| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Note 3
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES Principles of Consolidation The consolidated financial statements of the Company include the accounts of (i) Medical Outcomes
Research Analytics, LLC and (ii) Helix Technologies, Inc. and its wholly owned subsidiaries including Helix Legacy, Inc. (f/k/a Security Grade Protective Services, Ltd.), Green Tree International, Inc. and Bio-Tech Medical Software, Inc.
(through February 10, 2023, on which date 100% of the outstanding capital stock of Bio-Tech Medical Software, Inc. was sold).
All intercompany transactions have been eliminated in consolidation. Discontinued Operations On February 10, 2023, Helix
completed the sale of 100% of the outstanding capital stock of its wholly owned subsidiary, BioTrack. As the sale of BioTrack, the
security monitoring business and Engeni, LLC, together, represented a strategic shift that will have a major effect on the Company’s operations and financial results, they have been presented in discontinued operations separate from
continuing operations for the three and six months ended June 30, 2023, as applicable. The results from operations and gain (loss) on sale of the security monitoring business and Engeni LLC, net, was previously classified as part of
continuing operations as their disposition individually did not have a major impact on the business prior to the sale of BioTrack. For further discussion, refer to Note 4.
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 the related notes to the financial statements. The
significant areas of estimation include but are not limited to accounting for the allowance for credit losses, income taxes, contingencies, discontinued operations and stock-based compensation. Certain of the Company’s estimates could be
affected by external conditions, including those unique to the Company and general economic conditions. It is possible that the external factors could have an effect on the Company’s estimates and could cause actual results to differ from
those estimates. Reclassifications Certain reclassifications have been made to the prior
period financial statements to conform to the current period financial statement presentation. Certain litigation related costs that were previously included in general and administrative expenses in the prior period financial statements have
been reclassified to Litigation settlements and related expenses to be consistent with the current presentation. Fair Value of Financial Instruments The Company measures the fair value
of financial assets and liabilities based on the guidance of ASC 820, Fair Value Measurements and Disclosures ASC 820 defines fair value as the
exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an ordinary transaction between market participants on the
measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of
inputs that may be used to measure fair value: Level 1 — quoted prices in active markets for identical assets or liabilities; Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are
observable; and Level 3 — inputs that are unobservable. The carrying value of the Company’s financial instruments, such as cash, marketable securities, accounts
receivable and accrued liabilities and other liabilities approximate fair values due to the short-term nature of these instruments. The estimated fair value of the Company’s warrant liabilities as of June 30, 2024 and December 31, 2023 was
$20 and $563,
respectively, based on Level 3 inputs. Refer to Note 10. Cash and Cash Equivalents and Credit Risk The Company considers all cash accounts that are not
subject to withdrawal restrictions and highly liquid investments with a maturity of three months or less, when purchased, as cash and cash equivalents. The Company maintains cash with major financial
institutions. Cash held at U.S. bank institutions is currently insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000
at each institution, as the coverage is based on individually titled accounts. The portion of deposits in excess of FDIC coverage is not protected by such insurance and represents a credit risk to the Company. At times, the Company’s deposits
exceed this coverage. Accounts Receivable and Allowance for Credit Losses Accounts receivable are recorded at
the invoiced amount, net of an allowance for credit losses. The Company determines the allowance for credit losses based on historical write-off experience, customer specific facts and economic conditions. Outstanding account balances are
reviewed individually for collectability. The allowance for credit losses is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Allowance for credit losses was $168,750 at June 30, 2024 and $0 at
December 31, 2023. Management charges account balances
against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Proceeds Receivable From Sale of Discontinued Operations, Net In February 2023, the Company received a note for $10,000,000 payable in twelve equal monthly installments as partial
consideration for the sale of BioTrack (see Note 4 – Discontinued Operations). As of June 30, 2024, the note has been fully paid. The Company recognized $0 and $20,712 and $190,000 and $245,041 of amortization of the $410,000 original discount recorded on the note interest as investment income for the three and six months ended June 30, 2024 and 2023,
respectively. Revenue Recognition The Company recognizes revenue in
accordance with FASB Topic 606, Revenue from Contracts with Customers Under ASC 606, the Company
recognizes revenue when (or as) customers obtain control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenue
following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the
performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation. The Company applies the provisions of ASC 606 to an arrangement when a substantive contract exists and
collectability is probable. The Company derives revenue
primarily from license fees for the Company’s information products. Information products contracts are generally for a period of one month
to five years. Information products’ customers may access data analytics products through the use of tools provided by the Company
or by utilizing their own tools per the contract. Data products may consist of historical information as it exists at the time of delivery or information that will be updated over a period of time as agreed with the customer. In most cases,
