UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
For
the Quarterly Period Ended
OR
For the transition period from ______________ to ______________
Commission
File No.
(Exact name of small business issuer as specified in its charter)
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incorporation or organization) | Identification No.) |
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Securities registered pursuant to Section 12(b) of the Act:
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Not applicable | Not applicable | Not applicable |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Smaller
reporting company |
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Emerging
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If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
The number of shares of Common Stock, $0.0001 par value of the registrant outstanding on August 14, 2023, was .
FORGE INNOVATION DEVELOPMENT CORP.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED June 30, 2023
TABLE OF CONTENTS
i |
PART I
ITEM 1. FINANCIAL STATEMENTS
FRORGE INNOVATION DEVELOPMENT CORP.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 |
FORGE INNOVATION DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, | December 31, | |||||||
2023 | 2022 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | $ | ||||||
Account receivable | ||||||||
Deferred share-based compensation | ||||||||
Prepaid expense and other current assets | ||||||||
Total Current Assets | ||||||||
NONCURRENT ASSETS | ||||||||
Property and equipment, net | ||||||||
Real estate investments, net | ||||||||
Rent deposit | ||||||||
Total Non-Current Assets | ||||||||
TOTAL ASSETS | $ | $ | ||||||
LIABILITIES AND EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable and accrued liabilities | $ | $ | ||||||
Other payable - related party | ||||||||
Unearned revenue | ||||||||
Rent payable | ||||||||
Loans payable - related parties | ||||||||
Loans payable | ||||||||
Total Current Liabilities | ||||||||
Security deposits payable | ||||||||
Rent payable | ||||||||
Long term portion of Chase auto loan | ||||||||
Long term portion of SBA loan | ||||||||
Commercial loan | ||||||||
TOTAL LIABILITIES | ||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
EQUITY (DEFICIT) | ||||||||
Preferred stock, $ | par value, shares authorized; share issued and outstanding||||||||
Common stock, $ | par value, shares authorized, and shares issued and outstanding||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total Forge Stockholders’ Equity (Deficit) | ( | ) | ||||||
Non-controlling interests | ||||||||
Total Equity (Deficit) | ( | ) | ||||||
TOTAL LIABILITIES AND EQUITY (DEFICIT) | $ | $ |
The accompanying notes are an integral part of these unaudited condensed financial statements.
2 |
FORGE INNOVATION DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenues | ||||||||||||||||
Property management income | $ | $ | $ | $ | ||||||||||||
Property management income from a related party | ||||||||||||||||
Rent income | ||||||||||||||||
Total revenues | ||||||||||||||||
Operating Expenses | ||||||||||||||||
Professional expenses | ||||||||||||||||
Depreciation expense | ||||||||||||||||
Share-based compensation | ||||||||||||||||
Selling, general and administrative expenses | ||||||||||||||||
Property operating | ||||||||||||||||
Total operating expenses | ||||||||||||||||
Other income (expenses): | ||||||||||||||||
Interest expense and loan fee, net | ( | ) | ( | ) | ||||||||||||
Gain on bargain purchase | ||||||||||||||||
Gain on debt settlement | ||||||||||||||||
Other expense, net | ( | ) | ( | ) | ||||||||||||
Total other income (expense), net | ( | ) | ||||||||||||||
Net income (loss) before income tax | ( | ) | ( | ) | ( | ) | ||||||||||
Income tax expense | ( | ) | ( | ) | ||||||||||||
Net income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
Net loss attributable to non-controlling interests in a subsidiary | ( | ) | ( | ) | ||||||||||||
Net income (loss) attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic and diluted | ||||||||||||||||
Earnings per share: | ||||||||||||||||
Basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these unaudited condensed financial statements.
