FGNV 10-Q
Forge Innovation Development Corp. (FGNV)
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)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
N/A
( Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| 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
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files).
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):
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller reporting company | ||
| Emerging growth company |
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. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
The number of shares of Common Stock, $0.0001 par value of the registrant outstanding at May 16, 2024, was .
FORGE INNOVATION DEVELOPMENT CORP.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2024
TABLE OF CONTENTS
| i |
PART I
ITEM 1. FINANCIAL STATEMENTS
FORGE INNOVATION DEVELOPMENT CORP.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 1 |
FORGE INNOVATION DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2024 (Unaudited) | December 31, 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Rent receivables | ||||||||
| Deferred share-based compensation | ||||||||
| Prepaid expense and other current assets | ||||||||
| Total Current Assets | ||||||||
| NONCURRENT ASSETS | ||||||||
| Equipment, net | ||||||||
| Real estate investments, net | ||||||||
| Total Non-Current Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Due to related parties | ||||||||
| Unearned revenue | ||||||||
| Other current liabilities | ||||||||
| Loan payables | ||||||||
| Total Current Liabilities | ||||||||
| Security deposits | ||||||||
| Other liabilities | ||||||||
| Long term portion of Chase auto loan | ||||||||
| Long term portion of SBA loan | ||||||||
| Commercial loan | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| EQUITY | ||||||||
| Preferred stock, $ par value, shares authorized; share issued and outstanding | ||||||||
| Common stock, $par value, shares authorized, shares issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Forge Stockholders’ Equity | ||||||||
| Noncontrolling interests | ||||||||
| Total Equity | ||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 2 |
FORGE INNOVATION DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the three months ended | ||||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Property management income - related party | $ | $ | ||||||
| Rental income | ||||||||
| Total revenue | ||||||||
| Operating expenses | ||||||||
| Professional expenses | ||||||||
| Depreciation expense | ||||||||
| Share-based compensation | ||||||||
| Property operating expense | ||||||||
| Selling, general and administrative expenses | ||||||||
| Total operating expenses | ||||||||
| Other income (expense) | ||||||||
| Other income | ||||||||
| Interest expense | ( | ) | ||||||
| Gain on bargain purchase | ||||||||
| Total other (expense) income | ( | ) | ||||||
| Net (loss) income before tax | ( | ) | ||||||
| Income tax | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Net loss attributable to non-controlling interest in a subsidiary | ( | ) | ||||||
| Net (loss) income attributable to common stockholders | $ | ( | ) | $ | ||||
| (Loss) earnings per common share, basic and diluted | $ | ) | $ | |||||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 3 |
FORGE INNOVATION DEVELOPMENT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
| Depreciation expense | ||||||||
| Gain on bargain purchase | ( | ) | ||||||
| Expense paid by a related party on behalf of the Company | ||||||||
| Share-based compensation | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Account receivable | ( | ) | ( | ) | ||||
| Prepaid expense and other current assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Unearned revenue | ( | ) | ||||||
| Due to related party | ||||||||
| Other current liabilities and other liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Cash acquired from Legend | ||||||||
| Net cash provided by investing activities | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Repayment of commercial and SBA loans | ( | ) | ( | ) | ||||
| Proceeds from commercial loan | ||||||||
| Repayment to a related party | ( | ) | ||||||
| Advance from a related party | ||||||||
| Net cash provided by 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 | ||||||||
| Additional loan borrowed for deduction of interest payable | $ | $ | ||||||
| Additional loan borrowed for tenant improvements | $ | $ | ||||||
| Shares issued for acquisition of Legend | $ | $ | ||||||
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
Number of Shares | Common Shares | Additional Paid-in Capital | Accumulated Deficit | Noncontrolling interests | Total Equity | |||||||||||||||||||
| Balance, January 1, 2024 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Balance, March 31, 2024 (unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
Number of Shares | Common Shares | Additional Paid-in Capital | Accumulated Deficit | Noncontrolling interests | Total Equity | |||||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Acquisition of Legend | ||||||||||||||||||||||||
| Balance, March 31, 2023 (unaudited) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
| 5 |
Forge Innovation Development Corp. and Subsidiary
Notes to the condensed 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 March 31, 2024, 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.
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.
| 6 |
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.
Rental income
The Company’s rental income, which is derived primarily from lease contracts through Legend LP, includes rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the non-cancelable term of the lease. The Company defers the revenue related to lease payments received from tenants in advance of their due dates. In addition to base rent, the Company’s lease agreements generally require tenants to pay or reimburse the Company for all property operating expenses, which primarily reflect insurance costs and real estate taxes incurred by the Company and subsequently reimbursed by the tenant. However, some limited property operating expenses that are not the responsibility of the tenant are absorbed by the Company. Under ASC 842, the Company has elected to report combined lease and non-lease components in a single line “Revenue from tenants.” For expenses paid directly by the tenant, under both ASC 842 and 840, the Company has reflected them on a net basis.
