Item 7. Management’s Discussion and Analysis
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following selected financial information is derived from our historical financial statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere within this Report on Form 10-K and the “Forward-Looking Statements” explanation included elsewhere herein.
Overview
Onfolio Holdings Inc. acquires controlling interests in and actively manages small online businesses that we believe (i) operate in sectors with long-term growth opportunities, (ii) have positive and stable cash flows, (iii) face minimal threats of technological or competitive obsolescence and (iv) can be managed by our existing team or have strong management teams largely in place. Through the acquisition and growth of a diversified group of online businesses with these characteristics, we believe we offer investors in our shares an opportunity to diversify their own portfolio risk.
Onfolio Holdings Inc. was incorporated on July 20, 2020 under the laws of Delaware to acquire and develop high-growth and profitable online businesses. Unless the context otherwise requires, all references to “our Company,” “we,” “our” or “us” and other similar terms means Onfolio Holdings Inc., a Delaware corporation, and our wholly owned subsidiaries.
In 2024, we delivered meaningful progress toward sustained profitability. Revenue increased 50% year-over-over to $7.8M, driven primarily through the successful acquisition of three new businesses, RevenueZen, DDSRank, and Eastern Standard.
Although our gross profit margin declined slightly to 58% in 2024 from 62% in 2023—largely due to the new acquisitions having lower margins than our existing portfolio—we significantly improved our operating loss, reducing it from $9.2M to $2.5M. This improvement was driven by the profitable acquisitions, continued organic growth, continued disciplined expense management, and a reduction in impairment charges.
During 2024, we focused on reducing our losses and growing our revenues, and made strong progress to that end. Crucially, in Q4 2024 we recorded a positive net income of $136K for the quarter, a significant step in moving us towards profitability.
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When we started our Company in 2020, we held four core beliefs.
1.
That there are a vast number of profitable online businesses that could be seen as undervalued and under optimized.
2.
That by aggregating these businesses, we could reduce the significance of idiosyncratic risks of any one company as it became a smaller part of a more resilient portfolio.
3.
That our existing operational expertise, combined with a commitment to continually improve it, would allow us to operate these businesses as or more effectively than their existing management.
4.
That being a public company would give us access to capital at a lower cost than the returns generated by the acquired companies.
In short, we believed there were many overlooked and mispriced online businesses for sale, and we were developing the due diligence and operational expertise to acquire, and grow them.
Our goal has always been to become a world-class serial acquirer, using our unique operating and financial leverage on a diverse portfolio of online businesses, to deliver strong compounded returns to our shareholders.
Further, during 2024, we experienced success with the following:
1. Strategic Acquisitions
We acquired three new businesses with eight combined revenue streams, contributing a total of $6M in revenue.
·
In January 2024, we acquired RevenueZen , an SEO-led content marketing agency with $1.4M revenue and $227K in net profit. The RevenueZen team brought with it the operational skillset and management discipline that enabled us to assign them the management of SEOButler, and towards the end of 2024, Contentellect. This deal was funded using promissory notes, series A preferred shares, and seller notes—leading to the belief that we could close acquisitions with little out of pocket capital, a theme for 2024.
·
In July 2024, we acquired DDSRank, a smaller agency focused on SEO for dentists. Despite its smaller size ($500K revenue, $200K net profit), we liked DDSRank for both its operational improvement opportunities, as discussed below, and for its ability to be “tucked-in” to the SEO portfolio. We funded the deal using a combination of OA SPV capital ($200K), series A preferred shares ($200K), and a seller note ($200K). Our only out-of-pocket expenses were legal, diligence, and finder’s fees.
·
In October 2024, we acquired Eastern Standard, our largest acquisition to date in terms of revenue ($4M), and second largest in terms of enterprise value ($2.4M) – Proofread Anywhere remains the largest with a $4.5M enterprise value. Like DDSRank, the OA SPV provided the upfront capital in exchange for a minority stake, while we acquired a majority interest using series A preferred shares and a seller note.