3 |
FORGE INNOVATION DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended June 30, | ||||||||
2023 | 2022 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income (loss) | $ | $ | ( | ) | ||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Depreciation expense | ||||||||
Share-based compensation | ||||||||
Debt settlement | ( | ) | ||||||
Bad debt reserve | ||||||||
Gain on bargain purchase | ( | ) | ||||||
Change in operating assets and liabilities: | ||||||||
Account receivable | ( | ) | ( | ) | ||||
Prepaid expense and other current assets | ||||||||
Accrued interest and loan fee | ||||||||
Rent deposit | ||||||||
Rent payable | ||||||||
Unearned revenue | ( | ) | ||||||
Other current liability – related party | ( | ) | ||||||
Accounts payable and accrued liabilities | ( | ) | ||||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchase of property and equipment | ( | ) | ( | ) | ||||
Cash acquired from Legend | ||||||||
Net cash provided by (used in) investing activities | ( | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Repayment of SBA loan and car loans | ( | ) | ( | ) | ||||
Repayment to a related party | ( | ) | ||||||
Advance from related parties | ||||||||
Net cash provided by (used in) financing activities | ( | ) | ||||||
Net decrease in Cash | ( | ) | ( | ) | ||||
Cash at beginning of period: | ||||||||
Cash at end of period: | $ | $ | ||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFOR | ||||||||
Interest paid | $ | $ | ||||||
Income taxes paid | $ | $ | ||||||
NONCASH TRANSACTION OF INVESTING ACTIVITIES | ||||||||
Shares issued for acquisition of Legend | $ | $ | ||||||
Purchase of real estate investment settled by loans | $ | $ |
The accompanying notes are an integral part of these unaudited condensed financial statements.
4 |
FORGE INNOVATION DEVELOPMENT CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
Number of Shares | Common Shares | Additional Paid-in Capital | Accumulated Deficit |
Noncontrolling interests | Total Equity | |||||||||||||||||||
Balance, March 31, 2023 (unaudited) | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
Shares issued for compensation | ||||||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
Balance, June 30, 2023 (unaudited) | $ | $ | $ | ( | ) | $ | $ |
Number of Shares | Common Shares | Additional Paid-in Capital | Accumulated Deficit |
Noncontrolling interests | Total Equity | |||||||||||||||||||
Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
Net loss | - | ( | ) | |||||||||||||||||||||
Shares issued for compensation | ||||||||||||||||||||||||
Acquisition of Legend | ||||||||||||||||||||||||
Balance, June 30, 2023 (unaudited) | $ | $ | $ | ( | ) | $ | $ |
Number of Shares | Common Shares | Additional Paid-in Capital | Accumulated Deficit | Total Equity | ||||||||||||||||
Balance, March 31, 2022 (unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Net loss | - | ( | ) | ( | ) | |||||||||||||||
Balance, June 30, 2022 (unaudited) | $ | $ | $ | ( | ) | $ | ( | ) |
Number of Shares | Common Shares | Additional Paid-in Capital | Accumulated Deficit | Total Equity | ||||||||||||||||
Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Net loss | - | ( | ) | ( | ) | |||||||||||||||
Balance, June 30, 2022 (unaudited) | $ | $ | $ | ( | ) | $ | ( | ) |
The accompanying notes are an integral part of these unaudited condensed financial statements.
5 |
Forge Innovation Development Corp. and Subsidiary
Notes to the consolidated financial statements
Note 1 - Organization and Description of Business
Forge Innovation Development Corp. (individually “Forge” and collectively with its subsidiary, the “Company”), was initially incorporated in the State of Nevada on January 15, 2016 under the name of You-Go Enterprises, LLC (the “Company Predecessor”). On November 3, 2016, Forge amended its Articles of Incorporation in the State of Nevada to change the Company Predecessor’s name to Forge Innovation Development Corp. Our current principle executive office is located at 6280 Mission Blvd Unit 205, Jurupa Valley, CA 92509. The Company’s main business focuses on real estate development, land purchasing and selling and property management. The Company’s common stock is currently traded on OTCQB under the symbol “FGNV”.
