Onfolio (ONFO) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited Q3 2023 financials show acquisition-driven revenue growth, substantial net loss from impairments, decreased assets and equity, and a going concern risk Consolidated Balance Sheets As of September 30, 2023, total assets significantly decreased to $8.74 million from $15.78 million at year-end 2022, primarily due to goodwill and intangible asset impairments, while stockholders' equity sharply declined Consolidated Balance Sheet Highlights (as of Sep 30, 2023 vs. Dec 31, 2022) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $8,738,361 | $15,775,826 | | Cash and cash equivalents | $3,373,178 | $6,701,122 | | Goodwill | $1,165,636 | $4,209,126 | | Intangible assets | $3,280,243 | $3,864,618 | | Total Liabilities | $3,185,813 | $3,303,391 | | Total Stockholders' Equity | $5,552,548 | $12,472,435 | Consolidated Statements of Operations For the three and nine months ended September 30, 2023, revenues grew substantially due to acquisitions, but net losses widened significantly, primarily driven by a $3.95 million impairment charge on intangible assets Three Months Ended September 30, (2023 vs. 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenue | $1,313,311 | $352,300 | | Gross Profit | $847,715 | $135,457 | | Impairment of intangible assets | $3,762,579 | $0 | | Loss from operations | $(4,740,623) | $(988,190) | | Net loss | $(4,733,159) | $(969,696) | | Net loss per share (Basic & Diluted) | $(0.94) | $(0.30) | Nine Months Ended September 30, (2023 vs. 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenue | $3,975,088 | $1,096,046 | | Gross Profit | $2,406,499 | $446,320 | | Impairment of intangible assets | $3,952,516 | $0 | | Loss from operations | $(7,399,816) | $(2,955,931) | | Net loss | $(7,311,359) | $(2,982,996) | | Net loss per share (Basic & Diluted) | $(1.46) | $(1.15) | Consolidated Statements of Stockholders' Equity For the nine months ended September 30, 2023, total stockholders' equity decreased from $12.47 million to $5.55 million, primarily due to a net loss of over $7.3 million and preferred dividends, partially offset by stock-based compensation - Total stockholders' equity decreased from $12,472,435 at the end of 2022 to $5,552,548 as of September 30, 2023[25][26] Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, the company used $2.16 million in cash from operating activities, used $850,000 in investing activities for an acquisition, and experienced a net cash decrease of $3.33 million, resulting in a cash balance of $3.37 million Cash Flow Summary for Nine Months Ended September 30, (2023 vs. 2022) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,160,796) | $(2,373,607) | | Net cash (used in) provided by investing activities | $(850,000) | $23,194 | | Net cash (used in) provided by financing activities | $(269,522) | $12,255,478 | | Net Change in Cash | $(3,327,944) | $9,905,065 | | Cash, End of Period | $3,373,178 | $11,615,383 | - The significant cash provided by financing activities in 2022 was due to proceeds from the sale of common stock in the initial public offering[29] Notes to the Consolidated Financial Statements The notes detail the company's business, accounting policies, and significant events, including a going concern warning, business acquisitions, substantial impairment charges on goodwill and intangible assets, and subsequent events like debt repayment and a NASDAQ non-compliance notice - The company's business model is to acquire and develop high-growth, profitable internet businesses, earning revenue from website management, advertising, and product sales[31] - There is substantial doubt about the Company's ability to continue as a going concern due to recurring losses and the need to obtain additional financing[69] - The company acquired Contentellect for $850,000 in cash on February 1, 2023[70][71] - During the nine months ended September 30, 2023, the Company recognized total goodwill impairment expense of $3,062,579 and intangible asset impairment of $3,952,516 due to lower than expected revenues from recent acquisitions[86][100] - Subsequent to the quarter end, the company repaid a $2.399 million note, sold an additional $600,000 of Series A preferred stock, and received a NASDAQ non-compliance notice for its stock price falling below $1.00[122][123][124] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports Q3 2023 revenue growth from acquisitions, offset by significant impairment losses, leading to cost-cutting, a going concern risk, and a NASDAQ non-compliance notice, with a large debt repayment post-quarter - The company's strategy is to acquire and actively manage online businesses in sectors with long-term growth opportunities and stable cash flows[128] - An impairment loss was recognized for four subsidiaries due to changes in their operating and economic environments, leading to a determination that their carrying value was no longer recoverable[133][134] - Cost reduction measures implemented at the end of Q3 are expected to result in monthly savings of approximately $85,000 to $90,000[135] - In October 2023, the company paid off a $2.39 million promissory note, which significantly decreased its cash balance, reinforcing the need to raise additional capital[132] - On October 25, 2023, the company received a non-compliance notice from NASDAQ because its stock's closing bid price was below $1.00 for 30 consecutive business days[138] Results of Operations For the three months ended September 30, 2023, revenue increased 273% to $1.31 million, primarily from acquisitions, but a $3.76 million impairment loss led to a $4.73 million net loss, with similar trends for the nine-month period due to impairment and rising operating expenses Revenue Comparison - Three Months Ended Sep 30 | Revenue Type | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Services | $431,196 | $59,032 | 630% | | Product Sales | $882,115 | $293,268 | 201% | | Total Revenue | $1,313,311 | $352,300 | 273% | Revenue Comparison - Nine Months Ended Sep 30 | Revenue Type | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Services | $1,119,347 | $245,162 | 357% | | Product Sales | $2,855,741 | $850,883 | 236% | | Total Revenue | $3,975,088 | $1,096,046 | 263% | - For Q3 2023, the company recognized an impairment loss of $3,762,579 on goodwill and intangible assets related to underperforming sites[152] - For the nine months ended Sep 30, 2023, General and Administrative expenses increased by 72% ($1,979,606) due to higher advertising, amortization, and public company costs[158] Liquidity and Capital Resources As of September 30, 2023, the company had $3.37 million in cash, but recurring losses and negative operating cash flows raise substantial doubt about its ability to continue as a going concern, necessitating additional financing - The company's cash and cash equivalents were $3,373,178 as of September 30, 2023[164] - Management and the company's auditor have concluded that substantial doubt exists regarding the ability to continue as a going concern[165] - Net cash used in operating activities was $2,160,796 for the nine months ended September 30, 2023[166] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company for the reporting period - The company has indicated that quantitative and qualitative disclosures about market risk are not applicable[180] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were ineffective as of September 30, 2023, due to a material weakness in internal control over financial reporting from limited personnel, with remediation efforts ongoing - Management concluded that disclosure controls and procedures were not effective as of September 30, 2023[181] - A material weakness was identified in internal control over financial reporting due to the company's small size and limited personnel, lacking formal processes for transaction review[182] - Management is working to remediate the weakness in 2023 by adding accounting personnel and implementing stronger internal control procedures[184] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently aware of any legal proceedings or claims that would have a material adverse effect on its business, financial condition, or operating results - The company reports no material legal proceedings[187] Item 1A. Risk Factors This section refers to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - For a detailed discussion of risk factors, the company refers investors to its Form 10-K filed on April 12, 2023[188] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities The company reported no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities during the period - None reported for this item[189] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - None reported for this item[190] Item 4. Mine Safety Disclosures This section is not applicable to the company - Not applicable[191] Item 5. Other Information The company reported no other information for this period - None reported for this item[192] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer, and Inline XBRL documents - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL data files[192]