If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Tenant improvement ownership is determined based on several factors including, but not limited to:
● whether the lease stipulates how and on what a tenant improvement allowance may be spent.
● whether the tenant or landlord retains legal title to the improvements at the end of the lease term.
● whether the tenant improvements are unique to the tenant or general-purpose in nature; and
● whether the tenant improvements are expected to have any residual value at the end of the lease.
Pursuant
to the lease agreements, the Company receives security deposits which will be refunded or applied as final payments as outlined in the
agreements. Such security deposits are recorded as liabilities for the Company on the consolidated balance sheet. As of March 31, 2024
and December 31, 2023, security deposits totaled $
Real estate investments, net
Land, building, and improvements are stated at cost, less accumulated depreciation and amortization. Major replacements and betterments, capital improvements and tenant improvements activities, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives, while ordinary repairs and maintenance are expensed as incurred. Buildings and improvements that are under redevelopment, or are being developed, are carried at cost and no depreciation is recorded on these assets. Additionally, amounts essential to the development of the property, such as pre-construction, development, construction, interest and other costs incurred during the period of development are capitalized. The Company ceases capitalization when the property is available for occupancy upon substantial completion of tenant improvements, but in any event no later than one year from the completion of major construction activity. Depreciation and amortization are provided primarily by the straight-line method over the estimated useful lives of the assets for financial statement purposes and by accelerated methods for income tax purposes. Estimated useful lives for financial statement purposes are as follows:
| Building Computer equipment and software | ||
| Building improvements | ||
| Equipment, furniture and fixtures |
Land is not depreciated because land is assumed to have an unlimited useful life. Upon sale or retirement of depreciable assets, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized.
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.
| 7 |
Non-controlling Interests
Non-controlling interests are portions of entities included in the condensed 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.
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amended guidance requires incremental reportable segment disclosures, primarily about significant segment expenses. The amendments also require entities with a single reportable segment to provide all disclosures required by these amendments, and all existing segment disclosures. The amendments will be applied retrospectively to all prior periods presented in the financial statements and is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently in the process of evaluating the impact this amended guidance may have on the footnotes to its consolidated financial statements.
Income Tax Disclosures - In December 2023, the Financial Accounting Standards Board (FASB) released ASU No. 2023-09, titled “Income Taxes (Topic 740): Enhancements to Income Tax Disclosures” (referred to as “ASU 2023-09”). This new standard mandates the disclosure, on an annual basis, of specific categories in the rate reconciliation and the disaggregation of income taxes paid by jurisdiction. ASU 2023-09 becomes effective for annual reporting periods starting after December 15, 2025. The Company anticipates that the adoption of this standard will not significantly impact its financial position, results of operations, or cash flows. In November 2023, the Financial Accounting Standards Board (FASB) released ASU 2023-07, titled “Enhancements to Reportable Segment Disclosures” (“ASU 2023-07”). This standard necessitates companies to provide additional, more comprehensive details regarding significant expenses of a reportable segment, even if there is only one such segment. Its purpose is to enhance disclosures related to a public entity’s reportable segments. ASU 2023-07 will be effective for fiscal years commencing after December 15, 2023, and for interim periods starting after December 15, 2024, with the option for early adoption. We are presently assessing the potential impact of adopting ASU 2023-07 on our consolidated financial statements.
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.
| 8 |
Note 4 – Real Estate Investments, Net
On
March 24, 2023, the Company acquired
| March 31, 2024 | December 31, 2023 | |||||||
| Commercial building | $ | $ | ||||||
| Tenant improvements | ||||||||
| Construction in progress | ||||||||
| Land | ||||||||
| Total real estate investments, at cost | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total real estate investments, net | $ | $ | ||||||
For
the three-month ended March 31, 2024 and 2023, the Company recorded depreciation expenses of $
Note 5 - Concentration of Risk
The
Company maintains cash in two accounts within two local commercial banks located in Southern California. The standard insurance amount
is $
For
the three months ended March 31, 2024, the Company generate revenue of
Note 6 - 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 March 31, 2024 and 2023, the Company has incurred a net loss before tax of $
| 9 |
Note 7 - Related Party Transactions
As of March 31, 2024 and December 31, 2023, the amounts due to related parties consisted of the following:
| Party | Nature of relationship | March 31, 2024 | December 31, 2023 | |||||||
| Patrick Liang (“Patrick”) | Chief Executive Officer | $ | $ | |||||||
| Hua Guo | Officer of Legend LP and Patrick’s mother | |||||||||
| Xiaohui Deng | Member of Legend LP | |||||||||
| Xingyu Liu | Member of Legend LP | |||||||||
| Glory Investment International Inc. (“Glory”) | Entity controlled by Hua Guo | |||||||||
| Prime Investment International Inc. (“Prime”) | Entity controlled by Hua Guo | |||||||||
| University Campus Hotel LP (“University”) | Entity controlled by Hua Guo | |||||||||