Each of these acquisitions were both accretive and strategically valuable. One of the pillars of our acquisition strategy and business model is that every acquisition we make adds profit to our bottom line. The limiting factor is the upfront capital needed to acquire target companies. Given that we started the year with a low cash balance and large losses, we needed to find a way to reduce those losses without deploying significant capital. By developing creative, low- or no-cash acquisition structures, we were able to make accretive business purchases, grow our consolidated profits, and avoid deploying large sums of capital in the process, without diluting shareholders or raising equity at unattractive valuations.
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2. Operational Improvements.
Alongside our acquisition activity, we made significant progress in building the operational capacity of our portfolio.
The reason many of the businesses we evaluate are considered “undervalued” is because of the very real risk that they do not perform well post-acquisition. Our challenge is to make sure that we not only acquire strategic target companies, but also operate those companies profitably post-acquisition. During fiscal years 2023 and 2024, we implemented a revised management and operational structure by (i) adding highly competent operators through our acquisitions, particularly from the RevenueZen and Eastern Standard teams, which has strengthened our capacity, and (ii) putting a high emphasis on portfolio synergies and efficient management. As a holding company, we must build operational expertise that will assist us in targeting businesses that maintain and then grow their revenues and profits. We believe we made significant progress in this area during 2024.
3. OA SPV Capital Model
In March 2024, we launched our OA SPV Capital Model to enable accredited retail investors to co-invest with our Company in acquisitions. For us this was a game-changer.
The OA SPVs enabled us to close both the DDSRank and Eastern Standard acquisitions, and we expect the OA SPV Capital Model to assist us with making additional acquisitions in the future without the need to deploy any of our Company’s own cash reserves.
For the DDSRank acquisition, the OA SPV funded 33% of the transaction, and for the Eastern Standard acquisition, the OA SPV funded 30% of the transaction. The OA SPV Capital Model provided us with the opportunity to use preferred shares and a seller note for the other 67% and 53% (as adjusted as described in “ Recent Developments” below) ownership respectively.
The OA SPV Capital Model has a high capital cost because we are required to give up significant portions of equity in the acquired businesses, but it serves as an essential tool for us at a time but when debt financing and other capital is unavailable to our Company on attractive terms. This was the solution we found that still allowed us to acquire accretive, quality businesses. Although we do not plan to continue to use OA SPVs in the long term due to the high cost of the capital, we believe the OA SPV Capital Model will be part of our acquisition strategy during 2025, along with series A preferred shares and seller notes.
Fundamentally, we believe the OA SPV Capital Model was a success since we are in the business of acquiring business with positive cashflow, and the OA SPV Capital Model allowed us to do so without using our own money.
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4. Series A Preferred Shares on OTCQB
On October 30, 2024, we obtained an Assignment of an Over-the-Counter Quoting and Trading Symbol for our series A preferred shares. Specifically, our series A preferred shares trade on the OTCQB, a public market tier in the US, under the symbol ONFOP. Previously, we raised ~$1.5M in capital from the sale of our series A preferred shares to accredited investors and issued another ~$3M series A preferred shares to sellers of acquisition companies as part of the acquisition consideration. Series A preferred shareholders are now free to quote their shares for sale on the OTCQB and any purchaser, whether accredited or not, can purchase such shares on the OTCQB in a brokerage transaction. We believe that now that our series A preferred shares are quoted on the OTCQB, we will be able to continue to use these shares to raise additional capital and as acquisition consideration, which will enable us to be less reliant on our OA SPV Capital Model.
On the Path to Profitability
Throughout 2024, we have significantly reduced our losses and Q4 saw a positive net income of $136K. We believe positive free-cashflow will occur in the near term. Although we are nearing a point where we can continue operations without requiring additional fundraising or acquisitions to achieve profitability, we intend to continue to pursue both future fundraising and acquisition activities since we believe that both of these activities will continue to accelerate our growth and long-term value creation.
With this foundation, we expect to move into sustained profitability in the near term, and we will continue with the business plans we set forth and we will strive to make further gains in all areas of our business in 2025.
Our 2025 focus will be to continue to focus on these key areas and build on the Onfolio business model: find profitable businesses, acquire them, improve their operations and grow them, use those earnings, plus additional capital, to acquire more and repeat.
