
PART I FINANCIAL INFORMATION Financial Statements The company's financials reflect a significant turnaround, shifting from a net loss to a $9.7 million net income for the first nine months of 2023, driven by strategic divestitures Condensed Consolidated Balance Sheet Highlights | Account | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $5,377,079 | $2,795,743 | | Marketable securities | $43,585,724 | $17,396,487 | | Total current assets | $58,488,611 | $26,916,028 | | Total assets | $58,792,289 | $46,258,167 | | Liabilities & Equity | | | | Total current liabilities | $7,460,852 | $8,352,575 | | Convertible notes payable, net | $24,665,944 | $25,106,547 | | Total liabilities | $32,126,796 | $33,835,691 | | Total stockholders' equity | $26,665,493 | $12,422,476 | Condensed Consolidated Statement of Operations Highlights | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $5,348,469 | $4,310,694 | $15,112,398 | $11,448,468 | | Operating Loss (Continuing) | $(807,268) | $(2,840,504) | $(4,683,605) | $(17,093,682) | | Net Income (Loss) | $4,342,091 | $(5,127,624) | $9,717,744 | $(22,415,257) | | Diluted EPS | $0.13 | $(0.16) | $0.30 | $(0.70) | Condensed Consolidated Statement of Cash Flows Highlights (Nine Months Ended Sep 30) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $1,328,275 | $(9,151,286) | | Net cash from investing activities | $2,361,052 | $(8,007,047) | | Net cash from financing activities | $(1,107,991) | $(71,207) | | Net change in cash | $2,581,336 | $(17,229,540) | - The company completed the sale of its BioTrack subsidiary on February 10, 2023, for $30 million, exiting the cannabis industry to focus on healthcare analytics, resulting in a gain on sale of $11.5 million218182 - On July 21, 2023, the company sold its equity interest in a customer for $5.8 million in cash, recognizing a gain on the sale, with potential for an additional $3.6 million in earnout payments50 Management's Discussion and Analysis of Financial Condition and Results of Operations Management highlights a successful strategic pivot to healthcare analytics, evidenced by revenue growth, cost reductions, and substantially strengthened liquidity from divestitures Results of Operations Revenue from continuing operations grew 32% to $15.1 million in the first nine months of 2023, with improved gross margins and significantly lower operating expenses Results of Operations from Continuing Operations (Nine Months Ended Sep 30) | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $15,112,398 | $11,448,468 | +32.0% | | Cost of revenues | $3,891,482 | $3,853,486 | +1.0% | | Research and development | $1,100,657 | $3,315,506 | -66.8% | | Sales and marketing | $3,746,731 | $2,904,358 | +29.0% | | General and administrative | $10,393,016 | $13,003,158 | -20.1% | | Operating loss | $(4,683,605) | $(17,093,682) | +72.6% | - Revenue for the nine months ended Sep 30, 2023, increased by 32% YoY, primarily due to increased sales of information products to new and existing customers in the healthcare industry152 - Gross profit as a percentage of revenues increased to 74% for the nine months ended Sep 30, 2023, compared to 66% for the same period in 2022, as many data infrastructure costs are fixed or semi-variable153 - Separation expenses of $5.4 million were recorded in 2022 related to the non-renewal of advisory agreements with former Helix executives, compared to $0.6 million in 2023 for a CEO resignation157158 Non-GAAP Financial Measures Adjusted EBITDA from continuing operations turned positive to $0.55 million for the first nine months of 2023, a $7.0 million improvement from the prior year's loss Reconciliation to Adjusted EBITDA (Continuing Operations, Nine Months Ended Sep 30) | Reconciliation Item | 2023 | 2022 | | :--- | :--- | :--- | | Net Income (loss) from continuing operations | $2,114,444 | $(17,291,885) | | Depreciation and amortization | $64,285 | $48,599 | | Stock based compensation expense | $4,920,572 | $10,581,021 | | Interest and investment income | $(1,666,786) | $(111,683) | | Interest expense | $630,547 | $633,041 | | Gain on sale of investment | $(5,805,858) | $0 | | Severance expense | $250,000 | $0 | | Income tax expense | $159,287 | $20,000 | | Other adjustments | $(115,239) | $(343,155) | | Adjusted EBITDA | $551,252 | $(6,464,062) | - Adjusted EBITDA for the nine months ended September 30, 2023, was $551,252, an increase of $7,015,314 compared to a loss of $(6,464,062) for the same period in 2022172 Liquidity and Capital Resources The company's liquidity significantly improved to $49.0 million in cash and marketable securities, bolstered by proceeds from asset sales and positive operating cash flow - As of September 30, 2023, the company's balance of cash and marketable securities aggregated $49.0 million173 - Liquidity was significantly boosted by the sale of BioTrack for $30.0 million and the sale of a minority equity interest for $5.8 million in 2023173 Cash Flows from Continuing Operations (Nine Months Ended Sep 30) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $1,387,350 | $(6,775,497) | | Net cash provided by (used in) investing activities | $2,361,052 | $(6,356,478) | | Net cash used in financing activities | $(1,107,991) | $(71,207) | Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Forian Inc. is not required to provide this information in its quarterly report - This item is not required for the registrant187 Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of September 30, 2023, due to material weaknesses, with remediation efforts underway - The company's CEO and CFO concluded that disclosure controls and procedures as of September 30, 2023, remain ineffective due to previously identified material weaknesses189 - Remediation efforts are underway, including hiring additional personnel, engaging outside consultants, and implementing upgraded accounting and finance systems191192 PART II OTHER INFORMATION Legal Proceedings The company is defending two significant lawsuits, one claiming subsidiary ownership and another from former employees seeking over $27.5 million in damages - In Audet v. Green Tree International, a plaintiff claims 10% ownership of a subsidiary and seeks unspecified monetary damages, with a trial anticipated between January and March 2024197 - In Grant Whitus et al. v. Forian Inc., former Helix employees are suing for over $27.5 million in damages related to claims of promised equity and compensation198 Risk Factors This item is not required for the company's quarterly report - This item is not required199 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the reporting period - None reported200 Defaults Upon Senior Securities The company reported no defaults upon senior securities - None reported201 Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable202 Other Information The company did not report any other information for this period - None reported203 Exhibits This section lists the exhibits filed with the Form 10-Q, including required Sarbanes-Oxley certifications and Inline XBRL data files - The report lists filed exhibits, including Sarbanes-Oxley certifications (31.1, 31.2, 32.1) and Inline XBRL documents204