On February 20, 2018, the Company entered into an agreement to amend Note Eight (this “Amendment”) with the Related Party Holder. The Company and the Related Party Holder desired to extend the maturity date of Note Eight to August 20, 2018. Note Eight was amended as follows. The Company promises to pay (i) all accrued interest on the unpaid principal amount through December 31, 2017 and (ii) $25,000 in principal within 5 business days of the date of the Amendment. The Company agrees to issue 15,000 shares of restricted Company common stock as an inducement for this amendment within 10 business days of the date of the Amendment. The principal amount of the note will be reduced to $125,000. Unless extended by the Company, converted or prepaid earlier, all unpaid principal and unpaid accrued interest on Note Eight shall be due and payable on August 20, 2018 (the “Maturity Date”). All provisions related to conversion of Note Eight into equity securities of the Company were terminated as part of this Amendment. As of February 20, 2018, the fair value of the liability was $239,343, however due to termination of the conversion of the note into equity securities, Note Eight will be valued in its principal amount of $125,000 and F-34 accordingly the Company recorded a credit regarding the change in fair value of $93,506 for the year ended December 31, 2018. The interest expense associated with Note Eight was $5,806 for the year ended December 31, 2018. Note Eight was paid in full on the Maturity Date. On March 1, 2019, the Company entered into a $1,500,000 Secured Convertible Promissory Note (“Note Nine”) with Rose Capital Fund I, LP (the Related Party Holder”). A Managing Member of the Related Party Holder is also a Director of the Company. The Related Party Holder provided the Company with $1,475,000 in cash proceeds, which was received by the Company during the period ended December 31, 2019. The additional $25,000 was retained by the Related Party Holder for legal bills for the transaction. Note Nine will mature on March 1, 2020 and bear interest at a rate of 25% per annum, payable by the Company half in cash and half in kind on a quarterly basis. The principal balance of Note Nine is convertible at the election of the Related Party Holder, in whole or in part, at any time or from time to time, into the Company’s common stock at the lower of $0.90 per share or a 30% discount to the Company’s 30-day weighted average listed price per share immediately before the date of conversion. In conjunction with Note Nine, the Company issued a warrant to the Related Party Holder to purchase 535,715 shares of the Company’s common stock at $1.40 per share. The Company evaluated Note Nine in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Nine will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Nine was $1,783,454. Accordingly, the Company recorded a change in fair value of $283,454 related to Note Nine for the year ended December 31, 2019. In addition, the company recorded a debt discount relating to the warrants issued in the amount of $1,186,153 based on the relative fair value of the warrants at inception of Note Nine. The additional $25,000 retained by the Related Party Holder for legal bills for the transaction will be recorded as a debt discount. Debt discounts amortized to interest expense were $1,012,059 for the year ended December 31, 2019, respectively. The unamortized discount balance at December 31, 2019 was $199,094. In May and October 2019, the Company issued 52,083 and 83,311 restricted shares of common stock as PIK interest payments in the amount of $46,875 and $45,821, respectively. Accrued interest expense associated with Note Nine was $93,750 as of December 31, 2019, which includes PIK interest payable. As of December 31, 2019, the balance of Note Nine, net of debt discount for warrants and legal bills was $1,584,360. Warrants On March 1, 2019, in connection with the issuance of Note Nine, the Company issued warrants, of which the value was derived and based off the fair value of Note Nine, to the investor to purchase 535,715 shares of the Company’s common stock at $1.40 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after March 1, 2019 and on or before March 1, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Nine are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At inception, March 1, 2019, the fair value of the warrant liability was $1,186,153 while as of December 31, 2019, the fair value of the warrant liability was $182,065. Accordingly, the Company recorded a change in fair value of $1,004,088 during the year ended December 31, 2019, which is reflected in the consolidated statements of operations.
On January 30, 2017, the Company entered into an unsecured promissory note in the amount of $75,000. The unsecured promissory note has a fixed interest rate of 8% and was due and payable on June 30, 2017. In conjunction with the Series B Preferred Stock Purchase Agreement, as discussed in Note 16, the Company satisfied its liability in exchange for Series B Preferred Stock. The interest expense associated with the unsecured promissory note was $0 and $2,570 for the years ended December 31, 2018 and 2017, respectively. F-35 On February On August 29, 2018, the Company entered into an unsecured promissory note in the amount of $250,000. The unsecured promissory note has a fixed interest rate of 7% and is due and payable on July 31, 2019. As of December 31, 2018 the unsecured promissory note was paid off in full. The interest expense associated with the unsecured promissory note was $0 and $3,021 for the years ended December 31, 2019 and 2018, respectively. On January 3, 2019, the Company On
As of December 31, 2019, 2018 and 2017 Notes payable consisted of the
The interest expense associated with the notes payable was $5,874, $5,281 and $ for the years ended December 31, 2019, 2018 and 2017, respectively. In connection with In addition, the Company shall have the right to require the lender to convert the Convertible Debenture into Helix common stock at any time provided its common stock is listed on a stock exchange other than the U.S. OTCQB, the common stock would be fully traded up on conversion and the trading price of its common stock closes above $1.15 for F-36
Common Stock Subscription Agreements The
The table below reflect shares of restricted common stock issued in relation to
Other Common Stock Issuances In December 2017, the Company In June and In August and In August 2018, the In December 2018, the Company issued 100,000 shares of In January 2019, the Company issued 20,000 shares of restricted common stock to a consultant per a consulting agreement and In March and June 2019, the In March and June 2019, certain option holders exercised their rights under the BioTrackTHC Stock Plan and were issued 62,847 and 47,084 shares of common stock, respectively, for no cash proceeds. In March and April 2019, certain option holders exercised their rights under the BioTrackTHC Stock Plan and were issued 6,082 and 57,461 shares of common stock for total proceeds of $4,805 and $21,808, respectively. In April 2019, the Company In April 2019, a selling shareholder of Security Grade exercised their right to purchase 15,101 shares of the Company’s common stock. In April 2019, the Company issued 733,300 shares of common stock in satisfaction of the Engeni contingent consideration (see Note 5). In May, September, October and December 2019, the In August 2019, the Company issued 16,765,727 shares of common stock as part of the GTI acquisition (see Note 5). In November 4, 2019, the Company issued 100,000 shares of restricted common stock resulting from a consulting agreement. Conversion of Convertible Note to Common Stock On February 15, 2018, March 12, 2018 and March 21, 2018, the holder of a 10% fixed secured convertible promissory note issued by the Company elected their option to partially convert $50,000, $50,000 and $75,000 in principal of the convertible note into 46,066, 63,963, and 95,945 shares of the Company’s common stock. On March 7, 2019 and March 28, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $75,882 and $42,055 in principal of the convertible note into 100,000 and 55,421 shares of the Company’s common stock. On October 18, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $20,000 in principal of the convertible note into 56,738 shares of the Company’s common stock. On November 15, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $20,000 in principal of the convertible note into 63,012 shares of the Company’s common stock. On November 7, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $40,000 in principal of the convertible note into 126,024 shares of the Company’s common stock. On November 11, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $100,000 in principal of the convertible note into 315,060 shares of the Company’s common stock. On November 19, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $100,000 in principal of the convertible note into 315,060 shares of the Company’s common stock. Amended Convertible Note On February 20, 2018, the Company entered into an agreement to amend a Convertible Promissory Note with the undersigned holder initially issued to such Holder and dated March 2016. The Company and Holders desired to extend the maturity date of the Note to August 20, 2018. The holder was issued 15,000 shares of the Company’s restricted common stock as part of the amendment. The Note was amended as follows. The Company promises to pay (i) all accrued interest on the unpaid principal amount through December 31, 2017 and (ii) $25,000 in principal within 5 business days of the date of F-38 the Amendment. The Company agrees to issue 15,000 shares of restricted Company common stock as an inducement for this amendment within 10 business days of the date of the Amendment. The principal amount of the note will be reduced to $125,000. Unless extended by the Company, converted or prepaid earlier, all unpaid principal and unpaid accrued interest on this Note shall be due and payable on August 20, 2018 (the “Maturity Date”). All provisions related to conversion of the Note into equity securities of the Company are hereby deleted. On May 16, 2018, the Company entered into a second amendment agreement of a Convertible Promissory Note with the holder of a 10% fixed secured convertible promissory note. The new Maturity Date is November 16, 2018. The new interest rate is 5%. The note is prepayable at 120% of the unpaid balance upon 10 business days’ notice to the holder, which has 2017 Omnibus Incentive Plan The table below reflects shares issued under the 2017 Omnibus Incentive Plan during the year-ended December 31, 2019.
The table below reflects shares issued under the 2017 Omnibus Incentive Plan during the year-ended December 31, 2018.
Series A convertible preferred stock In October 2015, the Company issued a total of 1,000,000 shares of its Series B convertible preferred stock Series B Preferred Stock Purchase Agreement On May 17, 2017, the Company sold to accredited investors an aggregate of 5,781,426 Series B Preferred Shares for gross proceeds of $1,875,000 and converted a $500,000 Unsecured Convertible Promissory Note into 1,536,658 Series B Preferred Shares. This tranche of Series B Preferred Shares are convertible into 7,318,084 shares of common stock based on the current conversion price, at a purchase price of $0.325 per share. F-39 In connection with the Series B Preferred Stock Purchase Agreement, the Company is obligated to issue warrants to a third-party for services to purchase 462,195 shares of common stock at $0.325 per share. These warrants have been accounted for as an obligation to issue because as of the balance sheet date the Company did not deliver the warrants though incurred the obligation; accordingly, they were recognized as a liability on the unaudited condensed consolidated balance sheet and cost of issuance of Series B preferred shares on the unaudited condensed consolidated statement of shareholders’ equity. In accordance with the Certificate of Incorporation, there were 9,000,000 authorized Series B Preferred Stock at a par value of $ 0.001. On August 23, 2017 the Certificate of Designations was amended and restated to increase the number of shares of Series B Preferred Stock authorized to be 17,000,000. Conversion: Each Series B Preferred Share is convertible at the option of the holder into such number of shares of the Company’s Beneficial Conversion Feature – Series B Preferred Stock (deemed dividend): Each share of Series B Preferred Stock is convertible into shares of common stock, at any time at the option of the holder at any time on or after May 12, 2018. On May 17, 2017, the date of issuances of the Series B, the publicly traded common stock price was $3.98. Based on the guidance in ASC 470-20-20, the Company determined that a beneficial conversion feature exists, as the effective conversion price for the Series B preferred shares at F-40
Dividends, Voting Rights and Liquidity Value: Pursuant to the Certificate of Designations, the Series B Preferred Shares shall bear no dividends, except that if the Board shall declare a Classification: These Series B Preferred Shares are classified within permanent equity on the Company’s consolidated balance sheet as they do not meet the criteria that would require presentation outside of permanent equity under ASC 480, Distinguishing Liabilities from Equity.
As part of the Membership Interest Purchase Agreement entered into between the Company and Security Grade, on June 2, 2017 (see Note 5), the Company granted to the selling Members the option to purchase up to 414,854 shares of the Company’s common stock at a price of $0.001 per share. Of the 414,854 options granted, 207,427 were vested at closing and equity classified. The vesting of the remaining 207,427 shares were subject to certain milestones being achieved and was initially recognized as contingent consideration, both a component of purchase price. As a result of the milestones being met during the third quarter of 2017, the remaining 207,427 shares have also vested. The options have an expiration date of 36 months from the closing date. The exercise price will be On March 15, 2018 the Company awarded Zachary Venegas two options to F-41 On March 19, 2019 the Company awarded the Chief Executive Officer, two options to purchase a total of 500,000 shares of the Company’s common stock at prices ranging from $2.35 to $2.59 per share. These options shall vest over a three-year period from March 2020 to March 2022 and have expiration dates ranging from March 2024 to March 2029. On May 2, 2019, the Company awarded an investor an option to purchase a total of 125,000 shares of the Company’s common stock at an exercise price of $2.03 per share. 62,500 of the options shall vest immediately and 62,500 of the options shall vest on August 2, 2019 provided the marketing agreement between the Company and grantee has not been terminated. These options shall expire on May 1, 2024. In May and June 2019, the Company awarded five employees, options to purchase a total of 50,000and 170,000 shares of the Company’s common stock at prices ranging from $1.05 to $2.03 per share. These options shall vest over a period ranging from September 2019 to June 2020 and have expiration dates ranging from May 2024 to June 2024. On November 1, 2019, the Company awarded an investor an option to purchase a total of 50,000 shares of the Company’s common stock at an exercise price of $.435 per share. All of the options shall vest immediately. These options shall expire on November 1, 2022. On December 1, 2019, the Company awarded an investor an option to purchase a total of 50,000 shares of the Company’s common stock at an exercise price of $.535 per share. All of the options shall vest immediately. These options shall expire on December 1, 2022. On December 27, 2019, the Company awarded various BioTrackTHC employees options to purchase a total of 1,730,000 shares of the Company’s common stock at an exercise price of $.52 per share. 432,500 of the options shall vest immediately and 432,500 of the options shall vest on June 27, 2020, December 27, 2020 and June 27, 2021. These options shall expire on December 27, 2024. The
On March 6, 2018, the Company filed a lawsuit in the United States As part of the BioTrackTHC Merger Agreement entered into between the Company and BioTrackTHC, on June 1, 2018 (see Note 5), the Company assumed the BioTrackTHC Stock Plan, pursuant to which options exercisable at prices between $0.001 to $1.66 per share for 8,132,410 shares of Company common stock are outstanding so that the BioTrackTHC stockholders owned approximately 48% of the Company on a fully diluted F-42 basis as of the BioTrackTHC Closing Date. Stock option activity for the years ended December 31, 2019, 2018 and
On February 13, 2017, the Company entered into a $183,333 Fixed secured Convertible Promissory Note (“Note Five”) with a fourth investor (the “Fourth Investor”). The Fourth Investor provided the Company with $166,666 in cash, which In connection with the issuance of the Note Seven the Company issued a warrant (the “Warrant”) to the Purchaser to purchase 150,000 shares of Common Stock pursuant to the terms and provisions thereunder. The Warrant is exercisable at any time within five (5) years of issuance and entitles the Purchaser to purchase 150,000 shares of the Common Stock at an exercise price of the lesser of either i) $1.00 or ii) a 50% discount to the lowest closing bid price thirty (30) trading days immediately preceding conversion, subject to certain adjustments. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after April 26, 2017 and on or before April 26, 2022, by delivery to the Company of the Notice of Exercise. On December 11, 2017, the investor exercised their purchase right in a net settlement cashless exercise. During the year ended December 31, 2018, the Company entered into a Graduated Lock-Up Letter to induce the entering into of a consulting agreement in exchange for 50,000 shares of the Company’s common stock and the granting of 575,000 warrants for the purchase of common stock of the Company. The company recognized compensation expense of $943,000 for the year ended December 31, 2018 relating to the granting of the warrants. On December 12, 2018, the Company sold an aggregate of 222,222 units (the “December 2018 Units”) of the Company’s securities to an investor at a purchase price of $0.90 per unit for total proceeds of $200,000. Each December 2018 Unit consists of one share of the Company’s common stock and a warrant (“ F-43 Warrant”) Each December Warrant is exercisable at any time on or after 90 days from the issuance date until the four-year anniversary issuance date. Each December Warrant is exercisable at a price of $1.25 per one half of one share of common stock (thereby requiring the exercise of two warrants to purchase one share of common stock). The Company determined that the December Warrants are puttable for cash upon a fundamental transaction at the option of the On March 1, 2019, in connection with the issuance of Note Ten, the Company issued warrants, of which the value was derived and based off the fair value of Note Ten, to the investor to purchase 160,715 shares of the Company’s The Company determined that the warrants associated with Note Ten are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At inception, March 1, 2019, the fair value of the warrant liability was $355,847 while as of December 31, 2019, the fair value of the warrant liability was $54,620. Accordingly, the Company recorded a change in fair value of the warrant liability of $(301,227) related to Note Ten for the year ended December 31, 2019. On January 10, 2019, the Company entered into an Investment Unit Purchase Agreement (the “First Investment Agreement”) to issue and sell investment units to an investor, in which the investment units consist of one share of the common stock of the Company, and a warrant exercisable for one half share of common stock of the Company at an Exercise Price of $1.25 per share for cash at a price per investment unit of $0.90. On March 5, 2019, the Company sold an aggregate of 1,255,222 units of the Company’s securities to an investor at a purchase price of $0.90 per unit for total proceeds of $1,129,700. In connection with the First Investment Agreement, the investor is entitled to purchase from the Company, at the Exercise Price, at any time on or after 90 days from the issuance date, 627,611 shares of the Company’s common stock (the “March Warrant Shares”). The Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. The fair value of the March Warrant Shares at issuance on January 10, 2019 is in excess of the proceeds received, the warrant liability is required to be recorded at fair value with the excess of the fair value over the proceeds received recognized as a loss in earnings. The gross proceeds from the 1,255,222 investment units at F-44 $0.90 was $1,129,700. The fair value of the March Warrant Shares at issuance was $1,717,506. The amount to be recognized as a loss in earnings is calculated as follows:
As of December 31, 2019, the fair value of the warrant liability was $193,753 and the Company recorded a change in fair value of the warrant liability of $(1,523,753) for the year ended December 31, 2019. On March 11, 2019, the Company issued warrants to an investment bank to purchase a total of 100,000 restricted shares of the Company’s common stock at a per share purchase price of $0.90. The warrants are exercisable at any time nine months after the issuance date within three years of issuance. The Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the consolidated balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the consolidated statement of operations. At inception, March 11, 2019, the fair value of the warrant liability was $198,148, which was recognized as a loss in earnings for the year ended December 31, 2019. As of December 31, 2019, the fair value of the warrant liability was $24,504 and the Company recorded a change in fair value of the warrant liability of $(173,644) related to the warrants for the year ended December 31, 2019. On June 14, 2019, the Company entered into another Investment Unit Purchase Agreement (the “Second Investment Agreement”) to issue and sell investment units to an investor (the “investor”), in which the investment units consist of one share of the common stock of the Company, and a warrant exercisable for one half share of common stock of the Company at an exercise price of $1.25 per share for cash at a price per investment unit of $0.90. On June 24, 2019, the Company sold an aggregate of 166,667 units of the Company’s securities to an investor at a purchase price of $0.90 per unit for total proceeds of $150,000. In connection with the Second Investment Agreement, the investor is entitled to purchase from the Company, at the exercise price, at any time on or after 90 days from the issuance date, 83,333 shares of the Company’s common stock (the “June Warrant Shares”). The gross proceeds from the 166,667 investment units at $0.90 was $150,000. The fair value of the June Warrant Shares at issuance was $83,586 while as of December 31, 2019, the fair value of the warrant liability was $26,881. Accordingly, the Company recorded a change in fair value of the warrant liability of $(56,705) related to the warrants for the year ended December 31, 2019. On August 15, 2019, in connection with the issuance of Note Eleven, the Company issued warrants, of which the value was derived and based off the fair value of Note Eleven, to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after August 15, 2019 and on or before August 15, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Eleven are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At inception, August 15, 2019, the fair value of the warrant liability was $18,542 while as of December 31, 2019, F-45 the fair value of the warrant liability was $9,130. Accordingly, the Company recorded a change in fair value of the warrant liability of $(9,412) related to Note Eleven for the year ended December 31, 2019. On September 16, 2019, in connection with the issuance of Note Twelve, the Company issued warrants, of which the value was derived and based off the fair value of Note Twelve, to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after September 16, 2019 and on or before September 16, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Twelve are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At inception, September 16, 2019, the fair value of the warrant liability was $17,683 while as of December 31, 2019, the fair value of the warrant liability was $9,194. Accordingly, the Company recorded a change in fair value of the warrant liability of $(8,489) related to Note Twelve for the year ended December 31, 2019. On October 11, 2019, in connection with the issuance of Note Thirteen, the Company issued warrants, of which the value was derived and based off the fair value of Note Thirteen, to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after October 11, 2019 and on or before October 11, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Thirteen are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At inception, October 11, 2019, the fair value of the warrant liability was $11,443 while as of December 31, 2019, the fair value of the warrant liability was $9,236. Accordingly, the Company recorded a change in fair value of the warrant liability of $(2,207) related to Note Thirteen for the year ended December 31, 2019. On November 1, 2019, the Company issued warrants to an institution to purchase a total of 100,000 restricted shares of the Company’s common stock at a per share purchase price of $0.435. The warrants are exercisable at any time after the issuance date within five years of issuance. The Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the consolidated balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the consolidated statement of operations. At inception, November 1, 2019, the fair value of the warrant liability was $37,889, which was recognized as a loss in earnings for the year ended December 31, 2019. As of December 31, 2019, the fair value of the warrant liability was $40,063 and the Company recorded a change in fair value of the warrant liability of $2,174 related to the warrants for the year ended December 31, 2019. On December 26, 2019, in connection with the issuance of Note Fourteen, the Company issued warrants, of which the value was derived and based off the fair value of Note Fourteen, to the investor to purchase 12,500 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after December 26, 2019 and on or before December 26, 2024, by delivery to the Company of the Notice of Exercise. F-46 The Company determined that the warrants associated with Note Fourteen are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At inception, December 26, 2019, the fair value of the warrant liability was $5,268 while as of December 31, 2019, the fair value of the warrant liability was $4,687. Accordingly, the Company recorded a change in fair value of the warrant liability of $(581) related to Note Fourteen for the year ended December 31, 2019. A summary of warrant activity is as follows:
Warrant Obligations In connection with the Series B Preferred Stock Purchase Agreement (See Note 15), the Company is obligated to issue warrants to a third-party to purchase 812,073 shares of common stock at $0.325 per share for services rendered. These warrants have been accounted for as warrant obligations and are recognized as a liability on the consolidated balance sheets as of December 31, 2019, 2018 and 2017. For the years ended December 31, 2019, 2018 and 2017, the Company recorded a change in fair value of the warrant obligations of $(676,144), $1,625,398 and $590,436, respectively, and is reflected in the consolidated statements of operations. Although the Company issued warrants during the first quarter of 2018, the rights entitled to the third-party holder of the warrants to purchase shares of the Company’s common stock was not exercised. Upon exercising the right to purchase the Company’s common stock by the third-party, the Company will de-recognize the liability for warrant obligations and reclassify the appropriate amount into equity. The fair value of the Company’s obligation to issue warrants was calculated using the Black-Scholes model and the following assumptions:
F-47 The change in fair value of the financial instruments – warrants is as follows:
2017 Omnibus Incentive Plan The Company’s 2017 Omnibus Incentive Plan (the “2017 Plan”) was adopted by our Board of Directors and a majority of our voting securities on October 17, 2017. The 2017 Plan permits the granting of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and dividend equivalent rights to eligible employees, directors and consultants. We grant options to purchase shares of common stock under the 2017 Plan at no less than the fair value of the underlying common stock as of the date of grant. Options granted under the Plan have a maximum term of ten years. Under the Plan, a total of 5,000,000 shares of common stock are reserved for issuance, of which options to purchase 2,599,945 and 1,004,945 shares of common stock were granted as of December 31, 2019 and December 31, 2018, respectively. Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan On October 22, 2014, BioTrackTHC approved and adopted the BioTrackTHC Stock Plan. The BioTrackTHC Stock Plan set aside and reserved 600,000 shares of BioTrackTHC’s common stock for grant and issuance in accordance with its terms and conditions. Persons eligible to receive awards from the BioTrackTHC Stock Plan include employees (including officers and directors) of BioTrackTHC or its affiliates and consultants who provide significant services to BioTrackTHC or its affiliates (the “Grantees”). The BioTrackTHC Stock Plan permits BioTrackTHC to issue to Grantees qualified and/or non-qualified options to purchase BioTrackTHC’s common stock, restricted common stock, performance units, and performance shares. The term of each award under the BioTrackTHC Stock Plan shall be no more than ten years from the date of grant thereof. BioTrackTHC’s Board of Directors or a committee designated by the Board of Directors is responsible for administration of the BioTrackTHC Stock Plan and has the sole discretion to determine which Grantees will be granted awards and the terms and conditions of the awards granted. The BioTrackTHC Stock Plan will annually increase the number of shares of common stock authorized for issuance thereunder to 15% of the Company’s common stock outstanding as of the first day of each calendar year beginning January 1, 2016 (see Notes 5 and 15). Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Changes in estimates and assumptions are reflected in reported results in the period in which they become known. Use of estimates includes the following: 1) allowance for doubtful accounts, 2) estimated useful lives of property, equipment and intangible assets, 3) intangibles impairment, 4) valuation of convertible notes payable and 5) revenue recognition. Actual results could differ from estimates. Cash Cash consists of checking accounts. The Company considers all F-14 Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and economic conditions. Management charges balances off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company determines when receivables are past due, or delinquent based on how recently payments have been received. 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 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 non-compete agreements and customer relationships. 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, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. Helix reviews goodwill for possible impairment annually during the fourth quarter, or whenever events or circumstances indicate that the carrying amount may not be recoverable. The impairment model prescribes a two-step method for determining goodwill impairment. However, an entity is permitted to first assess qualitative factors to determine whether the two-step goodwill impairment test is necessary. The qualitative factors considered by Helix may include, but are not limited to, general economic conditions, Helix’s outlook, market performance of Helix’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. In the first step, Helix determines the fair value of its reporting unit using a discounted cash flow analysis. If the net book value of the reporting unit exceeds its fair value, Helix then performs the second step of the impairment test, which requires allocation of the reporting unit’s fair value to all of its assets and liabilities using the acquisition method prescribed under authoritative guidance for business combinations with any residual fair value being allocated to goodwill. An impairment charge is recognized when the implied fair value of Helix’s goodwill is less than its carrying amount. Assumptions and estimates used in the evaluation of impairment may affect the carrying value of long-lived assets, which could result in impairment charges in future periods. Such assumptions include projections of future cash flows and the current fair value of the Accounting for Acquisitions In accordance with the guidance for business combinations, the Company determines whether a transaction or other event is a business combination, which requires that the assets acquired, and liabilities assumed constitute a business. Each business combination is then accounted for by applying the acquisition method. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset F-15 acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase. The Company capitalizes acquisition-related costs and fees associated with asset acquisitions and immediately Business Combinations The Company accounts for its business combinations under the provisions of Accounting Standards Codification (“ASC”) Topic 805-10, Business Combinations (“ASC 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: 1) 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 2) if the contingent consideration is classified as a liability, the changes in fair value are recognized in earnings. The estimated fair value of net assets acquired, including the allocation of the fair value to identifiable assets and liabilities, was determined using established valuation techniques. The estimated fair value of the net assets acquired was determined using the income approach to valuation based on the discounted cash flow method. Under this method, expected future cash flows of the business on a stand-alone basis are discounted back to a present value. The estimated fair value of identifiable intangible assets, consisting of software and trade name acquired were determined using the relief from royalty method. The most significant assumptions under the relief from royalty method used to value software and trade names include: estimated remaining useful life, expected revenue, royalty rate, tax rate, discount rate and tax amortization benefit. The discounted cash flow method used to value non-compete agreements includes assumptions such as: expected revenue, term of the non-compete agreements, probability and ability to compete, operating margin, tax rate and discount rate. Management has developed these assumptions on the basis of historical knowledge of the business and projected financial information of the Company. These assumptions may vary based on future events, perceptions of different market participants and other factors outside the control of management, and such variations may be significant to estimated values. Revenue Recognition Under FASB Topic 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains 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 security services revenue is generated from performing armed and unarmed guarding which is contracted for on an hourly basis. Revenues associated with these contracted services are recognized under time-based arrangements as services are provided. The guarding and transportation security business is now a discontinued operation. The Company still provides monitoring services. Additionally, the Company provides transportation security services, which are generally contracted for on a per-run basis and sometimes additional fees and surcharges are also billed to the client depending on the length of the run. Revenues associated with these services are recognized as the transportation service is provided. F-16 As previously noted the Company Contracts with government agencies are subject to milestones and revenue is recognized upon completion of the various milestones within the contract. Each public-sector contract is unique and has different milestones, and may also As stated above, the only performance obligations inherent in our private sector contracts are installation and training, and the operability of the software. The first performance obligation is met once the software is installed and setup on the customer’s server and we have trained the applicable customer personnel on the proper use of the software. The effort to install the software is nominal, requiring the software to be remotely downloaded to the client’s server or on a cloud server, and ensuring that all peripheral equipment is properly integrated. Training is done in three sessions to ensure all applicable client personnel are comfortable with the proper use of the software. At that point, the client has use of the software and our remaining performance obligation is to ensure that the software is operating properly for the customers, for which we charge each of them a monthly fee to use the software. We are not contractually required to update the software or provide ongoing customer support, though we periodically perform these activities as part of delivering fully operable software to our private sector customers. Segment Information Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, 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 Asset information by operating segment is not presented since the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s consolidated financial statements. Expenses Cost of Revenue The cost of revenues is the total cost incurred to obtain a sale and the cost of the goods or services sold. Cost of revenues primarily consisted of Operating Expenses Operating expenses encompass selling general and administrative expenses, salaries and wages, professional and legal fees and depreciation and amortization. Selling, general and administrative expenses consist primarily of rent/moving expenses, advertising and travel expenses. Salaries and wages is composed of non-revenue generating employees. Professional services are principally comprised of outside legal, audit, information technology consulting, marketing and outsourcing services as well as the costs related to being a publicly traded company. Other Income Other income consisted of a gain on the change in fair value of convertible notes, gain on the change in the fair value of warrant liability, loss on the change in fair value of convertible notes – related party, loss on the change in fair value of contingent consideration, loss on issuance of warrants and interest expense. Property and Equipment Property and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful lives. Useful lives are 3 years for vehicles and 5 years for furniture and equipment. Maintenance and repairs are expensed as incurred and major improvements are capitalized. When assets are sold, or retired, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in loss from operations. 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 consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. Advertising Advertising costs are expensed as incurred and included in selling, general and administrative expenses and amounted to Foreign Currency The local currency is the functional currency for one entity’s operations outside the United States. Assets and liabilities of these operations are translated to U.S. dollars at the exchange rate in effect at the end of each period. Income statement accounts are translated at the average exchange rate prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of other comprehensive loss within shareholders’ equity. Gains and losses from foreign currency transactions are included in net loss for the period. Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating loss for financial-reporting and tax-reporting purposes. Accordingly, for Federal and state income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance against the related federal and state deferred tax asset for the Comprehensive Loss Comprehensive loss consists of consolidated net loss and foreign currency translation adjustments. Foreign currency translation adjustments included in comprehensive loss were not tax-effected as investments in international affiliates are deemed to be permanent. Distinguishing Liabilities from Equity The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity, 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. Share-based Compensation The Company accounts for stock-based compensation to employees in conformity with the provisions of ASC Topic 718, Stock Based Compensation. Stock-based compensation to employees consist of stock option grants and restricted shares that are recognized in the statement of operations based on their fair values at the date of grant. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC Topic 718, based upon the fair-value of the underlying instrument. The equity instruments are valued using the Black-Scholes valuation model. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period which services are received. The Company calculates the fair value of option grants utilizing the Black-Scholes pricing model and estimates the fair value of the stock based upon the estimated fair value of the common stock. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized on a straight- line basis over the requisite service period of the award. Fair Value of Financial Instruments ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”) provides a framework for measuring fair value in accordance with generally accepted accounting principles. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC Topic 820 are described as follows: Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 – Inputs that are unobservable for the asset or liability. Certain assets and liabilities of the Company are required to be recorded at fair value either on a recurring or non-recurring basis. Fair value is determined based on the price that would be received for an asset or paid to transfer a liability in an orderly transaction based on market participants. The following section describes the valuation methodologies that the Company used to measure, for disclosure purposes, its financial instruments at fair value. Convertible notes payable The fair value of the Company’s convertible notes payable, approximated the carrying value as of Additional Disclosures Regarding Fair Value Measurements The carrying value of cash, accounts receivable, prepaid expenses, Earnings (Loss) per Share The Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the income statement for all entities with complex capital structures. Basic EPS is computed by dividing net
The anti-dilutive shares of common stock outstanding for
Reclassifications Certain reclassifications have been made to the prior period financial statements to conform to the current period financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported. Recent Accounting Pronouncements In February 2016, the FASB issued ASU 2016-.02, Leases (Topic 842) (“Topic 842”) which requires the recognition of right-of-use assets and lease liabilities on the balance sheet. The most prominent of the changes in the standard is the recognition of right-of-use (“ROU”) assets and lease liabilities by lessees for those leases classified as operating leases. The Company adopted the new standard on January 1, 2019 and used the modified retrospective approach with the effective date as the date of initial application. Consequently, prior period balances and disclosures have not been restated. The Company elected certain practical expedients, which among other things, allowed us to carry forward prior conclusions about lease identification and classification. Adoption of the standard resulted in the balance sheet recognition of additional lease assets and lease liabilities of approximately $1,500,000. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company currently has elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in separate lease and non-lease components for all our leases. For additional information regarding the Company’s leases, see Note In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company adopted this ASU as of January 1, 2019. The amendments in this ASU did not have a material impact on the Company’s consolidated financial statements. In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220); Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The F-21 amendments in this ASU allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Act and will improve the usefulness of information reported to financial statement users. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of the ASU. The Company adopted this ASU as of January 1, 2019. The amendments in this ASU did not have a material impact on the Company’s consolidated financial statements. In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (ASC 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from nonemployees and applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. ASC 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. This update is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company adopted this ASU as of January 1, 2019. The amendments in this ASU did not have a material impact on the Company’s consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the Company’s consolidated financial statements and related
Adoption of ASC 606 Revenue from Contracts with Customers Disaggregation of revenue
The following is a description of the principal activities from which we generate our revenue. Security and Monitoring Revenue Helix provides monitoring of security alarms and cameras, which are charged out at an hourly rate, with invoices typically sent to clients shortly after each month-end for the previous month, with revenue being recognized over time. The customer simultaneously receives and consumes benefits provided by the Helix performance. F-22 Systems Installation Revenue Security systems, including Internet Protocol Software The Company generates revenue from developing and licensing seed to sale cannabis compliance software to both private-sector and public-sector (government agencies) clients that are involved in cannabis related operations. The Company also generates revenue from on-going training, support and software customization services. The private-sector software entails cultivation tracking, inventory management, point of sale and analytic reporting to assist businesses in meeting their compliance requirements and effectively managing their businesses. Customers within the private sector business are charged an initial one-time installation fee and the revenues associated with these services are recognized upon completion of installation and configuration at a point in time. After the installation and configuration of the software is completed, the customer is invoiced monthly and revenues associated with these services are recognized monthly over a period of time in which the customer continues to use the software and related services. The public-sector software assists government agencies in efficient oversight of cannabis related business under their jurisdiction. Revenues associated with governmental contracts are longer-term in nature and recognized upon completion of certain milestones over a period of time or on a completed-contract basis at a point in time. The Company considers the contract to be complete when all significant costs have been incurred and the customer accepts the project. Costs incurred prior to the customer accepting the project are deferred and reflected on the Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in accordance with ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Generally, the Company’s contracts include a single performance obligation that is separately identifiable, and therefore, distinct. Under ASC 606, the allocation of transaction price is not necessary if only one performance obligation is identified. Significant Judgments Accounting for long-term contracts involves the use of various techniques to estimate total contract revenue, costs and satisfaction of performance Costs to Obtain or Fulfill Contract The Company’s costs to fulfill or obtain contracts with customers primarily consist of commissions and legal costs. The Company provides sales team members with commissions at 0-6%. Although sales commissions are incremental in nature and are only incurred when a contract is obtained, there is no up-front commission paid on the satisfactory obtainment of a contract, resulting in no sales commissions being capitalized at F-23
Security Grade Acquisition On June 2, 2017, the Company entered into a Membership Interest Purchase Agreement (the “Agreement”) in which the Company purchased all issued and outstanding Units of Security Grade Protective Services, Ltd. (“Security Grade”), which comprised of 800,000 Class A Units and 200,000 Class B Units. At closing, the Company delivered $800,000 in cash and 207,427 non-qualified stock options (the “Initial Stock Options”). Furthermore, provided that, within the first 60 days following the closing, no material customer identified in the Agreement terminates its contractual relationship with the Company and that all contracts with such material customers are in full force and effect without default or cancellation as of the 60th day following the closing, on the 61st day following the closing, the Company shall deliver an additional $800,000 in cash and issue 207,427 additional stock options (the “Additional Stock Options”). In the event of termination, cancellation or default of any contract with one or more material customer identified in the Agreement within the first 60 days following the closing, the stock options received by the acquiree shall be reduced and/or forfeited to the extent necessary (pro rata based upon their ownership interest in the Company immediately preceding the closing) by a percentage equal to the revenue received by the Company from the terminating customer(s) in the 180 days immediately preceding such termination divided by the revenue received by the Company from all material customers identified in the Agreement in the 180 days immediately preceding such termination. As of December 31, 2019 and 2018, the Company had a liability pursuant to the Agreement of $0 and $101,667, respectively, payable following the closing. The merger is being accounted for as a business combination in accordance with ASC 805. The Company’s allocation of the purchase price was calculated as follows:
The initial stock options are included as part of the purchase price. The Company determined the fair value of the contingent consideration to be $916,643 at June 2, 2017 and recorded it as a liability in its unaudited consolidated balance sheets. The Company satisfied their contingent consideration liability during the F-24 third quarter of 2017. During the year ended December 31, 2018, the Company reached settlement agreements with all six selling members. As a result of these settlements, a gain on reduction of obligation pursuant to acquisition in the amount of $607,415 has been recorded for the year ended December 31, 2018. BioTrackTHC Acquisition In connection with closing the BioTrackTHC Merger, the Company issued 38,184,985 unregistered shares of Company common stock to BioTrackTHC stockholders, of which 1,852,677 shares were held back to satisfy indemnification obligations in the BioTrackTHC Merger Agreement, if necessary. The Company also assumed the BioTrackTHC Stock Plan, pursuant to which options exercisable for 8,132,410 shares of Company common stock are outstanding so that the BioTrackTHC stockholders owned approximately 48% of the Company on a fully diluted basis as of the BioTrackTHC Closing Date. The BioTrackTHC Merger is being accounted for as a business combination in accordance with ASC 805. The Company’s allocation of the purchase price was calculated as follows:
Total acquisition costs for the BioTrackTHC merger incurred during the year ended December 31, 2018 was $116,624, and is included in selling, general and administrative expense in the Company’s consolidated statements of operations. Engeni SA Acquisition On the Engeni Closing Date, in connection with closing the Engeni Merger Agreement, the Company issued 366,700 shares of Company common stock to Engeni US members. Furthermore, the Company may also issue Engeni US members 366,700 and 366,600 shares of Parent common stock upon the achievement of specific objectives. If applicable, the Company will pay Engeni US members the aggregate amount of $100,000, on a pro rata basis, if Engeni SA reaches financial breakeven on or before December 31, 2018, as determined by the Company’s Chief Financial Officer and Scott Zienkewicz. The Engeni Merger is being accounted for as a business combination in accordance with ASC 805. F-25 During the first quarter of 2019, it was determined Engeni SA did not
Tan’s International Security On 250,000 shares of Helix Stock at $25,000 at closing $25,000 on the 4-month anniversary of the Tan Security Closing Date $25,000 on the 8-month anniversary of the Tan Security Closing Date $25,000 on the 12-month anniversary of the Tan Security Closing Date The Tan Security Acquisition is being accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the Tan Security Acquisition. These values are subject to change as we perform additional reviews of our assumptions utilized. F-26 The Company has made a provisional allocation of the purchase price of the Tan Security transaction to the assets acquired and the liabilities assumed as of the purchase date. The following table summarizes the provisional purchase price allocations relating to the Tan Security Acquisition:
Green Tree International, Inc. Pursuant to the Amercanex Merger Agreement, To secure the indemnification obligations of the GTI shareholders to the Company under the GTI Merger Agreement, 4,140,274 of the Company shares In connection with closing the GTI Merger on September 10, 2019, the Company issued 16,765,727 unregistered shares of its common stock to GTI stockholders. In connection with the GTI Merger, Steve Janjic joined the board of directors of the Company. The GTI Merger is being accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the GTI The Company has made a provisional allocation of the purchase price of the GTI transaction to the assets acquired and the liabilities assumed as of the purchase date. The following table summarizes the provisional purchase price allocations relating to the GTI transaction:
Unaudited Pro Forma Results GTI contributed revenues of $0 and a net loss of $73,644 for the period September 10, 2019 through December 31, 2019, included in the Company’s consolidated statements of operations.
On July 31, 2020, the Company
The accompanying consolidated balance sheets include the following carrying amounts of assets and liabilities related to discontinued operations:
The
7. Property and Equipment, Net At
Depreciation
The following table summarizes the Company’s intangible
The Company uses the straight-line method to determine the amortization expense for its definite lived intangible assets. Amortization expense related to the purchased intangible assets was The estimated future amortization expense for the
The following table summarizes the Company’s
F-30
Costs, estimated earnings and billings on uncompleted contracts are summarized as follows as of
As of December 31, 2019, 2018 and 2017, accounts payable and accrued expenses consisted of the following:
On March 1, 2019, the Company entered into a $450,000 Secured Convertible Promissory Note (“Note Ten”) with an independent investor (the “investor”). The investor provided the Company with $450,000 in cash proceeds, which was received by the Company during the period ended June 30, 2019. Note Ten will mature on March 1, 2020 and bear interest at a rate of 25% per annum, payable by the Company half in cash and half in kind on a quarterly basis. The principal balance of Note Ten is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at the lower of $0.90 per share or a 30% discount to the Company’s 30-day weighted average listed price per share immediately before the date of conversion. In conjunction with Note Ten, the Company issued a warrant to the investor to purchase 160,715 shares of the Company’s common stock at $1.40 per share. The Company evaluated Note Ten in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Ten will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. During 2019, the investor elected their option to partially convert $280,000 in principal of Note Ten into 875,894 shares of the Company’s common stock. As of December 31, 2019, the fair value of Note Ten was $202,125. Accordingly, the Company recorded a change in fair value of $32,125 related to Note Ten for the year ended December 31, 2019. In addition, the company recorded a debt discount relating to the warrants issued in the amount of $355,847 based on the relative fair value of the warrants at inception of Note Ten. Debt discounts amortized to interest expense was $297,352 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $58,495. In May, September, and December 2019, the Company issued 15,625, 16,568 and 19,401 restricted shares of common stock as paid-in-kind (“PIK”) interest payments in the amount of $14,062, $14,063, and $12,029, respectively. Accrued interest expense associated with Note Ten was $3,542 as of December 31, 2019, which includes PIK interest payable. On August 15, 2019, the Company entered into a $400,000 Fixed Convertible Promissory Note (“Note Eleven”) with the investor. The investor provided the Company with $380,000 in cash proceeds, which was received by the Company during the period ended September 30, 2019. The additional $20,000 was retained by the investor for due diligence and legal bills for the transaction and recorded as a debt discount. Note Eleven will mature on May 15, 2020 and bear interest at a rate of 10% per annum, payable by the Company in cash. The principal balance of Note Eleven is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Eleven. In conjunction with Note Eleven, the Company issued a warrant to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. The Company evaluated Note Eleven in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Eleven will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Eleven was $204,444. Accordingly, the Company recorded a change in fair value of $195,556 related to Note Eleven for the year ended December 31, 2019. In addition, the company recorded a debt discount of $38,543 relating to the warrants issued in the amount of $18,543 based on the relative fair value of the warrants themselves at inception of Note Eleven and $20,000 relating to legal fees. Debt discounts amortized to interest expense were $19,412 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $19,131. Accrued interest expense associated with Note Eleven was $17,460 as of December 31, 2019. F-32 On September 16, 2019, the Company entered into a $450,000 Fixed Convertible Promissory Note (“Note Twelve”) with the investor. The investor provided the Company with $427,500 in cash proceeds, which was received by the Company during the period ended December 31, 2019. The additional $22,500 was retained by the investor for due diligence and legal bills for the transaction and was recorded as a debt discount. Note Twelve will mature on June 16, 2020 and bear interest at a rate of 10% per annum, payable by the Company in cash. The principal balance of Note Twelve is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Twelve. In conjunction with Note Twelve, the Company issued a warrant to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. The Company evaluated Note Twelve in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Twelve will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Twelve was $230,000. Accordingly, the Company recorded a change in fair value of ($220,000) related to Note Twelve for the year ended December 31, 2019. In addition, the company recorded a debt discount of $40,183 relating to the warrants issued in the amount of $17,683 based on the residual fair value of the warrants themselves at inception of Note Twelve and $22,500 relating to legal fees. Debt discounts amortized to interest expense were $15,545 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $24,638. Accrued interest expense associated with Note Twelve was $18,285 as of December 31, 2019. On October 11, 2019, the Company entered into a $450,000 Fixed Convertible Promissory Note (“Note Thirteen”) with the investor. The investor provided the Company with $427,500 in cash proceeds, which was received by the Company during the period ended December 31, 2019. The additional $22,500 was retained by the investor for due diligence and legal bills for the transaction and was recorded as a debt discount. Note Thirteen will mature on July 11, 2020 and bear interest at a rate of 10% per annum, payable by the Company in cash. The principal balance of Note Thirteen is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Thirteen. In conjunction with Note Thirteen, the Company issued a warrant to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. The Company evaluated Note Thirteen in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Thirteen will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Thirteen was $230,000. Accordingly, the Company recorded a change in fair value of ($220,000) related to Note Thirteen for the year ended December 31, 2019. In addition, the company recorded a debt discount of $33,943 relating to the warrants issued in the amount of $11,443 based on the residual fair value of the warrants themselves at inception of Note Thirteen and $22,500 relating to legal fees. Debt discounts amortized to interest expense were $10,034 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $23,909. Accrued interest expense associated with Note Thirteen was $16,022 as of December 31, 2019. On December 26, 2019, the Company entered into a $210,526 Fixed Convertible Promissory Note (“Note Fourteen”) with the investor. The investor provided the Company with $200,000 in cash proceeds, which was received by the Company during the period ended December 31, 2019. The additional $10,526 was retained by the investor for due diligence and legal bills for the transaction and was recorded as a debt discount. Note Fourteen will mature on September 26, 2020 and bear interest at a rate of 12% per annum, payable by the Company in cash. The principal balance of Note Fourteen is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor F-33 elects to convert all or part of Note Fourteen. In conjunction with Note Fourteen, the Company issued a warrant to the investor to purchase 12,500 shares of the Company’s common stock at $1.00 per share. The Company evaluated Note Fourteen in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Fourteen will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Fourteen was $107,602. Accordingly, the Company recorded a change in fair value of $102,924 related to Note Fourteen for the year ended December 31, 2019. In addition, the company recorded a debt discount of $15,794 relating to the warrants issued in the amount of $5,268 based on the residual fair value of the warrants themselves at inception of Note Fourteen and $10,526 relating to legal fees. Debt discounts amortized to interest expense were $287 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $15,507. Accrued interest expense associated with Note Fourteen was $463 as of December 31, 2019. On November 15, 2019, the Company entered into a $5,000,000 Unsecured Convertible Promissory Note (“Note Fifteen”) with the investor. The investor provided the Company with $385,000 in cash proceeds, which was received by the Company during the period ended December 31, 2019. Note Fifteen will mature on November 15, 2021 and bear interest at a rate of 12% per annum, payable by the Company in cash. The principal balance of Note Fifteen is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Fifteen. As of
Advances from Related Parties The Company had a loan outstanding from a former Company executive. The advance did not accrue interest and had no definite repayment terms. The loan balance was $0, $45,250 and $124,570 for the years ended December 31, 2019, 2018 and 2017, respectively. Convertible Note Payable On March 11, 2016, the Company entered into an Unsecured Convertible Promissory Note (“Note Eight”) with a Director of the Company (the “Related Party Holder”). The Related Party Holder provided the Company with $150,000 in cash, and the Company promised to pay the principal amount, together with interest at an annual rate of 7%, with principal and accrued interest on Note Eight due and payable on December 31, 2017 (unless converted under terms and provisions as set forth below). The principal balance of Note Eight was convertible at the election of the Related Party Holder, in whole or in part, at any time or from time to time, into the Company’s common stock at a forty percent (40%) discount to the average market closing price for the previous five (5) trading days, preceding the date of conversion election. The Company evaluated Note Eight in accordance with ASC 480, Distinguishing Liabilities from Equity and determined that Note Eight will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. On February 20, 2018, the Company entered into an agreement to amend Note Eight (this “Amendment”) with the Related Party Holder. The Company and the Related Party Holder desired to extend the maturity date of Note Eight to August 20, 2018. Note Eight was amended as follows. The Company promises to pay (i) all accrued interest on the unpaid principal amount through December 31, 2017 and (ii) $25,000 in principal within 5 business days of the date of the Amendment. The Company agrees to issue 15,000 shares of restricted Company common stock as an inducement for this amendment within 10 business days of the date of the Amendment. The principal amount of the note will be reduced to $125,000. Unless extended by the Company, converted or prepaid earlier, all unpaid principal and unpaid accrued interest on Note Eight shall be due and payable on August 20, 2018 (the “Maturity Date”). All provisions related to conversion of Note Eight into equity securities of the Company were terminated as part of this Amendment. As of February 20, 2018, the fair value of the liability was $239,343, however due to termination of the conversion of the note into equity securities, Note Eight will be valued in its principal amount of $125,000 and On March 1, 2019, the Company entered into a $1,500,000 Secured Convertible Promissory Note (“Note Nine”) with Rose Capital Fund I, LP (the Related Party Holder”). A Managing Member of the Related Party Holder is also a Director of the Company. The Related Party Holder provided the Company with $1,475,000 in cash proceeds, which was received by the Company during the period ended The Company evaluated Note Nine in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Nine will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, In addition, the company recorded a debt discount relating to the warrants issued in the amount of $1,186,153 based on the relative fair value of the warrants at inception of Note Nine. The additional $25,000 retained by the Warrants On March 1, 2019, in connection with the issuance of Note Nine, the Company issued warrants, of which the value was derived and based off the fair value of Note Nine, to the investor to purchase 535,715 shares of the Company’s common stock at $1.40 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after March 1, 2019 and on or before March 1, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Nine are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations.
F-35 On February 13, 2017, the Company entered into an unsecured promissory note in the amount of $180,000. The unsecured promissory note has a fixed interest rate of 8% and was due and payable on June 30, 2017. In conjunction with the Series B Preferred Stock Purchase Agreement, as discussed in Note 16, the Company satisfied its liability in exchange for Series B Preferred Stock. The interest expense associated with the unsecured promissory note was $0 and $2,570 for the years ended December 31, 2018 and 2017, respectively. On August 29, 2018, the Company entered into an unsecured promissory note in the amount of $250,000. The unsecured promissory note has a fixed interest rate of 7% and is due and payable on July 31, 2019. As of December 31, 2018 the unsecured promissory note was paid off in full. The interest expense associated with the unsecured promissory note was $0 and $3,021 for the years ended December 31, 2019 and 2018, respectively. On January 3, 2019, the Company entered into an unsecured promissory note with the Related Party Holder in the amount of $280,000. The unsecured promissory note has a fixed interest rate of 10% and is due and payable on March 31, 2019. On March 2, 2019, the unsecured promissory note was paid off in full. On July 29, 2019, the Company entered into an unsecured promissory note with the Related Party Holder in the amount of $300,000. The unsecured promissory note has a fixed interest rate of 12% and is due and payable on January 29, 2020.
As of
The interest expense associated with the notes payable was In connection with the GTI Merger, the Company assumed a $400,000 Senior Secured Convertible Debenture (the “Convertible Debenture”) (See Note 5). The Convertible Debenture will mature on July 31, 2021 and bears interest at a rate of 10% per annum, payable by the Company to the Lender. In the event that Lender elects to convert the Convertible Debenture into Helix In addition, the Company shall have the right to require the
Subscription Agreements The table below reflect shares of restricted common stock issued in relation to Subscription Agreements during the
The table below reflect shares of restricted common stock issued in relation to Subscription Agreements during the year-ended December 31, 2017:
Other Common Stock Issuances In December 2017, the Company issued In In June and In July 2018, the Company issued 200,000 shares of restricted common stock to a consultant per a consulting agreement. In August and December 2018, the Company issued 100,000 and 25,000 shares of restricted common stock as part of an agreement entered into with an investor relation consultant. In August 2018, the Company issued 366,700 shares of common stock as part of the Engeni US acquisition. In December 2018, the Company issued 100,000 shares of restricted common stock to a consultant as an inducement to enter into the agreement. In January 2019, the Company issued 20,000 shares of restricted common stock to a consultant per a consulting agreement and recorded shared based compensation expense of $27,400. In March and June 2019, the Company issued 1,255,222 and 166,667 shares of common stock as part of investment unit purchase agreements (see Note F-37 In March and June 2019, certain option holders exercised their rights under the BioTrackTHC Stock Plan and were issued 62,847 and 47,084 shares of common stock, respectively, for no cash proceeds. In March and April 2019, certain option holders exercised their rights under the BioTrackTHC Stock Plan and were issued 6,082 and 57,461 shares of common stock for total proceeds of $4,805 and $21,808, respectively. In April 2019, the Company issued 250,000 shares of common stock as part of the Tan Security acquisition. In April 2019, a selling shareholder of Security Grade exercised their right to purchase 15,101 shares of the Company’s common stock. In April 2019, the Company issued 733,300 shares of common stock in satisfaction of the Engeni contingent consideration (see Note 5). In May, September, October and December 2019, the Company issued In August 2019, the Company issued 16,765,727 shares of common stock as part of the GTI acquisition (see Note 5). In November 4, 2019, the Company issued 100,000 shares of restricted common stock resulting from a consulting agreement. Conversion of Convertible Note to Common Stock On March 7, 2019 and March 28, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $75,882 and $42,055 in principal of the convertible note into 100,000 and 55,421 shares of the Company’s common stock. On October 18, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $20,000 in principal of the convertible note into 56,738 shares of the Company’s common stock. On November 15, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $20,000 in principal of the convertible note into 63,012 shares of the Company’s common stock. On November 7, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $40,000 in principal of the convertible note into 126,024 shares of the Company’s common stock. On November 11, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $100,000 in principal of the convertible note into 315,060 shares of the Company’s common stock. On November 19, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $100,000 in principal of the convertible note into 315,060 shares of the Company’s common stock. Amended Convertible Note On February 20, 2018, the Company entered into an agreement to amend a Convertible Promissory Note with the undersigned holder initially issued to such Holder and dated March 2016. The Company and Holders desired to extend the maturity date of the Note to August 20, 2018. The holder was issued 15,000 shares of the Company’s restricted common stock The Note was amended as follows. The Company promises to pay (i) all accrued interest on the unpaid principal amount through December 31, 2017 and (ii) $25,000 in principal within 5 business days of the date of F-38 the Amendment. The Company agrees to issue 15,000 shares of restricted Company common stock as an inducement for this amendment within 10 business days of the date of the Amendment. The principal amount of the note will be reduced to $125,000. Unless extended by the Company, converted or prepaid earlier, all unpaid principal and unpaid accrued interest on this Note shall be due and payable on August 20, 2018 (the “Maturity Date”). All provisions related to conversion of the Note into equity securities of the Company are hereby deleted. On May 16, 2018, the Company entered into a second amendment agreement of a Convertible Promissory Note with the holder of a 10% fixed secured convertible promissory note. The new Maturity Date is November 16, 2018. The new interest rate is 5%. The note is prepayable at 120% of the unpaid balance upon 10 business days’ notice to the holder, which has the option to convert, in whole or in part, during the notice period. The conversion price shall be equal to a 40% discount to the lowest one-day Volume Average Weighted Price (“VWAP”) during the 30 trading days preceding such conversion. 2017 Omnibus Incentive Plan The table below reflects shares issued under the 2017 Omnibus Incentive Plan during the year-ended December 31, 2019.
The table below reflects shares issued under the 2017 Omnibus Incentive Plan during the year-ended December 31, 2018.
Series A convertible preferred stock In October 2015, the Company issued a total of 1,000,000 shares of its Class A Preferred Stock. The Class A Preferred Stock included super majority voting rights and were convertible into 60% of the Company’s common stock. During the third quarter of 2017, the Company modified the conversion rate on the Class A Preferred Stock to a 1:1 ratio. This modification reduced the amount of potentially dilutive Convertible Series A Stock by 15,746,127 shares to a total of 1,000,000 at September 30, 2017. Series B convertible preferred stock Series B Preferred Stock Purchase Agreement On May 17, 2017, the Company sold to accredited investors an aggregate of 5,781,426 Series B Preferred Shares for gross proceeds of $1,875,000 and converted a $500,000 Unsecured Convertible Promissory Note into 1,536,658 Series B Preferred Shares. This tranche of Series B Preferred Shares are convertible into 7,318,084 shares of common stock based on the current conversion price, at a purchase price of $0.325 per share. F-39 In connection with the Series B Preferred Stock Purchase Agreement, the Company is obligated to issue warrants to a third-party for services to purchase 462,195 shares of common stock at $0.325 per share. These warrants have been accounted for as an obligation to issue because as of the balance sheet date the Company did not deliver the warrants though incurred the obligation; accordingly, they were recognized as a liability on the unaudited condensed consolidated balance sheet and cost of issuance of Series B preferred shares on the unaudited condensed consolidated statement of shareholders’ equity. In accordance with the Certificate of Incorporation, there were 9,000,000 authorized Series B Preferred Stock at a par value of $ 0.001. On August 23, 2017 the Certificate of Designations was amended and restated to increase the number of shares of Series B Preferred Stock authorized to be 17,000,000. Conversion: Each Series B Preferred Share is convertible at the option of the holder into such number of shares of the Company’s common stock equal to the number of Series B Preferred Shares to be converted, multiplied by the Preferred Conversation Rate. The Preferred Conversion Rate shall be the quotient obtained by dividing the Preferred Stock Each share of Based on the guidance in ASC 470-20-20, the Company determined that a beneficial conversion feature exists, as the effective conversion price for the Series B preferred shares at issuance was less than the fair value of the common stock into which the preferred shares are convertible. A beneficial conversion feature based on the intrinsic value at the date of issuances for the Series B preferred shares is scheduled below. For the year ended December 31, 2018, the beneficial conversion amount of $22,202,194 was accreted back to F-40
Dividends, Voting Rights and Liquidity Value: Pursuant to the Certificate of Designations, the Series B Preferred Shares shall bear no dividends, except that if the Board shall declare a dividend payable upon the then-outstanding shares of the Company’s common stock. The Series B Preferred Shares vote together with the common stock and all other classes and series of stock of the Company as a single class on all actions to be taken by the stockholders of the Company including, but not limited to, actions amending the certificate of incorporation of the Company to increase the number of authorized shares of the common stock. Upon any dissolution, liquidation or winding up, whether voluntary or involuntary, holders of Series B Preferred Shares are entitled to (i) first receive distributions out of our assets in an amount per share equal to the Stated Value plus all accrued and unpaid dividends, whether capital or surplus before any distributions shall be made on any shares of common stock and (ii) second, on an as-converted basis alongside the common stock. Classification: These Series B Preferred Shares are classified within permanent equity on the Company’s consolidated balance sheet as they do not meet the criteria that would require presentation outside of permanent equity under ASC 480, Distinguishing Liabilities from Equity.
On March On February 6, 2019 the Company awarded an executive an option to purchase a total of 100,000 shares of the Company’s common stock at an exercise price $1.51 per share. These options vested on May 6, 2019 and have an expiration date of February 6, 2024. On March 19, 2019 the Company awarded the Chief Financial Officer, two options to purchase a total of 300,000 shares of the Company’s common stock at prices ranging from $2.35 to $2.59 per share. These options shall vest over a three-year period from March 2020 to March 2022 and have expiration dates ranging from March 2024 to March 2029. F-41 On March 19, 2019 the Company awarded the Chief Executive Officer, two options to purchase a total of 500,000 shares of the Company’s common stock at prices ranging from $2.35 to $2.59 per share. These options shall vest over a three-year period from March 2020 to March 2022 and have expiration dates ranging from March 2024 to March 2029. In May and June 2019, the Company awarded five employees, options to purchase a total of 50,000and 170,000 shares of the Company’s common stock at prices ranging from $1.05 to $2.03 per share. These options shall vest over a period ranging from September 2019 to June 2020 and have expiration dates ranging from May 2024 to June 2024. On November 1, 2019, the Company awarded an investor an option to purchase a total of 50,000 shares of the Company’s common stock at an exercise price of $.435 per share. All of the options shall vest immediately. These options shall expire on November 1, 2022. On December 1, 2019, the Company awarded an investor an option to purchase a total of 50,000 shares of the Company’s common stock at an exercise price of $.535 per share. All of the options shall vest immediately. These options shall expire on December 1, 2022. On December 27, 2019, the Company awarded various BioTrackTHC employees options to purchase a total of 1,730,000 shares of the Company’s common stock at an exercise price of $.52 per share. 432,500 of the options shall vest immediately and 432,500 of the options shall vest on June 27, 2020, December 27, 2020 and June 27, 2021. These options shall expire on December 27, 2024. The fair value of the stock options was estimated using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgement. The assumptions at the inception date are as follows:
On March 6, 2018, the Company filed a lawsuit in the United States Court for the
As part of the BioTrackTHC Merger Agreement entered into between the Company and BioTrackTHC, on June 1, 2018 (see Note 5), the Company assumed the BioTrackTHC Stock Plan, pursuant to which options exercisable at prices between $0.001 to $1.66 per share for 8,132,410 shares of Company common stock are outstanding so that the BioTrackTHC stockholders owned approximately 48% of the Company on a fully diluted
On February 13, 2017, the Company entered into a $183,333 Fixed secured Convertible Promissory Note (“Note Five”) with a fourth investor (the “Fourth Investor”). The Fourth Investor provided the Company with $166,666 in cash, which was received by the Company during the quarter ended March 31, 2017. The additional $16,666 was retained by the Fourth Investor for due diligence and legal bills for the transaction. In conjunction with Note Five, the Company issued a warrant, of which the value was derived and based off the fair value of Note Five, to the fourth investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after February 14, 2017 and on or before February 12, 2022, by delivery to the Company of the Notice of Exercise. On December 11, 2017, the investor exercised their purchase right in a net settlement cashless exercise. In connection with the issuance of the Note Seven the Company issued a warrant (the “Warrant”) to the Purchaser to purchase 150,000 shares of Common Stock pursuant to the terms and provisions thereunder. The Warrant is exercisable at any time within five (5) years of issuance and entitles the Purchaser to purchase 150,000 shares of the Common Stock at an exercise price of the lesser of either i) $1.00 or ii) a 50% discount to the lowest closing bid price thirty (30) trading days immediately preceding conversion, subject to certain adjustments. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after April 26, 2017 and on or before April 26, 2022, by delivery to the Company of the Notice of Exercise. On December 11, 2017, the investor exercised their purchase right in a net settlement cashless exercise. During the year ended December 31, 2018, the Company entered into a Graduated Lock-Up Letter to induce the entering into of a consulting agreement in exchange for 50,000 shares of the Company’s common stock and the granting of 575,000 warrants for the purchase of common stock of the Company. The company recognized compensation expense of $943,000 for the year ended December 31, 2018 relating to the granting of the warrants. On December 12, 2018, the Company sold an aggregate of 222,222 units (the “December 2018 Units”) of the Company’s securities to an investor at a purchase price of $0.90 per unit for total proceeds of $200,000. Each December 2018 Unit consists of one share of the Company’s common stock and a warrant (“December F-43 Warrant”) exercisable to purchase one half of one share of common stock of the Company. As of December 31, 2019, the warrants granted were not exercised. Each December Warrant is exercisable at any time on or after 90 days from the issuance date until the four-year anniversary issuance date. Each December Warrant is exercisable at a price of $1.25 per one half of one share of common stock (thereby requiring the exercise of two warrants to purchase one share of common stock). The Company determined that the December Warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding December Warrants. In accordance with the accounting guidance, the outstanding December Warrants are recognized as a warrant liability on the consolidated balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the consolidated statement of operations. At inception, December 12, 2018, the fair value of the warrant liability was $108,000 while as of December 31, 2019 and 2018, the fair value of the warrant liability was $33,100 and $92,000, respectively. Accordingly, the Company recorded a change in fair value of the warrant liability of $(58,900) and $(16,000) related to the warrants for the years ended December 31, 2019 and 2018, respectively. On March 1, 2019, in connection with the issuance of Note Ten, the Company issued warrants, of which the value was derived and based off the fair value of Note Ten, to the investor to purchase 160,715 shares of the Company’s common stock at $1.40 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after March 1, 2019 and on or before March 1, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Ten are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At inception, March 1, 2019, the fair value of the warrant liability was $355,847 while as of December 31, 2019, the fair value of the warrant liability was On January 10, 2019, the Company entered into an Investment Unit Purchase Agreement (the “First Investment Agreement”) to issue and sell investment units to an investor, in which the investment units consist of one share of the common stock of the Company, and a warrant exercisable for one half share of common stock of the Company at an Exercise Price of $1.25 per share for cash at a price per investment unit of $0.90. On March 5, 2019, the Company sold an aggregate of 1,255,222 units of the Company’s securities to an investor at a purchase price of $0.90 per unit for total proceeds of $1,129,700. In connection with the First Investment Agreement, the investor is entitled to purchase from the Company, at the Exercise Price, at any time on or after 90 days from the issuance date, 627,611 shares of the Company’s common stock (the “March Warrant Shares”). The Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. The fair value of the March Warrant Shares at issuance on January 10, 2019 is in excess of the proceeds received, the warrant liability is required to be recorded at fair value with the excess of the fair value over the proceeds received recognized as a loss in earnings. The gross proceeds from the 1,255,222 investment units at F-44 $0.90 was $1,129,700. The fair value of the March Warrant Shares at issuance was $1,717,506. The amount to be recognized as a loss in earnings is calculated as follows:
As of On March 11, 2019, the Company issued warrants to an investment bank to purchase a total of 100,000 restricted shares of the Company’s common stock at a per share purchase price of $0.90. The warrants are exercisable at any time The Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the On June 14, 2019, the Company entered into another Investment Unit Purchase Agreement (the “Second Investment Agreement”) to issue and sell investment units to an investor (the “investor”), in which the investment units consist of one share of the common stock of the Company, and a warrant exercisable for one half share of common stock of the Company at an exercise price of $1.25 per share for cash at a price per investment unit of $0.90. On June 24, 2019, the Company sold an aggregate of 166,667 units of the Company’s securities to an investor at a purchase price of $0.90 per unit for total proceeds of $150,000. In connection with the Second Investment Agreement, the investor is entitled to purchase from the Company, at the exercise price, at any time on or after 90 days from the issuance date, 83,333 shares of the Company’s common stock (the “June Warrant Shares”). The gross proceeds from the 166,667 investment units at $0.90 was $150,000. The fair value of the June Warrant Shares at issuance was $83,586 while as of On August 15, 2019, in connection with the issuance of Note Eleven, the Company issued warrants, of which the value was derived and based off the fair value of Note Eleven, to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after August 15, 2019 and on or before August 15, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Eleven are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At F-45 the fair value of the warrant liability was On September 16, 2019, in connection with the issuance of Note Twelve, the Company issued warrants, of which the value was derived and based off the fair value of Note Twelve, to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after September 16, 2019 and on or before September 16, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Twelve are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At inception, September 16, 2019, the fair value of the warrant liability was $17,683 while as of December 31, 2019, the fair value of the warrant liability was On October 11, 2019, in connection with the issuance of Note Thirteen, the Company issued warrants, of which the value was derived and based off the fair value of Note Thirteen, to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after October 11, 2019 and on or before October 11, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Thirteen are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At inception, October 11, 2019, the fair value of the warrant liability was $11,443 while as of December 31, 2019, the fair value of the warrant liability was On November 1, 2019, the Company issued warrants to an institution to purchase a total of 100,000 restricted shares of the Company’s common stock at a per share purchase price of $0.435. The warrants are exercisable at any time after the issuance date within five years of issuance. The Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the consolidated balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the consolidated statement of operations. At inception, November 1, 2019, the fair value of the warrant liability was $37,889, which was recognized as a loss in earnings for the year ended December 31, 2019. As of December 31, 2019, the fair value of the warrant liability was On December 26, 2019, in connection with the issuance of Note Fourteen, the Company issued warrants, of which the value was derived and based off the fair value of Note Fourteen, to the investor to purchase 12,500 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after December 26, 2019 and on or before December 26, 2024, by delivery to the Company of the Notice of Exercise. F-46 The Company determined that the warrants associated with Note Fourteen are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At inception, December 26, 2019, the fair value of the warrant liability was $5,268 while as of December 31, 2019, the fair value of the warrant liability was
Warrant Obligations In connection with the Series B Preferred Stock Purchase Agreement (See Note 15), the Company The
The change in fair value of the financial instruments – warrants is as follows:
2017 Omnibus Incentive Plan The Company’s 2017 Omnibus Incentive Plan (the “2017 Plan”) was adopted by our Board of Directors and a majority of our voting securities on October 17, 2017. Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan On October 22, 2014, BioTrackTHC approved and adopted the BioTrackTHC Stock Plan. The BioTrackTHC Stock Plan set aside and reserved 600,000 shares of BioTrackTHC’s common stock for grant and issuance in accordance with its terms and conditions. Persons eligible to receive awards from the BioTrackTHC Stock Plan include employees (including officers and directors) of BioTrackTHC or its affiliates and consultants who provide significant services to BioTrackTHC or its affiliates (the “Grantees”). The BioTrackTHC Stock Plan permits BioTrackTHC to issue to Grantees qualified and/or non-qualified options to purchase BioTrackTHC’s common stock, restricted common stock, performance units, and performance shares. The term of each award under the BioTrackTHC Stock Plan shall be no more than ten years from the date of grant thereof. BioTrackTHC’s Board of Directors or a committee designated by the Board of Directors is responsible for administration of the BioTrackTHC Stock Plan and has the sole discretion to determine which Grantees will be granted awards and the terms and conditions of the awards granted. BioTrackTHC Management Awards On September 1, 2015 and November 1, 2015, BioTrackTHC’s Board approved individual employee option grants (the “Executive Grants”) for three executives (the “Executives”). Pursuant to the Executive Grants, the Executives were each granted stock options to purchase 146,507 shares (totaling 439,521 shares) of BioTrackTHC’s common stock (the “Option”) at an exercise price equal to approximately $7.67. The options vest as to 25% of the shares subject to the Options, one year after the date of grant and then in equal quarterly installments for the three years thereafter, subject to the Executive’s continued employment with BioTrackTHC (see Note 5 and 15).