| Speedlight Consulting (“Speedlight”) | Entity controlled by a former director and 5.56% shareholder | |||||||||
| $ | $ | |||||||||
The
amounts due to related parties are unsecured, non-interest-bearing and due on demand. During the three months ended March 31, 2024, these
related parties paid expenses on behalf of the Company in the total 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 $
During
the three months ended March 31, 2023, the Company generated property management income of $
On
July 28, 2023, Legend LP entered into a Promissory Note (the “Note #1”) with Xingyu Liu, a member of Legend LP, to borrow
$
On
August 15, 2023, Legend LP entered into a Promissory Note (the “Note #2”) with Xiaohui Deng, a member of Legend LP, to borrow
$
| 10 |
Note 8 – Commercial and SBA Loans
| March 31, | December 31, | |||||||
| Party | 2024 | 2023 | ||||||
| Chase auto loan (Note 8) | $ | $ | ||||||
| SBA Loan (a) | ||||||||
| Third party individual (b) | ||||||||
| Third party entity A (c) | ||||||||
| Third party entity B (d) | ||||||||
| Third party entity C (e) | ||||||||
| Total commercial loans | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Non-current portion | $ | $ | ||||||
During
the three months ended March 31, 2024, the Company recognized interest expense $
| a. |
| b. |
| c. |
| d. | |
| During
the year ended December 31, 2023, the Company received an additional amount of $ | |
| During the three months ended March 31, 2024, the Company received loan proceeds of $ |
| 11 |
| e. |
Note 9 - 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 book values.
| Allocation | ||||
| Total purchase consideration | $ | |||
| Book 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 started to consolidate the operation results of Legend from April 1, 2023.
Note 10 – 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 , and which was scheduled to expire on
Note 11 –Subsequent Event
The Company has evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission, and noted the subsequent event below:
On April 15, 2024, Legend
LP refinanced its property by securing a new promissory note (the “New Note”) in the totaling $
| 12 |
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 March 31, 2024, 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 March 31, 2024 and 2023
For the three months ended March 31, 2024, we had total revenue of $136,219, as compared to $45,000 for the three months ended March 31, 2023, an increase of $91,219, or 203%. The increase was mainly due to the acquisition of Legend LP in March 2023.
For the three months ended March 31, 2024, we had property management income of $nil, as compared to $45,000 for the three months ended March 31, 2023, a decrease of $45,000. The decrease was mainly due to the acquisition of Legend LP in 2023, which eliminated to recognize property management income from Legend LP as intercompany transaction for the three months ended March 31, 2024.
For the three months ended March 31, 2024, the Company had total rent income generated by Legend LP of $136,219, as compared to $nil during the three months ended March 31, 2023, an increase of $136,219, or 100%. The increase was mainly resulted from the acquisition of Legend LP near the end of the first quarter in 2023.
During the three months ended March 31, 2024 and 2023, the Company incurred general and administrative expenses of $66,090 and $36,311, respectively. During the same period of 2023 and 2024, the depreciation expense increased from $6,213 to $78,361, and property operating expense increased from $nil to $36,148. The increases in expenses are mainly due to the acquisition of Legend LP, which leads more depreciation expenses and property operating related expenses.
| 13 |
During the three months ended March 31, 2024 and 2023, the Company had interest expense, net of $131,014 and $nil occurred from the loans of Legend LP, respectively.
During the three months ended March 31, 2023 and 2024, the Company had gain on bargain purchase of $487,688 and $nil on the acquisition of Legend LP, respectively.
During the three months ended March 31, 2024 and 2023, the Company had share-based compensation of $494,028 and $nil, respectively. 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 after the first quarter of 2023.
Equity and Capital Resources
We have incurred losses since inception of our business in 2016, except for current quarter, and as of March 31, 2024, we had an accumulated deficit of $3,070,272. As of March 31, 2024, we had cash of $3,909 and a negative working capital of $1,033,264, compared to cash of $4,892 and a negative working capital of $482,138 as of December 31, 2023. The increase in the working capital deficiency was primarily due to cash used to pay for operating expenses and loans and interest of Legend.
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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller 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 March 31, 2024 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.
Management is not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this Quarterly Report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.
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.
None
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 (Principle) Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of Chief (Principle) Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | |
| 32.1* | Certification of Chief (Principle) Executive Officer and Chief (Principle) 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: May 17, 2024 | /s/ Patrick Liang |
| Patrick Liang | |
| Chief (Principle) Executive Officer | |
| Date: May 17, 2024 | /s/ Patrick Liang |
| Patrick Liang | |
| Chief (Principle) Financial Officer |
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EXHIBIT INDEX
| Exhibit | Item | |
| 31.1* | Certification of Chief (Principle) Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of Chief (Principle) Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 | |
| 32.1* | Certification of Chief (Principle) Executive Officer and Chief (Principle) 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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