| 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 nine months ended September 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 quarterly 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 September 30, 2024 and December 31, 2023
was $0 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 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. The allowance for credit losses was $225,000 at September 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 September 30, 2024, the note has been fully paid. The Company recognized $0 and $20,712 and $96,164 and $341,205 of amortization of the $410,000 original discount recorded on the note interest as investment income for the three and nine months ended September 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 $798,724
and $2,395,177 and $647,131
and $1,953,382 for the three and nine months ended September 30, 2024 and 2023, respectively. The Company had outstanding
accounts receivable from this customer of $795,439 and $1,827 at September 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 September 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
—
—
—
(2,163,551
)
Net change due to timing of billings, payments and
recognition
(25,774
)
(225,907
)
(251,681
)
1,993,719
Balance at September 30, 2024
$
81,558
$
793,474
$
875,032
$
2,243,719 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
nine months ended September 30, 2024 and 2023 was $1,546,640 and $2,163,551 and $1,976,210 and $2,483,339, 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:
September 30,
2024
December 31, 2023
Estimated next twelve months
$
17,783,860
$
17,202,223
Thereafter
20,747,221
20,831,200
Total
$
38,531,081
$
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 nine months ended
September 30, 2024, the Company had two customers representing 17.0% and 11.8% and 16.7% and 12.4% of revenue,
respectively. At September 30, 2024, the Company had three customers representing 22.4%, 13.1% and 13.0% of accounts receivable. During the three and nine months
ended September 30, 2023, the Company had two customers representing 12.1% and 11.5% and 12.9% and 12.2% of revenue,
respectively. At September 30, 2023, the Company had four customers representing 23.2%, 14.0%, 13.3% and 10.9% 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. On July 31, 2024, the Company was informed by one of its information vendors that effective
December 31, 2024, the vendor will no longer include certain data within the information products it licenses to the Company. The vendor stated this was due to clarifications and updates to the licensing relationship between the vendor
and one of its data suppliers. The Company is currently evaluating the potential impact on its contractual relationship with the vendor and any impact on customer performance commitments and the availability of alternate sources of
comparable data. On September 23, 2024, the
Company was informed by one of its information vendors that it was exercising the right to terminate the agreement with the Company effective September 25, 2024, based on restrictions imposed by the information vendor’s upstream licensor.
As a result, the Company recorded an adjustment of $542,389 included in cost of revenues during the quarter ended September 30,
2024, representing previously recorded charges under the contract that will not be paid. The Company continues to evaluate any impact on customer performance commitments and the availability of alternate sources of comparable data. There can be no assurance that
alternate sources of comparable data can be obtained, and if so, on terms and conditions substantially equivalent to those under its existing agreements. Vendor Concentration During the three months ended
September 30, 2024, the Company had two vendors representing 16.2% and 10.7% of purchases and expenses and during the
nine months ended September 30, 2024, the Company had four vendors representing 24.4%, 13.7%, 10.8% and 12.6%, respectively, of purchases and
expenses. During the three months ended
September 30, 2023, the Company had one vendor representing 15.8% of purchases and expenses and during the nine months ended September 30, 2023, the Company had two vendors representing 14.0% and 12.4% 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 nine months ended September 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 nine months
ended September 30, 2024, the Company recognized net income tax benefit of $95,896 and net income tax expense of $14,865. For the three and nine months ended September 30, 2023, the Company recognized net income tax expenses of $93,191 and $159,287,
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 nine months ended September 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 $3,834,122 after utilization of federal and state net operating losses during the nine
months ended September 30, 2023. Income taxes related to discontinued operations for the three months ended September 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 September 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 nine months ended September 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”). ASU 2023-07 improves reportable segment disclosure requirements, primarily through enhanced
disclosures about significant segment expenses. The amendments in this update require public companies to disclose on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision
maker (CODM) and require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. In addition, the amendment requires that a public entity
provide all annual disclosures about a reportable segment’s profit or loss and assets currently required in interim periods and require that a public entity disclose the title and position of the CODM and an explanation of how the CODM
uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. This amendment will go into effect for the fiscal years beginning after December 15, 2023, and interim periods
within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2023-07 on its condensed consolidated financial statements and related disclosures. In November 2024, the FASB
issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Topic 220): Disaggregation of Income Statement Expenses. This guidance requires additional disclosure of certain amounts included
in the expense captions presented on the Statement of Operations as well as disclosures about selling expenses. The ASU is effective on a prospective basis, with the option for retrospective application, for annual periods beginning after
December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted for annual financial statements that have not yet been issued. The Company is currently evaluating the impact of ASU 2024-03 on
its condensed consolidated financial statements and related disclosures. 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. |