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Recent Developments
In October 2024, we acquired Eastern Standard, a premier digital agency specializing in brand strategy, website development, and digital marketing. Eastern Standard provides tailored solutions across various industries, helping clients enhance their online presence through strategic branding, search engine optimization (SEO), and user-focused design. Our Company holds a 70% ownership stake in Eastern Standard, while the OA SPVs maintain a 20% equity interest, and the Eastern Standard founders maintain a 10% roll-over equity interest and continue to serve in leadership roles on the Eastern Standard team.
On September 20, 2024, Eastern Standard LLC (“ Eastern Standard Delaware ”), a Delaware limited liability company and the Company’s majority owned subsidiary, entered into an Asset Purchase Agreement (“ Eastern Standard Asset Purchase Agreement ”) with Eastern Standard, LLC (“ Eastern Standard Pennsylvania ”), a Pennsylvania limited liability company, Mark Gisi, James Keller and Vincent Giordano. Pursuant to the Eastern Standard Asset Purchase Agreement, Eastern Standard Delaware will purchase from Eastern Standard Pennsylvania all of Eastern Standard Pennsylvania’s assets utilized in the operation of its business of providing digital marketing services, including integrated branding, and digital customer experiences (the “ ES Business Assets ”).
Pursuant to the Eastern Standard Asset Purchase Agreement, and subject to the terms and conditions contained therein, at the closing, Eastern Standard Pennsylvania agreed to sell to Eastern Standard Delaware the ES Business Assets, all as more fully described in the Eastern Standard Asset Purchase Agreement. The aggregate purchase price for the ES Business Assets was $2,160,000. As of the closing, the Company owns 70% of Eastern Standard Delaware in exchange for $1,250,000 payable pursuant to two secured promissory notes which are guaranteed by the Company, and $410,000 of the Company’s series A preferred shares. The entities comprising the Company’s special purpose vehicle funding program owns an aggregate of 20% of Eastern Standard Delaware in exchange for $500,000 payable in cash. Eastern Standard Pennsylvania owns a 10% roll-over equity interest in Eastern Standard Delaware. The acquisition closed on October 18, 2024.
The secured promissory notes consist of: (i) a $400,000 promissory note made by Eastern Standard Delaware in favor of Eastern Standard Pennsylvania with an interest at 8% per annum providing for interest only payments with a balloon payment of principal and interest at the end of one hundred twenty (120) days (“ Short Term ES Promissory Note ”); (ii) an $850,000 promissory note made by Eastern Standard Delaware in favor of Eastern Standard Pennsylvania with an interest rate at 8% per annum providing for interest only payments with a balloon payment of principal and interest at the end of two years (“ ES Promissory Note ”); and (iii) a Guaranty Agreement made by the Company to secure the payment of Eastern Standard Delaware pursuant to the Short Term ES Promissory Note, the ES Promissory Note and the other obligations of the Company and Eastern Standard Delaware under the Eastern Standard Asset Purchase Agreement.
In February 2025, the cash payment required to satisfy the obligations under the Short Term ES Promissory Note was provided by the OA SPVs. As a result, the ownership structure of Eastern Standard Delaware was adjusted, with the OA SPVs increasing its aggregate ownership percentage to 38%, while the Company’s ownership interest was adjusted to 53%. The 10% roll-over equity interest held by Eastern Standard Pennsylvania founders remains unchanged.
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Emerging Growth Company
We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
●
have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
●
comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
●
submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and
●
disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of our initial public offering, (ii) the last day of the first fiscal year in which our total annual gross revenues are $1.07 billion or more, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iv) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
Principal Factors Affecting Our Financial Performance
Our operating results are primarily affected by the following factors at a portfolio company level:
●
our ability to acquire new customers or retain existing customers;
●
our ability to offer competitive product pricing;
●
our ability to broaden product offerings;
●
industry demand and competition;
●
our ability to leverage technology and use and develop efficient processes;
●
our ability to effectively utilize a combination of cash, debt such as seller’s notes, and preferred shares when negotiating and structuring future deals;
●
our ability to attract and retain talented employees; and
●
market conditions and our market position.