On August 17, 2020, the Company established a wholly owned subsidiary, Forge Network Inc, in the State of California. As of June 30, 2023, we have not generated any income from the subsidiary due to our business strategy adjustment.
On
March 24, 2023, pursuant to an Asset Purchase Agreement between Forge Innovation Development Corp. (the “Company” or the
“Buyer”) and Legend Investment Management, LLC (“Legend LLC” or the “Seller”), the Company acquired
A
relative of the President of the Company has significant influence of the Seller’s management, therefore the acquisition is being
treated as a related party transaction. The Company acquired
Note 2 - Summary of Significant Accounting Policies
The accompanying unaudited consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
6 |
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. In the opinion of management, all adjustments necessary in order to make the consolidated financial statements not misleading have been included. Actual results could differ from those estimates.
Revenue Recognition
On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, using the modified retrospective approach, which applies the new standard to contracts that are not completed as of the date of adoption. Under the new standard, revenue is recognized upon transfer of control of promised goods and services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those goods and services.
Revenue streams that are scoped into ASU 2014-09 include:
Property management services: The Company deals directly with prospects and tenants for the owners of properties, which mainly includes marketing property, collecting rent, handling maintenance, repairing issues and responding to tenant complaints. The Company recognizes revenue as earned on a monthly basis and has concluded this is appropriate under the new standard.
Real estate sales: The Company accounts for the sale of real estate assets and any related gain recognition in accordance with the accounting guidance applicable to sales of real estate, which establishes standards for recognition of profit on all real estate sales transactions, other than retail land sales. The Company recognizes the sale, and associated gain or loss from the disposition, provided that the earnings process is complete, and the Company does not have significant continuing involvement. Subsequent to the adoption of the new standard, the Company may recognize a gain on a real estate disposition that previously did not qualify as a sale or for full profit recognition due to the timing of the transfer of control.
Business Combination
We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair values of these identifiable assets and liabilities over the fair value of purchase consideration is recorded as gain on bargain purchase included in other income on the consolidated statement of operations.
Non-controlling Interests
Non-controlling interests are portions of entities included in the consolidated financial statements that are not attributable to the Company. Non-controlling interests are identified separately from the Company’s stockholders’ equity and its net income (loss). Non-controlling interest equity balances include the non-controlling entity’s initial contribution at the date of the original acquisition, on-going contributions, distributions, and percentage share of earnings since inception. The non-controlling interests are calculated based on percentages of ownership.
The Company accounts for stock options and other equity-based compensation issued in accordance with ASC 718 “Stock Compensation”, which requires the measurement and recognition of compensation expense related to the fair value of equity-based compensation awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all share-based compensation payments granted to employees and nonemployees, net of estimated forfeitures, over the employees’ requisite service period or the non-employee performance period based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported.
7 |
New Accounting Standards Adopted
In June 2016, the FASB issued ASU No. 2016-13, (Topic 326), Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments which amends the current accounting guidance and requires the use of the new forward-looking “expected loss” model, which requires all expected losses to be determined based on historical experience, current conditions and reasonable and supportable forecasts, rather than the “incurred loss” model. This guidance amends the accounting for credit losses for most financial assets and certain other instruments including trade and other receivables, held-to-maturity debt securities, loans and other instruments. The Company adopted ASU No. 2016-13 on January 1, 2023, which had no impact on the beginning balance of the Company’s balance as there was no receivable balances as of January 1, 2023.
The management does not believe that other than disclosed above, the recently issued but not yet adopted accounting pronouncements will have a material impact on its financial position results of operations or cash flows.
Note 3 - Going Concern
The
accompanying consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and
the satisfaction of obligations in the normal course of business. However, the Company has suffered recurring losses from operations
since inception, resulting in an accumulated deficit of $
In view of these matters, continuation as a going concern is dependent upon several factors, including the availability of debt or equity funding upon terms and conditions acceptable to the Company and ultimately achieving profitable operations. Management believes that the Company’s business plan provides it with an opportunity to continue as a going concern. However, management cannot provide assurance that the Company will meet its objectives and be able to continue in operation.