No provision for U.S. federal or state income taxes has been recorded as the Company has incurred net operating losses since inception. Significant components of the Company’s net deferred income tax assets for the F-48 years ended December 31, 2019, 2018 and 2017 consist of income tax loss carryforwards. These amounts are available for carryforward for use in offsetting taxable income of future years through 2035. Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carry-forward period. Utilization of the net operating loss carry-forwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. Due to the Company’s history of operating losses, these deferred tax assets arising from the future tax benefits are currently not likely to be realized and are thus reduced to zero by an offsetting valuation allowance. As a result, there is no provision for income taxes. For the years ended December 31, 2019, 2018 and 2017, the Company has a net operating loss carry forwards of approximately $18,025,000, $12,686,000 and $7,380,000, respectively. Utilization of these net loss carry forwards is subject to the limitations of Internal Revenue Code Section 382. The Company applied a 100% valuation reserve against the deferred tax benefit as the realization of the benefit is not certain.
Under Topic 842, operating lease expense is generally recognized evenly on a straight-line basis. The Company has operating leases primarily consisting of facilities with remaining lease terms of one year to five years. The lease term represents the period up to the early termination date unless it is reasonably certain that the Company will not exercise the early termination option. Certain leases include rental payments that are adjusted periodically based on changes in consumer price and other indices. Leases with an initial term of twelve months or less are not recorded on the consolidated balance sheet. For lease agreements entered into or reassessed after the adoption of Topic 842, the Company combines the lease and non-lease components in determining the lease liabilities and ROU assets. Activity related to the Company’s leases was as follows:
The Company’s lease agreements generally do not provide an implicit borrowing rate, therefore an internal incremental borrowing rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments. The Company used the incremental borrowing rate on December 31, 2018 for all leases that commenced prior to that date. ROU lease assets and lease liabilities for the Company’s operating leases were recorded in the consolidated balance sheet as follows:
The Company is obligated under operating lease agreements for office facilities in Colorado, Florida, Washington and Hawaii, which expire in February and March 2021. Rent expense incurred under the Company’s operating leases amounted to $561,530 and $362,607 during the years ended December 31, 2019 and 2018, respectively. F-49 Future lease payments included in the measurement of lease liabilities on the consolidated balance sheet as of December 31, 2019, for the following five fiscal years and thereafter were as follows:
As of December 31, 2019, the Company had additional operating lease obligations for a lease with a future effective date of approximately $600,000. This operating lease will commence during the first quarter of fiscal 2022 with a lease term of three years. As of December 31, 2019 the future minimum lease payments, as defined under the previous lease accounting guidance of ASC 840, under noncancelable operating leases for the following five fiscal years and thereafter are as follows:
FASB ASC 280-10-50 requires use of the “management approach” model for segment reporting. The management approach is based on the way a company’s management organized segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. 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–making group is composed of the Chief Executive Officer. The Company operates in three segments, Security and guarding, Systems installation and Software. Asset information by operating segment is not presented below since the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s consolidated financial statements. F-50 The following represents selected information for the Company’s reportable segments:
On February 10, 2020, the Company and Advantage Platform Services Inc. (“Advantage”) entered into an Agreement for the Purchase and Sale of Future Receipts (the “Future Receipts Agreement”). Pursuant to the terms and conditions of the Future Receipts Agreement, the Company sold to Advantage 15% of the proceeds of future sales made by the Company, up to $660,000 (“Future Sales Amount”), for an immediate cash payment by Advantage of $500,000 (“Purchase Price”). The Future Receipts Agreement includes an origination fee of $15,000, which was deducted from the Purchase Price, and weekly payments of $15,000 for eight weeks followed by weekly payments of $20,000 to be made by the Company to Advantage until the Future Sales Amount is paid in full. On February 14, 2020 John Audet filed a complaint in 15th Judicial Circuit in and for Palm Beach County, Florida against multiple parties, including Green Tree International (“GTI”), claiming that he owned 10% of GTI. The Company believes the lawsuit is wholly without merit and will defend itself from these claims vigorously. On March 6, 2020, Terence Ferraro resigned as a director of (the Company). On the same date, the Company’s Board of Directors appointed Garvis Toler III as a director to fill the vacancy. TJ Ferraro’s F-51 resignation was not due to a disagreement with the Company’s Board of Directors or management or any matter relating to the Company’s operations, policies or procedures. During January and February 2020, the holder of a 25% fixed secured convertible promissory note issued by the Company elected its option to partially convert $140,000 in principal of the convertible note into 435,554 shares of the Company’s common stock. During March 2020, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to partially convert $120,000 in principal of the convertible note into 1,084,186 shares of the Company’s common stock. On January 28, 2020, the Company entered into a securities purchase agreement pursuant to which the Company agreed to sell 270,270 shares of restricted common stock of the Company and 135,135 warrants to purchase shares of restricted common stock of the Company for an aggregate purchase price of $100,000. The warrants are exercisable at $.40 per warrant and expire four years after issuance. On February 29, 2020 the Company and Patrick Vo entered into a Separation Agreement and General Release (the “Separation Agreement”). As part of the Separation Agreement Patrick Vo forfeited 1,634,670 vested and unexercised stock options to purchase shares of the Company’s common stock. On July 31, 2020, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Invicta Security CA Corporation, a Delaware corporation (“Buyer”), Invicta Services LLC, a Delaware limited liability company (“Invicta”), Boss Security Solutions, Inc., a Colorado corporation (“Boss”), Security Consultants Group, LLC, a Colorado limited liability company (“SCG”), Tan’s International LLC, a California limited liability company (“Tan LLC”), and Tan’s International Security, Inc., a California corporation (“Tan Security”, collectively with Boss, SCG and Tan LLC, the “Sellers” or individually a “Seller”). Pursuant to the terms and conditions of the Agreement, the Sellers sold, assigned, transferred, and delivered to Buyer the Assets (as defined in the Agreement) and Buyer paid aggregate consideration of $1,750,000 and assumed the Assumed Liabilities (as defined in the Agreement). The Assets included but were not limited to the right, title and interest in and to all assets and property, tangible and intangible, of every kind and description, used in, related to or necessary for the security guarding and protective guarding services business conducted by the Sellers. The Agreement contained certain customary representations and warranties made by the parties. The Sellers and Helix agreed to various customary covenants, including, among others, covenants regarding non-competition, the use and disclosure of confidential information, and the non-solicitation of business relationships. As collateral for Sellers’ indemnification obligations, Buyer held back $600,000 of the consideration pursuant to Section 2.3 of the Agreement. F-52 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
See accompanying notes to the unaudited condensed consolidated financial statements F-53 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
See accompanying notes to the unaudited condensed consolidated financial statements F-54
See accompanying notes to the unaudited condensed consolidated financial statements F-55 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
See accompanying notes to the unaudited condensed consolidated financial statements F-56
See accompanying notes to the unaudited condensed consolidated financial statements F-57 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Description of Business Helix Technologies, Inc. (the “Company” or “Helix”) was incorporated in Delaware on March 13, 2014. Pursuant to the acquisition of the assets of Helix TCS, LLC, as discussed below, we changed our name from Jubilee4 Gold, Inc. to Helix TCS, Inc. effective October 25, 2015. Effective June 5, 2020, the Company changed its name from Helix TCS, Inc. to Helix Technologies, Inc. Effective October 25, 2015, we entered into an acquisition and exchange agreement with Helix TCS, LLC. We closed the transaction contemplated under the acquisition and exchange agreement on December 23, 2015 and Helix TCS, LLC was merged into and with Helix. Effective October 1, 2015, for accounting purposes, as part of an acquisition amounting to a reorganization dated December 21, 2015, Helix Opportunities LLC exchanged 100% of Helix TCS, LLC and its wholly-owned subsidiaries, Security Consultants Group, LLC and Boss Security Solutions, Inc. to the Company in exchange for 20 million common shares and 1 million convertible preferred shares of the Company. The acquisition of Helix was treated as a recapitalization for financial accounting purposes. Jubilee4 Gold, Inc. is considered the acquiree for accounting purposes and their historical financial statements before the Acquisition Agreement were replaced with the historical financial statements of the Company. The common stock account of the Company continues post-merger, while the retained earnings of the acquiree is eliminated. Furthermore, on April 11, 2016, the Company acquired the assets of Revolutionary Software, LLC (“Revolutionary”). On March 3, 2018, Helix Technologies, Inc. and its wholly owned subsidiary, Helix Acquisition Sub, Inc. (“BioTrackTHC Merger Sub”), entered into an Agreement and Plan of Merger (the “BioTrackTHC Merger Agreement”) with Bio-Tech Medical Software, Inc. (“BioTrackTHC”) and Terence J. Ferraro, as the representative of the BioTrackTHC stockholders, pursuant to which BioTrackTHC Merger Sub merged with and into BioTrackTHC (the “BioTrackTHC Merger”). On June 1, 2018 (the “BioTrackTHC Closing Date”), in connection with closing the BioTrackTHC Merger, the Company issued 38,184,985 unregistered shares of its common stock to BioTrackTHC stockholders, of which 1,852,677 shares were held back to satisfy indemnification obligations in the BioTrackTHC Merger Agreement, if necessary. The Company also assumed the Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan (“BioTrackTHC Stock Plan”), pursuant to which options exercisable in the amount of 8,132,410 shares of common stock are outstanding. As a result, BioTrackTHC stockholders owned approximately 48% of the Company on a fully diluted basis as of the BioTrackTHC Closing Date. On August 3, 2018 (the “Engeni Closing Date”), the Company and its wholly owned subsidiary, Engeni Merger Sub, LLC (“Engeni Merger Sub”), entered into an Agreement and Plan of Merger (the “Engeni Merger Agreement”) with Engeni LLC (“Engeni US”), Engeni S.A (“Engeni SA”), Scott Zienkewicz, Nicolas Heller and Alberto Pardo Saleme (the Engeni US members), and Scott Zienkewicz, as the representative of the Engeni US members. Pursuant to the Engeni Merger Agreement, Engeni Merger Sub merged with and into Engeni US, with Engeni US surviving the merger as a wholly-owned subsidiary of the Company (the “Engeni Merger”). On the Engeni Closing Date, in connection with closing the Engeni Merger Agreement, the Company issued 366,700 shares of Company common stock to Engeni US members. Furthermore, the Company subsequently issued Engeni US members 733,300 shares of Company common stock on April 2, 2019. On April 1, 2019 (“Tan Security Closing Date”), the Company entered into a Membership Interest and Stock Purchase Agreement (the “Tan Security Acquisition Agreement”) with Tan’s International Security and Tan’s International LLC (collectively, “Tan Security”). Pursuant to the Tan Security Acquisition Agreement, the Company purchased all membership interests and capital stock of Tan Security and collectively holds 100% of the interests of Tan Security (the “Tan Security Acquisition”). F-58 On February 5, 2019, the Company and its wholly owned subsidiary, Merger Sub, entered into an Agreement and Plan of Merger (the “Amercanex Merger Agreement”) with Green Tree International, Inc. (“GTI”) and Steve Janjic, as the representative of the GTI shareholders, pursuant to which Merger Sub merged with and into GTI (the “GTI Merger”). On September 10, 2019 (the “GTI Closing Date”), the Company closed the GTI Merger and entered into an Addendum No. 1 to the Amercanex Merger Agreement acknowledging and approving certain events that occurred since signing as well as implementing various related amendments to the Amercanex Merger Agreement. In connection with closing the GTI Merger, the Company issued 16,765,727 unregistered shares of Company common stock to GTI shareholders, of which 4,140,274 shares were held back to satisfy indemnification obligations in the Amercanex Merger Agreement, if necessary. On July 31, 2020, the Company entered into an Asset Purchase Agreement (the “Agreement”) with Invicta Security CA Corporation, a Delaware corporation (“Buyer”), Invicta Services LLC, a Delaware limited liability company (“Invicta”), Boss Security Solutions, Inc., a Colorado corporation (“Boss”), Security Consultants Group, LLC, a Colorado limited liability company (“SCG”), Tan’s International LLC, a California limited liability company (“Tan LLC”), and Tan’s International Security, Inc., a California corporation (“Tan Security”, collectively with Boss, SCG and Tan LLC, the “Sellers” or the “discontinued entities” or individually a “Seller”). Pursuant to the terms and conditions of the Agreement, the Sellers sold, assigned, transferred, and delivered to Buyer the Assets (as defined in the Agreement) and Buyer paid aggregate consideration of $1,750,000 and assumed the Assumed Liabilities (as defined in the Agreement). The Assets included but were not limited to the right, title and interest in and to all assets and property, tangible and intangible, of every kind and description, used in, related to or necessary for the security guarding and protective guarding services business conducted by the Sellers. The Agreement contained certain customary representations and warranties made by the parties. The Sellers and Helix agreed to various customary covenants, including, among others, covenants regarding non-competition, the use and disclosure of confidential information, and the non-solicitation of business relationships. As collateral for Sellers’ indemnification obligations, Buyer held back $600,000 of the consideration pursuant to the Agreement. See Note 6 for additional details. 2. Going Concern Uncertainty, Financial Condition and Management’s Plans The Company believes that there is substantial doubt about the Company’s ability to continue as a going concern. The Company believes that its available cash balance as of the date of this filing will not be sufficient to fund its anticipated level of operations for at least the next 12 months. The Company believes that its ability to continue operations depends on its ability to sustain and grow revenue and results of operations as well as its ability to access capital markets when necessary to accomplish the Company’s strategic objectives. The Company believes that it will continue to incur losses for the immediate future. The Company expects to finance future cash needs from its results of operations and, depending on the results of operations, the Company may need additional equity or debt financing until it can achieve profitability and positive cash flows from operating activities, if ever. At September 30, 2020, the Company had a working capital deficit of $1,340,470 as compared to a working capital deficit of $3,416,501 at December 31, 2019. The decrease of $2,076,031 in the Company’s working capital deficit from December 31, 2019 to September 30, 2020 was primarily the result of proceeds received from the sale of common stock, a reduction in accounts receivable, and non-cash decreases in the fair market value of the Company’s convertible notes and warrant liability. On March 11, 2020, the World Health Organization (“WHO”) recognized COVID-19 as a global pandemic, prompting many national, regional, and local governments, including in the markets that the Company operates in, to implement preventative or protective measures, such as travel and business restrictions, wide-sweeping quarantines and stay-at-home orders. While the Company is actively working to successfully navigate the financial, operational, and personnel challenges presented by the COVID-19 pandemic, the full extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by the U.S. government, state and local government officials, and international governments to prevent disease spread, all of which are uncertain, out of the Company’s control and cannot be predicted at this time. The Company’s future capital requirements for its operations will depend on many factors, including the profitability of its businesses, the number and cash requirements of other acquisition candidates that the F-59 Company pursues, and the costs of operations. The Company has been investing in upgrading the capabilities of its software business. The Company’s management has taken several actions to ensure that it will have sufficient liquidity to meet its obligations for the next twelve months, including growing and diversifying its revenue streams, selectively reducing expenses, and considering additional funding. Additionally, if the Company’s actual revenues are less than forecasted, the Company anticipates that variable expenses will also decline, and the Company’s management can implement expense reduction as necessary. The Company is evaluating other measures to further improve its liquidity, including the sale of equity or debt securities. Lastly, the Company may elect to reduce certain related-party and third-party debt by converting such debt into common shares. The Company’s management believes that these actions will enable the Company to meet its liquidity requirements for the next twelve months. There is no assurance that the Company will be successful in any capital-raising efforts that it may undertake to fund operations during 2020 and beyond. The Company plans to generate positive cash flow from BioTrackTHC to address some of the liquidity concerns. However, to execute the Company’s business plan, service existing indebtedness and implement its business strategy, the Company anticipates that it will need to obtain additional financing from time to time and may choose to raise additional funds through public or private equity or debt financings, borrowings from affiliates or other arrangements. The Company cannot be sure that any additional funding, if needed, will be available on terms favorable to the Company or at all. Furthermore, any additional capital raised through the sale of equity or equity-linked securities may dilute the Company’s current stockholders’ ownership and could also result in a decrease in the market price of the Company’s common stock. The terms of those securities issued by the Company in future capital transactions may be more favorable to new investors and may include the issuance of warrants or other derivative securities, which may have a further dilutive effect. The Company also may be required to recognize non-cash expenses in connection with certain securities it issues, such as convertible notes and warrants, which may adversely impact the Company’s operating results and financial condition. Furthermore, any debt financing, if available, may subject the Company to restrictive covenants and significant interest costs. There can be no assurance that the Company will be able to raise additional capital, when needed, to continue operations in their current form. 3. Summary of Significant Accounting Policies Principles of Consolidation The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, which include Helix TCS, LLC (“Helix TCS”), Security Grade, BioTrackTHC (since June 1, 2018), Engeni US (since August 3, 2018), and Green Tree International, Inc. (since September 10, 2019). As of July 31, 2020, the date of the consummation of the sale of the Guarding segment, formerly owned subsidiaries Security Consultants Group, LLC (“Security Consultants”), Boss Security Solutions, Inc. (“Boss Security”), and Tan Security are presented as part of discontinued operations. These interim statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2019. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Changes in estimates and assumptions are reflected in reported results in the period in which they become known. Use of estimates includes the following: 1) allowance for doubtful accounts, 2) estimated useful lives of property, equipment and intangible assets, 3) intangibles impairment, 4) valuation of convertible notes payable and 5) revenue recognition. Actual results could differ from estimates. Discontinued Operations In the third quarter of 2020, the Company determined that the Security and Guarding segment met the criteria to be classified as a discontinued operation as a result of the combined sale of the assets of Security Consultants, Boss Security, and Tan Security. These businesses represented the majority of the Company’s Security and Guarding segment. F-60 As the combined sale of the Security and Guarding segment represented a strategic shift that will have a major effect on our operations and financial results, these businesses were presented in discontinued operations separate from continuing operations for the three and nine months ended September 30, 2020 and 2019, as applicable. Cash Cash consists of checking accounts. The Company considers all highly liquid investments purchased with a maturity of three months or less at the time of purchase to be cash equivalents. The Company has no cash equivalents as of September 30, 2020 or December 31, 2019. From time to time, the Company’s cash balances may exceed FDIC-insured limits. As of September 30, 2020, and December 31, 2019, the Company’s cash balances exceeded FDIC-insured limits by approximately $1,078,000 and $120,000, respectively. The Company’s cash accounts have been placed with high credit quality financial institutions. The Company has not experienced, nor does it anticipate, any losses with respect to such accounts. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and economic conditions. Management charges balances off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company determines when receivables are past due, or delinquent based on how recently payments have been received. 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 $362,631 and $273,138 at September 30, 2020 and December 31, 2019, respectively. Long-Lived Assets, Including Definite Lived Intangible Assets Long-lived assets, other than goodwill and other indefinite-lived intangibles, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. Definite-lived intangible assets primarily consist of non-compete agreements and customer relationships. 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, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. Helix reviews goodwill for possible impairment annually during the fourth quarter, or whenever events or circumstances indicate that the carrying amount may not be recoverable. The impairment model prescribes a two-step method for determining goodwill impairment. However, an entity is permitted to first assess qualitative factors to determine whether the two-step goodwill impairment test is necessary. The qualitative factors considered by Helix may include, but are not limited to, general economic conditions, Helix’s outlook, market performance of Helix’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. In the first step, Helix determines the fair value of its reporting unit using a discounted cash flow analysis. If the net book value of the reporting unit exceeds its fair value, Helix then F-61 performs the second step of the impairment test, which requires allocation of the reporting unit’s fair value to all of its assets and liabilities using the acquisition method prescribed under authoritative guidance for business combinations with any residual fair value being allocated to goodwill. An impairment charge is recognized when the implied fair value of Helix’s goodwill is less than its carrying amount. Assumptions and estimates used in the evaluation of impairment may affect the carrying value of long-lived assets, which could result in impairment charges in future periods. Such assumptions include projections of future cash flows and the current fair value of the asset Accounting for Acquisitions In accordance with the guidance for business combinations, the Company determines whether a transaction or other event is a business combination, which requires that the assets acquired, and liabilities assumed constitute a business. Each business combination is then accounted for by applying the acquisition method. If the assets acquired are not a business, the Company accounts for the transaction or other event as an asset acquisition. Under both methods, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase. The Company capitalizes acquisition-related costs and fees associated with asset acquisitions and immediately expenses acquisition-related costs and fees associated with business combinations. The Company accounts for its business combinations under the provisions of Accounting Standards Codification (“ASC”) Topic 805-10, Business Combinations (“ASC 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: 1) 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 2) if the contingent consideration is classified as a liability, the changes in fair value are recognized in earnings. Business Combinations The Company accounts for its business combinations under the provisions of Accounting Standards Codification (“ASC”) Topic 805-10, Business Combinations (“ASC 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: 1) 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 2) if the contingent consideration is classified as a liability, the changes in fair value are recognized in earnings. The estimated fair value of net assets acquired, including the allocation of the fair value to identifiable assets and liabilities, was determined using established valuation techniques. The estimated fair value of the net assets acquired was determined using the income approach to valuation based on the discounted cash flow method. Under this method, expected future cash flows of the business on a stand-alone basis are discounted back to a present value. The estimated fair value of identifiable intangible assets, consisting of software and trade name acquired were determined using the relief from royalty method. F-62 The most significant assumptions under the relief from royalty method used to value software and trade names include: estimated remaining useful life, expected revenue, royalty rate, tax rate, discount rate and tax amortization benefit. The discounted cash flow method used to value non-compete agreements includes assumptions such as: expected revenue, term of the non-compete agreements, probability and ability to compete, operating margin, tax rate and discount rate. Management has developed these assumptions on the basis of historical knowledge of the business and projected financial information of the Company. These assumptions may vary based on future events, perceptions of different market participants and other factors outside the control of management, and such variations may be significant to estimated values. Revenue Recognition Under FASB Topic 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains 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 security services revenue is generated from performing armed and unarmed guarding which is contracted for on an hourly basis. Revenues associated with these contracted services are recognized under time-based arrangements as services are provided. Additionally, the Company provides transportation security services, which are generally contracted for on a per-run basis and sometimes additional fees and surcharges are also billed to the client depending on the length of the run. Revenues associated with these services are recognized as the transportation service is provided. The guarding and transportation security business is now a discontinued operation. The Company still provides monitoring services. The Company generates revenue from developing and licensing seed to sale cannabis compliance software to both private-sector and public-sector (government agencies) businesses that are involved in cannabis related operations. The Company also generates revenue from on-going training, support and software customization services. Occasionally, the Company will enter into systems installation arrangements. Installation jobs are estimated based on the cost of equipment to be installed, the number of hours expected to be incurred to complete the job and other ancillary costs. Revenue associated with these services are recognized over the arrangement period. Lastly, the Company generates monthly recurring revenues from Cannalytics, its business intelligence and data tool for commercial customers. Revenue is recognized monthly. Segment Information Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, 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-making group is composed of the Chief Executive Officer and the Chief Financial Officer, which reviews the financial performance and the results of operations of the segments prepared in accordance with GAAP when making decisions about allocating resources and assessing performance of the Company. Asset information by operating segment is not presented since the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s consolidated financial statements. F-63 Expenses Cost of Revenue The cost of revenues is the total cost incurred to obtain a sale and the cost of the goods or services sold. Cost of revenues primarily consisted of hourly compensation for security personnel and employees involved in the creation and development of licensing software. Operating Expenses Operating expenses encompass selling general and administrative expenses, salaries and wages, professional and legal fees and depreciation and amortization. Selling, general and administrative expenses consist primarily of rent/moving expenses, advertising and travel expenses. Salaries and wages is composed of non-revenue generating employees. Professional services are principally comprised of outside legal, audit, information technology consulting, marketing and outsourcing services as well as the costs related to being a publicly traded company. Other Income Other income consisted of a gain on the change in fair value of convertible notes, gain on the change in the fair value of warrant liability, loss on the change in fair value of convertible notes – related party, loss on the change in fair value of contingent consideration, loss on issuance of warrants and interest expense. Property and Equipment Property and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful lives. Useful lives are 3 years for vehicles and 5 years for furniture and equipment. Maintenance and repairs are expensed as incurred and major improvements are capitalized. When assets are sold, or retired, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in loss from operations. 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 consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. Advertising Advertising costs are expensed as incurred and included in selling, general and administrative expenses and amounted to $2,174 and $104,785 for the three months ended September 30, 2020 and 2019, respectively, and $9,581 and $350,840 for the nine months ended September 30, 2020 and 2019, respectively. Foreign Currency The local currency is the functional currency for one entity’s operations outside the United States. Assets and liabilities of these operations are translated to U.S. dollars at the exchange rate in effect at the end of each period. Income statement accounts are translated at the average exchange rate prevailing during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of other comprehensive loss within shareholders’ equity. Gains and losses from foreign currency transactions are included in net loss for the period. Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect F-64 for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating loss for financial-reporting and tax-reporting purposes. Accordingly, for Federal and state income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance against the related federal and state deferred tax asset for the nine months ended September 30, 2020 and 2019. Comprehensive Loss Comprehensive loss consists of consolidated net loss and foreign currency translation adjustments. Foreign currency translation adjustments included in comprehensive loss were not tax-effected as investments in international affiliates are deemed to be permanent. Distinguishing Liabilities from Equity The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity, 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. Share-based Compensation The Company accounts for stock-based compensation to employees in conformity with the provisions of ASC Topic 718, Stock Based Compensation. Stock-based compensation to employees consist of stock option grants and restricted shares that are recognized in the statement of operations based on their fair values at the date of grant. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC Topic 718, based upon the fair-value of the underlying instrument. The equity instruments are valued using the Black-Scholes valuation model. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period which services are received. The Company calculates the fair value of option grants utilizing the Black-Scholes pricing model and estimates the fair value of the stock based upon the estimated fair value of the common stock. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized on a straight- line basis over the requisite service period of the award. Fair Value of Financial Instruments ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”) provides a framework for measuring fair value in accordance with generally accepted accounting principles. F-65 ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC Topic 820 are described as follows: Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 – Inputs that are unobservable for the asset or liability. Certain assets and liabilities of the Company are required to be recorded at fair value either on a recurring or non-recurring basis. Fair value is determined based on the price that would be received for an asset or paid to transfer a liability in an orderly transaction based on market participants. The following section describes the valuation methodologies that the Company used to measure, for disclosure purposes, its financial instruments at fair value. Convertible notes payable The fair value of the Company’s convertible notes payable, approximated the carrying value as of September 30, 2020 and December 31, 2019. Factors that the Company considered when estimating the fair value of its debt included market conditions and the term of the debt. The level of the debt would be considered as Level 2. Warrant liabilities The fair value of the Company’s warrant liabilities approximated the carrying value as of September 30, 2020 and December 31, 2019. Factors that the Company considered when estimating the fair value of its warrants included market conditions and the term of the warrants. The level of the warrant liabilities would be considered as Level 3. Additional Disclosures Regarding Fair Value Measurements The carrying value of cash, accounts receivable, prepaid expenses and other current assets, deposits and other assets, accounts payable and accrued liabilities, advances from related parties and obligation pursuant to acquisition approximate their fair value due to the short-term maturity of those items. Earnings (Loss) per Share The Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the income statement for all entities with complex capital structures. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options and warrants, using the treasury stock method, and convertible debt and convertible securities, using the if-converted method. For the three and nine months ended September 30, 2020 and 2019, potential common shares includable in the computation of fully-diluted per share results are not presented in the condensed consolidated financial statements as their effect would be anti-dilutive. F-66 Earnings per share for the three and nine months ended September 30, 2020 and 2019 were calculated as follows:
The anti-dilutive shares of common stock outstanding for the three and nine months ended September 30, 2020 and 2019 were as follows:
Reclassifications Certain reclassifications have been made to the prior period financial statements to conform to the current period financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported. Recent Accounting Pronouncements In February 2016, the FASB issued ASU 2016-.02, Leases (Topic 842) (“Topic 842”) which requires the recognition of right-of-use assets and lease liabilities on the balance sheet. The most prominent of the changes in the standard is the recognition of right-of-use (“ROU”) assets and lease liabilities by lessees for those leases classified as operating leases. The Company adopted the new standard on January 1, 2019 and used the modified retrospective approach with the effective date as the date of initial application. Consequently, prior period balances and disclosures have not been restated. The Company elected certain practical expedients, which among other things, allowed us to carry forward prior conclusions about lease identification and classification. Adoption of the standard resulted in the balance sheet recognition of additional lease assets and lease liabilities of approximately $1,500,000. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company currently has elected the short-term lease recognition exemption for all leases F-67 that qualify. This means, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in separate lease and non-lease components for all our leases. For additional information regarding the Company’s leases, see Note 18 in the notes to condensed consolidated financial statements. In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company adopted this ASU as of January 1, 2019. The amendments in this ASU did not have a material impact on the Company’s consolidated financial statements. In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220); Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this ASU allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Act and will improve the usefulness of information reported to financial statement users. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of the ASU. The Company adopted this ASU as of January 1, 2019. The amendments in this ASU did not have a material impact on the Company’s consolidated financial statements. In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (ASC 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from nonemployees and applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. ASC 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. This update is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company adopted this ASU as of January 1, 2019. The amendments in this ASU did not have a material impact on the Company’s consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. The Company adopted this ASU as of January 1, 2020. The amendments in this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures. Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the Company’s consolidated financial statements and related disclosures. F-68 4. Revenue Recognition Disaggregation of revenue
The following is a description of the principal activities from which we generate our revenue. Security Monitoring Revenue Helix provides monitoring of security alarms and cameras, which are charged out at an hourly rate, with invoices typically sent to clients shortly after each month-end for the previous month, with revenue being recognized over time. The customer simultaneously receives and consumes benefits provided by the Helix performance. Systems Installation Revenue Security systems, including Internet Protocol cameras, intrusion alarm systems, perimeter alarm systems, and access controls are installed for clients. Installation jobs are estimated based on the cost of the equipment, the number of man hours expected to complete the work, supplies, travel, and any other ancillary costs. The installation is typically invoiced with 60% of the total price immediately after signing and the balance upon completion of the installation service. The timing of these contracts is short-term in nature and less than 12 months in duration, and revenue is recognized over the term of the contracts, utilizing the cost-to-cost method. Software The Company generates revenue from developing and licensing seed to sale cannabis compliance software to both private-sector and public-sector (government agencies) clients that are involved in cannabis related operations. The Company also generates revenue from on-going training, support and software customization services. The private-sector software entails cultivation tracking, inventory management, point of sale and analytic reporting to assist businesses in meeting their compliance requirements and effectively managing their businesses. Customers within the private sector business are charged an initial one-time installation fee and the revenues associated with these services are recognized upon completion of installation and configuration at a point in time. After the installation and configuration of the software is completed, the customer is invoiced monthly and revenues associated with these services are recognized monthly over a period of time in which the customer continues to use the software and related services. The public-sector software assists government agencies in efficient oversight of cannabis related business under their jurisdiction. Revenues associated with governmental contracts are longer-term in nature and recognized upon completion of certain milestones over a period of time or on a completed-contract basis at a point in time. The Company considers the contract to be complete when all significant costs have been incurred and the customer accepts the project. Costs incurred prior to the customer accepting the project are deferred and reflected on the condensed consolidated balance sheets as prepaid expenses and other current assets. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in accordance with ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Generally, F-69 the Company’s contracts include a single performance obligation that is separately identifiable, and therefore, distinct. Under ASC 606, the allocation of transaction price is not necessary if only one performance obligation is identified. Significant Judgments Accounting for long-term contracts involves the use of various techniques to estimate total contract revenue, costs and satisfaction of performance obligations. The Company satisfies its performance obligations and subsequently recognizes revenue, over time, as security and installation services are performed. There were no changes to the significant judgments used by the Company to determine the timing of satisfaction of the performance obligations under ASC 606. Costs to Obtain or Fulfill Contract The Company’s costs to fulfill or obtain contracts with customers primarily consist of commissions and legal costs. The Company provides sales team members with commissions at 0-6%. Although sales commissions are incremental in nature and are only incurred when a contract is obtained, there is no up-front commission paid on the satisfactory obtainment of a contract, resulting in no sales commissions being capitalized at September 30, 2020 and December 31, 2019. The Company also incurs legal costs relating to the drafting and negotiating of contracts with select customers. Because legal costs are not incremental in nature and are incurred regardless of whether a contract is ultimately obtained, there were no legal costs capitalized as of September 30, 2020 and December 31, 2019. The Company did not record amortization of costs incurred to obtain the contract or any impairment losses for the period ending September 30, 2020 and 2019. 5. Business Combinations Tan’s International Security On April 1, 2019, the Tan Security Closing Date, the Company entered into the Tan Security Acquisition Agreement. Pursuant to the Tan Security Acquisition Agreement, Helix purchased all membership interests and capital stock of Tan Security and collectively holds 100% of the interests of Tan Security. The purchase price of $100,000 in cash plus 250,000 shares of the Company’s restricted common stock will be paid to Rocky Tan as follows: 250,000 shares of Helix Stock at closing $25,000 at closing $25,000 on the 4-month anniversary of the Tan Security Closing Date $25,000 on the 8-month anniversary of the Tan Security Closing Date $25,000 on the 12-month anniversary of the Tan Security Closing Date The Tan Security Acquisition is being accounted for as a business combination in accordance with ASC 805. The Company has determined preliminary fair values of the assets acquired and liabilities assumed in the Tan Security Acquisition. These values are subject to change as we perform additional reviews of our assumptions utilized. The following table summarizes the purchase price allocations relating to the Tan Security Acquisition:
F-70
On July 31, 2020, the Company determined that the Security and Guarding segment met the criteria to be classified as a discontinued operation as a result of the combined sale of the assets of Security Consultants, Boss Security, and Tan Security. Please refer to note six for additional details on discontinued operations. Green Tree International, Inc. On February 5, 2019, the Company and its wholly owned subsidiary, Merger Sub, entered into the Amercanex Merger Agreement with GTI and Steve Janjic, as the representative of the GTI shareholders, pursuant to which Merger Sub merged with and into GTI (the “Merger”). Pursuant to the Amercanex Merger Agreement, at the effective time of the Merger (the “Effective Time”), the Company will issue to the GTI stockholders an amount of unregistered shares of the Company’s common stock equal to $15 million, based on the average closing price of the Company’s common stock over the forty-five (45) trading day period ending three (3) trading days prior to the Closing Date. If the Closing occurs and revenues of GTI in the second 12 month period following the Closing Date exceed $5,000,000 and are less than or equal to $10,000,000, Parent shall issue to the Company Shareholders a number of unregistered Parent Shares (whether issued or reserved for issuance) equal to the quotient of (a) $5,000,000 divided by (b) the Parent Share Price multiplied by the quotient of (c) the revenues of the Company in the second 12 month period following the Closing Date less $5,000,000 divided by (d) $5,000,000. To secure the indemnification obligations of the GTI shareholders to the Company under the Merger Agreement, 4,140,274 of the Company shares to be issued to the GTI shareholders will be held back and the Company will be entitled to retain such number of the holdback shares as necessary to satisfy those indemnification obligations. 50% of the holdback shares that remain after satisfaction of any indemnification obligations will be released 12 months after the closing date of the merger, and the remainder 24 months after the closing date of the merger. Additionally, the Amercanex Merger Agreement stated that if in the first 12 months following the closing GTI generates less than $1,500,000 of revenues, 100% of the holdback shares shall be returned to the Company. In connection with closing the Merger on September 10, 2019, the Company issued 16,765,727 unregistered shares of its common stock to GTI stockholders. In connection with the Merger, Steve Janjic joined the board of directors of the Company. As the $1,500,000 revenue threshold was not reached within the first 12 months, all 4,140,274 holdback shares were returned to the Company and the final purchase price allocation included the 12,625,453 unregistered shares of common stock issued to GTI. The Merger is being 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 GTI merger. The following table summarizes the purchase price allocations relating to the GTI transaction:
F-71
6. Discontinued Operations On July 31, 2020, the Company entered into the Agreement to sell, assign, transfer, and deliver to Buyer the Assets and Buyer paid aggregate consideration of $1,750,000 and assumed the Assumed Liabilities. The Assets included but were not limited to the right, title and interest in and to all assets and property, tangible and intangible, of every kind and description, used in, related to or necessary for the security guarding and protective guarding services business conducted by the Sellers (the Company’s Security and Guarding segment). As collateral for Sellers’ indemnification obligations, Buyer held back $600,000 of the consideration pursuant to the Agreement. The $600,000 is reflected as an other receivable on the condensed consolidation balance sheet as of September 30, 2020. The components of pretax profit and loss of the discontinued segment through the disposal date are set forth below:
F-72 The calculation of the Company’s gain on asset disposal, recognized on the disposal date, is set forth below:
7. Property and Equipment, Net At September 30, 2020 and December 31, 2019, property and equipment consisted of the following:
Depreciation and amortization expense for the three months ended September 30, 2020 and 2019 was $15,972 and $5,709, respectively, and $63,649 and $32,528 for the nine months ended September 30, 2020 and 2019, respectively. 8. Intangible Assets, Net and Goodwill The following table summarizes the Company’s intangible assets as of September 30, 2020 and December 31, 2019:
F-73
The Company uses the straight-line method to determine the amortization expense for its definite lived intangible assets. Amortization expense related to the purchased intangible assets was $1,033,263 and $1,173,888 for the three months ended September 30, 2020 and 2019, respectively, and $3,256,992 and $3,483,890 for the nine months ended September 30, 2020 and 2019, respectively. The following table summarizes the Company’s Goodwill as of September 30, 2020 and December 31, 2019:
9. Costs, Estimated Earnings and Billings Costs, estimated earnings and billings on uncompleted contracts are summarized as follows as of September 30, 2020 and December 31, 2019:
F-74 10. Accounts Payable and Accrued Liabilities As of September 30, 2020 and December 31, 2019, accounts payable and accrued liabilities consisted of the following:
11. Convertible Notes Payable, net of discount On March 1, 2019, the Company entered into a $450,000 Secured Convertible Promissory Note (“Note Ten”) with an independent investor (the “investor”). The investor provided the Company with $450,000 in cash proceeds, which was received by the Company during the period ended June 30, 2019. Note Ten will mature on March 1, 2020 and bear interest at a rate of 25% per annum, payable by the Company half in cash and half in kind on a quarterly basis. The principal balance of Note Ten is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at the lower of $0.90 per share or a 30% discount to the Company’s 30-day weighted average listed price per share immediately before the date of conversion. In conjunction with Note Ten, the Company issued a warrant to the investor to purchase 160,715 shares of the Company’s common stock at $1.40 per share. The Company evaluated Note Ten in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Ten will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. During 2019, the investor elected their option to partially convert $280,000 in principal of Note Ten into 875,894 shares of the Company’s common stock. As of December 31, 2019, the fair value of Note Ten was $202,125. Accordingly, the Company recorded a change in fair value of $32,125 related to Note Ten for the year ended December 31, 2019. During the three months ended March 31, 2020 the investor converted the remaining $170,000 in principal of Note ten into 564,420 shares of the Company’s common stock. As of September 30, 2020, Note Ten had been fully repaid via the conversion into shares of the Company’s common stock. In addition, the company recorded a debt discount relating to the warrants issued in the amount of $355,847 based on the relative fair value of the warrants at inception of Note Ten. Debt discounts amortized to interest expense was $297,352 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $58,495. In May, September, and December 2019, the Company issued 15,625, 16,568 and 19,401 restricted shares of common stock as paid-in-kind (“PIK”) interest payments in the amount of $14,062, $14,063, and $12,029, respectively. Accrued interest expense associated with Note Ten was $3,542 as of December 31, 2019, which includes PIK interest payable. Debt discount amortized to interest expense was $58,495 for the nine months ended September 30, 2020. On August 15, 2019, the Company entered into a $400,000 Fixed Convertible Promissory Note (“Note Eleven”) with the investor. The investor provided the Company with $380,000 in cash proceeds, which was received by the Company during the period ended September 30, 2019. The additional $20,000 was retained by the investor for due diligence and legal bills for the transaction and recorded as a debt discount. Note Eleven will mature on May 15, 2020 and bear interest at a rate of 10% per annum, payable by the Company in cash. The principal balance of Note Eleven is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Eleven. In conjunction with Note Eleven, the Company issued a warrant to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. The Company evaluated Note Eleven in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Eleven will be accounted for as a liability initially measured at fair value and subsequently F-75 at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Eleven was $204,444. Accordingly, the Company recorded a change in fair value of $195,556 related to Note Eleven for the year ended December 31, 2019. During the three months ended March 31, 2020, the investor elected their option to partially convert $120,000 in principal of Note Eleven into 1,084,186 shares of the Company’s common stock. During the three months ended March 31, 2020, the investor elected their option to convert the remaining $280,000 in principal of Note Eleven into 3,336,225 shares of the Company’s common stock. In addition, the company recorded a debt discount of $38,543 relating to the warrants issued in the amount of $18,543 based on the relative fair value of the warrants themselves at inception of Note Eleven and $20,000 relating to legal fees. Debt discounts amortized to interest expense were $19,412 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $19,131. Accrued interest expense associated with Note Eleven was $17,460 as of December 31, 2019. Debt discounts amortized to interest expense were $19,131 for the nine months ended September 30, 2020 fully amortizing the remaining debt discount. On September 16, 2019, the Company entered into a $450,000 Fixed Convertible Promissory Note (“Note Twelve”) with the investor. The investor provided the Company with $427,500 in cash proceeds, which was received by the Company during the period ended December 31, 2019. The additional $22,500 was retained by the investor for due diligence and legal bills for the transaction and was recorded as a debt discount. Note Twelve will mature on June 16, 2020 and bear interest at a rate of 10% per annum, payable by the Company in cash. The principal balance of Note Twelve is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Twelve. In conjunction with Note Twelve, the Company issued a warrant to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. The Company evaluated Note Twelve in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Twelve will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Twelve was $230,000. Accordingly, the Company recorded a change in fair value of ($220,000) related to Note Twelve for the year ended December 31, 2019. During the six months ended June 30, 2020, the investor elected their option to partially convert $350,110 in principal of Note Twelve into 3,925,000 shares of the Company’s common stock. As of September 30, 2020, the fair value of the remaining principal of Note Twelve was $23,890. Accordingly, the Company recorded a change in fair value of $(231,334) related to Note Twelve for the nine months ended September 30, 2020. In addition, the company recorded a debt discount of $40,183 relating to the warrants issued in the amount of $17,683 based on the residual fair value of the warrants themselves at inception of Note Twelve and $22,500 relating to legal fees. Debt discounts amortized to interest expense were $15,545 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $24,638. Accrued interest expense associated with Note Twelve was $18,285 as of December 31, 2019. Debt discounts amortized to interest expense were $24,638 for the nine months ended September 30, 2020. The unamortized discount balance at September 30, 2020 was $0. Accrued interest expense associated with Note Twelve was $49,805 as of September 30, 2020. On October 11, 2019, the Company entered into a $450,000 Fixed Convertible Promissory Note (“Note Thirteen”) with the investor. The investor provided the Company with $427,500 in cash proceeds, which was received by the Company during the period ended December 31, 2019. The additional $22,500 was retained by the investor for due diligence and legal bills for the transaction and was recorded as a debt discount. Note Thirteen will mature on July 11, 2020 and bear interest at a rate of 10% per annum, payable by the Company in cash. The principal balance of Note Thirteen is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Thirteen. In conjunction with Note Thirteen, the Company issued a warrant to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. F-76 The Company evaluated Note Thirteen in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Thirteen will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Thirteen was $230,000. Accordingly, the Company recorded a change in fair value of ($220,000) related to Note Thirteen for the year ended December 31, 2019. As of September 30, 2020, the fair value of Note Thirteen was $743,106. Accordingly, the Company recorded a change in fair value of $459,106 related to Note Thirteen for the nine months ended September 30, 2020. In addition, the company recorded a debt discount of $33,943 relating to the warrants issued in the amount of $11,443 based on the residual fair value of the warrants themselves at inception of Note Thirteen and $22,500 relating to legal fees. Debt discounts amortized to interest expense were $10,034 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $23,909. Accrued interest expense associated with Note Thirteen was $16,022 as of December 31, 2019. Debt discounts amortized to interest expense were $23,908 for the nine months ended September 30, 2020. The unamortized discount balance at September 30, 2020 was $0. Accrued interest expense associated with Note Thirteen was $40,260 as of September 30, 2020. On December 26, 2019, the Company entered into a $210,526 Fixed Convertible Promissory Note (“Note Fourteen”) with the investor. The investor provided the Company with $200,000 in cash proceeds, which was received by the Company during the period ended December 31, 2019. The additional $10,526 was retained by the investor for due diligence and legal bills for the transaction and was recorded as a debt discount. Note Fourteen will mature on September 26, 2020 and bear interest at a rate of 12% per annum, payable by the Company in cash. The principal balance of Note Fourteen is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at $0.90 per share for the first 6 months and thereafter at the lower of $0.90 per share or at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Fourteen. In conjunction with Note Fourteen, the Company issued a warrant to the investor to purchase 12,500 shares of the Company’s common stock at $1.00 per share. The Company evaluated Note Fourteen in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Fourteen will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019, the fair value of Note Fourteen was $107,602. Accordingly, the Company recorded a change in fair value of $102,924 related to Note Fourteen for the year ended December 31, 2019. As of September 30, 2020, the fair value of Note Fourteen was $347,652. Accordingly, the Company recorded a change in fair value of $214,787 related to Note Fourteen for the nine months ended September 30, 2020. In addition, the company recorded a debt discount of $15,794 relating to the warrants issued in the amount of $5,268 based on the residual fair value of the warrants themselves at inception of Note Fourteen and $10,526 relating to legal fees. Debt discounts amortized to interest expense were $287 for the year ended December 31, 2019. The unamortized discount balance at December 31, 2019 was $15,507. Accrued interest expense associated with Note Fourteen was $463 as of December 31, 2019. Debt discounts amortized to interest expense were $15,507 for the nine months ended September 30, 2020. The unamortized discount balance at September 30, 2020 was $0. Accrued interest expense associated with Note Fourteen was $18,835 as of September 30, 2020. On November 15, 2019, the Company entered into a $5,000,000 Unsecured Convertible Promissory Note (“Note Fifteen”) with the investor. The investor provided the Company with $385,000 in cash proceeds, which was received by the Company during the period ended December 31, 2019. Note Fifteen will mature on November 15, 2021 and bear interest at a rate of 12% per annum, payable by the Company in cash. The principal balance of Note Fifteen is convertible at the election of the investor, in whole or in part, at any time or from time to time, into the Company’s common stock at 70% of the average of the five lowest daily VWAPs of the Company’s common stock during the 15 consecutive trading days prior to the date on which the investor elects to convert all or part of Note Fifteen. As of September 30, 2020, and December 31, 2019, the balance of Note Fifteen was $385,000. Accrued interest expense associated with Note Fifteen was $11,806 and $5,239 as of September 30, 2020 and December 31, 2019, respectively. F-77 12. Related Party Transactions On March 1, 2019, the Company entered into a $1,500,000 Secured Convertible Promissory Note (“Note Nine”) with Rose Capital Fund I, LP (the Related Party Holder”). A Managing Member of the Related Party Holder is also a Director of the Company. The Related Party Holder provided the Company with $1,475,000 in cash proceeds, which was received by the Company during the period ended September 30, 2019. The additional $25,000 was retained by the Related Party Holder for legal bills for the transaction. Note Nine will mature on March 1, 2020 and bear interest at a rate of 25% per annum, payable by the Company half in cash and half in kind on a quarterly basis. The principal balance of Note Nine is convertible at the election of the Related Party Holder, in whole or in part, at any time or from time to time, into the Company’s common stock at the lower of $0.90 per share or a 30% discount to the Company’s 30-day weighted average listed price per share immediately before the date of conversion. In conjunction with Note Nine, the Company issued a warrant to the Related Party Holder to purchase 535,715 shares of the Company’s common stock at $1.40 per share. The Company evaluated Note Nine in accordance with ASC 480, Distinguishing Liabilities from Equity and determined Note Nine will be accounted for as a liability initially measured at fair value and subsequently at fair value with changes in fair value recognized in earnings. As of December 31, 2019 and September 30, 2020, the fair value of Note Nine was $1,783,454 and $1,285,220, respectively. Accordingly, the Company recorded a change in fair value of $498,234 related to Note Nine for the nine months ended September 30, 2020. In addition, the company recorded a debt discount relating to the warrants issued in the amount of $1,186,153 based on the relative fair value of the warrants at inception of Note Nine. The additional $25,000 retained by the fourth investor for legal bills for the transaction will be recorded as a debt discount. Debt discount amortized to interest expense was $199,094 for the nine months ended September 30, 2020. The unamortized discount balance at September 30, 2020 was $0. On May 31, 2019, the Company issued 52,083 restricted shares of common stock as PIK interest payments in the amount of $46,875. On February 24, 2020, the Company issued 167,891 restricted shares of common stock as PIK interest payments in the amount of $93,750. Accrued interest expense associated with Note Nine was $29,795 as of September 30, 2020, which includes PIK interest payable. As of September 30, 2020, the balance of Note Nine, net of debt discount for warrants and legal bills was $1,285,220. The Company and the Related Party Holder are negotiating a potential extension of Note Nine. Warrants On March 1, 2019, in connection with the issuance of Note Nine, the Company issued warrants, of which the value was derived and based off the fair value of Note Nine, to the investor to purchase 535,715 shares of the Company’s common stock at $1.40 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after March 1, 2019 and on or before March 1, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Nine are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. As of December 31, 2019, the fair value of the warrant liability was $182,065 while as of September 30, 2020, the fair value of the warrant liability was $28,417. Accordingly, the Company recorded a change in fair value of $153,648 during the nine months ended September 30, 2020, which is reflected in the unaudited condensed consolidated statements of operations. Promissory Note On January 3, 2019, the Company entered into an unsecured promissory note with the Related Party Holder in the amount of $280,000. The unsecured promissory note has a fixed interest rate of 10% and is due and payable on March 31, 2019. On March 2, 2019, the unsecured promissory note was paid off in full. On July 29, 2019, the Company entered into an unsecured promissory note with the Related Party Holder in the amount of $300,000. The unsecured promissory note has a fixed interest rate of 12% and is due and payable F-78 on January 29, 2020. The Company and the Related Party Holder mutually agreed to defer payment of interest and repayment of principal until July 29, 2020, at which time the note and interest were paid off in full. 13. Notes Payable As of September 30, 2020 and December 31, 2019 notes payable consisted of the following:
The interest expense associated with the notes payable was $68,703 and $7,065 for the three months ended September 30, 2020 and 2019, respectively, and $197,178 and $9,746 for the nine months ended September 30, 2020 and 2019, respectively. In connection with the GTI Merger, the Company assumed a $400,000 Senior Secured Convertible Debenture (the “Convertible Debenture”) (See Note 5). The Convertible Debenture will mature on July 31, 2021 and bears interest at a rate of 10% per annum, payable by the Company to the Lender. In the event that Lender elects to convert the Convertible Debenture into Helix Common Stock or in the event Helix required the Lender to convert the Convertible Debenture into its Common Stock, the number of shares that shall be issuable upon full Conversion of the Convertible Debenture at any time shall be equal to the outstanding principal of the Convertible Debenture divided by $1.00. Pursuant to the terms of the Convertible Debenture, Helix Common Stock can be transferred to the Lender from Steve Janjic, as a shareholder of the Company who receives shares of Helix Common Stock at the Closing, instead of via a new issuance of shares of Helix Common Stock by Helix to Lender, and Lender agrees to accept such transfer of shares from Mr. Janjic as the issuance of Helix Common Stock. In addition, the Company shall have the right to require the Lender to convert the Convertible Debenture into Helix Common Stock at any time provided its Common Stock is listed on a stock exchange other than the U.S. OTCQB, the Common Stock would be fully traded up on conversion and the trading price of its Common Stock closes above $1.15 for 20 consecutive trading days on such exchange. The Convertible Debenture will be secured by a general security interest over all of the assets of the GTI, however does not apply to those assets owned by Helix or Merger Sub prior to the closing of the Merger. On February 7, 2020, the Company and its subsidiary Bio-Tech Medical Software Inc. entered into an agreement for the purchase and sale of future receipts with Advantage Capital Funding. $485,000 was actually funded to the Company with a promise to pay $15,000 per week for 8 weeks and $20,000 per week for the next 27 weeks until a total of $660,000 is paid. $85,857 of principal remained outstanding as of September 30, 2020. 14. Shareholders’ Equity Common Stock Other Common Stock Issuances In January 2020, the Company issued 270,270 shares of common stock as part of an investment unit purchase agreement. During the three months ended March 31, 2020, the Company issued 167,891 restricted shares of common stock as PIK interest payment in the amount of $93,750 (see Note 10). In May and June 2020, the Company issued 11,163,520 shares of common stock as part of subscription purchase agreements. In May 2020 an option holder exercised 700,000 options and was issued 700,000 shares of common stock for total proceeds of $91,000. F-79 During the six months ended June 30, 2020 the Company issued 503,800 restricted shares to employees and former employees and recorded stock-based compensation expense of $1,071,604. In August 2020, the Company issued 1,810,000 shares of common stock under the Stock Incentive Plan and recorded $339,850 in share-based payment expense. In January 2019, the Company issued 20,000 shares of restricted common stock to a consultant per a consulting agreement and recorded shared based compensation expense of $27,400. In March and June 2019, the Company issued 1,255,222 and 166,667 shares of common stock as part of investment unit purchase agreements (see Note 16). In March and June 2019, certain option holders exercised their rights under the BioTrackTHC Stock Plan and were issued 62,847 and 47,084 shares of common stock, respectively, for no cash proceeds. In March and April 2019, certain option holders exercised their rights under the BioTrackTHC Stock Plan and were issued 6,082 and 57,461 shares of common stock for total proceeds of $4,805 and $21,808, respectively. In April 2019, the Company issued 250,000 shares of common stock as part of the Tan Security acquisition. In April 2019, a selling shareholder of Security Grade exercised their right to purchase 15,101 shares of the Company’s common stock. In April 2019, the Company issued 733,300 shares of common stock in satisfaction of the Engeni contingent consideration (see Note 5). In May 2019, the Company issued 15,625 and 52,083 restricted shares of common stock as PIK interest payments in the amount of $14,062 and $46,875, respectively (see Notes 11 and 12). Conversion of Convertible Note to Common Stock During the nine months ended September 30, 2020, the holders of Note Ten, Note Eleven and Note Twelve elected to convert $170,000, $400,000, $350,110, $50,000, $50,000, $48,000 and $30,000 in principal of the respective convertible notes into 564,420, 4,420,411, 3,925,000, 744,048, 554,324, 536,913 and 434,153 shares of the Company’s common stock, respectively (See Note 10). On March 7, 2019 and March 28, 2019, the holder of a 10% fixed secured convertible promissory note issued by the Company elected its option to fully convert $75,882 and $42,055 in principal of the convertible note into 100,000 and 55,421 shares of the Company’s common stock, respectively. Series A convertible preferred stock In October 2015, the Company issued a total of 1,000,000 shares of its Class A Preferred Stock. The Class A Preferred Stock included super majority voting rights and were convertible into 60% of the Company’s common stock. During the third quarter of 2017, the Company modified the conversion rate on the Class A Preferred Stock to a 1:1 ratio. This modification reduced the amount of potentially dilutive Convertible Series A Stock by 15,746,127 shares to a total of 1,000,000 at September 30, 2017. As a result of the Company’s financing at $.11 per share during May and June 2020 the number of shares of common stock the Series A Preferred Stock is convertible into increased from 1,000,000 to 1,045,970. Series B convertible preferred stock Series B Preferred Stock Purchase Agreement On May 17, 2017, the Company sold to accredited investors an aggregate of 5,781,426 Series B Preferred Shares for gross proceeds of $1,875,000 and converted a $500,000 Unsecured Convertible Promissory Note into 1,536,658 Series B Preferred Shares. This tranche of Series B Preferred Shares are convertible into 7,318,084 shares of common stock based on the current conversion price, at a purchase price of $0.325 per share. In connection with the Series B Preferred Stock Purchase Agreement, the Company is obligated to issue warrants to a third-party for services to purchase 462,195 shares of common stock at $0.325 per share. These F-80 warrants have been accounted for as an obligation to issue because as of the balance sheet date the Company did not deliver the warrants though incurred the obligation; accordingly, they were recognized as a liability on the unaudited condensed consolidated balance sheet and cost of issuance of Series B preferred shares on the unaudited condensed consolidated statement of shareholders’ equity. In accordance with the Certificate of Incorporation, there were 9,000,000 authorized Series B Preferred Stock at a par value of $ 0.001. On August 23, 2017 the Certificate of Designations was amended and restated to increase the number of shares of Series B Preferred Stock authorized to be 17,000,000. Conversion: Each Series B Preferred Share is convertible at the option of the holder into such number of shares of the Company’s common stock equal to the number of Series B Preferred Shares to be converted, multiplied by the Preferred Conversation Rate. The Preferred Conversion Rate shall be the quotient obtained by dividing the Preferred Stock Adjusted Issue Price ($0.3110812) by the Preferred Stock Conversation Price in effect at the time of the conversion (the initial conversion price will be equal to the Preferred Stock Original Issue Price, subject to adjustment in the event of stock splits, stock dividends, and fundamental transactions). Based on the current conversion price, the Series B Preferred Shares are convertible into 14,417,856 shares of common stock. A fundamental transaction means: (i) our merger or consolidation with or into another entity, (ii) any sale of all or substantially all of our assets in one transaction or a series of related transactions, (iii) any reclassification of our Common Stock or any compulsory share exchange by which Common Stock is effectively converted into or exchanged for other securities, cash or property; or (iv) sale of shares below the preferred stock conversion price. Each Series B Preferred Share will automatically convert into common stock upon the earlier of (i) notice by the Company to the holders that the Company has elected to convert all outstanding Series B Preferred Shares at any time on or after May 12, 2018; or (ii) immediately prior to the closing of a firmly underwritten initial public offering (involving the listing of the Company’s Common Stock on an Approved Stock Exchange) pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of the Common Stock for the account of the Company in which the net cash proceeds to the Company (before underwriting discounts, commissions and fees) are at least fifty million dollars ($50,000,000). As a result of the Company’s financing at $.11 per share during May and June 2020 the number of shares of common stock the Series B Preferred Stock is convertible into increased from 13,784,201 to 14,417,856. Dividends, Voting Rights and Liquidity Value: Pursuant to the Certificate of Designations, the Series B Preferred Shares shall bear no dividends, except that if the Board shall declare a dividend payable upon the then-outstanding shares of the Company’s common stock. The Series B Preferred Shares vote together with the common stock and all other classes and series of stock of the Company as a single class on all actions to be taken by the stockholders of the Company including, but not limited to, actions amending the certificate of incorporation of the Company to increase the number of authorized shares of the common stock. Upon any dissolution, liquidation or winding up, whether voluntary or involuntary, holders of Series B Preferred Shares are entitled to (i) first receive distributions out of our assets in an amount per share equal to the Stated Value plus all accrued and unpaid dividends, whether capital or surplus before any distributions shall be made on any shares of common stock and (ii) second, on an as-converted basis alongside the common stock. Classification: These Series B Preferred Shares are classified within permanent equity on the Company’s consolidated balance sheet as they do not meet the criteria that would require presentation outside of permanent equity under ASC 480, Distinguishing Liabilities from Equity. 15. Stock Options On February 21, 2020 the Company awarded the Chief Financial Officer, an option to purchase a total of 200,000 shares of the Company’s common stock at a price of $0.385 per share. These options vested immediately upon grant and expire on February 21, 2025. On March 31, 2020 the Company awarded an employee (who is also a board member), two options to purchase a total of 800,000 shares of the Company’s common stock at a price of $0.115 per share. Out of the F-81 800,000 total, 100,000 options vested immediately upon grant, 100,000 vest on 8/15/2020 and the remaining 600,000 vest based on achievement of certain milestones through December 31 2020. As of September 30, 2020, none of the milestone performance awards had vested. These options expire on March 31, 2025. During the three months ended March 31, 2020 the Company awarded certain consultants options to purchase 165,000 shares of the Company’s common stock at prices ranging from $0.20 to $0.46 per share. These options vested immediately and expire three years from issuance. On April 1, 2020 the Company awarded a consultant an option to purchase a total of 65,000 shares of the Company’s common stock at a price of $0.115 per share. The options vested immediately upon grant and expire April 1, 2023. In May 2020 the Company awarded a consultant an option to purchase 700,000 shares of the Company’s common stock at a price of $.13 per share. The options vested immediately and were fully exercised shortly after grant. On June 8, 2020 the Company awarded certain employees an option to purchase a total of 200,000 shares of the Company’s common stock at a price of $0.23 per share. 50% of these options vest on December 8, 2020 and 50% vest on 6/8/2020 and all expire June 8, 2025. On June 19, 2020 the Company awarded the Chief Executive Officer, an option to purchase a total of 500,000 shares of the Company’s common stock at a price of $0.167 per share. These options vest over a three-year period from June 19, 2021 to June 19, 2023 and expire June 19, 2025. On September 14, 2020, the Company awarded an employee an option to purchase a total of 250,000 shares of the Company’s common stock at a price of $0.10 per share. 20% of these options vest on the grant and date another 20% of the shares vest every six months then after. All shares expire June 8, 2025. On February 29, 2020, the former President of the Company’s BioTrackTHC subsidiary forfeited 1,430,306 BioTrackTHC Management Awards and 204,364 Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan stock options as a result of his termination (See Note 16). During the three months ended March 31, 2020, 75,000 employee options grants were forfeited as they had not yet vested prior to the employees’ separation from the Company. On February 6, 2019 the Company awarded an executive an option to purchase a total of 100,000 shares of the Company’s common stock at an exercise price $1.51 per share. These options vested on May 6, 2019 and have an expiration date of February 6, 2024. On March 19, 2019 the Company awarded the Chief Financial Officer, two options to purchase a total of 300,000 shares of the Company’s common stock at prices ranging from $2.35 to $2.59 per share. These options shall vest over a three-year period from March 2020 to March 2022 and have expiration dates ranging from March 2024 to March 2029. On March 19, 2019 the Company awarded the Chief Executive Officer, two options to purchase a total of 500,000 shares of the Company’s common stock at prices ranging from $2.35 to $2.59 per share. These options shall vest over a three-year period from March 2020 to March 2022 and have expiration dates ranging from March 2024 to March 2029. Stock option activity for the period ended September 30, 2020 is as follows:
