ONFO

Good morning, and welcome to the Onfolio Holdings second quarter 2026 earnings conference call. Joining us today are Dominic Wells, Chief Executive Officer, and Adam Trainor, Chief Operating Officer and Interim Chief Financial Officer. Before we begin, I would like to remind everyone that certain statements made during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied. Forward-looking statements are based on management's current expectations as of today's date, and the company undertakes no obligation to update or revise any such statements. For detailed description of risks and uncertainties, please refer to the Risk Factors section of the company's most recent Form 10-Q filed with the SEC.

Additionally, during this call, management may reference certain non-GAAP financial measures and supplemental operating metrics as indicators of performance. These measures should not be considered in isolation or as substitutes for GAAP results. A reconciliation of non-GAAP measures to the most comparable GAAP measures is available in the company's SEC filings, which can be found on the company's website at investors.onfolio.com/filings. With that, I'll turn the call over to Dominic. Please go ahead, sir.

Thank you, and good morning, everyone. We appreciate you joining us today. For anyone newer to the Onfolio story, we are an owner/operator of cash-generating digital businesses, primarily in B2B marketing agencies and B2C online education. Since our IPO in 2022, we have grown revenues from approximately $2 million-$10.7 million in full year 2025, roughly a 5x increase, entirely through acquiring and operating real businesses that generate real cash flow. We remain at an important inflection point. We are not yet self-funding at the parent level, but once we get there, our options for capital allocation open up significantly, more acquisitions, paying down remaining obligations, or longer term, potentially returning capital to shareholders. I'll come back to that later in the call.

First, I want to touch directly on where things stand with our Nasdaq listing, since I know that's front of mind for a lot of you, and then I'll walk through the quarter. Nasdaq compliance update. The first issue is a stockholders' equity deficiency. Nasdaq requires companies listed to maintain stockholders' equity of at least $2.5 million, and we fell below that threshold. We submitted our plan to regain compliance to Nasdaq in July. Since then, our senior secured convertible note holder has converted the entirety of the note into equity, and as described in our August 4th blog post, those conversions add back more equity than the size of the deficit. So we believe this deficiency is more or less addressed, and we expect to have official confirmation from Nasdaq soon. The second issue is the minimum bid price requirement.

On August 10th, we executed a one-for-50 reverse stock split, which reduced our outstanding shares from approximately 42 million to approximately 850,000, and was specifically designed to bring our closing bid price back above the $1 minimum Nasdaq requires. This is actually the second time this year we've had to address this requirement. We regained compliance briefly back in May, but it didn't hold, which is part of why we moved to do a reverse split this time rather than simply waiting for the bid price to recover organically. Reflecting the note conversions Adam will walk through in a few minutes, we had approximately 2.45 million shares outstanding as of August 18th. Ultimately, we believe we've now taken the actions needed to address both deficiencies. With our listing secure, we can put our full attention back on returning to revenue growth through both our existing portfolio and acquisitions.

Now, turning to the quarter itself, I want to be direct. Our portfolio did not turn the corner in the second quarter the way we originally expected. Revenue was down both year-over-year and sequentially, and the core issue is cash. The parent company remains cash constrained, and that is directly tied to softer cash generation from the portfolio than we had planned for. To some extent, it is a circle where lack of cash being sent up to the parent by the portfolio leads to less cash to spend on portfolio growth. While we try to address this with organic growth and portfolio and parent-level expense reduction, we believe the solution is bringing additional funding to the company and completing new cash positive acquisitions. Let me walk through the Q2 performance of both segments.

Starting with B2B, Eastern Standard, our largest agency, is facing real disruption from AI in a way that's affecting how we sell. Clients are increasingly hesitant to commit to full project fees in a world where AI tools make parts of agency work look replaceable, even where our actual delivery still requires real expertise. That's made new sales harder to close, and it's the single biggest driver of the year-over-year decline in our B2B segment this quarter. We're responding on two fronts. First, our own AI services line, where we sell AI-powered marketing, content, and analytics services directly to clients is one answer to that hesitation. Instead of asking clients to pay for manual project work, we can offer them the AI-inclusive alternative ourselves.