The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of Forge Innovation Development Corp. to continue as a going concern.
Note 4 – Real Estate Investments
June 30, 2022 | December 31, 2022 | |||||||
(Unaudited) | ||||||||
Commercial building | $ | $ | ||||||
Tenant improvements | ||||||||
Construction in progress | ||||||||
Land | ||||||||
Total real estate investments, at cost | ||||||||
Less: accumulated depreciation | ( | ) | ||||||
Total real estate investments, net | $ | $ |
Note 5 - Income Taxes
The Company has not recognized an income tax benefit for its operating losses generated based on uncertainties concerning its ability to generate taxable income in future periods. The tax benefit for the period presented is offset by a valuation allowance established against deferred tax assets arising from the net operating losses, the realization of which could not be considered more likely than not. In future periods, tax benefits and related deferred tax assets will be recognized when management considers realization of such amounts to be more likely than not.
For
the three months ended June 30, 2023 and 2022, the Company has incurred a net loss of $
8 |
Note 6 - Related Party Transactions
During
the six months ended June 30, 2023 and 2022, Mr. Liang, the Company’s CEO, paid operating expenses on behalf of the Company in
the amount of $
On
January 4, 2021, the Company purchased a vehicle from Patrick Liang, the President of the Company, for daily business operation, in the
amount of $
On
July 15, 2022, the Company traded its Mazda vehicle with Longo Toyota to exchange a 2022 Toyota Mirai. The total purchase price for
the 2022 Toyota Mirai is $
As
of June 30, 2023 and December 31, 2022, the Company had payable of $
During
the six months ended June 30, 2023, the Company received advance of $
During
the six months ended June 30, 2023 and 2022, the Company generated property management income of $
As
of June 30, 2023, Legend LP had loans payable in the total amount of $
Note 7 – Commercial and SBA Loans
On
July 14, 2020, the Company entered into a loan agreement with the U.S. Small Business Administration (“SBA”), pursuant to
which the Company obtained a loan in the amount of $
9 |
Upon
acquisition of Legend LP, the Company assumed loans from Legend LP which is payable to a third party in the principal amount of $
The
Company also assumed a loan from a third party in the total amount of $
Note 8 – Acquisition of Legend
On
March 23, 2023, the Company acquired
The following table presents the allocation of the consideration transferred to the assets acquired and liabilities assumed based on their fair values.
Allocation | ||||
Total purchase consideration | $ | |||
Fair value of non-controlling interests | ||||
Total consideration | ||||
Identifiable net assets acquired: | ||||
Cash | $ | |||
Account receivable | ||||
Prepaid expenses and other | ||||
Real estate investments | ||||
Accounts payable and accrued liabilities | ( | ) | ||
Security deposits payable | ( | ) | ||
Unearned revenue | ( | ) | ||
Loans to related parties | ( | ) | ||
Loans, current | ( | ) | ||
Net assets acquired | ||||
Gain on bargain purchase | $ | ( | ) |
Given
the nature of Legend’s operations, substantially all revenue and expenses incurred at the beginning of the month. Considering the
short period of 7 days from acquisition date to the quarter end, upon agreement with Legend LLC, the Company would start to consolidate
the operation results of Legend from April 1, 2023. From April 1, 2023 to June 30, 2023, the Company recognized net loss of $
10 |
Note 9 – Stockholders’ Equity
As of June 30, 2023 and December 31, 2022, the Company had and shares of common stock issued and outstanding, respectively.
On March 24, 2023, the Company issued shares of common stock to complete the acquisition of Legend (Note 8).
