The following discussion and analysis should be read in conjunction with our
consolidated financial statements, included herewith. This discussion should not
be construed to imply that the results discussed herein will necessarily
continue into the future, or that any conclusion reached herein will necessarily
be indicative of actual operating results in the future. Such discussion
represents only the best present assessment of our management. This information
should also be read in conjunction with our audited historical consolidated
financial statements which are included in our registration statement on Form
S-1 (333-264191), as amended, filed in connection with our initial public
offering ("IPO"). Throughout this Quarterly Report on Form 10-Q, unless the
context suggests otherwise, references to "we," "our," "us," the "Company,"
"Onfolio," or "Onfolio Holdings" refer to Onfolio Holdings Inc., a Delaware
corporation, and its subsidiaries.
Overview
Onfolio acquires and manages a diversified portfolio of online businesses across
a broad range of verticals, each with a niche content focus and brand identity.
Onfolio acquires business that meet its investment criteria, being that such
businesses operate in sectors with long-term growth opportunities, have positive
and stable cash flows, face minimal threats of technological or competitive
obsolescence and can be managed by our existing team or have strong management
teams largely in place. The Company excels at finding acquisition opportunities
where the seller has not fully optimized their business, and Onfolio's
experience and skillset allows it to add increased value to these existing
businesses.
Onfolio acquires controlling interests in and actively manages small websites
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 websites with these
characteristics, we believe we offer investors in our shares an opportunity to
diversify their own portfolio risk.
Our ideal acquisition candidate has the following characteristics:
· Proven track record with paid media;
· A product, physical or digital with satisfied customers and brand equity;
· Upwards growth trajectory;
· Growing industry or sector;
· Attractive purchase price;
· Under-utilized marketing assets or channels;
· Passionate, high-value audience or customer base;
· Attractive profit margin and cashflow;
· Diversified traffic and revenue sources; and
· Content or community-based.
We currently operate in the following verticals: Pets, Arts and Crafts, B2B SEO
Services, Molecular Hydrogen Supplements, Computers, Graphic Design, and People
Search. We anticipate a combination of continuous expansion of these verticals
and increasing our share within them. Our business model is not based around
success in a particular "niche", but rather focusing on certain verticals and
mediums where content has a key part to play (for example, the MightyDeals
community, or the Pet vertical publishing arm).
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Subsequent Events
Subsequent to September 30, 2022, the Company acquired three businesses as
follows:
Thinh Acquisition
On October 3, 2022, the Company entered into an Asset Purchase Agreement ("Asset
Purchase Agreement") with Hoang Huu Thinh, an individual ("Thinh"). Pursuant to
the Asset Purchase Agreement, the Company will purchase from Thinh,
substantially all of the assets utilized in the operation of the business of
providing a suite of optimization, customization, privacy and security products
and services for WordPress websites ("WordPress Websites Business"), with the
core Business offerings consisting of (i) the WordPress plugin known as PREVENT
DIRECT ACCESS available via the website preventdirectaccess.com, and (ii) the
WordPress plugin known as PASSWORD PROTECT WORDPRESS available via the website
passwordprotectwp.com.
The transaction closed on October 25, 2022 and will be accounted for as a
business combination under ASC 805. Pursuant to the Asset Purchase Agreement,
and subject to the terms and conditions contained therein, at the closing, Thinh
agreed to sell to Onfolio, LLC the WordPress Websites Business, all as more
fully described in the Asset Purchase Agreement. The aggregate purchase price
for the WordPress Websites Business is as follows: (i) $1,250,000 paid in cash
at the closing and $40,000.00 paid via a promissory note to be made by Onfolio,
LLC payable to Thinh after the performance of certain obligations by Thinh and
others as provided for in the Asset Purchase Agreement; and (ii) up to $60,000
in cash pursuant to the earn-out provisions of the Asset Purchase Agreement.