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Components of Results of Operations
The Company reported a net loss of $1,773,942, which includes $1,084,624 in non-cash expenses and a $368,464 non-cash gain, for the year ended December 31, 2024 compared to a net loss of $9,150,066, which includes $6,289,015 in non-cash expenses, for the year ended December 31, 2023. The components of the increase in net loss for the current period are as follows:
Revenues
For the Year Ended
December 31,
$ Change
from prior
% Change
from
prior
2024
2023
year
year
Revenue, services
$ 4,660,069
$ 1,496,038
$ 3,164,031
211 %
Revenue, product sales
3,202,008
3,743,948
(541,940 )
(14 )%
Total Revenue
7,862,077
5,239,986
2,622,091
50 %
Revenue increased by $2,622,091, or 50% for the year ended December 31, 2024 compared to 2023. The increase is primarily due to revenue from our RevenueZen acquisition completed during the first quarter of fiscal 2024 which increased revenue by approximately $2,073,000, our DDS Rank acquisition completed at the end of the second quarter of fiscal 2024, which increased revenue by approximately $142,000, and our Eastern Standard acquisition completed during the fourth quarter of fiscal 2024, which increased revenue by approximately $974,000. This increase was partially offset by a decline in website management revenue, and a decline in digital product sales within the Company’s Mighty Deals subsidiary and a decline in revenue from its SEO Butler subsidiary.
Cost of Revenue
For the Year Ended
December 31,
$ Change
from prior
% Change
from
2024
2023
year
prior year
Cost of revenue, services
$ 2,609,061
$ 837,888
$ 1,771,173
211 %
Cost of revenue, product sales
708,139
1,159,267
(451,128 )
(39 )%
Total Cost of Revenue
3,317,200
1,997,155
1,320,045
66 %
Cost of revenue increased by $1,320,045, or 66%, due to the Company’s recent service agency acquisitions offset by the decrease in digital product sales within the Company’s Mighty Deals subsidiary. The Company’s gross profit margins decreased slightly to 57% in the current period compared to 62% in the prior period. The components most significant to the Company’s cost of revenue are the costs of labor for service fulfillment, content creation, website hosting and maintenance costs and the costs of acquiring new inventory products for physical product sales.
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Operating Expenses
Selling, General and Administrative
General and Administrative expenses decreased by $263,355 or 4% during the year ended December 31, 2024 as compared to 2023. The decrease was primarily due to a decrease in advertising and marketing costs of $275,000, and a decrease in stock based compensation expense of $535,000, offset by an increase in amortization expense of $226,000 associated with the acquired intangible assets not present in the comparable period, an increase in payroll and contractor costs of $273,000, and a $110,000 increase in other general and administrative costs including 401k contributions and guaranteed payments, referral commissions, and costs related to being a public company.
Our general and administrative expenses consist primarily of consulting related expenses paid to contractors, stock-based compensation, advertising and marketing costs, and other expenses. In the near future, our general and administrative expenses may continue to increase to support business growth. Over the long term, we aim to have general and administrative expenses decreasing as a percentage of revenue.
Professional Fees and Acquisition Costs
Professional fees decreased by $211,659, or 18% during the year ended December 31, 2024 compared to 2023 primarily due to decreased legal and accounting costs associated with the Company’s compliance requirements as a public company and the change in independent public accounting firm during 2024. The Company also incurred $264,731 in acquisition costs during the year ended December 31, 2024 compared to $326,899 during the year ended December 31, 2023, including audit, legal and other professional fees related to acquisitions and potential acquisitions. We expect acquisition costs to remain significant as we continue to grow based on acquisitions.
Impairment Loss
During the year ended December 31, 2024, the Company incurred an impairment loss of $121,000 related to Vital Reaction as a result of decreasing operating cash flows. During the year ended December 31, 2023, after taking into account the lower than expected performances of the following businesses and the rising interest rates, the Company recognized impairment losses of $2,642,649 related to the BCP Media Acquisition, $580,284 related to the BWPS Acquisition, and $903,897 related to the SEO Butler Acquisition, $700,000 related to Mighty Deals website domains and $84,000 related to Pretty Neat Creative, operating under Onfolio Crafts LLC, and $105,937 related to various website domains operating under Onfolio Assets LLC for total aggregate impairment expense $5,016,764. Management has a process to evaluate the viability and profitability of each business. If and when management concludes that a business has a significantly reduced future value, management will assess the asset for possible impairment in the quarter management reaches that conclusion.