2023 Equity Incentive Plan
On June 15, 2023, the Board of the Company adopted an equity incentive plan to increase stockholder value and to advance the interests of the Company by furnishing a variety of economic incentives (“Incentives”) designed to attract, retain and motivate employees, certain key consultants and directors of the Company. Incentives may consist of opportunities to purchase or receive shares of Common Stock, $ par value, of the Company (“Common Stock”) on terms determined under this plan (the “2023 Equity Incentive Plan”). Under the 2023 Equity Incentive Plan, the Company can issue up to shares of common stocks of the Company. Incentives may be granted in any one or a combination of: (a) incentive stock options and non-statutory stock options; (b) stock appreciation rights; (c) stock awards; (d) restricted stock; and (e) performance shares. Such incentives may be subject to vesting conditions determined by the Board of Directors at grant. The maximum term of options or other stock-based award granted is ten years or such lesser time as determined by the Board of Directors at the time of grant.
On
June 26, 2023, the Company granted a total of
As of June 30, 2023, the Company’s common stock issuable under the 2023 Equity Incentive Plan totaled shares.
Note 10 - Commitment and Contingencies
On
December 8, 2017, the Company entered into a lease agreement with Puente Hills Business Center II, L.P. (“PHBC-II”) for
a lease term of
Note 11- Subsequent Event
On
July 14, 2023, the Company reached a settlement with PHBC-II and agreed to pay rent of $
11 |
Item 2. Management’s Discussion and Analysis and Plan of Operation
This 10−Q contains forward-looking statements. Our actual results could differ materially from those set forth as a result of general economic conditions and changes in the assumptions used in making such forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read together with the consolidated financial statements and accompanying notes and the other financial information appearing elsewhere in this report. The analysis set forth below is provided pursuant to applicable Securities and Exchange Commission regulations and is not intended to serve as a basis for projections of future events.
Overview
Forge Innovation Development Corp. is a development stage company and was incorporated in the State of Nevada in January 2016. The Company’s primary objective is commercial and residential land development, including the purchase and sale of real estate, targeting properties primarily in Southern California. We also intend to manage properties we own, and properties owned by unaffiliated third parties. Our activities will include securing acquisition rights to properties, obtaining zoning and other entitlements for the properties, securing financing for purchase of the properties, improving the properties’ infrastructure and amenities and selling the properties to homeowner and commercial owners for restaurants, offices and small businesses. Our first property acquisition was 29 acres in the city of Desert Hot Springs in Southern California. Due to problems with permits and adjacent landowners, rather than getting involved in protracted negotiations, the Company sold the property to an independent third party for a profit.
On August 17, 2020, the Company established a wholly owned subsidiary, Forge Network Inc, in the State of California. As of June 30, 2023, we have not generated any income from the subsidiary due to our business strategy adjustment.
On March 24, 2023, pursuant to an Asset Purchase Agreement between Forge Innovation Development Corp. (the “Company” or the “Buyer”) and Legend Investment Management, LLC (“Legend LLC” or the “Seller”), the Company acquired 77.3% of Legend LLC’s 66% ownership of Legend International Investment, LP (“Legend LP”). Legend LP owns 100% of Mission Marketplace; a grocery anchored shopping center (the “Property”) located at 6240 Mission Boulevard in Jurupa Valley, California. The Property contains two, one-story and one, two-story buildings containing 48,722 total square foot of gross leasable area situated on a 4.51acre site.
A relative of the President of the Company has significant influence of the Seller’s management, therefore the acquisition is being treated as a related party transaction. The Company acquired 51% interest of Legend LP from Legend LLC in exchanged for 1,967,143 common stocks of the Company, valued at $0.70 per share for a total purchase price of $1,377,000, which equals 51% of Legend LP’s approximate net value of $2,700,000 based on (1) the Property’s valuation appraisal report dated on February 20, 2023, (2) Legend LP’s net book value as of February 28, 2023, and (3) the loan agreement to Legend LP by a third-party lender effective on March 23, 2023. After the closing of the acquisition, the Company will own 51% of Legend LP and the Seller will own 15% of Legend LP.