F-82 16. Warrant Liability On March 1, 2019, in connection with the issuance of Note Ten, the Company issued warrants, of which the value was derived and based off the fair value of Note Ten, to the investor to purchase 160,715 shares of the Company’s common stock at $1.40 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after March 1, 2019 and on or before March 1, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Ten are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At December 31, 2019, the fair value of the warrant liability was $54,620 while as of September 30, 2020, the fair value of the warrant liability was $8,525. Accordingly, the Company recorded a change in fair value of the warrant liability of $(46,095) related to Note Ten for the nine months ended September 30, 2020. On January 10, 2019, the Company entered into an Investment Unit Purchase Agreement (the “First Investment Agreement”) to issue and sell investment units to an investor, in which the investment units consist of one share of the common stock of the Company, and a warrant exercisable for one half share of common stock of the Company at an Exercise Price of $1.25 per share for cash at a price per investment unit of $0.90. On March 5, 2019, the Company sold an aggregate of 1,255,222 units of the Company’s securities to an investor at a purchase price of $0.90 per unit for total proceeds of $1,129,700. In connection with the First Investment Agreement, the investor is entitled to purchase from the Company, at the Exercise Price, at any time on or after 90 days from the issuance date, 627,611 shares of the Company’s common stock (the “March Warrant Shares”). The Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. The fair value of the March Warrant Shares at issuance on January 10, 2019 is in excess of the proceeds received, the warrant liability is required to be recorded at fair value with the excess of the fair value over the proceeds received recognized as a loss in earnings. The gross proceeds from the 1,255,222 investment units at $0.90 was $1,129,700. The fair value of the March Warrant Shares at issuance was $1,717,506. The amount to be recognized as a loss in earnings is calculated as follows:
As of September 30, 2020, the fair value of the warrant liability was $88,750 and the Company recorded a change in fair value of the warrant liability of $(682,717) for the nine months ended September 30, 2020. On March 11, 2019, the Company issued warrants to an investment bank to purchase a total of 100,000 restricted shares of the Company’s common stock at a per share purchase price of $0.90. The warrants are exercisable at any time six months after the issuance date within three years of issuance. F-83 The Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the condensed consolidated balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the condensed consolidated statement of operations. At December 31, 2019, the fair value of the warrant liability was $24,504 while as of September 30, 2020, the fair value of the warrant liability was $85. Accordingly, the Company recorded a change in fair value of the warrant liability of $24,419 related to the warrants for the nine months ended September 30, 2020. On June 14, 2019, the Company entered into another Investment Unit Purchase Agreement (the “Second Investment Agreement”) to issue and sell investment units to an investor (the “investor”), in which the investment units consist of one share of the common stock of the Company, and a warrant exercisable for one half share of common stock of the Company at an exercise price of $1.25 per share for cash at a price per investment unit of $0.90. On June 24, 2019, the Company sold an aggregate of 166,667 units of the Company’s securities to an investor at a purchase price of $0.90 per unit for total proceeds of $150,000. In connection with the Second Investment Agreement, the investor is entitled to purchase from the Company, at the exercise price, at any time on or after 90 days from the issuance date, 83,333 shares of the Company’s common stock (the “June Warrant Shares”). The gross proceeds from the 166,667 investment units at $0.90 was $150,000. The fair value of the June Warrant Shares at issuance was $83,586 while as of September 30, 2020, the fair value of the warrant liability was $3,574. Accordingly, the Company recorded a change in fair value of the warrant liability of $(80,012) related to the warrants for the nine months ended September 30, 2020. On August 15, 2019, in connection with the issuance of Note Eleven, the Company issued warrants, of which the value was derived and based off the fair value of Note Eleven, to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after August 15, 2019 and on or before August 15, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Eleven are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At December 31, 2019, the fair value of the warrant liability was $9,130 while as of September 30, 2020, the fair value of the warrant liability was $1,658. Accordingly, the Company recorded a change in fair value of the warrant liability of $(7,472) related to Note Eleven for the nine months ended September 30, 2020. On September 16, 2019, in connection with the issuance of Note Twelve, the Company issued warrants, of which the value was derived and based off the fair value of Note Twelve, to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after September 16, 2019 and on or before September 16, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Twelve are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At F-84 December 31, 2019, the fair value of the warrant liability was $9,194 while as of September 30, 2020, the fair value of the warrant liability was $1,684. Accordingly, the Company recorded a change in fair value of the warrant liability of $(7,510) related to Note Twelve for the nine months ended September 30, 2020. On October 11, 2019, in connection with the issuance of Note Thirteen, the Company issued warrants, of which the value was derived and based off the fair value of Note Thirteen, to the investor to purchase 25,000 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after October 11, 2019 and on or before October 11, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Thirteen are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At December 31, 2019, the fair value of the warrant liability was $9,236 while as of September 30, 2020, the fair value of the warrant liability was $1,703. Accordingly, the Company recorded a change in fair value of the warrant liability of $(7,533) related to Note Thirteen for the nine months ended September 30, 2020. On November 1, 2019, the Company issued warrants to an institution to purchase a total of 100,000 restricted shares of the Company’s common stock at a per share purchase price of $0.435. The warrants are exercisable at any time after the issuance date within five years of issuance. The Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the consolidated balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the consolidated statement of operations. At December 31, 2019, the fair value of the warrant liability was $40,063. As of September 30, 2020, the fair value of the warrant liability was $7,735 and the Company recorded a change in fair value of the warrant liability of $(32,328) related to the warrants for the nine months ended September 30, 2020. On December 26, 2019, in connection with the issuance of Note Fourteen, the Company issued warrants, of which the value was derived and based off the fair value of Note Fourteen, to the investor to purchase 12,500 shares of the Company’s common stock at $1.00 per share. Exercise of the purchase rights represented by the warrant may be made, in whole or in part, at any time or times on or after December 26, 2019 and on or before December 26, 2024, by delivery to the Company of the Notice of Exercise. The Company determined that the warrants associated with Note Fourteen are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with ASC 480, the outstanding warrants are recognized as a warrant liability on the balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the statement of operations. At December 31, 2019, the fair value of the warrant liability was $4,687 while as of September 30, 2020, the fair value of the warrant liability was $880. Accordingly, the Company recorded a change in fair value of the warrant liability of $(3,807) related to Note Fourteen for the nine months ended September 30, 2020. On January 28, 2020, the Company entered into a subscription agreement with an investor for the purchase of 270,270 shares of the Company’s common stock and 135,135 warrants to purchase shares of the Company’s common stock at $0.40 per share for total gross proceeds of $100,000. The Company determined that the warrants are puttable for cash upon a fundamental transaction at the option of the holder and as such required classification as a liability pursuant to ASC 480, Distinguishing F-85 Liabilities from Equity. The Company has no plans to consummate a fundamental transaction and does not believe a fundamental transaction is likely to occur during the remaining term of the outstanding warrants. In accordance with the accounting guidance, the outstanding warrants are recognized as a warrant liability on the condensed consolidated balance sheet and are measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income in the condensed consolidated statement of operations. At inception, January 28, 2020, the fair value of the warrant liability was $56,208 while as of September 30, 2020, the fair value of the warrant liability was $9,920. Accordingly, the Company recorded a change in fair value of the warrant liability of $(46,288) and related to the warrants for the nine months ended September 30, 2020. A summary of warrant activity is as follows:
The fair value of the Company’s warrant liability was calculated using the Black-Scholes model and the following assumptions:
The change in fair value of the financial instruments – warrants is as follows:
17. Stock-Based Compensation 2017 Omnibus Incentive Plan The Company’s 2017 Omnibus Incentive Plan (the “2017 Plan”) was adopted by our Board of Directors and a majority of our voting securities on October 17, 2017. On April 13, 2020 our Board of Directors approved F-86 an amendment to the 2017 Plan and a majority of our voting securityholders approved the amendment on April 22, 2020. The 2017 Plan permits the granting of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and dividend equivalent rights to eligible employees, directors and consultants. We grant options to purchase shares of common stock under the 2017 Plan at no less than the fair value of the underlying common stock as of the date of grant. Options granted under the Plan have a maximum term of ten years. Under the Plan, a total of 11,000,000 shares of common stock are reserved for issuance. Options to purchase 4,715,000 and 1,835,000 shares of common stock and were granted as of September 30, 2020 and December 31, 2019, respectively. 2,943,745 and 764,945 shares of common stock had been granted as of September 30, 2020 and December 31, 2019, respectively. Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan On October 22, 2014, BioTrackTHC approved and adopted the BioTrackTHC Stock Plan. The BioTrackTHC Stock Plan set aside and reserved 600,000 shares of BioTrackTHC’s common stock for grant and issuance in accordance with its terms and conditions. Persons eligible to receive awards from the BioTrackTHC Stock Plan include employees (including officers and directors) of BioTrackTHC or its affiliates and consultants who provide significant services to BioTrackTHC or its affiliates (the “Grantees”). The BioTrackTHC Stock Plan permits BioTrackTHC to issue to Grantees qualified and/or non-qualified options to purchase BioTrackTHC’s common stock, restricted common stock, performance units, and performance shares. The term of each award under the BioTrackTHC Stock Plan shall be no more than ten years from the date of grant thereof. BioTrackTHC’s Board of Directors or a committee designated by the Board of Directors is responsible for administration of the BioTrackTHC Stock Plan and has the sole discretion to determine which Grantees will be granted awards and the terms and conditions of the awards granted. On February 29, 2020, the former Chief Executive Officer of the Company’s BioTrackTHC subsidiary forfeited 204,364 Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan stock options as a result of his termination (See Note 14). BioTrackTHC Management Awards On September 1, 2015 and November 1, 2015, BioTrackTHC’s Board approved individual employee option grants (the “Executive Grants”) for three executives (the “Executives”). Pursuant to the Executive Grants, the Executives were each granted stock options to purchase 146,507 shares (totaling 439,521 shares) of BioTrackTHC’s common stock (the “Option”) at an exercise price equal to approximately $7.67. The options vest as to 25% of the shares subject to the Options, one year after the date of grant and then in equal quarterly installments for the three years thereafter, subject to the Executive’s continued employment with BioTrackTHC (see Notes 1 and 5). On February 29, 2020, the former President of the Company’s BioTrackTHC subsidiary forfeited 1,430,306 BioTrackTHC Management Awards (See Note 14). 18. Income Taxes No provision for U.S. federal or state income taxes has been recorded as the Company has incurred net operating losses since inception. Significant components of the Company’s net deferred income tax assets for the nine months ended September 30, 2020 and 2019 consist of income tax loss carryforwards. These amounts are available for carryforward for use in offsetting taxable income of future years through 2035. Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carry-forward period. Utilization of the net operating loss carry-forwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. Due to the Company’s history of operating losses, these deferred tax assets arising from the future tax benefits are currently not likely to be realized and are thus reduced to zero by an offsetting valuation allowance. As a result, there is no provision for income taxes. For the nine months ended September 30, 2020 and 2019, the Company has a net operating loss carry forward of approximately $20,077,000 and $16,952,000, respectively. Utilization of these net loss carry forwards is subject to the limitations of Internal Revenue Code Section 382. The Company applied a 100% valuation reserve against the deferred tax benefit as the realization of the benefit is not certain. 19. Commitments and Contingencies Under Topic 842, operating lease expense is generally recognized evenly on a straight-line basis. The Company has operating leases primarily consisting of facilities with remaining lease terms of one year to F-87 five years. The lease term represents the period up to the early termination date unless it is reasonably certain that the Company will not exercise the early termination option. Certain leases include rental payments that are adjusted periodically based on changes in consumer price and other indices. Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheet. For lease agreements entered into or reassessed after the adoption of Topic 842, the Company combines the lease and non-lease components in determining the lease liabilities and ROU assets. Activity related to the Company’s leases was as follows:
The Company’s lease agreements generally do not provide an implicit borrowing rate, therefore an internal incremental borrowing rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments. The Company used the incremental borrowing rate on December 31, 2018 for all leases that commenced prior to that date. ROU lease assets and lease liabilities for the Company’s operating leases were recorded in the condensed consolidated balance sheet as follows:
Future lease payments included in the measurement of lease liabilities on the condensed consolidated balance sheet as of September 30, 2020, for the following five fiscal years and thereafter were as follows:
As of September 30, 2020, the Company had additional operating lease obligations for a lease with a future effective date of approximately $600,000. This operating lease will commence during the first quarter of fiscal 2022 with a lease term of three years. F-88 20. Segment Results FASB ASC 280-10-50 requires use of the “management approach” model for segment reporting. The management approach is based on the way a company’s management organized segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. 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–making group is composed of the Chief Executive Officer and the Chief Financial Officer. The Company operates in three segments, Security and guarding, Systems installation and Software. Asset information by operating segment is not presented below since the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s unaudited condensed consolidated financial statements. The following represents selected information for the Company’s reportable segments:
F-89
The chief operating decision making group uses net loss before interest, taxes and depreciation and amortization and adjusted for non-core or certain items that have a disproportionate impact on our results for a particular period (“Adjusted EBITDA”) as a non-GAAP measure to evaluate the Company’s operating performance. Adjusted EBITDA does not represent, and should not be considered an alternative to, net loss, loss from operations, or cash flow from operations as those terms are defined by GAAP, and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. From time to time, we may exclude from Adjusted EBITDA the impact of certain events, gains, losses or other charges that affect the period-to-period comparability of the Company’s operating performance. The Company believes that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our chief operating decision maker. Net loss is reconciled to Adjusted EBITDA as follows:
21. Subsequent Events On October 1, 2020, the holder of Note Twelve converted the remaining principal balance of $23,890 of the note into 353,402 shares of common stock of the Company. On October 1, 2020, the Company issued 25,000 Non-Qualified Stock Options to a consultant, pursuant to a consulting agreement. F-90 On October 12, 2020, the holder of Note Thirteen converted $30,000 of the principal balance of the note into 442,478 shares of common stock of the Company. On October 13, 2020, the Company issued 15,000 restricted shares of common stock to a former employee. On October 14, 2020, pursuant to a unanimous vote of the Board of Directors, the Company issued 300,000 Incentive Stock Options to the Chief Executive Officer (“CEO”) with an exercise price of $0.1045, a 10% premium to the closing price on the date of issuance. The Board of Directors also voted to grant the CEO a cash bonus of $75,000. On October 16, 2020, the Company signed an agreement and plan of merger whereby the Company would combine with Medical Outcomes Research Analytics, with both companies becoming wholly owned subsidiaries of a newly formed company, Forian, Inc. Upon completion of the all-stock transaction, MOR Analytics members will own approximately 72 percent and Helix shareholders will own approximately 28 percent of the combined company on a fully diluted basis. Helix shareholders will receive .027 shares of Forian common stock for each share of Helix common stock. The transaction is subject to customary closing conditions, including regulatory approvals and approval by Helix’s shareholders, and is expected to close in the first quarter 2021. Forian expects to apply and be listed on the Nasdaq Stock Exchange. On October 19, 2020, the holder of Note Thirteen converted $100,000 of the principal balance of the note into 1,468,429 shares of common stock of the Company. On October 20, 2020, the holder of Note Thirteen converted the remaining principal balance of $374,000 of the note into 5,491,924 shares of common stock of the Company. On November 2, 2020, the holder of Note Fourteen converted the entire principal balance of $235,789 of the note into 3,462,394 shares of common stock of the Company. On November 2, 2020, the holder of Note Thirteen converted $12,893 of the accrued interest of the note into 189,325 shares of common stock of the Company. F-91 To the Members and Board of Directors of Medical Outcomes Research Analytics, LLC Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Medical Outcomes Research Analytics, LLC (the “Company”) as of December 31, 2019, the related consolidated statements of operations, changes in members’ deficit and cash flows for the period from inception (May 6, 2019) through December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as December 31, 2019, and the results of its operations and its cash flows for the period from inception (May 6, 2019) through December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Marcum LLP Marcum LLP We have served as the Company’s auditor since 2020. San Jose, California November 24, 2020, except for Note 13 as to which the date is December 31, 2020 F-92 CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2019
The accompanying notes are an integral part of these consolidated financial statements. F-93 CONSOLIDATED STATEMENT OF OPERATIONS FROM INCEPTION (MAY 6, 2019) THROUGH DECEMBER 31, 2019
The accompanying notes are an integral part of these consolidated financial statements. F-94 CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS’ DEFICIT FROM INCEPTION (MAY 6, 2019) THROUGH DECEMBER 31, 2019
The accompanying notes are an integral part of these consolidated financial statements. F-95 CONSOLIDATED STATEMENT OF CASH FLOWS FROM INCEPTION (MAY 6, 2019) THROUGH DECEMBER 31, 2019
The accompanying notes are an integral part of these consolidated financial statements. F-96 FOR THE PERIOD FROM INCEPTION (MAY 6, 2019) THROUGH DECEMBER 31, 2019 Note 1 BUSINESS ORGANIZATION AND NATURE OF OPERATIONS Medical Outcomes Research Analytics, LLC (“Parent” or “The Company”) was established on May 6, 2019 in Delaware. MOR Analytics, LLC and COR Analytics, LLC are wholly owned subsidiaries of the Parent. The Company is a technology and analytics company building a data management platform and has assembled a repository of Health Insurance Portability and Accountability Act (“HIPAA”) compliant, encrypted, deidentified patient-level health data in the United States. The Company is an early stage entity and plans to provide Data, Business Intelligence Technology, and Outcomes Studies to its customers to help them improve the performance of their businesses. Note 2 BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). As of December 31, 2019, the Company had a working capital deficit and accumulated deficit. The Company believes it can continue as a going concern as its cash resources available as of the date of these financial statements coupled with additional equity financing available will be sufficient to allow the Company to fund its current operating plan through the required minimum of at least the next twelve months from the date of filing this report. There can be no assurance, however, that the current operating plan will be achieved in the timeframe anticipated by the Company, or that its cash resources will fund the Company’s operating plan for the period anticipated by the Company or that additional funding will be available on terms acceptable to the Company, or at all. Note 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements of the Company include the accounts of Medical Outcomes Research Analytics, LLC and its wholly owned subsidiaries COR Analytics, LLC and MOR Analytics, LLC. All intercompany transactions have been eliminated in consolidation. 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 Company’s significant estimates used in these financial statements include, but are not limited to, fair value for equity securities 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 estimates and could cause actual results to differ from those estimates. Fair Value of Financial Instruments The Company measures the fair value of financial assets and liabilities based on the guidance of Accounting Standards Codification (“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 F-97 Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable Level 3 — inputs that are unobservable The carrying value of the Company’s financial instruments, such as cash, accounts receivable, and accrued liabilities and other liabilities approximate fair values due to the short-term nature of these instruments. 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 or marketable securities. 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 subject to such insurance and represents a credit risk to the Company. At times, the Company’s deposits exceed this coverage. There were no uninsured cash balances as of December 31, 2019. The Company purchases overnight securities with any excess cash available to maximize the return on liquid assets. The fair value estimate for these investments are assessed using Level 1 criteria by the company with minimal risk of loss due to the nature of these investments and the short term to maturity. Vendor Concentration Total expenses incurred in 2019 were $1,292,172. Vendors with a 10% or greater share of the total expenses are as follows:
Accounts payable at December 31, 2019 consisted of two vendors, with one vendor comprising 62% of the total and the other comprising 38% of the total. The Company believes there are numerous alternatives to its vendors, however the loss of a significant vendor could negatively impact operations. Property and Equipment 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 range from 3-7 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. An impairment loss would be recognized when the present value of 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. 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. Costs incurred in the application development stage are subject to capitalization and subsequent amortization and impairment. Application development stage costs were not material for the Company. Product development costs are primarily comprised of personnel costs incurred related to activities for evaluating future changes to the software, testing, bug fixes, and other maintenance activities. Product development costs are expensed as incurred. Share-Based Compensation Compensation cost for profit interest awards is generally recognized over the required service period based on the fair value of the awards on their grant date. Fair value is determined using the Black-Scholes option-pricing model wherein the discount rate is based on published daily treasury interest rates for zero-coupon bonds F-98 available from the US Treasury. Volatility is based on the historical volatility over a period that is commensurate with the expected life of the profit interests granted. Please see Black-Sholes inputs below for profits interest units granted during the period from inception (May 6, 2019) through December 31, 2019.
Income Taxes The Company is organized as an LLC and as a result is treated as a Partnership for federal and state income tax purposes. 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 the period from inception (May 6, 2019) through December 31, 2019. There are no uncertain tax positions that would require recognition in the financial statements. If the Company were to incur an income tax liability in the future, interest on any income tax liability would be reported as interest expense and penalties on any income tax would be reported as income taxes. Management’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. Note 4 PROMISSORY NOTES On May 6, 2019, the Company entered into an arrangement with related parties to issue two separate promissory notes (“Note” or “Notes”) entitling the Company to secure up to $100,000 per Note to fund operations. The Notes had no interest rate and were due on the sooner to occur of the initial closing of the Company’s Series S Preferred Unit financing or December 31, 2020. Imputed interest is minimal. As of December 31, 2019, the Company had drawn $92,150 from each Note for a total of $184,300. The note holders had the option to apply the outstanding amount to the purchase of Series S preferred units in the equity financing, which they elected to do in March 2020 (see Note 13). Note 5 SHARE-BASED COMPENSATION During the period from inception (May 6, 2019) through December 31, 2019, the Company granted 1,018,821 Class B profit interest units with a fair value of $0.0282 per unit to employees and advisors to the Company, of which 276,976 were vested as of December 31, 2019. Class B units have specific thresholds above which the members participate. The fair value of these interests were determined using the Black Scholes model as equity interests and were discounted as appropriate for lack of control and marketability. As a result, the fair value of the grants issued during the period from inception (May 6, 2019) through December 31, 2019 totaled $28,731, of which compensation expense totaling $7,811 was recognized during the period. The intrinsic value of all profits interest units as of December 31, 2019 was zero. The unvested expense related to these awards will be recognized over a weighted average period of approximately 3.75 years. Note 6 OPERATING LEASES The Company accounts for leases in accordance with ASC 842. All contracts are evaluated to determine whether or not they represent a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases we identify are classified as finance or operating in accordance with the guidance in ASC 842. The Company does not hold any finance leases. The Company has a single, short-term lease related to an office in Newtown, PA. The office space is currently leased on a month to month basis. A short-term lease is a lease with a term of 12 months or less and does not include the option to purchase the underlying asset that we would expect to exercise. We have elected to adopt the short-term lease exemption in ASC 842 and as such have not recognized a “right of use” asset or lease liability in the consolidated balance sheet as of December 31, 2019. The total rent expense for the period from inception (May 6, 2019) through December 31, 2019 was $4,289. F-99 Note 7 PREPAID EXPENSES During 2019 the Company purchased various software licenses from multiple vendors. The duration of the licenses ranged from 3 months to 1 year. The total cost of the licenses was $48,553. Based on the duration of each license, $23,188 was expensed to R&D in 2019 with the remaining balance of $25,365 recorded as prepaid expenses. Note 8 PROPERTY AND EQUIPMENT As of December 31, 2019, property and equipment were comprised of the following:
Depreciation expense for the period from inception (May 6, 2019) through December 31, 2019 was $854. Note 9 ACCRUED EXPENSES As of December 31, 2019, accrued expenses were comprised of the following:
Note 10 RELATED PARTY TRANSACTIONS The primary related party transactions in 2019 related to notes payable issued by the Company. These Notes were issued to a trust in which executive leadership has an interest through their family. The Notes are convertible into Series S Preferred Units at the terms of that financing (See Note 4). One Non-Employee Director of the Company is related to a member of the leadership team and owns membership shares that were purchased. The Company incurred $227,000 of expenses with a vendor who is affiliated with a member of the Company. Note 11 MEMBERS’ DEFICIT The Amended Operating Agreement authorizes the issuance of 8,000,000 Class A Units, 3,000,000 Class B Units and 3,500,000 Series S Preferred Units. Each Class A Unit is entitled to one vote per unit, each Series S Preferred Unit is entitled to vote on as converted basis, if and when the Company converts from an LLC to a C-Corporation, and the Class B Units are non-voting. The Company is managed by a board of managers consisting of five managers, one manager elected by a majority of the Series S Preferred Units, two managers elected by the holders of Class A Units, one manager must be the CEO of the Company and one manager may be elected by a majority in interests of the members of the Company. The board of managers has the right to make all decisions concerning the business, affairs and properties of the Company. Under the Amended Operating Agreement, the members have the right to vote on the dissolution and termination of the Company and any amendment to the Amended Operating Agreement. As of December 31, 2019, there were 4,000,000 Class A membership units issued with a par value of approximately $0.25. Profits interests were issued to employees and consultants/advisors (1,018,821 Class B units) in 2019 (See Note 5). F-100 Note 12 COMMITMENTS AND CONTINGENCIES The Company entered into certain data licenses during 2019. The term of these data licenses vary in length. The following table shows the remaining obligations under these licenses as of December 31, 2019.
Note 13 SUBSEQUENT EVENTS Except as disclosed below, management has evaluated subsequent events or transactions occurring through the date these financial statements were issued and has not identified any items requiring adjustment to or disclosure in these financial statements. COVID-19 A novel strain of coronavirus (COVID-19) was first identified in December 2019, and subsequently declared a pandemic by the World Health Organization. Our business has largely operated in a work-from-home environment since its inception and, as a result, has experienced limited disruption due to this pandemic. The leadership team continues to focus on the highest level of safety measures to protect our employees. We have not experienced a material impact to our financial results to date, however, COVID-19 continues to present significant uncertainty in the future economic outlook for our customers and the markets we serve. Note 2 BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). As of December 31, 2019, the Company had a working capital deficit and Note 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements of the 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 Company’s significant estimates used in these financial statements include, but are not limited to, fair value for equity securities and stock-based compensation. Certain of the Company’s estimates could be Fair Value of The Company measures the fair value of financial assets and liabilities based on the guidance of Accounting Standards Codification (“ASC”) ASC 820 defines fair value as the exchange price that would be Level 1 — quoted prices in Level 3 — inputs that are unobservable The carrying value of the Company’s financial instruments, such as cash, accounts receivable, and accrued liabilities and other liabilities approximate fair values due to the short-term nature of these instruments. 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 or marketable securities. 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 subject to such insurance and represents a credit risk to the Company. At times, the Company’s deposits exceed this coverage. There were no uninsured cash balances as of December The Company purchases overnight securities with any excess cash available to maximize the return on liquid assets. The fair value estimate for these investments are assessed using Level 1 criteria by the company with minimal risk of loss due to the nature of these investments and the short term to maturity. Vendor Concentration Total expenses incurred in 2019 were $1,292,172. Vendors with a 10% or greater share of the total expenses are as follows:
Accounts payable at December 31, 2019 consisted of two vendors, with one vendor comprising 62% of the total and the other comprising 38% of the total. The Company Property and Equipment 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 range from 3-7 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 Software Development Costs The Share-Based Compensation Compensation cost for profit interest awards is generally recognized over the
Income Taxes The Company is organized as an LLC and as a result is treated as a Partnership for federal and state income tax purposes. 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 the period from inception (May 6, 2019) through December 31, 2019. There are no uncertain tax positions that would require recognition in the financial statements. If the Company were to incur an income tax liability in the future, interest on any income tax liability would be reported as interest expense and penalties on any income tax would be reported as income taxes. Management’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of or changes in tax laws, regulations and interpretations thereof as well as other factors. On May 6, 2019, the Company entered into an arrangement with related parties to issue two separate promissory notes (“Note” or “Notes”) entitling the Company to secure up to $100,000 per Note to fund operations. The Notes had no interest rate and were due on the sooner to occur of the initial closing of the Company’s Series S Preferred Unit financing or December 31, 2020. Imputed interest is minimal. As of December 31, 2019, the Company had drawn $92,150 from each Note for a total of $184,300. The note holders had the option to apply the outstanding amount to the purchase of Series S preferred units in the equity financing, which they elected to do in March 2020 (see Note 13).
Note 5 SHARE-BASED COMPENSATION During the period from inception (May 6, 2019) through December 31, 2019, the Company granted 1,018,821 Class B profit interest units with a fair value of $0.0282 per unit to employees and advisors to the Company, of which 276,976 were vested as of December 31, 2019. Class B units have specific thresholds above which the members participate. The fair value of these interests were determined using the Black Scholes model as equity interests and were discounted as appropriate for lack of control and marketability. As a result, the fair value of the grants issued during the period from inception (May 6, 2019) through December 31, 2019 totaled $28,731, of which compensation expense totaling $7,811 was recognized during the period. The intrinsic value of all profits interest units as of December 31, 2019 was zero. The unvested expense related to these awards will be recognized over a weighted average period of approximately 3.75 years. Note 6 OPERATING LEASES The Company accounts for leases in accordance with ASC 842. All contracts are evaluated to determine whether or not they represent a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases we identify are classified as finance or operating in accordance with the guidance in ASC 842. The Company does not hold any finance leases. The Company has a single, short-term lease related to an office in Newtown, PA. The office space is currently leased on a month to month basis. A short-term lease is a lease with a term of 12 months or less and does not include the option to purchase the underlying asset that we would expect to exercise. We have elected to adopt the short-term lease exemption in ASC 842 and as such have not recognized a “right of use” asset or lease liability in the consolidated balance sheet as of December 31, 2019. The total rent expense for the period from inception (May 6, 2019) through December 31, 2019 was $4,289. During 2019 the Company purchased various software licenses from multiple vendors. The duration of the licenses ranged from 3 months to 1 year. The total cost of the licenses was $48,553. Based on the duration of each license, $23,188 was expensed to R&D in 2019 with the remaining balance of $25,365 recorded as prepaid expenses. Note 8 PROPERTY AND EQUIPMENT As of December 31, 2019, property and equipment were comprised of the following:
Note 9 ACCRUED EXPENSES As of December 31, 2019, accrued expenses were comprised of the following:
Note 10 RELATED PARTY TRANSACTIONS The primary related party transactions in 2019 related to notes payable issued by the Company. These Notes were issued to a trust in which executive leadership has an interest through their family. The Notes are convertible into Series S Preferred Units at the terms of that financing (See Note 4). One Non-Employee Director of the Company is related to a member of the leadership team and owns membership shares that were purchased. The Company incurred $227,000 of expenses with a vendor who is affiliated with a member of the Company. Note 11 MEMBERS’ DEFICIT The Amended Operating Agreement authorizes the issuance of 8,000,000 Class A Units, 3,000,000 Class B Units and 3,500,000 Series S Preferred Units. Each Class A Unit is entitled to one vote per unit, each Series S Preferred Unit is entitled to vote on as converted basis, if and when the Company converts from an LLC to a C-Corporation, and the Class B Units are non-voting. The Company is managed by a board of managers consisting of five managers, one manager elected by a majority of the Series S Preferred Units, two managers elected by the holders of Class A Units, one manager must be the CEO of the Company and one manager may be elected by a majority in interests of the members of the Company. The board of managers has the right to make all decisions concerning the business, affairs and properties of the Company. Under the Amended Operating Agreement, the members have the right to vote on the dissolution and termination of the Company and any amendment to the Amended Operating Agreement. As of December 31, 2019, there were 4,000,000 Class A membership units issued with a par value of approximately $0.25. Profits interests were issued to employees and consultants/advisors (1,018,821 Class B units) in 2019 (See Note 5). The Company entered into certain data licenses during 2019. The term of these data licenses vary in length. The following table shows the remaining obligations under these licenses as of December 31, 2019.
Note 13 SUBSEQUENT EVENTS
Our business has largely operated in a work-from-home environment since its inception and, as a result, has experienced limited disruption due to this pandemic. The leadership team continues to focus on the highest level of safety measures to protect our employees.
results to date, however, COVID-19 continues to present significant uncertainty in the future economic outlook for our customers and the markets we serve. Note 1 BUSINESS ORGANIZATION AND NATURE OF OPERATIONS Medical Outcomes Research Analytics, LLC (“Parent” or “The Company”) was established on May 6, 2019 in Delaware. MOR Analytics, LLC and COR Analytics, LLC are wholly owned subsidiaries of the Parent. The Company is a technology and analytics company building a data management platform and has assembled a repository of Health Insurance Portability and Accountability Act (“HIPAA”) compliant, encrypted, deidentified patient-level health data in the United States. The Company is an early stage entity and plans to provide Data, Business Intelligence Technology, and Outcomes Studies to its customers to help them improve the performance of their businesses. Note 2 BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). As of December 31, 2019, the Company had a working capital deficit and accumulated deficit. The Company believes it can continue as a going concern as its cash resources available as of the date of these financial statements coupled with additional equity financing available will be sufficient to allow the Company to fund its current operating plan through the required minimum of at least the next twelve months from the date of filing this report. There can be no assurance, however, that the current operating plan will be achieved in the timeframe anticipated by the Company, or that its cash resources will fund the Company’s operating plan for the period anticipated by the Company or that additional funding will be available on terms acceptable to the Company, or at all. Note 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements of the Company include the accounts of Medical Outcomes Research Analytics, LLC and its wholly owned subsidiaries COR Analytics, LLC and MOR Analytics, LLC. All intercompany transactions have been eliminated in consolidation. 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 Company’s significant estimates used in these financial statements include, but are not limited to, fair value for equity securities 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 estimates and could cause actual results to differ from those estimates. Fair Value of Financial Instruments The Company measures the fair value of financial assets and liabilities based on the guidance of Accounting Standards Codification (“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 F-97 Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable Level 3 — inputs that are unobservable The carrying value of the Company’s financial instruments, such as cash, accounts receivable, and accrued liabilities and other liabilities approximate fair values due to the short-term nature of these instruments. 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 or marketable securities. 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 subject to such insurance and represents a credit risk to the Company. At times, the Company’s deposits exceed this coverage. There were no uninsured cash balances as of December 31, 2019. The Company purchases overnight securities with any excess cash available to maximize the return on liquid assets. The fair value estimate for these investments are assessed using Level 1 criteria by the company with minimal risk of loss due to the nature of these investments and the short term to maturity. Vendor Concentration Total expenses incurred in 2019 were $1,292,172. Vendors with a 10% or greater share of the total expenses are as follows:
Accounts payable at December 31, 2019 consisted of two vendors, with one vendor comprising 62% of the total and the other comprising 38% of the total. The Company believes there are numerous alternatives to its vendors, however the loss of a significant vendor could negatively impact operations. Property and Equipment 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 range from 3-7 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. An impairment loss would be recognized when the present value of 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. 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. Costs incurred in the application development stage are subject to capitalization and subsequent amortization and impairment. Application development stage costs were not material for the Company. Product development costs are primarily comprised of personnel costs incurred related to activities for evaluating future changes to the software, testing, bug fixes, and other maintenance activities. Product development costs are expensed as incurred. Share-Based Compensation Compensation cost for profit interest awards is generally recognized over the required service period based on the fair value of the awards on their grant date. Fair value is determined using the Black-Scholes option-pricing model wherein the discount rate is based on published daily treasury interest rates for zero-coupon bonds F-98 available from the US Treasury. Volatility is based on the historical volatility over a period that is commensurate with the expected life of the profit interests granted. Please see Black-Sholes inputs below for profits interest units granted during the period from inception (May 6, 2019) through December 31, 2019.
Income Taxes The Company is organized as an LLC and as a result is treated as a Partnership for federal and state income tax purposes. 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 the period from inception (May 6, 2019) through December 31, 2019. There are no uncertain tax positions that would require recognition in the financial statements. If the Company were to incur an income tax liability in the future, interest on any income tax liability would be reported as interest expense and penalties on any income tax would be reported as income taxes. Management’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. Note 4 PROMISSORY NOTES On May 6, 2019, the Company entered into an arrangement with related parties to issue two separate promissory notes (“Note” or “Notes”) entitling the Company to secure up to $100,000 per Note to fund operations. The Notes had no interest rate and were due on the sooner to occur of the initial closing of the Company’s Series S Preferred Unit financing or December 31, 2020. Imputed interest is minimal. As of December 31, 2019, the Company had drawn $92,150 from each Note for a total of $184,300. The note holders had the option to apply the outstanding amount to the purchase of Series S preferred units in the equity financing, which they elected to do in March 2020 (see Note 13). Note 5 SHARE-BASED COMPENSATION During the period from inception (May 6, 2019) through December 31, 2019, the Company granted 1,018,821 Class B profit interest units with a fair value of $0.0282 per unit to employees and advisors to the Company, of which 276,976 were vested as of December 31, 2019. Class B units have specific thresholds above which the members participate. The fair value of these interests were determined using the Black Scholes model as equity interests and were discounted as appropriate for lack of control and marketability. As a result, the fair value of the grants issued during the period from inception (May 6, 2019) through December 31, 2019 totaled $28,731, of which compensation expense totaling $7,811 was recognized during the period. The intrinsic value of all profits interest units as of December 31, 2019 was zero. The unvested expense related to these awards will be recognized over a weighted average period of approximately 3.75 years. Note 6 OPERATING LEASES The Company accounts for leases in accordance with ASC 842. All contracts are evaluated to determine whether or not they represent a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases we identify are classified as finance or operating in accordance with the guidance in ASC 842. The Company does not hold any finance leases. The Company has a single, short-term lease related to an office in Newtown, PA. The office space is currently leased on a month to month basis. A short-term lease is a lease with a term of 12 months or less and does not include the option to purchase the underlying asset that we would expect to exercise. We have elected to adopt the short-term lease exemption in ASC 842 and as such have not recognized a “right of use” asset or lease liability in the consolidated balance sheet as of December 31, 2019. The total rent expense for the period from inception (May 6, 2019) through December 31, 2019 was $4,289. F-99 Note 7 PREPAID EXPENSES During 2019 the Company purchased various software licenses from multiple vendors. The duration of the licenses ranged from 3 months to 1 year. The total cost of the licenses was $48,553. Based on the duration of each license, $23,188 was expensed to R&D in 2019 with the remaining balance of $25,365 recorded as prepaid expenses. Note 8 PROPERTY AND EQUIPMENT As of December 31, 2019, property and equipment were comprised of the following:
Depreciation expense for the period from inception (May 6, 2019) through December 31, 2019 was $854. Note 9 ACCRUED EXPENSES As of December 31, 2019, accrued expenses were comprised of the following:
Note 10 RELATED PARTY TRANSACTIONS The primary related party transactions in 2019 related to notes payable issued by the Company. These Notes were issued to a trust in which executive leadership has an interest through their family. The Notes are convertible into Series S Preferred Units at the terms of that financing (See Note 4). One Non-Employee Director of the Company is related to a member of the leadership team and owns membership shares that were purchased. The Company incurred $227,000 of expenses with a vendor who is affiliated with a member of the Company. Note 11 MEMBERS’ DEFICIT The Amended Operating Agreement authorizes the issuance of 8,000,000 Class A Units, 3,000,000 Class B Units and 3,500,000 Series S Preferred Units. Each Class A Unit is entitled to one vote per unit, each Series S Preferred Unit is entitled to vote on as converted basis, if and when the Company converts from an LLC to a C-Corporation, and the Class B Units are non-voting. The Company is managed by a board of managers consisting of five managers, one manager elected by a majority of the Series S Preferred Units, two managers elected by the holders of Class A Units, one manager must be the CEO of the Company and one manager may be elected by a majority in interests of the members of the Company. The board of managers has the right to make all decisions concerning the business, affairs and properties of the Company. Under the Amended Operating Agreement, the members have the right to vote on the dissolution and termination of the Company and any amendment to the Amended Operating Agreement. As of December 31, 2019, there were 4,000,000 Class A membership units issued with a par value of approximately $0.25. Profits interests were issued to employees and consultants/advisors (1,018,821 Class B units) in 2019 (See Note 5). F-100 Note 12 COMMITMENTS AND CONTINGENCIES The Company entered into certain data licenses during 2019. The term of these data licenses vary in length. The following table shows the remaining obligations under these licenses as of December 31, 2019.
Note 13 SUBSEQUENT EVENTS Except as disclosed below, management has evaluated subsequent events or transactions occurring through the date these financial statements were issued and has not identified any items requiring adjustment to or disclosure in these financial statements. COVID-19 A novel strain of coronavirus (COVID-19) was first identified in December 2019, and subsequently declared a pandemic by the World Health Organization. Our business has largely operated in a work-from-home environment since its inception and, as a result, has experienced limited disruption due to this pandemic. The leadership team continues to focus on the highest level of safety measures to protect our employees. We have not experienced a material impact to our financial results to date, however, COVID-19 continues to present significant uncertainty in the future economic outlook for our customers and the markets we serve. MERGER WITH HELIX TECHNOLOGIES On October 16, 2020, Forian Inc. entered into an Agreement and Plan of Merger, as amended by Amendment to Agreement and Plan of Merger, dated December 30, 2020, with Helix Technologies, Inc. (“Helix”) pursuant to which Helix will merge with an into a wholly-owned subsidiary of Forian, Inc. (“Forian”), with Helix surviving the merger as a wholly-owned subsidiary of Forian. Concurrently, the Company’s members will enter into a contribution agreement pursuant to which the members will contribute their membership interest in the Company to Forian in exchange for shares of Forian common stock, thereby the Company will become a wholly-owned subsidiary of Forian. While Forian will be the legal acquirer, the merger will be 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”). The Company will be deemed the accounting acquirer in the business combination for accounting purposes and Helix will be treated as the acquiree, based on a number of factors considered at the time of preparation of this proxy statement/prospectus, including control over the post-merger company as evidenced by the composition of executive management and the board of directors as well as the relative equity ownership after the closing of the business combination. The application of acquisition accounting of is dependent upon the working capital positions at the closing of the business combination, is dependent on other factors such as the share price of Helix immediately prior to the closing of the merger, and is dependent on certain valuations and other studies that have yet to progress to a stage where there is sufficient information for a definitive measurement. The combined company will complete the valuations and other studies upon completion of the business combination and will finalize the purchase price allocation as soon as practicable within the measurement period, but in no event later than one year following the closing date of the merger. Consolidated financial statements of Forian issued after the consummation of the merger will reflect such values. In addition, costs incurred in connection with the business combination will be expensed as incurred unless related to the equity issuance. The operating results of Helix will be included in Forian’ consolidated financial statements from the date the merger is consummated and forward. SERIES S AND SERIES S-1 FINANCING In March 2020, the Company completed an equity financing (“Series S”) with cash proceeds of approximately $3.3 million and converted promissory notes of $184,300 (see Note 4). A total of 3,079,623 Series S preferred units were authorized. The $3.5 million was exchanged for 3,078,276 Series S preferred units. F-101 In December 2020 the Company completed an equity financing (“Series S-1”). The financing raised approximately $13 million in exchange for 3,388,947 preferred units. EXPANSION OF EQUITY INCENTIVE POOL As of January 8, 2020, the Medical Outcomes Research Analytics, LLC 2019 Equity Incentive Plan, as amended (the “Plan”), was amended to increase the number of Class B Units of membership interest in the Company (“Units”) that may be issued under the Plan to 1,279,353 Units. As of March 25, 2020, the Plan was amended to increase the number of Units that may be issued under the Plan to 1,895,279 Units. As of August 31, 2020, the Plan was amended to increase the number of Units that may be issued under the Plan to 2,468,071 Units. F-102 CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2020 (UNAUDITED) AND AS OF DECEMBER 31, 2019
See accompanying notes to condensed consolidated financial statements. F-103 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 (UNAUDITED) AND THE PERIOD FROM INCEPTION (MAY 6, 2019) THROUGH SEPTEMBER 30, 2019 (UNAUDITED)
See accompanying notes to condensed consolidated financial statements. F-104 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' DEFICIT FROM INCEPTION (MAY 6, 2019) THROUGH SEPTEMBER 30, 2019 (UNAUDITED) AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 (UNAUDITED)
See accompanying notes to condensed consolidated financial statements. F-105 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 (UNAUDITED) AND THE PERIOD FROM INCEPTION (MAY 6, 2019) THROUGH SEPTEMBER 30, 2019 (UNAUDITED)
See accompanying notes to condensed consolidated financial statements. F-106 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 (UNAUDITED) AND FROM INCEPTION (MAY 6, 2019) THROUGH SEPTEMBER 30, 2019 (UNAUDITED) Note 1 BUSINESS ORGANIZATION AND NATURE OF OPERATIONS Medical Outcomes Research Analytics, LLC (“Parent,” “The Company” or “we”) was established on May 6, 2019 in Delaware. MOR Analytics, LLC and COR Analytics, LLC are wholly owned subsidiaries of the Parent. The Company is a technology and analytics company building a data management platform and has assembled a repository of Health Insurance Portability and Accountability Act (“HIPAA”) compliant, encrypted, deidentified patient-level health data in the United States. The Company is an early stage entity and provides Data, Business Intelligence Technology, and Outcomes Studies to its customers to help them improve the performance of their businesses. Note 2 BASIS OF PRESENTATION AND LIQUIDITY The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the condensed consolidated financial statements of the Company as of September 30, 2020. The results of operations for the nine months ended September 30, 2020 are not necessarily indicative of the operating results for the full year. As of September 30, 2020, the Company had positive working capital but was in an accumulated deficit position. The Company believes it can continue as a going concern as its cash resources available as of the date of these financial statements coupled with additional equity financing available will be sufficient to allow the Company to fund its current operating plan through the required minimum of at least the next twelve months from the date of filing this report. There can be no assurance, however, that the current operating plan will be achieved in the timeframe anticipated by the Company, or that its cash resources will fund the Company’s operating plan for the period anticipated by the Company or that additional funding will be available on terms acceptable to the Company, or at all. Note 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements of the Company include the accounts of Medical Outcomes Research Analytics, LLC and its wholly owned subsidiaries COR Analytics, LLC and MOR Analytics, LLC. All intercompany transactions have been eliminated in consolidation. 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 Company’s significant estimates used in these financial statements include, but are not limited to, fair value for equity securities 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 estimates and could cause actual results to differ from those estimates. Fair Value of Financial Instruments The Company measures the fair value of financial assets and liabilities based on the guidance of Accounting Standards Codification (“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 F-107 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 Level 3 — inputs that are unobservable The carrying value of the Company’s financial instruments, such as cash, accounts receivable, and accrued liabilities and other liabilities approximate fair values due to the short-term nature of these instruments. 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 or marketable securities. 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 subject to such insurance and represents a credit risk to the Company. At times, the Company’s deposits exceed this coverage. There were no uninsured cash balances as of September 30, 2020. Revenue Recognition The Company accounts for revenue from contracts with clients by applying the requirements of ASC 606, Revenue from Contracts with Customers (“ASC 606”): (i) identification of the contract, or contracts, with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied. The Company derives its revenue from subscription services and data product revenues, which are comprised of subscription fees from customers accessing the Company’s analytics platform or data product solutions, and related services and other revenues. Subscription fees: Subscription fees include use of the Company’s platform, implementation, support and other services which represent a single promise to provide continuous access to its software solutions. The Company recognizes revenue over time for the life of the contract. The subscription arrangements are considered service contracts, and the customer does not have the right to take possession of the software. The services arrangements are generally non-cancelable and do not provide for refunds to customers in the event of cancellations. Deferred costs (costs to fulfill a contract and contract acquisition costs): Costs to fulfill a contract, which include salaries, are not material. Contract acquisition costs, which consist of sales commissions paid or payable, is 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. As a practical expedient, the Company expenses sales commission as incurred when the amortization period of related deferred commission costs would have been one year or less. Customer Concentration For the nine months ended September 30, 2020, the Company had a single customer that accounted for $300,000 of revenue which represented 90% of revenues generated from customer sales. The Company believes that this customer is ultimately replaceable, any disruption associated with this customer would only have a short-term impact on the business. Reliance on Key Vendors The Company has licensed certain data sets from a third party as a key input to the Company’s products and services. Licensing fees to this vendor represented 13% and 71% of the Company’s operating expenses for the F-108 nine months ended September 30, 2020 and for the period from inception (May 6, 2019) through December 31, 2019, respectively. In addition, the Company utilizes a third party for its technical infrastructure. These vendors are critical to the business. The Company believes that while these vendors are ultimately replaceable, any disruption associated with these vendors could have a material short-term impact on the business. Property and Equipment 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 range from 3-7 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. An impairment loss would be recognized when the present value of 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 nine months ended September 30, 2020 and the period from inception (May 6, 2019) through September 30, 2019. 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. Costs incurred in the application development stage are subject to capitalization and subsequent amortization and impairment. Application development stage costs were not material for the Company. Product development costs are primarily comprised of personnel costs incurred related to activities for evaluating future changes to the software, testing, bug fixes, and other maintenance activities. Product development costs are expensed as incurred. Share Based Compensation Compensation cost for profit interest awards is generally recognized over the required service period based on the fair value of the awards on their grant date. Fair Value is determined using the Black Scholes option-pricing model wherein the discount rate is based on published daily treasury interest rates for zero-coupon bonds available from the US Treasury. Volatility is based on the historical volatility over a period that is commensurate with the expected life of the profit interests granted. Black-Sholes inputs for profits interest units granted during the nine months ended September 30, 2020 are presented below. There were no profits interest units granted during the period from inception (May 6, 2019) through September 30, 2019.
Income Taxes The Company is organized as an LLC and as a result is treated as a Partnership for federal and state income tax purposes. 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 the nine months ended September 30, 2020 or the period from inception (May 6, 2019) through September 30, 2019. There are no uncertain tax positions that would require recognition in the financial statements. If the Company were to incur an income tax liability in the future, interest on any income tax liability would be reported as interest expense and penalties on any income tax would be reported as income taxes. Management’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. Note 4 SHARE-BASED COMPENSATION As of September 30, 2020, there were 1,950,278 Class B profit interests unit grants and 485,343 Class B profit interests unit options issued to employees and advisors to the Company. Membership units have specific thresholds above which the members participate. The fair value of these interests were determined using the F-109 Black Scholes model as equity interests and were discounted as appropriate for lack of control and marketability. As a result, the fair value of the grants issued in the first nine months of 2020 totaled $48,295. Compensation expenses for the nine months ended September 30, 2020 relating to both 2019 and 2020 grants totaled $12,457. As of September 30, 2020 the profit interests granted were as follows: 2019 Grants 1,018,821 granted with a fair value of $0.0282 per unit. 650,774 were vested. 2020 Grants 931,457 total granted and unvested. 876,457 were granted with a fair value of $0.03 and 55,000 were granted with a fair value of $0.26. 2020 Options 485,343 granted, unvested and outstanding with a fair value of $0.02, a weighted average exercise price of $3.84 and a weighted average remaining years of 9.75. The intrinsic value of all profits interest units and options as of September 30, 2020 was nominal. The unvested expense related to these awards will be recognized over a weighted average period of approximately 3.00 years. Note 5 OPERATING LEASES The Company accounts for leases in accordance with ASC 842. All contracts are evaluated to determine whether or not they represent a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases we identify are classified as finance or operating in accordance with the guidance in ASC 842. The Company does not hold any finance leases. The Company has a single, short-term lease related to an office in Newtown, PA. The office space is currently leased on a month to month basis. A short-term lease is a lease with a term of 12 months or less and does not include the option to purchase the underlying asset that we would expect to exercise. We have elected to adopt the short-term lease exemption in ASC 842 and as such have not recognized a “right of use” asset or lease liability in the consolidated balance sheets as of September 30, 2020 and December 31, 2019. The total rent expense for the nine months ended September 30, 2020 and the period from inception (May 6, 2019) through September 30, 2019 was $12,074 and $1,019, respectively. Note 6 PREPAID EXPENSES The Company has various agreements to license data which require upfront and periodic payments. The Company records the expenses related to these agreements ratably over the annual terms. As of September 30, 2020, the Company’s balance sheet reflected prepaid expenses of $257,602 under these agreements. Additionally, as of September 30, 2020 the Company’s balance sheet reflected prepaid expenses of $17,586 relating to various software licenses with durations ranging from 3 months to 1 year. Note 7 PROPERTY AND EQUIPMENT As of September 30, 2020, property and equipment were comprised of the following:
Depreciation expense for the nine months ended September 30, 2020 and the period from inception (May 6, 2019) through September 30, 2019 was $4,932 and $0, respectively. F-110 Note 8 ACCRUED EXPENSES As of September 30, 2020, accrued expenses were comprised of the following:
Note 9 RELATED PARTY TRANSACTIONS On May 6, 2019, the Company entered into an arrangement with related parties to issue two separate promissory notes (“Note” or “Notes”) entitling the Company to secure up to $100,000 per Note to fund operations. The Notes had no interest rate and were due on the sooner to occur of the initial closing of the Company’s Series S Preferred Unit financing or December 31, 2020. As of December 31, 2019, the Company had drawn $92,150 from each Note for a total of $184,300. The note holders had the option to apply the outstanding amount to the purchase of Series S preferred units in the equity financing, which they elected to do in March 2020. One Non-Employee Director of the Company is related to a member of the leadership team and owns membership shares that were purchased. The Company incurred $230,198 of expenses from inception (May 6, 2019) to December 31, 2019 and $314,563 of expenses for the nine months ended September 30, 2020, with a vendor who is affiliated with a member of the Company. Note 10 MEMBERS’ EQUITY (DEFICIT) The Company is governed by its Amended and Restated Operating Agreement, as amended (the “Amended Operating Agreement”). The Amended Operating Agreement authorizes the issuance of up to 8,000,000 Class A Units, 3,000,000 Class B Units and 3,500,000 Series S Preferred Units. Each Class A Unit is entitled to one vote per unit, each Series S Preferred Unit is entitled to vote on as converted basis and the Class B Units are non-voting. The Company is managed by a board of managers consisting of five managers, one manager elected by a majority of the Series S Preferred Units, two managers elected by the holders of Class A Units, one manager must be the CEO of the Company and one manager may be elected by a majority in interests of the members of the Company. The board of managers has the right to make all decisions concerning the business, affairs and properties of the Company. Under the Amended Operating Agreement, the members have the right to vote on the dissolution and termination of the Company and any amendment to the Amended Operating Agreement. As of September 30, 2020, there were 4,000,000 Class A membership units issued with a par value of approximately $0.25 per unit. Profit interests were granted to employees and consultants/advisors (1,950,278 Class B units) in 2019 and the first nine months of 2020 (See Note 4). Series S financing was completed during the first quarter of 2020 with cash proceeds of $3.3 million and converted promissory notes of $0.2 million. A total of 3,500,000 Series S preferred units were authorized. The $3.5 million was exchanged for 3,078,276 Series S preferred units, which is the total units issued as of September 30, 2020. All distributions will be made first to the holders of the Series S preferred units on a per-unit amount equal to the greater of the original unit purchase price or the amount that the preferred units would receive on an as-converted to common units basis, and second to the holders of common units subject to satisfaction of any applicable threshold amounts for profits interests. A liquidation or dissolution or, unless the Board of Managers and the holders of at least a majority of the outstanding preferred units elect otherwise, a merger constituting a change of control or other Company sale would trigger payment in accordance with the waterfall above. If any preferred units are converted into Class A units after payment of any preference amount, then any distributions on those Class A Units will be reduced by the preference amount paid on the converted preferred units prior to conversion. While the Company is taxed as a partnership, the Company makes quarterly tax distributions subject to available cash. F-111 The holders of the Series S preferred units will have the right to convert the preferred units, at any time subsequent to a conversion of the Company from an LLC to a C-Corporation, into Class A units at an initial conversion rate of 1:1. The conversion rate is subject to proportional adjustment for splits, unit distributions, recapitalizations and the like. Note 11 COMMITMENTS AND CONTINGENCIES The Company entered into certain data licenses during 2019. The term of these data licenses vary in length. The following table shows the remaining payment obligations under these licenses as of September 30, 2020.