The WordPress Websites Business, based on historical internal financial
information of the WordPress Websites Business, has generated approximately
$100,000 of revenue per quarter and approximately $80,000 of operating income
per quarter. This historical information is not necessarily indicative of future
results of the business after acquisition by the Company, and do not include any
required US GAAP adjustments related to the purchase price allocation as
required under ASC 805. The above historical information is subject to material
changes.
SEO Butler Acquisition
On October 6, 2022, the Company entered into a Share Purchase Agreement ("Share
Purchase Agreement") with i2W Ltd, a company incorporated and registered in
England and Wales ("Seller"), and Jonathan Kiekbusch, Ezekiel Daldy, and Lyndsay
Kiekbusch, shareholders of the Seller (collectively, the "Guarantors"), for the
purchase of all of the issued share capital ("Sale Shares") of SEO Butler
Limited, a company incorporated and registered in England and Wales ("SEO
Butler"). Seller is the owner of the legal and beneficial title to the Sale
Shares of SEO Butler, which operates as a productised service business operated
via the seobutler.com website and the custom build order management system on
orders.seobutler.com and under the SEOButler and PBNButler names. The Guarantors
have agreed to guarantee to the Company the due and punctual performance,
observance and discharge by the Seller of all the Guaranteed Obligations (as
defined in the Share Purchase Agreement) if and when they become performable or
due under the Share Purchase Agreement.
Pursuant to the Share Purchase Agreement, and on the terms and subject to the
conditions contained therein, at the closing, the Company purchased the Sale
Shares from the Seller, all as more fully described in the Share Purchase
Agreement. The aggregate purchase price paid by the Company was $950,000. The
transaction closed on October 13, 2022 and will be accounted for as a business
combination under ASC 805.
The SEO Butler Business, based on historical financial information of SEO
Butler, has generated approximately $200,000 of revenue per quarter and
approximately $50,000 of operating income per quarter. This historical
information is not necessarily indicative of future results of the business
after acquisition by the Company, and do not include any required US GAAP
adjustments related to the purchase price allocation as required under ASC 805.
The above historical information is subject to material changes.
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BCP Media Acquisition
On October 13, 2022, the Company entered into an Asset Sale and Purchase
Agreement ("BCP Asset Purchase Agreement") with BCP Media, Inc., a Florida
corporation ("BCP Media"), and Caitlin Pyle and Cody Lister, principals of BCP
Media. Pursuant to the BCP Asset Purchase Agreement, the Company purchased from
BCP Media, substantially all the Proofreading Business (defined below) assets of
BCP Media and assigned the acquired assets to the Company, which, pursuant to
the BCP Asset Purchase Agreement and certain ancillary agreements, will operate
the business of online proofreading training (the "Proofreading Business") via
the following websites: ProofreadAnywhere.com, WorkAtHomeSchool.com, and
WorkYourWay2020.com.
Pursuant to the BCP Asset Purchase Agreement, and subject to the terms and
conditions contained therein, BCP Media sold to the Company the purchased
assets, all as more fully described in the BCP Asset Purchase Agreement. The
purchase price was paid as follows: $4,499,000, plus a warrant to purchase up to
20,000 shares of the Company's common stock at the price of $4.75 per share (the
"Warrant"), with $2,100,000 paid in cash at the closing and $2,399,000 paid via
a promissory note (the "BCP Note").
The BCP Note was made by the Company to BCP Media. The BCP Note has the
principal sum of $2,399,000 (the "Loan Amount") and it matures on the one year
anniversary from the date of the BCP Note (the "Maturity Date"). Interest on the
outstanding principal balance of, and all other sums owing under the Loan
Amount, is three percent (3%) (the "Interest Rate"), compounded annually. Upon
the occurrence of an Event of Default (as defined in the BCP Note), the Interest
Rate automatically increases to the rate of eight percent (8%) per annum,
compounded annually. The Loan Amount is payable as follows: (i) commencing on
the date that is thirty (30) days from the date of the BCP Note, and continuing
monthly on such same day thereafter, the Company shall make an interest only
payment to BCP Media equal to $5,997.50 per month? and (ii) the entire Loan
Amount, together with all accrued but unpaid interest thereon, shall be due and
payable on the Maturity Date. The transaction closed on October 14, 2022 and
will be accounted for as a business combination under ASC 805.