Results of operation for the three months ended June 30, 2023
For the three months ended June 30, 2023, we had total revenue of $133,010, as compared to $30,259 for the three months ended June 30, 2022, an increase of $102,751 or 340%. The increase was mainly due to the acquisition of Legend LP in the first quarter of 2023 which generated rent income for the three months ended June 30, 2023.
For the three months ended June 30, 2023, we had property management income of $nil, as compared to $5,259 for the three months ended June 30, 2022, a decrease of $5,259 or 100%. The decrease was due to the termination of property management services with a third party in April 2022.
For the three months ended June 30, 2023, we had property management income from related party, Legend LP, in the amount of $nil, as compared to $25,000 for the three months ended June 30, 2022, a decrease of $25,000. The decrease was mainly due to the acquisition of Legend LP, which eliminated to recognize property management income from Legend LP as intercompany transaction for the three months ended June 30, 2023.
12 |
For the three months ended June 30, 2023, the Company had total rent income generated by Legend LP of $133,010 as compared to $nil during the three months ended June 30, 2022, an increase of $133,010, or 100%. The increase was mainly resulted from the acquisition of Legend LP.
During the three months ended June 30, 2023 and 2022, the Company incurred general and administrative expenses of $62,080 and $23,085, respectively. During the same period of 2022 and 2023, the depreciation expense increased from $9,198 to $115,634, and property operating expense increased from $nil to $52,010. The increases in expenses are mainly due to the acquisition of Legend LP, which leads more depreciation expenses and property operating related expenses.
During the three months ended June 30, 2023 and 2022, the Company had interest expense of $204,763 and $nil occurred from the loans of Legend LP.
For the three months ended June 30, 2023 and 2022, the Company had share-based compensation of $42,959 and $nil. The increase is due to the adoption of 2023 Equity Incentive Plan and the issuance of 2,800,000 shares of common stocks under the plan to the Company’s 2023 Equity Incentive Plan.
Results of operation for the six months ended June 30, 2023
For the six months ended June 30, 2023, we had total revenue of $178,010, as compared to $45,863 for the six months ended June 30, 2022, an increase of $132,147 or 288%. The increase was mainly due to the acquisition of Legend LP in the first quarter of 2023.
For the six months ended June 30, 2023, we had property management income of $45,000, as compared to $45,863 for the six months ended June 30, 2022, a decrease of $863. The decrease was mainly due to the acquisition of Legend LP, which eliminated to recognize property management income from Legend LP as intercompany transaction for the three months ended June 30, 2023.
For the six months ended June 30, 2023, the Company had total rent income generated by Legend LP of $133,010 as compared to $nil during the six months ended June 30, 2022, an increase of $133,010, or 100%. The increase was mainly resulted from the acquisition of Legend LP.
During the six months ended June 30, 2023 and 2022, the Company incurred general and administrative expenses of $98,391 and $54,569 respectively. During the same period of 2022 and 2023, the depreciation expense increased from $14,275 to $121,847, and property operating expense increased from $nil to $52,010. The increases in expenses are mainly due to the acquisition of Legend LP, which led to more depreciation expenses and property operating related expenses.
During the six months ended June 30, 2023 and 2022, the Company had interest expense of $204,763 and $nil occurred from the loans of Legend LP.
During the six months ended June 30, 2023 and 2022, the Company had gain on bargain purchase of $487,688 and $nil on the acquisition of Legend LP.
For the six months ended June 30, 2023 and 2022, the Company had share-based compensation of $42,959 and $nil. The increase is due to the adoption of 2023 Equity Incentive Plan and the issuance of 2,800,000 shares of common stocks under the plan to the Company’s 2023 Equity Incentive Plan.