Note 12 TRANSACTION EXPENSES During the nine months ended September 30, 2020, the Company incurred costs totaling $195,634, which are included in selling, general and administrative expenses, related to the planned combination with Helix Technologies that was announced in October 2020 (see Note 13). These costs consisted primarily of legal and financial advisory fees. Note 13 SUBSEQUENT EVENTS Except as disclosed below, management has evaluated subsequent events or transactions occurring through the date these financial statements were issued and has not identified any items requiring adjustment to or disclosure in these financial statements. COVID-19 A novel strain of coronavirus (COVID-19) was first identified in December 2019, and subsequently declared a pandemic by the World Health Organization. Our business has largely operated in a work-from-home environment since its inception and, as a result, has experienced limited disruption due to this pandemic. The leadership team continues to focus on the highest level of safety measures to protect our employees. We have not experienced a material impact to our financial results to date, however, COVID-19 continues to present significant uncertainty in the future economic outlook for our customers and the markets we serve. MERGER WITH HELIX TECHNOLOGIES On October 16, 2020 the Company entered into an Agreement and Plan of Merger, as amended by Amendment to Agreement and Plan of Merger, dated December 30, 2020, as further amended by Amendment No. 2 to Agreement and Plan of Merger, dated February 9, 2021, with Helix Technologies, Inc. (“Helix”) pursuant to which Helix will merge with an into a wholly-owned subsidiary of Forian, Inc. (“Forian”), with Helix surviving the merger as a wholly-owned subsidiary of Forian. Concurrently, the Company’s members will enter into a contribution agreement pursuant to which the members will contribute their membership interest in the Company to Forian in exchange for shares of Forian common stock, thereby the Company will become a wholly-owned subsidiary of Forian. While Forian will be the legal acquirer, the merger will be 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”). The Company will be deemed the accounting acquirer in the business combination for accounting purposes and Helix will be treated as the acquiree, based on a number of factors considered at the time of preparation of this proxy statement/prospectus, including control over the post-merger company as evidenced by the composition of executive management and the board of directors as well as the relative equity ownership after the closing of the business combination. The application of acquisition accounting of is dependent upon the working capital positions at the closing of the business combination, is dependent on F-112 other factors such as the share price of Helix immediately prior to the closing of the merger, and is dependent on certain valuations and other studies that have yet to progress to a stage where there is sufficient information for a definitive measurement. The combined company will complete the valuations and other studies upon completion of the business combination and will finalize the purchase price allocation as soon as practicable within the measurement period, but in no event later than one year following the closing date of the merger. Consolidated financial statements of Forian issued after the consummation of the merger will reflect such values. In addition, costs incurred in connection with the business combination will be expensed as incurred unless related to the equity issuance. The operating results of Helix will be included in Forian’s consolidated financial statements from the date the merger is consummated and forward. SERIES S-1 FINANCING In December 2020 the Company completed an equity financing (“Series S-1”). The financing raised approximately $13 million in exchange for 3,388,947 preferred units. F-113 COMPOSITE AGREEMENT AND PLAN OF MERGER Dated as of October 16, 2020 among HELIX TECHNOLOGIES, INC. FORIAN INC. and DNA MERGER SUB INC. As amended by Amendment to Agreement and Plan of Merger dated as of December 30, 2020, and Amendment No. 2 to Agreement and Plan of Merger Dated as of February 9, 2021 TABLE OF CONTENTS
A-i
A-ii AGREEMENT AND PLAN OF MERGER This AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of October 16, 2020, among Helix Technologies, Inc., a Delaware corporation (the “Company”), Forian Inc., a Delaware corporation (“Parent”), DNA Merger Sub Inc., a Delaware corporation and a wholly owned Subsidiary of Parent (“Merger Sub”), and, solely for purposes of Section 8.03(d), Medical Outcomes Research Analytics, LLC, a Delaware limited liability company (“MOR”). RECITALS: WHEREAS, the Company, Parent and Merger Sub desire to effect a business combination, pursuant to which Merger Sub shall be merged with and into the Company, with the Company continuing as the surviving corporation in the Merger, and each share of Company Common Stock issued and outstanding at the Effective Time shall be converted into the right to receive the Merger Consideration; WHEREAS, the Company Board has (i) determined that the terms of this Agreement, the Merger and the other transactions contemplated by this Agreement are fair to, and in the best interests of, the Company and its stockholders, (ii) approved and declared advisable the execution, delivery and performance of this Agreement and the Merger and the other transactions contemplated by this Agreement, and (iii) recommended that the Company’s stockholders vote in favor of the adoption of this Agreement and the approval of the Merger and the other transactions contemplated by this Agreement, at the Company Stockholders Meeting; WHEREAS, the Parent Board and the Merger Sub Board have each approved this Agreement and declared it advisable for Parent and Merger Sub, respectively, to enter into this Agreement; WHEREAS, the Merger Sub Board has recommended adoption and approval of this Agreement by Parent, as its sole stockholder; WHEREAS, Parent, as sole stockholder of Merger Sub, has adopted and approved this Agreement and approved the Merger and the other transactions contemplated by this Agreement; WHEREAS, the Company, Parent and Merger Sub desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger; WHEREAS, concurrently with the execution of this Agreement, and as a condition and inducement to Parent’s willingness to enter into this Agreement, certain Affiliates of the Company are entering into a Voting and Support Agreement, in the form attached hereto as Exhibit A (the “Voting Agreement”); WHEREAS, as a condition to the consummation of the Merger, MOR will complete the MOR Offering; WHEREAS, as a condition to the consummation of the Merger, Parent will complete the Parent Reorganization; WHEREAS, the consummations of the Parent Reorganization and the Merger are part of an overall integrated plan pursuant to which Parent will acquire all of the issued and outstanding equity interests of MOR and all of the issued and outstanding equity interests of the Company in exchange for Parent Common Stock issued by Parent to the equityholders of MOR and Company who collectively will own 80% or more of the outstanding stock of Parent Common Stock immediately after the consummations of the Parent Reorganization and the Merger; WHEREAS, after the consummation of the Parent Reorganization and the Merger, Parent will have outstanding only Parent Common Stock and no other classes of stock; WHEREAS, for U.S. federal income tax purposes, the parties intend that (i) the Parent Reorganization and the Merger shall together qualify as a transaction described in Section 351(a) of the Code, (ii) the Merger shall qualify as a “reorganization” within the meaning of Section 368(a)(2)(E) of the Code, and (iii) this Agreement shall constitute and be adopted as a “plan of reorganization” within the meaning of Treasury Regulations Sections 1.368-2(g) and 1.368-3(a); and WHEREAS, in addition to other terms that may be defined in this Agreement, certain capitalized terms used in this Agreement are defined in Section 9.03. A-1 AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the representations, warranties and covenants in this Agreement and intending to be legally bound, the parties hereto agree as follows: THE MERGER Section 1.01 The Merger. On the terms and subject to the conditions set forth in this Agreement, and in accordance with the General Corporation Law of the State of Delaware (the “DGCL”), at the Effective Time (a), Merger Sub shall be merged with and into the Company (the “Merger”), (b) the separate corporate existence of Merger Sub shall cease and (c) the Company shall continue as the surviving corporation in the Merger (the “Surviving Corporation”) and as a wholly owned Subsidiary of the Parent. Section 1.02 Closing. The closing (the “Closing”) of the Merger shall take place remotely via the electronic transmittal of executed documents at 9:00 a.m., Eastern time, on a date to be specified by the Company and Parent, which shall be no later than the second Business Day following the satisfaction or (to the extent permitted by Law) waiver by the party or parties entitled to the benefits thereof of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or (to the extent permitted by Law) waiver of those conditions by the party entitled to the benefit of such conditions), unless this Agreement has been terminated pursuant to its terms, or at such other place, time and date as shall be agreed in writing between the Company and Parent. The date on which the Closing occurs is referred to in this Agreement as the “Closing Date.” Section 1.03 Effective Time. Subject to the provisions of this Agreement, as soon as practicable following the fulfillment or waiver of all of the conditions set forth in Article VII, on the Closing Date, the parties shall file with the Delaware Secretary the certificate of merger relating to the Merger contemplated by the DGCL (the “Certificate of Merger”), together with any required related certificates, filings and recordings, all executed and acknowledged in accordance with , and in such form as required by the relevant provisions of the DGCL. The Merger shall become effective upon the later of (a) the date and time the time that the Certificate of Merger has been duly filed with the Delaware Secretary, or (b) at such later date and time as the Company and Parent shall agree and specify in the Certificate of Merger (the time the Merger becomes effective being the “Effective Time”). Section 1.04 Effects. At the Effective Time, the effects of the Merger shall be as set forth in this Agreement, the Certificate of Merger and the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the properties, rights, privileges, immunities, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation. Section 1.05 Certificate of Incorporation and Bylaws. The certificate of incorporation of the Company shall, at the Effective Time, by virtue of the Merger and without any further action, be amended and restated to read in its entirety as set forth on Exhibit B and, as so amended and restated, shall be the certificate of incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable Law. The bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable Law, except that references to the name of Merger Sub shall be replaced by references to the name of the Surviving Corporation. (a) Parent Matters. (i) Directors. The Parent shall take all action necessary (including, to the extent necessary, procuring the resignation or removal of any directors on the board of directors of Parent immediately prior to the Effective Time) so that, as of the Effective Time, the number of directors that comprise the full board of directors of Parent shall be eleven (11), and such board of directors shall upon the Effective Time consist of the Persons set forth on Schedule 1.06(a)(i) (the “Parent Board Designees”), subject to replacement as provided in Section 1.06(c), each of such directors to hold office until the earlier of their death, resignation or removal or until their respective successors are duly elected or A-2 appointed and qualified, as the case may be. At least a majority of Parent Board Designees shall qualify as “independent directors” under the listing standards of The Nasdaq Stock Market, LLC and the applicable rules of the SEC. (ii) Officers. From and after the Effective Time, the officers of Parent shall consist of the Persons set forth on Schedule 1.06(a)(ii) (the “Parent Officer Designees” and together with the Parent Board Designees, the “Parent Designees”) , subject to replacement as provided in Section 1.06(c), each of such officers to hold their respective office until the earlier of their death, resignation or removal or until their respective successors are duly elected or appointed and qualified, as the case may be. (b) Surviving Corporation Matters. (i) Directors. From and after the Effective Time, the board of directors of the Surviving Corporation shall consist of the Persons set forth on Schedule 1.06(b)(i) (collectively, the “Surviving Corporation Board Designees”), subject to replacement as provided in Section 1.06(c), each of such directors to hold office until the earlier of their death, resignation or removal or until their respective successors are duly elected or appointed and qualified, as the case may be. (ii) Officers. From and after the Effective Time, the officers of the Surviving Corporation shall consist of the Persons set forth on Schedule 1.06(b)(ii) (collectively, the “Surviving Corporation Officer Designees” and together with the Surviving Corporation Board Designees, the “Surviving Corporation Designees”), subject to replacement as provided in Section 1.06(c), each of such officers to hold their respective office until the earlier of their death, resignation or removal or until their respective successors are duly elected or appointed and qualified, as the case may be. (c) Replacement of Designees. In the event that prior to the Effective Time: (i) any Parent Board Designee is ineligible, unable or unwilling for any reason (including by reason of any Law, Order or any listing rule or requirement of any stock exchange) to serve on the board of directors of Parent, (ii) any Parent Officer Designee is ineligible, unable or unwilling for any reason (including by reason of any Law, Order or any listing rule or requirement of any stock exchange) to serve as an officer of Parent, (iii) any Surviving Corporation Board Designee is ineligible, unable or unwilling for any reason (including by reason of any Law, Order or any listing rule or requirement of any stock exchange) to serve on the board of directors of the Surviving Corporation, or (iv) any Surviving Corporation Officer Designee is ineligible, unable or unwilling for any reason (including by reason of any Law, Order or any listing rule or requirement of any stock exchange) to serve as an officer of the Surviving Corporation, Parent, in its sole discretion, shall select a replacement for such individual to serve in such person’s place. The parties shall take all action necessary to ensure that any such replacement designee is duly qualified and appointed as a member of the board of directors or as an officer of Parent or the Surviving Corporation, as applicable, as of the Effective Time. Any such replacement designee shall also be deemed to be a Parent Designee or a Surviving Corporation Designee, as applicable. EFFECT ON THE CAPITAL STOCK OF THE CONSTITUENT ENTITIES; EXCHANGE OF CERTIFICATES Section 2.01 Effect on Company Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the Company, Parent, Merger Sub or the holder of any shares of common stock, par value $0.001 per share, of the Company (the “Company Common Stock”), any shares of preferred stock, par value $0.001 per share, of the Company (the “Company Preferred Stock” and, together with the Company Common Stock, the “Company Capital Stock”) or any shares of common stock, par value $0.001 per share, of Merger Sub (the “Merger Sub Common Stock”): (a) Each share of Merger Sub Common Stock issued and outstanding immediately prior to the Effective Time shall be converted into one (1) fully paid and non-assessable share of common stock, par value $0.001 per share, of the Surviving Corporation with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation. From and after the Effective Time, all certificates representing shares of Merger Sub Common Stock shall be deemed for all purposes to represent the number of shares of common stock of the Surviving Corporation into which they were converted in accordance with the immediately preceding sentence. A-3 (b) Each share of Company Common Stock that is owned directly by Parent, Merger Sub, the Company, any Company Subsidiary or held in the Company’s treasury immediately prior to the Effective Time shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and no consideration shall be delivered in exchange therefor. (c) Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than (i) shares to be canceled in accordance with Section 2.01(b) and (ii) except as provided in Section 2.05, any shares of Company Common Stock issued and outstanding immediately prior to the Effective Time that are held by any holder who has not voted in favor of the Merger and who is entitled to demand and properly demands appraisal of such shares of Company Common Stock pursuant to, and complies in all respects with, Section 262 of the DGCL and, as of the Effective Time, has neither failed to perfect, nor effectively withdrawn or lost rights to appraisal under the DGCL (the “Dissenting Shares”)), will be converted into the right to receive 0.050 validly issued, fully paid and non-assessable share of Parent Common Stock (the “Merger Consideration”). (d) All shares of Company Capital Stock, when converted as provided in Section 2.01(c), shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of a certificate (or evidence of shares in book-entry form (such shares, “Book-Entry Shares”)) that immediately prior to the Effective Time represented any such shares of Company Capital Stock (each, a “Certificate”) shall cease to have any rights with respect thereto, except the right to receive the applicable Merger Consideration. Notwithstanding the foregoing, if between the date of this Agreement and the Effective Time the outstanding shares of Company Capital Stock shall have been changed into a different number of shares or a different class, by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, or any similar event shall have occurred, then any number or amount contained in this Agreement which is based on the number of shares of Company Capital Stock will be appropriately adjusted to provide to the holders of Company Capital Stock the same economic effect as contemplated by this Agreement prior to such event. (e) At the Effective Time, all Company Stock Options shall be treated as set forth in Section 6.04. (f) As of no later than immediately prior to the Effective Time, all of the Company’s outstanding shares of Company Preferred Stock shall have been converted into shares of Company Common Stock pursuant to a Preferred Stock Conversion Agreement, in the form attached hereto as Exhibit C (the “Company Preferred Stock Conversion Agreement”). (g) As of no later than immediately prior to the Effective Time, all of the Company’s outstanding RC Convertible Notes shall have been converted into shares of Company Common Stock pursuant to a Convertible Notes Conversion Agreement, in the form attached hereto as Exhibit D (the “RC Convertible Notes Conversion Agreement”). (a) Exchange Agent. Prior to the Effective Time, Parent shall, at its sole cost and expense, appoint a bank or trust company (who, if different than the Company’s then serving registrar and transfer agent, is reasonably acceptable to the Company) to act as exchange agent (the “Exchange Agent”) for the payment and delivery of the Merger Consideration pursuant to this Article II. At the Effective Time, for the benefit of the holders of Certificates and/or Book-Entry Shares, Parent shall deliver to the Exchange Agent, to be given to the holders of Company Common Stock in exchange for their Certificates and Book-Entry Shares as provided for in this Article II, evidence of shares in book entry form, representing the number of whole shares of Parent Common Stock issuable to the holders of Company Common Stock as the Merger Consideration. The Exchange Agent shall not be entitled to vote or exercise any rights of ownership with respect to the shares of Parent Common Stock held by it from time to time hereunder, except that it shall receive and hold all dividends or other distributions paid or distributed with respect to such shares of Parent Common Stock for the account of the Persons entitled thereto. (b) Mailing of Transmittal Material. As promptly as practicable, but in no event later than five (5) Business Days prior to the Effective Time, the Company will deliver, or cause to be delivered, to the Exchange Agent all information which is reasonably necessary for the Exchange Agent to perform its obligations as specified herein. As promptly as practicable after the Effective Time, but in no event later A-4 than three (3) Business Days following the Effective Time, Parent shall cause the Exchange Agent to mail and otherwise make available to each holder of record of Company Common Stock, a notice and a form of letter of transmittal, in a form reasonably acceptable to the Company (which shall specify that delivery shall be effected, and risk of loss and title to such Certificate(s) theretofore representing shares of Company Common Stock shall pass, only upon proper delivery of such Certificate(s) to the Exchange Agent or transfer of Book-Entry Shares to the Exchange Agent), advising such holder of the effectiveness of the Merger and the instructions and procedure for surrendering to the Exchange Agent such Certificate(s) or Book-Entry Shares in exchange for book-entry shares representing the number of whole shares of Parent Common Stock which the shares of Company Common Stock represented by such Certificate(s) or Book-Entry Shares shall have been converted into the right to receive pursuant to this Agreement as well as any dividends or distributions to be paid in respect of such shares pursuant to this Agreement. A letter of transmittal will be properly completed only if accompanied by a Certificate or Certificates or instructions to transfer Book-Entry Shares representing all shares of Company Common Stock covered thereby, subject to the provisions of Section 2.02(d). (c) Issued Shares. All shares of Parent Common Stock to be issued pursuant to the Merger shall be deemed issued and outstanding as of the Effective Time and whenever a dividend or other distribution is declared by Parent in respect of the Parent Common Stock, the record date for which is at or after the Effective Time, that declaration shall include dividends or other distributions in respect of all shares of Parent Common Stock issuable pursuant to this Agreement. No dividends or other distributions in respect of the Parent Common Stock shall be paid to any holder of any unsurrendered Certificate or Book-Entry Shares until such Certificate (or affidavits of loss in lieu of the Certificate as provided in Section 2.02(e)) or Book-Entry Shares are surrendered for exchange in accordance with this Article II. Subject to the effect of applicable laws, following the surrender of any such Certificate (or affidavits of loss in lieu of the Certificate as provided in Section 2.02(e)) or Book-Entry Shares, there shall be issued and/or paid to the holder of the book-entry shares representing whole shares of Parent Common Stock issued in exchange therefor, without interest, (A) at the time of such surrender, any unpaid dividends or other distributions with a record date at or after the Effective Time theretofore payable with respect to such whole shares of Parent Common Stock and (B) at the appropriate payment date, the dividends or other distributions payable with respect to such whole shares of Parent Common Stock with a record date at or after the Effective Time but with a payment date subsequent to surrender. (d) Exchange Agent Deliveries. (i) Each holder of an outstanding Certificate or Certificates or Book-Entry Shares who has surrendered such Certificate or Certificates or Book-Entry Shares to the Exchange Agent will, upon acceptance thereof by the Exchange Agent, be entitled to evidence of issuance in book entry form, the number of whole shares of Parent Common Stock into which the aggregate number of shares of Company Common Stock previously represented by such Certificate or Certificates or Book-Entry Shares surrendered shall have been converted pursuant to this Agreement and any other distribution theretofore paid with respect to Parent Common Stock issuable in the Merger, in each case, without interest. The Exchange Agent shall accept such Certificates or Book-Entry Shares upon compliance with such reasonable terms and conditions as the Exchange Agent may impose consistent with the notice and form of letter of transmittal to effect an orderly exchange thereof in accordance with normal exchange practices. (ii) Each outstanding Certificate or Book-Entry Share which prior to the Effective Time represented Company Common Stock and which is not surrendered to the Exchange Agent in accordance with the procedures provided for herein shall, except as otherwise herein provided, until duly surrendered to the Exchange Agent, be deemed to evidence ownership of the number of shares of Parent Common Stock into which such Company Common Stock shall have been converted. After the Effective Time, there shall be no further transfer on the records of the Company of Certificates or Book-Entry Shares representing shares of Company Common Stock and, if such Certificates or Book-Entry Shares are presented to the Company for transfer, they shall be cancelled against delivery of book entry shares representing Parent Common Stock as hereinabove provided. (e) Lost or Destroyed Certificates; Issuances of Parent Common Stock in New Names. The Exchange Agent shall not be obligated to deliver book-entry shares representing shares of Parent Common Stock to A-5 which a holder of Company Common Stock would otherwise be entitled as a result of the Merger until such holder surrenders the Certificate or Certificates representing the shares of Company Common Stock for exchange as provided in this Section 2.02, or, in default thereof, an appropriate affidavit of loss and indemnity agreement and/or a bond in an amount as may be reasonably required in each case by Parent. If any book entry shares of Parent Common Stock are to be issued in a name other than that in which the Certificate evidencing Company Common Stock surrendered in exchange therefore is registered, it shall be a condition of the issuance thereof that the Certificate so surrendered shall be properly endorsed or accompanied by an executed form of assignment separate from the Certificate and otherwise in proper form for transfer and that the Person requesting such exchange pay to the Exchange Agent any transfer or other Tax required by reason of the issuance of book entry shares of Parent Common Stock in any name other than that of the registered holder of the Certificate or Book-Entry Shares surrendered or otherwise establish to the satisfaction of the Exchange Agent that such Tax has been paid or is not payable. (f) Unclaimed Merger Consideration. The exchange of shares of Company Common Stock for the Merger Consideration as provided in this Section 2.02 shall be administered by the Exchange Agent until such time as any unclaimed portion thereof is required to be delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. Neither the Exchange Agent nor any party to this Agreement shall be liable to any holder of stock represented by any Certificate or Book-Entry Share for any consideration paid to a public official pursuant to applicable abandoned property, escheat or similar laws. The Exchange Agent shall be entitled to rely upon the stock transfer books of the Company to establish the identity of those Persons entitled to receive the consideration specified in this Agreement, which books shall be conclusive (absent manifest error) with respect thereto. In the event of a dispute with respect to ownership of stock represented by any Certificate or Book-Entry Share, the Exchange Agent shall be entitled to deposit any consideration represented thereby in escrow with an independent third party and thereafter be relieved with respect to any claims thereto. Section 2.03 No Fractional Shares. No fraction of a share of Parent Common Stock shall be issued by virtue of the Merger, but in lieu thereof, each holder of Company Common Stock who would otherwise be entitled to a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock that otherwise would be received by such holder) shall be automatically converted into the right to receive one full additional share of Parent Common Stock. Section 2.04 Withholding Rights. Parent (through the Exchange Agent, if applicable) shall be entitled to deduct and withhold from any amounts otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock or Company Stock Awards such amounts as Parent reasonably determines is required under the Code or any state, local or foreign Tax law or regulation thereunder to deduct and withhold with respect to the making of such payment, and to collect any necessary Tax forms or other necessary information. Any amounts so withheld shall be treated for all purposes of this Agreement as having been paid to the holder of Company Common Stock or Company Stock Award, as applicable, in respect of which such deduction and withholding was made by Parent. (a) Notwithstanding anything to the contrary in this Agreement, no Dissenting Shares shall be converted into or represent the right to receive the Merger Consideration as provided in Section 2.01, and instead the holders of such Dissenting Shares shall be entitled to such rights as are granted by Section 262 of the DGCL (the “Dissenter’s Rights”) (unless and until such stockholder shall have failed to timely perfect, or shall have effectively withdrawn or lost, such stockholder’s right to dissent from the Merger under the DGCL, in which case such stockholder shall be entitled to receive the Merger Consideration in accordance with Section 2.01, without interest thereon, in exchange for such shares of Company Common Stock, and such shares of Company Common Stock shall no longer be deemed to be Dissenting Shares) and to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to and subject to the requirements of the DGCL. In such case, at the Effective Time, the Dissenting Shares shall be deemed to no longer be outstanding and shall automatically be canceled and cease to exist, and each holder of Dissenting Shares shall cease to have any rights with respect thereto, except Dissenter’s Rights and as provided in this Section 2.05. Notwithstanding the foregoing, if any such holder shall have failed to timely perfect or shall have otherwise waived, or effectively withdrawn or lost such holder’s Dissenter’s Rights, or a court of competent jurisdiction shall determine that such holder is not entitled to the A-6 relief provided by the Dissenter’s Rights, then the right of such holder to be paid the fair value of such holder’s Dissenting Shares under the Dissenter’s Rights shall cease, such shares shall no longer be considered Dissenting Shares for purposes hereof, and such holder’s shares of Company Common Stock shall thereupon be deemed to have been converted as of the Effective Time into the right to receive the Merger Consideration, without any interest thereon, as provided in Section 2.01 and Section 2.02. (b) The Company shall provide prompt written notice to Parent of any demands for appraisal by any holder of shares of Company Common Stock, attempted withdrawals of such demands and any other instruments received by or served on the Company pursuant to the DGCL relating to Dissenter’s Rights, and, to the extent permitted by applicable Law, Parent shall have the right to participate in and direct all negotiations and proceedings with respect to such demands. The Company shall not, without the prior written consent of Parent or as otherwise required by an order of a Governmental Entity of competent jurisdiction, voluntarily make any payment with respect to, settle or offer to settle, any such demands, or agree to do or commit to do any of the foregoing. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB Except as set forth in the disclosure letter delivered by Parent and Merger Sub to the Company at or before the execution and delivery by Parent and Merger Sub of this Agreement (the “Parent Disclosure Letter”) (it being understood that although the Parent Disclosure Letter shall be arranged in numbered and lettered sections corresponding to the numbered and lettered sections contained in this Article III, the disclosure in any section shall be deemed to apply to and qualify any other section in this Article III to the extent that it is reasonably apparent that such disclosure also qualifies or applies to such other section), Parent and Merger Sub, jointly and severally, hereby represent and warrant, as of the date hereof, to the Company as set forth in this Article III. For purposes of this Article III, the Parent Subsidiaries shall be deemed to include MOR; provided the Parent Disclosure Letter will be updated at the Effective Time with a bringdown certificate (a “Parent Bringdown Certificate”). Section 3.01 Organization, Standing and Power. Parent is a duly organized, validly existing corporation and in good standing under the laws of the jurisdiction in which it is organized (in the case of good standing, to the extent such jurisdiction recognizes such concept). Each of the Parent Subsidiaries is a duly organized, validly existing corporation or other legal entity and in good standing under the laws of the jurisdiction in which it is organized (in the case of good standing, to the extent such jurisdiction recognizes such concept). Each of Parent and the Parent Subsidiaries has all requisite power and authority to own, lease and operate its properties and conduct its businesses as and where presently conducted. Each of Parent and the Parent Subsidiaries is duly qualified or licensed to do business and in good standing in each jurisdiction (in the case of good standing, to the extent such jurisdiction recognizes such concept) where the nature of its business or the ownership or leasing of its properties make such qualification necessary, other than in such jurisdictions where the failure to be so qualified or licensed, individually or in the aggregate, has not had and would not reasonably be expected to have, a Parent Material Adverse Effect. Parent has heretofore made available to the Company true, correct and complete copies of Parent’s and each Parent Subsidiary’s Certificate of Incorporation and Bylaws or similar organizational documents (and all amendments thereto) as currently in full force and effect. Neither Parent nor any Parent Subsidiary is in violation, and between the date hereof and the Closing Date, will not be in violation of any of the provisions of its Certificate of Incorporation or Bylaws or similar organizational documents (and all amendments thereto). (a) Section 3.02(a) of the Parent Disclosure Letter sets forth the name and jurisdiction of organization of each Parent Subsidiary. (b) All of the outstanding shares of capital stock or voting securities of, or other equity interests in, each Parent Subsidiary have been validly issued and are fully paid and non-assessable and are owned by Parent, by another Parent Subsidiary or by Parent and a Parent Subsidiary, free and clear of all Liens, excluding Parent Permitted Liens, and free of any other restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock, voting securities or other equity interests), except for restrictions imposed by applicable Law. There are not issued, reserved for issuance or outstanding, and there are not any outstanding obligations of any the Parent or any Parent Subsidiary to issue, deliver or sell, or A-7 cause to be issued, delivered or sold, (i) any capital stock or any securities of any Parent Subsidiary convertible into or exchangeable or exercisable for shares of capital stock or voting securities of, or other equity interests in, any Parent Subsidiary, (ii) any warrants, calls, options, phantom stock, stock appreciation rights or other rights to acquire from any Parent Subsidiary, or any other obligation of any Parent Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, any capital stock or voting securities of, or other equity interests in, any Parent Subsidiary, or (iii) any rights issued by, or other obligations of, any Parent Subsidiary that are linked in any way to the price of any class of capital stock or voting securities of, or other equity interests in, any Parent Subsidiary, the value of any Parent Subsidiary or any part of any Parent Subsidiary or any dividends or other distributions declared or paid on any shares of capital stock of or voting securities of, or other equity interests in, any Parent Subsidiary. (c) Except for the capital stock and voting securities of, and other equity interests in, the Parent Subsidiaries, none of Parent or any Parent Subsidiary owns, directly or indirectly, any capital stock or voting securities of, or other equity interests in, or any interest convertible into or exchangeable or exercisable for, any capital stock or voting securities of, or other equity interests in, any Person. (a) The authorized capital stock of Parent consists of 95,000,000 shares of Parent Common Stock and 5,000,000 shares of preferred stock, par value $0.001 per share (the “Parent Preferred Stock”). The Parent Common Stock and Parent Preferred Stock are referred to herein as the “Parent Capital Stock”. At the close of business on October 15, 2020 (i) one (1) share of Parent Common Stock was issued and outstanding; (ii) no shares of Parent Common Stock were held by Parent in its treasury; (iii) an aggregate of no shares of Parent Common Stock were reserved for issuance pursuant to outstanding awards and rights under the Parent Stock Plan, of which no shares of Parent Common Stock were underlying outstanding and unexercised Parent Stock Awards; and (iv) no shares of Parent Preferred Stock were issued and outstanding. Except as set forth in this Section 3.03(a), at the close of business on October 15, 2020, no shares of Parent Capital Stock or voting securities of, or other equity interests in, Parent were issued, reserved for issuance or outstanding. At the Effective Time, no shares of Parent Preferred Stock will be issued and outstanding. (b) All of the outstanding shares of Parent Capital Stock are duly authorized, validly issued, fully paid and non-assessable and not subject to or issued in violation of, any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the DGCL, Parent’s Certificate of Incorporation, Parent’s Bylaws or any Contract to which Parent is a party or otherwise bound. All grants of equity awards or other rights with respect to shares of Parent Capital Stock to current or former directors, officers, employees, agents or consultants of Parent or any Parent Subsidiary have been made in accordance with the terms of the applicable Parent Stock Plan and award agreements thereunder and any policy of Parent or the Board of Directors of Parent (the “Parent Board”) (including any committee thereof) relating to the grant of such awards or rights. Except as contemplated by the Parent Reorganization and the MOR Offering, or as set forth above in this Section 3.03 or for changes resulting from (a) the exercise of Parent Stock Options outstanding on such date, and (b) vesting and settlement of Parent Stock Awards, there are not issued, reserved for issuance or outstanding, and there are not any outstanding obligations of Parent or any Parent Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, (i) any capital stock of Parent or any Parent Subsidiary or any securities of Parent or any Parent Subsidiary convertible into or exchangeable or exercisable for shares of capital stock or voting securities of, or other equity interests in, Parent or any Parent Subsidiary, (ii) any warrants, calls, options or other rights to acquire from Parent or any Parent Subsidiary, or any other obligation of Parent or any Parent Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, any capital stock or voting securities of, or other equity interests in, Parent or any Parent Subsidiary or (iii) any rights issued by, or other obligations of, Parent or any Parent Subsidiary that are linked in any way to the price of any class of Parent Capital Stock or any shares of capital stock of any Parent Subsidiary, the value of Parent, any Parent Subsidiary or any part of Parent or any Parent Subsidiary or any dividends or other distributions declared or paid on any shares of capital stock of Parent or any Parent Subsidiary. Except for acquisitions, or deemed acquisitions, of Parent Capital Stock or other equity securities of Parent in connection with (x) the withholding of Taxes in connection with the exercise, vesting or settlement of Parent Stock Awards, and (y) forfeitures of Parent Stock Awards, there are not any outstanding obligations of Parent or any of the Parent Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock or voting A-8 securities or other equity interests of Parent or any Parent Subsidiary or any securities, interests, warrants, calls, options or other rights referred to in clauses (i), (ii) or (iii) of the immediately preceding sentence. There are no debentures, bonds, notes or other Indebtedness of Parent having the right to vote (or convertible into or exchangeable for securities having the right to vote) on any matters on which Parent’s stockholders may vote. Except as contemplated by this Agreement, the Parent Reorganization or the MOR Offering, there is no agreement with respect to the voting or issuance of, or restricting the transfer of, or providing registration rights with respect to, any capital stock or voting securities of, or other equity interests in, Parent or any Parent Subsidiary. None of Parent or any of the Parent Subsidiaries is a party to any agreement pursuant to which any Person is entitled to elect, designate or nominate any director of Parent or any of the Parent Subsidiaries. (c) At the close of business on October 16, 2020, the number of outstanding Units of membership interests in MOR was 12,906,660 (on an as-converted basis, inclusive of Units underlying allocated options, and pro forma for $13,000,000 in MOR Offering proceeds). Pursuant to the contribution to be effected in connection with the Parent Reorganization, Units of membership interest in MOR will be exchanged for shares of Parent Common Stock at an average exchange ratio of 1.7776. Section 3.04 Authority; Execution and Delivery; Enforceability. Each of Parent and Merger Sub has all requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations under this Agreement, and to consummate the Merger and the other transactions contemplated by this Agreement. The Parent Board has adopted resolutions, by unanimous vote of the directors present at a meeting duly called at which a quorum of the board of directors of Parent was present, (x) approving the execution, delivery and performance of this Agreement and the Merger and the other transactions contemplated by this Agreement, (y) determining that entering into this Agreement and consummating the Merger and the other transactions contemplated by this Agreement, are in the best interests of Parent and its stockholders and (z) declaring this Agreement and the Merger and the other transactions contemplated by this Agreement, advisable. As of the date of this Agreement, such resolutions have not been amended or withdrawn. The Merger Sub Board has unanimously adopted resolutions (i) approving the execution, delivery and performance of this Agreement and the consummation of the Merger and the transactions contemplated by this Agreement; (ii) determining that the terms of this Agreement and the consummation of the Merger and the transactions contemplated by this Agreement are in the best interests of Merger Sub and Parent, as its sole stockholder; (iii) declaring this Agreement, the Merger and the transactions contemplated by this Agreement advisable; and (iv) recommending that Parent, as sole stockholder of Merger Sub, adopt this Agreement and directing that this Agreement be submitted to Parent, as sole stockholder of Merger Sub, for adoption. As of the date of this Agreement, such resolutions have not been amended or withdrawn. Parent, as sole stockholder of Merger Sub, has adopted and approved this Agreement. No other corporate proceedings (including, for the avoidance of doubt, any stockholder approval) on the part of Parent, Merger Sub or their respective Subsidiaries are necessary to authorize, adopt or approve, as applicable, this Agreement or to consummate the Merger and the other transactions contemplated by this Agreement (except for the filing of the Certificate of Merger in accordance with the relevant provisions of the DGCL). Each of Parent and Merger Sub has duly executed and delivered this Agreement and, assuming due authorization, execution and delivery by the Company, this Agreement constitutes its legal, valid and binding obligation, enforceable against each of Parent and Merger Sub in accordance with its terms except, in each case, as enforcement may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or similar Laws affecting creditors’ rights generally and by general principles of equity. (a) Except as set forth in Section 3.05(a) of the Parent Disclosure Letter, the execution and delivery by Parent and Merger Sub of this Agreement does not, and the performance by Parent and Merger Sub of their respective obligations under this Agreement and the consummation of the Merger and the other transactions contemplated by this Agreement do not and will not (i) violate or conflict with, or result in any breach or violation of or default (with or without notice or lapse of time, or both) under any provision of the governing or organizational documents of Parent or any Parent Subsidiary, (ii) violate or conflict with, or result in any breach or violation of or default (in each case, with or without notice or lapse of time, or both) under, require any consent, notice, waiver, payment of a penalty or approval or result in a default (or give rise to any right of termination, cancellation, modification or acceleration or any event that, with the giving of notice, the passage of time or otherwise, would constitute a default or give rise to any such A-9 right) under, or give rise to any loss of a material benefit under, any of the terms, conditions or provisions of any Parent Material Contract or Parent Real Property Lease or obligation to which Parent or any Parent Subsidiaries is a party or by which Parent or any Parent Subsidiaries or any of their respective assets may be bound, (iii) result in the creation or imposition of any Lien on any asset of Parent or any Parent Subsidiaries (other than Parent Permitted Liens), (iv) subject to the filings and other matters referred to in Section 3.05(b), violate or conflict with, or result in any breach or violation of or default (in each case, with or without notice or lapse of time, or both) under any Law, Order or Permit, in each case, applicable to Parent or any Parent Subsidiary or by which any of their respective assets are bound or (v) cause the acceleration of any vesting of any awards for or rights to capital stock or other equity interest of the Parent or any Parent Subsidiary or the payment of or the acceleration of payment of any change in control, severance, bonus or other cash payments or issuance of any capital stock or other equity interest of the Parent or any Parent Subsidiary or (vi) give rise to any obligation to make an offer to purchase or redeem any Indebtedness or capital stock or other equity interest of the Parent or any Parent Subsidiary. (b) No Permit, consent, approval, clearance, waiver or order of or from, or registration, declaration, notice or filing made to or with, or any action by, any Governmental Entity, is required to be obtained, taken or made by or with respect to Parent or Merger Sub in connection with the execution and delivery of this Agreement or its performance of its obligations under this Agreement or the consummation of the Merger and the other transactions contemplated by this Agreement, other than (i) in compliance with applicable requirements of the Exchange Act, Securities Act and U.S. state securities laws (“Blue Sky Laws”), (ii) the filing of the Certificate of Merger with the Delaware Secretary and appropriate documents with the relevant authorities of the other jurisdictions in which Parent and the Company are qualified to do business and (iii) such Permits, consents, approvals, clearances, waivers, orders, registrations, declarations, notices, filings or actions that, (x) individually or in the aggregate, have not had and would not reasonably be expected to have a Parent Material Adverse Effect or (y) prevent or materially delay consummation of the transactions contemplated hereby. (c) No vote or consent of the holders of any capital stock of, or other equity or voting interest in, Parent is necessary to approve this Agreement or the Merger. The approval of Parent, as the sole shareholder of Merger Sub, which already has been obtained, is the only approval of the shares of, or other equity interest in, Merger Sub necessary to adopt and approve this Agreement and the Merger. (a) Section 3.06(a) of the Parent Disclosure Letter sets forth (i) the unaudited balance sheet of MOR as of December 31, 2019 and the related unaudited statements of operations and cash of MOR for the fiscal years then ended, and (ii) the unaudited balance sheet of MOR as of August 31, 2020 and the related unaudited statements of operations and cash of MOR for the eight-month period then ended (such balance sheets and statements described in clauses (i) and (ii), collectively, the “MOR Financial Statements”). The MOR Financial Statements were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) (except as may be indicated in the notes thereto and except that the unaudited financial statements may not contain footnotes and are subject to normal year-end adjustments that are not expected to be material) applied on a consistent basis during the periods involved, were prepared using the books, records and accounts of MOR and fairly presented in all material respects the financial position of MOR as of their respective dates, and the income, results of their operations, changes in financial position and cash flows for the periods shown (subject to the absence of footnote disclosure and to normal year end audit adjustments). (b) Except (i) as reflected or reserved against in the balance sheet of MOR as of August 31, 2020 (or the notes thereto) included in the MOR Financial Statements, (ii) for contractual liabilities and contractual obligations incurred in connection with this Agreement, (iii) for liabilities and obligations that have been incurred in the ordinary course of business since August 31, 2020 and (iv) for liabilities and obligations that have been discharged or paid in full in the ordinary course of business, MOR has no liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise). There are no (A) unconsolidated Subsidiaries of MOR, or (B) off-balance sheet arrangements to which MOR is a party of any type required to be disclosed pursuant to Item 303(a)(4) of Regulation S-K promulgated by the SEC or any obligations of MOR to enter into any such arrangements. A-10 Section 3.07 Absence of Certain Changes or Events. Since January 1, 2020, there has not occurred any fact, circumstance, occurrence, effect, event or development or change that, individually or in the aggregate, has had or would reasonably be expected to have a Parent Material Adverse Effect. Since August 31, 2020, except for the execution and delivery of this Agreement and the agreements entered into (or to be entered into) in connection with the Parent Reorganization, the MOR Offering, and the consummation of the Parent Reorganization and the MOR Offering, each of the Parent and the Parent Subsidiaries has conducted and operated their respective businesses in the ordinary course of business. (a) Each of Parent and each Parent Subsidiary has timely filed or has caused to be timely filed all income, franchise and other material Tax Returns required to be filed by or with respect to it and/or any Parent Subsidiaries (taking into account any valid extension of time within which to file), and all such Tax Returns are accurate and complete and in compliance with applicable Tax Law. Each of Parent and each Parent Subsidiary has fully and timely paid or caused to be fully and timely paid all material Taxes required to be paid by it (including any Taxes to the extent required by Parent Real Property Leases), other than Taxes that are not yet due and payable or that are being contested in good faith in appropriate proceedings and for which adequate reserves have been established in accordance with GAAP. (b) No deficiency for any Tax has been asserted or assessed by a taxing authority against Parent or any Parent Subsidiary which deficiency has not been paid or is not being contested in good faith in appropriate proceedings and adequately reserved under GAAP. (c) Each of Parent and each Parent Subsidiary has complied in all material respects with applicable Tax Law with respect to the withholding of Taxes. (d) There is not pending or, to the Knowledge of Parent, threatened in writing any audit, examination, claim, or notice of deficiency in respect of any Taxes of Parent or any Parent Subsidiary. (e) There are no Liens for Taxes on any of the assets, rights or properties of Parent or any Parent Subsidiary other than Parent Permitted Liens. (f) None of Parent or any Parent Subsidiary has waived any statute of limitations with respect to Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (g) No written claim has been received by the Parent or any Parent Subsidiary from a Governmental Entity in a jurisdiction where Parent or any Parent Subsidiary, as applicable, does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. (h) Neither Parent nor any Parent Subsidiary will be required to include any item of income in, or to exclude any item of deduction from, taxable income for any taxable period (or portion thereof) beginning after the Closing Date as a result of any (A) change in method of accounting or improper method of accounting with respect to a taxable period (or portion thereof) on or prior to the Closing Date; (B) “closing agreement” as described in Section 1721 of the Code (or similar provision of state, local or foreign Law), entered into on or prior to the Closing Date; (C) intercompany transaction or excess loss account described in Treasury Regulations under Section 1502 of the Code (or any similar provision of state, local, or foreign Law); (D) installment sale or open transaction made on or prior to the Closing Date; (E) prepaid amount received or deferred revenue accrued on or prior to the Closing Date; or (F) election under Section 108(i) of the Code. (i) None of Parent or any Parent Subsidiary has any liability for Taxes of any Person (other than Parent and the Parent Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar provision of local, state or foreign Law), as a transferee or successor, by contract, or otherwise. (j) None of Parent or any Parent Subsidiary is a party to or is bound by any Tax sharing, allocation or indemnification agreement or arrangement, other than such an agreement or arrangement (i) solely between or among Parent and the wholly owned Parent Subsidiaries or between or among wholly owned Parent Subsidiaries or (ii) entered into in the ordinary course of business the primary purpose of which is not related to Taxes. A-11 (k) None of Parent or any Parent Subsidiary is or has been a member of an affiliated group filing consolidated or combined Tax Returns (other than a group of which Parent is or was the common parent). (l) During any tax period for which the statute of limitations has not expired, none of Parent or any Parent Subsidiary has been a “distributing corporation” or a “controlled corporation” in a distribution intended to qualify for tax-free treatment under Section 355 of the Code. (m) None of Parent or any Parent Subsidiary has participated in any “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4 (or a similar provision of local, state or foreign Law). (n) Parent and each Parent Subsidiary has properly (i) collected and remitted sales, use, value added and similar Taxes with respect to sales made to its customers or services provided to its customers and (ii), for all sales or services that are exempt from sales, use, value added and similar Taxes and that were made without charging or remitting such Taxes, received and retained any appropriate Tax exemption certificates and other documentation qualifying such sale or service as exempt. (o) Neither Parent nor any Parent Subsidiary has (i) filed, or has pending, any ruling requests with any taxing authority relating to Taxes, including any request to change any accounting method which is still in effect, or (ii) granted to any Person any power of attorney that is in force with respect to any income Tax matter. (p) To the Knowledge of Parent, as of the date of this Agreement, the net operating losses or other Tax attributes with respect to Parent or any Parent Subsidiary are not currently subject to any limitation under Sections 382, 383 or 384 of the Code. (q) Notwithstanding any other representations and warranties in this Agreement, the representations and warranties in Section 3.09 (to the extent expressly related to Taxes) and this Section 3.08 constitute the sole representations and warranties in this Agreement with respect to Tax matters. (a) Section 3.09(a) of the Parent Disclosure Letter sets forth a complete list of all material Parent Benefit Plans. Copies of the following documents have been made available to the Company with respect to each material Parent Benefit Plan, in each case to the extent applicable: (i) the plan document and all amendments thereto (or in the case of an unwritten Parent Benefit Plan, a written summary thereof); (ii) the current determination letter or opinion letter from the Internal Revenue Service (“IRS”); (iii) the current summary plan description and any summary of material modifications; (iv) the three (3) most recent annual reports on Form 5500 (and all schedules and exhibits attached thereto) filed with the IRS and U.S. Department of Labor; (v) the three (3) most recently prepared actuarial reports and financial statements; and (vi) for each material non-U.S. Parent Benefit Plan, any applicable documents that are substantially comparable (taking into account differences in applicable Law and practices) to the documents required to be provided in clauses (i) through (v) of this Section 3.09(a). (b) (i) each Parent Benefit Plan has been established, operated, invested, funded and administered in accordance, in all material respects, with its terms, any applicable labor, collective bargaining or other agreement with any Union and any applicable Law (including ERISA and the Code) and (ii) to the Knowledge of Parent, neither Parent nor any Parent Subsidiary has engaged in any transaction with respect to any Parent Benefit Plan that would be reasonably likely to subject any Parent Benefit Plan or Parent or any Parent Subsidiary to any material Tax or penalty (civil or otherwise) imposed by ERISA, the Code or other applicable Law. (c) Each Parent Benefit Plan intended to be qualified under Section 401(a) of the Code and has received or may otherwise reasonably rely upon a favorable determination or opinion letter from the IRS as to its tax-qualification under the Code, and each trust maintained thereunder is exempt from federal income taxation under the provisions of Section 501(a) of the Code, and to the Knowledge of Parent, nothing has occurred since the date of any such determination that could reasonably be expected to adversely affect the qualification of such Parent Benefit Plan or its related trust. (d) Other than routine claims for benefits, there are no suits, claims, proceedings, actions or governmental audits or investigations that are pending or, to the Knowledge of Parent, threatened, against or involving any Parent Benefit Plan. A-12 (e) Neither Parent nor any ERISA Affiliate currently has, or within the six-year period immediately prior to the date of this Agreement, maintained, participated in, contributed to, or had an obligation to contribute to (i) a “defined benefit plan” as defined in Section 3(35) of ERISA, (ii) a pension plan subject to the funding standards of Section 302 of ERISA or Section 412 of the Code (a “Pension Plan”), (iii) a “multiple employer welfare arrangement” as defined in Section 3(40) of ERISA or (iv) a “multiemployer plan” as defined in Section 3(37) of ERISA or Section 414(f) of the Code. No liability under Title IV or Section 302 of ERISA has been incurred by Parent or any ERISA Affiliate that has not been satisfied in full, and, to the Knowledge of Parent, no condition exists that would reasonably be expected to present a material risk to Parent or any Parent Subsidiaries of incurring any such liability. (f) No Parent Benefit Plan provides for post-retirement or other post-employment welfare benefits (other than health care continuation coverage (i) as required by Section 4980B of the Code or similar state or local Law or (ii) health care coverage through the end of the calendar month in which a termination of employment occurs). (g) Neither the execution by Parent of this Agreement nor the consummation of the Merger or the other transactions contemplated by this Agreement will (either alone or in combination with a subsequent termination of employment) result in the payment of any amount, that would, individually or in combination with any other payment, constitute an “excess parachute payment,” as defined in Section 280G(b)(1) of the Code. (h) Except as provided for in this Agreement, neither the execution or delivery of this Agreement nor the consummation of the Merger and the other transactions contemplated hereby will (either alone or together with the occurrence of any additional or subsequent events) (i) entitle any current or former employee, director, or individual independent contractor of Parent or any Parent Subsidiary to any payment of compensation or benefits from Parent or any Parent Subsidiary; (ii) increase the amount of compensation or benefits due to any such individual; or (iii) accelerate the vesting, funding or time of payment of any compensation, equity award or other benefit. (i) All Parent Stock Awards were (i) in the case of Parent Stock Options, granted with an exercise price per share no lower than the “fair market value” (as defined in the Parent Stock Plan) of one share of Parent Common Stock on the date of grant, (ii) granted, reported and disclosed in accordance with applicable Laws and stock exchange requirements, and (iii) validly issued and properly approved by the Parent Board (or a duly authorized committee or subcommittee thereof) in compliance with all applicable Laws. Without limiting the generality of the preceding sentence, Parent has not engaged in any back dating, forward dating or similar activities with respect to Parent Stock Awards and has not been the subject of any investigation by the SEC, whether current, pending or closed (in the case of any such pending investigation, to the Knowledge of Parent), with respect to any such activities. (j) Each Parent Benefit Plan that is maintained outside of the U.S. primarily for the benefit of any current or former employees, directors, or individual independent contractors of Parent or any Parent Subsidiaries who are or were regularly employed or providing services outside of the U.S. (i) has been maintained in all material respects in accordance with its terms and applicable Laws, (ii) if intended to qualify for special tax treatment, meets all the requirements for such treatment, and (iii) if required, to any extent, to be funded, book-reserved or secured by an insurance policy, is fully funded, book-reserved or secured by an insurance policy, as applicable, based on reasonable actuarial assumptions in accordance with applicable accounting principles. (k) Notwithstanding any other representations and warranties in this Agreement, the representations and warranties in this Section 3.09 constitute the sole representations and warranties in this Agreement with respect to employee benefits matters of any kind. (a) Neither Parent nor any Parent Subsidiary is delinquent in material payments to any employee or former employee for any services or amounts required to be reimbursed or otherwise paid. Parent and each Parent Subsidiary is and has been at all times in material compliance with any and all agreements between Parent or any Parent Subsidiary and any employee or Parent or any Parent Subsidiary. A-13 (b) Neither Parent nor any Parent Subsidiary is a party to, nor bound by, any labor, collective bargaining or other agreement with any Union. (c) The consent or consultation of, or the rendering of formal advice by, any labor union, works council or other labor organization or employee representative body (each, a “Union”) is not required for Parent to enter into this Agreement or to consummate any of the transactions contemplated hereby or to terminate or layoff any employees Parent or any Parent Subsidiary in the event any of the transactions contemplated hereby are consummated. (d) Neither Parent nor any Parent Subsidiary has, and neither Parent nor any Parent Subsidiary has had at any time since January 1, 2017, any duty to bargain with any labor organization. Neither Parent nor any Parent Subsidiary is currently negotiating any labor, collective bargaining or other agreement with any Union, and there is not, and has not been, any Union representing or purporting to represent any employee of Parent. No employee or Union is making or has made a demand for recognition or has filed a petition seeking representation with the National Labor Relations Board with respect to employees of Parent or any Parent Subsidiary, and, to the Knowledge of Parent, no Union, employee or group of employees is seeking or has sought to organize employees of Parent or any Parent Subsidiary for the purpose of collective bargaining. Parent has no Knowledge of any facts to suggest that any demand for recognition or effort or attempt to organize employees of Parent or any Parent Subsidiary is imminent, likely or expected. (e) Since January 1, 2017, there has been no actual or, to the Knowledge of Parent, threatened in writing, labor strike, dispute, walkout, work stoppage, picketing, hand billing, slowdown or lockout against Parent or any Parent Subsidiary. (f) Parent and each of the Parent Subsidiaries is and, at all times has been, in compliance in all material respects with all applicable Laws pertaining to employment, labor relations and employment and labor relations practices, wage and hour, workers’ compensation, health and safety, collective bargaining and employee benefits. All individuals characterized and treated by Parent or any Parent Subsidiary as independent contractors or consultants are properly classified and utilized as independent contractors under all applicable Laws, and are not employees of Parent or a Parent Subsidiary, as applicable. All individuals characterized and classified and utilized by Parent or any Parent Subsidiary as leased employees are properly classified as employees of the applicable leasing company, and are not employees of Parent or a Parent Subsidiary, as applicable. (g) Except as listed in Section 3.10(b) of the Parent Disclosure Letter, there are no, and there have been no, material grievances, complaints, citations, charges, actions, claims, suits, litigation, arbitrations, mediations, hearings, investigations or other proceedings against Parent or any Parent Subsidiary pending, or, to the Knowledge of Parent, threatened to be brought or filed, by or with any court or arbitrator or any other Governmental Entity, or any Orders or settlement agreements, in connection with the employment of any current, former or prospective employee of Parent or any Parent Subsidiary. (h) All employees of Parent or any Parent Subsidiary are currently (and all employees, current and previous, of Parent or any Parent Subsidiary have been at all times since January 1, 2017) properly classified and compensated by Parent or Parent Subsidiary in accordance with the Fair Labor Standards Act and state and local wage and hour Laws. (i) Parent and each Parent Subsidiary is, and has been at all times since January 1, 2017, in compliance with any and all Laws related to mass layoff and plant closings, including the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101 et seq., and the regulations promulgated thereunder (the “WARN Act”), and neither Parent nor any Parent Subsidiary has any plans to undertake any action that would trigger any notice or payment or other obligation under the WARN Act. Since January 1, 2020, Parent and each Parent Subsidiary have not incurred any material liability or obligation under the WARN Act or comparable state or local law. (j) Parent has made available to Company a complete and accurate list of all employees and former employees of Parent or any Parent Subsidiary covered by any employment, severance, change-in-control, or retention agreement and any non-competition, non-solicitation, confidentiality, Intellectual Property Rights or similar agreement with Parent or any Parent Subsidiary, and Parent has provided or made available to Parent current and complete forms of each such agreement. A-14 (k) To the Knowledge of Parent, no Key Employee is in any material respect in violation of any term of any employment agreement, nondisclosure agreement, common law nondisclosure obligation, fiduciary duty, noncompetition agreement, nonsolicitation agreement, restrictive covenant, Parent or Parent Subsidiary policy or other obligation to any third party as related to their employment with Parent or Parent Subsidiary. To the Knowledge of Parent, no current or former employee or independent contractor of Parent or any Parent Subsidiary is in any material respect in violation of any term of any employment agreement, nondisclosure agreement, common law nondisclosure obligation, fiduciary duty, noncompetition agreement, restrictive covenant or other obligation to Parent or any of the Parent Subsidiaries. (l) Except as provided in Section 3.10(l) of the Parent Disclosure Letter, no Key Employee has notified Parent or otherwise expressed that he/she intends to terminate his/her employment with Parent. (m) To the Knowledge of Parent, since January 1, 2017, no current or former management or executive-level employee of Parent or any Parent Subsidiary has engaged in or been alleged to have engaged in any act or conduct that constitutes a Misconduct Claim, and, to the Knowledge of Parent, no such allegation is pending or threatened, or has been investigated, litigated or become the subject of administrative proceedings. Since January 1, 2017, neither Parent nor any Parent Subsidiary has terminated any current or former employee related to any Misconduct Claim, or entered into any settlement or settlement discussions with any Person regarding a Misconduct Claim. Parent and each Parent Subsidiary has established and distributed to its employees a policy or policies against harassment and a complaint procedure, and has required all officers, managers and staff employees to undergo anti-harassment training. Section 3.11 Legal Proceedings. There is no, and since January 1, 2017 there has been no, suit, action, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, audit, examination or investigation pending or, to the Knowledge of Parent, threatened against Parent or any Parent Subsidiary or any of their respective former or current officers, directors or employees or properties (including any properties owned, operated, leased or licensed by Parent or any Parent Subsidiary) or assets, nor is there any Order outstanding against or, to the Knowledge of Parent, investigation or inquiry in each case that is threatened or pending by any Governmental Entity involving Parent or any Parent Subsidiary or any of their respective former or current officers, directors or employees or properties (including any properties owned, operated, leased or licensed by Parent or any Parent Subsidiary) or assets. For each suit, action, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, audit, examination, inquiry, investigation or similar proceeding that is required to be set forth in the Parent Disclosure Letter, Section 3.11 of the Parent Disclosure Letter sets forth, to the extent applicable, (i) the name of each party to such suit, action, litigation or arbitration (including the identity of any Governmental Entity party thereto) or the name of each Governmental Entity or regulatory body conducting each such hearing, audit, examination, inquiry or investigation, (ii) the case caption, docket number and a reasonably detailed summary of the underlying claims, allegations and relief sought in connection with such suit, action, litigation, arbitration, proceeding, hearing, audit, examination, inquiry or investigation and (iii) the Governmental Entity before which such suit, action, litigation, arbitration, proceeding, hearing, audit, examination, inquiry or investigation is pending. Neither the Parent nor any Parent Subsidiary is a party to, the subject of or has any obligation under any settlement agreement, consent decree, waiver of rights or similar agreement or arrangement with respect to any suit, action, litigation, arbitration, proceeding, hearing, audit, examination, inquiry, investigation or similar proceeding. Section 3.11 of the Parent Disclosure Letter sets forth the amount of any reserve taken by the Parent or any or the Parent Subsidiaries with respect to any suit, action, litigation, arbitration, proceeding, hearing, audit, examination, inquiry, investigation, settlement agreement, consent decree, waiver of rights or similar proceeding, agreement or arrangement that is required to be disclosed in the Parent Disclosure Letter. Section 3.12 Compliance with Applicable Laws. At all times, the business of Parent and the Parent Subsidiaries has been conducted in accordance with all Laws applicable thereto and, to the Knowledge of Parent, none of Parent or any Parent Subsidiary is or has been subject of, or has been requested to provide information in connection with, any hearing, audit, examination, inquiry, investigation, notice, claim, charge or assertion with respect to any alleged failure to comply with any provision of applicable Law or has been given any notice of any of the foregoing. At all times since January 1, 2017, (a) Parent and each Parent Subsidiary has been in possession of all Permits required by all applicable Laws to be held by it for the operation of the business of the Parent and the Parent Subsidiaries or that are necessary to occupy the Parent Leased Real Property or for the A-15 lawful ownership of its properties and assets and all fees and other amounts due with respect to such Permits have been paid (and a true, correct and complete list of all such material Permits is set forth in Section 3.12 of the Parent Disclosure Letter), (b) the business of Parent and the Parent Subsidiaries have each at all times maintained and been in compliance in all material respects with all such Permits; and (c) all such Permits are in full force and effect and are not limited in duration or subject to conditions. There are no proceedings, actions or claims pending or threatened in writing (or, to the Knowledge of the Parent, threatened orally) that would reasonably be expected to result in the termination, revocation, cancellation, suspension or modification of any such Permit. Neither the Parent nor any Parent Subsidiary has been informed in writing or, to the Knowledge of the Parent, orally by any applicable Governmental Entity of any actual or possible violation of any such Permit, or any failure to comply in any respect with any term or requirement of any such Permit. No event or condition has occurred or exists which would result in a violation of, breach, default or loss of a benefit under, or acceleration of an obligation of Parent or any of the Parent Subsidiaries under, or variation, suspension, revocation or non-renewal or non-variation by request of, any Permit (in each case, with or without notice or lapse of time or both), except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. Neither the Parent nor any Parent Subsidiary has, since January 1, 2017, conducted any internal investigation concerning any alleged violation of any applicable Law by the Parent or any Parent Subsidiary or any of its or their respective Representatives (regardless of the outcome of such investigation). Section 3.13 Environmental Matters. (a) Parent and the Parent Subsidiaries are, and at all times have been, in material compliance with all applicable Laws and Orders governing pollution or the protection of human health or the environment (“Environmental Law”), which compliance includes, without limitation, possession and compliance with the terms and conditions of all Permits required by Environmental Law (“Environmental Permits”) to own and operate the business and assets of Parent and the Parent Subsidiaries; (b) Parent and the Parent Subsidiaries, except as would not be reasonably expected to be material, have timely filed applications for, or for renewal of, all such Environmental Permits, and no action or proceeding is pending or, to the Knowledge of Parent, threatened to revoke, modify, suspend or terminate any such Environmental Permit; (c) as of the date of this Agreement, none of Parent or any Parent Subsidiary has received any written notice or claim from any Person that alleges that Parent or any Parent Subsidiary is in violation of, or has liability or responsibility under, any applicable Environmental Law; (d) as of the date of this Agreement, there are no unresolved legal or administrative proceedings pending (x) alleging that Parent or any Parent Subsidiary is liable for response actions to address a “release,” as that term is defined in CERCLA (“Release”), of a Hazardous Material, or (y) requesting information under the authority of any Environmental Law (including, without limitation, information requests under Section 104 of CERCLA or Section 114 of the Clean Air Act, 42 U.S.C. § 7401, et seq.); (e) to the Knowledge of Parent, there has been no Release of Hazardous Materials, nor are any Hazardous Materials present at any Parent Leased Real Property, that would reasonably be expected to result in any responsibility or liability on the part of Parent or any Parent Subsidiary; (f) to the Knowledge of Parent, there are no underground storage tanks present at any Parent Leased Real Property, and (g) Parent has not assumed or provided indemnity against any liability under any Environmental Law, except with respect to any of the foregoing under (a), (b) or (c) as has not had and would not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. The representations and warranties set forth in this Section 3.13 are Parent’s sole and exclusive representations relating to environmental matters of any kind. (a) Section 3.14(a) of the Parent Disclosure Letter sets forth, as of the date of this Agreement, a true and complete list, and Parent has made available to Parent true and complete copies, of: (i) each Contract to which Parent or any Parent Subsidiary is a party that (A) restricts the ability of Parent or any Parent Subsidiary (or would, after the Closing, restrict in any material respect the ability of Parent or any Parent Subsidiaries) to compete in any business or with any Person or in any geographic area, (B) prohibits Parent or any Parent Subsidiary from engaging in any business with any Person or levying a fine, charge or other payment for doing so, (C) contains “most favored nation,” “exclusivity” or similar provisions, (D) grants any right of first refusal or right of first offer or similar right or (E) requires the purchase of all of Parent’s or any Parent Subsidiary’s requirements for a product or service from a third party; A-16 (ii) each Contract (A) relating to Indebtedness of Parent or any Parent Subsidiary other than any such agreement solely between or among Parent and the wholly owned Parent Subsidiaries or between or among wholly owned Parent Subsidiaries or (B) that grants a Lien, other than a Parent Permitted Lien, with respect to any material asset or property of Parent or any Parent Subsidiary; (iii) each Contract to which Parent or any Parent Subsidiary is a party relating to (A) the formation, creation, operation, management or control of any partnership, joint venture, strategic alliance, collaboration or similar arrangement or (B) the ownership of any equity interest in any Person other than the Parent Subsidiaries; (iv) each Contract between Parent or any Parent Subsidiary, on the one hand, and, on the other hand, any (A) Key Employee of either Parent or any Parent Subsidiary, (B) record or beneficial owner of more than five percent (5%) of the shares of any class of Parent Common Stock outstanding as of the date of this Agreement, or (C) to the Knowledge of Parent, any affiliate of any such Key Employee or owner (other than Parent or any Parent Subsidiary); (v) each Contract relating to the disposition or acquisition by Parent or any Parent Subsidiary of any Person, business organization, division or business of any Person (including through merger or consolidation or the purchase of a controlling equity interest in or substantially all of the assets of such Person or by any other manner), or of any assets (other than acquisitions or dispositions of assets in the ordinary course of business), in each case, (A) with obligations (contingent or otherwise) remaining to be performed, including any indemnification obligations, purchase price adjustment, any earn-out, backend payment or similar obligation, (B) that has outstanding any purchase price adjustment, “earn-out” or similar obligations, (C) with liabilities continuing after the date of this Agreement or (D) involving amounts in excess of $150,000; (vi) each Contract containing a grant of license, sublicense or any other right to Parent or any Parent Subsidiary of any Parent IP (other than Contracts concerning generally commercially available hardware or software pursuant to shrink-wrap, click-through or other standard licensing terms and non-discriminatory pricing terms); (vii) each Contract containing a grant of license, sublicense or any other right by Parent or any Parent Subsidiary of any Parent IP to any third party (other than as ancillary to Parent’s receipt of services or in conjunction with a sale of products or services to customers in the ordinary course of business); (viii) each Contract to which Parent or any Parent Subsidiary is a party that (A) involved payments by Parent or any Parent Subsidiary or to Parent or any Parent Subsidiary under such Contract of more than $150,000 during calendar year 2019, (B) would reasonably be expected to involve aggregate payments by Parent or any Parent Subsidiary or to Parent or any Parent Subsidiary under such Contract of more than $150,000 during calendar year 2020 or any subsequent twelve (12)-month period, or (C); requires performance by any party more than one (1) year from the date of this Agreement that, in the case of clauses (B) and (C), are not terminable by Parent or such Parent Subsidiary without penalty by providing notice one hundred and eighty (180) days or less prior to termination; (ix) each Contract that is a settlement agreement that imposes obligations on Parent or any Parent Subsidiary after the date of this Agreement; (x) each Contract obligating Parent or any Parent Subsidiaries to provide indemnification (other than arising out of ordinary course commercial agreements or pursuant to any Contract covered by Section 3.14(a)(v)); (xi) any Contract relating to any loan or other extension of credit made by Parent or any Parent Subsidiaries, other than (A) Contracts solely among Parent and its wholly owned Subsidiaries and (B) accounts receivable in the ordinary course of business of Parent and Parent Subsidiaries (including, in the case of this clause (B), any payment terms for commercial Contracts); A-17 (xii) each Contract providing for the development or construction of, or additions or expansions to, any real property, under which Parent or any Parent Subsidiary has, or expects to incur, an obligation in excess of $150,000 in the aggregate; (xiii) any Contract, including any joint venture, product development, research and development or limited partnership agreement, involving a sharing of profits, losses, costs or liabilities by Parent or any Parent Subsidiary with any other Person; (xiv) any Contract that would reasonably be expected to involve any individual future payment by Parent or any Parent Subsidiary, in excess of $150,000 in any calendar year, in connection with the acquisition of goods, services or supplies; (xv) any Contract to which Parent or any Parent Subsidiary is a party that is with a Governmental Entity. Each Contract described in this Section 3.14(a) is referred to herein as a “Parent Material Contract.” (b) (i) each Parent Material Contract is a valid, binding and legally enforceable obligation of Parent or one of the Parent Subsidiaries, as the case may be, and, to the Knowledge of Parent, of the other parties thereto, except, in each case, as enforceability may be limited by bankruptcy, insolvency, reorganization or similar Laws affecting creditors’ rights generally and by general principles of equity, (ii) each such Parent Material Contract is in full force and effect, and (iii) none of Parent or any of Parent Subsidiaries is (with or without notice or lapse of time, or both) in breach or default under any such Parent Material Contract and, to the Knowledge of Parent, no other party to any such Parent Material Contract is (with or without notice or lapse of time, or both) in breach or default thereunder, except, in the case of clauses (i) or (ii), with respect to any Parent Material Contract which expires by its terms (as in effect as of the date of this Agreement) or which is terminated in accordance with the terms thereof and this Agreement by Parent in the ordinary course of business. Neither Parent nor any Parent Subsidiary has received any written notice regarding any actual or possible violation or breach of or default under, or intention to cancel or modify, any Parent Material Contract. (a) Neither Parent nor any Parent Subsidiary owns or has ever owned any real property. (b) Section 3.15(b) of the Parent Disclosure Letter sets forth a true, correct and complete list of all existing leases, subleases and other agreements (the “Parent Real Property Leases”) under which Parent or any Parent Subsidiary uses or occupies or has the right to use or occupy, now or in the future, any real property (“Parent Leased Real Property”). Parent has made available to Parent true, correct and complete copies of all Parent Real Property Leases (including all modifications, amendments, supplements, waivers and side letters thereto). Each Parent Real Property Lease is valid, binding and in full force and effect and enforceable against Parent or Parent Subsidiary, as applicable, and, to the Knowledge of Parent, each other party thereto in accordance with its terms, except to the extent