Second, we're leaning further into the RevenueZen playbook I'll describe in a moment, so that even as deal sizes or timelines shift, our cost structure keeps pace. That AI services line is live, and we are seeing real engagement, but I want to be careful not to overstate where it is today. We have single digit client engagements. It's a genuine proof point for the model, not yet a meaningful driver of revenue, and we won't treat it as one until it is. The RevenueZen consolidation under Eastern Standard, which I introduced last quarter, continues. Execution has been a bit slower than we'd hoped, but there are real green shoots. New sales hires are ramping, and we're continuing to see AI-driven traction on both the cost and revenue sides of that business.

RevenueZen was a standout performer again this quarter, building on the operational turnaround we described publicly back in May. Both RevenueZen and Eastern Standard management have reported seeing green shoots of growth in the last few weeks. We believe organic growth will return later in the year. In B2C, Proofread Anywhere remains profitable but is not growing. We further pulled back paid acquisition spend during the quarter to protect unit economics rather than chase revenue we didn't believe would hold up. Vital Reaction continued to be modestly profitable. I said on our last call that we believe the first quarter would be the trough for B2C revenue. I'd rather revise that call than repeat it. We're not going to put a specific quarter on the trough again. What I can tell you is what we're doing. Media buying, ad creatives, and email are consolidated across both B2C properties.

We're applying AI to these workflows the same way we have in B2B, and we will redeploy spend only as we see the unit economics hold. Growth here follows discipline. Before I hand it to Adam, I want to explicitly reset expectations on three things we've talked about before: gross margin, acquisition pacing, and profitability timing. On gross margin, we said last quarter we expected to trend into the mid-60% range in 2026. That hasn't happened, and Adam will walk through why when he covers the P&L. In short, our margin is highly sensitive to the mix between B2B and B2C revenue. As B2C has contracted faster than B2B, margin has stayed close to flat rather than expanding. As a result, we now expect gross margin to remain near current levels until B2C revenue stabilizes.

On acquisition pacing and profitability timing, I'll go through both in detail in the strategic priority section after Adam's remarks, including the specific pipeline updates from our August 4th blog post. We continue to believe that closing the remaining gap to parent-level profitability depends primarily on the acquisitions in our pipeline more than on organic portfolio improvement alone, and I'll walk through that in a few minutes. With that, I'll turn the call over to Adam to walk through our financial results for the second quarter. Adam, over to you.

Thanks, Dominic. Good morning, everyone. Unless otherwise noted, all comparisons are second quarter 2026 vs second quarter 2025. Total revenue for the second quarter was $1.5 million, a decrease of 52% from $3.15 million in the second quarter of 2025, and down approximately 20% from $1.87 million in the first quarter of 2026. Revenue from services, primarily our B2B segment, was $1.22 million, down 41% from $2.06 million a year ago. As Dominic described, this primarily reflects a slowdown in new sales at Eastern Standard that began late in the first quarter, along with lower revenue across several of our other agency subsidiaries, partially offset by new revenue from our Pace Generative subsidiary, which had no comparable revenue in last year's period. Revenue from product sales, primarily our B2C segment, was $279,000, down 74% from $1.09 million a year ago.

The decline reflects the deliberate advertising pullback at Proofread Anywhere that Dominic described and the absence of revenue from businesses divested during 2026. At the segment level, B2B revenue declined 41% year-over-year to $1.22 million, and B2B swung to an operating loss of approximately $103,000 for the quarter, compared to an operating income of $70,000 in the prior year period. Primarily reflecting the Eastern Standard revenue decline, partially offset by improved results at RevenueZen. B2C generated operating income of approximately $43,000 for the quarter, down from $150,000 a year ago on the lower Proofread Anywhere revenue. Gross profit for the quarter was $732,000, and gross margin was approximately 49%, essentially flat compared to roughly 49% in Q1 this year. I want to address the mid-60% margin trajectory we flagged last quarter directly because it hasn't materialized to date.