The Proofreading Business, based on historical financial information of BCP
Media, has generated approximately $950,000 of revenue per quarter and
approximately $180,000 of operating income per quarter. This historical
information is not necessarily indicative of future results of the business
after acquisition by the Company, and do not include any required US GAAP
adjustments related to the purchase price allocation as required under ASC 805.
The above historical information is subject to material changes.
The COVID-19 Pandemic and its Impacts on Our Business
In March 2020, the World Health Organization declared the outbreak of COVID-19 a
global pandemic. The COVID-19 pandemic may negatively affect our operations. The
COVID-19 pandemic has resulted in social distancing, travel bans and quarantine,
which has limited access to our facilities, potential customers, management,
support staff and professional advisors and can, in the future, impact our
supply chain. These factors, in turn, may not only impact our operations,
financial condition and demand for our products but our overall ability to react
in a timely manner, to mitigate the impact of this event. To date, there has not
been a material impact to our business or results of operations from COVID-19,
but there are no assurances that there may not be a material impact in the
future.
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Results of Operations
Three Months Ended September 30, 2022 compared to the Three Months Ended
September 30, 2021
The Company reported a net loss of $969,696 for the three months ended September
30, 2022 compared to a net loss of $575,772 for the three months September 30,
2021. The components of the increase in net loss for the current period are as
follows:
Revenues
For the Three Months Ended $ Chang % Change
September 30, 2022 from prior from prior
2022 2021 year year
Revenue, services $ 80,771 $ 122,177 $ (41,406 ) (34 )%
Revenue, product sales 271,530 268,246 3,284 1 %
Total Revenue 352,301 390,423 (38,122 ) (10 )%
Revenue decreased by $38,122, or 10% for the three months ended September 30,
2022 compared to 2021. The decrease is attributable primarily decreased services
revenue of $41,406, which was driven by lower advertising, profit share and
management fee revenue. Product sales increased slightly by $3,284 due to
increased volumes in physical products, partially offset by lower digital
product sales in the Company's Mighty Deals business.
Cost of Revenue
For the Three Months Ended $ Change % Change
September 30, 2022 from prior from prior
2022 2021 year year
Cost of revenue, services $ 101,462 $ 148.790 $ (47,328 ) (32 )%
Cost of revenue, product
sales 115,382 103,217 12,165 12 %
Total Cost of Revenue 216,844 252,007 (35,163 ) (14 )%
Cost of revenue decreased by $35,163, or 14%, primarily due to lower service
revenue costs of $47,328 primarily from a decline in labor costs, consistent
with the decline in revenue discussed above, partially offset by increased
product related costs of $12,165. The components most significant to the
Company's cost of revenue are the costs of acquiring new inventory products, the
costs of labor for content creation and website hosting and maintenance costs.
Operating Expenses
For the Three Months Ended $ Change % Change
September 30, 2022 from prior from prior
2022 2021 year year
Selling, general and
administrative $ 974,998 $ 683,829 $ 291,169 43 %
Professional fees 148,649 33,473 115,176 344 %
Total Operating Expenses 1,123,647 717,302 406,345 57 %
Professional Fees
Professional fees increased by $115,176, or 334% during the three months ended
September 30, 2022 primarily due to increased due diligence, legal and
accounting costs associated with the Company's initial public offering process.
General and Administrative Expense
General and Administrative expenses increased by $291,169, or 43% for the three
months ended September 30, 2022 as compared to 2021. The increase was primarily
due to an overall increase of $287,000 in labor costs, as the Company filled out
required roles for the business, an increase of $56,000 in stock-based
compensation, partially offset by a decrease of $78,000 in advertising costs.