the provision of information products is considered a single performance obligation. In cases where the Company is not obligated to update information over the access period and control over the use of the products passes to the customer when
delivered, revenue is recognized when the information products are made available to the customer. In cases where information updates are provided over the contract term, they are considered highly interrelated with the information product
delivered upon contract inception and revenue is recognized ratably over the life of the contract. Customers are generally invoiced according to monthly, quarterly or annual amounts specified in the contract. Any amounts invoiced in excess of
revenue recognized are recorded as deferred revenue. Revenue recognized in excess of amounts invoiced is recorded as a contract asset. In some cases, contracts provide for
variable consideration that is contingent upon the occurrence of uncertain future events, which can either increase or decrease the transaction price, including sales of products by customers derived from data analytics products the Company
provides and the volume of data available for future information updates. Variable consideration based on sales of products by customers is recognized in the period of sales, subject to minimum amounts specified in contracts. Variable
consideration is estimated at the expected value or at the most likely amount depending on the type of consideration. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of
cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimate of variable consideration and determination of whether to include estimated amounts in the transaction
price are based largely on an assessment of anticipated performance and all information (historical, current and forecasted) that is reasonably available to the Company and reevaluated each reporting period. The effect of revisions in
recognized estimated variable consideration in excess of minimums are recorded beginning in the period in which the estimates are revised. Actual results could differ from periodic estimates. Significant judgments and estimates
are sometimes necessary for the determination of whether performance obligations in a contract are distinct and whether they are delivered at a point in time or over time. Judgement is also necessary to assess revenue recognized under
contingent revenue arrangements. Contract acquisition costs, which
consist of sales commissions paid or payable, are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for initial and renewal contracts are deferred and then amortized on a straight-line
basis over the contract term.
During November 2020, the Company entered into a Master Services Agreement (the “November 2020 Agreement”) with a
customer to provide information services described in certain statements of work under the November 2020 Agreement. As part of the November 2020 Agreement, the Company was granted shares of restricted stock representing approximately 23.4% of the outstanding common stock of the customer at the time of issuance, vesting in quarterly increments specified in the November 2020
Agreement through December 2023. Concurrently, the Company entered into a Stockholders Agreement specifying its voting and other rights as a stockholder. As a result, the Company determined that it did not exert influence over the
customer. ASC 606-10-32-21 requires an entity to measure the fair value of noncash consideration at contract inception. The fair value of the restricted stock was determined to be $0 on the date of inception. The Company recorded revenue from the customer of $798,320
and $1,596,454 and $654,489
and $1,306,251 for the three and six months ended June 30, 2024 and 2023, respectively. The Company had outstanding accounts
receivable from this customer of $796,789 and $1,827 at June 30, 2024 and December 31, 2023, respectively. On July 21, 2023, the customer merged with Vox Merger Sub, Inc. As a result of the merger, the Company received $5,805,858 of cash proceeds, net of holdbacks, in consideration for all of its equity interest in the customer, which was recorded as gain on
sale of investment during the year ended December 31, 2023. Forian may receive additional earnout payments in 2025 and 2026 in an aggregate amount of up to approximately $3,600,000 if certain conditions are met. Contract assets and deferred revenues consist of the following as of June 30, 2024 and December 31, 2023:
Contract Assets
Contract Liability
Costs of obtaining contracts
Unbilled revenue
Total
Deferred Revenue
Balance at January 1, 2023
$
158,016
$
2,094,942
$
2,252,958
$
2,581,287
Beginning deferred revenue balance recognized
during the period
—
—
—
(2,581,286
)
Net change due to timing of billings, payments
and recognition
(50,684
)
(1,075,561
)
(1,126,245
)
2,413,550
Balance at December 31, 2023
107,332
1,019,381
1,126,713
2,413,551
Beginning deferred revenue balance recognized
during the period
—
—
—
(2,133,447
)
Net change due to timing of billings, payments
and recognition
(9,881
)
(161,477
)
(171,358
)
2,922,599
Balance at June 30, 2024
$
97,451
$
857,904
$
955,355
$
3,202,703 Transaction price allocated to remaining performance
obligations represents contracted revenue that has not yet been recognized, which includes unearned revenue and unbilled amounts that will be recognized as revenue in future periods. The amount of deferred revenue recognized for the three
and six months ended June 30, 2024 and 2023 was $384,771 and $2,133,447 and $501,596 and $2,168,624, respectively. The majority of the Company’s noncurrent remaining performance obligations will be recognized over the next 36 months. The transaction price allocated to
remaining performance obligations consisted of the following:
June 30,
2024
December 31, 2023
Estimated next twelve months
$
16,191,125
$
17,202,223
Thereafter
16,944,792
20,831,200
Total
$
33,135,917
$
38,033,423 Segment Information FASB ASC 280, Segment
Reporting As discussed above, the Company disposed of its
businesses servicing the cannabis industry in 2023, and has reclassified its historical results as discontinued operations. As such, the Company’s continuing operations are comprised of a single reportable segment providing analytic and
information services to the healthcare and life sciences industries.