Equity and Capital Resources
We have incurred losses since inception of our business in 2016, except for prior quarter, and as of June 30, 2023, we had an accumulated deficit of $1,329,119. As of June 30, 2023, we had cash of $628 and a working capital of $648,127, compared to cash of $11,734 and a negative working capital of $140,204 as of December 31, 2022. The change in the working capital was primarily due to cash used to pay for operating expenses, deferred compensation and acquired loans from Legend.
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Going Concern Assessment
The Company demonstrates adverse conditions that raise substantial doubt about the Company’s ability to continue as a going concern. These adverse conditions are negative financial trends, specifically cash outflow from operating activities, operating losses, accumulated deficit and other adverse key financial ratios.
Management’s plan to alleviate the substantial doubt about the Company’s ability to continue as a going concern include attempting to improve its business profitability, its ability to generate sufficient cash flow from its operations and execute the business plan of the Company in order to meet its operating needs on a timely basis. However, there can be no assurance that these plans and arrangements will be sufficient to fund the Company’s ongoing capital expenditures and other requirements.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue as a going concern.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Critical Accounting Policies
The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires making estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The critical accounting policies are discussed in further detail in the notes to the audited consolidated financial statements appearing elsewhere in this report. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “small reporting company” we are not required to provide this information under this item pursuant to Regulation S-K.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report on Form 10-Q, our President (principal executive officer) and our Chief Financial Officer performed an evaluation of the effectiveness of and the operation of our disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act. Based on that evaluation, our President and Chief Financial Officer each concluded that as of the end of the period covered by this report on Form 10-Q, our disclosure controls and procedures were not effective in timely alerting them to material information relating to Forge Innovation Development Corp. required to be included in our Exchange Act filings.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the quarter ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
On December 8, 2017, the Company entered into a lease agreement with Puente Hills Business Center II, L.P. (“PHBC-II”) for a lease term of forty-eight months, and which was scheduled to expire on January 14, 2022, at monthly rent of $4,962, subject to increase. On or about September 29, 2020, the Company vacated the premises. On October 22, 2020, PHBC-II filed a lawsuit against the Company and its guarantor, Mr. Liang. The Company has retained legal counsel to address the matter and the Court has rescheduled the trial date from January 31, 2023 to April 18, 2023, and then again rescheduled to June 14, 2023. On July 14, 2023, the Company reached a settlement with PHBC-II and agreed to pay rent of $100,000 and rent deposit of $13,953 became nonrefundable. During the three and six months ended June 30, 2023, the Company recognized settlement loss of $30,883 which is included in other expenses, net on the consolidated statement of operations. As of June 30, 2023, the Company had $100,000 in rent payable to PHBC-II, with $60,000 within one year and $40,000 due after one year. As of December 31, 2022, the Company had $83,070 rent payable toward the lease agreement.
Item 1A. Risk Factors.
As a “smaller reporting company”, we are not required to provide this information under this item pursuant to Regulation S-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On June 26, 2023, the Company granted total 2,800,000 shares of common stock of the Company to four consultants, pursuant to the Company’s 2023 Equity Incentive Plan, the shares of which were registered with the SEC by filing of the Form S-8 dated on June 16, 2023. The fair value of the shares granted was valued in the amount of $1,960,000 at grant date. For the three months ended June 30, 2023, the Company recognized share-based compensation in the amount of $42,959. As of June 30, 2023, the deferred share-based compensation totaled $1,917,041.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None
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Item 6. Exhibits.
(a) Exhibits.
Exhibit | Item | |
31.1* | Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | |
31.2* | Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | |
32.1* | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FORGE INNOVATION DEVELOPMENT CORP. | |
Date: August 14, 2023 | /s/ Patrick Liang |
Patrick Liang | |
Chief Executive Officer | |
Date: August 14, 2023 | /s/ Patrick Liang |
Patrick Liang | |
Chief Financial Officer |
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EXHIBIT INDEX
Exhibit | Item | |
31.1* | Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | |
31.2* | Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | |
32.1* | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
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