Other Income (Expense), Net
Other income(expense) increased by $15,380 for the three months ended as result
of a gain of $11,091 related to commissions received, and a decline in equity
method income from joint venture investments of $3,035.
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Nine Months Ended September 30, 2022 compared to the Nine Months Ended September
30, 2021
The Company reported a net loss of $2,982,996 for the nine months ended
September 30, 2022 compared to a net loss of $1,135,925 for the nine months
September 30, 2021. The components of the increase in net loss for the current
period are as follows:
Revenues
For the Nine Months Ended
September 30, 2022 $ Change from % Change from
2022 2021 prior year prior year
Revenue, services $ 325,685 $ 405,019 $ (79,334 ) (20 )%
Revenue, product
sales 770,361 969,604 (199,243 ) (21 )%
Total Revenue 1,096,046 1,374,623 (278,577 ) (20 )%
Revenue decreased by $278,577, or 20% for the nine months ended September 30,
2022 compared to 2021. The decrease is attributable primarily to slower digital
product sales in the current period due to infrastructure changes made by the
Company resulting in a decrease of $199,243 in sales, and decreased services
revenue of $79,334, which was driven by lower advertising revenue.
Cost of Revenue
For the Nine Months Ended
September 30, 2022 $ Change from % Change from
2022 2021 prior year prior year
Cost of revenue,
services $ 285,216 $ 388,088 $ (102,872 ) (27 )%
Cost of revenue,
product sales 364,510 423,444 (58,934 ) 14 %
Total Cost of
Revenue 649,726 811,532 (161,806 ) (20 )%
Cost of revenue decreased by $161,806, or 20%, primarily due to lower service
revenue costs of $103,000, primarily from a decrease of $75,000 in labor costs
related to the Company's service revenue, and lower costs of approximately
$59,000 associated with decreased product sales described above. The components
most significant to the Company's cost of revenue are the costs of acquiring new
inventory products, the costs of labor for content creation and website hosting
and maintenance costs.
Operating Expenses
For the Nine Months Ended
September 30, 2022 $ Change from % Change from
2022 2021 prior year prior year
Selling, general and
administrative $ 2,804,151 $ 1,659,612 $ 1,144,539 69 %
Professional fees 598,100 68,848 529,252 769 %
Total Operating
Expenses 3,402,251 1,728,460 1,673,791 97 %
Professional Fees
Professional fees increased by $529,252, or 769% during the nine months ended
September 30, 2022 primarily due to increased due diligence, legal and
accounting costs associated with the Company's initial public offering process.
General and Administrative Expense
General and Administrative expenses increased by $1,144,539, or 69% for the nine
months ended September 30, 2022 as compared to 2021. The increase was primarily
due to an increase of $934,000 in labor costs, as the Company filled out
required roles for the business, an increase of $133,000 in stock-based
compensation, and an increase of $56,000 in audit costs.
Other Income (Expense), Net
Other income (expense) decreased by $56,509 for the nine months ended as result
of a loss of $29,557 related to purchases of non-fungible tokens, and a decline
in equity method income from joint venture investments of $14,071, offset by
commissions received of $12,445.
The Company also recognized a loss of $34,306 on the sale of a website during
the nine months ended September 30, 2022.
Liquidity and Capital Resources
As of September 30, 2022, December 31, 2021 and December 31, 2020, our principal
sources of liquidity for working capital purposes were cash and cash equivalents
totaling $11,615,383, $1,710,318 and $521,709, respectively. Subsequent to
September 30, 2022, the Company paid a total of $4,340,000 in cash for the
acquisitions described above, with an additional $2,439,000 to be paid via notes
payable, and up to $159,000 to be pursuant to an earn out agreement.
