10-Q: Forge Innovation Reports Q3 Loss, Divests Key Asset

Forge Innovation Development Corp. reported a net loss of $1.04 million for the nine months ended September 30, 2025, and divested its 51% interest in Legend LP, leading to significant balance sheet changes and a going concern warning.

Summary

• The Company reported a net loss of $1,038,886 for the nine months ended September 30, 2025, an improvement from a net loss of $1,475,098 in the prior year period.
• Forge Innovation Development Corp. divested its 51% ownership interest in Legend International Investment, LP (Legend LP) on July 27, 2025, by releasing 1,967,143 common stocks, resulting in a recognized loss on disposal of $806,368.
• Total assets significantly decreased to $163,696 as of September 30, 2025, from $8,215,198 at December 31, 2024, primarily due to the Legend LP divestiture.
• The Company reported $0 cash and a negative working capital of $182,888 as of September 30, 2025.
• All revenue for the three months ended September 30, 2025 ($16,000), and 100% of accounts receivable ($125,500) were generated from related parties.
• Management concluded that disclosure controls and procedures were not effective as of September 30, 2025.
• The Company continues to face substantial doubt about its ability to continue as a going concern due to recurring losses and an accumulated deficit of $4,793,313.

Sentiment

Score: 2

Explanation: The company faces severe financial distress with $0 cash, negative equity, and a significant accumulated deficit. The going concern warning, ineffective internal controls, and reliance on related party transactions indicate high operational and financial risk, despite an improvement in net loss and cash used in operations.

Positives

• Net loss from continuing operations improved significantly to $(61,734) for the nine months ended September 30, 2025, from $(1,048,896) in the prior year.
• Net cash used in operating activities significantly decreased to $(5,946) for the nine months ended September 30, 2025, from $(231,665) in the prior year.
• Total operating expenses decreased substantially to $89,484 for the nine months ended September 30, 2025, from $1,053,567 in the prior year, largely due to the absence of share-based compensation.
• The Company generated $28,000 in property management income from related parties for the nine months ended September 30, 2025, compared to $0 in the prior year.

Negatives

• The Company reported $0 cash as of September 30, 2025, down from $405 at December 31, 2024, indicating severe liquidity issues.
• Total equity is a deficit of $(178,788) as of September 30, 2025, a significant decline from $1,758,006 at December 31, 2024.
• The accumulated deficit increased to $4,793,313 as of September 30, 2025, highlighting persistent unprofitability.
• The disposal of Legend LP resulted in a recognized loss of $806,368.
• The Company has negative working capital of $182,888 as of September 30, 2025.
• Disclosure controls and procedures were deemed not effective by management.
• The Company faces a money judgment lawsuit from PHBC-II for $104,038 related to a prior settlement.
• The Company's business is heavily reliant on related party transactions, with 100% of Q3 2025 revenue and accounts receivable from related parties.

Risks

• Substantial doubt exists about the Company's ability to continue as a going concern due to recurring losses, an accumulated deficit of $4,793,313, $0 cash, and negative working capital of $182,888.
• Heavy reliance on related party transactions for all revenue and accounts receivable poses significant concentration risk and potential conflicts of interest.
• Ineffective disclosure controls and procedures could lead to material information not being timely reported, impacting investor confidence and regulatory compliance.
• Exposure to ongoing legal proceedings, including a money judgment from PHBC-II for $104,038 and being named as a secondary defendant in another lawsuit, creates financial and operational uncertainty.
• The Company's ability to generate sufficient cash flow from operations or secure adequate debt/equity funding to meet its operating needs is uncertain.
• Uncertainty surrounds the outcome of the receivership for Legend LP and the eventual return of collected rents, which could impact financial recovery.

Future Outlook

Management believes its business plan provides an opportunity to continue as a going concern, aiming to improve profitability and generate sufficient cash flow. However, no assurance can be given that these plans will be sufficient to fund ongoing capital expenditures and other requirements.

Management Comments

• "It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make."
• "We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law."
• "Management believes that the Company's business plan provides it with an opportunity to continue as a going concern."
• "Management, after consultation with legal counsel, believes the allegations against the Company [in the Bloomage Beverly Hills Investment Inc. lawsuit] are without merit and is seeking dismissal."
• "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."