Our B2C product revenue carries meaningfully higher gross margins than our B2B services revenue. As B2C has contracted faster than B2B this year, our revenue mix has shifted toward the lower margin segment, and that has offset any efficiency gains within B2B itself. To put the mix shift in perspective, product revenue was roughly 35% of total revenue in the second quarter of last year. This quarter, it was under 19%. Because product revenue carries substantially higher gross margins than services revenue, that shift alone offsets the efficiency gains we have made within the agencies. Consistent with what Dominic said earlier, we expect gross margin to stay near current levels until that mix stabilizes. This is a revenue mix story, not a cost of delivery problem. Total operating expenses were $1.7 million for the quarter, down 31% from $2.44 million in the prior year period.

SG&A expenses decreased $924,000 or 45%, driven primarily by $577,000 of lower advertising and marketing spend, lower amortization of approximately $141,000 as certain intangibles reached the end of their expected life, and the remainder was spread across compensation and other G&A categories following the integration of our agency businesses. Professional fees increased $209,000 or 60%, primarily reflecting higher legal and audit costs tied to our financing arrangements, Nasdaq compliance matters, and strategic transaction activity during the quarter. Loss from operations was $966,000 compared to $507,000 in the prior year period. Net loss for the second quarter was $4.6 million, compared to a net loss of $534,000 in the second quarter of 2025, and a net loss of approximately $2.6 million in the first quarter of 2026. I want to be precise about what is in that number, because most of it is non-cash and tied to our convertible notes.

Total other expenses was $3.6 million, driven primarily by a $2.95 million non-cash loss and a change in fair value of derivative liability associated with the senior secured notes, a $281,000 non-cash loss on the change in fair value of digital assets, and approximately $336,000 of higher interest expense on the notes. With the notes fully extinguished subsequent to quarter end, the derivative liability that drove most of this quarter's loss goes away with them, and we expect our third quarter results to reflect the unwind of that liability rather than further losses against it. Turning to the balance sheet. As of June 30th, 2026, we had cash of $251,000, down from $842,000 at the end of the first quarter and $2.17 million at year-end 2025. I want to address this directly because the cash balance of $251,000 speaks for itself.

The parent company was operating under severe liquidity constraint at quarter end, and our Form 10-Q includes going concern disclosures reflecting that. I would encourage everyone to read it. Since quarter end, the picture has changed in specific and disclosed ways. The Senior Secured Notes have been fully settled and extinguished, which removes our senior secured debt service and the conversion overhang. We completed the sale of our All Things Dogs business. With the note holders' consent, we sold approximately $400,000 of digital assets to fund operations. Discussions regarding additional funding are ongoing, and we will announce definitive agreements when they are executed. While I am not going to tell you that the liquidity issue is fully solved, I will tell you that the balance sheet at September 30th will look structurally improved from the one we filed this week.

Our digital assets holdings had a total fair value of approximately $1.33 million at quarter end, down from $1.6 million at the end of the first quarter, driven by mark-to-market price movements. Our holdings consist of 5.32 Bitcoin, approximately 322 Ethereum, with approximately 288 that are staked, and approximately 6,972 Solana, all of which are staked. Total liabilities were $9.61 million, up from $7.46 million at year-end 2025. Total Onfolio Holdings stockholder equity was a deficit of approximately $3.11 million as of June 30th, which is the specific balance that triggers the Nasdaq stockholders' equity deficiency that Dominic referenced earlier. The convertible note update Dominic flagged earlier because it connects directly to the Nasdaq equity picture. At June 30th, the Senior Secured Notes remained outstanding, and the balance sheet reflects both the notes and a $5.6 million derivative liability associated with them.

Subsequent to quarter end, the holder converted $5.5 million in principal and approximately $30,000 of accrued interest into approximately 721,000 shares of common stock. We then settled everything that remained under the notes, including the final $10,000 of principal, $412,000 in liquidated damages, and approximately $8.2 million of floor penalty amounts through the issuance of approximately 1.58 million additional shares. As of today, nothing remains outstanding under the Senior Secured Notes. No principal, no accrued interest, and no damages. These issuances did have a dilutive effect, but this was intentional, and we believe it was in the best interest of shareholders as the conversions eliminated our senior secured debt, eliminated the derivative liability and the ongoing conversion overhang, and added directly to stockholders' equity, which is the mechanism behind the equity compliance plan we submitted to Nasdaq in July. Lastly, our Series A preferred stock.