We have financed our operations primarily through financing activity and
operating cash flows. We believe our existing cash and cash equivalents
generated from operations will be sufficient to meet our working capital over at
least the next 12 months. Our future capital requirements will depend on many
factors including our growth rate, subscription renewal activity, the expansion
of sales and marketing activities and the ongoing investments in platform
development.
Sources of Liquidity
As of September 30, 2022, our principal sources of liquidity consisted of cash
and cash equivalents of $11,615,383 which was mainly on account of raising
capital from sale of common stock and warrants in our Initial Public Offering of
$12,255,470 and the sale of preferred and common stock to the extent of
$1,736,500 and $2,824,500, respectively, since inception. We believe that our
cash and cash equivalents as of September 30, 2022, and the future operating
cash flows of the entity will 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.
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Cash used in operating activities
Net cash used in operating activities was $2,373,607 and $459,886 for the nine
months ended September 30, 2022 and 2021. The increase was primarily from the
increase general and administrative costs as the Company expanded its
operations.
Cash used in investing activities
Net cash provided by investing activities was $23,194 and net cash used in
investing activities was $711,345 for the nine months ended September 30, 2022
and 2021. During the current period, the Company received $45,694 of proceeds
from the sale of a website, partially offset by additional investments in its
joint ventures of $22,500. During the comparable period, the Company paid
$784,000 for asset acquisitions completed, and received $75,000 in proceeds from
the sale of a website.
Cash provided by financing activities
Cash flows from financing activities was $12,255,478 and $1,113,036 for the nine
months ended September 30, 2022 and 2021. During the 2022 period, we raised
$12,255,470 in net proceeds from our initial public offering, $321,500 from
sales of preferred stock in a private exempted offering, and $44,000 of proceeds
from notes payable, which were partially offset by dividend payments of $91,264,
payments on notes payable of $59,228 and payment of the contribution towards its
investment in JV IV of $215,000. During the 2021 period, we raised the aggregate
amount of $1,270,000 by issuing preferred stock to various investors in a
private exempted offering, $37,500 from the sale of common stock in a private
exempted offering, and $108,000 from the issuance of short-term notes payable.
The Company made payments on various notes payable of $224,486 and paid $35,000
towards its investment in JV IV.
Significant Accounting Policies
We believe our significant accounting policies affect our more significant
estimates and judgments used in the preparation of our financial statements.
Note 2- Summary of Significant Accounting Policies contains a discussion of
these significant accounting policies.
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
We did not have, during the periods presented, any contractual commitments or
contractual contingencies as defined in the rules and regulations of the SEC.
However, see Note 9-Subsequent Events.
Emerging growth company and smaller reporting company status
The JOBS Act permits an emerging growth company such as us to take advantage of
an extended transition period to comply with new or revised accounting standards
applicable to public companies until those standards would otherwise apply to
private companies. We have elected not to "opt out" of this extended transition
period and, as a result, we will not adopt new or revised accounting standards
on the relevant dates on which adoption of such standards is required for public
entities. Accordingly, our financial statements may not be comparable to other
public companies that do not elect the extended transition period.
We are also a "smaller reporting company" meaning that the market value of our
stock held by non-affiliates is less than $700 million and our annual revenue
was less than $100 million during the most recently completed fiscal year. We
may continue to be a smaller reporting company if either (i) the market value of
our stock held by non-affiliates is less than $250 million or (ii) our annual
revenue was less than $100 million during the most recently completed fiscal
year and the market value of our stock held by non-affiliates is less than $700
million. If we are a smaller reporting company at the time we cease to be an
emerging growth company, we may continue to rely on exemptions from certain
disclosure requirements that are available to smaller reporting companies.
Specifically, as a smaller reporting company we may choose to present only the
two most recent fiscal years of audited financial statements in our Annual
Report on Form 10-K and, similar to emerging growth companies, smaller reporting
companies have reduced disclosure obligations regarding executive compensation.
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