Other Income and Expense
Total other income was $733,906 for the year ended December 31, 2024 compared to other income of $92,778 for the year ended December 31, 2023. The increase in other income was driven by the change in fair value of the contingent consideration owed on the RevenueZen Acquisition, offset by higher interest expenses on the outstanding promissory notes.
Business Segment Results of Operations
We operate in two business segments: Business to Business (“B2B”) and Business to Consumers (“B2C”). We organize our business segments based on the nature of products and services offered, and the economic characteristics of each segment. Following is a brief description of the activities of our business segments:
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Selected Financial Data by Business Segment
Net sales and operating profit of the Company’s business segments exclude intersegment sales, cost of sales and profit as these activities are eliminated in consolidation and thus are not included in management’s evaluation of performance of each segment. Sales, cost of sales and operating profit for each of our business segments were as follows:
For the
Year ended
December 31,
2024
For the
Year ended
December 31,
2023
Revenue
B2B
$ 4,368,661
$ 1,371,997
B2C
3,493,416
3,867,989
Total revenue
$ 7,862,077
$ 5,239,986
Cost of Sales
B2B
$ 2,561,523
$ 837,888
B2C
755,677
1,159,267
Total Cost of Sales
$ 3,317,200
$ 1,997,155
Operating income (loss)
B2B
$ 4,862
$ (1,033,590 )
B2C
482,100
(4,040,722 )
Total business segment operating income (loss)
486,962
(5,074,312 )
Unallocated items
(2,994,813 )
(4,168,531 )
Total consolidated operating income (loss)
$ (2,507,851 )
$ (9,242,843 )
Management evaluates performance on our contracts by focusing on net sales and operating profit and not by type or amount of operating expense. Consequently, our discussion of business segment performance focuses on net sales and operating profit, consistent with our approach for managing the business. This approach is consistent throughout the life cycle of our contracts, as management assesses the bidding of each contract by focusing on net sales and operating profit and monitors performance on our contracts in a similar manner through their completion.
B2B
Our B2B segment includes the results of operations of Eastern Standard, RevenueZen, DDS Rank, SEO Butler, Contentellect, DealPipe and Onfolio LLC. These entities share similar characteristics such as customers being businesses, and being primarily service-related businesses.
B2B revenue increased by $2,996,664 or 218% during the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase is primarily due to revenue from our RevenueZen acquisition completed during the first quarter of fiscal 2024 which increased revenue by approximately $2,073,000, our DDS Rank acquisition completed at the end of the second quarter of fiscal 2024, which increased revenue by approximately $142,000, and our Eastern Standard acquisition completed during the fourth quarter of fiscal 2024, which increased revenue by approximately $974,000. This increase was partially offset by a decline in website management revenue.
B2B total operating income increased by $1,038,452 or 100% during the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was a result of the increased revenue and gross profit offset by the increase in intangible asset amortization for the newly acquired businesses in the year ended 2024.
B2C
Our B2C segment includes the results of operations of Proofread Anywhere, Mighty Deals, and Vital Reaction. These entities share characteristics such as the end customers being individual consumers, and sales being more focused on product sales, including digital sales.
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B2C revenue decreased by $374,573 or 10% during the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease is primarily due to a decline in digital product sales within the Company’s Mighty Deals subsidiary.
B2C incurred total operating income of $482,100 during the year ended December 31, 2024 compared to an operating loss of $4,040,722 during the year ended December 31, 2023, primarily due to the Company’s B2C segment incurring an impairment loss of $4,112,870 compared to no impairment charge for the year ended December 31, 2024.
Liquidity and Capital Resources
Our primary source of operating cash inflows are payments from portfolio companies. In addition, the Company has raised $600,000 pursuant to a private offering of Series A preferred stock through December 31, 2023, and an additional $693,000 subsequent to December 31, 2024, $618,000 in notes payable and repaid $2,164,498 on its acquisition notes.