169,460 shares remain outstanding, carrying a 12% cumulative annual dividend. We paid approximately $253,000 in cash dividends to preferred stockholders during the first half of the year, with approximately $127,000 of dividends accrued and unpaid as of quarter end. With that, I'll hand the call back to Dominic to talk through our priorities for the rest of the year.

Thanks, Adam. Our priorities haven't changed. Grow cash flow from the existing portfolio, control parent company costs, and resume accretive acquisitions. Closing the gap between what the portfolio distributes and what it costs to run the parent company is still the goal. When those two numbers cross, we are self-funding. Back in July, after we terminated the Paramount Helium transaction, I published a letter laying out specifically what I wanted shareholders to be able to see from us by late October. Progress on Nasdaq compliance, a stronger balance sheet, and lower parent overhead, and portfolio cash starting to flow up to the parent again. On Nasdaq, you just heard where we stand. We believe the equity deficiency is more or less addressed, pending Nasdaq's formal confirmation. We fully addressed the minimum bid price requirement ahead of the December deadline.

On the balance sheet, the note conversions Adam described are a direct step toward a stronger equity position, even though our cash position this quarter was tighter than we wanted it to be. On portfolio cash flow, we are still seeing limited distributions from subsidiaries to the parent company. We hope to be able to address this in the coming months via both organic growth of existing companies and acquisitions of new ones. I also committed to publishing a scorecard in late October, reporting progress against these commitments, setbacks included, and that hasn't changed. Our October 1st acquisition target, which I'll cover next, will be one of the specific things that scorecard reports against. Turning to our acquisition strategy, both of our financing facilities, the convertible note facility and the $100 million equity purchase facility we entered in April, remain in place.

On the pipeline itself, I want to give you the same detail we shared publicly in our August 4th blog post. We still hold our previously announced letters of intent for additional acquisitions. On one of them, we've renegotiated the terms. The cash required up front has come down from $3.5 million-$1.3 million, which is a far more achievable number given where we are today. We may be able to fund it through our SPV structure. That target has over $1 million in trailing 12-month EBITDA. We've also signed a letter of intent on a larger, and frankly, game-changing acquisition, roughly $4 million in trailing 12-month adjusted EBITDA, structured as 100% seller-financed, meaning the seller carries the note, and it's paid down over time. We're targeting an October 1st close.

I can't name the specific business until the definitive agreement is signed, but we're far enough along that this is a real deal. To be clear, this is not a Helium-style transaction. It's not a reverse merger. It's a straightforward acquisition in line with our core thesis of buying cash-generative online businesses. We're also in early-stage conversations on two additional opportunities where stock would fund most or all of the purchase price. That means more share issuance, but it also means cash flow positive contribution from day one without first needing to raise the cash. Every deal in our pipeline has to clear the same bar. It has to be immediately accretive, adding more value to a share than it costs from the moment it closes, and not a bet on where a business might be in a few years.

Everything I've just described serves one underlying goal, getting the parent company to cash flow positive. That gap closes from three directions at once, lower parent overhead, portfolio cash flowing up again, and new acquisitions that bring earnings with them from day one. Right now, acquisitions are the biggest and fastest-moving lever we have, which is why the pipeline update matters as much as it does. To sum up, the second quarter had its difficulties, and I've tried to be direct with you about where we fell short. What hasn't changed is the plan. Control parent costs, grow portfolio cash flow, and bring in acquisitions that are accretive from day one. We believe the pipeline we described today, together with the progress on our balance sheet and asset compliance, gives us a real path forward, and we will report honestly on our progress against it.

With that, I'll hand it back to the operator to open the call for questions.

Thank you. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Yegor Zadoriny, Private Investor. Please proceed with your question.

Good morning, guys. Thank you for taking the questions. Feels like a little bit back to square one, but I get it. Just maybe I missed it, just to be clear, is the total stockholder equity, is it still negative? Or has that been fixed?