such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar Laws nor or hereafter in effect relating to creditors’ rights generally, and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at Law or in equity). Each Parent Real Property Lease has sufficient remaining term thereunder (taking into account any available unexercised renewal or extension options for additional term) to allow Parent and the Parent Subsidiaries to continue operations without interruption in the normal course of business. None of Parent or any of the Parent Subsidiaries is (with or without notice or lapse of time, or both) in breach or default under any Parent Real Property Lease in any material respect. (c) None of Parent or any of the Parent Subsidiaries is (with or without notice or lapse of time, or both) in breach or default under any Parent Real Property Lease in any material respect. To the Knowledge of Parent, no landlord under any Parent Real Property Lease is (with or without notice or lapse of time, or both) in breach or default thereunder. Neither of Parent nor any of the Parent Subsidiaries has received any notice of default under any Parent Real Property Lease which has not been fully cured and corrected. Parent or a Parent Subsidiary has a good and valid leasehold interest in the Parent Leased Real Property free and A-18 clear of all Liens, except for (A) those reflected or reserved against in the balance sheet of Parent as of August 31, 2020 and (B) Parent Permitted Liens. Neither Parent nor a Parent Subsidiary has leased, subleased, assigned, licensed or permitted the use or occupancy of all or any part of Parent Leased Real Property by any other party. (d) There are no condemnation proceedings pending, or to the Knowledge of Parent, threatened affecting any portion of the Parent Leased Real Property. To the Knowledge of Parent, there are (i) no material defaults under any easements, covenants, restrictions or similar matters affecting any portion of the Parent Leased Real Property, (ii) no lawsuits or administrative actions or proceedings alleging violations of any Laws by any Parent Leased Real Property, and (iii) no actual or threatened special assessments or reassessments of the Parent Leased Real Property, and, in each case, none of Parent or any Parent Subsidiary has received any written notice thereof. Neither Parent nor any Parent Subsidiary has granted to any Person any option or right of first refusal to purchase or acquire or lease any portion of the Parent Leased Real Property. (e) Parent or one of the Parent Subsidiaries has, in all material respects, legal title to, or a valid and enforceable right to use, all equipment and other tangible personal property that is material to the operation of the business of Parent or applicable Parent Subsidiary in the ordinary course of business, in each case, free and clear of any and all Liens except Parent Permitted Liens or Liens that will be released at or before the Effective Time. Such equipment and other tangible personal property is all of the equipment and other tangible personal property that is necessary and sufficient for the operation of the business of Parent or applicable Parent Subsidiary in the ordinary course of business as presently conducted or as presently expected to be conducted. All of such equipment and other tangible personal property has been maintained in accordance with normal industry practice, is in good operating condition and repair (normal wear and tear excepted), and is suitable for the purposes for which it presently is used. (a) Section 3.16(a) of the Parent Disclosure Letter sets forth a true and complete list (in all material respects) of all registrations and applications for Intellectual Property Rights that are owned by Parent or any Parent Subsidiary (“Parent Registered IP”), including the applicable (i) jurisdiction of application/registration, (ii) application or registration number, (iii) date of filing or issuance, and (iv) owner. Parent or one of its Subsidiaries is the sole and exclusive owner of all of Parent Registered IP. All required filings and fees related to Parent Registered IP have been timely filed with and paid to the relevant Governmental Entities and authorized registrars, and all Parent Registered IP is otherwise valid, subsisting and in good standing. (b) Section 3.16(b) of the Parent Disclosure Letter sets forth a true and complete list of all Parent IP that is not Parent Registered IP. Parent or a Parent Subsidiary exclusively owns or has the right to use all Parent IP, free and clear of all Liens (other than Parent Permitted Liens). All Parent IP is subsisting and, to the Knowledge of Parent, enforceable and valid, and has not expired or been canceled or abandoned. The consummation of the transactions contemplated hereunder will not result in the loss or impairment of or payment of any additional amounts with respect to, nor require the consent of any other Person in respect of, Parent’s or its Subsidiaries’ rights to own, use or hold for use any Intellectual Property Rights as owned, used or held for use in the conduct of Parent’s or its Subsidiaries’ operations. Parent and its Subsidiaries are not bound by, and no Parent IP is subject to, any Contract containing any covenant or other provision that limits or restricts, in any material respect, the ability of Parent or its Subsidiaries to use, exploit, assert, or enforce any of the Parent IP. Parent and its Subsidiaries will continue to own or have after the Effective Time, valid rights or licenses as are sufficient to use all of the Parent IP to the same extent as prior to the Effective Time. The consummation of the transactions contemplated by this Agreement will not result in the loss or impairment of Parent’s rights, or any Parent Subsidiary’s rights, in any Parent IP and will not result in the breach of, or create on behalf of any third party, the right to terminate or modify any agreement as to which Parent or any Parent Subsidiary is a party and pursuant to which Parent or any Parent Subsidiary is authorized or licensed to use any third party Intellectual Property Right. (c) Neither the Parent IP, nor any products or services of Parent or its Subsidiaries, nor the operation of the business of Parent and its Subsidiaries infringes, misappropriates or otherwise violates, or has formerly infringed, misappropriated, or otherwise violated, any Intellectual Property Rights owned by A-19 another Person. There are, and have been formerly, no threats, claims, suits, actions or other proceedings (including any oppositions, interferences, reviews, or re-examinations) settled or pending or, to the Knowledge of Parent, threatened in writing that allege any such infringement, misappropriation or violation or challenging the validity, enforceability, registrability, or ownership of any Parent IP. None of the Parent IP is subject to any outstanding Order or stipulation restricting or limiting in any material respect the ownership, use or licensing thereof by Parent or any Parent Subsidiary as currently or contemplated to be used or licensed, as applicable. (d) To the Knowledge of Parent, no Person is infringing, misappropriating or otherwise violating any Parent IP, and no such claims are pending or threatened in writing against any Person by Parent or any Parent Subsidiary. (e) Parent and its Subsidiaries have taken commercially reasonable steps to maintain and protect, and to provide for the continuity, integrity, and security of, trade secrets and other confidential information of or held by Parent or its Subsidiaries, including requiring all Persons having access thereto to execute written non-disclosure agreements. Parent and its Subsidiaries have entered into written agreements with every current and former employee of the Parent and its Subsidiaries, and with every current and former independent contractor, who is or was involved in or has contributed to the invention, creation, or development of any Intellectual Property Rights during the course of employment or engagement with the Parent or a Parent Subsidiary, whereby such employee or independent contractor (1) acknowledges the Parent’s or Subsidiary’s exclusive ownership of all Intellectual Property Rights invented, created, or developed by such employee or independent contractor within the scope of his or her employment or engagement with the Parent or Subsidiary; (2) grants to the Parent or Subsidiary a present, irrevocable assignment of any ownership interest such employee or independent contractor may have in or to such Intellectual Property Rights, to the extent such Intellectual Property Rights do not constitute a “work made for hire” under applicable Law; and (3) irrevocably waives any right or interest, including any moral rights, regarding any such Intellectual Property Rights, to the extent permitted by applicable Law. (f) The Business Systems of Parent and its Subsidiaries (collectively, the “Parent Business Systems”) are reasonably sufficient for the immediate and anticipated needs of the business and operations of Parent and its Subsidiaries, including as to capacity, scalability, and ability to process current and anticipated peak volumes in a timely manner. The Parent Business Systems are in sufficiently good working condition to perform all information technology operations and include sufficient licensed capacity (whether in terms of authorized sites, units, users, seats or otherwise) for all software, in each case as necessary for the conduct of the business and operations of Parent and its Subsidiaries as currently conducted and as currently contemplated to be conducted. Parent and its Subsidiaries maintain commercially reasonable back-up and data recovery, disaster recovery and business continuity plans, procedures and facilities, acts in compliance therewith, and tests such plans and procedures on a regular basis, and such plans and procedures have been proven effective in all material respects upon such testing. (g) Parent’s and its Subsidiaries’ data, privacy and security practices comply, and at all times have complied, in all material respects, with applicable Data Protection and Security Requirements. Parent and each Parent Subsidiary has provided all notices and obtained all consents required by Data Protection and Security Requirements and satisfied all other requirements under Data Protection and Security Requirements for the collection, use, storage, processing, recording, distribution, transfer, import, export, protection (including security measures), disposal, disclosure or other activity regarding data (whether electronically or in any other form or medium) (collectively, “Processing”) of Personal Data and that are necessary for the conduct of business as currently conducted, as proposed to be conducted, and in connection with the consummation of the transaction contemplated hereunder. The transactions to be consummated hereunder as of the Closing Date will comply with all Data Protection and Security Requirements applicable to Parent and its Subsidiaries. (h) Parent and each Parent Subsidiary has implemented and at all times has maintained reasonable and appropriate organizational, physical, administrative and technical measures consistent with the state of the art for the industry in which Parent and each Parent Subsidiary operates to protect the operation, confidentiality, integrity and security of all of Parent’s and each Parent Subsidiary’s confidential and other data and information, in any format, generated or used in the conduct of the business of Parent or any Parent Subsidiary (“Parent Business Data”) and Parent Business Systems, against unauthorized access, A-20 acquisition, interruption, alteration, modification or use (collectively, “Misuse”). Without limiting the generality of the foregoing, Parent and each Subsidiary has implemented a comprehensive written information security program that complies with 45 C.F.R. Part 164, Subpart C and (i) identifies internal and external risks to the security of Parent Business Data or Parent Business Systems and (ii) implements, monitors and improves adequate and effective safeguards to control those risks. Neither Parent nor any Parent Subsidiary has (nor has any Person acting on Parent’s or any Parent Subsidiary’s behalf) experienced any actual or alleged Security Incident, including, without limitation, any “breach” (as defined in 45 C.F.R. Part 164, Subpart D) of unsecured Protected Health Information or Personal Data that is subject to the GDPR (“EU Personal Data”). Neither Parent nor any Parent Subsidiary has (nor has any Person acting on Parent’s or any Parent Subsidiary’s behalf) notified, and neither Parent nor any Parent Subsidiary has experienced any event resulting in any requirement that Parent or any Parent Subsidiary notify, any Person or Data Protection Authority of any Security Incident, including any loss or unauthorized access, use or disclosure, of EU Personal Data or of Protected Health Information that would constitute a breach for which notification to individuals, the media, or the U.S. Department of Health and Human Services (“HHS”) is required under 45 C.F.R. Part 164, Subpart D. In addition, neither Parent nor any Parent Subsidiary has any material data security, information security or other technological vulnerabilities that could adversely impact the operation of relevant Parent Business Systems or cause a Security Incident. Parent Business Systems have not materially malfunctioned or failed within the prior six (6) years, and are free from material bugs and other defects and do not contain any “virus,” “worm,” “spyware” or other malicious software. (i) Parent and each Parent Subsidiary has obligated all third party service providers, outsourcers, and processors of confidential information on their behalf and all third parties managing Parent Business Systems on their behalf to appropriate contractual terms relating to the Processing of Parent Business Data (as applicable and as required by Data Protection and Security Requirements) and information security and have taken reasonable measures to ensure that such third parties have complied with their contractual obligations. Without limiting the generality of the foregoing, Parent and each Parent Subsidiary has entered into business associate agreements with vendors and customers in all situations where required by 45 C.F.R. §§ 164.502(e) and 164.504(e) or Article 28 of the GDPR. Parent and each Parent Subsidiary has taken reasonable measures to ensure that all third parties acting on its behalf have complied with their contractual obligations. (j) Neither Parent nor any Parent Subsidiary has received any notice of any claims, investigations (including investigations by any Governmental Entity, including the HHS Office for Civil Rights and any other Data Protection Authority), for alleged violations of Data Protection and Security Requirements with respect to Personal Data subject to Processing by, or under the control of, Parent or any Parent Subsidiary, and, to the Knowledge of Parent, there are no facts or circumstances that are likely to form the basis for any such claims, investigations or allegations. (a) None of Parent, any Parent Subsidiary or any of their respective directors, officers or employees, or, to the Knowledge of Parent, any agent or other third party representative, has, in the course of his actions for, or on behalf of, any of them (i) made any unlawful payment, contribution, gift, entertainment or other unlawful expense relating to political activity, (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee, or (iii) violated any provision of any of the U.S. Foreign Corrupt Practices Act of 1977 or any similar applicable Law of any other jurisdiction (collectively, the “Anti-Corruption Laws”). Neither Parent nor any Parent Subsidiary has received any communication that alleges that Parent or any Parent Subsidiary, or any of their respective Representatives, is or may be in violation of, or has or may have any liability under, any Anti-Corruption Law. Parent and its Subsidiaries have instituted and maintain and will continue to maintain policies and procedures designed to promote and achieve compliance with such laws and the matters referred to in this Section 3.17. (b) None of Parent, any Parent Subsidiary or any of their respective directors, officers or employees, or to the Knowledge of Parent, any agent or other third party representative acting on behalf of Parent or any Parent Subsidiary are, or have been within the past two (2) years, targets of U.S. economic sanctions or trade controls, including but not limited to being identified on the List of Specially Designated Nationals and Blocked Persons administered by the U.S. Treasury Department’s Office of Foreign Assets Control (the “SDN List”). Without limitation to the foregoing, neither Parent nor any Parent Subsidiary, nor any of their A-21 respective directors, officers, or employees, nor to the Knowledge of Parent, any agent or other third party representative acting on behalf of Parent or any Parent Subsidiary are, or have been within the past two (2) years, conducting any business with any Person, directly or indirectly, identified on the SDN List. (c) Parent and each Parent Subsidiary has been and is in material compliance with all applicable export control and sanctions requirements, including compliance with the Office of Foreign Assets Control of the Treasury Department, the Department of Commerce, and the Department of State for the export or re-export of any item, service, industry, product, article, commodity or technical data. (a) Parent has delivered to the Company true, accurate and complete forms of Parent’s and each Parent Subsidiary’s customer agreements which contain customary customer warranties with respect to Parent’s products and services and the products and services of the Parent Subsidiaries (collectively, “Parent Products and Services”). To the Knowledge of Parent, all such Parent Products and Services have been in conformity in all material respects with all applicable contractual commitments and all express and implied warranties, and, to the Knowledge of Parent, there are no situations, events, facts or circumstances that would reasonably be expected to give rise to any material liability for replacement or repair thereof or other damages in connection therewith. (b) Section 3.18(b) of the Parent Disclosure Letter sets forth all written material warranties (which remain in effect) with regard to its Parent Products and Services. To the Knowledge of Parent, there are no inherent design defects or systemic or chronic problems in any Parent Products and Services. (c) None of Parent or any Parent Subsidiaries has any material liability arising out of any injury to individuals or property resulting from the ownership, possession, or use of any Parent Products and Services. Section 3.19 Suppliers and Customers. Section 3.19 of the Parent Disclosure Letter sets forth a complete and accurate list of (a) the top twenty (20) trade vendors/suppliers of the Parent and its Subsidiaries, taken as a whole, based on payments made to the applicable trade vendor/supplier by the Parent and its Subsidiaries, taken as a whole, for each of (i) the year ended December 31, 2019 and (ii) the six-months ended June 30, 2020 (the “Parent Material Suppliers”), and (b) the top twenty (20) customers of the Parent and its Subsidiaries, taken as a whole, based on revenue provided by the applicable customer to the Parent and its Subsidiaries, taken as a whole, for each of (i) the year ended December 31, 2019 and (ii) the six-months ended June 30, 2020 (the “Parent Material Customers”). The relationships of Parent and the Parent Subsidiaries with each Parent Material Supplier and Parent Material Customer are good commercial working relationships, and, since January 1, 2020, no Parent Material Supplier or Parent Material Customer has canceled or otherwise terminated, or to the Knowledge of Parent threatened to cancel or otherwise terminate, its relationship with Parent or a Parent Subsidiary. Since January 1, 2020, none of Parent or Parent Subsidiaries has received any written notice that any Parent Material Supplier or Parent Material Customer may cancel its relationship with Parent or Parent Subsidiaries or limit its services, supplies or materials to Parent or Parent Subsidiaries. Section 3.20 Brokers’ Fees and Expenses. No broker, investment banker, financial advisor or other Person, is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the Merger or any of the other transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Merger Sub. Section 3.21 Merger Sub. Parent is the sole stockholder of Merger Sub, and Merger Sub was formed solely for the purpose of engaging in the transactions contemplated under this Agreement. Since its date of incorporation, Merger Sub has not carried on any business nor conducted any operations other than the execution of this Agreement, the performance of its obligations under this Agreement and matters ancillary hereto. Section 3.22 Ownership of Company Capital Stock. None of Parent or Merger Sub or any of their respective Affiliates has been, at any time during the three (3) years prior to the date of this Agreement, an “interested stockholder” of the Company, as defined in Section 203 of the DGCL. As of the date of this Agreement, none of Parent, Merger Sub or their respective Subsidiaries owns any shares of Company Capital Stock or has any rights to acquire any shares of Company Capital Stock (except pursuant to this Agreement). A-22 Section 3.23 Insurance. Prior to the date hereof, Parent has made available to the Company a true, correct and complete list of all material insurance policies and fidelity bonds for which Parent or any Parent Subsidiary is a policyholder or which covers the business, operations, employees, officers, directors or assets of Parent or any Parent Subsidiary (the “Parent Insurance Policies”). Parent and its Subsidiaries maintain insurance coverage with reputable insurers in such amounts and covering such risks as Parent reasonably believes, based on past experience, is adequate for the businesses and operations of Parent and its Subsidiaries (taking into account the cost and availability of such insurance). All Parent Insurance Policies (i) are in full force and effect, (ii) are sufficient for compliance by Parent and its Subsidiaries with all Parent Material Contracts and Parent Real Property Leases, and (iii) provide insurance in such amounts and against such risks as Parent reasonably has determined to be prudent, taking into account the industries in which Parent and its subsidiaries operate, and as is sufficient to comply with applicable Law. None of Parent Insurance Policies will terminate or lapse by its terms by reason of the consummation of the transactions contemplated by this Agreement. There is no claim by Parent or any Parent Subsidiary pending under any of Parent Insurance Policies as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds or in respect of which such underwriters have reserved their rights. (a) Except as set forth in Section 3.24(a) of the Parent Disclosure Letter, there have not been, nor are there currently, any transactions, Contracts, arrangements, understandings, undertakings, obligations, liabilities or claims between the Parent or any Parent Subsidiary, on the one hand, and any Person (i) that is Affiliate of the Parent or any Parent Subsidiary, (ii) that is a stockholder, member, partner, manager, director, officer or employee of the Parent or any Parent Subsidiary, (iii) that is a Family Member of any stockholder, member, partner, manager, director, officer or employee of the Parent or any Parent Subsidiary, or (iv) with respect to which any of the Persons described in clauses (i), (ii) or (iii) of this Section 3.24(a) owns more than ten percent (10%) of the voting equity of such Person (each, a “Parent Related Party”), on the other hand (each, a “Parent Related Party Transaction”). Any such Parent Related Party Transactions were entered into in the ordinary course of business and on commercially reasonable terms and conditions. Any accounts due and payable by the Parent or any Parent Subsidiary to any Parent Related Party are recorded on the Parent’s and its Subsidiaries books and records, as the case may be, at their fair market value. (b) No Parent Related Party has or has had, directly or indirectly, (i) an economic interest in any Person that purchases from or sells or furnishes to, the Parent or any Parent Subsidiary, any goods or services, (ii) a beneficial interest in any Contract to which the Parent or any Parent Subsidiary is a party or by which they or their properties or assets are bound or directly or indirectly owns, or otherwise has any right, title or interest in, to or under, any material property or right, tangible or intangible, that is or is currently contemplated to be used by the Parent or any Parent Subsidiary, (iii) an ownership interest in any assets or rights of, or used by, the Parent or any Parent Subsidiary; provided, however, that ownership of no more than two percent (2%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an “economic interest in any Person” for purposes of this Section 3.24(b) or (iv) is indebted to or, at any time since January 1, 2017, has borrowed money from or lent money to the Parent or any Parent Subsidiary. Section 3.25 Exclusivity of Representations or Warranties. Except for the representations and warranties expressly set forth in Article IV (which to the extent provided for in this Agreement are subject to the Company Disclosure Letter) or in any certificate delivered by the Company to Parent or Merger Sub: (a) Neither the Company nor any of the Company Subsidiaries (or any other Person on their behalf) makes, or has made, any representation or warranty (whether express or implied, whether as to accuracy, completeness, fitness or otherwise) relating to the Company, the Company Subsidiaries or any of their businesses, operations or otherwise in connection with this Agreement, the Merger, or any information (including any statement, document or agreement delivered pursuant to this Agreement and any financial statements and any projections, estimates or other forward-looking information) provided, furnished or made available (including in any management presentations, information or descriptive memorandum, any “data rooms” maintained by the Company, supplemental information or other materials or information with respect to any of the above) or otherwise made available to Parent, Merger Sub or any of their respective A-23 Affiliates or Representatives or any other Person, and none of Parent or Merger Sub have relied on any such representation, warranty or information except only for the representations and warranties expressly set forth in Article IV (which to the extent provided for in this Agreement are subject to the Company Disclosure Letter). (b) No Person has been authorized by the Company, any Company Subsidiary or any other Person on behalf of the Company or any Company Subsidiary to make any representation or warranty relating to itself or its business or otherwise in connection with this Agreement and Merger, and if made, such representation or warranty shall not be relied upon by Parent or Merger Sub as having been authorized by such Person. REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth in the disclosure letter delivered by the Company to Parent at or before the execution and delivery by the Company of this Agreement (the “Company Disclosure Letter”) (it being understood that the Company Disclosure Letter shall be arranged in numbered and lettered sections corresponding to the numbered and lettered sections contained in this Agreement, and the disclosure in any section or subsection shall be deemed to qualify any other section herein to the extent that it is reasonably apparent from the text of such disclosures that such disclosure also qualifies or applies to such other section or subsection, provided that nothing in the Company Disclosure Letter is intended to broaden the scope of any representation or warranty of the Company made herein), the Company hereby represents and warrants, as of the date hereof, to Parent and Merger Sub as follows; provided the Company Disclosure Letter will be updated at the Effective Time with a bringdown certificate (the “Company Bringdown Certificate”): Section 4.01 Organization, Standing and Power. The Company is a duly organized, validly existing corporation and in good standing under the laws of the jurisdiction in which it is organized (in the case of good standing, to the extent such jurisdiction recognizes such concept). Each of the Company Subsidiaries is a duly organized, validly existing corporation or other legal entity and in good standing under the laws of the jurisdiction in which it is organized (in the case of good standing, to the extent such jurisdiction recognizes such concept). Each of the Company and the Company Subsidiaries has all requisite power and authority to own, lease and operate its properties and conduct its businesses as and where presently conducted. Each of the Company and the Company Subsidiaries is duly qualified or licensed to do business and in good standing in each jurisdiction (in the case of good standing, to the extent such jurisdiction recognizes such concept) where the nature of its business or the ownership or leasing of its properties make such qualification necessary, other than in such jurisdictions where the failure to be so qualified or licensed, individually or in the aggregate, has not had and would not reasonably be expected to have, a Company Material Adverse Effect. The Company has heretofore made available to Parent true, correct and complete copies of the Company’s and each Company Subsidiary’s Certificate of Incorporation and Bylaws or similar organizational documents (and all amendments thereto) as currently in full force and effect. Neither the Company nor any Company Subsidiary is in violation, and between the date hereof and the Closing Date, will not be in violation of any of the provisions of its Certificate of Incorporation or Bylaws or similar organizational documents (and all amendments thereto). (a) Section 4.02(a) of the Company Disclosure Letter sets forth the name and jurisdiction of organization of each Company Subsidiary. (b) Except as set forth in Section 4.02(b) of the Company Disclosure Letter, all of the outstanding shares of capital stock or voting securities of, or other equity interests in, each Company Subsidiary have been validly issued and are fully paid and non-assessable and are owned by the Company, by a Company Subsidiary or by the Company and a Company Subsidiary, free and clear of all Liens, excluding Company Permitted Liens, and free of any other restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock, voting securities or other equity interests), except for restrictions imposed by applicable securities Law. There are not issued, reserved for issuance or outstanding, and there are not any outstanding obligations of any Company Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, (i) any capital stock or any securities of such Company Subsidiary convertible into or exchangeable or exercisable for shares of capital stock or voting securities of, or other equity interests in, such Company Subsidiary, (ii) any warrants, calls, options, phantom stock, stock appreciation rights or other rights to acquire from such Company Subsidiary, or any other obligation of such Company Subsidiary to A-24 issue, deliver or sell, or cause to be issued, delivered or sold, any capital stock or voting securities of, or other equity interests in, such Company Subsidiary, or (iii) any rights issued by, or other obligations of, such Company Subsidiary that are linked in any way to the price of any class of capital stock or voting securities of, or other equity interests in, such Company Subsidiary, the value of such Company Subsidiary or any part of such Company Subsidiary or any dividends or other distributions declared or paid on any shares of capital stock of or voting securities of, or other equity interests in, such Company Subsidiary. (c) Except for the capital stock and voting securities of, and other equity interests in, the Company Subsidiaries, none of the Company or any Company Subsidiary owns, directly or indirectly, any capital stock or voting securities of, or other equity interests in, or any interest convertible into or exchangeable or exercisable for, any capital stock or voting securities of, or other equity interests in, any Person, in each case, other than securities of a publicly traded company held for investment by the Company or the Company Subsidiaries in the ordinary course of business. (a) The authorized capital stock of the Company consists of 275,000,000 shares of Company Common Stock and 20,000,000 shares of Company Preferred Stock, of which 3,000,000 shares are designated as Class A preferred stock (the “Class A Preferred Stock”) and 17,000,000 shares are designated as Class B preferred stock (the “Class B Preferred Stock”). At the close of business on October 15, 2020: (i) 116,347,812 shares of Company Common Stock were issued and outstanding; (ii) no shares of Company Common Stock were held by the Company in its treasury; (iii) an aggregate of 16,684,158 shares of Company Common Stock were reserved for issuance pursuant to awards and rights under the Company Stock Plans, of which 11,669,266 shares of Company Common Stock were underlying outstanding and unexercised options to purchase shares of Company Common Stock (collectively, “Company Stock Options”); and (iv) 14,784,201 shares of Company Preferred Stock were issued and outstanding, of which 1,000,000 shares of Class A Preferred Stock were issued and outstanding and 13,784,201 shares of Class B Preferred Stock were issued and outstanding. At the close of business on October 15, 2020: (i) 4,410,998 shares of Company Common Stock are reserved for issuance upon the exercise of warrants to purchase shares of Company Capital Stock (collectively, the “Company Warrants”); (ii) 65,302,185 shares of Company Common Stock are reserved for issuance upon the conversion of the Company Convertible Notes, of which 30,639,857 shares of Company Common Stock were issuable upon conversion of the principal balance of the Company Convertible Notes assuming a conversion date of October 15, 2020; and (iii) 400,000 shares of Company Common Stock are reserved for issuance upon the conversion of the Company Convertible Debenture. No shares of Company Capital Stock or any equity interests of any Company Subsidiary are held in the treasury of the Company or any Company Subsidiary. Except as set forth in this Section 4.03(a), at the close of business on October 15, 2020, no shares of Company Capital Stock or voting securities of, or other equity interests in, the Company were issued, reserved for issuance, or outstanding. Section 4.03(a) of the Company Disclosure Letter sets forth the following information, as applicable, with respect to each Company Stock Option, Company Warrant, Company Convertible Note and Company Convertible Debenture outstanding as of the date hereof: (i) the name of the holder thereof; (ii) the number of shares of Company Common Stock subject to such Company Stock Option, Company Warrant, Company Convertible Note or Company Convertible Debenture; (iii) the exercise price of such Company Stock Option or Company Warrant or the principal amount due and owing under such Company Convertible Note or Company Convertible Debenture; (iv) the date on which such Company Stock Option, Company Warrant, Company Convertible Note or Company Convertible Debenture was granted or issued; (v) the applicable vesting schedule; (vi) the date on which such Company Stock Option or Company Warrant expires or such Company Convertible Note or Company Convertible Debenture matures; (vii) whether or not the Company Stock Option is intended to constitute an incentive stock option under Code Section 422(b); and (viii) whether the exercisability of such Company Stock Option or Company Warrant or the convertibility of such Company Convertible Note or Company Convertible Debenture will be accelerated in any way by the transactions contemplated hereby, and indicates the extent of any such acceleration. Except as set forth in Section 4.03(a) of the Company Disclosure Letter, there are no commitments or agreements of any character to which the Company is bound obligating the Company to accelerate the vesting of any Company Stock Option or other Company Stock Award or Company Warrant as a result of the Merger. The Company has made available to Parent accurate and complete copies of the Company Stock Plans, all agreements evidencing Company Stock Options, the Company Warrants and the A-25 Company Convertible Notes. The Company Stock Plans are the only plans under which the Company has issued, granted or awarded stock options, restricted stock, restricted stock units, performance shares or other compensatory equity or equity-based awards that are outstanding as of the date of this Agreement. There have been no issuances of Company Capital Stock or any other securities of the Company since the close of business on October 15, 2020 through the date of this Agreement. As of immediately prior to the Effective Time, no Company Preferred Stock will be outstanding. (b) All of the outstanding shares of Company Capital Stock are, and, at the time of issuance, all such shares that may be issued upon the exercise of Company Stock Options or Company Warrants or the exercise of Company Convertible Notes or Company Convertible Debenture will be, duly authorized, validly issued, fully paid and non-assessable and not subject to, any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the DGCL, the Company’s Certificate of Incorporation, the Company’s Bylaws or any Contract to which the Company is a party or otherwise bound. All outstanding shares of Company Capital Stock, all outstanding Company Stock Options and Company Stock Awards, all outstanding Company Warrants, all outstanding Company Convertible Notes, the Company Convertible Debenture and all outstanding equity securities of the Company Subsidiaries have been issued and granted in compliance in all material respects with all applicable requirements set forth in applicable Contracts, Laws and Orders. All grants of equity awards or other rights with respect to shares of Company Capital Stock to current or former directors, officers, employees, agents or consultants of the Company or any Company Subsidiary have been made in accordance with the terms of the applicable Company Stock Plan and award agreements thereunder and any policy of the Company or the Board of Directors of the Company (the “Company Board”) (including any committee thereof) relating to the grant of such awards or rights. Except as set forth above in this Section 4.03 or for changes resulting from the exercise of Company Stock Options or Company Warrants or the conversion of Company Convertible Notes or Company Convertible Debenture outstanding on such date, there are not issued, reserved for issuance or outstanding, and there are not any outstanding obligations of the Company or any Company Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold (whether pursuant to any escrow agreement or earn-out or deferred payment obligation), (i) any capital stock of the Company or any Company Subsidiary or any securities of the Company or any Company Subsidiary convertible into or exchangeable or exercisable for shares of capital stock or voting securities of, or other equity interests in, the Company or any Company Subsidiary, (ii) any warrants, calls, options or other rights to acquire from the Company or any Company Subsidiary, or any other obligation of the Company or any Company Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, any capital stock or voting securities of, or other equity interests in, the Company or any Company Subsidiary or (iii) any rights issued by, or other obligations of, the Company or any Company Subsidiary that are linked in any way to the price of any class of Company Capital Stock or any shares of capital stock of any Company Subsidiary, the value of the Company, any Company Subsidiary or any part of the Company or any Company Subsidiary or any dividends or other distributions declared or paid on any shares of capital stock of the Company or any Company Subsidiary. Except for acquisitions, or deemed acquisitions, of Company Capital Stock or other equity securities of the Company in connection with (x) the withholding of Taxes in connection with the exercise, vesting or settlement of Company Stock Awards or Company Warrants or conversion of Company Convertible Notes or Company Convertible Debenture, and (y) forfeitures of Company Stock Awards, there are not any outstanding obligations of the Company or any of the Company Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock or voting securities or other equity interests of the Company or any Company Subsidiary or any securities, interests, warrants, calls, options or other rights referred to in clauses (i), (ii) or (iii) of the immediately preceding sentence. There are no debentures, bonds, notes or other Indebtedness of the Company having the right to vote (or, except for the Company Convertible Notes and Company Convertible Debenture, convertible into, or exchangeable for, securities having the right to vote) on any matters on which the Company’s stockholders may vote. Except as contemplated by this Agreement or the Voting Agreements, there is no agreement with respect to the voting or issuance of, or restricting the transfer of, or providing registration rights with respect to, any capital stock or voting securities of, or other equity interests in, the Company or any Company Subsidiary. None of the Company or any of the Company Subsidiaries is a party to any Contract pursuant to which any Person is entitled to elect, designate or nominate any director of the Company or any of the Company Subsidiaries. A-26 (c) There is no outstanding Indebtedness of the Company or the Company Subsidiaries, other than Indebtedness incurred under the Company Factoring Agreement, the Convertible Promissory Notes or the Company Convertible Debenture. Section 4.04 Authority; Execution and Delivery; Enforceability. The Company has all requisite corporate power and authority to execute and deliver this Agreement, to perform its obligations under this Agreement and to consummate the Merger and the other transactions contemplated by this Agreement, subject, in the case of the Merger, to the receipt of the affirmative vote of the holders of a majority of all shares of Company Capital Stock, on an as converted to Company Common Stock basis, entitled to vote at the Company Stockholders Meeting (the “Company Stockholder Approval”). The Company Board has adopted resolutions, by unanimous vote of the board of directors present at a meeting duly called at which a quorum of the board of directors of the Company was present, (i) determining that the terms of this Agreement, the Merger, the Voting Agreement and the other transactions contemplated by this Agreement and the Voting Agreement are fair to and in the best interests of the Company and its stockholders, (ii) approving and declaring advisable the execution, delivery and performance of this Agreement and the transactions contemplated by this Agreement, and (iii) recommending that the Company’s stockholders vote in favor of the adoption of this Agreement and the approval of the transactions contemplated by this Agreement, including the Merger, at a duly held meeting of such stockholders for such purpose (the “Company Stockholders Meeting”). Such resolutions have not been amended or withdrawn. Except for the Company Stockholder Approval, no other corporate or other organizational proceedings on the part of the Company or any Company Subsidiary are necessary to authorize or adopt this Agreement or to consummate the Merger and the other transactions contemplated by this Agreement (except for the filing of the Certificate of Merger in accordance with the relevant provisions of the DGCL). The Company has duly executed and delivered this Agreement and, assuming the due authorization, execution and delivery by Parent and Merger Sub, this Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms except, in each case, as enforcement may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or similar Laws affecting creditors’ rights generally and by general principles of equity. (a) The execution and delivery by the Company of this Agreement does not, and the performance by it of its obligations under this Agreement and the consummation of the Merger and the other transactions contemplated by this Agreement do not and will not (i) violate or conflict with, or result in any breach or violation of or default (with or without notice or lapse of time, or both) under any provision of the governing or organizational documents of the Company or any Company Subsidiary (assuming that the Company Stockholder Approval is obtained), (ii) except as set forth in Section 4.05(a) of the Company Disclosure Letter, violate or conflict with, or result in any breach or violation of or default (in each case, with or without notice or lapse of time, or both) under, require any consent, notice, waiver, payment of a penalty or approval or result in a default (or give rise to any right of termination, cancellation, modification or acceleration or any event that, with the giving of notice, the passage of time or otherwise, would constitute a default or give rise to any such right) under, or give rise to any loss of a material benefit under, any of the terms, conditions or provisions of any Company Material Contract, Company Real Property Lease or obligation to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or any of their respective assets may be bound, (iii) result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries (other than Company Permitted Liens or Liens created by Parent or Merger Sub), (iv) subject to the filings and other matters referred to in Section 4.05(b), violate or conflict with, or result in any breach or violation of or default (in each case, with or without notice or lapse of time, or both) under any Law, Order or Permit, in each case, applicable to the Company or any Company Subsidiary or by which any of their respective assets are bound, (v) other than as set forth in Section 4.03(a) of the Company Disclosure Letter, cause the acceleration of any vesting of any awards for or rights to capital stock or other equity interest of the Company or any Company Subsidiary or the payment of or the acceleration of payment of any change in control, severance, bonus or other cash payments or issuance of any capital stock or other equity interest of the Company or any Company Subsidiary or (vi) give rise to any obligation to make an offer to purchase or redeem any Indebtedness or capital stock or other equity interest of the Company or any Company Subsidiary. A-27 (b) No Permit, consent, approval, clearance, waiver or order of or from, or registration, declaration, notice or filing made to or with, or any action by, any Governmental Entity is required to be obtained, taken or made by or with respect to the Company or any Company Subsidiary in connection with the execution and delivery of this Agreement or its performance of its obligations under this Agreement or the consummation of the Merger and the other transactions contemplated by this Agreement, other than (i) in compliance with applicable requirements of the Exchange Act, Securities Act and Blue Sky Laws, (ii) the filing of the Certificate of Merger with the Delaware Secretary and appropriate documents with the relevant authorities of the other jurisdictions in which Parent and the Company are qualified to do business, (iii) compliance with the rules and regulations of the OTCQB and (iv) such Permits, consents, approvals, clearances, waivers, orders, registrations, declarations, notices, filings or actions that, individually or in the aggregate, (x) have not had and would not reasonably be expected to have a Company Material Adverse Effect or (y) prevent or materially delay consummation of the transactions contemplated hereby. (c) The Company Stockholder Approval is the only vote of the holders of any class or series of the Company Capital Stock necessary to adopt, approve and authorize this Agreement and consummate the Merger and the other transactions contemplated hereby. (a) The Company has furnished or filed with the SEC all reports, certifications, schedules, forms, statements and other documents (including amendments, exhibits and other information incorporated therein) required to be furnished or filed by the Company since January 1, 2016 (such documents, together with any documents filed with the SEC during such period by the Company on a voluntary basis on a Current Report on Form 8-K including any amendments or supplements thereto, but excluding the Proxy Statement/Prospectus, being collectively referred to as the “Company SEC Documents”). (b) Each Company SEC Document (i) at the time filed, or, if amended or supplemented, as of the date of the most recent amendment or supplement thereto (or in the case of Company SEC Documents that are registration statements filed pursuant to the requirements of the Securities Act, as of their respective effective dates), complied in all material respects with all applicable requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder and (ii) did not at the time it was filed (or became effective in the case of registration statements) or if amended, modified or superseded by a filing or amendment prior to the date of this Agreement, then at the time of such filing or amendment contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Each of the audited and unaudited consolidated financial statements (including the related notes and schedules thereto) of the Company included (or incorporated by reference) in the Company SEC Documents complied at the time it was filed in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, was prepared in accordance with GAAP (except as may be indicated in the notes thereto, or, in the case of unaudited financial statements, as permitted by Form 10-Q or 8-K, and except that the unaudited financial statements may not contain footnotes, in the case of interim financial statements, are subject to normal year-end adjustments that are not expected to be material) applied on a consistent basis during the periods involved, was prepared using the books, records and accounts of the Company and the Company Subsidiaries and fairly presented in all material respects the consolidated financial position of the Company and its consolidated Company Subsidiaries as of their respective dates, and the consolidated income, results of their operations, changes in financial position and cash flows and, except in the case of the Company’s quarterly report filings with the SEC on Form 10-Q, stockholders’ equity, for the periods shown (subject, in the case of the unaudited financial statements, as permitted by Form 10-Q to the absence of footnote disclosure and to normal year end audit adjustments). (c) Except (i) as reflected or reserved against in the Company’s consolidated balance sheet as of June 30, 2020 (or the notes thereto) included in the Company’s Quarterly Report on Form 10-Q for the quarter period ended June 30, 2020 (the “Company Form 10-Q”), (ii) as set forth on Section 4.06(c) of the Company Disclosure Letter listing vendors and estimated fees in connection with the Merger, (iii) for contractual liabilities and contractual obligations incurred in connection with this Agreement, (iv) for liabilities and obligations that have been incurred in the ordinary course of business since June 30, 2020, (v) for liabilities and obligations that have been incurred outside the ordinary course of business since A-28 June 30, 2020 that in the aggregate do not exceed $150,000, and (vi) for liabilities and obligations that have been discharged or paid in full in the ordinary course of business, none of the Company or any Company Subsidiary has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise). There are no (A) unconsolidated Subsidiaries of the Company, or (B) off-balance sheet arrangements to which the Company or any of the Company Subsidiaries is a party of any type required to be disclosed pursuant to Item 303(a)(4) of Regulation S-K promulgated by the SEC. (d) Each of the principal executive officer of the Company and the principal financial officer of the Company (or each former principal executive officer of the Company and each former principal financial officer of the Company, as applicable) has made all applicable certifications required by Rule 13a-14 or 15d-14 under the Exchange Act and Items 601(a)(31) of Regulation S-K promulgated by the SEC, and the statements contained in any such certifications are true, correct and complete. (e) The Company has established and maintains a system of “internal control over financial reporting” (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that the Company believes to be sufficient to provide reasonable assurance (i) that transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP consistently applied, (ii) that transactions are executed only in accordance with the authorization of management and (iii) regarding prevention or timely detection of the unauthorized acquisition, use or disposition of the Company’s properties or assets. (f) Since January 1, 2017, neither the Company nor, to the Knowledge of the Company, the Company’s independent registered accountant has identified or been aware of, and the Company has disclosed based on its most recent evaluation of internal controls prior to the date hereof to its auditors and audit committee, (i) any “significant deficiencies” or “material weaknesses” (both terms as defined by the Public Company Accounting Oversight Board Interim Standard AU 325 parts 2 and 3) in the design or operation of internal controls over financial reporting utilized by the Company that are reasonably likely to adversely affect in any material respect the Company’s ability to record, process, summarize and report financial information, and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting. Since January 1, 2017, neither the Company nor any Company Subsidiary has received any written complaint, allegation, assertion or claim regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or the Company Subsidiaries or their respective internal accounting controls. (g) The “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) utilized by the Company are reasonably designed to ensure that all information (both financial and non-financial) required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that all such information required to be disclosed is accumulated and communicated to the management of the Company, as appropriate, to allow timely decisions regarding required disclosure and to enable the principal executive officer and principal financial officer of the Company to make the certifications required under the Exchange Act with respect to such reports. (h) None of the Company Subsidiaries are, or have at any time since January 1, 2017, been, subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act. (i) Since January 1, 2017, the Company has complied in all material respects with the applicable rules and regulations of the OTCQB. (j) Neither the Company nor any of the Company Subsidiaries has received from the SEC or any other Governmental Entity any written comments or questions with respect to any of the Company SEC Documents (including the financial statements included therein) or any registration statement filed by any of them with the SEC or any notice from the SEC or other Governmental Entity that such Company SEC Documents (including the financial statements included therein) or registration statements are being reviewed or investigated, and, to the Knowledge of the Company, there is not, any investigation, inquiry or review being conducted by the SEC or any other Governmental Entity in connection with any Company SEC Documents (including the financial statements included therein). As of the date of this Agreement, there are no outstanding or unresolved comments in comment letters received from the SEC with respect to the Company SEC Documents. A-29 (k) On or about April 27, 2020, the PPP Borrower applied for and received the PPP Loan. The PPP Borrower met all applicable conditions and was eligible to participate in, has complied in all material respects with, and is not in violation of, the Paycheck Protection Program as set forth in the CARES Act. The PPP Borrower has made true, correct and complete certifications with respect to, the PPP Loan and all loan documents ancillary thereto and has complied in all material respects with all Laws relating to the PPP Loan. All statements of fact, certifications and representations and warranties made by the PPP Borrower in its PPP Loan Application were true, correct and complete as of the date of such PPP Loan Application and as of the date on which the PPP Borrower received its PPP Loan. The PPP Borrower has spent the proceeds of the PPP Loan only on eligible expenses (as described in the applicable SBA regulations) and is eligible to apply for, and will satisfy the requirements for, forgiveness of the PPP Loan in full. The PPP Borrower is not, and will not, be subject to any reductions to loan forgiveness based on a reduction in the number of employees or a reduction relating to salary and wages as provided in the CARES Act. The Company has provided Parent with true and complete copy of the promissory note evidencing the PPP Loan. Other than the PPP Loan, neither the Company nor any Company Subsidiary has applied for or obtained any Indebtedness pursuant to the CARES Act, or has any liability or obligation under, or in connection with, any such Indebtedness. Section 4.07 Absence of Certain Changes or Events. Except as set forth on Section 4.07 of the Company Disclosure Letter, since January 1, 2020, there has not occurred any fact, circumstance, occurrence, effect, event or development or change that, individually or in the aggregate, has had or would reasonably be expected to have a Company Material Adverse Effect. Since January 1, 2020, each of the Company and the Company Subsidiaries has conducted and operated their respective businesses in the ordinary course of business, except for the execution and delivery of this Agreement, and has not taken any action that would be prohibited by paragraphs (a) through (d), (j), (k), (q), (r), (t) or (u) (solely with respect to such paragraphs) of Section 5.01 if it were taken after the date of this Agreement. (a) Each of the Company and each Company Subsidiary has timely filed or has caused to be timely filed all income, franchise and other material Tax Returns required to be filed by or with respect to it and/or any Company Subsidiaries (taking into account any valid extension of time within which to file), and all such Tax Returns are accurate and complete and in compliance with applicable Tax Law. Each of the Company and each Company Subsidiary has fully and timely paid or caused to be fully and timely paid all material Taxes required to be paid by it (including any Taxes due and payable to the extent required by Company Real Property Leases), other than Taxes that are not yet due and payable or that are being contested in good faith in appropriate proceedings and for which adequate reserves have been established in accordance with GAAP. (b) Except as set forth on Section 4.08(b) of the Company Disclosure Letter, no deficiency for any Tax has been asserted or assessed by a taxing authority against the Company or any Company Subsidiary which deficiency has not been paid or is not being contested in good faith in appropriate proceedings and adequately reserved under GAAP. (c) Each of the Company and each Company Subsidiary has complied in all material respects with applicable Tax Law with respect to the withholding of Taxes. (d) There is not pending or, to the Knowledge of the Company, threatened in writing any audit, examination, claim, or notice of deficiency in respect of any Taxes of the Company or any Company Subsidiary. (e) There are no Liens for Taxes on any of the assets, rights or properties of the Company or any Company Subsidiary other than Company Permitted Liens. (f) None of the Company or any Company Subsidiary has waived any statute of limitations with respect to Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (g) No written claim has been received by the Company or any Company Subsidiary from a Governmental Entity in a jurisdiction where the Company or any Company Subsidiary, as applicable, does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. A-30 (h) Neither the Company nor any Company Subsidiary will be required to include any item of income in, or to exclude any item of deduction from, taxable income for any taxable period (or portion thereof) beginning after the Closing Date as a result of any (A) change in method of accounting or improper method of accounting with respect to a taxable period (or portion thereof) on or prior to the Closing Date; (B) “closing agreement” as described in Section 1721 of the Code (or similar provision of state, local or foreign Law), entered into on or prior to the Closing Date; (C) intercompany transaction or excess loss account described in Treasury Regulations under Section 1502 of the Code (or any similar provision of state, local, or foreign Law); (D) installment sale or open transaction made on or prior to the Closing Date; (E) prepaid amount received or deferred revenue accrued on or prior to the Closing Date; or (F) election under Section 108(i) of the Code. (i) None of the Company or any Company Subsidiary has any liability for Taxes of any Person (other than the Company and the Company Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar provision of local, state or foreign Law), as a transferee or successor, by contract, or otherwise. (j) None of the Company or any Company Subsidiary is a party to or is bound by any Tax sharing, allocation or indemnification agreement or arrangement, other than such an agreement or arrangement (i) solely between or among the Company and the wholly owned Company Subsidiaries or between or among wholly owned Company Subsidiaries or (ii) entered into in the ordinary course of business the primary purpose of which is not related to Taxes. (k) None of the Company or any Company Subsidiary is or has been a member of an affiliated group filing consolidated or combined Tax Returns (other than a group of which the Company is or was the common parent). (l) During any tax period for which the statute of limitations has not expired, none of the Company or any Company Subsidiary has been a “distributing corporation” or a “controlled corporation” in a distribution intended to qualify for tax-free treatment under Section 355 of the Code. (m) None of the Company or any Company Subsidiary has participated in any “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4 (or a similar provision of local, state or foreign Law). (n) The Company and each Company Subsidiary has properly (i) collected and remitted sales, use, value added and similar Taxes with respect to sales made to its customers or services provided to its customers and (ii), for all sales or services that are exempt from sales, use, value added and similar Taxes and that were made without charging or remitting such Taxes, received and retained any appropriate Tax exemption certificates and other documentation qualifying such sale or service as exempt. (o) Neither the Company nor any Company Subsidiary has (i) filed, or has pending, any ruling requests with any taxing authority relating to Taxes, including any request to change any accounting method which is still in effect, or (ii) granted to any Person any power of attorney that is in force with respect to any income Tax matter. (p) To the Knowledge of the Company, as of the date of this Agreement, the net operating losses or other Tax attributes with respect to the Company or any Company Subsidiary are not currently subject to any limitation under Sections 382, 383 or 384 of the Code. (q) Notwithstanding any other representations and warranties in this Agreement, the representations and warranties in Section 4.09 (to the extent expressly related to Taxes) and this Section 4.08 constitute the sole representations and warranties in this Agreement with respect to Tax matters. (a) Section 4.09(a) of the Company Disclosure Letter sets forth a complete list of all material Company Benefit Plans. Copies of the following documents have been made available to Parent with respect to each material Company Benefit Plan, in each case to the extent applicable: (i) the plan document and all amendments thereto (or in the case of an unwritten Company Benefit Plan, a written summary thereof); (ii) the current determination letter or opinion letter from the IRS; (iii) the current summary plan description and any summary of material modifications; (iv) the three (3) most recent annual reports on Form 5500 (and all schedules and exhibits attached thereto) filed with the IRS and U.S. Department of Labor; (v) the three A-31 (3) most recently prepared actuarial reports and financial statements; and (vi) for each material non-U.S. Company Benefit Plan, any applicable documents that are substantially comparable (taking into account differences in applicable Law and practices) to the documents required to be provided in clauses (i) through (v) of this Section 4.09(a). (b) (i) each Company Benefit Plan has been established, operated, invested, funded and administered in accordance, in all material respects, with its terms, any applicable labor, collective bargaining or other agreement with any Union and any applicable Law (including ERISA and the Code) and (ii) to the Knowledge of the Company, neither the Company nor any Company Subsidiary has engaged in any transaction with respect to any Company Benefit Plan that would be reasonably likely to subject any Company Benefit Plan or the Company or any Company Subsidiary to any material Tax or penalty (civil or otherwise) imposed by ERISA, the Code or other applicable Law. (c) Each Company Benefit Plan intended to be qualified under Section 401(a) of the Code and has received or may otherwise reasonably rely upon a favorable determination or opinion letter from the IRS as to its tax-qualification under the Code, and each trust maintained thereunder is exempt from federal income taxation under the provisions of Section 501(a) of the Code, and to the Knowledge of the Company, nothing has occurred since the date of any such determination that could reasonably be expected to adversely affect the qualification of such Company Benefit Plan or its related trust. (d) Other than routine claims for benefits, there are no suits, claims, proceedings, actions or governmental audits or investigations that are pending or, to the Knowledge of the Company, threatened, against or involving any Company Benefit Plan. (e) Neither the Company nor any ERISA Affiliate currently has, or within the six-year period immediately prior to the date of this Agreement, maintained, participated in, contributed to, or had an obligation to contribute to (i) a “defined benefit plan” as defined in Section 3(35) of ERISA, (ii) a Pension Plan, (iii) a “multiple employer welfare arrangement” as defined in Section 3(40) of ERISA or (iv) a “multiemployer plan” as defined in Section 3(37) of ERISA or Section 414(f) of the Code. No liability under Title IV or Section 302 of ERISA has been incurred by the Company or any ERISA Affiliate that has not been satisfied in full, and, to the Knowledge of the Company, no condition exists that would reasonably be expected to present a material risk to the Company or any Company Subsidiary of incurring any such liability. (f) No Company Benefit Plan provides for post-retirement or other post-employment welfare benefits (other than health care continuation coverage (i) as required by Section 4980B of the Code or similar state or local Law or (ii) health care coverage through the end of the calendar month in which a termination of employment occurs). (g) Neither the execution by the Company of this Agreement nor the consummation of the Merger or the other transactions contemplated by this Agreement will (either alone or in combination with a subsequent termination of employment) result in the payment of any amount, that would, individually or in combination with any other payment, constitute an “excess parachute payment,” as defined in Section 280G(b)(1) of the Code. (h) Except as provided for in this Agreement, neither the execution or delivery of this Agreement nor the consummation of the Merger and the other transactions contemplated hereby will (either alone or together with the occurrence of any additional or subsequent events) (i) entitle any current or former employee, director, or individual independent contractor of the Company or any Company Subsidiary to any payment of compensation or benefits from the Company or any Company Subsidiary; (ii) increase the amount of compensation or benefits due to any such individual; or (iii) accelerate the vesting, funding or time of payment of any compensation, equity award or other benefit. (i) All Company Stock Awards were (i) in the case of Company Stock Options, granted with an exercise price per share no lower than the “fair market value” (as defined in the Company Stock Plan) of one share of Company Common Stock on the date of grant, (ii) granted, reported and disclosed in accordance with applicable Laws and stock exchange requirements, and (iii) validly issued and properly approved by the Company Board (or a duly authorized committee or subcommittee thereof) in compliance with all applicable Laws. Without limiting the generality of the preceding sentence, the Company has not A-32 engaged in any back dating, forward dating or similar activities with respect to the Company Stock Awards and has not been the subject of any investigation by the SEC, whether current, pending or closed (in the case of any such pending investigation, to the Knowledge of the Company), with respect to any such activities. (j) Each Company Benefit Plan that is maintained outside of the U.S. primarily for the benefit of any current or former employees, directors, or individual independent contractors of the Company or any Company Subsidiary who are or were regularly employed or providing services outside of the U.S. (i) has been maintained in all material respects in accordance with its terms and applicable Laws, (ii) if intended to qualify for special tax treatment, meets all the requirements for such treatment, and (iii) if required, to any extent, to be funded, book-reserved or secured by an insurance policy, is fully funded, book-reserved or secured by an insurance policy, as applicable, based on reasonable actuarial assumptions in accordance with applicable accounting principles. (k) Notwithstanding any other representations and warranties in this Agreement, the representations and warranties in this Section 4.09 constitute the sole representations and warranties in this Agreement with respect to employee benefits matters of any kind. (a) Section 4.10(a) of the Company Disclosure Letter contains a list, as of September 30, 2020, of all individuals employed by the Company or any Company Subsidiary (including those on a leave of absence or on layoff status) (collectively, “Company Employees”), in alphabetical order (last name first) and sets forth for each such Company Employee the following: (i) name; (ii) title or position (including whether full or part time); (iii) department; (iv) bargaining unit to which they belong, if any; (v) whether regular, temporary or leased; (vi) hire date; (vii) current wages/compensation (e.g., salary, hourly) rate (or if the Company Employee does not have a current employment relationship with the Company or a Company Subsidiary, the Company Employee’s most recent rate); (viii) any and all other compensation and contingent arrangements (including commission, bonus, severance, or other incentive-based compensation); (ix) exempt or non-exempt status, (x) accrued but unused paid time off (including vacation, personal and/or sick days); (xi) whether the individual is active or on a leave of absence or layoff if subject to recall (and if so, the nature and length of the leave or layoff status and expected date of return to work); and (xii) employing entity. Neither the Company nor any Company Subsidiary is delinquent in material payments to any employee or former employee for any services or amounts required to be reimbursed or otherwise paid. The Company and each Company Subsidiary is and has been at all times in material compliance with any and all agreements between the Company or any Company Subsidiary and any employee of the Company or any Company Subsidiary. (b) Neither the Company nor any Company Subsidiary is a party to, nor bound by, any labor or collective bargaining agreement with any Union. (c) The consent or consultation of, or the rendering of formal advice by, any Union is not required for the Company to enter into this Agreement or to consummate any of the transactions contemplated hereby or to terminate or layoff any employees of the Company or any Company Subsidiary in the event any of the transactions contemplated hereby are consummated. (d) Neither the Company nor any Company Subsidiary has, and neither the Company nor any Company Subsidiary has had at any time since January 1, 2017, any duty to bargain with any labor organization. Neither the Company nor any Company Subsidiary is currently negotiating any labor, collective bargaining or other agreement with any Union, and there is not, and has not been, any Union representing or purporting to represent any employee of the Company. No employee or Union is making or has made a demand for recognition or has filed a petition seeking representation with the National Labor Relations Board with respect to employees of the Company or any Company Subsidiary, and, to the Knowledge of Company, no Union, employee or group of employees is seeking or has sought to organize employees of the Company or any Company Subsidiary for the purpose of collective bargaining. The Company has no Knowledge of any facts to suggest that any demand for recognition or effort or attempt to organize employees of the Company or any Company Subsidiary is imminent, likely or expected. A-33 (e) Since January 1, 2017, there has been no actual or, to the Knowledge of the Company, threatened in writing, labor strike, dispute, walkout, work stoppage, picketing, hand billing, slowdown or lockout against the Company or any Company Subsidiary. (f) The Company and each Company Subsidiary is and, at all times has been, in compliance in all material respects with all applicable Laws pertaining to employment, labor relations and employment, wage and hour, workers’ compensation, health and safety, and labor relations practices, collective bargaining and employee benefits. All individuals characterized and treated by the Company or any Company Subsidiary as independent contractors or consultants are properly classified and utilized as independent contractors under all applicable Laws, and are not employees of the Company or a Company Subsidiary, as applicable. All individuals classified and utilized by the Company or any Company Subsidiary as leased employees are properly classified as employees of the applicable leasing company, and are not employees of the Company or a Company Subsidiary, as applicable. (g) Except as listed in Section 4.10(g) of the Company Disclosure Letter, there are no, and there have been no, material grievances, complaints, citations, charges, actions, claims, suits, litigation, arbitrations, mediations, investigations, hearings or other proceedings against the Company or any Company Subsidiary pending, or, to the Knowledge of the Company, threatened to be brought or filed, by or with any court or arbitrator or any other Governmental Entity, or any Orders or settlement agreements, in connection with the employment of any current, former or prospective employee of the Company or any Company Subsidiary. (h) Except as listed in Section 4.10(h) of the Company Disclosure Letter, all employees of the Company or any Company Subsidiary are currently (and all employees, current and previous, of the Company or any Company Subsidiary have at all times since January 1, 2017) properly classified and compensated by the Company or Company Subsidiary in accordance with the Fair Labor Standards Act and state and local wage and hour Laws. (i) The Company and each Company Subsidiary is and has been at all times since January 1, 2017 in compliance with any and all Laws related to mass layoff and plant closings, including the WARN Act, and neither the Company nor any Company Subsidiary has any plans to undertake any action that would trigger any notice or payment or other obligation under the WARN Act. Since January 1, 2020, Company and each Company Subsidiary have not incurred any material liability or obligation under the WARN Act or comparable state or local law. (j) The Company has made available to Parent a complete and accurate list of all employees and former employees of the Company or any Company Subsidiary covered by any employment, severance, change-in-control, or retention agreement and any non-competition, non-solicitation, confidentiality, Intellectual Property Rights or similar agreement with the Company or any Company Subsidiary, and the Company has provided or made available to Parent current and complete forms of each such agreement. (k) To the Knowledge of the Company, no Key Employee is in any material respect in violation of any term of any employment agreement, nondisclosure agreement, common law nondisclosure obligation, fiduciary duty, noncompetition agreement, nonsolicitation agreement, restrictive covenant, Company or Company Subsidiary policy or other obligation to any third party as related to their employment with the Company or Company Subsidiary. To the Knowledge of the Company, no current or former employee or independent contractor of the Company or any Company Subsidiary is in any material respect in violation of any term of any employment agreement, nondisclosure agreement, common law nondisclosure obligation, fiduciary duty, noncompetition agreement, restrictive covenant or other obligation to the Company or Company Subsidiaries. (l) Except as provided in Section 4.10(l) of the Company Disclosure Letter, no Key Employee has notified the Company or otherwise expressed that he/she intends to terminate his/her employment with the Company. (m) To the Knowledge of the Company, since January 1, 2017, no current or former management or executive-level employee of the Company or any Company Subsidiary has engaged in or been alleged to have engaged in any act or conduct that constitutes a Misconduct Claim, and, to the Knowledge of the Company, no such allegation is pending or threatened, or has been investigated, litigated or become the subject of administrative proceedings. Since January 1, 2017, neither the Company nor any Company A-34 Subsidiary has terminated any current or former employee related to any Misconduct Claim, or entered into any settlement or settlement discussions with any Person regarding a Misconduct Claim. The Company and each Company Subsidiary has established and distributed to its employees a policy or policies against harassment and a complaint procedure, and has required all officers, managers and staff employees to undergo anti-harassment training. Section 4.11 Legal Proceedings. Section 4.11 of the Company Disclosure Letter, there is no, and since January 1, 2017 there has been no, suit, action, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, audit, examination, inquiry, investigation or similar proceeding pending or, to the Knowledge of the Company, threatened against the Company or any Company Subsidiary or any of their respective former or current officers, directors or employees or properties (including any properties owned, operated, leased or licensed by the Company or any Company Subsidiary) or assets. Except as set forth in Section 4.11 of the Company Disclosure Letter, there is no suit, action, litigation, arbitration or proceeding (including any civil, criminal, administrative or appellate proceeding) pending or threatened by the Company or any Company Subsidiary against any other Person. There is no, and since January 1, 2017 there has been no, Order against or, to the Knowledge of the Company, threatened or pending by any Governmental Entity involving the Company or any Company Subsidiary or any of their respective former or current officers, directors or employees or properties (including any properties owned, operated, leased or licensed by the Company or any Company Subsidiary) or assets that. For each suit, action, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, audit, examination, inquiry, investigation or similar proceeding required to be set forth on Section 4.11 of the Company Disclosure Letter, to the extent applicable, (i) the name of each party to such suit, action, litigation or arbitration (including the identity of any Governmental Entity party thereto) or the name of each Governmental Entity or regulatory body conducting each such hearing, audit, examination, inquiry or investigation, (ii) the case caption, docket number and a reasonably detailed summary of the underlying claims, allegations and relief sought in connection with such suit, action, litigation, arbitration, proceeding, hearing, audit, examination, inquiry or investigation and (iii) the Governmental Entity before which such suit, action, litigation, arbitration, proceeding, hearing, audit, examination, inquiry or investigation is pending. Except as set forth on Section 4.11 of the Company Disclosure Letter, neither the Company nor any Company Subsidiary is a party to, the subject of or has any obligation under any settlement agreement, consent decree, waiver of rights or similar agreement or arrangement with respect to any suit, action, litigation, arbitration, proceeding, hearing, audit, examination, inquiry, investigation or similar proceeding. Section 4.11 of the Company Disclosure Letter sets forth the amount of any reserve taken by the Company or any or its Subsidiaries with respect to each such suit, action, litigation, arbitration, proceeding, hearing, audit, examination, inquiry, investigation, settlement agreement, consent decree, waiver of rights or similar proceeding, agreement or arrangement. Section 4.12 Compliance with Applicable Laws. At all times since January 1, 2017, the business of the Company and the Company Subsidiaries has been conducted in accordance with all Laws applicable thereto (save and except for applicable U.S. marijuana-related federal laws and laws implicated by the violation of U.S. marijuana-related federal laws) and, to the Knowledge of the Company, none of the Company or any Company Subsidiary, or any of their respective former or current officers, directors or employees, is or has been subject of or been requested to provide information in connection with any hearing, audit, examination, inquiry, investigation, notice, claim, charge or assertion with respect to any alleged failure to comply with any provision of applicable Law or been given any notice of any of the foregoing. At all times since January 1, 2017, (a) the Company and each Company Subsidiary has been in possession of all Permits required by all applicable Laws to be held by it for the operation of the business of the Company and its Subsidiaries or that are necessary to occupy the Company Leased Real Property or for the lawful ownership of its properties and assets and all fees and other amounts due with respect to such Permits have been paid (and a true, correct and complete list of all such Permits is set forth in Section 4.12 of the Company Disclosure Letter), (b) the business of the Company and the Company Subsidiaries have each at all such times maintained and been in compliance in all material respects with all such Permits and (c) all such Permits are in full force and effect and are not limited in duration or subject to conditions. There are no proceedings, actions or claims pending or threatened in writing (or, to the Knowledge of the Company, threatened orally) that would reasonably be expected to result in the termination, revocation, cancellation, suspension or modification of any such Permit. Neither the Company nor any Company Subsidiary has been informed in writing or, to the Knowledge of the Company, orally by any applicable Governmental Entity of any actual or possible violation of any such Permit, or any failure to comply in any A-35 respect with any term or requirement of any such Permit. No event or condition has occurred or exists which would result in a violation of, breach, default or loss of a benefit under, or acceleration of an obligation of the Company or any of the Company Subsidiaries under, or variation, suspension, revocation or non-renewal or non-variation by request of, any Permit (in each case, with or without notice or lapse of time or both). Neither the Company nor any Company Subsidiary has, since January 1, 2017, conducted any internal investigation concerning any alleged violation of any applicable Law by the Company or any Company Subsidiary or any of its or their respective Representatives (regardless of the outcome of such investigation). Section 4.13 Environmental Matters. (a) The Company and the Company Subsidiaries are, and at all times since January 1, 2017, have, in material compliance with all applicable Environmental Laws, which compliance includes, without limitation, possession, and compliance with the terms and conditions, of all Environmental Permits required to own and operate the business and assets of the Company and the Company Subsidiaries; (b) the Company and the Company Subsidiaries, except as would not be reasonably expected to be material, have timely filed applications for, or for renewal of, all such Environmental Permits, and no action or proceeding is pending or, to the Knowledge of the Company, threatened to revoke, modify, suspend or terminate any such Environmental Permit; (c) as of the date of this Agreement, none of the Company or any Company Subsidiary has received any written notice or claim from any Person that alleges that the Company or any Company Subsidiary is in violation of, or has liability or responsibility under, any applicable Environmental Law; (d) as of the date of this Agreement, there are no unresolved legal or administrative proceedings pending (x) alleging that the Company or any Company Subsidiary is liable for response actions to address a Release of a Hazardous Material, or (y) requesting information under the authority of any Environmental Law (including, without limitation, information requests under Section 104 of CERCLA or Section 114 of the Clean Air Act, 42 U.S.C. § 7401, et seq.); (e) to the Knowledge of the Company, there has been no Release of Hazardous Materials, nor are any Hazardous Materials present at any Company Leased Real Property, that would reasonably be expected to result in any responsibility or liability on the part of the Company or any Company Subsidiary; (f) to the Knowledge of the Company, there are no underground storage tanks present at any Company Leased Real Property, and (g) the Company has not assumed or provided indemnity against any liability under any Environmental Law, except with respect to any of the foregoing under (a), (b) or (c) as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. The representations and warranties set forth in this Section 4.13 are the Company’s sole and exclusive representations relating to environmental matters of any kind. (a) As of the date of this Agreement, none of