Customer Concentration During the three and six months ended
June 30, 2024, the Company had two customers representing 16.7% and 11.6% and 16.5% and 12.7% of
revenue, respectively. At June 30, 2024, the Company had four customers representing 21.9%, 20.8%, 12.1% and 10.1% of
accounts receivable. During the three and six
months ended June 30, 2023, the Company had two customers representing 13.4% and 12.6% of revenue, in both of the
respective periods. At June 30, 2023, the Company had three customers representing 34.7%, 14.3% and 11.8% of accounts receivable. Vendors and Licensors The Company licenses certain
information assets from third parties as a key input to certain Information and Software products. Any disruptions associated with these suppliers could have a material short-term impact on the business while alternate sources are
secured. The information licenses specify content deliverables and specified use rights for a fixed fee and time period. Payment terms for information licenses generally consist of upfront payments and annual licensing fees. The Company
expenses the contract costs over the expected period of benefit and records any differences between amounts expensed and payments incurred as other assets or liabilities on a contract by contract basis. Payments for licensed
information, including the changes in related assets and liabilities, are classified within “Net cash provided by operating activities” on the condensed consolidated statements of cash flows. In cases where the Company pays variable
fees based on content usage, such costs are expensed as incurred. Vendor Concentration During the three months ended
June 30, 2024, the Company had two vendors representing 13.5% and 11.2%, respectively, of purchases and
expenses and during the six months ended June 30, 2024, the Company had three vendors representing 14.3%, 11.9% and 10.1%, respectively, of purchases and expenses. During the three and six months
ended June 30, 2023, the Company had two vendors representing 18.6% and 14.1% and 14.0% and 13.2%, respectively,
of purchases and expenses. Property and Equipment, Net Property and equipment are
stated at cost, net of accumulated depreciation, which is recorded commencing at the in-service date using the straight-line method at rates sufficient to charge the cost of depreciable assets to operations over their estimated useful
lives, which are 1 to 7
years. Maintenance and repairs are charged to operations as incurred. Contingencies Occasionally, the Company may be
involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred and the amount can be
reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s condensed consolidated financial statements. Contingencies are inherently unpredictable and the
assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. Advertising Advertising costs are expensed as incurred and included in sales and marketing expenses and amounted to and and for the and six months ended June respectively. Net Income (Loss) per Share The calculation of earnings per
share is based on the weighted average number of common shares or common stock equivalents outstanding during the applicable period. The dilutive effect of common stock equivalents is excluded from basic earnings per share and is included
in the calculation of diluted earnings per share, unless their impact is antidilutive to the “control number,” which is income (loss) from operations. Convertible notes, employee stock options, employee restricted stock awards and similar
equity instruments granted by the Company are treated as potential ordinary shares outstanding in computing diluted earnings per share. Diluted shares outstanding are calculated using the as if converted method for convertible notes and
the treasury stock method for other potentially dilutive securities. Under the as if converted method, the dilutive impact of securities is calculated as if conversion occurred at the beginning of the reporting period. Under the treasury
stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized and the amount of benefits that would be recorded in common shares
when the award becomes deductible for tax purposes are assumed to be used to repurchase shares.