As of the end of Q2, it is negative. But as of right now, it is positive after the conversions that took place in Q3.

Yeah, that is what I meant. Okay. Thank you. Senior secured note fully settled. The settlement caused significant dilution. Looking back, what went wrong with financial structure? Or just if you could give more color on that. And what safeguards will you use to make sure future, we are not kind of getting to the same issue, if that is possible?

Yeah. It is hard to know exactly what went wrong because we do not really have any counterfactuals to compare against. I think there is a few things that meant it was definitely less exciting financing than it could have been. So one was using crypto as collateral. The timing was not great there, so the value of the crypto decreased after we started that transaction, which made it harder for the note holders to de-risk their position, harder for us to use that crypto in a way that might make it more useful. I think there was a lot of downward pressure on the stock, which some of it is down to performance, some of it is down to the market, some of it is just the reality, and that meant that dilution was larger than it could have been.

But I think ultimately, we worked through the facility, and now the balance sheet is in better shape. So what we do in future would be, well, basically take financing on better terms, ones that do not leave the stock so pressured, but also we are able to utilize a lot more cash. I think one of the other things about the previous structure was when we raised the capital, 50% of it had to go into crypto collateral, and then the value of that collateral went down. So it meant that the actual principle of the note was a lot higher than the actual usable cash we got out of it. So any future financing, we would want to make sure that closer to 100% of the cash is actually cash we can use rather than cash that is stuck tied up.

I think using the cash in a more constructive way that allows us to do some of these acquisitions and support the portfolio is fundamental to making sure it is worth it as well.

Thank you. For me, I got a couple more. It is somewhat similar to the previous one, but a little different. In reasons for optimism, you say, and I quote, "We can add $4 million EBITDA without needing to raise cash first." You mentioned self-financing, but correct me if I am wrong, it really rhymes with previous ways of acquisitions and that did not go as well. I do not need per se for the deal, but more in a margin of safety perspective. Can you add more color or in terms of how the deal, not this particular, but deal in general would go, that way you are kind of not getting stuck. The main thing is not the same thing happening again as we had before, if you know what I mean?

Yeah, I get you. I think there is a few things that we have looked at in structuring the current deals plus any future deals. It has been, I think, almost two years since our last acquisition, so we have had a lot of time to review. I think the most important thing is the strength of the underlying business more than the structure, so we are making sure that every acquisition we look at now is a better business. You never know really until you have run the business for six months or 12 months if that is true. The other things we are doing is making sure that more of the structure is earn-out based, so performance-based post-acquisition. If the business declines, then you do not have to pay as much.

The second thing along those lines is, with the previous two or three businesses, we had a kind of two-year interest only and then a balloon payment at the end of the two years. That led us to this kind of time-sensitive period where you have to come up with the money by a certain time. Any seller notes would be structured in a way where they are paid as you get the cash rather than have this kind of time bomb down the road where you have to come up with the cash or default on the note. To summarize it, yeah, it is three things. One is buy better businesses, two is structure more of the payment as performance-based, and three, have a seller note that amortizes rather than as a balloon payment.

Thank you. If I may squeeze last one, it's just a quick one. Does that mean that we can expect Onfolio to be more aggressive moving forward on acquisitions? Thank you.

By aggressive, do you mean in terms of cadence and frequency?

More active, more actual-

Yeah, more active?

Yes. Yeah.

Yeah, that's the intention for sure. I think where we paused over the last two years is we really had this kind of Catch-22 where we couldn't fund acquisitions, but if we had more acquisitions, we would have more profit, which would enable us to fund more. We were kind of stuck in this Catch-22, and we don't think that that's the case now, so we are actually able to do more acquisitions. But also management and of course the Board as well, are keen to make sure that we're not just blindly acquiring companies and then they're underperforming and repeating some of the mistakes we've made previously. The goal is to be more active, more intentional, and I guess more successful would be the best way of putting it.

Thank you.

Yeah, no problem. Thanks for attending and for the questions.

Thank you. Ladies and gentlemen, that concludes our question and answer session. I will turn the floor back to Mr. Wells for final comments.