The Company’s recurring losses from operations and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern. Accordingly, our auditor has concluded that substantial doubt exists regarding our ability to continue as a going concern. Our audited financial statements appearing at the end of this annual report have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of these uncertainties related to our ability to operate on a going concern basis. In its report on our financial statements for the years ended December 31, 2024 and 2023, our independent registered public accounting firm included an explanatory paragraph stating that our recurring losses from operations and negative cash flows since inception and our need to raise additional funding to finance our operations raise substantial doubt about our ability to continue as a going concern. We believe that our cash and cash equivalents as of December 31, 2024, and the future operating cash flows of the entity may not provide adequate resources to fund ongoing cash requirements for the next twelve months. If sources of liquidity are not available or if we cannot generate sufficient cash flow from operations during the next twelve months, we may be required to obtain additional sources of funds through additional operational improvements, capital market transactions, asset sales or financing from third parties, a combination thereof or otherwise. We cannot provide assurance that these additional sources of funds will be available or, if available, would have reasonable terms. If we are unable to obtain sufficient funding, our business, prospects, financial condition and results of operations will be materially and adversely affected, and we may be unable to continue as a going concern.
Operating Activities
Net cash used in operating activities was $1,168,363 and $2,751,838 for the years ended December 31, 2024 and 2023. The decrease was primarily from the increase in revenues and decreased general and administrative costs as the Company expanded its operations through its business acquisitions in the past year.
Investing Activities
Net cash provided by investing activities was $451,000 for the years ended December 31, 2024 compared to cash used in investing activities of $850,000 for the year ended December 31, 2023. For the year ended December 31, 2024 the cash provided was from the sale of our WP Folio subsidiary assets for $780,000 offset by cash used to purchase additional businesses and cost method investments. For the year ended December 31, 2023, the Company used $850,000 to acquire a single business during the first quarter.
Financing Activities
Cash flows from financing activities was cash provided of $326,336 and cash used of $2,156,650 for the years ended December 31, 2024 and 2023. During the year 2024, we received $881,650 in proceeds from notes payable and $200,000 in proceeds from notes payable related parties which was offset by the payments of $321,442 in dividends to preferred stockholders, payments made on notes payable totaling $386,339, payments of $1,000 on related party notes payable, payments on contingent consideration of $59,093, and distributions of $20,400 to the non-controlling interest holders of our majority owned subsidiaries. During the year 2023, we raised $565,000 from the sales of preferred stock in a private exempted offering, which was offset by the repayment of the acquisition notes payable of $2,439,000, payments of preferred dividends of $213,691, and payments on note payables of $68,959.
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Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes as defined by Item 303(a)(4) of SEC Regulation S-K, as of December 31, 2024.
Contractual Obligations
See Notes 5 and 10 of our accompanying audited financial statements for information on our contractual obligations.
Critical Accounting Policies
The following are the Company’s critical accounting policies:
Investment in Unconsolidated Entities – Equity and Cost Method Investments
We account for our interests in entities in which we are able to exercise significant influence over operating and financial policies, generally 50% or less ownership interest, under the equity method of accounting. In such cases, our original investments are recorded at cost and adjusted for our share of earnings, losses and distributions. We account for our interests in entities where we have virtually no influence over operating and financial policies under the cost method of accounting. In such cases, our original investments are recorded at the cost to acquire the interest and any distributions received are recorded as income. Our investments in OnFolio JV I, LLC (“ JV I ”), OnFolio JVII, LLC (“ JVII ”) and OnFolio JVIII, LLC (“ JVIII ”) are accounted for under the cost method. All investments are subject to our impairment review policy.
The current investment in unconsolidated affiliates accounted for under the equity method consists of a 35.8% in interest in Onfolio JV IV, LLC (“ JV IV ”), which is involved in the acquisition, development and operation of online businesses to produce advertising revenue.