Distinguishing Liabilities from Equity The Company relies on the guidance provided by ASC
Topic 480, Distinguishing Liabilities from Equity Derivatives and Hedging: Contracts in Entity’s Own Equity Once the Company determines that a financial
instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet (“temporary equity”). The Company
will determine temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e. at the option of the holder). Otherwise, the Company accounts for the financial instrument as
permanent equity. Initial Measurement The Company records its financial instruments
classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received. Subsequent Measurement – Financial instruments classified as liabilities The Company records the fair value of its financial
instruments classified as liabilities at each subsequent measurement date. The changes in fair value of its financial instruments classified as liabilities are recorded as other expense/income. Stock-based Compensation The Company’s 2020 Equity
Incentive Plan (“2020 Plan”) permits the grant of stock options, restricted stock awards and/or restricted stock units. A total of 4,000,000
shares of Company common stock were originally authorized and reserved for issuance under the 2020 Plan. On June 15, 2022, the Company’s stockholders approved an amendment to the 2020 Plan, which amended the 2020 Plan to increase the
number of shares available for issuance by 2,400,000 shares to a total of 6,400,000 shares. Stock options represent the right to purchase Company common stock at the exercise price on the date of grant of the stock option at a future date.
Restricted stock awards are grants of shares of Company common stock. Restricted stock units represent the right to receive shares of Company common stock on future specified dates. Stock options, restricted stock awards and restricted
stock units granted contain restrictions that cause them to be subject to substantial risk of forfeiture and restrict their exercise, sale or other transfer by the grantee until they vest. The terms of the stock options, restricted stock
awards and units granted under the 2020 Plan are determined by the Board of Directors in the agreement evidencing the award, including the number of shares, period of restriction or vesting schedule and other terms. The fair value of the
stock options, restricted stock awards and restricted stock units is based on the underlying grant date fair value of Company common stock. The fair value is then expensed over the requisite service periods of the awards, net of
forfeitures, which is generally the service period and the related amount is recognized in the condensed consolidated statements of operations. Income Taxes The Company accounts for income
taxes in accordance with FASB ASC 740 (“ASC 740”). Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities, which are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes
represents Federal and state and local income taxes. The effective rate differs from statutory rates due to the effect of state and local income taxes, tax benefit of R&D credits and certain nondeductible expenses. Our effective tax
rate will change from quarter to quarter based on recurring and non-recurring factors including, but not limited to, the geographical mix of earnings, enacted tax legislation and state and local income taxes. In addition, changes in
judgment from the evaluation of new information resulting in the recognition, derecognition, or re-measurement of a tax position taken in a prior annual period is recognized separately in the quarter of the change. For the three and six months
ended June 30, 2024 and 2023, the Company recognized net income tax expense of $8,221 and $110,761 and $36,187 and $66,096, respectively. The Company claims R&D tax credits on eligible R&D expenditures. The R&D tax credits are recognized as a
reduction to income tax expense. The Company recognized a taxable
gain on sale of discontinued operations for the six months ended June 30, 2023, which resulted in utilization of certain available federal and state net operating loss carryforwards. As a result, the Company recorded income taxes related
to discontinued operations of $2,722,570 after utilization of federal and state net operating losses during the six months
ended June 30, 2023. Income taxes related to discontinued operations for the three months ended June 30, 2023 result from adjustments to estimates impacting intraperiod tax allocations. The Company files a consolidated
U.S. income tax return and tax returns in certain state and local jurisdictions. As of June 30, 2024, the Company is not currently under any examination in any tax jurisdiction. Tax contingencies are recorded,
if needed, to address potential exposure involving tax positions the Company has taken that could be challenged by tax authorities. These potential exposures could result from applications of various statutes, rules, regulations and
interpretations. Any estimates of tax contingencies contain assumptions and judgments about potential actions by taxing jurisdictions. Any interest and penalties related to uncertain tax positions would be included as part of the income
tax provision. The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of or changes in tax laws, regulations and interpretations thereof as well as
other factors. Separation Expenses Effective February 10, 2023, the Company’s Chief
Executive Officer, President and Class II member of the Board of Directors resigned. In connection with the resignation, the Company entered into a separation agreement providing for, among other things, (i) salary continuation for twelve months and (ii) accelerated vesting of 106,656
unvested restricted shares of Company common stock. Separation expenses for the six months ended June 30, 2023, $250,000 related to the salary continuation and $349,832 In addition, the Company records
normal course of business severance expenses in the operating expense line item related to its employees’ activities. Recent Accounting Pronouncements In December 2023,
the FASB issued Accounting Standards Update No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”) In November 2023, the FASB
issued Accounting Standards Update No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”) The Company has considered all other recently issued
accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements. |