Yeah, that is right. Thank you all for joining us today. We plan to host our next quarterly conference call to discuss third quarter results in mid-November. We appreciate your continued support, and we will keep you updated as we make progress. Have a great rest of your day.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Good morning, and welcome to the Onfolio Holdings First Quarter 2026 Earnings Conference Call. Joining us today are Dominic Wells, Chief Executive Officer, and Adam Trainor, Chief Operating Officer and Interim Chief Financial Officer. Before we begin, I would like to remind everyone that certain statements made during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those expressed or implied. Forward-looking statements are based on management's current expectations as of today's date, and the company undertakes no obligation to update or revise any such statements. For a detailed description of risks and uncertainties, please refer to the Risk Factors section of the company's most recent Form 10-Q filed with the SEC.

Additionally, during this call, management may reference certain non-GAAP financial measures and supplemental operating metrics as indicators of performance. These measures should not be considered in isolation or as substitutes for GAAP results. A reconciliation of non-GAAP measures to the most comparable GAAP measures is available on the company's SEC filings, which can be found on the company's website at investors.onfolio.com/filings. With that, I'll turn the call over to Dominic Wells.

Thank you, and good morning, everyone. We appreciate you joining us today. Before we dive into the quarter and our operational highlights, I wanted to provide a quick overview of who we are at Onfolio Holdings. We are an owner/operator of cash-generating digital businesses, primarily in B2B marketing agencies and B2C online education. Since our IPO in 2022, we have grown revenues from approximately $2 million-$10.7 million in the full year 2025, roughly a 5x increase, entirely through acquiring and operating real businesses that generate real cash flow. As I discussed on our last conference call, we spent 2023 and 2024 building our initial portfolio. At the beginning of 2025, we deliberately paused our acquisition strategy to focus on getting our existing portfolio to a point where it could fund parent company costs.

As we closed out 2025, we made significant strides in achieving consistent profitability, but we recognized we were not quite there and needed to turn our acquisition machine back on. While we have turned more of our attention to acquisitions, including our recently announced financing, which I'll address momentarily, that does not mean we have stopped building upon our operational momentum and optimizing our current portfolio of companies. In fact, we continue to make progress in Q1, enhancing various business models across our portfolio. This resulted in shedding some unprofitable revenue lines, producing a near-term decline in overall revenue but greatly increasing operating efficiency and profitability, giving us a more profitable foundation to grow revenue from. Let's dive further into progress made during the quarter in our two segments, B2B and B2C.

We continued to see success with our new AgencyCo structure that I introduced on our last call. As a reminder, we have now begun treating our agencies as a unified platform in an effort to create centralized backend fulfillment, shared sales and marketing infrastructure, and clearer accountability across the portfolio. We believe it makes our agency businesses more durable and positions them for the changes AI is bringing to agency work. During Q1, we made significant progress with this strategy that we believe will result in notable profitability growth in the coming quarters. While our revenue for this segment declined approximately 10% year-over-year, this was an intentional repositioning, specifically with our RevenueZen portfolio company, which we began restructuring in late 2025 as the business was running at approximately 8% operating margins.

The service was solid, and the clients were happy, but the cost structure was heavier than it needed to be. We did two things. First, we consolidated RevenueZen's operational overhead under Eastern Standard, our largest agency and the anchor of the B2B agency platform. Second, we didn't replace departed team members with new hires. Toward the end of 2025, two senior leaders moved on from the company, and instead of replacing them, we rebuilt the core operational processes using AI. The team rethought how content gets produced, how client reporting works, and how campaigns get managed. The result was a structural reduction in manual overhead and significantly faster turnaround on new business proposals. As a result, operating expenses dropped by over 40%, and the business is now running at approximately 15% operating margins, nearly double where it started, while service delivery quality held.