Variable Interest Entities
Variable interest entities (“ VIE s”) are consolidated when the investor is the primary beneficiary. A primary beneficiary is the variable interest holder in a VIE with both the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and the obligation to absorb losses, or the right to receive benefits that could potentially be significant to the VIE. Management concluded that the joint ventures do not qualify as variable interest entities under the requirements of ASC 810. The Company accounts for its investments in the joint ventures under either the cost or equity method based on the equity ownership in each entity.
The Company, through its subsidiary Onfolio Management LLC, is the manager of Onfolio Agency SPV, LLC (“ OA SPV ”), and Onfolio Agency SPV 2, LLC (“ OA SPV 2 ”), collectively referred to as “OA SPVs”. The Company does not hold any equity interest in OA SPVs, but will receive 10% of any cash distributions paid by OA SPV, and 20% of any cash distributions paid by OA SPV 2, to its members, when declared, as the management fee. The Company can be removed as manager of OA SPVs through a unanimous vote of the members. The Company determined that the fees it may receive for its role as manager do not constitute a variable interest in OA SPVs and will be accounted for as a revenue contract under ASC 606.
The Company, through its subsidiary RevenueZen, LLC, is the manager of CliAquire, LLC (“ CliAquire ”). The Company holds a 5% members interest in CliAquire and will receive profit distributions based on its membership interest. The Company can be removed as manager of CliAquire through a supermajority vote of the members. The Company determined that the investment in CliAquire will be accounted for as a cost method investment.
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Revenue Recognition
The Company primarily earns revenue through website management, digital services, advertising and content placement on its websites, product sales, and digital product sales. Management services revenue is earned and recognized on a monthly basis as the services are provided. Advertising and content revenue is earned and recognized once the content is presented on the Company's sites in accordance with the customer requirements. Product sales are recognized at the time the product is shipped to the customer. In certain circumstances, products are shipped directly by a supplier to the end customer at the Company's request. The Company determined that it is the primary obligor in these contracts due to being responsible for fulfilling the customer contract, establishing pricing with the customer, and taking on credit risk from the customer. The Company recognizes revenue from these contracts with customers on a gross basis. Digital product sales represent electronic content that is transferred to the customer at time of purchase. The Company also earns revenue from online course subscriptions that may have monthly or annual subscriptions. In circumstances when a customer purchases an annual subscription upfront, the Company defers the revenue until the performance obligation has been satisfied.
Revenue is recognized based on the following five step model:
-
Identification of the contract with a customer
-
Identification of the performance obligations in the contract
-
Determination of the transaction price
-
Allocation of the transaction price to the performance obligations in the contract
-
Recognition of revenue when, or as, the Company satisfies a performance obligation
The Company amortizes acquired definite-lived intangible assets over their estimated useful lives. Other indefinite-lived intangible assets are not amortized but subject to annual impairment tests.
Long-lived Assets
Property and equipment are stated on the basis of historical cost less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Major renewals and improvements are capitalized, while minor replacements, maintenance and repairs are charged to current operations.
In accordance with ASC 360 “Property Plant and Equipment,” the Company reviews the carrying value of intangibles subject to amortization and long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.
Off-balance sheet arrangements
We do not have any 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 investors.
Contractual commitments
The Company has entered into two asset purchase agreements which includes contingent earn-out payments based on specific performance criteria.
BWPS Business Acquisition: The Company may be required to pay up to $60,000 to Hoang Huu Thinh, contingent upon the BWPS business meeting certain monthly gross revenue targets within three years from the closing date. No earn-out payments have been made as of December 31, 2024. (See Note 10 for further details.)
RevenueZen Acquisition: The Company has determined the final amount obligated to pay to the sellers of RevenueZen, contingent upon the business achieving a specified gross profit threshold within one year to be $680,662. As of December 31, 2024, no earn-out payments have been made. (See Note 10 for further details.)
Also, see Note 15 – Subsequent Events for additional contractual commitments.
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Table of Contents
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
Our Financial Statements of are attached as Appendix A (following Exhibits) and included as part of this Form 10-K Report. A list of our Financial Statements is provided in response to Item 15 of this Form 10-K Report.
Item 9. Changes In And Disagreements With Accountants On Accounting and Financial Disclosure
None.