the Company or any Company Subsidiary is a party to any Contract required to be filed by the Company as a “material contract” pursuant to Item 601(b)(10) of Regulation S-K promulgated by the SEC (a “Filed Company Contract”) that has not been so filed. (b) Section 4.14(b) of the Company Disclosure Letter sets forth, as of the date of this Agreement, a true and complete list, and the Company has made available to Parent true and complete copies, of: (i) each Contract to which the Company or any Company Subsidiary is a party that (A) restricts the ability of the Company or any Company Subsidiary (or would, after the Closing, restrict in any material respect the ability of Parent or any Company Subsidiary) to compete in any business or with any Person or in any geographic area, (B) prohibits the Company or any Company Subsidiary from engaging in any business with any Person or levying a fine, charge or other payment for doing so, (C) contains “most favored nation,” “exclusivity” or similar provisions, (D) grants any right of first refusal or right of first offer or similar right or (E) requires the purchase of all of the Company’s or any Company Subsidiary’s requirements for a product or service from a third party; (ii) each Contract (A) relating to Indebtedness of the Company or any Company Subsidiary other than any such agreement solely between or among the Company and the wholly owned Company Subsidiaries or between or among wholly owned Company Subsidiaries or (B) that grants a Lien, other than a Company Permitted Lien, with respect to any material asset or property of the Company or any Company Subsidiary; A-36 (iii) each Contract to which the Company or any Company Subsidiary is a party relating to (A) the formation, creation, operation, management or control of any partnership, joint venture, strategic alliance, collaboration or similar arrangement or (B) the ownership of any equity interest in any Person other than the Company Subsidiaries; (iv) each Contract between the Company or any Company Subsidiary, on the one hand, and, on the other hand, any (A) Key Employee of either the Company or any Company Subsidiary, (B) record or beneficial owner of more than five percent (5%) of the shares of any class of Company Capital Stock outstanding as of the date of this Agreement, or (C) to the Knowledge of the Company, any affiliate of any such Key Employee or owner (other than the Company or any Company Subsidiary); (v) each Contract relating to the disposition or acquisition by the Company or any Company Subsidiary of any Person, business organization, division or business of any Person (including through merger or consolidation or the purchase of a controlling equity interest in or substantially all of the assets of such Person or by any other manner), or of any assets (other than acquisitions or dispositions of assets in the ordinary course of business), in each case, (A) with obligations (contingent or otherwise) remaining to be performed as of September 30, 2020, including any indemnification obligations, purchase price adjustment, any earn-out, backend payment or similar obligation, (B) with liabilities continuing after the date of this Agreement or (C) involving amounts in excess of $150,000; (vi) each Contract containing a grant of license, sublicense or any other right to the Company or any Company Subsidiary of any Company IP (other than Contracts concerning generally commercially available hardware or software pursuant to shrink-wrap, click-through or other standard licensing terms and non-discriminatory pricing terms), including each Contract relating to the Third-Party Data Sources (collectively, “Company Inbound IP Contracts”); (vii) each Contract containing a grant of license, sublicense or any other right by the Company or any Company Subsidiary of any Company IP to any third party (other than as ancillary to the Company’s receipt of services or in conjunction with a sale of products or services to customers in the ordinary course of business) including each Contract relating to the Owned Data Sources (collectively, “Company Outbound IP Contracts” and, together with the Company Inbound IP Contracts, the “Company IP Contracts”). (viii) each Contract to which the Company or any Company Subsidiary is a party that (A) involved payments by the Company or any Company Subsidiary or to the Company or any Company Subsidiary under such Contract of more than $150,000 during calendar year 2019, (B) would reasonably be expected to involve aggregate payments by the Company or any Company Subsidiary or to the Company or any Company Subsidiary under such Contract of more than $150,000 during calendar year 2020 or any subsequent twelve (12)-month period, or (C); requires performance by any party more than one (1) year from the date of this Agreement that, in the case of clauses (B) and (C), are not terminable by the Company or such Company Subsidiary without penalty by providing notice one hundred and eighty (180) days or less prior to termination; (ix) each Contract that is a settlement agreement that imposes obligations on the Company or any Company Subsidiary after the date of this Agreement; (x) each Contract obligating the Company or any of its Subsidiaries to provide indemnification (other than arising out of ordinary course commercial agreements or pursuant to any Contract covered by Section 4.14(b)(v)); (xi) any Contract relating to any loan or other extension of credit made by the Company or any of its Subsidiaries, other than (A) Contracts solely among the Company and its wholly owned Subsidiaries and (B) accounts receivable in the ordinary course of business of the Company and its Subsidiaries (including, in the case of this clause (B), any payment terms for commercial Contracts); (xii) each Contract providing for the development or construction of, or additions or expansions to, any real property, under which the Company or any Company Subsidiary has, or expects to incur, an obligation in excess of $150,000 in the aggregate; A-37 (xiii) any Contract, including any joint venture, product development, research and development or limited partnership agreement, involving a sharing of profits, losses, costs or liabilities by the Company or any Company Subsidiary with any other Person; (xiv) any Contract that would reasonably be expected to involve any individual future payment by the Company or any Company Subsidiary, in excess of $150,000 in any calendar year, in connection with the acquisition of goods, services or supplies; and (xv) any Contract to which the Company or any Company Subsidiary is a party that is with a Governmental Entity (each, a “Company Governmental Contract”). Each Contract described in this Section 4.14(b) and each Filed Company Contract is referred to herein as a “Company Material Contract.” For each Company IP Contract, Section 4.14(b) of the Company Disclosure Letter also sets forth a list of all license fees, rents, royalties or other charges that the Company or any Company Subsidiary is required or obligated to pay under any Company Inbound IP Contract, or that any other Person is required or obligated to pay to the Company or any Company Subsidiary under any Company Outbound IP Contract, and a description of the rights granted to the Company or any Company Subsidiary under each Company Inbound IP Contract and a description of the rights granted by the Company or any Company Subsidiary under each Company Outbound IP Contract. For each Company Inbound IP Contract relating to the use of any third party data or information, Section 4.14(b) of the Company Disclosure Letter also sets forth the volume and/or number of transactions relating to such data or information under such Company Inbound IP Contract. Other than as disclosed in Section 4.14(b) of the Company Disclosure Letter, there are no active or outstanding offers, bids, quotations or proposals to sell products made or services provided by the Company or any Company Subsidiary that, if accepted or awarded, would lead to any Contract or subcontract of the type described by any of the foregoing items in this Section 4.14(b) or that would be required to be filed by the Company as a “material contract” pursuant to Item 601(b)(10) of Regulation S-K promulgated by the SEC. (c) (i) each Company Material Contract is a valid, binding and legally enforceable obligation of the Company or one of the Company Subsidiaries, as the case may be, and, to the Knowledge of the Company, of the other parties thereto, except, in each case, as enforceability may be limited by bankruptcy, insolvency, reorganization or similar Laws affecting creditors’ rights generally and by general principles of equity, (ii) each such Company Material Contract is in full force and effect, and (iii) none of the Company or any of the Company Subsidiaries is (with or without notice or lapse of time, or both) in breach or default under any such Company Material Contract and, to the Knowledge of the Company, no other party to any such Company Material Contract is (with or without notice or lapse of time, or both) in breach or default thereunder, except, in the case of clauses (i) or (ii), with respect to any Company Material Contract which expires by its terms (as in effect as of the date of this Agreement) or which is terminated in accordance with the terms thereof and this Agreement by the Company in the ordinary course of business. Neither the Company nor any Company Subsidiary has received any written notice regarding any actual or possible violation or breach of or default under, or intention to cancel or modify or intention not renew, any Company Material Contract. Except as set forth on Section 4.14(c) of the Company Disclosure Letter, neither the Company nor any Company Subsidiary has any obligation (contingent or otherwise) to pay any amounts in respect of any indemnification obligations, purchase price adjustment, any earn-out, backend payment or similar obligation, in connection with any acquisition or disposition by the Company or any Company Subsidiary. All of the representations and warranties of the Company or any Company Subsidiary set forth in each Contract of the type described in Section 4.14(b)(v) was true and correct as of the dates on which such representations and warranties were made. (a) Neither the Company nor any Company Subsidiary owns or has ever owned any real property. (b) Section 4.15(b) of the Company Disclosure Letter sets forth a true, correct and complete list of all existing leases, subleases and other agreements (the “Company Real Property Leases”) under which the Company or any of its Subsidiaries uses or occupies or has the right to use or occupy, now or in the future, any real property (“Company Leased Real Property”). The Company has made available to Parent true, correct and complete copies of all Company Real Property Leases (including all modifications, amendments, supplements, waivers and side letters thereto). Each Company Real Property Lease is valid, binding and in full force and effect and enforceable against the Company or Company Subsidiary, as applicable, and, to the A-38 Knowledge of the Company, each other party thereto in accordance with its terms, except to the extent such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar Laws nor or hereafter in effect relating to creditors’ rights generally, and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at Law or in equity). Each Company Real Property Lease has sufficient remaining term thereunder (taking into account any available unexercised renewal or extension options for additional term) to allow the Company and the Company Subsidiaries to continue operations without interruption in the normal course of business. None of the Company or any of the Company Subsidiaries is (with or without notice or lapse of time, or both) in breach or default under any Company Real Property Lease in any material respect. (c) None of the Company or any of the Company Subsidiaries is (with or without notice or lapse of time, or both) in breach or default under any Company Real Property Lease in any material respect. To the Knowledge of the Company, no landlord under any Company Real Property Lease is (with or without notice or lapse of time, or both) in breach or default thereunder. Neither of the Company nor any of the Company Subsidiaries has received any notice of default under any Company Real Property Lease which has not been fully cured and corrected. The Company or a Company Subsidiary has a good and valid leasehold interest in the Company Leased Real Property free and clear of all Liens, except for (A) those reflected or reserved against in the balance sheet of the Company as of June 30, 2020 included in the Company Form 10-Q and (B) Company Permitted Liens. Neither the Company nor a Company Subsidiary has subleased, assigned, licensed or permitted the use or occupancy of all or any part of the Company Leased Real Property by any other party. (d) There are no condemnation proceedings pending, or to the Knowledge of the Company, threatened affecting any portion of the Company Leased Real Property. To the Knowledge of the Company, there are (i) no material defaults under any easements, covenants, restrictions or similar matters affecting any portion of the Company Leased Real Property, (ii) no lawsuits or administrative actions or proceedings alleging violations of any Laws by any Company Leased Real Property, and (iii) no actual or threatened special assessments or reassessments of the Company Leased Real Property, and, in each case, neither the Company nor any Company Subsidiary has received any written notice thereof. Neither the Company nor any Company Subsidiary has granted to any Person any option or right of first refusal to purchase or acquire or lease any portion of the Company Leased Real Property. (e) The Company or one of the Company Subsidiaries has legal title to, or a valid and enforceable right to use, all equipment and other tangible personal property that is used or held for use in the operation of the business of the Company or applicable Company Subsidiary in the ordinary course of business, in each case, free and clear of any and all Liens except Company Permitted Liens or Liens that will be released at or before the Effective Time. Such equipment and other tangible personal property is all of the equipment and other tangible personal property that is necessary and sufficient for the operation of the business of the Company or applicable Company Subsidiary in the ordinary course of business as presently conducted or as presently expected to be conducted. All of such equipment and other tangible personal property has been maintained in accordance with normal industry practice, is in good operating condition and repair (normal wear and tear excepted), and is suitable for the purposes for which it presently is used. (a) Section 4.16(a) of the Company Disclosure Letter sets forth a true and complete list of all registrations and applications for Intellectual Property Rights that are owned by the Company or any of its Subsidiaries (“Company Registered IP”), including the applicable (i) jurisdiction of application/registration, (ii) application or registration number, (iii) date of filing or issuance, and (iv) owner. The Company or one of its Subsidiaries is the sole and exclusive owner of all of the Company Registered IP. All required filings and fees related to the Company Registered IP have been timely filed with and paid to the relevant Governmental Entities and authorized registrars, and all Company Registered IP is otherwise in good standing. (b) Section 4.16(b) of the Company Disclosure Letter sets forth a true and complete list of all Company IP that is not Company Registered IP. The Company or a Company Subsidiary exclusively owns or has the right to use all Company IP, free and clear of all Liens (other than Company Permitted Liens). All Company IP is subsisting, enforceable and valid, and has not expired or been canceled or abandoned. A-39 The consummation of the transactions contemplated hereunder will not result in the loss or impairment of or payment of any additional amounts with respect to, nor require the consent of any other Person in respect of, the Company’s or its Subsidiaries’ rights to own, use or hold for use any Intellectual Property Rights as owned, used or held for use in the conduct of the Company’s or its Subsidiaries’ operations. The Company and its Subsidiaries are not bound by, and no Company IP is subject to, any Contract containing any covenant or other provision that limits or restricts, in any material respect, the ability of the Company or its Subsidiaries to use, exploit, assert, or enforce any of the Company IP. The Company and its Subsidiaries will continue to own or have after the Effective Time, valid rights or licenses as are sufficient to use all of the Company IP to the same extent as prior to the Effective Time. The consummation of the transactions contemplated by this Agreement will not result in the loss or impairment of the Company’s rights, or any Company Subsidiary’s rights, in any Company IP and will not result in the breach of, or create on behalf of any third party, the right to terminate or modify any agreement as to which the Company or any Company Subsidiary is a party and pursuant to which the Company or any Company Subsidiary is authorized or licensed to use any third party Intellectual Property Right. (c) Neither the Company IP, nor any products or services of the Company or its Subsidiaries, nor the operation of the business of the Company and its Subsidiaries infringes, misappropriates or otherwise violates, or has formerly infringed, misappropriated, or otherwise violated, any Intellectual Property Rights owned by another Person. There are, and have been formerly, no threats, claims, suits, actions or other proceedings (including any oppositions, interferences, reviews, or re-examinations) settled or pending or, to the Knowledge of the Company, threatened in writing that allege any such infringement, misappropriation or violation or challenging the validity, enforceability, registrability, or ownership of any Company IP. None of the Company IP is subject to any outstanding Order or stipulation restricting or limiting in any material respect the ownership, use or licensing thereof by the Company or any of its Subsidiaries as currently or contemplated to be used or licensed, as applicable. (d) To the Knowledge of the Company, no Person is infringing, misappropriating or otherwise violating any Company IP, and no such claims are pending or threatened in writing against any Person by the Company or any of its Subsidiaries. (e) The Company and its Subsidiaries have taken commercially reasonable steps to maintain and protect, and to provide for the continuity, integrity, and security of, trade secrets and other confidential information of or held by the Company or its Subsidiaries, including requiring all Persons having access thereto to execute written non-disclosure agreements. The Company and its Subsidiaries have entered into written agreements with every current and former employee of the Company and its Subsidiaries, and with every current and former independent contractor, who is or was involved in or has contributed to the invention, creation, or development of any Intellectual Property Rights during the course of employment or engagement with the Company or a Company Subsidiary, whereby such employee or independent contractor (1) acknowledges the Company’s or Subsidiary’s exclusive ownership of all Intellectual Property Rights invented, created, or developed by such employee or independent contractor within the scope of his or her employment or engagement with the Company or Subsidiary; (2) grants to the Company or Subsidiary a present, irrevocable assignment of any ownership interest such employee or independent contractor may have in or to such Intellectual Property Rights, to the extent such Intellectual Property Rights do not constitute a “work made for hire” under applicable Law; and (3) irrevocably waives any right or interest, including any moral rights, regarding any such Intellectual Property Rights, to the extent permitted by applicable Law. (f) The Business Systems of the Company and its Subsidiaries (collectively, “Company Business Systems”) are reasonably sufficient for the immediate and anticipated needs of the business and operations of the Company and its Subsidiaries, including as to capacity, scalability, and ability to process current and anticipated peak volumes in a timely manner. The Company Business Systems are in sufficiently good working condition to perform all information technology operations and include sufficient licensed capacity (whether in terms of authorized sites, units, users, seats or otherwise) for all software, in each case as necessary for the conduct of the business and operations of the Company and its Subsidiaries as currently conducted and as currently contemplated to be conducted. The Company and its Subsidiaries maintain A-40 commercially reasonable back-up and data recovery, disaster recovery and business continuity plans, procedures and facilities, acts in compliance therewith, and tests such plans and procedures on a regular basis, and such plans and procedures have been proven effective in all material respects upon such testing. (g) The Company’s and its Subsidiaries’ data, privacy and security practices comply, and at all times have complied, in all material respects, with applicable Data Protection and Security Requirements. The Company and each Company Subsidiary has provided all notices and obtained all consents required by Data Protection and Security Requirements and satisfied all other requirements under Data Protection and Security Requirements for the Processing of Personal Data and that are necessary for the conduct of business as currently conducted, as proposed to be conducted, and in connection with the consummation of the transaction contemplated hereunder. The transactions to be consummated hereunder as of the Closing Date will comply with all Data Protection and Security Requirements applicable to the Company and its Subsidiaries. (h) The Company and each Company Subsidiary has implemented and at all times has maintained reasonable and appropriate organizational, physical, administrative and technical measures consistent with the state of the art for the industry in which the Company and each Company Subsidiary operates to protect the operation, confidentiality, integrity and security of all of the Company’s and each Company Subsidiary’s confidential and other data and information, in any format, generated or used in the conduct of the business of the Company or any of its Subsidiaries (“Company Business Data”) and the Company Business Systems, against Misuse. Without limiting the generality of the foregoing, the Company and each Subsidiary has implemented a comprehensive written information security program that complies with 45 C.F.R. Part 164, Subpart C and (i) identifies internal and external risks to the security of the Company Business Data or Company Business Systems and (ii) implements, monitors and improves adequate and effective safeguards to control those risks. Neither the Company nor any Company Subsidiary has (nor has any Person acting on the Company’s or any of its Subsidiaries’ behalf) experienced any actual or alleged Security Incident, including, without limitation, any “breach” (as defined in 45 C.F.R. Part 164, Subpart D) of unsecured Protected Health Information or of EU Personal Data. Neither the Company nor any Company Subsidiary has (nor has any Person acting on the Company’s or any of its Subsidiaries’ behalf) notified, and neither the Company nor any Company Subsidiary has experienced any event resulting in any requirement that the Company or any Company Subsidiary notify, any Person or Data Protection Authority of any Security Incident, including any loss or unauthorized access, use or disclosure, of EU Personal Data or of Protected Health Information that would constitute a breach for which notification to individuals, the media, or the HHS is required under 45 C.F.R. Part 164, Subpart D. In addition, neither the Company nor any Company Subsidiary has any material data security, information security or other technological vulnerabilities that could adversely impact the operation of relevant Company Business Systems or cause a Security Incident. The Company Business Systems have not materially malfunctioned or failed within the prior six (6) years, and are free from material bugs and other defects and do not contain any “virus,” “worm,” “spyware” or other malicious software. (i) The Company and each Company Subsidiary has obligated all third party service providers, outsourcers, and processors of confidential information on their behalf and all third parties managing Company Business Systems on their behalf to appropriate contractual terms relating to the Processing of Company Business Data (as applicable and as required by Data Protection and Security Requirements) and information security and have taken reasonable measures to ensure that such third parties have complied with their contractual obligations. Without limiting the generality of the foregoing, the Company and each Company Subsidiary has entered into business associate agreements with vendors and customers in all situations where required by 45 C.F.R. §§ 164.502(e) and 164.504(e) or Article 28 of the GDPR. The Company and each Company Subsidiary has taken reasonable measures to ensure that all third parties acting on its behalf have complied with their contractual obligations. (j) Neither the Company nor any Company Subsidiary has received any notice of any claims, investigations (including investigations by any Governmental Entity, including the HHS Office for Civil Rights and any other Data Protection Authority), for alleged violations of Data Protection and Security Requirements with respect to Personal Data subject to Processing by, or under the control of, Company or any Company Subsidiary, and, to the Knowledge of the Company, there are no facts or circumstances that are likely to form the basis for any such claims, investigations or allegations. A-41 (k) Section 4.16(k) of the Company Disclosure Letter contains a complete and accurate list of all Software (i) that is used by the Company or its Subsidiaries and for which the Company or a Subsidiary is the licensee or which the Company or a Subsidiary has otherwise obtained the right to use other than Off-the-Shelf Software (“Licensed Software”), and (ii) developed by the Company and that is used in the business of the Company and its Subsidiaries (“Company Owned Software”). Section 4.16(k) of the Company Disclosure Letter also sets forth a list of all license fees, rents, royalties or other charges that the Company and its Subsidiaries are required or obligated to pay with respect to the Licensed Software. The Company and its Subsidiaries are in compliance with all provisions of any Contract pursuant to which the Company or a Subsidiary has the right to use the Licensed Software. (l) Section 4.16(l) of the Company Disclosure Letter identifies all Open Source Technology that is or has been used by the Company and its Subsidiaries in the development of or incorporated into, combined with, linked with, distributed with, provided to any Person as a service, provided via a network as a service or application, or otherwise made available with, any Company Owned Software. The Company and its Subsidiaries have not used any Open Source Technology in a manner that requires, or would reasonably be expected to require, the (i) disclosure or distribution of any Company Owned Software in source code form, (ii) license or other provision of any Company Owned Software on a royalty-free basis, or (iii) grant of any license, non-assertion covenant or other rights or immunities under any Company Owned Software or rights to modify, make derivative works based on, decompile, disassemble or reverse engineer any Company Owned Software, including any “copyleft” license. The Company has complied with all notice, attribution and other requirements of each license applicable to the Open Source Technology disclosed in Section 4.16(l) of the Company Disclosure Letter. (m) No Software used in the business or operations of the Company or provision of any Company product or service contain any “time bomb,” “Trojan horse,” “back door,” “worm,” virus, malware, spyware, or other device or code (“Malicious Code”) designed or intended to, or that would reasonably be expected to, (1) disrupt, disable, harm or otherwise impair in any material respect the normal and authorized operation of, or provide unauthorized access to, any computer system, hardware, firmware, network or device on which any such Software is installed, stored or used, or (2) damage, destroy or prevent the access to or use of any data or file without the user’s consent. The Company and its Subsidiaries have taken reasonable steps to prevent the introduction of Malicious Code into Software used in the provision of any Company product or service, or otherwise in the business or operations of the Company and its Subsidiaries. The Company (A) has provided to Parent all of the Open Source Technology and all software containing, relying on, or derived from Open Source Technology, prior to Synopsys’s audit of the same, and (B) have not added or removed any portion of the Open Source Technology, or any portion of software containing, relying on, or derived from Open Source Technology, prior to or after such audit. (n) The Company is in actual possession of and has exclusive control over all source code for all Company Owned Software. The Company possesses all source code and other documentation and materials necessary or useful to compile, maintain and operate all Company Owned Software. Except for application programming interfaces and other interface code that is generally available to customers, the Company and its Subsidiaries have not disclosed, delivered, licensed or otherwise made available, and do not have a duty or obligation (whether present, contingent or otherwise) to disclose, deliver, license or otherwise make available, any source code for any Company Owned Software to any escrow agent or any other Person, other than (i) an employee, independent contractor or consultant of the Company or a Company Subsidiary pursuant to a valid and enforceable written agreement prohibiting use or disclosure except in the performance of services for the Company or its Subsidiaries, or (ii) an independent third-party escrow agent pursuant to a valid and enforceable written source code escrow agreement providing for limited release only upon the occurrence of specified release events, and no such release event has occurred, and no circumstance or condition exists that would reasonably be expected to result in the occurrence of any such release event. Without limiting the foregoing, neither the execution of this Agreement nor the consummation of any of the transactions contemplated by this Agreement will, or would reasonably be expected to, result in the release from escrow or other delivery to any Person of any source code for any Company Owned Software. A-42 (o) The Company has provided a true and complete list of all known bugs, errors and defects and any other problem or issue with respect to any Software included in the Company products and services that materially adversely affect, or would reasonably be expected to materially adversely affect, the value, functionality, or performance of any of the Company products or services. (p) Section 4.16(p) of the Company Disclosure Letter contains a complete and accurate list of material third-party data sources that are accessed, collected, held or used by the Company or any Company Subsidiary, including without limitation those for which the Company or any Company Subsidiary is the licensee or lessee or which the Company or any Company Subsidiary has otherwise obtained the right to use (“Material Data Sources”). The number of dispensary clients from which the Company or one or more Company Subsidiaries obtains data (“Dispensary Data Sources” and together with Material Data Sources, “Third-Party Data Sources”) is set forth in Section 4.16(p) of the Company Disclosure Letter. For the avoidance of doubt, Third-Party Data Sources include those third-party websites, Data Sources, and Business Systems from which the Company or any Company Subsidiary collects data or other content, including by means of web scraping, indexing, mining, harvesting, or other methods of data extraction. Section 4.16(p) of the Company Disclosure Letter also sets forth a list of all license fees, rents, royalties or other charges that the Company or any Company Subsidiary is required or obligated to pay with respect to the Third-Party Data Sources. Except as set forth in Section 4.16(p) of the Company Disclosure Letter, the Company and each Company Subsidiary has rights to access, collect, hold and use data obtained from all Third-Party Data Sources and the Company and each Company Subsidiary is in compliance with all provisions of any Contracts relating thereto. (q) Section 4.16(q) of the Company Disclosure Letter contains a list or description of all material sets or collections of data containing data developed or owned by the Company or any Company Subsidiary and used or held for use in the Company’s or any Company Subsidiary’s business (“Owned Data Sources”). The Company or a Company Subsidiary has all necessary rights to use or is the owner of all right, title and interest in and to each element of the Owned Data Sources including all data, data elements and information contained in such Owned Data Sources. Such Owned Data Sources (and all data, data elements and information contained therein) do not infringe on the rights of any third party. Such Owned Data Sources and Third-Party Data Sources (collectively, the “Company Data Sources”) constitute all material Data Sources collected, held or used in the Company’s or any Company Subsidiary’s business. Except as set forth on Section 4.16(q) of the Company Disclosure Letter, the consummation of the transactions contemplated by this Agreement will not cause a breach under any Contract relating to the Company Data Sources or impair the ability of the Company to use the Company Data Sources in materially the same manner as such Company Data Sources are currently used by the Company. (r) The Company is not infringing, misappropriating, or diluting any Intellectual Property Right or data of any other Person with respect to the Company Data Sources, and, to the Knowledge of the Company, no other Person is infringing any Intellectual Property Right of the Company or any Company Subsidiary with respect to the Company Data Sources. (s) Except as set forth in Section 4.16(s) of the Company Disclosure Letter, the Owned Data Sources are the trade secrets of the Company or a Company Subsidiary except for (i) raw data contained therein that has been provided to the Company or a Company Subsidiary and (ii) raw data that is in the public domain other than by disclosure by the Company or any Company Subsidiary. Section 4.16(s) of the Company Disclosure Letter sets forth a listing of all third parties (other than the employees of the Company or any Company Subsidiary) which have contributed, in any material respect to the processing, hosting, development or creation for or on behalf of the Company or any Company Subsidiary of any Data Sources and a listing of all agreements with the Company or any Company Subsidiary to which they are a party. All Persons that the Company or any Company Subsidiary provides access to, or which the Company or any Company Subsidiary permits to host, any of the Company Data Sources have entered into Contracts with the Company or a Company Subsidiary providing for the confidentiality of such Data Sources and limited the use thereof to uses approved in writing by the Company or a Company Subsidiary, except for limited samples of such Company Data Sources provided in the ordinary course of business. (t) Except as set forth in Section 4.16(t) of the Company Disclosure Letter, the Software, the use of the Software by or on behalf of the Company or any Company Subsidiary and the collection, publication A-43 and use of data included in the Owned Data Sources are now compliant with, and have at all times during the last three (3) years been compliant with, the Contracts, terms of use, terms of service, or the conditions of any web service or web page from which the Company or any Company Subsidiary gathers data or has data gathered on its behalf. (a) Assuming the accuracy of the representation contained in Section 3.22, no further action is required by the Company Board or any committee thereof or the stockholders of the Company to render inapplicable the provisions of Section 203 of the DGCL to the extent, if any, such Section would otherwise be applicable to this Agreement, the Merger or the other transactions contemplated by this Agreement. (b) Assuming the accuracy of the representation contained in Section 3.22, there is no other anti-takeover statute, regulation or similar Law, any takeover-related provision in the Company’s organizational documents, or any stockholder rights plan or similar agreement applicable to Parent, this Agreement or the Merger that would prohibit or restrict the ability of the Company to enter into this Agreement or its ability to consummate the Merger in accordance with the terms of this Agreement. (a) None of the Company, any of its Subsidiaries or any of their respective directors, officers or employees, or, to the Knowledge of the Company, any agent or other third party representative, has, in the course of his actions for, or on behalf of, any of them (i) made any unlawful payment, contribution, gift, entertainment or other unlawful expense relating to political activity, (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee, or (iii) violated any provision of any Anti-Corruption Law. Neither the Company nor any of its Subsidiaries has received any communication that alleges that the Company or any of its Subsidiaries, or any of their respective Representatives, is, or may be, in violation of, or has, or may have, any liability under, any Anti-Corruption Law. The Company and its Subsidiaries have instituted and maintain and will continue to maintain policies and procedures designed to promote and achieve compliance with such laws and the matters referred to in this Section 4.18. (b) None of the Company, any of its Subsidiaries or any of their respective directors, officers or employees, or to the Knowledge of the Company, any agent or other third party representative acting on behalf of the Company or any of its Subsidiaries are, or have been within the past two (2) years, targets of U.S. economic sanctions or trade controls, including but not limited to being identified on the SDN List. Without limitation to the foregoing, neither the Company nor any of its Subsidiaries, nor any of their respective directors, officers, or employees, nor to the Knowledge of the Company, any agent or other third party representative acting on behalf of the Company or any of its Subsidiaries are, or have been within the past two (2) years, conducting any business with any Person, directly or indirectly, identified on the SDN List. (c) The Company and each Company Subsidiary has been and is in material compliance with all applicable export control and sanctions requirements, including compliance with the Office of Foreign Assets Control of the Treasury Department, the Department of Commerce, and the Department of State for the export or re-export of any item, service, industry, product, article, commodity or technical data. (a) The Company has delivered to Parent true, accurate and complete forms of the Company’s and each Company Subsidiary’s customer agreements which contain customary customer warranties with respect to the Company’s products and services and the products and services of the Company Subsidiaries (collectively, “Company Products and Services”). To the Knowledge of the Company, all such Company Products and Services have been in conformity in all material respects with all applicable contractual commitments and all express and implied warranties, and, to the Knowledge of the Company, there are no situations, events, facts or circumstances that would reasonably be expected to give rise to any material liability for replacement or repair thereof or other damages in connection therewith. A-44 (b) Except as set forth in Section 4.19(b) of the Company Disclosure Letter, since January 1, 2017 the Company has not made any other written material warranties (which remain in effect) with regard to its Company Products and Services. To the Knowledge of the Company, there are no inherent design defects or systemic or chronic problems in any Company Products and Services. (c) None of the Company or its Subsidiaries has any material liability arising out of any injury to individuals or property resulting from the ownership, possession, or use of any Company Products and Services. Section 4.20 Suppliers and Customers. Section 4.20 of the Company Disclosure Letter sets forth a complete and accurate list of (a) the top twenty (20) trade vendors/suppliers of the Company and its Subsidiaries, taken as a whole, based on payments made to the applicable trade vendor/supplier by the Company and its Subsidiaries, taken as a whole, for each of (i) the year ended December 31, 2019 and (ii) the six-months ended June 30, 2020 (the “Company Material Suppliers”), (b) the top twenty (20) customers of the Company and its Subsidiaries, taken as a whole, based on revenue provided by the applicable customer to the Company and its Subsidiaries, taken as a whole, for each of (i) the year ended December 31, 2019 and (ii) the six months ended June 30, 2020 (the “Company Material Commercial Customers”) and (c) each Governmental Entity that is a party to a Company Governmental Contract as of the date of this Agreement (together with the Company Material Commercial Customers, the “Company Material Customers”). The relationships of the Company and the Company Subsidiaries with each Company Material Supplier and Company Material Customer are good commercial working relationships, and, since January 1, 2020, no Company Material Supplier or Company Material Customer has canceled or otherwise terminated or not renewed, or to the Knowledge of the Company threatened to, cancel or otherwise terminate or not renew, its relationship with the Company or a Company Subsidiary. Since January 1, 2020, none of the Company or Company Subsidiaries has received any written notice that any Company Material Supplier or Company Material Customer may cancel or not continue its relationship with the Company or Company Subsidiaries or limit its services, supplies or materials to the Company or Company Subsidiaries. Section 4.21 Brokers’ Fees and Expenses. No broker, investment banker, financial advisor or other Person, other than MPI Valuations (the “Company Financial Advisor”), the fees and expenses of which will be paid by the Company, is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with the Merger or any of the other transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. Prior to the date of this Agreement, the Company has provided to Parent true and complete copies (with redactions for total fees, provided that such fees shall be scheduled on Section 4.21 of the Company Disclosure Letter) of all engagement letters and similar or related agreements between the Company and the Company Subsidiaries, on the one hand, and any of the Company Financial Advisors and their Affiliates, on the other hand, pursuant to which the Company Financial Advisors could be entitled to any payment from the Company in connection with the transactions contemplated hereby. Section 4.22 Opinion of Financial Advisor. The Company Board has received the oral opinion of the Company Financial Advisor, to be confirmed in writing, to the effect that, as of the date of this Agreement, and subject to the assumptions, qualification, matters and limitations set forth therein, the Merger Consideration to be received by the holders of Company Common Stock pursuant to this Agreement is fair, from a financial point of view, to the holders of Company Common Stock and such opinion has not been withdrawn or modified. Copies of such opinion will promptly be provided to Parent, solely for informational purposes, following receipt thereof by the Company. Section 4.23 Insurance. Prior to the date hereof, the Company has made available to Parent a true, correct and complete list of all material insurance policies and fidelity bonds for which the Company or any of its Subsidiaries is a policyholder or which covers the business, operations, employees, officers, directors or assets of the Company or any of its Subsidiaries (the “Company Insurance Policies”). The Company and its Subsidiaries maintain insurance coverage with reputable insurers in such amounts and covering such risks as the Company reasonably believes, based on past experience, is adequate for the businesses and operations of the Company and its Subsidiaries (taking into account the cost and availability of such insurance). All Company Insurance Policies (i) are in full force and effect, (ii) are sufficient for compliance by the Company and its Subsidiaries with all Company Material Contracts, and (iii) provide insurance in such amounts and against such risks as the Company reasonably has determined to be prudent, taking into account the industries in which the Company and its subsidiaries operate, and as is sufficient to comply with applicable Law. None of the Company Insurance Policies A-45 will terminate or lapse by its terms by reason of the consummation of the transactions contemplated by this Agreement. There is no claim by the Company or any of its Subsidiaries pending under any of the Company Insurance Policies as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds or in respect of which such underwriters have reserved their rights. (a) Except as set forth in Section 4.24(a) of the Company Disclosure Letter, there have not been, nor are there currently, any transactions, Contracts, arrangements, understandings, undertakings, obligations, liabilities or claims between the Company or any Company Subsidiary, on the one hand, and any Person (i) that is Affiliate of the Company or any Company Subsidiary, (ii) that is a stockholder, member, partner, manager, director, officer or employee of the Company or any Company Subsidiary, (iii) that is a Family Member of any stockholder, member, partner, manager, director, officer or employee of the Company or any Company Subsidiary, or (iv) with respect to which any of the Persons described in clauses (i), (ii) or (iii) of this Section 4.24(a) owns more than ten percent (10%) of the voting equity of such Person (each, a “Company Related Party”), on the other hand (each, a “Company Related Party Transaction”). Any such Company Related Party Transactions were entered into in the ordinary course of business and on commercially reasonable terms and conditions. Any accounts due and payable by the Company or any Company Subsidiary to any Company Related Party are recorded on the Company’s and its Subsidiaries books and records, as the case may be, at their fair market value. (b) No Company Related Party has or has had, directly or indirectly, (i) an economic interest in any Person that purchases from or sells or furnishes to, the Company or any of its Subsidiaries, any goods or services, (ii) a beneficial interest in any Contract to which the Company or any of its Subsidiaries is a party or by which they or their properties or assets are bound or directly or indirectly owns, or otherwise has any right, title or interest in, to or under, any material property or right, tangible or intangible, that is or is currently contemplated to be used by the Company or any of its Subsidiaries, (iii) an ownership interest in any assets or rights of, or used by, the Company or any of its Subsidiaries; provided, however, that ownership of no more than two percent (2%) of the outstanding voting stock of a publicly traded corporation shall not be deemed an “economic interest in any Person” for purposes of this Section 4.24(b) or (iv) is indebted to or, at any time since January 1, 2017, has borrowed money from or lent money to the Company or any of its Subsidiaries. Section 4.25 Accounts Receivable. Each account receivable that has been billed is and each unbilled account receivable will represent (a) valid and existing and represents monies due (or believed in good faith to be due) for goods sold and delivered and services performed in the ordinary course and (b) a legally binding obligation of the account debtor enforceable in accordance with its terms not subject to refunds, discounts (other than trade discounts provided in the ordinary course of business), setoffs, adverse claims, counterclaims, assessments, defaults, prepayments, defenses or conditions precedent, subject to the effect of any Laws relating to bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or preferential transfers, or similar Laws relating to or affecting creditors’ rights generally. Section 4.26 Bank Accounts. Section 4.26 of the Company Disclosure Letter sets forth a true, complete and correct list of each of the bank accounts in the name of the Company and each Company Subsidiary, including the title and number of the account, the individuals with signatory authority over such account and the financial institution at which such account is located. Section 4.27 Exclusivity of Representations or Warranties. Except for the representations and warranties expressly set forth in Article III (which to the extent provided for in this Agreement are subject to the Parent Disclosure Letter) or in any certificate delivered by the Parent or Merger Sub to the Company: (a) Neither the Parent nor any of the Parent Subsidiaries (or any other Person on their behalf) makes, or has made, any representation or warranty (whether express or implied, whether as to accuracy, completeness, fitness or otherwise) relating to the Parent, the Parent Subsidiaries or any of their businesses, operations or otherwise in connection with this Agreement, the Merger, or any information (including any statement, document or agreement delivered pursuant to this Agreement and any financial statements and any projections, estimates or other forward-looking information) provided, furnished or made available (including in any management presentations, information or descriptive memorandum, any “data rooms” maintained by the Parent, supplemental information or other materials or information with respect to any of A-46 the above) or otherwise made available to the Company or any of its Affiliates or Representatives or any other Person, and the Company has not relied on any such representation, warranty or information except only for the representations and warranties expressly set forth in Article III (which to the extent provided for in this Agreement are subject to the Parent Disclosure Letter). (b) No Person has been authorized by Parent, any Parent Subsidiary (including Merger Sub) or any other Person on behalf of Parent or any Parent Subsidiary (including Merger Sub) to make any representation or warranty relating to itself or its business or otherwise in connection with this Agreement and Merger, and if made, such representation or warranty shall not be relied upon by the Company as having been authorized by such Person. COVENANTS RELATING TO CONDUCT OF BUSINESS Section 5.01 Conduct of Business by the Company. Except (i) as expressly set forth in the Company Disclosure Letter; (ii) as expressly permitted or required by this Agreement; (iii) with the prior written consent of Parent; or (iv) as required by applicable Law, from the date of this Agreement to the Effective Time, the Company shall, and shall cause each Company Subsidiary to (x) conduct the business of the Company and each Company Subsidiary in the ordinary course of business, (y) preserve intact its current business organization, keep available the services of its current officers and employees and maintain its relations and goodwill with customers, suppliers, landlords and other Persons having business relationships with the Company and each Company Subsidiary, and (z) comply in all material respects with applicable Laws and the terms of all Company Material Contracts and Company Real Property Leases and maintain in effect and good standing all of its Permits. In addition, and without limiting the generality of the foregoing, except (1) as expressly set forth in the Company Disclosure Letter; (2) as expressly permitted, contemplated or required by this Agreement; (3) with the prior written consent of Parent; or (4) as required by applicable Law from the date of this Agreement to the Effective Time, the Company shall not, and shall not permit any Company Subsidiary to, do any of the following: (a) (i) declare, set aside or pay any dividends on, or make any other distributions (whether in cash, stock or property or any combination thereof) in respect of, any of its capital stock, other equity interests or voting securities, other than (A) dividends and distributions by a direct or indirect wholly owned Company Subsidiary to its parent and (B) dividends or distributions made by any Company Subsidiary that is not wholly owned, directly or indirectly, by the Company or by any joint venture of the Company or any Company Subsidiary, in accordance with the requirements of the organizational documents of such Company Subsidiary or such joint venture; (ii) split, combine, subdivide, recapitalize or reclassify any of its capital stock, other equity interests or voting securities or securities convertible into or exchangeable or exercisable for capital stock or other equity interests or voting securities, or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for its capital stock, other equity interests or voting securities, other than as permitted by Section 5.01(b); or (iii) purchase, redeem, exchange or otherwise acquire, or offer to purchase, redeem, exchange or otherwise acquire, any capital stock or voting securities of, or equity interests in, the Company or any Company Subsidiary or any securities of the Company or any Company Subsidiary convertible into or exchangeable or exercisable for capital stock or voting securities of, or equity interests in, the Company or any Company Subsidiary, or any warrants, calls, options or other rights to acquire any such capital stock, securities or interests, except for acquisitions, or deemed acquisitions, of Company Capital Stock or other equity securities of the Company in connection with (A) the withholding of Taxes in connection with the exercise, vesting and settlement of Company Stock Awards or Company Warrants or the conversion of the RC Convertible Notes, (B) the acquisition by the Company of Company Stock Awards in connection with the forfeiture or expiration of such awards; (b) issue, deliver, sell, grant, pledge or otherwise encumber or subject to any Lien (other than Liens imposed by applicable securities Laws), or authorize any of the foregoing with respect to, (i) any shares of capital stock of the Company or any Company Subsidiary, in each case other than the issuance of Company Common Stock upon the exercise, vesting or settlement of Company Stock Awards or Company Warrants or the conversion of Company Preferred Stock, Company Convertible Notes or the Company Convertible Debenture, in each case, outstanding at the close of business on the date of this Agreement and in accordance with their terms or the terms of the Company Warrants, the Company Preferred Stock Conversion Agreement, the RC Convertible Notes Conversion Agreement, the RD Convertible Notes, or the A-47 Company Convertible Debenture, as applicable, in effect at such time; (ii) any new Company Stock Awards or other equity interests or voting securities of the Company or any Company Subsidiary, other than the issuance of Company Common Stock upon the exercise, vesting or settlement of Company Stock Awards or Company Warrants or the conversion of Company Preferred Stock, Company Convertible Notes or the Company Convertible Debenture, in each case, outstanding at the close of business on the date of this Agreement and in accordance with their terms or the terms of the Company Warrants, the Company Preferred Stock Conversion Agreement, the RC Convertible Notes Conversion Agreement, the RD Convertible Notes, or the Company Convertible Debenture, as applicable, in effect at such time; (iii) any securities convertible into or exchangeable or exercisable for capital stock or voting securities of, or other equity interests in, the Company or any Company Subsidiary; (iv) any warrants, calls, options or other rights to acquire any capital stock or voting securities of, or other equity interests in, the Company or any Company Subsidiary; or (v) any rights issued by the Company or any Company Subsidiary that are linked in any way to the price of any class of capital stock or voting securities of, or other equity interests in, the Company or any Company Subsidiary, the value of the Company, any Company Subsidiary or any part of the Company or any Company Subsidiary or any dividends or other distributions declared or paid on any shares of capital stock of the Company or any Company Subsidiary; (c) amend the Company’s charter or organizational documents or the charter or organizational documents of any Company Subsidiary, except, in each case, as may be required by the rules and regulations of the SEC or the OTCQB; (d) make or adopt any change or election in its accounting methods, principles or practices, except insofar as may be required by a change (whether occurring before or after the date of this Agreement) in GAAP or Law (or interpretations thereof); (e) directly or indirectly acquire or agree to acquire in any transaction any equity interest in or business of any Person or division thereof or any properties or assets, except pursuant to Contracts in existence on the date of this Agreement in accordance with the terms thereof; (f) (i) enter into, terminate or materially amend or modify any Company Material Contract or Company Real Property Lease or Contract that, if in effect on the date hereof, would have been a Company Material Contract or Company Real Property Lease, or (ii) waive any material right, remedy or default under, or release, settle or compromise any material claim by or against the Company or any of its Subsidiaries or material liability or obligation owing to the Company or any of its Subsidiaries under, any Company Material Contract or Company Real Property Lease; (g) incur or authorize any capital expenditure or any obligations or liabilities in respect thereof in excess of $50,000 in the aggregate; except for those contemplated by the capital expenditure budget set forth in the Company Disclosure Letter; (h) except in relation to Liens to secure Indebtedness for borrowed money permitted to be incurred under Section 5.01(i), sell, lease (as lessor), license, mortgage, sell and leaseback or otherwise subject to any Lien (other than Company Permitted Liens), or otherwise dispose of any properties or assets or any interests therein other than (i) pursuant to Company Material Contracts in existence on the date of this Agreement in accordance with their terms; (ii) in an amount not to exceed $100,000 in the aggregate, except that neither the Company nor any Company Subsidiary is permitted to sell, license (as licensor), or otherwise subject to any Lien (other than Company Permitted Liens), or otherwise dispose of, any data collected, held, used, recorded, stored, transmitted or retrieved, by the Company or any Company Subsidiary, other than licensing (as licensor) the use of such data in the ordinary course of business consistent with past practice; or (iii) with respect to transactions between the Company, on the one hand, and any wholly owned Company Subsidiary, on the other hand, or between wholly owned Company Subsidiaries; (i) incur, issue, refinance, assume, suffer to exist, guarantee or become obligated with respect to any Indebtedness or waive any rights of substantial value to the Company or any Company Subsidiary, except for (i) Indebtedness under the Company Factoring Agreement; provided that the amount outstanding under the Company Factoring Agreement at any time does not exceed the amount outstanding as of the date of this Agreement, or (ii) Indebtedness between or among the Company and any wholly owned Company Subsidiary or between or among wholly owned Company Subsidiaries; A-48 (j) except as required by applicable Law or GAAP, (i) write off as uncollectible, or establish any extraordinary reserve with respect to, any account or note receivable or other Indebtedness, (ii) delay, accelerate or cancel any account or note receivable or other Indebtedness, or (iii) sell or assign any account or note receivable or other Indebtedness; (k) other than with respect to customers for payment terms not in excess of sixty (60) days, make, amend, renew, extend or renegotiate any extension of credit or loan to any Person, or enter into any commitment to do any of the foregoing; (l) enter into any labor, collective bargaining or other agreement with any Union or recognize or certify any Union as the bargaining representative for any employee or individual providing services to the Company or any Company Subsidiary; (m) assign, transfer, cancel, fail to renew, fail to extend or terminate any material Permit; (n) settle or compromise, or offer or propose to settle or compromise, any material litigation, investigation, arbitration, proceeding or other claim or dispute, or release, dismiss or otherwise dispose of any claim, liability, obligation or arbitration, other than (i) settlements or compromises of litigation or releases, dismissals or dispositions of claims, liabilities, obligations or arbitration that involve the payment of monetary damages (net of insurance proceeds actually received) in an amount not in excess of the amount set forth on Section 5.01(n) of the Company Disclosure Letter by the Company or any Company Subsidiary and do not involve (A) injunctive or other equitable relief or impose material restrictions on the business or operations of the Company and the Company Subsidiaries, taken as a whole, or (B) any admission of any violation of Law or (ii) claims and litigation with respect to which an insurer (but neither the Company nor any Company Subsidiary) has the right to control the decision to settle; (o) other than as agreed in writing by Parent, (i) increase the compensation or benefits payable or to become payable to any current or former employees, directors or individual independent contractors of the Company or any of its Subsidiaries except, with respect to any employee of the Company or any Company Subsidiary who is not a director or Key Employee, an increase in the ordinary course of business of less than 3% of the compensation or benefits of such employee; (ii) accelerate the time of payment, funding or vesting of any compensation or benefits payable or to become payable to any current or former employees, directors or individual independent contractors of the Company or any of its Subsidiaries; or (iii) terminate or materially amend any Company Benefit Plan or adopt or enter into any plan, agreement or arrangement that would be a Company Benefit Plan if in effect on the date hereof, in each case other than (A) as required by applicable Law, or (B) as required by the terms of any Company Benefit Plan disclosed on Section 4.09(a) of the Company Disclosure Letter; (p) abandon, encumber, convey title (in whole or in part), exclusively license or grant any right or other licenses to Company IP owned by or exclusively licensed to the Company or any Company Subsidiary; (q) fail to (i) keep in force material insurance policies, and (ii) in the event of a termination, cancellation or lapse of any material insurance policies, obtain replacement policies providing insurance coverage with respect to the material assets, operations and activities of the Company and its Subsidiaries as is currently in effect; (r) except for the filing of the 2019 federal tax return as a consolidated entity (which the Company has not done before), make, change or revoke any material election with respect to Taxes, file any amended Tax Return, settle or compromise any material Tax liability, consent to or request any extension or waiver of any limitation period with respect to any material claim or assessment for Taxes, incur any material Tax liability outside of the ordinary course of business (other than as a result of the transactions contemplated by this Agreement), prepare or file any Tax Return in a manner inconsistent in any material respect with past practice, enter into any closing agreement with respect to any material Tax, surrender any right to claim a material Tax refund or fail to pay any material Taxes as they become due and payable (including estimated Taxes); A-49 (s) (i) terminate the employment of any Key Employee of the Company without giving 24 hours advance notice to Parent (and Parent will have the right to consult with the Company officers regarding such termination), or (ii) hire any individual who is intended to be a full-time, exempt employee whose base salary would be in excess of $100,000; (t) adopt or enter into a plan or agreement of complete or partial liquidation, dissolution, merger, consolidation or other reorganization of the Company or any Company Subsidiary (other than the Merger or in accordance with Section 5.04(d)); (u) acquire or enter into any agreement to acquire any real property; or (v) agree to take any of the foregoing actions. Section 5.02 Conduct of Business by Parent. Except as expressly permitted or required by this Agreement, as required by applicable Law, with the prior written consent of the Company or as set forth on Section 5.02 of the Parent Disclosure Letter, from the date of this Agreement to the Effective Time, each of Parent and Merger Sub shall not, and shall cause each of their respective Subsidiaries not to, (a) take any actions or omit to take any actions that would or would be reasonably likely to materially impair, interfere with, hinder or delay the ability of Parent, the Company or Merger Sub to consummate the Merger and the other transactions contemplated by this Agreement in accordance with the terms of this Agreement, or (b) issue any equity securities prior to the Effective Time except (i) in connection with the Parent Reorganization, (ii) in connection with the MOR Offering or (iii) as contemplated by Section 3.03. Section 5.03 No Control. Nothing contained in this Agreement shall give Parent, Merger Sub or any of their respective Affiliates, directly or indirectly, the right to control or direct the Company’s or its Subsidiaries’ operations prior to the Effective Time, and nothing contained in this Agreement shall give the Company, directly or indirectly, the right to control or direct Parent’s or its Subsidiaries’ operations prior to the Effective Time. Prior to the Effective Time, each of the Company, Parent and Merger Sub shall exercise, subject to the terms and conditions of this Agreement, complete control and supervision over its and its Subsidiaries’ respective operations. (a) Except as expressly permitted by Section 5.04(d), the Company shall, and shall cause each of the Company Subsidiaries, and its and their respective officers, directors, managers or employees, and shall instruct its and their respective accountants, consultants, legal counsel, financial advisors, agents and other representatives (collectively, “Representatives”), to: (i) immediately cease any existing solicitations, discussions or negotiations with any Persons that may be ongoing with respect to any inquiry, proposal, discussion, offer or request that constitutes or could reasonably be expected to lead to an Alternative Proposal (an “Inquiry”); (ii) as promptly as reasonably practicable (and in any event within two (2) Business Days) following the date hereof, request the prompt return or destruction (to the extent provided for by the applicable confidentiality agreement) of all confidential information previously furnished to any Person (other than Parent) that has, within the one (1)-year period prior to the date of this Agreement, made or indicated an intention to make an Alternative Proposal; (iii) subject to the other provisions of this Section 5.04, not, and not to publicly announce any intention to, directly or indirectly, (A) solicit, initiate, knowingly encourage or facilitate any Inquiry (it being understood and agreed that answering unsolicited phone calls shall not be deemed to “facilitate” for purposes of, or otherwise constitute a violation of, this Section 5.04(a)), (B) furnish non-public information to or afford access to the business, employees, officers, contracts, properties, assets, books and records of the Company and the Company Subsidiaries to any Person in connection with an Inquiry or an Alternative Proposal, (C) enter into, continue or otherwise participate in any discussions or negotiations with any Person with respect to an Inquiry or an Alternative Proposal, (D) grant any waiver, amendment or release under any standstill provision of any confidentiality or similar agreement to which the Company or any Company Subsidiary is a party, or (E) take any action to exempt any Person (other than Parent and Merger Sub) from the restrictions on “business combinations” contained in any applicable business combination, control share acquisition, fair price, moratorium or other takeover or anti-takeover statute or similar Law; and (iv) until the earlier of the Effective Time or the date, if any, on which this Agreement is terminated pursuant to Section 8.01, subject to the other provisions of this Section 5.04, not, directly or indirectly, (A) approve, agree to, accept, endorse, recommend or submit to a vote of its shareholders any Alternative Proposal, (B) withdraw, qualify or modify, or propose publicly to A-50 withdraw, qualify or modify, in a manner adverse to Parent and Merger Sub, the Company Recommendation, or make any public statement, filing or release inconsistent with the Company Recommendation (including, for the avoidance of doubt, recommending against the Merger or approving, endorsing or recommending any Alternative Proposal), (C) fail to publicly recommend against any Alternative Proposal or fail to publicly reaffirm the Company Recommendation, in each case within five (5) Business Days after Parent so requests in writing, (D) fail to recommend against any Alternative Proposal subject to Regulation 14D under the Exchange Act in a Solicitation/Recommendation Statement on Schedule 14D-9 within ten (10) Business Days after the commencement of such Alternative Proposal, (E) fail to include the recommendation of the Company Board in favor of approval and adoption of this Agreement and the Merger in the Proxy Statement/Prospectus (any of the foregoing clauses (A) through (E) being an “Adverse Recommendation Change”), or (F) enter into any letter of intent or agreement in principle or any agreement providing for any Alternative Proposal or that could reasonably be expected to lead to an Alternative Proposal or that contradicts this Agreement or requires the Company to abandon this Agreement (except for Acceptable Confidentiality Agreements). (b) Notwithstanding anything to the contrary in Section 5.04(a), if the Company or any of its Subsidiaries or any of its or their respective Representatives receives a written Alternative Proposal by any Person or Group at any time prior to the Company Stockholders Meeting that was not solicited in material breach of Section 5.04(a), the Company and its Representatives may, prior to the Company Stockholders Meeting, take the actions set forth in subsections (i) and/or (ii) of this Section 5.04(b) if the Company Board (or any committee thereof) has determined, in its good faith judgment (after consultation with the Company’s financial advisors and outside legal counsel), that such Alternative Proposal constitutes or would reasonably be expected to lead to a Superior Proposal (provided that the Company and its Representatives may contact such Person or Group prior to such conclusion solely to clarify the terms and conditions thereof to determine whether such Alternative Proposal constitutes or would reasonably be expected to lead to a Superior Proposal) and that the failure to take such action would be inconsistent with the directors’ exercise of their fiduciary duties under applicable Law: (i) furnish non-public information to and afford access to the business, employees, officers, contracts, properties, assets, books and records of the Company and the Company Subsidiaries to any Person in response to such Alternative Proposal, pursuant to the prior execution of (and the Company and/or Company Subsidiaries may enter into) an Acceptable Confidentiality Agreement (provided that the Company has previously furnished, made available or provided access to Parent to any such non-public information or substantially concurrently (and in any event within twenty-four (24) hours thereafter) does so); and (ii) enter into and maintain discussions or negotiations with any Person regarding such Alternative Proposal. (c) Reasonably promptly (but in no event more than twenty-four (24) hours) following the Company’s receipt of any Alternative Proposal or any Inquiry or request for non-public information relating to the Company or any Company Subsidiary by any Person who has made or could reasonably be expected to make any Alternative Proposal from and after the date of this Agreement, the Company shall advise Parent in writing of (i) the receipt of such Alternative Proposal, Inquiry or request, (ii) the identity of the Person making any such Alternative Proposal, Inquiry or request, and (iii) the terms and conditions of such Alternative Proposal or potential Alternative Proposal or the nature of the information requested, and the Company shall as reasonably promptly as practicable provide to Parent: (A) a copy of such Alternative Proposal or potential Alternative Proposal, if in writing, or a written summary of the material terms of such Alternative Proposal, if oral, and (B) copies of all written requests, proposals, correspondence or offer, including proposed agreements received by the Company, any of the Company Subsidiaries or any of their respective Representatives. In addition, the Company shall keep Parent reasonably informed on a reasonably current basis, or upon Parent’s reasonable request, (x) of the status and material terms of (including amendments or revisions or proposed amendments or revisions to) each Alternative Proposal or potential Alternative Proposal, and (y) as to the nature of any information requested of the Company or any Company Subsidiary with respect thereto. (d) Notwithstanding anything herein to the contrary, at any time prior to (but not after) the Company Stockholders Meeting, the Company Board may, if the Company has received an Alternative Proposal from any Person or Group that is not withdrawn and the Company Board concludes in good faith constitutes a Superior Proposal (after taking into account the terms of any revised offer by Parent pursuant to this Section 5.04(d)), (i) make an Adverse Recommendation Change, or (ii) terminate this Agreement pursuant to A-51 Section 8.01(d) to enter into a definitive written agreement providing for such Superior Proposal simultaneously with the termination of this Agreement, in each case only if (A) if the Company Board (or any committee thereof) has determined in good faith (after consultation with its financial and outside legal advisors), that the failure to take such action would be inconsistent with the directors’ exercise of their fiduciary duties under applicable Law, (B) the Company Board (or any committee thereof) has determined in good faith (after consultation with its financial and outside legal advisors) that such Alternative Proposal constitutes a Superior Proposal, and (C) the Company has complied in all material respects with this Section 5.04 with respect to such Alternative Proposal; provided, however, that (1) no Adverse Recommendation Change may be made, and (2) no termination of this Agreement pursuant to this Section 5.04(d) and Section 8.01(d) may be effected, in each case until after the fifth Business Day (the “Notice Period”) following Parent’s receipt of a written notice from the Company advising Parent that the Company has received an Alternative Proposal that is not withdrawn and that the Company Board (or any committee thereof) has concluded in good faith constitutes a Superior Proposal and, absent any revision to the terms and conditions of this Agreement, the Company Board intends to make an Adverse Recommendation Change on account of such Alternative Proposal or terminate this Agreement pursuant to this Section 5.04(d) and Section 8.01(d) (a “Notice of Superior Proposal”) and specifying the reasons therefor, including the terms and conditions of any such Superior Proposal (including copies of all relevant documents in the Company’s possession relating to such Superior Proposal) and the identity of the party making the Superior Proposal (in each case to the extent not previously provided by the Company to Parent). During the Notice Period, the Company shall, and shall cause its Representatives to negotiate with Parent and its Representatives in good faith (to the extent Parent desires to negotiate) to make such adjustments in the terms and conditions of this Agreement so that the Alternative Proposal would cease to constitute a Superior Proposal. Any material amendment to the financial terms or any other material amendment of such Superior Proposal shall require a new Notice of Superior Proposal and the Company shall be required to comply again with the requirements of this Section 5.04(d), including the Notice Period (it being understood that the “Notice Period” in respect of such new Notice of Superior Proposal will be three (3) Business Days). In determining whether an Alternative Proposal constitutes a Superior Proposal, the Company Board (or committee thereof) shall take into account any changes to the terms and conditions of this Agreement proposed by Parent in response to a Notice of Superior Proposal. (e) Nothing contained herein shall prevent the Company or the Company Board (or any committee thereof) from issuing a “stop, look and listen” communication pursuant to Rule 14d-9(f) under the Exchange Act or complying with Rule 14d-9 and Rule 14e-2 under the Exchange Act with respect to an Alternative Proposal (it being understood that such a “stop, look and listen” statement by the Company Board to the Company’s stockholders shall not be deemed to be an Adverse Recommendation Change) or from making any disclosure to the Company’s stockholders if the Company Board (or any committee thereof), after consultation with outside legal counsel, concludes that its failure to do so would be inconsistent with the directors’ exercise of their fiduciary duties under applicable Law. For the avoidance of doubt, a factually accurate public statement that describes the Company’s receipt of an Alternative Proposal and the operation of this Agreement with respect thereto shall not be deemed an Adverse Recommendation Change. (f) For purposes of this Agreement: (i) “Alternative Proposal” means any bona fide proposal or offer (whether or not in writing) made by a third party or Group with respect to any (A) merger, consolidation, share exchange, other business combination or similar transaction involving the Company that would result in any Person or Group beneficially owning twenty percent (20%) or more of the outstanding equity interests of the Company or any successor or parent company thereto; (B) sale, contribution or other disposition, directly or indirectly (including by way of merger, consolidation, share exchange, other business combination, partnership, joint venture, asset sale, recapitalization, dividend, distribution, sale of capital stock of or other equity interests in a Company Subsidiary or otherwise), of any business or assets of the Company or the Company Subsidiaries representing 20% or more of the consolidated revenues, net income or assets of the Company and the Company Subsidiaries, taken as a whole; (C) issuance, sale or other disposition, directly or indirectly, to any Person (or the stockholders or other equity holders of any Person) or Group of securities (or options, rights or warrants to purchase, or securities convertible into or exchangeable for, such securities) representing 20% or more of the voting power of the A-52 Company or any Company Subsidiary whose assets constitute 20% or more of the consolidated revenues, net income or assets of the Company and its Subsidiaries, taken as a whole; (D) transaction in which any Person (or the stockholders or other equity holders of any Person) shall acquire, directly or indirectly, beneficial ownership, or the right to acquire beneficial ownership, or formation of any group which beneficially owns or has the right to acquire beneficial ownership of, 20% or more of the equity interests of the Company or securities (or options, rights or warrants to purchase, or securities convertible into or exchangeable for, such securities) representing 20% or more of the voting power of the Company or any of the Company Subsidiaries whose assets constitute 20% or more of the consolidated revenues, net income or assets of the Company and the Company Subsidiaries, taken as a whole; or (E) any combination of the foregoing (in each case, other than the Merger or the other transactions contemplated by this Agreement). (ii) “Superior Proposal” means any Alternative Proposal not made in violation of this Agreement pursuant to which such third party (or, in a parent-to-parent merger involving such third party, the stockholders of such third party) or Group would acquire, directly or indirectly, more than 50% of the equity interests of the Company or assets of the Company and the Company Subsidiaries, taken as a whole, (A) on terms which the Company Board determines in good faith (after consultation with outside counsel and a financial advisor of nationally recognized reputation) to be more favorable from a financial point of view to the holders of Company Common Stock than the Merger, taking into account all the terms and conditions of such proposal (including the identity of the Person making such proposal (including whether stockholder approval of such Person is required) and any break-up fees, expense reimbursement provisions and conditions and timing to consummation) and this Agreement (including any changes proposed by Parent to the terms of this Agreement), and all financial, regulatory, legal (including stockholder litigation) and other aspects of such Alternative Proposal, and for which financing, if a cash transaction (whether in whole or in part), is then fully committed, and any events or circumstances beyond the Company’s control, (B) that is subject to no financing condition,(C) that is made by a Person or Group who the Company Board has reasonably concluded in good faith will have adequate sources of financing to consummate such Superior Proposal, taking into account all financial, regulatory, legal and other aspects of such proposal, and (D) that the Company Board determines in good faith is likely to be consummated in accordance with its terms. (iii) “Acceptable Confidentiality Agreement” means a confidentiality agreement containing terms no less restrictive in the aggregate to the counterparty than the terms set forth in the Confidentiality Agreement (it being understood and hereby agreed that such confidentiality agreement need not contain a “standstill” or similar provision that prohibits the counterparty thereto or any of its Affiliates or Representatives from making any Alternative Proposal, acquiring the Company or taking any other similar action); provided, however, that such confidentiality agreement shall not prohibit compliance by the Company with any of the provisions of this Section 5.04. (g) Any breach of this Section 5.04 by any of the Company Subsidiaries or its or their Representatives shall be deemed to be a breach of this Agreement by the Company. Section 5.05 Third Party Standstill Agreements. During the period from the date hereof through the Effective Time, the Company shall enforce, to the fullest extent permitted under applicable Law, the provisions of any standstill provision of any confidentiality or similar agreement to which the Company or any Company Subsidiary is a party, including, but not limited to, by obtaining injunctions to prevent any breaches of such agreements and to enforce specifically the terms and provisions thereof in any court having jurisdiction. Section 5.06 Takeover Statutes. If any “fair price”, “moratorium”, “control share acquisition” or other form of antitakeover statute or regulation shall become applicable to the transactions contemplated hereby, the Company and the members of the Company Board and Parent and the members of the Parent Board shall grant such approvals and take such actions as are reasonably necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and thereby and otherwise act to eliminate or minimize the effects of such statute or regulation on the transactions contemplated hereby and thereby. A-53 ADDITIONAL AGREEMENTS (a) Preparation of Form S-4 and Proxy Statement/Prospectus. (i) As reasonably promptly as practicable following the date of this Agreement, the Company and Parent shall jointly prepare and Parent shall cause to be filed with the SEC the Form S-4, which will include the Proxy Statement/Prospectus to be sent to the stockholders of the Company relating to the Company Stockholders Meeting and will also constitute a prospectus with respect to the shares of Parent Common Stock issuable to the stockholders of the Company in the Merger. Each of Parent and the Company will use its reasonable best efforts to have the Form S-4 declared effective and the Proxy Statement/Prospectus cleared by the SEC as promptly as practicable after the filing thereof with the SEC and to keep the Form S-4 effective for so long as necessary to consummate the Merger and the other transactions contemplated hereby, and the Company shall use its reasonable best efforts to cause the Proxy Statement/Prospectus to be mailed to the holders of the Company Capital Stock as promptly as practicable after the Form S-4 shall have become effective and the Proxy Statement/Prospectus shall have been cleared by the SEC. Each of the Company and Parent shall furnish all non-privileged information concerning such party as may be reasonably requested by the other party in connection with the preparation, filing and distribution of the Form S-4 and the Proxy Statement/Prospectus. No filing of the Form S-4 will be made by Parent, and no filing of the Proxy Statement/Prospectus will be made by the Company, in each case, without providing the other party with a reasonable opportunity to review and comment thereon. (ii) Parent and Merger Sub undertake that none of the information supplied or to be supplied by or on behalf of them specifically for inclusion or incorporation by reference in the Form S-4 will: (A) at the time the Form S-4 is filed with the SEC, at the time of any amendment or supplement thereto or at the time it (or any post-effective amendment or supplement) becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and (B) at the time it is first mailed to the Company’s stockholders or at the time of the Company Stockholders Meeting contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading. (iii) The Company undertakes that none of the information supplied or to be supplied by or on behalf of it specifically for inclusion or incorporation by reference