The operational playbook we developed here is now being deployed across additional portfolio companies. The pattern is straightforward. Consolidate operational overhead across portfolio companies rather than running duplicate infrastructure, rebuild processes with AI rather than hiring to fill gaps, and focus the team on revenue-generating activities rather than manual overhead. We believe this is what an AI-native operating model looks like in practice. In our B2C segment, as we discussed during our last call, we deliberately pulled back ad spend at Proofread Anywhere, where returns have started to compress. Q1 reflects that decision. By cutting advertising spend by more than 80% year-over-year at Proofread Anywhere, we held the majority of the prior year's operating profit on roughly one-third of the prior year's revenue. Net operating margin at the business expanded by approximately 800 basis points.

Vital Reaction, our other B2C property, turned modestly profitable on the quarter after losses in the prior year period. As we rebuild the revenue base, we're applying the same playbook I described for our B2B segment. Media buying, ad creative production, and email marketing are now consolidated across both B2C properties, and we're putting AI to work in each of those workflows. The goal is to bring paid advertising back at meaningfully better unit economics than before. We believe Q1 is the trough for B2C revenue, and we've already started rebuilding from that base. I wanted to touch on a key development post Q1. In April, we secured a new $100 million equity facility to further accelerate our acquisition strategy. As I just spoke to, we spent 2025 closing the gap to profitability, and now we're deploying capital to grow.

This facility is another tool in our growing capital toolkit. It gives us more optionality to move aggressively on acquisitions, plugging each one into the AI infrastructure we've built, while continuing to compound through both our operating businesses and our digital asset treasury. The way we think about it internally is straightforward. We are buying online businesses three to four times free cash flow in a market that is too small for institutional private equity to compete in. We layer our AI operating playbook on top of those businesses to expand margins, as we did with RevenueZen. From this, every dollar of capital we deploy through this facility is intended to translate into multiple dollars of intrinsic value per share. The arithmetic works, provided we continue to maintain capital discipline. It is also worth noting that this facility is discretionary. We're not obliged to draw it.

We control the timing, the amount, and the use of proceeds. We will only issue equity when we have a specific accretive use of the capital, primarily acquisitions that immediately add cash flow, with a smaller portion allocated to growing our digital asset reserve. If conditions are not right, we don't draw. That is a meaningful protection for shareholder value. Lastly, before I turn it over to Adam to walk through the financials, I wanted to highlight that we officially regained compliance with Nasdaq's minimum bid price requirement on May 1, 2025. Maintaining our Nasdaq listing is foundational to everything we're building. With compliance restored and our recently announced $100 million equity facility in place, we remain committed to executing our AI-powered acquisition and growth strategy and continuing to compound value across our portfolio.

With that, I'll now turn the call over to Adam to walk through our financial results for Q1 2026, and then I'll return with more context on our plans for the remainder of the year. Adam, over to you.

Thanks, Dom. Glad to be speaking with you all today. Unless otherwise noted, all comparisons are first quarter 2026 versus first quarter 2025. Starting with our P&L, total revenue for the first quarter of 2026 was $1.9 million, a decrease of 34% from $2.8 million in the first quarter of 2025. Revenue from services, primarily our B2B segment, was $1.6 million, a decrease of about 10% from $1.8 million in the prior-year period. As Dom described, this primarily reflects the intentional repositioning of RevenueZen, where we consolidated operational overhead under Eastern Standard and rebuilt core processes using AI, partially offset by continued growth at Eastern Standard and a new contribution from our Pace Generative subsidiary, which did not exist in the comparable period.

Revenue from product sales, primarily our B2C segment, was $307,000 compared to $1 million in the prior-year period. The decline reflects the deliberate ad spend pullback at Proofread Anywhere that we initiated in the second half of 2025 to preserve unit economics as well as lower contributions from Vital Reaction in the period. Gross profit for the first quarter was $0.9 million compared to $1.7 million in the prior-year period. Gross margin was approximately 49% compared to 61% in the first quarter of 2025. The margin contraction primarily reflects the shift in revenue mix as higher-margin digital product sales declined as a percentage of total revenue.

As our agency platform continues to deliver on the AI-driven operating leverage Dom described, and as our B2C business is normalized, we still expect gross margin to trend to the mid 60% range over the course of 2026. Total operating expenses were $1.8 million, a decrease of 30% from two and a half million in the prior-year period. Within that, selling, general, and administrative expenses decreased $901,000 or 41%, to $1.32 million. The decrease was driven primarily by lower advertising and marketing costs, with the remainder spread across compensation, contractor, and other G&A categories. This is The AgencyCo and AI native operating model showing up in the financials.