Industry Context

The company operates in real estate development and property management, primarily in Southern California. Its strategy involves land purchasing, selling, and property management. The recent divestiture of a grocery-anchored shopping center suggests a potential shift or streamlining of its property portfolio, possibly to focus on core development activities or to shed underperforming assets. The heavy reliance on related-party transactions is unusual for a publicly traded company and could raise questions about market competitiveness and independent operations.

Corporate Governance

Legal Proceedings

• PHBC-II filed a money judgment against the Company on July 1, 2025, for $104,038 related to a prior lease settlement. The Company intends to defend against these claims.
• Legend LP (previously owned by the Company) successfully suspended a receivership on March 17, 2025. The Company and Legend LP are evaluating impacts and may sue the plaintiff of the receivership.
• Plaintiff Xinyi Guo initiated legal proceedings against Legend International Investment LP (previously owned by the Company) on March 3, 2025; specific allegations are unavailable as the defendant has not been formally served.
• The Company has been named as a secondary defendant in a lawsuit by Bloomage Beverly Hills Investment Inc., with primary claims against Hua Guo (a related party). Management believes allegations against the Company are without merit and is seeking dismissal.

Related Party Transactions

• The Company generated 100% of its revenue for the three months ended September 30, 2025 ($16,000), and approximately 57%, 32%, and 11% of its revenue for the nine months ended September 30, 2025 ($28,000 total), from three related parties (Glory Investment International Inc., Legend Investment Management LLC, University Campus Hotel LP).
• As of September 30, 2025, 100% of the Company's accounts receivable balance ($125,500) was due from Legend LP, a related party.
• Amounts due to related parties as of September 30, 2025, totaled $170,728, including $8,510 to Patrick Liang (CEO), $158,864 to Hua Guo (Officer), and $3,354 to Legend Investment Management LLC (entity controlled by CEO's relative). These amounts are unsecured, non-interest-bearing, and due on demand.
• The transfer of 51% ownership interest in Legend LP back to Legend LLC on July 27, 2025, was a related party transaction, valued at $1,377,000 (original acquisition value), and resulted in a loss on disposal of $806,368. The fair market value of the 1,967,143 common stocks released was $196,714 on July 27, 2025.

Stakeholder Impact

• Shareholders face significant negative impact due to negative equity, recurring losses, going concern doubt, and ineffective disclosure controls. The divestiture of Legend LP and associated loss also impacts shareholder value.
• Creditors face increased risk due to the company's severe financial instability, $0 cash position, and going concern warning, despite a reduction in total liabilities from the divestiture.
• Management and employees may experience uncertainty regarding job security and operational stability given the company's financial distress and going concern issues.

Next Steps

• Management plans to improve business profitability and generate sufficient cash flow to address going concern issues.
• The Company intends to defend against the money judgment filed by PHBC-II.
• The Company and Legend LP are evaluating the impacts of the receivership and may bring a lawsuit against the plaintiff of the receivership.
• The Company awaits the final accounting and reports from the Receiver regarding collected rents for Legend LP.
• Management is seeking dismissal of the Bloomage Beverly Hills Investment Inc. lawsuit.
• The Company is evaluating the impact of new accounting standards ASU 2023-09 and ASU 2024-03 on its financial statements.

Key Dates

Recommendation

The company exhibits severe financial distress, including $0 cash, negative equity, and a substantial accumulated deficit, raising significant doubt about its ability to continue as a going concern. The disclosure of ineffective internal controls further undermines investor confidence. While net loss and cash used in operations improved, these are overshadowed by the fundamental liquidity and solvency issues. The heavy reliance on related-party transactions and ongoing legal challenges add to the high-risk profile. The divestiture of a key asset at a loss, without a clear path to profitability or capital infusion, suggests a deteriorating outlook. A seasoned investor would likely view this as a strong sell due to the high risk of further value erosion and potential bankruptcy.

Keywords

Forge Innovation Development Corp, FGNV, 10-Q, Quarterly Report, Real Estate Development, Property Management, Going Concern, Related Party Transactions, SEC Filing, Financial Results, Net Loss, Asset Divestiture, Legend LP, Disclosure Controls