Onfolio (NASDAQ:ONFO) reported a sharp decline in second-quarter revenue as lower sales at its B2B marketing agencies and reduced advertising spending at its B2C education business weighed on results. Management also discussed steps taken after the quarter to settle convertible notes, address Nasdaq listing deficiencies and pursue acquisitions intended to improve parent-level cash flow.
Total revenue for the second quarter of 2026 was $1.5 million, down 52% from $3.15 million a year earlier and about 20% from $1.87 million in the first quarter, according to Adam Trainor, chief operating officer and interim chief financial officer.
Revenue declines across B2B and B2C segments
Services revenue, which is primarily generated by the company’s B2B segment, fell 41% year over year to $1.22 million. Trainor attributed the decrease chiefly to slower new sales at Eastern Standard, Onfolio’s largest agency, as well as lower revenue at several other agency subsidiaries. New revenue from Pace Generative partially offset those declines.
Wells said Eastern Standard has faced disruption from artificial intelligence tools, which have made some clients more hesitant to commit to full project fees. The company has introduced an AI services line offering AI-powered marketing, content and analytics services, though Wells said it currently has only single-digit client engagements and is not yet a meaningful contributor to revenue.
RevenueZen, another agency in the portfolio, continued its operational turnaround, management said. The business was a “standout performer” during the quarter, according to Wells, who cited new sales hires and AI-related opportunities on both the cost and revenue sides. Both RevenueZen and Eastern Standard management have reported recent “green shoots” of growth, and the company said it believes organic growth could return later this year.
B2C product revenue declined 74% to $279,000. The decline reflected Onfolio’s deliberate reduction in advertising spending at Proofread Anywhere to protect unit economics, as well as the absence of revenue from businesses divested during 2026. Proofread Anywhere remained profitable but was not growing, while Vital Reaction was modestly profitable, Wells said.
Onfolio has consolidated media buying, advertising creative and email functions across its B2C properties. The company said it plans to redeploy marketing spending only when unit economics support it and declined to provide a new estimate for when B2C revenue may bottom.
Margins remain pressured by revenue mix
Gross profit was $732,000, with gross margin of approximately 49%, essentially unchanged from the first quarter. Management had previously expected gross margin to trend into the mid-60% range during 2026, but Wells said that forecast had not materialized.
Trainor said the issue was primarily the revenue mix rather than delivery costs. Product revenue, which carries higher gross margins than B2B services, accounted for roughly 35% of total revenue in the year-earlier second quarter but was below 19% in the latest quarter. As B2C revenue contracted faster than B2B revenue, the mix shifted toward lower-margin services.
“This is a revenue mix story, not a cost of delivery problem,” Trainor said, adding that gross margin is expected to remain near current levels until the mix stabilizes.
Total operating expenses decreased 31% to $1.7 million. Selling, general and administrative expenses fell 45%, driven largely by a $577,000 reduction in advertising and marketing spending, lower amortization and expense reductions following agency integration. Professional fees increased 60% to reflect higher legal and audit costs related to financing arrangements, Nasdaq compliance matters and strategic transactions.
The company’s loss from operations widened to $966,000 from $507,000 in the prior-year quarter. Net loss was $4.6 million, compared with a $534,000 loss a year earlier. Trainor said most of the net loss was non-cash and related to convertible notes, including a $2.95 million loss from the change in fair value of a derivative liability.
Convertible notes settled as company addresses Nasdaq compliance
As of June 30, Onfolio had $251,000 in cash, down from $842,000 at the end of the first quarter and $2.17 million at year-end. The company disclosed going-concern considerations in its Form 10-Q, Trainor said.
After quarter-end, the company fully settled and extinguished its senior secured convertible notes. The noteholder converted $5.5 million in principal and approximately $30,000 of accrued interest into about 721,000 common shares. Onfolio then issued about 1.58 million additional shares to settle the remaining principal, liquidated damages and floor penalty amounts.
Trainor said the settlements eliminated the company’s senior secured debt, related derivative liability and conversion overhang, but also caused dilution. Wells said that, as of the call, stockholders’ equity had turned positive following the conversions, compared with a deficit of approximately $3.11 million at June 30.
The company had fallen below Nasdaq’s required minimum stockholders’ equity threshold of $2.5 million and submitted a compliance plan in July. Wells said management believes the equity deficiency has been addressed, subject to Nasdaq’s formal confirmation. Onfolio also completed a one-for-50 reverse stock split on Aug. 10 to address Nasdaq’s $1 minimum bid-price requirement.
Acquisition pipeline remains central to cash-flow plan
Wells said Onfolio’s priorities remain growing cash flow from its portfolio, controlling parent-company costs and resuming accretive acquisitions. The company is not yet self-funding at the parent level and continues to receive limited distributions from subsidiaries.
Management said it continues to hold letters of intent for additional acquisitions. Terms for one target were renegotiated, reducing required upfront cash from $3.5 million to $1.3 million. That business has more than $1 million in trailing 12-month EBITDA, according to Wells.
Onfolio also signed a letter of intent for a larger acquisition with roughly $4 million in trailing 12-month adjusted EBITDA. The proposed deal is structured as 100% seller-financed, and the company is targeting an Oct. 1 closing. Wells said the target could not be identified until a definitive agreement is signed.
The company is also in early-stage discussions involving two potential acquisitions that could be funded mostly or entirely with stock. Wells said future transactions must be immediately accretive and that management intends to use more performance-based payments and amortizing seller notes rather than structures featuring large balloon payments.
Onfolio plans to publish a progress scorecard in late October covering Nasdaq compliance, balance-sheet progress, parent overhead, portfolio cash flow and its acquisition target.
About Onfolio (NASDAQ:ONFO)
Onfolio Holdings, Inc acquires and develops internet businesses. It provides website management, digital, advertising, and content placement services on its websites; and product sales on various sites. The company was founded in 2019 and is based in Wilmington, Delaware.
