Forge(US:FRGE)2022-08-11 16:00Part I - Financial Information This section covers the company's unaudited financial statements, management's analysis, market risks, and internal controls Item 1. Condensed Consolidated Financial Statements (Unaudited) Forge Global Holdings' unaudited condensed consolidated financial statements detail the company's financial position and performance Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $204,942 | $74,781 | | Total current assets | $221,255 | $88,085 | | Total assets | $386,106 | $257,895 | | Liabilities & Equity | | | | Total current liabilities | $23,382 | $38,023 | | Total liabilities | $69,615 | $64,479 | | Total stockholders' equity (deficit) | $316,491 | $(52,640) | Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $16,640 | $38,673 | $36,662 | $70,728 | | Operating (loss) income | $(26,048) | $(805) | $(64,799) | $1,421 | | Net loss | $(5,119) | $(8,003) | $(69,543) | $(7,065) | | Diluted Net loss per share | $(0.20) | $(0.15) | $(0.66) | $(0.12) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(48,362) | $17,938 | | Net cash used in investing activities | $(3,435) | $(406) | | Net cash provided by financing activities | $182,154 | $30,309 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting revenue decline, increased expenses, and strong liquidity Business Overview and Recent Developments This section outlines Forge's private market financial services platform, its public listing, and strategic partnerships - The company's business is built on four integrated pillars: Forge Markets (trading), Forge Trust (custody), Forge Data (information), and Forge Company Solutions (software for private companies)182 - On March 21, 2022, the company consummated its business combination with MOTV, becoming a publicly traded company on the NYSE under the ticker "FRGE"181182 - Forge signed an agreement with Morgan Stanley Smith Barney LLC (MSSB) for MSSB to direct their customers' orders of private issuer equity securities to the Forge Markets platform186 Key Business Metrics Key business metrics show a significant downturn in trading volume and trades, while assets under custody increased Trading Business Metrics Comparison (Q2 2022 vs Q2 2021) | Metric | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Trades | 630 | 1,370 | (54)% | | Volume (in thousands) | $331,794 | $914,990 | (64)% | | Net Take Rate | 3.2% | 3.4% | (6)% | Custody Business Metrics Comparison (as of June 30) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Custodial Accounts | 1,739,838 | 1,880,564 | (7)% | | Assets Under Custody (in thousands) | $15,274,252 | $14,585,683 | 5% | Results of Operations Revenues declined significantly due to lower trading volumes, leading to an operating loss, partially offset by a warrant liabilities gain Revenue Comparison (in thousands) | Revenue Type | Q2 2022 | Q2 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Placement fees | $10,951 | $32,945 | $(21,994) | (67)% | | Custodial administration fees | $5,689 | $5,728 | $(39) | (1)% | | Total revenues | $16,640 | $38,673 | $(22,033) | (57)% | - Compensation and benefits expense for Q2 2022 was flat year-over-year at $27.4 million. However, for the six months ended June 30, 2022, it increased by 48% to $71.0 million, primarily due to a one-time transaction bonus of $17.7 million related to the business combination and a $12.1 million increase in share-based compensation244246 - The company recorded a $20.6 million gain from the change in fair value of warrant liabilities in Q2 2022, compared to a $5.4 million loss in Q2 2021. This was a primary driver of the reduced net loss for the quarter273 Liquidity and Capital Resources The company maintains strong liquidity with substantial cash, despite operating cash outflow, supported by financing activities - The company's principal source of liquidity as of June 30, 2022, was its cash and cash equivalents balance of $204.9 million279 Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Operating Activities | $(48,362) | $17,938 | | Investing Activities | $(3,435) | $(406) | | Financing Activities | $182,154 | $30,309 | - Cash from financing activities in the first half of 2022 included $208.5 million from PIPE and A&R FPA investors and $22.1 million from the exercise of Public Warrants, offset by $56.9 million in offering costs288 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate fluctuations affecting custodial fees and minimal foreign exchange rate exposure - The company's primary market risk exposure is to interest rate changes, which impact custodial administration fees. A hypothetical 50 basis point change in interest rates would have affected custodial fee revenues by $1.1 million for the six months ended June 30, 2022310312 - Foreign exchange rate risk is not currently material, as substantially all of the company's revenue and expenses are denominated in U.S. dollars314 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022316 - No material changes were made to the company's internal control over financial reporting during the second quarter of 2022317 Part II - Other Information This section covers legal proceedings, key risk factors, and other miscellaneous company information Item 1. Legal Proceedings The company is involved in a lawsuit regarding warrant issuance, which it believes is without merit and will not materially impact operations - On January 7, 2022, the Stockholder Representative for former SharesPost stockholders filed a lawsuit against Forge, alleging breaches of the merger agreement related to the form of warrants to be issued321 - Forge believes the allegations are without merit, has filed a counterclaim, and does not currently believe the lawsuit will have a material adverse impact on its operations or financial position321 Item 1A. Risk Factors This section outlines significant risks including historical losses, intense competition, transaction revenue reliance, regulatory challenges, and cybersecurity threats - The company has a history of losses, with an accumulated deficit of $148.1 million as of June 30, 2022, and may not achieve or maintain profitability in the future324 - The business faces intense competition from established financial institutions and early-stage companies, some of which have greater resources and longer operating histories326 - The business is subject to extensive and evolving laws and regulations from the SEC, FINRA, and other authorities, with potential for new rules on private company transparency that could impact the business model372374377 - The company is exposed to significant cybersecurity risks, including data breaches and fraudulent activity, and is subject to stringent data privacy laws like the CCPA and GDPR, with non-compliance carrying risks of significant penalties and reputational harm402410433 Other Items (Items 2, 3, 4, 5, 6) This section confirms no unregistered sales of equity securities, no defaults, no mine safety disclosures, and references filed exhibits - The company reported no unregistered sales of equity securities, defaults upon senior securities, mine safety disclosures, or other information for the period covered by the report464465466467