in the Form S-4 will: (A) at the time the Form S-4 is filed with the SEC, at the time of any amendment or supplement thereto or at the time it (or any post-effective amendment or supplement) becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and (B) at the time it is first mailed to the Company’s stockholders or at the time of the Company Stockholders Meeting contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading. (iv) If at any time prior to the Effective Time, any information should be discovered by the Company or Parent that should be set forth in an amendment or supplement to the Form S-4 or the Proxy Statement/Prospectus, so that any of such documents would not contain any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party that discovers such information shall promptly notify the other parties hereto and each of the parties shall use its reasonable best efforts to cause an appropriate amendment or supplement describing such information to be promptly filed with the SEC and, to the extent required under applicable Law, disseminated to stockholders of the Company; provided, however, that the delivery of such notice and the filing of any such amendment or supplement shall not affect or be deemed to modify any representation or warranty made by any party hereunder or otherwise affect the remedies available hereunder to any party. A-54 (v) The Company and Parent shall each use their reasonable best efforts to cause the Form S-4 and the Proxy Statement/Prospectus will comply as to form in all material respects with the provisions of the Securities Act and the Exchange Act (A) at the times the Form S-4 is filed with the SEC and at the time the Form S-4 becomes effective, (B) at the times the Proxy Statement/Prospectus is mailed to the Company’s stockholders and (C) at the time of the Company Stockholders Meeting, and shall promptly notify each other upon the receipt of any comments, whether oral or written, from the SEC or the staff of the SEC on, or any request from the SEC or the staff of the SEC for amendments or supplements to, the Proxy Statement/Prospectus or the Form S-4, and shall provide each other with copies of all correspondence (and a summary of all substantive oral communications) with the SEC or the staff of the SEC with respect to the S-4 or the Proxy Statement/Prospectus. Each of the Company and Parent shall use its reasonable best efforts to respond as promptly as reasonably practicable to any comments of the SEC or the staff of the SEC with respect to the Proxy Statement/Prospectus or the Form S-4. Each party shall cooperate and provide the other party with a reasonable opportunity to review and comment on any substantive correspondence (including responses to SEC comments) or amendments or supplements to the Proxy Statement/Prospectus or the Form S-4 prior to filing with the SEC, and shall provide to the other a copy of all such filings made with the SEC. (vi) Except for the purpose of disclosing any Adverse Recommendation Change, no amendment or supplement to the Proxy Statement/Prospectus or the Form S-4, nor any response to any comments or inquiry from the SEC with respect to such filings, will be made by the Company or Parent without the approval of the other party, which approval shall not be unreasonably withheld, delayed or conditioned (it being understood that it shall be unreasonable to withhold consent with respect to any amendment or supplement to the Proxy Statement/Prospectus or Form S-4 to the extent such amendment or supplement is required to be included therein so that the Proxy Statement/Prospectus or Form S-4 will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading as may be required by Rule 10b-5 or Rule 14a-9 under the Exchange Act or Section 11 or Section 12 of the Securities Act). (vii) Parent shall also use its reasonable best efforts to take any action (other than qualifying to do business in any jurisdiction in which it is not now so qualified or filing a general consent to service of process) reasonably required to be taken under any applicable state securities or “blue sky” laws in connection with the issuance of shares of Parent Common Stock in the Merger, and the Company shall furnish all information concerning the Company as Parent may reasonably request in connection with any such action. (viii) Each of Parent and the Company, as applicable, will advise the other promptly after it receives oral or written notice of the time when the Form S-4 has become effective or any amendment or supplement thereto has been filed, the issuance of any stop order, or the suspension of the qualification of the Parent Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction. (b) Company Stockholders Meeting. The Company shall, as reasonably promptly as practicable after the later of the date on which the Form S-4 is declared effective under the Securities Act and the date on which the SEC confirms that it has no further comments on the Proxy Statement/Prospectus (such later date, the “SEC Clearance Date”), duly call, give notice of, convene and hold the Company Stockholders Meeting for the purpose of seeking the Company Stockholder Approval. Without the prior written consent of Parent, the foregoing shall be the only matter (other than procedure matters) which the Company shall propose to be acted on by the holders of Company Capital Stock at the Company Stockholders Meeting. In connection with the foregoing, the Company shall (x) file the definitive Proxy Statement/Prospectus with the SEC and cause the definitive Proxy Statement/Prospectus to be mailed to the Company’s stockholders as of the record date established for the Company Stockholders Meeting as promptly as practicable (and in any event within five (5) Business Days) after the SEC Clearance Date; and (y) subject to Section 5.04(d), solicit the Company Stockholder Approval. The Company shall, through the Company Board, (i) recommend to its stockholders that they give the Company Stockholder Approval (the “Company Recommendation”), (ii) include such recommendation in the Proxy Statement/Prospectus, in each case, except to the extent that the Company Board shall have made an Adverse Recommendation Change as permitted by Section 5.04(d) A-55 and (iii) solicit and use its reasonable best efforts to obtain the Company Stockholder Approval. Notwithstanding the foregoing, if on a date preceding the date on which or the date on which the Company Stockholders Meeting is scheduled, the Company reasonably believes that it will not have enough shares of the Company’s capital stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of the Company Stockholders Meeting, the Company may postpone or adjourn, or make one or more successive postponements or adjournments of, the Company Stockholders Meeting for the purpose of obtaining sufficient proxies or constituting a quorum. In addition, the Company may postpone or adjourn the Company Stockholders Meeting (i) with the consent of Parent, (ii) to allow reasonable additional time for the filing or mailing of any supplemental or amended disclosure that the Company has determined in good faith, after consultation with outside legal counsel, is necessary under applicable Law and for such supplemental or amended disclosure to be disseminated and reviewed by stockholders of the Company prior to the Company Stockholders Meeting or (iii) to solicit additional proxies for the purpose of obtaining the Company Stockholder Approval. Once the Company has established the record date for the Company Stockholders Meeting, the Company shall not change such record date or establish a different record date without the prior written consent of Parent (which consent shall not be unreasonably withheld, conditioned or delayed), unless required to do so by applicable Law. In the event that the date of the Company Stockholders Meeting as originally called is for any reason adjourned or postponed or otherwise delayed, the Company agrees that unless Parent shall have otherwise approved in writing, it shall use reasonable best efforts to implement such adjournment or postponement or other delay in such a way that the Company does not establish a new record date for the Company Stockholders Meeting, as so adjourned, postponed or delayed, except as required by applicable Law. Unless this Agreement is validly terminated in accordance with Section 8.01, the Company shall submit the adoption of this Agreement and the approval of the Merger to its stockholder at the Company Stockholders Meeting, even if the Company Board (or a committee thereof) has effected an Adverse Recommendation Change. The Company shall, upon the reasonable request of Parent, provide the aggregate vote tally of the proxies received with respect to the Company Stockholder Approval. The Company shall, as promptly as reasonably practicable (and in no event later than the tenth (10th) Business Day following the date of this Agreement) conduct a “broker search” as contemplated by and in accordance with Rule 14a-13 promulgated under the Exchange Act with respect to the Company Stockholders Meeting (based on a record date that is twenty (20) Business Days following the date on which such broker search is commenced). If at any time the current record date for the Company Stockholders Meeting is not reasonably likely to satisfy the requirements of the Company’s organizational documents and applicable Law, the Company shall, in consultation with Parent, set a new record date and shall continue to comply with the “broker search” requirements of Rule 14a-13 promulgated under the Exchange Act with respect to any such new record date. Section 6.02 Access to Information; Confidentiality. Subject to applicable Law, the Company, its Subsidiaries, the Parent and its subsidiaries will afford to each other party and to its Representatives reasonable access, upon reasonable advance notice, during the period prior to the Effective Time, to all their respective properties, facilities, books, contracts, commitments, personnel (including outside accountants) and records (including Tax Returns) and, during such period, each party and its Subsidiaries shall furnish reasonably promptly to each other Party (a) to the extent not publicly available, a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of federal or state securities laws or commission actions and (b) all other information concerning its business, properties and personnel as another party may reasonably request (in each case, in a manner so as to not interfere in any material respect with the normal business operations of the Company, any Company Subsidiary, the Parent or any Parent Subsidiary), including financial and operating data; provided, however, that the disclosing party shall not be required to permit such access or make such disclosure, to the extent it determines, after consultation with outside counsel, that such disclosure or access would (i) violate the terms of any confidentiality agreement or other Contract with a third party (provided that the disclosing party shall use its commercially reasonable efforts to obtain the required consent of such third party to such access or disclosure); (ii) result in the loss of any attorney-client privilege (provided that the disclosing party shall use its commercially reasonable efforts to allow for such access or disclosure (or as much of it as possible) in a manner that does not result in a loss of attorney-client privilege); or (iii) violate any Law (provided that the disclosing party shall use its commercially reasonable efforts to provide such access or make such disclosure in a manner that does not violate Law). Notwithstanding anything contained herein to the contrary, the disclosing party shall not be required to provide any access or make any disclosure to another party pursuant to this Section 6.02 to the extent such access or A-56 information is reasonably pertinent to a litigation where the Company or any of its Affiliates, on the one hand, and Parent or any of its Affiliates, on the other hand, are adverse parties. All information exchanged pursuant to this Section 6.02 shall be subject to the confidentiality obligations previously agreed (the “Confidentiality Agreement”), and if this Agreement is terminated prior to the Effective Time, the Confidentiality Agreement shall remain in full force and effect in accordance with their respective terms prior to giving effect to the execution of this Agreement. (a) Subject to the terms and conditions of this Agreement, each of the Company, Parent and Merger Sub, shall, and shall cause their respective Subsidiaries to, use their respective reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under this Agreement and applicable Laws to consummate and make effective, as reasonably promptly as practicable, and at or prior to the End Date, the Merger and the other transactions contemplated by this Agreement on the terms and subject to the conditions hereof (provided that in respect of Contracts in existence at the date of this Agreement between the Company or any of the Subsidiaries with any third Person, none of the parties hereto shall be required to make or agree to make any payment or accept any material conditions or obligations unless such payment, condition or obligation is contingent upon the consummation of the Merger). (b) Each of the Company, Parent and Merger Sub shall, and shall cause their respective Subsidiaries, in connection with the actions referenced in Section 6.03(a), to (i) make as reasonably promptly as practicable all necessary applications, notices, petitions, filings, ruling requests, and other documents and to obtain as reasonably promptly as practicable all Permits, consents, approvals, clearances, waivers, orders, registrations, declarations, notices, filings or actions necessary or advisable to be obtained from any Governmental Entity or any other Person required to consummate the Merger and the other transactions contemplated by this Agreement (collectively, the “Required Approvals”); and (ii) as reasonably promptly as practicable take all steps as may be necessary to obtain all such Required Approvals. In connection therewith, each of the Company, Parent and Merger Sub shall, and shall cause their respective Subsidiaries to (w) cooperate in all respects with each other, including promptly providing one another with any information that may be reasonably required in order to prepare and make such filings, applications, notices, petitions, filings, ruling requests or other documents or obtain such Required Approvals; (x) keep the other party and/or its counsel informed of any communication received by such party from, or given by such party to any Governmental Entity or any other Person; (y) consult with each other in advance of any meeting or conference with any Governmental Entity or any other Person, and to the extent permitted by such Governmental Entity or other Person, give the other party and/or its counsel the opportunity to attend and participate in such meetings and conferences; and (z) permit the other party and/or its counsel to review in advance any proposed submission, filing or communication (and documents submitted therewith) intended to be given by it to any Governmental Entity or other Person. (c) Neither Parent nor Merger Sub, nor the Company, shall, nor shall they permit their respective Subsidiaries to, acquire or agree to acquire any rights, assets, business, Person or division thereof (through acquisition, license, joint venture, collaboration or otherwise), if such acquisition would reasonably be expected materially to increase the risk of not obtaining, or the risk of materially impeding or delaying the obtaining of, any Required Approvals with respect to the Merger or the other transactions contemplated by this Agreement. (d) The Company shall give prompt written notice to Parent, and Parent shall give prompt written notice to the Company, of (i) the occurrence, or failure to occur, of any event which occurrence or failure to occur has resulted in or would reasonably be expected to result in the failure to satisfy or be able to satisfy any of the conditions specified in Article VII and such written notice shall specify the condition which has failed or will fail to be satisfied; (ii) any written notice from any Person alleging that the consent of such Person is or may be required in connection with the Merger and the other transactions contemplated by this Agreement to the extent such consent is material to the Company and the Company Subsidiaries, taken as a whole; and (iii) any material written notice from any Governmental Entity in connection with the Merger and the other transactions contemplated by this Agreement; provided that the delivery of any notice pursuant to this Section 6.03(d) shall not limit or otherwise affect the remedies available under this Agreement to Parent or the Company. A-57 (e) Each party will, either prior to or after the Effective Time, execute such further documents, instruments, deeds, bills of sale, assignments and assurances and take such further actions as may reasonably be requested by the other to consummate the Merger to vest the Surviving Corporation with full title to all assets, properties, privileges, rights, approvals, immunities and franchises of the Company or to effect the other purposes of this Agreement. (a) By virtue of the Merger and without any action on the part of the holders thereof, each Company Stock Option, whether vested or unvested, that is outstanding and unexercised as of immediately prior to the Effective Time shall, as of the Effective Time, cease to represent a right to acquire shares of Company Common Stock and shall be converted into an option (a “Parent Stock Option”) to acquire, on the same terms and conditions (including with respect to vesting, exercisability and the ability to pay the exercise price and satisfy applicable tax or other withholding obligations by reduction of the amount of shares otherwise deliverable) as were applicable to such Company Stock Option immediately prior to the Effective Time, the number of shares of Parent Common Stock (rounded, if necessary, down to the nearest whole share) determined by multiplying the number of shares of Company Common Stock subject to such Company Stock Option as of immediately prior to the Effective Time by the Merger Consideration, at an exercise price per share of Parent Common Stock (rounded, if necessary, up to the nearest whole cent) equal to the exercise price per share of Company Common Stock under such Company Stock Option divided by the Merger Consideration; provided, however, that the adjustments provided in this Section 6.04(a) with respect to any Company Stock Options, whether or not they are “incentive stock options” as defined in Section 422 of the Code, are intended to be effected in a manner that is consistent with Section 424(a) of the Code and Section 409A of the Code and the respective regulations promulgated thereunder. (b) Prior to the Effective Time, the Company Board (or the appropriate committee thereof) and the Parent Board (or the appropriate committee thereof) shall take such action and adopt such resolutions as are required to effectuate the treatment of the Company Stock Awards pursuant to the terms of this Section 6.04, including that (i) the Parent Board (or the appropriate committee thereof) shall take all corporate action necessary or advisable to assume and continue the Company Stock Plans subject to any amendment or termination in accordance with the terms of the Company Stock Plans; (ii) the Parent Board (or the appropriate committee thereof) shall take all corporate action necessary or advisable to reserve for issuance a sufficient number of shares of Parent Common Stock for delivery upon the exercise of a Parent Stock Option; and (iii) the Company Board (or the appropriate committee thereof) shall take all corporate action necessary or advisable to ensure that after the Effective Time, neither the Company nor any of its Subsidiaries will be required to deliver Company Common Stock or any other securities to any Person upon the exercise of Company Stock Options. (c) As promptly as reasonably practicable following the Effective Time, Parent shall file a new or amended Form S-8 registration statement or a post-effective amendment to an existing Form S-8 registration statement (or any other appropriate form) with respect to the shares of Parent Common Stock available for grant and delivery under the Company Stock Plan or Parent Stock Plan from and after the Effective Time and shall use its reasonable best efforts to maintain the effectiveness of such registration statement (and maintain the current status of the prospectus contained therein) for so long as such shares of Parent Common Stock are available for grant and delivery under the Company Stock Plans. (d) The provisions of this Section 6.04 are intended to be for the benefit of, and will be enforceable by, any holder of Company Stock Options or his or her heirs and his or her representatives. (a) For a period of six (6) years from and after the Effective Time, the Surviving Corporation shall (and the Parent will cause the Surviving Corporation to) either maintain in effect the current policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by the Company or the Company Subsidiaries or provide substitute policies for the Company and the Company Subsidiaries and its and their respective current and former directors and officers who are currently covered by the directors’ and officers’ and fiduciary liability insurance coverage currently maintained by the Company or the Company Subsidiaries, in either case, with terms (including with respect to coverage, limits, conditions, retentions and amounts) that are substantially equivalent to and in any event not less favorable, in the aggregate, than those A-58 of the Company’s directors’ and officers’ liability insurance and fiduciary liability insurance coverage in effect on the date of this Agreement with respect to claims arising from facts or events that occurred at or before the Effective Time (with insurance carriers having at least the same or better rating as the Company’s current insurance carrier for such insurance policies), except that in no event shall the Surviving Corporation be required to pay with respect to such insurance policies annual premiums in excess of 300% of the annual premium most recently paid by the Company prior to the date of this Agreement, which amount is set forth in Section 6.05(a) of the Company Disclosure Letter (the “Maximum Amount”), and if the Surviving Corporation is unable to obtain the insurance required by this Section 6.05(a) it shall (and the Parent will cause the Surviving Corporation to) obtain a policy with the greatest coverage available for a cost not exceeding the Maximum Amount. In lieu of such insurance, prior to the Closing Date the Company may, subject to Parent’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed), purchase “tail” directors’ and officers’ liability insurance and fiduciary liability insurance for the Company and its current and former directors and officers who are currently covered by the directors’ and officers’ and fiduciary liability insurance coverage currently maintained by the Company, such tail insurance to provide limits not less than the existing coverage and to have other terms not less favorable to the insured persons than the directors’ and officers’ liability insurance and fiduciary liability insurance coverage currently maintained by the Company with respect to claims arising from facts or events that occurred at or before the Effective Time; provided, that, in no event shall the annual cost of any such tail insurance exceed the Maximum Amount; provided, further, that the Company’s procurement of such “tail” policy in accordance with this sentence shall be deemed to satisfy in full the Surviving Corporation’s obligations pursuant to this Section 6.05(a). The Surviving Corporation shall (and the Parent will cause the Surviving Corporation to) maintain such policies in full force and effect in accordance with the terms of this Agreement. (b) For a period of six (6) years from and after the Effective Time (the “Indemnity Period”), Parent agrees that all rights to indemnification, reimbursement, advancement of legal fees and expenses and exculpation from liabilities for acts or omissions occurring at or prior to the Effective Time now existing in favor of the current or former directors or officers of the Company and the Company Subsidiaries as provided in their respective certificates of incorporation or bylaws (or comparable organizational documents) and any indemnification or other similar agreements of the Company or any of the Company Subsidiaries, in each case as in effect on the date of this Agreement and the Closing Date, shall continue in full force and effect in accordance with their terms (it being agreed that after the Closing such rights shall be mandatory rather than permissive, if applicable). Parent shall cause the certificate of incorporation, bylaws or other organizational or governing documents of the Surviving Corporation and its Subsidiaries to contain provisions with respect to indemnification, advancement of expenses and exculpation that are no less favorable to the current or former directors, officers or employees of the Company and the Company Subsidiaries than those set forth in the Company’s Certificate of Incorporation and Bylaws and the Company’s Subsidiaries’ equivalent organizational and governing documents as of the date of this Agreement, which provisions thereafter until the end of the Indemnity Period shall not be amended, repealed or otherwise modified in any manner that would adversely affect the rights thereunder of any current or former directors, officers or employees of the Company and the Company Subsidiaries. Without limiting the foregoing, during the Indemnity Period, the Surviving Corporation agrees that it will indemnify and hold harmless each individual who was prior to or is as of the date of this Agreement, or who becomes prior to the Effective Time, a director or officer of the Company or any of the Company Subsidiaries or who was prior to or is as of the Closing Date, or who thereafter commences prior to the Effective Time, serving at the request of the Company or any of the Company Subsidiaries as a director or officer of another Person (the “Company Indemnified Parties”), against all claims, losses, liabilities, damages, judgments, inquiries, fines and fees, costs and expenses, including reasonable attorneys’ fees and disbursements, incurred in connection with any claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (including with respect to matters existing or occurring at or prior to the Effective Time (including this Agreement and the Merger and the other transactions and actions contemplated by this Agreement)), arising out of or pertaining to the fact that the Company Indemnified Party is or was a director or officer of the Company or any Company Subsidiary or is or was serving at the request of the Company or any Company Subsidiary as a director or officer of another Person prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent permitted under applicable Law; provided, that such indemnification shall be subject to any limitation imposed from time to time under applicable Law. In A-59 the event of any such claim, action, suit or proceeding, (x) each Company Indemnified Party will be entitled to advancement of expenses incurred in the defense of any such claim, action, suit or proceeding from the Surviving Corporation within twenty (20) Business Days of receipt by the Surviving Corporation from the Company Indemnified Party of a request therefor; provided that any Person to whom expenses are advanced provides an undertaking, if and only to the extent required by the DGCL or the Surviving Corporation’s certificate of incorporation or bylaws (or comparable organizational documents) or any such indemnification agreement or similar agreement, to repay such advances if it is ultimately determined by final non-appealable adjudication that such Person is not entitled to indemnification and (y) the Surviving Corporation and such Company Indemnified Party shall cooperate with each other in the defense of any such matter. (c) The provisions of this Section 6.05 (i) shall survive consummation of the Merger, (ii) are intended to be for the benefit of, and will be enforceable by, each indemnified or insured party (including the Company Indemnified Parties), his or her heirs and his or her representatives, and (iii) are in addition to, and not in substitution for, any other rights to indemnification or contribution that any such Person may have by contract or otherwise. Unless required by applicable Law, this Section 6.05 may not be amended, altered or repealed after the Effective Time in such a manner as to adversely affect the rights of any Company Indemnified Parties or any of their successors, assigns or heirs without the prior written consent of the affected Company Indemnified Parties. (d) From and after the Effective Time, Parent shall guarantee the prompt payment of the obligations of the Surviving Corporation and the Company Subsidiaries under this Section 6.05. (e) In the event that the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any Person, then, and in each such case, the Surviving Corporation shall cause proper provision to be made so that the successors and assigns of the Surviving Corporation assume the obligations set forth in this Section 6.05. (f) The provisions of this Section 6.05 are intended to be for the benefit of, and will be enforceable by, any of the current or former directors or officers of the Company and the Company Subsidiaries, his or her heirs and his or her representatives. Section 6.06 Transaction Litigation. From and after the date of this Agreement until the Effective Time, the Company shall (a) promptly notify Parent of any actions, suits, claims, litigations, investigations or proceedings commenced or, to the Company’s knowledge, threatened against the Company or any of its Subsidiaries, Affiliates, directors or officers in connection with, arising from or otherwise relating to the Merger or the other transactions contemplated by this Agreement, (b) keep Parent reasonably informed with respect to the status thereof and (c) give Parent the opportunity to consult with the Company and participate in the defense or settlement of any stockholder litigation against the Company, any Company Subsidiary and/or their respective directors or officers. None of the Company, any Company Subsidiary or any Representative of the Company shall compromise, settle, offer to compromise or settle or come to an arrangement regarding any such stockholder litigation, in each case unless Parent shall have consented in writing, which consent will not be unreasonably withheld. Section 6.07 Section 16 Matters. Prior to the Effective Time, the Company and Merger Sub each shall take all such steps as may be required to cause any dispositions or deemed dispositions of Company Common Stock (including derivative securities with respect to Company Common Stock) resulting from the Merger and the other transactions contemplated by this Agreement by each individual who will be subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to the Company immediately prior to the Effective Time to be exempt under Rule 16b-3 promulgated under the Exchange Act. Section 6.08 Public Announcements. Except with respect to any Adverse Recommendation Change or announcement made with respect to any Alternative Proposal, Superior Proposal or related matters in accordance with Section 5.04 or any dispute between the parties regarding this Agreement or the Merger or the other transactions contemplated by this Agreement, Parent and the Company shall provide an opportunity for the other party to review and comment upon any press release or other public statements with respect to the Merger and the other transactions contemplated by this Agreement, and shall not, and shall cause their respective Affiliates A-60 not to, issue any such press release or make any such public statement prior to providing such opportunity to review and comment, except as such party may reasonably conclude may be required by applicable Law, court process or by obligations pursuant to any listing agreement with any national securities exchange or national securities quotation system. The Company and Parent agree that the initial press release to be issued with respect to the Merger and the other transactions contemplated by this Agreement shall be in the form heretofore agreed to by the parties. Nothing in this Section 6.08 shall limit the ability of any party hereto to make internal announcements to their respective employees that are consistent in all material respects with the prior public disclosures regarding the Merger and the other transactions contemplated by this Agreement. (a) Parent hereby agrees that, for a period of at least six (6) months following the Effective Time (or, if earlier, the date of termination of the applicable Continuing Employee), it shall, or it shall cause the Surviving Corporation to, provide each employee of the Company or any of its Subsidiaries who continues as of the Effective Time to be employed by Parent, the Surviving Corporation or any Subsidiary of Parent (each, a “Continuing Employee”) with compensation and benefits that are substantially comparable in the aggregate to the compensation and benefits (other than severance and equity compensation and other long-term incentives) that were provided to such Continuing Employee immediately prior to the Effective Time. (b) For purposes of eligibility, vesting and benefit accruals (with respect to benefit accruals, solely for the purposes of determining accrual of vacation, paid time off, and severance benefits), under the Parent Benefit Plans providing benefits to any Continuing Employee following the Effective Time, Parent shall, and shall cause the Surviving Corporation to, cause service rendered by each Continuing Employee to the Company prior to the Effective Time to be credited for such purposes to the same extent as such Continuing Employee was entitled, prior to the Effective Time, to credit for such service under any similar Company Benefit Plan; provided, however, that in no event shall Continuing Employees be entitled to service credit to the extent such service credit would result in a duplication of benefits for the same period of service. (c) Parent shall (i) cause each Continuing Employee to be immediately eligible to participate, without any waiting time, in any and all Parent Benefit Plans to the extent coverage under such Parent Benefit Plan replaces coverage under a comparable Company Benefit Plan in which such Continuing Employee participated immediately before the Effective Time; and (ii) for purposes of each Parent Benefit Plan providing medical, dental, pharmaceutical and/or vision benefits to any Continuing Employee from and after the Effective Time, (A) cause all pre-existing condition limitations, exclusions, waiting periods and actively at work requirements of such Parent Benefit Plan to be waived for such Continuing Employee and his or her covered dependents to the extent such pre-existing condition limitations, exclusions, waiting periods or actively at work requirements were waived or satisfied under the comparable Company Benefit Plan and (B) recognize, or cause to be recognized, any eligible expenses incurred by such Continuing Employee and his or her covered dependents under a Company Benefit Plan during the portion of the plan year prior to the Effective Time to be taken into account under such Parent Benefit Plan for purposes of satisfying all deductible, co-insurance, co-payment and maximum out of pocket requirements applicable to such Continuing Employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such Parent Benefit Plan. (d) The parties hereto acknowledge and agree that all provisions contained in this Section 6.09 are included for the sole benefit of the parties hereto, and that nothing in this Section 6.09, whether express or implied, (i) shall create any third party beneficiary or other rights (A) in any other Person, including any employees or former employees of the Company or any Affiliate of the Company, any Continuing Employee, or any dependent or beneficiary thereof, or (B) to continued employment with Parent or any of its Affiliates (including, following the Effective Time, the Surviving Corporation), (ii) shall be treated as an amendment or other modification of any Company Benefit Plan or Parent Benefit Plan, or (iii) shall limit the right of Parent or its Subsidiaries (including, following the Effective Time, the Surviving Corporation) to amend, terminate or otherwise modify any Company Benefit Plan or Parent Benefit Plan in accordance with its terms. A-61 Section 6.10 Merger Sub; Parent Subsidiaries. Parent shall cause each of Merger Sub and any other applicable Subsidiaries of Parent to comply with and perform all of its obligations under or relating to this Agreement, including in the case of Merger Sub to consummate the Merger on the terms and conditions set forth in this Agreement. Section 6.11 Exchange Listing. Prior to the Effective Time, the parties shall take all actions and do all things reasonably necessary to cause the shares of Parent Common Stock to be approved for listing on The NASDAQ Capital Market, subject to official notice of issuance. Section 6.12 Company Preferred Stock. The Company shall use reasonable best efforts to cause all outstanding shares of the Company Preferred Stock to be converted into shares Company Common Stock pursuant to the Company Preferred Stock Conversion Agreement in accordance with its terms. The Company shall pay all reasonable fees and other costs paid to the holders of all such shares of Company Preferred Stock for the conversion of all such shares. Without the prior written consent of Parent, the Company shall not terminate or amend or modify the Company Preferred Stock Conversion Agreement or waive any right, remedy or default under, or release, settle or compromise any claim by or against the Company or any of its Subsidiaries or liability or obligation owing to the Company or any of its Subsidiaries under, the Company Preferred Stock Conversion Agreement. Section 6.13 RC Convertible Notes. The Company shall use reasonable best efforts to cause all outstanding Indebtedness of the Company and its Subsidiaries under the RC Convertible Notes, together with any accrued and unpaid interest thereon and all fees and other obligations owing in connection with the RC Convertible Notes (including any prepayment premiums, penalties, breakage costs, termination payments and similar obligations) to be converted into Company Common Stock pursuant to the RC Convertible Notes Conversion Agreement in accordance with its terms. The Company shall pay all reasonable fees and other costs paid to the holders of all such RC Convertible Notes for the conversion of all such RC Convertible Notes. Without the prior written consent of Parent, the Company shall not terminate or amend or modify the RC Convertible Notes Conversion Agreement or waive any right, remedy or default under, or release, settle or compromise any claim by or against the Company or any of its Subsidiaries or liability or obligation owing to the Company or any of its Subsidiaries under, the RC Convertible Notes Conversion Agreement. Section 6.14 Tax Matters. Each of Parent and the Company (i) shall use its reasonable best efforts to cause the Parent Reorganization and the Merger to together qualify, and shall not take or knowingly fail to take (and shall cause all Subsidiaries or Affiliates of such party not to take or knowingly fail to take) any action that could reasonably be expected to prevent or impede the Parent Reorganization and the Merger from together qualifying, as a transaction described in Section 351(a) of the Code and (ii) shall use its reasonable best efforts to cause the Merger to qualify, and shall not take or knowingly fail to take (and shall cause any Subsidiaries or Affiliates of such party not to take or knowingly fail to take) any action that could reasonably be expected to prevent or impede the Merger from qualifying, as a “reorganization” within the meaning of Section 368(a)(2)(E) of the Code. Section 6.15 MOR Offering Cooperation. From the date hereof and up to the Effective Time, the Company shall, and shall cause each of its Affiliates and its and their Representatives to, provide, in each case in a timely manner, such cooperation and assistance to Parent as may be requested by Parent in connection with the MOR Offering, including, (i) assisting with due diligence activities of any prospective investor in the MOR Offering relating to the Company and any of its Subsidiaries; (ii) furnishing, as promptly as reasonably practicable, such historical financial and other information (including such information that is reasonably necessary for Parent’s preparation of pro forma financial statements) regarding the Company and its Subsidiaries as may be requested by Parent or any prospective investor in connection with the MOR Offering; (iii) causing management of the Company and its Subsidiaries to participate in meetings, presentations, road shows and due diligence sessions involving prospective investor in the MOR Offering; (iv) assisting with the preparation of any offering documents and materials, including prospectuses, private placement memoranda, information memoranda and packages, investor presentations, road show materials and presentations, and similar documents and materials, in connection with the MOR Offering, including furnishing records, data or other information necessary to support any statistical information or claims relating to the Company or the Company Subsidiaries appearing in the aforementioned materials (collectively, the “MOR Offering Materials”); (v) promptly, and in any event no later than three (3) Business Days prior to Closing, provide all documentation and other information required under applicable “know-your-customer” and anti-money laundering rules and regulations relating to the Company or A-62 any of the Company Subsidiaries; and (vi) preparing, executing and delivering such certificates, documents and financial and other information as may be requested by Parent and any prospective investor in the MOR Offering, including customary comfort letters from the Company’s independent accountants. The Company hereby consents to the use of its and the Company Subsidiaries’ names and logos in connection with the MOR Offering; provided that such logos are used solely in a manner that is not intended to or reasonably likely to harm or disparage the Company or any of the Company Subsidiaries or the reputation or goodwill of the Company or any of the Company Subsidiaries. At the request of Parent in connection with the MOR Offering, the Company shall use commercially reasonable efforts to file a Form 8-K with the SEC disclosing information identified by Parent relating to the Company and its Subsidiaries for purposes of permitting such information to be included in the MOR Offering Materials to be provided to potential investors who do not wish to receive material nonpublic information with respect to any of Parent, the Company, any of their respective Subsidiaries or any of their respective securities; provided that in no event shall the Company be required to file a Form 8-K with the SEC to the extent that the Company reasonably objects to such disclosure (including as a result of a determination by the Company that making such disclosure would be detrimental to the business or operations of the Company or any of its Subsidiaries). None of the information supplied or to be supplied by or on behalf of the Company or any of its Subsidiaries specifically for inclusion or incorporation by reference in the MOR Offering Materials will, at the time any of such MOR Offering Materials are provided to prospective investors in the MOR Offering, or at the time of any amendment or supplement to any of the MOR Offering Materials, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (a) As soon as practicable following the date hereof, but in any event no later than twenty (20) Business Days after the Company becomes aware of the opening of the PPP Lender’s portal for loan forgiveness purposes, the Company shall cause the PPP Borrower to file with the PPP Lender a PPP Loan Forgiveness Application and request that the PPP Lender submit such application as practicable to the U.S. Small Business Administration (the “SBA”). The Company will provide, and will cause the PPP Borrower to provide, Parent with the opportunity to review and comment on the PPP Loan Forgiveness Application prior to it being filed with the PPP Lender and will consider in good faith all comments proposed by Parent. (b) From the date hereof until the earlier of (x) the termination of this Agreement and (y) the Closing Date, the Company shall not use any portion of the PPP Loan for any purpose or take any action (including any salary or wage reductions or employee terminations) that would render any portion of the PPP Loan ineligible for forgiveness under the Paycheck Protection Program under the CARES Act. (c) The Company shall provide the Parent with prompt written notice of any notice received by it from any Governmental Entity of any pending or threatened audit, investigation, inquiry, request for information, or other administrative or judicial proceeding relating to the CARES Act, including the PPP Loan (a “PPP Loan Audit”). (d) From the date hereof until the earlier of the termination of this Agreement and the Closing, the Company shall, and shall cause the PPP Borrower to, defend against and/or cooperate with, as determined by the Company in its reasonable judgment after consultation in good faith with Parent, any PPP Loan Audit. (e) Promptly following the date hereof (but in any event prior to the Closing), the Company shall, and shall cause the PPP Borrower to use its best efforts to obtain the consent of the PPP Lender and SBA, in each case, to the extent required under the PPP Loan, CARES Act or applicable guidance from the SBA, in connection with the transactions contemplated by this Agreement, and the Company shall, and shall cause the PPP Borrower to, coordinate and cooperate with Parent in connection with any such consents required in connection with the transactions contemplated by this Agreement. At any time prior to the Closing, with Parent’s prior written consent, the PPP Borrower may pay and satisfy any and all amounts due and outstanding under the PPP Loan and terminate and/or withdraw the PPP Loan Forgiveness Application. In the event that, as of the date that is five (5) Business Days prior to the End Date, the PPP Loan has not been forgiven or satisfied and, to the extent required under the PPP Loan, CARES Act or applicable A-63 guidance from the SBA, consent of the PPP Lender and SBA has not been obtained, Parent may require the Company to cause the PPP Borrower to pay and satisfy any and all amounts due and outstanding under the PPP Loan and terminate and/or withdraw the PPP Loan Forgiveness Application. Section 6.17 Divestiture of Guarding Business. The Company shall, and shall cause the Company Subsidiaries to, as promptly as possible following the date of this Agreement, completely divest the Guarding Business either (i) to the Guarding Business Buyer in accordance with the Guarding Business Purchase Agreement or (ii) without the incurrence of expenses in excess of $65,000, without the incurrence of any other liabilities or obligations on the part of the Company or any Company Subsidiary, and in compliance with all applicable Laws. The Company shall (x) keep Parent reasonably informed with respect to the status of its obligations under this Section 6.17 and (y) give Parent the opportunity to consult with the Company with respect to the Guarding Business and the divestiture thereof and shall consider in good faith all directions, recommendations and comments proposed by Parent. CONDITIONS PRECEDENT Section 7.01 Conditions to Each Party’s Obligation to Effect the Merger. The respective obligations of each party to consummate the Merger are subject to the satisfaction or waiver (to the extent permitted by Law) by the Company and Parent at or prior to the Effective Time of the following conditions: (a) Stockholder Approval. The Company Stockholder Approval shall have been obtained. (b) Form S-4; Blue Sky Laws. The Form S-4 shall have been declared effective by the SEC under the Securities Act and no stop order suspending the effectiveness of the Form S-4 shall have been issued by the SEC and be in effect and no proceedings for that purpose shall have been initiated and be pending. Parent shall have received all state securities or “blue sky” Permits and other authorizations necessary to issue the Parent Common Stock pursuant to this Agreement after the Merger. (c) Exchange Listing. The shares of Parent Common Stock shall have been approved for listing on The NASDAQ Capital Market, subject to official notice of issuance. (d) Parent Reorganization. The Parent Reorganization shall have been completed and be effective. (e) No Legal Restraints. No applicable Law and no Order, preliminary, temporary or permanent, or other legal restraint or prohibition and no action, proceeding, binding order, decree or determination by any Governmental Entity (collectively, the “Legal Restraints”) shall be in effect that prevents, enjoins, makes illegal or prohibits the consummation of the Merger and the other transactions contemplated by this Agreement. (f) Bringdown Certificates. The Parent Bringdown Certificate and the Company Bringdown Certificate shall not reflect a Parent Material Adverse Effect or Company Material Adverse Effect, as applicable. Section 7.02 Conditions to Obligations of the Company. The obligations of the Company to consummate the Merger are further subject to the satisfaction or waiver by the Company at or prior to the Effective Time of the following conditions: (a) Representations and Warranties. (i) The representations and warranties of Parent and Merger Sub contained in this Agreement (except for the representations and warranties contained in Section 3.01, Section 3.02, Section 3.03, Section 3.04, Section 3.05(a)(i), the first sentence of Section 3.07, Section 3.08 and Section 3.20) shall be true and correct (without giving effect to any limitation as to “materiality” or “Parent Material Adverse Effect” set forth therein) at and as of the Closing Date as if made at and as of such date (except to the extent expressly made as of an earlier date, in which case as of such earlier date), except where the failure of such representations and warranties to be true and correct (without giving effect to any limitation as to “materiality” or “Parent Material Adverse Effect” set forth therein), individually or in the aggregate, has not had and would not reasonably be expected to have a Parent Material Adverse Effect, (ii) the representations and warranties of Parent and Merger Sub contained in Section 3.01, Section 3.02, Section 3.03, Section 3.04, Section 3.05(a)(i), the first sentence of Section 3.07, Section 3.08 and Section 3.20 shall be true and correct in all respects at and as of the Closing Date as if made at and as of such date (except to the extent expressly made as of an earlier date, in which case as of such earlier date). A-64 (b) Performance of Obligations of Parent and Merger Sub. Parent and Merger Sub shall have performed in all material respects each obligation required to be performed by them under this Agreement at or prior to the Closing Date. (c) No Parent Material Adverse Effect. Since the date of this Agreement, there shall not have occurred any Parent Material Adverse Effect. (d) Parent Certificate. Parent shall have delivered to the Company a certificate, dated as of the Closing Date and signed by its Chief Executive Officer or Chief Financial Officer, certifying to the effect that the conditions set forth in Section 7.02(a), Section 7.02(b) and Section 7.02(c) have been satisfied. (e) MOR Offering. The MOR Offering shall have closed. Section 7.03 Conditions to Obligations of Parent and Merger Sub. The obligations of Parent and Merger Sub to consummate the Merger are further subject to the satisfaction or waiver by Parent at or prior to the Effective Time of the following conditions: (a) Representations and Warranties. (i) The representations and warranties of the Company contained in this Agreement (except for the representations and warranties contained in Section 4.01, Section 4.02, Section 4.03, Section 4.04, Section 4.05(a)(i), the first sentence of Section 4.07, Section 4.08, Section 4.17 and Section 4.21) shall be true and correct (without giving effect to any limitation as to “materiality” or “Company Material Adverse Effect set forth therein) at and as of the date of this Agreement and the Closing Date as if made at and as of such date (except to the extent expressly made as of an earlier date, in which case as of such earlier date), except where the failure of such representations and warranties to be true and correct (without giving effect to any limitation as to “materiality” or “Company Material Adverse Effect” set forth therein), individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect, (ii) the representations and warranties of the Company contained in Section 4.01, Section 4.02, Section 4.03, Section 4.04, Section 4.05(a)(i), the first sentence of Section 4.07, Section 4.08, Section 4.17 and Section 4.21 shall be true and correct in all respects at and as of the date of this Agreement and the Closing Date as if made at and as of such date (except to the extent expressly made as of an earlier date, in which case as of such earlier date). (b) Performance of Obligations of the Company. The Company shall have performed in all material respects each obligation required to be performed by it under this Agreement at or prior to the Closing Date. (c) No Company Material Adverse Effect. Since the date of this Agreement, there shall not have occurred any Company Material Adverse Effect. (d) Company Certificate. The Company shall have delivered to Parent a certificate, dated as of the Closing Date and signed by its Chief Executive Officer or Chief Financial Officer, certifying to the effect that the conditions set forth in Section 7.03(a), Section 7.03(b) and Section 7.03(c) have been satisfied. (e) MOR Offering. The MOR Offering shall have closed. (f) Required Approvals. Other than the filing of the Certificate of Merger and the Company Stockholders’ Approval, all Required Approvals required of Parent, the Company or any of their respective Subsidiaries to consummate the Merger and the transactions contemplated hereby, including those set forth in Section 7.03(f) of the Company Disclosure Letter, shall have been made or obtained, all in form and substance reasonably satisfactory to Parent. (g) Dissenter’s Rights. Holders of no more than five percent (5%) of the outstanding shares of Company Common Stock (calculated on an as-converted to Company Common Stock basis) shall have exercised, or remain entitled to exercise, statutory rights to appraisal or dissenters rights pursuant to the DGCL with respect to such shares of Company Capital Stock. (h) Repayment of Indebtedness. The Company shall have delivered to Parent written evidence reasonably satisfactory to Parent (i) that it or the applicable Company Subsidiary has provided a notice of repayment to each of the holders of the RD Convertible Notes and the Company Convertible Debenture and the lender under the Company Factoring Agreement; (ii) all outstanding Indebtedness of the Company and its Subsidiaries under the Company Factoring Agreement and the Company Convertible Debenture, in each case, together with any accrued and unpaid interest thereon and all fees and other obligations owing in A-65 connection with the Company Factoring Agreement and the Company Convertible Debenture (including any prepayment premiums, penalties, breakage costs, termination payments and similar obligations) have been satisfied in full; (iii) the Company Convertible Debenture is no longer outstanding; (iv) the Company Factoring Agreement has been terminated; and (v) all Liens in connection with Company Factoring Agreement and Company Convertible Debenture have been released. (i) Conversion of Company Preferred Stock. The Company shall have delivered to Parent written evidence reasonably satisfactory to Parent that all outstanding shares of Company Preferred Stock have been converted into shares of Company Common Stock pursuant to the Company Preferred Stock Conversion Agreement in accordance with its terms and that all of the shares of Company Preferred Stock have been cancelled. (j) Conversion of RC Convertible Notes. The Company shall have delivered to Parent written evidence reasonably satisfactory to Parent that all outstanding Indebtedness of the Company and its Subsidiaries under the RC Convertible Notes has been converted into shares of Company Common Stock pursuant to the Company Convertible Note Conversion Agreement in accordance with its terms and that all of the RC Convertible Notes have been cancelled. (k) Termination of Certain Agreements. The Company shall have delivered to Parent written evidence reasonably satisfactory to Parent that the Agreements set forth on Schedule 7.03(k) have been terminated without any recourse to the Company, any Company Subsidiary, Parent, MOR or any Parent Subsidiary. (l) Resignation of Officers and Directors. The directors and officers of the Company and its Subsidiaries in office immediately prior to the Effective Time will have resigned as directors and officers of the Company and its Subsidiaries in writing as of the Effective Time. (m) Divestiture of Guarding Services Business. The Company and the Company Subsidiaries shall have satisfied their obligations under Section 6.17. TERMINATION, AMENDMENT AND WAIVER Section 8.01 Termination. This Agreement may be terminated at any time prior to the Effective Time (except with respect to Section 8.01(d) and Section 8.01(f), whether before or after receipt of the Company Stockholder Approval): (a) by mutual written consent of the Company and Parent; (b) by either the Company or Parent: (i) if the Merger is not consummated on or before (ii) if the condition set forth in Section 7.01(e) is not satisfied and the Legal Restraint giving rise to such non-satisfaction shall have become final and non-appealable; provided, that, the terminating party shall have complied with its obligations pursuant to Section 6.03; (iii) if the Company Stockholder Approval shall not have been obtained at a duly convened Company Stockholders Meeting or any adjournment or postponement thereof at which the vote was taken on the Merger; or (iv) if all of the conditions to Closing set forth in Section 7.01, Section 7.02 and Section 7.03 have been satisfied or waived (other than (x) those conditions that by their nature are to be satisfied (or waived) at the Closing, which conditions would be reasonably capable of being satisfied at such time and (y) the conditions set forth in Section 7.02(e) and Section 7.03(e)) and Parent is unable to satisfy its obligation to effect the Closing at such time because of a MOR Offering Failure. A-66 (c) by the Company, if Parent or Merger Sub has breached any representation, warranty, covenant or agreement contained in this Agreement, or if any representation or warranty of Parent or Merger Sub has become untrue, in each case, such that the conditions set forth in Section 7.02(a) or Section 7.02(b), as the case may be, could not be satisfied as of the Closing Date; provided, however, that the Company may not terminate this Agreement pursuant to this Section 8.01(c) unless any such breach or failure to be true has not been cured within thirty (30) days after written notice by the Company to Parent informing Parent of such breach or failure to be true, except that no cure period shall be required for a breach which by its nature cannot be cured prior to the End Date; and provided, further, that the Company may not terminate this Agreement pursuant to this Section 8.01(c) if the Company is then in breach of this Agreement in any material respect; (d) by the Company prior to the receipt of the Company Stockholder Approval in order to enter into a definitive written agreement providing for a Superior Proposal in compliance with Section 5.04(d) if the Company has complied in all material respects with Section 5.04 with respect to such Superior Proposal; provided, that, the Company pays the Company Termination Fee prior to or simultaneously with such termination and enters into such definitive written agreement for such Superior Proposal simultaneously with such termination of this Agreement; (e) by Parent, if the Company has breached any representation, warranty, covenant or agreement contained in this Agreement, or if any representation or warranty of the Company has become untrue, in each case, such that the conditions set forth in Section 7.03(a) or Section 7.03(b), as the case may be, could not be satisfied as of the Closing Date; provided, however, that Parent may not terminate this Agreement pursuant to this Section 8.01(e) unless any such breach or failure to be true has not been cured within thirty (30) days after written notice by Parent to the Company informing the Company of such breach or failure to be true, except that no cure period shall be required for a breach which by its nature cannot be cured prior to the End Date; and provided, further, that Parent may not terminate this Agreement pursuant to this Section 8.01(e) if Parent is then in breach of this Agreement in any material respect; (f) by Parent, prior to the Company Stockholders Meeting or, if such meeting is adjourned, the reconvening of such meeting, in the event that an Adverse Recommendation Change shall have occurred; (g) by Parent, if the Company shall have materially breached its obligations under Section 5.04; (h) by Parent, if the condition set forth under Section 7.03(m) has not been satisfied at least fifteen (15) Business Days prior to the End Date; or (i) by Parent, if The Nasdaq Stock Market, LLC informs Parent that the shares of Parent Common Stock are not, or will not be, approved for listing on The NASDAQ Capital Market, whether or not such decision is subject to appeal. Section 8.02 Effect of Termination. In the event of termination of this Agreement by either Parent or the Company as provided in Section 8.01, written notice thereof shall be given to the other party or parties specifying the provisions of Section 8.01 pursuant to which such termination is made, and this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of the Company, Parent or Merger Sub, other than the final sentence of Section 6.02, this Section 8.02, Section 8.03 and Article IX, which provisions shall survive such termination; provided, however, that, except as provided in Section 8.03, no such termination shall relieve any party to this Agreement from any liability or damages for any willful breach of this Agreement (it being acknowledged and agreed by the parties hereto that the failure to close the Merger by any party that was otherwise obligated to do so under the terms of this Agreement shall be deemed to be a willful breach of this Agreement). For purposes of this Agreement, “willful breach” means a breach of, or failure to perform any of the covenants or other agreements contained in, this Agreement, that is a consequence of an act or omission undertaken by the breaching or non-performing party with the Knowledge that the taking of, or failure to take, such act would, or would reasonably be expected to, cause or constitute a material breach of this Agreement; it being acknowledged and agreed, without limitation, that any failure by any party to consummate the Merger and the other transactions contemplated by this Agreement after the applicable conditions thereto have been satisfied or waived (other than those conditions that by their nature are to be satisfied at the Closing, which conditions would be reasonably capable of being satisfied at such time) shall constitute a willful breach of this Agreement. A-67 (a) Except as specifically provided for in this Agreement, all fees and expenses incurred in connection with the Merger and the other transactions contemplated by this Agreement shall be paid by the party incurring such fees or expenses, whether or not such transactions are consummated. (b) The Company shall pay to Parent an amount equal to the greater of (i) $1,365,000 and (ii) the aggregate amount of all costs, fees and expenses incurred by Parent, MOR or any of the Parent Subsidiaries, or for which such any such Person is liable, in connection with the negotiation, preparation and execution of this Agreement, the Form S-4, the Proxy Statement/Prospectus, the MOR Offering Materials or any other document or instrument to be delivered in connection with the transactions contemplated by this Agreement and the consummation of the Merger, the MOR Offering, and the other transactions contemplated by this Agreement, including brokerage fees and commissions, finders’ fees or financial advisory fees, any fees and expenses of counsel or accountants payable by such Person (collectively, “Parent Expenses”) (such greater amount is referred to herein as the “Company Termination Fee”) if: (i) the Company terminates this Agreement pursuant to Section 8.01(d) or Parent terminates this Agreement pursuant to Section 8.01(f) or Section 8.01(g); or (ii) (A) after the date of this Agreement, an Alternative Proposal shall have been made, disclosed, announced, commenced, submitted or made known to the Company, or shall have been made, disclosed or announced directly to the Company’s stockholders generally by a third party; (B) thereafter this Agreement is terminated pursuant to Section 8.01(b)(i), Section 8.01(b)(iii) or Section 8.01(e); and (C) within twelve (12) months of such termination, the Company enters into a definitive Contract with respect to an Alternative Proposal; provided, however, that for purposes of this Section 8.03(b)(ii), the references to 20% in the definition of “Alternative Proposal” shall be deemed to be references to 50%. Any Company Termination Fee due under this Section 8.03(b) shall be paid by wire transfer of same-day funds (x) in the case of clause (i) above, on the Business Day immediately following the date of termination of this Agreement (or simultaneously with such termination, in the case of termination pursuant to Section 8.01(d)) and (y) in the case of clause (ii) above, on the date the definitive Contract referred to in clause (ii)(C) above is entered into. The Company acknowledges and agrees that the agreements contained in this Section 8.03(b) are an integral part of the Merger and the other transactions contemplated by this Agreement, and that, without these agreements, Parent would not enter into this Agreement. Notwithstanding anything to the contrary in this Agreement, the parties agree that the payment of the Company Termination Fee, as liquidated damages and not as a penalty, shall be the sole and exclusive remedy available to Parent, Merger Sub and their respective Affiliates with respect to this Agreement and the Merger and the other transactions contemplated by this Agreement in the event any such payment becomes due and payable, and, upon payment of the Company Termination Fee, the Company (and the Company’s Affiliates and its and their respective directors, officers, employees, stockholders and Representatives) shall have no further liability to Parent, Merger Sub and their respective Affiliates under this Agreement. In no event shall the Company be obligated to pay the Company Termination Fee on more than one occasion. (c) In the event this Agreement is terminated by Parent pursuant to Section 8.01(h), the Company shall reimburse Parent, MOR and the Parent Subsidiaries for all of their respective Parent Expenses (the “Parent Expense Reimbursement Amount” ). The Parent Expense Reimbursement Amount shall be paid by wire transfer of same-day funds promptly (but in any event within five (5) Business Days) after the termination of this Agreement. (d) In the event this Agreement is terminated by either Parent or the Company pursuant to Section 8.01(b)(iv), Parent shall promptly pay or cause to be paid to the Company an amount equal to $500,000 (the “Reverse Termination Fee”). The Reverse Termination Fee shall be paid by wire transfer of same-day funds promptly (but in any event within five (5) Business Days) after the termination of this Agreement. Parent acknowledges and agrees that the agreements contained in this Section 8.03(d) are an integral part of the Merger and the other transactions contemplated by this Agreement, and that, without these agreements, the Company would not enter into this Agreement. Notwithstanding anything to the contrary in this Agreement, the parties agree that the payment of the Reverse Termination Fee, as liquidated damages and not as a penalty, shall be the sole and exclusive remedy available to the Company and its A-68 Affiliates with respect to this Agreement and the Merger and the other transactions contemplated by this Agreement in the event any such payment becomes due and payable, and, upon payment of the Reverse Termination Fee, none of Parent, MOR nor any of their respective Affiliates and nor any of Parent’s, MOR’s or their respective Affiliates’ respective directors, officers, employees, stockholders or Representatives) shall have no further liability to the Company and its Affiliates under this Agreement. In no event shall Parent be obligated to pay the Reverse Termination Fee on more than one occasion. MOR hereby unconditionally guarantees the obligations of Parent contained in this Section 8.03(d). (e) If a party fails to timely pay any amount due under this Section 8.03, such party shall pay the costs and expenses (including legal fees and expenses) in connection with any action, including the filing of any lawsuit or other legal action, taken to collect payment. Section 8.04 Amendment. This Agreement may be amended by the parties at any time before or after receipt of the Company Stockholder Approval; provided, however, that (i) after receipt of the Company Stockholder Approval, there shall be made no amendment that by Law requires further approval by the Company’s stockholders without the further approval of such stockholders, and (ii) except as provided above, no amendment of this Agreement shall be submitted to be approved by the Company’s stockholders unless required by Law. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties. Termination of this Agreement prior to the Effective Time shall not require the approval of the stockholders of either Parent, the Company or any of their Affiliates. Section 8.05 Extension; Waiver. At any time prior to the Effective Time, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other parties; (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement; (c) waive compliance with any covenants and agreements contained in this Agreement; or (d) waive the satisfaction of any of the conditions contained in this Agreement. No extension or waiver by the Company shall require the approval of the Company’s stockholders unless such approval is required by Law. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. GENERAL PROVISIONS Section 9.01 Nonsurvival of Representations, Warranties and Covenants. The representations, warranties, covenants or agreements of any of the parties in this Agreement and in any instrument delivered pursuant to this Agreement shall terminate at the Effective Time, except that any covenants or agreements that by their terms survive or contemplate performance after the Effective Time shall survive the Effective Time in accordance with their respective terms. Section 9.02 Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (a) on the date of delivery if delivered personally; (b) on the date sent if sent by facsimile or electronic mail (provided, however, that notice given by facsimile or email shall not be effective unless either (i) a duplicate copy of such facsimile or email notice is promptly given by one of the other methods described in this Section 9.02 or (ii) the delivering party receives confirmation of receipt of such notice either by facsimile or email or any other method described in this Section 9.02); (c) on the first Business Day following the date of dispatch if delivered utilizing a next-day service by a recognized next-day courier; or (d) on the earlier of confirmed receipt or the fifth Business Day following the date of mailing if delivered by registered or certified mail, return receipt requested, postage prepaid. All notices under this Agreement shall be delivered to the addresses set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice: (a) if to the Company, to: Helix Technologies, Inc. 5300 DTC Parkway, Suite 300 Greenwood Village, CO 80111 Attn: Scott Ogur, CFO Email: sogur@helixtechnologies.com A-69 with a copy (which shall not constitute notice) to: Nelson Mullins Riley & Scarborough LLP 4140 Parklake Avenue, Suite 200 Raleigh, NC 27612 Attn: W. David Mannheim Facsimile: 919-329-3799 Email: david.mannheim@nelsonmullins.com (b) if to Parent, Merger Sub or MOR, to: c/o Medical Outcomes Research Analytics, LLC 41 University Drive, Suite 405 Newtown, PA 18940 Attn: Max Wygod Facsimile: 646-912-9946 Email: mwygod@coranalytics.org with a copy (which shall not constitute notice) to: Duane Morris LLP 30 S 17th Street Philadelphia, PA 19103 Attn: Darrick M. Mix; Peter D. Visalli Facsimile: 215-405-2906; 856-874-4663 Email: DMix@duanemorris.com; PVisalli@duanemorris.com “Affiliate” of any Person means another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person. “Business Day” means any day other than (i) a Saturday or a Sunday or (ii) a day on which banking and savings and loan institutions are authorized or required by Law to be closed in New York City. “Business Systems” means, with respect to a Person, all Software, information technology and computer systems (including the computers, computer software, databases, firmware, middleware, servers, workstations, routers, hubs, switches, interfaces, data communications lines, websites, applications and all other information technology equipment and software, and all associated documentation) used by or on behalf of such Person. “CARES Act” means the Coronavirus Aid, Relief, and Economic Security Act, as amended. “CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601, et seq. “Code” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. “Company Benefit Plan” means any plan, program, arrangement or agreement (including collective bargaining agreements, employment agreements, and independent contractor agreements) whether written or unwritten, that provides or offers pension, 401(k), or other retirement benefits; bonus; commission; deferred compensation; incentive compensation; equity; severance or termination pay; change-in-control payments; retention payments; vacation, sick leave, or other paid time off; hospitalization or other health and welfare benefits (including, but not limited to medical, dental, vision, life, disability insurance); Code Section 125 “cafeteria” or “flexible” benefit features; or fringe benefits (i) which is sponsored or maintained by the Company or any of its Subsidiaries for the benefit of any current or former employees, directors, or individual independent contractors of the Company or any Company Subsidiary or (ii) with respect to which the Company or any Company Subsidiary has any actual or potential material liability. “Company Convertible Debenture” means that certain Senior Secured Convertible Debenture, originally by and between Quinsam Capital Corporation and Green Tree International, Inc., dated July 25, 2018, as amended by Amendment No. 1 thereto dated July 19, 2019. A-70 “Company Convertible Notes” means, collectively, the RC Convertible Notes and RD Convertible Notes. “Company Factoring Agreement” means that certain Agreement for the Purchase and Sale of Future Receipts dated as of February 7, 2020, by and among the Company, Bio-Tech Medical Software, Inc. and Advantage Platform Services Inc., as amended. “Company IP” shall mean any Intellectual Property Right used or held for use in the business as currently conducted by the Company and its Subsidiaries “Company Material Adverse Effect” means any fact, circumstance, occurrence, effect, event or development or change that, individually or in the aggregate, (A) has a material adverse effect on the business, assets, liabilities, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole, or (B) prevents or materially impairs, interferes with, or hinders or delays the consummation of the Merger or the other transactions contemplated by this Agreement; provided, however, that, solely with respect to clause (A) of the foregoing, any fact, circumstance, occurrence, effect, change, event or development arising from or related to the following shall not be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur (except, in the case of clauses (i), (ii), (iii), (iv) or (v) below, to the extent disproportionately affecting the Company and its Subsidiaries relative to other participants in the industries in which the Company and its Subsidiaries operate, in which case only the incremental disproportionate effect shall be taken into account): (i) change, event or development arising from or related to conditions affecting the U.S. economy, the financial, credit, banking or securities markets in the U.S. (including any decline in the price of any security or any market index) or any change in prevailing interest rates, political conditions or the markets in which such Person operates; (ii) acts of war, sabotage, terrorism, military actions or the escalation thereof; (iii) provided that this clause (iii) shall not apply to Section 4.07 and Section 7.03, natural disasters, acts of God, epidemics or pandemics occurring after the date of this Agreement; (iv) changes required by GAAP or other accounting standards (or interpretations thereof); (v) changes in any Laws (or interpretations thereof); (vi) any failure by the Company to meet any internal or published projections, forecasts or revenue or earnings predictions for any period ending on or after the date of this Agreement (provided that the underlying causes of any such failure or decline may be considered in determining whether a Company Material Adverse Effect has occurred to the extent not otherwise excluded by another exception herein); (vii) stockholder litigation arising from or relating to this Agreement, the Merger or any strategic alternatives considered by the Company; or (viii) any action required to be taken by the express terms of this Agreement, shall not be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur. “Company Permitted Liens” means, collectively, (i) suppliers’, mechanics’, cashiers’, workers’, carriers’, workmen’s, legal hypothecs’, repairmen’s, materialmen’s, warehousemen’s, construction and other similar Liens arising or incurred by operation of law or otherwise incurred in the ordinary course of business, provided that the amounts giving rise to such Liens are not due and payable or are being contested in good faith by appropriate legal proceedings; (ii) Liens for Taxes, utilities and other governmental charges that are not due and payable or which are being contested in good faith by appropriate proceedings and for which adequate accruals or reserves under GAAP have been established on the Company’s consolidated balance sheet as of June 30, 2020; (iii) Liens imposed or promulgated by Law or any Governmental Entity, including requirements and restrictions of zoning, permit, license, building and other applicable Laws and municipal bylaws, and development, site plan, subdivision or other agreements with municipalities; (iv) licenses or other grants of rights in Intellectual Property Rights; (v) statutory or other Liens of landlords for amounts not due and payable or which are being contested in good faith by appropriate proceedings; (vi) deposits made in the ordinary course of business to secure (A) payments of worker’s compensation, unemployment insurance or other types of social security benefits or (B) the performance of bids, tenders, sales, contracts (other than for the repayment of borrowed money), public or statutory obligations, and surety, stay, appeal, customs or performance bonds, or similar obligations arising in each case in the ordinary course of business; (vii) Liens in favor of customs and revenue authorities arising as a matter of law and in the ordinary course of business to secure payment of customs duties in connection with the importation of goods; (viii) Liens resulting from securities Laws; (ix) Liens incurred in the ordinary course of business in connection with any purchase money security interests, mortgage debt, the Company Factoring Agreement, equipment leases, similar financing arrangements or other Indebtedness described in Schedule B.1 of the Company Disclosure Letter with respect to Company property; (x) the reservations, limitations, rights, provisos and conditions, if any, expressed in any grant or permit from any Governmental Entity or any similar A-71 authority including those reserved to or vested in any Governmental Entity; (xi) the rights of first offer or refusal, rights to purchase, and similar rights and options described in Schedule B.2 of the Company Disclosure Letter with respect to Company property; (xii) liens described in, set forth in or created by any Company Material Contracts or other service contracts, management agreements, leasing commission agreements, or Company Real Property Leases; (xiii) easements, rights of way, zoning ordinances and other similar encumbrances affecting the Company Leased Real Property; and (xiv) Liens created by Parent, Merger Sub or any of their respective Affiliates. “Company Stock Award” means any equity or equity-based award (including Company Stock Options) granted pursuant to the Company Stock Plans or otherwise. “Company Stock Plans” means, collectively, the Helix TCS, Inc. 2017 Omnibus Stock Incentive Plan, as amended and the Bio-Tech Medical Software, Inc. 2014 Stock Incentive Plan, as amended. “Company Subsidiary” means any Subsidiary of the Company. “Contract” means any written or oral contract, lease, license, indenture, note, bond, agreement, understanding, undertaking, concession, franchise, obligation, commitment, arrangement or other instrument (in each case, to the extent legally binding on the parties thereto). “Data Protection and Security Requirements” means (i) all Laws relating to the Processing of Personal Data, data privacy, data or cyber security, breach notification, or data localization, including the Federal Trade Commission Act, the California Consumer Privacy Act (CCPA), HIPAA and the GDPR; (ii) all regulatory and self-regulatory guidelines and published interpretations by Governmental Entities of such Laws; (iii) industry standards applicable to the industry in which the Company or any of its Subsidiaries operates; (iv) all provisions of Contracts to which the Company or any Company Subsidiary is a party or by which the Company is bound that relate to the Processing of Personal Data; and (v) all policies and notices of the Company or any Company Subsidiary relating to the Processing of Personal Data. “Data Protection Authority” means each Governmental Entity charged with supervising and enforcing compliance with Data Protection and Security Requirements. “Data Source” means a set of data collected, held, used, recorded, stored, transmitted or retrieved, in electronic or paper form, in the conduct of the Company’s or any Company Subsidiary’s business. The term “Data Source” includes all documentation, written narratives and flow diagrams of all procedures used in connection with the collection, processing, projection and distribution of data contained in Data Sources. “Delaware Secretary” means the Secretary of State of the State of Delaware. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder. “ERISA Affiliate” of any entity means any other entity that, together with such entity, would be treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA. “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. “Family Member” means, with respect to any Person, (i) any child, stepchild, grandchild or more remote issue, parent, stepparent, grandparent, spouse, domestic partner, sibling, child of sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, cousin and adoptive relationships (each, a “relative”) or estate of such relative or (ii) any foundation, trust, family limited partnership, family limited liability company or other entity created and used for estate planning purposes, so long as any such foundation, trust, family limited partnership, family limited liability company or other entity is controlled by, for the benefit of, or owned by such natural person or one or more Persons described in clause (i). “Form S-4” means the registration statement on Form S-4, or, or other appropriate form, including any pre-effective or post-effective amendments or supplements thereto, filed with the SEC by Parent under the Securities Act with respect to the shares of Parent Common Stock to be issued to the stockholders of the Company in connection with the transactions contemplated by this Agreement. A-72 “GDPR” means Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data. “Governmental Entity” means any federal, national, state, provincial or local, whether transnational, domestic, foreign or supranational, government or any court of competent jurisdiction, administrative agency, applicable self-regulatory organization, tribunal or commission or other governmental or regulatory authority, department, agency or instrumentality, including any political subdivision thereof, whether transnational, domestic, foreign or supranational. “Group” shall have the meaning ascribed to such term in Section 13(d) under the Exchange Act. “Guarding Business” means any security guarding and/or protective guarding business or services currently or previously operated or provided by the Company or any Company Subsidiary (whether such business or services were operated or provided on a pass-through basis or otherwise), including the rendering of services related to armed and unarmed guarding activities, non-electronic and non-digital building fortification, security best practices training and consulting, executive protection and security patrol services. “Guarding Business Buyer” means Invicta Security CA Corporation, a Delaware corporation. “Guarding Business Purchase Agreement” means that certain Asset Purchase Agreement, dated as of July 31, 2020, by and among the Company, the Guarding Business Buyer and the other parties thereto. “Hazardous Material” shall mean any substance or material listed, defined, classified or regulated as a pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, or residual waste under any applicable Environmental Law, including petroleum (including crude oil or any fraction thereof), asbestos and asbestos-containing materials. “HIPAA” means, collectively, the Health Insurance Portability and Accountability Act of 1996, Public Law 104-191, as amended by the Health Information Technology for Economic and Clinical Health Act, enacted as Title XIII of the American Recovery and Reinvestment Act of 2009, Public Law 111-5, and their implementing regulations, including but not limited to, the Standards for Privacy of Individually Identifiable Health Information at 45 C.F.R. Parts 160 and 164, Subparts A and E, the Security Standards for the Protection of Electronic Protected Health Information at 45 C.F.R. Parts 160 and 164, Subparts A and C, and the Notification of Breach of Unsecured Protected Health Information requirements at 45 C.F.R. Part 164, Subpart D. “Indebtedness” means, with respect to any Person, without duplication, all (i) obligations for borrowed money (including any unpaid principal, premium, accrued and unpaid interest, prepayment penalties, commitment and other fees, reimbursements, indemnities and all other amounts payable in connection therewith), (ii) liabilities evidenced by bonds, debentures, notes, or other similar instruments or debt securities, (iii) obligations, contingent or otherwise, in respect of any letters of credit or bankers’ acceptances (to the extent drawn), sureties, performance bonds, guaranties, endorsements and other similar obligations, whether secured or not, in respect of the obligations of other Persons, (iv) obligations (including accrued interest) without duplication under a lease agreement that would be capitalized pursuant to GAAP, (v) the deferred purchase price of property or services (including in respect of “earn out” obligations) assuming the maximum amount that is due in respect thereof, (vi) all liabilities relating to interest rate protection, swap agreements and collar agreements; and (vii) any guaranty by such Person of any indebtedness of any other Person of a type described in clauses (i) through (vi) above. For purposes of calculating Indebtedness, (a) all interest, prepayment penalties, premiums, fees and expenses (if any) and other amounts which would be payable if Indebtedness were paid in full at the Closing shall be treated as Indebtedness and (b) all PIK instruments (including all interest, prepayment penalties, premiums, fees and expenses relating thereto) shall constitute “Indebtedness”. “Intellectual Property Rights” shall mean all intellectual property and industrial property rights, interests, assets, and protections in any jurisdiction throughout the world, whether registered or unregistered, including all: (i) trademarks, service marks, trade names, brand names, logos, trade dress, design rights and other similar indicators of source, sponsorship, association, or origin, together with the goodwill connected with the use thereof and symbolized thereby, and all registrations, applications, and renewals for any of the foregoing, (ii) domain names, whether or not trademarks, registered by any authorized private registrar or Governmental Entity, uniform resource identifiers, web addresses, web pages, websites and related content, accounts with social media companies and other online service providers and the user names and content found thereon and related A-73 thereto, (iii) issued patents and pending patent applications, patent disclosures, and any other indicia of invention ownership (including inventor’s certificates and patent utility models), any and all provisionals, divisionals, continuations, continuations in part, reissues, reexaminations, renewals, substitutions, and extensions thereof, and any counterparts claiming priority therefrom, (iv) works of authorship, expressions, mask works, designs and design registrations, whether or not copyrightable, including all copyrights, author, performer, attribution, moral, and neighboring rights, and all registrations, applications for registration, and renewals for any of the foregoing, (v) inventions, discoveries, ideas, trade secrets, improvements, business and technical information, technology, methods, processes, techniques, formulae, models, methodologies, know-how, and other proprietary and confidential information, and all rights therein, (vi) rights in computer programs (whether in source code, object code, or other form), algorithms, databases, compilations and data, (vii) rights arising out of, or associated with a person’s name, voice, signature, photograph, or likeness, including rights of personality, privacy, and publicity, (viii) copies and tangible embodiments of any of the foregoing, in whatever form or medium, and (ix) rights to apply for, prosecute, perfect or obtain any of the foregoing through administrative prosecution, registration, recordation, or other proceeding, including all registrations, renewals, extensions, combinations, divisions, continuations, continuations in part, reexamination certificates, or reissues of, and applications for, any of the foregoing, and all causes of action and rights to sue, recover and retain damages, or seek and obtain other remedies arising from or relating to any of the foregoing, including for any past, present or future infringement, misuse, misappropriation, dilution or violation anywhere in the world. “Key Employee” means, with respect to (i) Parent, each individual set forth in Section 1 of Annex A of the Parent Disclosure Letter, and (ii) the Company, each individual set forth on Schedule A of the Company Disclosure Letter. “Knowledge” of any Person that is not an individual means, with respect to any matter in question, in the case of the Knowledge of the Company, the actual knowledge of the executive officers of the Company set forth in Schedule A of the Company Disclosure Letter, after reasonable inquiry of the employees, consultants or independent contractors of the applicable Person with the administrative or operational responsibility for such matter in question, and, in the case of Parent and Merger Sub, the actual knowledge of the executive officers of Parent set forth in Schedule A of the Parent Disclosure Letter, after reasonable inquiry of the employees, consultants or independent contractors of the applicable Person with the administrative or operational responsibility for such matter in question. “Law” means any transnational, domestic or foreign federal, provincial, state or local law, statute, treaty, convention, code, ordinance, rule, regulation (including of self-regulatory organizations), interpretations, resolutions, Order or other similar requirement enacted, adopted, promulgated or applied by a Governmental Entity “Liens” means all pledges, liens, easements, rights-of-way, encroachments, restrictions, charges, mortgages, encumbrances, security interests, adverse claims of any kind, options, right of first refusal, right of way, servitudes, hypothecs or similar encumbrance. “Merger Sub Board” means the Board of Directors of Merger Sub. “Misconduct Claim” means, without limitation: (i) unlawful harassment and/or discrimination, or any other unlawful act of a similar nature; (ii) if made to an employee, independent contractor or customer who has not invited such conduct; and (iii) any unlawful retaliatory act for refusing or opposing any of the foregoing. “MOR Offering” means a private offering by MOR of equity interests or other securities of MOR on terms and conditions reasonably acceptable to MOR in its sole discretion, resulting in net proceeds to MOR (after deducting applicable fees, expenses, charges and discounts) in the aggregate amount of at least $11,000,000. “MOR Offering Failure” means (i) a determination by MOR that the MOR Offering will not be completed prior to the Closing, or (ii) the MOR Offering has not been completed as of the day immediately prior to the End Date. “Off-the-Shelf Software” means any commercial Software that the Company or a Subsidiary licenses for use in the business of the Company and its Subsidiaries, in any individual case, under a license with a maximum payment obligation on the part of the Company or Subsidiary of less than ten thousand dollars ($10,000). A-74 “Open Source Technology” means any Software or other Intellectual Property Rights that are distributed as or that contain, or are derived in any manner (in whole or in part) from, any Software or other Intellectual Property Rights that are distributed as free software, open source or similar licensing or distribution models, or requires as a condition of use, modification or distribution that any Intellectual Property Rights (1) be disclosed or distributed in source code form, (2) be licensed for the purpose of making derivative works, (3) be redistributable at no charge, or (4) grants to any third party any license, non-assertion covenant or other rights or immunities to or under any Intellectual Property Rights. Open Source Technology includes Intellectual Property Rights licensed or distributed under any of the following licenses or distribution models, or licenses or distribution models similar to any of the following: Apache License, MIT License, BSD 3-Clause “New” or “Revised” License or BSD 2-Clause “Simplified” or “FreeBSD” License, GNU’s General Public License (GPL), Lesser/Library GPL (LGPL), or Affero GPL, Mozilla Public License, Common Development and Distribution License (CDDL), Eclipse Public License, Artistic License, Netscape Public License, Sun Community Source License (SCSL), Sun Industry Standards License (SISL), the Common Public License, Creative Commons License, or any license or distribution agreement or arrangement listed on www.opensource.org/licenses/index.php or any successor website thereof or that is considered “free” or “open source” by the Open Source Foundation or the Free Software Foundation. “Order” means any writ, judgment, order, injunction, determination, ruling, award (including, without limitation, awards of any arbitrator) or decree of any Governmental Entity (in each such case whether preliminary or final). “Parent Benefit Plan” means any plan, program, arrangement or agreement (including collective bargaining agreements, employment agreements, and independent contractor agreements) whether written or unwritten, that provides or offers pension, 401(k), or other retirement benefits; bonus; commission; deferred compensation; incentive compensation; equity; severance or termination pay; change-in-control payments; retention payments; vacation, sick leave, or other paid time off; hospitalization or other health and welfare benefits (including, but not limited to medical, dental, vision, life, disability insurance); Code Section 125 “cafeteria” or “flexible” benefit features; or fringe benefits (i) which is sponsored or maintained by Parent or any of its Subsidiaries for the benefit of any current or former employees, directors, or individual independent contractors of the Parent or any Parent Subsidiary or (ii) with respect to which the Parent or any Parent Subsidiary has any actual or potential material liability. “Parent Common Stock” means the common stock, $0.001 par value per share, of Parent. “Parent IP” shall mean any Intellectual Property Right that is used or held for use in the business as currently conducted by Parent and the Parent Subsidiaries. “Parent Material Adverse Effect” means any fact, circumstance, occurrence, effect, event or development or change that, individually or in the aggregate, (A) has a material adverse effect on the business, assets, liabilities, financial condition or results of operations of Parent and its Subsidiaries, taken as a whole, or (B) prevents or materially impairs, interferes with, or hinders or delays the consummation of the Merger or the other transactions contemplated by this Agreement; provided, however, that, solely with respect to clause (A) of the foregoing, any fact, circumstance, occurrence, effect, change, event or development arising from or related to the following shall not be taken into account in determining whether a Parent Material Adverse Effect has occurred or would reasonably be expected to occur (except, in the case of clauses (i), (ii), (iii), (iv) or (v) below, to the extent disproportionately affecting the Parent and its Subsidiaries relative to other participants in the industries in which the Parent and its Subsidiaries operate, in which case only the incremental disproportionate effect shall be taken into account): (i) change, event or development arising from or related to conditions affecting the U.S. economy, the financial, credit, banking or securities markets in the U.S. (including any decline in the price of any security or any market index) or any change in prevailing interest rates, political conditions or the markets in which such Person operates; (ii) acts of war, sabotage, terrorism, military actions or the escalation thereof; (iii) provided that this clause (iii) shall not apply to Section 3.07 and Section 7.02, natural disasters, acts of God, epidemics or pandemics occurring after the date of this Agreement; (iv) changes required by GAAP or other accounting standards (or interpretations thereof); (v) changes in any Laws (or interpretations thereof); (vi) any failure by the Parent to meet any internal or published projections, forecasts or revenue or earnings predictions for any period ending on or after the date of this Agreement (provided that the underlying causes of any such failure or decline may be considered in determining whether a Parent Material Adverse Effect has occurred to the extent not otherwise excluded by another exception herein); (vii) stockholder litigation arising from or relating to this A-75 Agreement, the Merger or any strategic alternatives considered by the Parent; or (viii) any action required to be taken by the express terms of this Agreement, shall not be taken into account in determining whether a Parent Material Adverse Effect has occurred or would reasonably be expected to occur. “Parent Permitted Liens” means, collectively, (i) suppliers’, mechanics’, cashiers’, workers’, carriers’, workmen’s, legal hypothecs’, repairmen’s, materialmen’s, warehousemen’s, construction and other similar Liens arising or incurred by operation of law or otherwise incurred in the ordinary course of business, provided that the amounts giving rise to such Liens are not due and payable or are being contested in good faith by appropriate legal proceedings; (ii) Liens for Taxes, utilities and other governmental charges that are not due and payable or which are being contested in good faith by appropriate proceedings and for which adequate accruals or reserves under GAAP have been established; (iii) Liens imposed or promulgated by Law or any Governmental Entity, including requirements and restrictions of zoning, permit, license, building and other applicable Laws and municipal bylaws, and development, site plan, subdivision or other agreements with municipalities; (iv) licenses or other grants of rights in Intellectual Property Rights; (v) statutory or other Liens of landlords for amounts not due and payable or which are being contested in good faith by appropriate proceedings; (vi) deposits made in the ordinary course of business to secure (A) payments of worker’s compensation, unemployment insurance or other types of social security benefits or (B) the performance of bids, tenders, sales, contracts (other than for the repayment of borrowed money), public or statutory obligations, and surety, stay, appeal, customs or performance bonds, or similar obligations arising in each case in the ordinary course of business; (vii) Liens in favor of customs and revenue authorities arising as a matter of law and in the ordinary course of business to secure payment of customs duties in connection with the importation of goods; (viii) Liens resulting from securities Laws; (ix) Liens incurred in the ordinary course of business in connection with any purchase money security interests, mortgage debt equipment leases, similar financing arrangements or other Indebtedness described in Schedule B.1 of the Parent Disclosure Letter with respect to Parent property; (x) the reservations, limitations, rights, provisos and conditions, if any, expressed in any grant or permit from any Governmental Entity or any similar authority including those reserved to or vested in any Governmental Entity; (xi) the rights of first offer or refusal, rights to purchase, and similar rights and options described in Schedule B.2 of the Parent Disclosure Letter with respect to Parent property; (xii) liens described in, set forth in or created by any Parent Material Contracts or other service contracts, management agreements, leasing commission agreements or Parent Real Property Leases; and (xiii) easements, rights of way, zoning ordinances and other similar encumbrances affecting the Parent Leased Real Property that would not be reasonably expected to have a Parent Material Adverse Effect. “Parent Reorganization” means the contribution of all of the issued and outstanding equity interests of MOR to Parent such that, after giving effect to all such transactions, Parent will be the direct owner of all of such equity interests. “Parent Stock Award” means any equity or equity-based award granted pursuant to the Parent Stock Plan or otherwise. “Parent Stock Plan” means an equity or equity-based compensation plan of Parent to be adopted by the Parent Board prior to the Closing. “Parent Subsidiary” means any Subsidiary of Parent. “Permit” means any: (i) permit, license, approval, certificate, franchise, permission, variance, exception, exemption, order, clearance, registration, qualification or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Entity or pursuant to any Law or (ii) right under any Contract with any Governmental Entity. “Person” means any natural person, firm, corporation, partnership, company, limited liability company, trust, joint venture, association, Governmental Entity or other entity. “Personal Data” means any data or information in any medium relating to an identified or identifiable individual, browser or device and any other data or information that constitutes personal information or personally identifiable information under any applicable Law, and includes, but is not limited to, a natural person’s first and last name, home or other physical address, telephone number, e-mail address, photograph, social security number, driver’s license number, passport number or other government-issued identification number, biometric information, credit card or other financial information, or customer or account number, IP A-76 address, cookie information, or other unique identifiers. An identifiable individual is one who can be identified, directly or indirectly, in particular by reference to an identification number or to one or more factors specific to his/her physical, physiological, mental, economic, cultural or social identity. Personal Data shall include Protected Health Information. “PPP Borrower” means Tan’s International LLC, a wholly owned subsidiary of the Company. “PPP Lender” means Bank of America, NA, a national banking association. “PPP Loan” shall mean that certain Promissory Note, dated as of April 27, 2020, issued to the PPP Borrower by the PPP Lender in a principal amount of $83,950, and all agreements or documents entered into in connection therewith or related thereto, obtained pursuant to the Paycheck Protection Program administered by the SBA under the CARES Act. “PPP Loan Application” means any application submitted by a Person to a PPP Lender and pursuant to which a PPP Loan was granted and accepted by such Person. “PPP Loan Forgiveness Application” means an application for PPP Loan forgiveness in the form most recently provided by the SBA or by the PPP Lender, including any supporting document required in connection therewith, which is submitted to the applicable PPP Lender for the purpose of receiving forgiveness of all eligible PPP Loan amounts outstanding pursuant to the terms of the Paycheck Protection Program of the CARES Act, as amended or supplemented or otherwise modified from time to time. “Protected Health Information” means protected health information as that term is defined at 45 C.F.R. § 160.103 for purposes of HIPAA. “Proxy Statement/Prospectus” means the proxy statement/prospectus, including any amendments or supplements thereto, relating to the matters to be submitted to the Company stockholders at the Company Stockholders Meeting. “RC Convertible Notes” means the $1,500,000 convertible promissory note dated March 1, 2019 and due December 31, 2020 and the $5,000,000 convertible promissory note for a principal amount of up to $5,000,000 dated November 15, 2019 and due November 15, 2021, which note has a principal balance as of the date of this Agreement of $385,000. “RD Convertible Notes” means (i) the convertible promissory note dated August 15, 2019 and due April 11, 2021, (ii) the convertible promissory note dated September 16, 2019 and due April 11, 2021, (iii) the convertible promissory note dated October 11, 2019 and due April 11, 2021, and (iv) the convertible promissory note dated December 26, 2019 and due June 26, 2021. “SEC” means the U.S. Securities and Exchange Commission. “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. “Security Incident” means, with respect to a Person, any unauthorized access, acquisition, use, disclosure, modification, deletion or destruction of information (including Personal Data) or interference with system operations of such Person’s Business Systems. “Software” means any and all computer programs, software and code, including all versions, translations, updates, revisions, improvements and modifications thereof, whether in source code, object code, or executable code format, including systems software, application software (including mobile apps), firmware, middleware, programming tools, scripts, routines, interfaces, input and output formats, libraries, data, data models and databases, and all related specifications and documentation, including developer notes, comments and annotations, flow charts, outlines, narrative descriptions, operating instructions, user manuals, training materials and tangible media relating to any of the foregoing. “Subsidiary” of any Person means another Person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing Person or body (or, if there are no such voting interests, more than 50% of the equity interests of which is owned directly or indirectly by such first Person). A-77 “Tax” shall mean any federal, state, local or non-U.S. income, capital gains, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, customs duties, capital stock, escheat, unclaimed property, franchise, profits, withholding, social security, unemployment, disability, unclaimed property, real property, personal property, sales, use, transfer, registration, value added, alternative or add on minimum or estimated tax or other taxes, customs, tariffs, imposts, levies, duties, fees or other like assessments or charges of any kind, including any interest, penalty or addition thereto (whether or not disputed). “Tax Return” shall mean any report, declaration, return, information return, claim for refund, report or statement relating to Taxes, including any schedule, appendix, supplement or attachment thereto, and including any amendments thereof. “U.S.” means the United States of America, its territories and possessions (including Puerto Rico), any State of the United States and the District of Columbia. Section 9.04 Interpretation. When a reference is made in this Agreement to an Article, a Section or an Exhibit, such reference shall be to an Article, a Section or an Exhibit of or to this Agreement unless otherwise indicated. The table of contents, index of defined terms and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any Exhibit but not otherwise defined therein shall have the meaning assigned to such term in this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” The words “hereof,” “hereto,” “hereby,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The term “or” is not exclusive. The word “extent” in the phrase “to the extent” shall mean the degree to which a subject or other thing extends, and such phrase shall not mean simply “if.” The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms. All pronouns and any variations thereof refer to the masculine, feminine or neuter as the context may require. Any agreement, instrument or Law defined or referred to herein means such agreement, instrument or Law as from time to time amended, modified or supplemented, unless otherwise specifically indicated. References to a Person are also to its permitted successors and assigns. Unless otherwise specifically indicated, all references to “dollars” and “$”will be deemed references to the lawful money of the U.S. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring by virtue of the authorship of any provisions of this Agreement. Any reference to “days” means calendar days unless Business Days are expressly specified. When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded and if the last day of such period is not a Business Day, the period shall end on the next succeeding Business Day. Unless otherwise specified, the words “made available to Parent” or “delivered to Parent” or words of similar import refer to documents posted to the virtual data rooms of the Company and the Parent hosted by DropBox. The words “ordinary course of business” shall mean the ordinary course of business of the applicable Person, consistent with such Person’s past practice. Section 9.05 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or Law, or public policy, (a) such term or other provision shall be fully separable, (b) this Agreement shall be construed and enforced as if such invalid, illegal or unenforceable provision had never comprised a part hereof, and (c) all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as either the economic or legal substance of the Merger and the other transactions contemplated by this Agreement is not affected in any manner materially adverse to any party or such party waives its rights under this Section 9.05 with respect thereto. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the Merger and the transactions contemplated by this Agreement are fulfilled to the extent possible. Section 9.06 Counterparts. This Agreement may be executed in multiple counterparts, including by facsimile or by email with .pdf attachments, all of which shall be deemed an original and considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. A-78 Section 9.07 Entire Agreement; No Third-Party Beneficiaries. This Agreement, taken together with the Parent Disclosure Letter, the Company Disclosure Letter and the Confidentiality Agreement and, in each case, any exhibit, schedule or annex thereto, constitute the entire agreement, and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the Merger and the other transactions contemplated by this Agreement. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement except for (a) if the Effective Time occurs, (i) the right of the Company’s stockholders to receive the Merger Consideration pursuant to Article II following the Effective Time in accordance with the terms of this Agreement and (ii) the right of the holders of Company Stock Options to receive the applicable treatment pursuant to Section 6.04 on the Closing Date in accordance with the terms of this Agreement; and (b) the provisions of Section 6.05 (which are intended to be for the benefit of the Persons referred to therein, and may be enforced by any such Persons). Section 9.08 Governing Law. THIS AGREEMENT, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE AND ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE) DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE MERGER OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER ANY APPLICABLE PRINCIPLES OF CHOICE OR CONFLICTS OF LAWS OF THE STATE OF DELAWARE. Section 9.09 Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of Law or otherwise by any of the parties without the prior written consent of the other parties; provided that the rights, interests and obligations of Merger Sub may be assigned to another direct or indirect wholly owned subsidiary of Parent. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by the parties and their respective successors and assigns. Section 9.10 Specific Enforcement. The parties acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached, and that monetary damages, even if available, would not be an adequate remedy therefor. It is explicitly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches or threatened breaches of this Agreement and to enforce specifically the performance of the terms and provisions of this Agreement, including the right of a party to cause the other parties to consummate the Merger and the other transactions contemplated by this Agreement. It is agreed that the parties are entitled to enforce specifically the performance of terms and provisions of this Agreement in any court referred to in Section 9.11, without proof of actual damages (and each party hereby waives any requirement for the securing or posting of any bond in connection with such remedy), this being in addition to any other remedy to which they are entitled at law or in equity. The parties further agree not to assert that a remedy of specific enforcement is unenforceable, invalid, contrary to Law or inequitable for any reason, nor to assert that a remedy of monetary damages would provide an adequate remedy for any such breach. In the event any party hereto brings any action, claim, complaint, suit, action or other proceeding to enforce specifically the performance of the terms and provisions of this Agreement prior to the Closing, the End Date shall automatically be extended by (i) the amount of time during which such action, claim, complaint, suit, action or other proceeding is pending, plus twenty (20) Business Days, or (ii) such other time period established by the court presiding over such action, claim, complaint, suit, action or other proceeding. Section 9.11 Jurisdiction; Venue. Each of the parties hereto irrevocably agrees that any legal action or proceeding arising out of or relating to this Agreement brought by any party or its Affiliates against any other party or its Affiliates shall be brought and determined in the Court of Chancery of the State of Delaware; provided, however, that if jurisdiction is not then available in the Court of Chancery of the State of Delaware, then any such legal action or proceeding may be brought in any federal court located in the State of Delaware or any other Delaware state court. Each of the parties hereby irrevocably submits to the jurisdiction of the aforesaid courts for itself and with respect to its property, generally and unconditionally, with regard to any such action or proceeding arising out of or relating to this Agreement and the Merger and the other transactions contemplated A-79 by this Agreement. Each of the parties agrees not to commence any action, suit or proceeding relating thereto except in the courts described above in Delaware, other than actions in any court of competent jurisdiction to enforce any Order rendered by any such court in Delaware as described herein. Each of the parties hereby irrevocably and unconditionally waives, and agrees not to assert, by way of motion or as a defense, counterclaim or otherwise, in any action or proceeding arising out of or relating to this Agreement or the Merger or the other transactions contemplated by this Agreement, (a) any claim that it is not personally subject to the jurisdiction of the courts in Delaware as described herein for any reason, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) and (c) that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts. Section 9.12 Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT, THE MERGER OR ANY OF THE OTHER TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT OF ANY ACTION, SUIT OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVER AND CERTIFICATIONS IN THIS SECTION 9.12. Section 9.13 Non-Recourse. Any claim or cause of action based upon, arising out of, or related to this Agreement may only be brought against Persons that are expressly named as parties hereto, and then only with respect to the specific obligations set forth in this Agreement. Except as set forth in the Voting Agreements, no former, current or future direct or indirect equity holders, controlling Persons, stockholders, representatives, members, managers, Affiliates, general or limited partners or assignees of any party hereto, or of any former, current or future direct or indirect equity holder, controlling Person, stockholder, representative, member, manager, general or limited partner, Affiliate, or assignee of any of the foregoing shall have any liability or obligation for any of the representations, warranties, covenants, agreements, obligations or liabilities of the parties hereto under this Agreement or of or for any action, suit, arbitration, claim, litigation, investigation, or proceeding based on, in respect of, or by reason of, the transactions contemplated hereby (including the breach, termination or failure to consummate such transactions), in each case whether based on contract, tort or strict liability, by the enforcement of any assessment, by any legal or equitable proceeding, by virtue of any statute, regulation or applicable Laws or otherwise and whether by or through attempted piercing of the corporate, limited liability company or partnership veil, by or through a claim by or on behalf of a party hereto or another Person or otherwise. [Remainder of page intentionally left blank] A-80 IN WITNESS WHEREOF, the Company, Parent, MOR and Merger Sub have duly executed this Agreement, all as of the date first written above.
A-81 INDEX OF DEFINED TERMS
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A-84 EQUITY INTEREST CONTRIBUTION AGREEMENT This EQUITY INTEREST CONTRIBUTION AGREEMENT (this “Agreement”) is made and entered into as of [•], 2020 by and among Forian Inc., a Delaware corporation (“Parent”), Medical Outcomes Research Analytics, LLC, a Delaware limited liability company (“MOR”), and the undersigned equityholders of MOR (collectively, the “Equityholders” and each individually, an “Equityholder”). RECITALS WHEREAS, Parent and MOR desire to effect a business reorganization pursuant to which the equityholders of MOR shall contribute 100% of the equity interests of MOR to Parent in exchange for shares of common stock, par value $0.001 per share, of Parent (“Parent Common Stock”), on the terms and conditions set forth in this Agreement (the “Reorganization”); WHEREAS, as of the date hereof, the Equityholders are the beneficial owners (for purposes of this Agreement, “beneficial owner” (including “beneficially own” and other correlative terms) shall have the meaning set forth in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “Exchange Act”)) of the number of equity interests of MOR set forth opposite such Equityholder’s name on its respective signature page hereto (such equity interests, together with any other equity interests of MOR, the power to dispose of or the voting power over which is acquired by such Equityholder after the date of this Agreement, collectively, the “MOR Equity Interests”); WHEREAS, Parent, DNA Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), and Helix Technologies, Inc., a Delaware corporation (“Helix”), entered into an Agreement and Plan of Merger (as amended, restated, supplemented or otherwise modified from time to time, the “Merger Agreement”), dated as of October 16, 2020, pursuant to which Merger Sub will be merged with and into Helix (the “Merger”), with Helix being the surviving entity of such Merger and a wholly owned subsidiary of Parent on the terms, and subject to the conditions, set forth in the Merger Agreement; WHEREAS, the consummations of the Reorganization and the Merger are part of an overall integrated plan pursuant to which Parent will acquire all of the issued and outstanding equity interests of MOR and all of the issued and outstanding equity interests of Helix in exchange for Parent Common Stock issued by Parent to the equityholders of MOR and the equityholders of Helix and such equityholders will, as a group, own 80% or more of the outstanding stock of Parent Common Stock immediately after the consummations of the Reorganization and the Merger; WHEREAS, after the consummation of the Reorganization and the Merger, Parent will have outstanding Parent Common Stock and no other classes of stock of Helix will be outstanding; and WHEREAS, for U.S. federal income tax purposes, the parties intend that (i) the Reorganization and the Merger shall together qualify as a transaction described in Section 351(a) of the Code, (ii) the Merger shall qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and (iii) this Agreement shall constitute and be adopted as a “plan of reorganization” within the meaning of Treasury Regulations Sections 1.368-2(g) and 1.368-3(a). AGREEMENT NOW, THEREFORE, in consideration of the foregoing and the representations, warranties and covenants in this Agreement and intending to be legally bound, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS Section 1.1 General. For all purposes of and under this Agreement, the following terms shall have the following respective meanings: (a) “Affiliate” of any Person means another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person. B-1 (b) “Business Day” means any day other than (i) a Saturday or a Sunday or (ii) a day on which banking and savings and loan institutions are authorized or required by Law to be closed in New York City. (c) “Code” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. (d) “Constructive Sale” means, with respect to any MOR Equity Interest, a short sale with respect to such MOR Equity Interests, entering into or acquiring an offsetting derivative contract with respect to such MOR Equity Interests, entering into or acquiring a future or forward contract to deliver such MOR Equity Interests, or entering into any other hedging or other derivative transaction that has the effect of either directly or indirectly materially changing the economic benefits or risks of ownership of such MOR Equity Interests. (e) “Contract” means any written or oral contract, lease, license, indenture, note, bond, agreement, understanding, undertaking, concession, franchise, obligation, commitment, arrangement or other instrument (in each case, to the extent legally binding on the parties thereto). (f) “Governmental Entity” means any federal, national, state, provincial or local, whether transnational, domestic, foreign or supranational, government or any court of competent jurisdiction, administrative agency, applicable self-regulatory organization, tribunal or commission or other governmental or regulatory authority, department, agency or instrumentality, including any political subdivision thereof, whether transnational, domestic, foreign or supranational. (g) “Law” means any transnational, domestic or foreign federal, provincial, state or local law, statute, treaty, convention, code, ordinance, rule, regulation (including of self-regulatory organizations), interpretations, resolutions, Order or other similar requirement enacted, adopted, promulgated or applied by a Governmental Entity. (h) “Lien” means any pledge, lien, restriction, charge, encumbrance, security interest, adverse claim of any kind, option, right of first refusal or similar encumbrance. (i) “Person” means any natural person, firm, corporation, partnership, company, limited liability company, trust, joint venture, association, Governmental Entity or other entity. (j) “Order” means any writ, judgment, order, injunction, determination, ruling, award (including, without limitation, awards of any arbitrator) or decree of any Governmental Entity (in each such case whether preliminary or final). (k) “Representative” of a Person means each officer, director, manager, employee of such Person, and such Person’s accountants, consultants, legal counsel, financial advisors, agents and other representatives. (l) “Subsidiary” of any Person means another Person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing Person or body (or, if there are no such voting interests, more than 50% of the equity interests of which is owned directly or indirectly by such first Person). (m) “Transfer” means, with respect to any MOR Equity Interest, the direct or indirect assignment, sale, transfer, assignment, tender (into a tender offer, exchange offer or otherwise), pledge, hypothecation, or the grant, creation or suffrage of a Lien upon, or the gift, placement in trust, or the Constructive Sale or other disposition (including by merger or any other conversion into securities or other consideration) of such MOR Equity Interests (including transfers by testamentary or intestate succession or otherwise by operation of Law) or any right, title or interest therein (including any right or power to vote to which the holder thereof may be entitled, whether such right or power is granted by proxy or otherwise), or any change in the record or beneficial ownership of such MOR Equity Interests, and any agreement, arrangement or understanding, whether or not in writing, to effect any of the foregoing. ARTICLE 2 CONTRIBUTION OF MOR EQUITY INTERESTS Section 2.1 Reorganization. Subject to the terms of this Agreement, at the Closing, each Equityholder shall contribute and transfer their respective MOR Equity Interests, including all of the rights, title and interest therein, to Parent, free and clear of all Liens (other than any Liens created by this Agreement, the underlying agreements B-2 pursuant to which such MOR Equity Interests were issued or as imposed by applicable securities Laws). In consideration of such contribution and transfer, subject to the terms of this Agreement, at the Closing, Parent shall accept from each Equityholder the MOR Equity Interests held by such Equityholder in exchange for issuing to such Equityholder that number of shares of Parent Common Stock set forth beside such Equityholder’s name on its respective signature page hereto; provided, that any Parent Common Stock issued in exchange for MOR Equity Interests that are unvested profits interest shall be subject to the same restrictions as such unvested profits interest. Section 2.2 Closing Date. Unless this Agreement is sooner terminated or extended pursuant to its terms or unless otherwise agreed to in writing by Parent, MOR and the Majority Equityholders, the closing of the Reorganization (the “Closing”) shall take place remotely via the electronic transmittal of executed documents immediately prior to the consummation of the Merger (the “Closing Date”). Section 2.3 Withholding Rights. Parent shall be entitled to deduct and withhold from any amounts otherwise payable pursuant to this Agreement to any Equityholder such amounts as Parent reasonably determines is required under the Code or any state, local or foreign tax law or regulation thereunder to deduct and withhold with respect to the making of such payment, and to collect any necessary tax forms or other necessary information. Any amounts so withheld shall be treated for all purposes of this Agreement as having been paid to the Equityholder in respect of which such deduction and withholding was made by Parent. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF MOR MOR represents and warrants to Parent and the Equityholders as of the date of this Agreement and as of the Closing as follows: Section 3.1 Power; Due Authorization; Binding Agreement. MOR has the requisite power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the Reorganization. The execution and delivery of this Agreement by MOR the performance of its obligations hereunder and the consummation of the Reorganization have been duly and validly authorized by all necessary limited liability company action on the part of MOR, and no other proceedings on the part of MOR are necessary to authorize this Agreement, to perform its obligations hereunder or to consummate the Reorganization. This Agreement has been duly and validly executed and delivered by MOR and, assuming the due and valid authorization, execution and delivery hereof by the other parties hereto, constitutes a valid and binding agreement of MOR, enforceable against MOR in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws, now or hereafter in effect, relating to creditors’ rights generally and (ii) equitable remedies of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. Section 3.2 No Conflict. The execution and delivery of this Agreement by MOR does not, and the performance by MOR of its obligations under this Agreement and the consummation of the Reorganization will not, (a) require the consent or approval of, or any filing with, any other Person or Governmental Entity, (b) conflict with or violate any organizational document of MOR, (c) conflict with or violate or result in any breach of, or default (with or without notice or lapse of time, or both) under any Contract to which MOR is a party or by which MOR is bound or (d) violate any Law applicable to MOR or any of its assets, except for any of the foregoing which would not, individually or in the aggregate, prevent, materially delay or impair in any material respect MOR’s ability to perform its obligations under this Agreement. Section 3.3 No Actions or Proceedings. There are no (a) actions, suits, claims, litigations, investigations, inquiries or proceedings commenced pending or, to the knowledge of MOR, threatened against MOR or any of its assets or (b) outstanding Orders to which MOR or any of its assets are subject or bound, in each case, which could reasonably be expect to, individually or in the aggregate, prevent, materially delay or impair in any material respect MOR’s ability to perform its obligations under this Agreement. Section 3.4 Capitalization. The MOR Equity Interests constitute all of the equity interests of MOR. There are no securities convertible into or exchangeable or exercisable for equity interests of MOR. There are not any outstanding obligations of MOR to issue, deliver or sell, or cause to be issued, delivered or sold, any equity interests of MOR or any securities of MOR convertible into or exchangeable or exercisable for equity interests in MOR. B-3 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE EQUITYHOLDERS Each Equityholder hereby represents and warrants to Parent and MOR as of the date of this Agreement and as of the Closing as follows: Section 4.1 Power; Due Authorization; Binding Agreement. Such Equityholder has the requisite power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the Reorganization. The execution and delivery of this Agreement by such Equityholder, the performance of its obligations hereunder and the consummation of the Reorganization have been duly and validly authorized by all necessary corporate, partnership, limited liability company or other applicable action on the part of such Equityholder, and no other proceedings on the part of such Equityholder are necessary to authorize this Agreement, to perform its obligations hereunder or to consummate the Reorganization. This Agreement has been duly and validly executed and delivered by such Equityholder and, assuming the due and valid authorization, execution and delivery hereof by the other parties hereto, constitutes a valid and binding agreement of such Equityholder, enforceable against such Equityholder in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws, now or hereafter in effect, relating to creditors’ rights generally and (ii) equitable remedies of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. Section 4.2 No Conflict. The execution and delivery of this Agreement by such Equityholder does not, and the performance by such Equityholder of its obligations under this Agreement and the consummation of the Reorganization will not, (a) require the consent or approval of, or any filing with, any other Person or Governmental Entity, (b) conflict with or violate any organizational document of such Equityholder, (c) conflict with or violate or result in any breach of, or default (with or without notice or lapse of time, or both) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a Lien on, any of such Equityholder’s MOR Equity Interests pursuant to, any Contract to which such Equityholder is a party or by which such Equityholder or any of such Equityholder’s MOR Equity Interests are bound or (d) violate any Law applicable to such Equityholder or any of its assets. Section 4.3 No Actions or Proceedings. There are no (a) actions, suits, claims, litigations, investigations, inquiries or proceedings commenced pending or, to the knowledge of such Equityholder, threatened against such Equityholder or any of its assets or (b) outstanding Orders to which any Equityholder or any of its assets are subject or bound, in each case, which could reasonably be expect to, individually or in the aggregate, prevent, materially delay or impair in any material respect such Equityholder’s ability to perform its obligations under this Agreement. Section 4.4 Ownership of Equity Securities. (a) Such Equityholder is the beneficial owner of, and has good, valid and marketable title to, the MOR Equity Interests set forth opposite its name on Schedule I, (b) such Equityholder has sole voting power, and sole power of disposition, with respect to all of its MOR Equity Interests, (c) such Equityholder’s MOR Equity Interests are all of the equity interests of MOR that are owned, either of record or beneficially, by such Equityholder, (d) the MOR Equity Interests owned by such Equityholder are free and clear of all Liens, other than any Liens created by this Agreement, the underlying agreements pursuant to which such MOR Equity Interests were issued or as imposed by applicable securities Laws and (e) such Equityholder has not appointed or granted any proxy inconsistent with this Agreement, which appointment or grant is still effective, with respect to the MOR Equity Interests. Section 4.5 Reliance by Parent. Such Equityholder understands and acknowledges that Parent and Merger Sub are entering into the Merger Agreement in reliance upon such Equityholder’s execution, delivery and performance of this Agreement. Section 4.6 Adequate Information. Such Equityholder is a sophisticated investor and has adequate information concerning the business and financial condition of Parent, MOR and Helix to make an informed decision regarding the Reorganization and the other transactions contemplated by this Agreement and the Merger and has independently and without reliance upon Parent, MOR or Helix and based on such information as such Equityholder has deemed appropriate, made its own analysis and decision to enter into this Agreement. Such Equityholder confirms and acknowledges that (i) such Equityholder has carefully read and understood this Agreement, (ii) such Equityholder has made such further investigations as such Equityholder has deemed B-4 appropriate, (iii) none of Parent, Helix, MOR nor any of their respective Affiliates nor anyone else on Parent’s, Helix’s or MOR’s behalf has made any representations or warranties of any kind or nature to induce such Equityholder to enter into this Agreement except as specifically set forth in Article 5, (iv) such Equityholder is not relying upon Parent, Helix, MOR nor any of their respective Affiliates for guidance with respect to tax, legal or other considerations in connection with the Reorganization and the other transactions contemplated by this Agreement or the Merger, (v) such Equityholder has been afforded an opportunity to ask questions of, and receive answers from, Parent or MOR, their Representatives or Persons authorized to act on their behalf, concerning the terms and conditions of the Reorganization and the other transactions contemplated by this Agreement and the Merger, (vi) such Equityholder has been afforded access to information about Parent, Helix and MOR and their respective financial condition and results of operations sufficient to evaluate the Reorganization and the other transactions contemplated by this Agreement and the Merger and (vii) such Equityholder has been afforded the opportunity to obtain any additional information necessary to verify the accuracy of information otherwise furnished by Parent or MOR. Such Equityholder acknowledges that the agreements contained herein with respect to the MOR Equity Interests held by such Equityholder are irrevocable. Section 4.7 No Brokers. Such Equityholder has not employed any investment banker, broker or finder in connection with the Reorganization or the transactions contemplated by this Agreement who is entitled to any fee or any commission from Parent or MOR or any of their respective Subsidiaries in connection with or upon consummation of the Reorganization, Merger or any other transaction contemplated by this Agreement or the Merger Agreement. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT Parent represents and warrants to MOR and the Equityholders as of the date of this Agreement and as of the Closing as follows: Section 5.1 Power; Due Authorization; Binding Agreement. Parent has the requisite power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the Reorganization. The execution and delivery of this Agreement by Parent, the performance of its obligations hereunder and the consummation of the Reorganization have been duly and validly authorized by all necessary corporate action on the part of Parent, and no other proceedings on the part of Parent are necessary to authorize this Agreement, to perform its obligations hereunder or to consummate the Reorganization. This Agreement has been duly and validly executed and delivered by Parent and, assuming the due and valid authorization, execution and delivery hereof by the other parties hereto, constitutes a valid and binding agreement of Parent, enforceable against Parent in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws, now or hereafter in effect, relating to creditors’ rights generally and (ii) equitable remedies of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. Section 5.2 No Conflict. The execution and delivery of this Agreement by Parent does not, and the performance by Parent of its obligations under this Agreement and the consummation of the Reorganization will not, (a) require the consent or approval of, or any filing with, any other Person or Governmental Entity, (b) conflict with or violate any organizational document of Parent, (c) conflict with or violate or result in any breach of, or default (with or without notice or lapse of time, or both) under any Contract to which Parent is a party or by which Parent is bound or (d) violate any Law applicable to Parent or any of its assets, except for any of the foregoing which would not, individually or in the aggregate, prevent, materially delay or impair in any material respect Parent’s ability to perform its obligations under this Agreement. Section 5.3 No Actions or Proceedings. There are no (a) actions, suits, claims, litigations, investigations, inquiries or proceedings commenced pending or, to the knowledge of Parent, threatened against Parent or any of its assets or (b) outstanding Orders to which Parent or any of its assets are subject or bound, in each case, which could reasonably be expect to, individually or in the aggregate, prevent, materially delay or impair in any material respect Parent’s ability to perform its obligations under this Agreement. B-5 Section 5.4 Parent Common Stock. The shares of Parent Common Stock to be issued to each Equityholder hereunder have been duly authorized for issuance and, upon such issuance, will be validly issued. There are no restrictions on the transfer of the shares of Parent Common Stock to be issued by Parent hereunder, other than those contained in this Agreement, the organizational documents of Parent and those arising from federal and applicable state securities laws. ARTICLE 6 COVENANTS Section 6.1 General Covenants. No party shall: (a) enter into any Contract with any Person or take any other action that violates or conflicts with or would reasonably be expected to violate or conflict with, or result in or give rise to a violation of or conflict with, the representations, warranties, covenants and obligations of such party under this Agreement or that would make any representation or warranty of such party contained in this Agreement untrue or incorrect; or (b) take any action that would restrict, impair or otherwise affect such party’s legal power, authority and obligation to comply with and to timely perform such party’s covenants and obligations under this Agreement. Section 6.2 Waiver of Rights. Each Equityholder, by execution and delivery hereof, hereby irrevocably waives any right of first offer, right of first refusal, co-sale right or other similar right it enjoys with respect to the MOR Equity Interests held by such Equityholder pursuant to the Amended and Restated Limited Liability Company Operating Agreement of Medical Outcomes Research Analytics, LLC, dated January 28, 2020, as amended on December 1, 2020, including but not limited to, the rights set forth in Section 2.7 (Right of First Offer), Section 7.2 (First Refusal Rights) and Section 7.3 (Tag-Along Rights). Section 6.3 No Transfer of MOR Equity Interests. Except as otherwise expressly permitted by this Agreement, each Equityholder hereby agrees that such Equityholder shall not: (a) cause or permit, or commit or agree to cause or permit, any Transfer of any of such Equityholder’s MOR Equity Interests or take any other action that would in any way delay, restrict, limit or interfere with the performance of the Equityholder’s obligations hereunder or the transactions contemplated hereby; (b) acquire, offer or propose to acquire or agree to acquire, directly or indirectly, any additional equity interests (or options, rights or warrants to purchase, or securities convertible into or exchangeable for, such equity interests) of MOR; (c) form, join, encourage, influence, advise or in any way participate in any “group” (as such term is defined in Section 13(d)(3) of the Exchange Act) with any Persons with respect to any equity interests of MOR; or (d) commit or agree to take any of the foregoing actions. Any Transfer or other action taken or effected in violation of this Section 6.2 shall, to the fullest extent permitted by Law, be void ab initio and of no force or effect, and the Company may decline to give effect to such transfer in its books and records and those of its agents. Section 6.4 Confidentiality. Each Equityholder agrees, and agrees to cause its Affiliates to and to instruct and cause its and their Representatives to, keep confidential all nonpublic information in their possession regarding Parent, Helix, MOR and their respective Subsidiaries to the extent such nonpublic information is in their possession (the “Confidential Information”); provided, however, that such Equityholders, their Affiliates and their respective Representatives shall not be required to maintain as confidential any Confidential Information that (a) becomes generally available to the public other than as a result of disclosure (x) by such Person or (y) to the knowledge of such Person, in violation of an obligation or duty of confidentiality to Parent, Helix or MOR, or (b) such Person is required pursuant to the terms of a valid order issued, promulgated or entered by or with any Governmental Entity of competent jurisdiction or any applicable Law to disclose to such Governmental Entity (provided, that with respect to this clause (b), such Person shall (i) to the extent legally permissible, prior to the disclosing of any Confidential Information, provide Parent with prompt notice of such order and provide commercially reasonable assistance and cooperation with all efforts of Parent, MOR or any of their respective Subsidiaries in obtaining a protective order or other remedy and (ii) disclose such Confidential Information only to the extent required, upon advice of counsel, by such order or Law and use commercially reasonable efforts to ensure that such Confidential Information is accorded confidential treatment. Section 6.5 Further Assurances. From time to time, at the reasonable request of Parent and without further consideration, MOR and each Equityholder shall execute and deliver such additional documents and take all such further action as may be reasonably necessary or desirable to more effectively carry out the intent and purposes B-6 of this Agreement. From time to time, at the reasonable request of MOR and without further consideration, Parent and each Equityholder shall execute and deliver such additional documents and take all such further action as may be reasonably necessary or desirable to more effectively carry out the intent and purposes of this Agreement. ARTICLE 7 CONDITIONS PRECEDENT Section 7.1 Condition to Each Party’s Obligations. The respective obligations of each party to consummate the Reorganization are subject to the satisfaction or waiver (to the extent permitted by Law) by Parent, MOR and the Equityholders at or prior to the Closing of the following condition: No applicable Law and no Order, preliminary, temporary or permanent, or other legal restraint or prohibition and no action, proceeding, binding order, decree or determination by any Governmental Entity shall be in effect that prevents, enjoins, makes illegal or prohibits the consummation of the Reorganization. Section 7.2 Conditions to Obligations of MOR. The obligations of MOR to consummate the Reorganization are further subject to the satisfaction or waiver by the MOR at or prior to the Closing of the following conditions: (a) Representations and Warranties of Parent and the Equityholders. The representations and warranties of Parent and the Equityholders contained in this Agreement shall be true and correct in all respects at and as of the date of this Agreement and at and as of the Closing Date as if made at and as of such date (except to the extent expressly made as of an earlier date, in which case as of such earlier date). (b) Performance of Obligations of Parent and the Equityholders. Parent and the Equityholders shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Closing. (c) Parent Certificate. Parent shall have delivered to MOR a certificate, dated as of the Closing Date and signed by its Chief Executive Officer or Chief Financial Officer, certifying to the effect that the conditions set forth in Section 7.2(a) and Section 7.2(b) have been satisfied as to Parent. Section 7.3 Conditions to Obligations of the Equityholders. The obligations of the Equityholders to consummate the Reorganization are further subject to the satisfaction or waiver by the Majority Equityholders at or prior to the Closing of the following conditions: (a) Representations and Warranties of Parent and MOR. The representations and warranties of Parent and MOR contained in this Agreement shall be true and correct in all respects at and as of the date of this Agreement and at and as of the Closing Date as if made at and as of such date (except to the extent expressly made as of an earlier date, in which case as of such earlier date). (b) Performance of Obligations of Parent and MOR. Parent and MOR shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Closing. Section 7.4 Conditions to Obligations of Parent. The obligations of Parent to consummate the Reorganization are further subject to the satisfaction or waiver by Parent at or prior to the Closing of the following conditions: (a) Representations and Warranties of MOR and the Equityholders. The representations and warranties of MOR and each of the Equityholders contained in this Agreement shall be true and correct in all respects at and as of the date of this Agreement and at and as of the Closing Date as if made at and as of such date (except to the extent expressly made as of an earlier date, in which case as of such earlier date. (b) Performance of Obligations of MOR and the Equityholders. MOR and the Equityholders shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Closing Date. (c) MOR Certificate. MOR shall have delivered to Parent a certificate, dated as of the Closing Date and signed by a duly authorized representative of MOR, certifying to the effect that the conditions set forth in Section 7.4(a) and Section 7.4(b) have been satisfied as to MOR. B-7 (d) Satisfaction of Merger Agreement Conditions. The conditions to the closing of the Merger set forth in Article VII of the Merger Agreement shall have been satisfied or waived, other than in respect of the Parent Reorganization (as such term is defined in the Merger Agreement). ARTICLE 8 TERMINATION This Agreement shall terminate and be of no further force or effect (i) automatically as of date on which the Merger Agreement is terminated, or (ii) upon the mutual written agreement of Parent, MOR and the Majority Equityholders. Any such termination of this Agreement shall not relieve any party from liability for any breach of its obligations hereunder prior to such termination or relieve any party from completing any obligation that arose hereunder in connection with the consummation of the Reorganization or the other transactions contemplated by this Agreement. Each party will be entitled to any remedies at law or in equity to recover its losses arising from any such pre-termination breach. Notwithstanding the foregoing, termination of this Agreement shall not prevent any party from seeking any remedies (at law or in equity) against any other party for that party’s breach of any of the terms of this Agreement prior to the date of termination. ARTICLE 9 MISCELLANEOUS Section 9.1 Changes in Equity Interests, etc. In the event of any split, dividend or distribution, or any change in the MOR Equity Interests by reason of any split-up, reverse split, recapitalization, combination, reclassification, exchange or the like, the term “MOR Equity Interests” shall be deemed to refer to and include such MOR Equity Interests as well as all equity interests distributed in such dividends and distributions and any securities into which or for which any or all of such MOR Equity Interests may be changed or exchanged or which are received in such transaction, and such Equityholder agrees, while this Agreement is in effect, to promptly (and in any event within twenty-four (24) hours) notify Parent of the number of any new MOR Equity Interests, if any, acquired by such Equityholder or any of its Affiliates after the date hereof. Section 9.2 Fees and Expenses. All fees and expenses incurred in connection with this Agreement shall be paid by the party incurring such fees or expenses, whether or not the Reorganization or Merger is consummated. Section 9.3 Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed duly given: (a) on the date of delivery if delivered personally; (b) on the date sent if sent by electronic mail (provided, however, that notice given by email shall not be effective unless either (i) a duplicate copy of such email notice is promptly given by one of the other methods described in this Section 9.3 or (ii) the delivering party receives confirmation of receipt of such notice either by email or any other method described in this Section 9.3); (c) on the first Business Day following the date of dispatch if delivered utilizing a next-day service by a recognized next-day courier; or (d) on the earlier of confirmed receipt or the fifth Business Day following the date of mailing if delivered by registered or certified mail, return receipt requested, postage prepaid. All notices under this Agreement shall be delivered to the addresses set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:
Medical Outcomes Research Analytics, LLC 41 University Drive, Suite 400 Newtown, PA 18940 Email: [•] Attn: [•]
Forian Inc. 41 University Drive, Suite 400 Newtown, PA 18940 Email: [•] Attn: [•] B-8 with a copy (which shall not constitute notice) to: Duane Morris LLP 30 South 17th Street Philadelphia, PA 19103 Email: dmix@duanemorris.com Attn: Darrick M. Mix, Esq. Section 9.4 Entire Agreement; No Third-Party Beneficiaries. This Agreement and any exhibit, schedule or annex hereto, constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Section 9.5 Amendments and Waivers. This Agreement may only be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by Parent, MOR and the holders of at least a majority of the MOR Equity Interests (the “Majority Equityholders”), or in the case of a waiver, by Parent if the waiver is to be effective against Parent, by MOR if the waiver is to be effective against MOR or by the Majority Equityholders if the waiver is to be effective against the Equityholders. The foregoing notwithstanding, no failure or delay by Parent, MOR or the Equityholders in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise of any other right hereunder. Section 9.6 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or Law, or public policy, (a) such term or other provision shall be fully separable, (b) this Agreement shall be construed and enforced as if such invalid, illegal or unenforceable provision had never comprised a part hereof, and (c) all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as either the economic or legal substance of the Reorganization and the other transactions contemplated by this Agreement is not affected in any manner materially adverse to any party or such party waives its rights under this Section 9.6 with respect thereto. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the purposes of and the transactions contemplated by this Agreement are fulfilled to the extent possible. Section 9.7 Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of Law or otherwise by any of the parties without the prior written consent of the other parties. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by the parties and their respective successors and assigns. Section 9.8 Governing Law; Jurisdiction; Waiver of Jury Trial. THIS AGREEMENT, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE AND ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE) DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER ANY APPLICABLE PRINCIPLES OF CHOICE OR CONFLICTS OF LAWS OF THE STATE OF DELAWARE. Section 9.9 Jurisdiction; Venue. Each of the parties hereto irrevocably agrees that any legal action or proceeding arising out of or relating to this Agreement brought by any party or its Affiliates against any other party or its Affiliates shall be brought and determined in the Court of Chancery of the State of Delaware; provided, however, that if jurisdiction is not then available in the Court of Chancery of the State of Delaware, then any such legal action or proceeding may be brought in any federal court located in the State of Delaware or any other Delaware state court. Each of the parties hereby irrevocably submits to the jurisdiction of the aforesaid courts for itself and with respect to its property, generally and unconditionally, with regard to any such action or B-9 proceeding arising out of or relating to this Agreement and the Reorganization and the other transactions contemplated by this Agreement. Each of the parties agrees not to commence any action, suit or proceeding relating thereto except in the courts described above in Delaware, other than actions in any court of competent jurisdiction to enforce any Order rendered by any such court in Delaware as described herein. Each of the parties hereby irrevocably and unconditionally waives, and agrees not to assert, by way of motion or as a defense, counterclaim or otherwise, in any action or proceeding arising out of or relating to this Agreement or the Reorganization or the other transactions contemplated by this Agreement, (a) any claim that it is not personally subject to the jurisdiction of the courts in Delaware as described herein for any reason, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) and (c) that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts. Section 9.10 Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE REORGANIZATION. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT OF ANY ACTION, SUIT OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVER AND CERTIFICATIONS IN THIS SECTION 9.10. Section 9.11 Specific Performance. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached, and that monetary damages, even if available, would not be an adequate remedy therefor. It is explicitly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches or threatened breaches of this Agreement and to enforce specifically the performance of the terms and provisions of this Agreement. It is agreed that the parties are entitled to enforce specifically the performance of terms and provisions of this Agreement in any court referred to in Section 9.9, without proof of actual damages (and each party hereby waives any requirement for the securing or posting of any bond in connection with such remedy), this being in addition to any other remedy to which they are entitled at law or in equity. The parties further agree not to assert that a remedy of specific enforcement is unenforceable, invalid, contrary to Law or inequitable for any reason, nor to assert that a remedy of monetary damages would provide an adequate remedy for any such breach. Section 9.12 Indemnification. Each Equityholder hereby agrees to, severally and not jointly, indemnify MOR, Parent and their respective, members, managers, directors, officers, affiliates, employees and agents, and hold each harmless, from and against any and all losses, liabilities, costs, damages, or expense, including without limitation reasonable attorneys’ fees and expenses, that a Indemnified Party may incur or suffer by reason of an material breach of this Agreement or material breach of any representation, warranty or covenant of such Equityholder.1 Section 9.13 Interpretation. When a reference is made in this Agreement to an Article, a Section or a Schedule, such reference shall be to an Article, a Section or a Schedule of or to this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized term used in any Exhibit or Schedule but not otherwise defined therein shall have the meaning assigned to such term in this Agreement. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” The words “hereof,” “hereto,” “hereby,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The term “or” is not exclusive. The word “extent” in the phrase “to the extent” shall mean the degree to which a subject or other thing extends, and such phrase shall not mean simply “if.” The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms. All pronouns and any variations thereof refer to the masculine, feminine or neuter as the context may require.
B-10 Any agreement, instrument or Law defined or referred to herein means such agreement, instrument or Law as from time to time amended, modified or supplemented, unless otherwise specifically indicated. References to a Person are also to its permitted successors and assigns. Unless otherwise specifically indicated, all references to “dollars” and “$”will be deemed references to the lawful money of the U.S. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring by virtue of the authorship of any provisions of this Agreement. Any reference to “days” means calendar days unless Business Days are expressly specified. When calculating the period of time before which, within which or following which any act is to be done pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded and if the last day of such period is not a Business Day, the period shall end on the next succeeding Business Day. Section 9.14 Counterparts. This Agreement may be executed in multiple counterparts, including by facsimile or by email with .pdf attachments, all of which shall be deemed an original and considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. [Remainder of page intentionally left blank] B-11 IN WITNESS WHEREOF, each of Parent and MOR have duly executed this Agreement, as of the date first written above.
[Signature pages of Equityholders follow] B-12 IN WITNESS WHEREOF, the undersigned Equityholder has duly executed this Agreement, as of the date first written above.
B-13
Board of Directors Helix Technologies, Inc. 5300 OTC Parkway, Suite 300 Greenwood Village, CO 80111 Management Planning, Inc. Fairness Opinion Gentlemen: The Board of Directors (the “Board”) of Helix Technologies, Inc. (“Helix” or the “Company”) engaged and retained Management Planning, Inc. (“MPI” or the “Advisor”) to deliver an opinion (the “Opinion”) to the Board as to the fairness, from a financial point of view, to the Company’s shareholders of the exchange of (a) 100% of the fully diluted common stock of Helix (160,307,826 shares) for (b) 4,420,000 shares (net of options and warrants) of Forian, Inc. (“Forian”). The balance of Forian’s issued and outstanding shares (12,531,044) will be issued to Medical Outcomes Research Analytics, LLC (“MOR”) in connection with Forian’s acquisition of MOR (the “Transaction”). We understand that on October 16, 2020, the Company entered into an agreement and plan of merger (the “Agreement”) with Forian, Inc. and DNA Merger Sub, Inc, its wholly owned subsidiary. Following the execution of the Agreement, the stockholders of Helix (the “Stockholders”) will assume an ownership stake in Forian, the surviving entity. Thereafter, Forian will acquire 100% of the fully diluted equity of MOR through a share for share transaction. Forian is a Delaware corporation. The Opinion is limited to the fairness, from a financial point of view, to the Stockholders as it pertains to the resulting equity stake in Forian in exchange for 100% of the fully diluted common stock of Helix pursuant to the terms of Transaction. MPI expresses no opinion as to the appropriateness of the process conducted by the Company, or its representatives, in soliciting or negotiating the Transaction. Our valuation analyses of the Company and MOR conforms to generally-accepted valuation procedures and methods, under the fair value standard. U.S. Generally Accepted Accounting Principles (GAAP) define fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”1 The Opinion does not address the relative merits of the Transaction as compared to other investment alternatives or strategies that might be available to the Company, nor does it address the underlying decision of the Board or Helix to proceed with the Transaction. The Opinion is not intended to be and does not constitute a recommendation to the Board as to whether it should vote in favor of the Transaction. In connection with our review of the Transaction, and in arriving at the Opinion, we have completed the following, among other things:
1 Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosure C-1 Helix Technologies, Inc. October 16, 2020 Page 2
MPI was provided and is relying upon a representation letter from Scott Ogur, Chief Financial Officer of the Company, regarding, among other things, the accuracy and completeness of the information provided to MPI in connection with rendering the Opinion. MPI has not independently verified any of the information concerning the Company or MOR with which MPI was provided in connection with its review of the Transaction and, for purposes of the Opinion, MPI has assumed and relied upon the accuracy and completeness of all such information. With respect to the projected financial information made available to MPI and used in the analysis, MPI has assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of each company, respectively, as to expected future financial performance. MPI has not been engaged to assess the achievability of such projections or assumptions used in management’s forecast for either company. In addition, MPI has not conducted a physical inspection or appraisal of any of the assets, properties, or facilities of the Company or MOR, nor has MPI been furnished with any such evaluation or appraisal. The Opinion is based upon market, economic, financial and other considerations as they exist on, and can be evaluated as of, October 14, 2020. Any change in such conditions will require a reevaluation. MPI has assumed that there are no legal issues regarding the Company or the Transaction that would affect the Opinion and has relied on this assumption without undertaking any independent investigation or inquiry. MPI provided no legal advice to any person (or entity) in connection with the Transaction. In connection with the Opinion, MPI has assumed that the Transaction will be consummated on the terms and subject to the conditions described in the Agreement. MPI has also assumed that all necessary governmental and regulatory approvals and third-party consents will be obtained on terms and conditions that will not have a material adverse effect on the Transaction. MPI is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, corporate restructurings, strategic alliances, and valuations for corporate and other purposes. MPI has provided the Opinion for the information and assistance of the Board in connection with the Transaction and will receive a fee for its services. MPI’s fee is not contingent upon the consummation of the Transaction. The Company has agreed to indemnify MPI for certain liabilities arising out of the rendering of the Opinion. This letter and the Opinion stated herein are solely for the use of the Board and its legal counsel and may not be reproduced, summarized, excerpted from or otherwise publicly referred to in any manner without MPI’s prior written consent. Notwithstanding the foregoing, the written opinion rendered by MPI may be reproduced in a disclosure document relating to the Transaction that is required to be filed with the Securities and Exchange Commission (“SEC”); provided however, that all references to MPI or any such written opinion therein shall be subject to MPI’s prior written consent (such consent not to be unreasonably withheld) with respect to form and substance. In addition a copy of the written opinion and any other materials provided by MPI in connection with such opinion may be provided to the SEC and any state securities regulators or any other governmental authority in connection with the Transaction provided however, that all references to MPI or any such written opinion therein shall be subject to MPI’s prior written consent (such consent not to be unreasonably withheld) with respect to form and substance. C-2 Helix Technologies, Inc. October 16, 2020 Page 3 Based upon and subject to the foregoing and such other matters as MPI deems relevant, MPI is of the Opinion that as of the date hereof and subject to the limitations stated herein, the Transaction is fair from a financial point of view to the Stockholders considered in the context of the Transaction viewed in its entirety. Sincerely, Management Planning, Inc. C-3 Section 262 of the General Corporation Law of the State of Delaware § 262 Appraisal rights [For application of this section, see § 17; 82 Del. Laws, c. 45, and § 23 82 Del. Laws, c. 45].
D-1 shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the provisions of this section, including those set forth in subsections (d),(e), and (g) of this section, shall apply as nearly as is practicable.
D-2 stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder’s shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given.
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D-4 acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just; provided, however that this provision shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholder’s demand for appraisal and to accept the terms offered upon the merger or consolidation within 60 days after the effective date of the merger or consolidation, as set forth in subsection (e) of this section.
8 Del. C. 1953, § 262; 56 Del. Laws, c. 50; 56 Del. Laws, c. 186, § 24; 57 Del. Laws, c. 148, §§ 27-29; 59 Del. Laws, c. 106, § 12; 60 Del. Laws, c. 371, §§ 3-12; 63 Del. Laws, c. 25, § 14; 63 Del. Laws, c. 152, §§ 1, 2; 64 Del. Laws, c. 112, §§ 46-54; 66 Del. Laws, c. 136, §§ 30-32; 66 Del. Laws, c. 352, § 9; 67 Del. Laws, c. 376, §§ 19, 20; 68 Del. Laws, c. 337, §§ 3, 4; 69 Del. Laws, c. 61, § 10; 69 Del. Laws, c. 262, §§ 1-9; 70 Del. Laws, c. 79, § 16; 70 Del. Laws, c. 186, § 1; 70 Del. Laws, c. 299, §§ 2, 3; 70 Del. Laws, c. 349, § 22; 71 Del. Laws, c. 120, § 15; 71 Del. Laws, c. 339, §§ 49-52; 73 Del. Laws, c. 82, § 21; 76 Del. Laws, c. 145, §§ 11-16; 77 Del. Laws, c. 14, §§ 12, 13; 77 Del. Laws, c. 253, §§ 47-50; 77 Del. Laws, c. 290, §§ 16, 17; 79 Del. Laws, c. 72, §§ 10, 11; 79 Del. Laws, c. 122, §§ 6, 7; 80 Del. Laws, c. 265, §§ 8-11; 81 Del. Laws, c. 354, §§ 9, 10, 17; 82 Del. Laws, c. 45, § 15; 82 Del. Laws, c. 256., § 15.; D-5 PART II INFORMATION NOT REQUIRED IN PROSPECTUS
Section 145 of the DGCL empowers a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding; provided that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. A Delaware corporation may indemnify directors, officers, employees and other agents of such corporation in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the person to be indemnified has been adjudged to be liable to the corporation. Where a director, officer, employee or agent of the corporation is successful on the merits or otherwise in the defense of any action, suit or proceeding referred to above or in defense of any claim, issue or matter therein, the corporation must indemnify such person against the expenses (including attorneys’ fees) which he or she actually and reasonably incurred in connection therewith. The Forian charter and Forian bylaws contain provisions that provide for the indemnification of officers and directors to the fullest extent as is permitted by the laws of the State of Delaware, as may be amended from time to time. As permitted by Section 102(b)(7) of the DGCL, the Forian charter contains a provision eliminating the personal liability of its directors to Forian or its stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by the DGCL, as may be amended from time to time. The merger agreement requires Forian to indemnify and hold harmless every person who is as of October 16, 2020 (or becomes prior to the effective time) a director, officer or employee of Helix or its subsidiaries, and every person who was serving as a director, officer or employee of another person at the request of Helix or its subsidiaries (each of who we refer to as an “indemnified party”), against all claims, losses, liabilities, damages, judgments, inquiries, fines and reasonable fees, costs and expenses, including attorneys’ fees and disbursements, incurred in connection with any claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (including with respect to matters existing or occurring at or prior to the effective time (including the merger agreement and the transactions and actions contemplated thereby)), arising out of or pertaining to the fact that such indemnified party is or was an officer or director of Helix or any of its subsidiaries or is or was serving at the request of Helix, or any of its subsidiaries, as a director or officer or employee of another person or in respect of any acts or omissions in their capacities as such directors or officers occurring prior to the effective time, whether asserted or claimed prior to, at or after the effective time, in each case to the same extent as such indemnified parties were indemnified as of the date of the merger agreement pursuant to Helix’s charter, Helix’s bylaws or the governing or organizational documents of any subsidiary of Helix, or any indemnification agreements in existence as of the date of the merger agreement. Forian is required to cooperate (and cause its subsidiaries to cooperate) in the defense of any matters described in the prior sentence. The merger agreement also requires Forian to maintain for six years following the effective time either: the policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by Helix and its subsidiaries as of October 16, 2020; or provide substitute policies for not less than the existing coverage and having other terms not less favorable to the insured persons, except that in no event will the annual cost to Forian for maintaining those policies exceed 300% of the annual premium paid by Helix, which we refer to as the maximum amount. Helix may obtain a six-year “tail” policy under that party’s existing directors and officers insurance policy in lieu of the foregoing, for a cost that will not exceed the maximum amount. II-1
The undersigned registrant hereby undertakes:
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II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Newtown, State of Pennsylvania, on
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
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