Professional fees did increase to $431,000, primarily driven by higher legal and audit fees related largely to our recent capital markets activity. Loss from operations was $833,000, essentially flat compared to the prior year period, despite the revenue decline, reflecting the meaningful operating expense reductions. Net loss for the first quarter of 2026 was $1.9 million, compared to a net loss of $0.9 million in the prior-year period. This figure includes approximately $365,000 in non-cash expenses, a $674,000 non-cash loss on the change in fair value of digital assets, and a $71,000 non-cash loss in the change in fair value of derivative liabilities. None of those latter two items had a comparable amount in the prior year period.

They relate to the convertible note facility we opened in November 2025 and mark-to-market movements in our digital asset holdings during the quarter. We also recorded approximately $218,000 of additional interest expense year-over-year as a result of higher note balances. Excluding those non-cash items, the underlying operating performance is more consistent with the prior year than the headline number suggests. As a reminder, we believe portfolio operating profit is a non-GAAP metric that most directly reflects the health and trajectory of our businesses. On a trailing 12-month basis, portfolio operating profit was a loss of approximately $1.6 million compared to a loss of approximately $1.2 million in the prior trailing 12-month period. The reported comparison reflects approximately $440,000 of non-cash impairments we took during 2025 on legacy joint venture investments.

Excluding those one-time impairments, portfolio operating profit was modestly improved year-over-year despite the deliberate revenue actions we took during the year, including the RevenueZen restructuring on the B2B side and the ad spend pullback at Proofread Anywhere. We expect both of those actions to support expanding portfolio profitability over the course of 2026. Turning to our balance sheet. As of March 31, 2026, we had cash of $842,000 compared to $2.2 million at year-end 2025. The decline reflects normal operating uses, payment of accrued preferred dividends, scheduled debt service, and the absence of any new financing inflows, as our $100 million equity facility was entered into post quarter-end.

Our digital asset holdings had a total fair value of approximately $1.6 million at quarter end compared to $2.3 million at year-end 2025. The decline was driven almost entirely by mark-to-market price movements and is reflected in the $674,000 non-cash loss I mentioned earlier. Our current holdings consist of 5.32 Bitcoin, approximately 320 Ethereum, of which approximately 288 Ethereum are staked, and approximately 6,888 Solana, all of which are staked. These holdings continue to generate staking rewards. We received approximately $15,000 in staking rewards during the quarter, plus approximately $11,000 in digital assets received in settlement of customer accounts receivable. We continue to view these holdings as a long-term balance sheet asset rather than a trading position.

In debt, total outstanding indebtedness was $7.7 million compared to $7.8 million at year-end. The slight decrease primarily reflects a reduction in deferred revenue and scheduled paydowns of notes payable. Notes payable to related parties, primarily our Eastern Standard and RevenueZen seller notes and certain related party advances, totaled approximately $1.3 million across current and long-term, down from approximately $1.4 million at year-end. On our Series A preferred stock, 169,460 shares remain outstanding, carrying a 12% cumulative annual dividend payable quarterly. The board declared, and the company paid, the regular quarterly preferred dividend during the quarter, consistent with our record of paying every Series A preferred dividend on time since 2020.

With that, I'd like to hand the call back to Dom to discuss our go-forward strategic priorities at more length.

Thanks, Adam. Our priorities for 2026 remain the same. Generate more cash flow from the existing portfolio, resume acquisitions that immediately add to that cash flow, and close the gap between what the portfolio distributes and what it costs to run the parent company. When those two numbers cross, we are self-funding. That is the goal we work toward every day. We're also working aggressively to optimize our business by leveraging AI in a meaningful and real way, more than just talk, but delivering tangible improvements across our results, like the RevenueZen example I provided earlier. Our AI strategy is centered on delivering high-margin managed AI services to new and existing clients by leveraging frontier AI models to provide enterprise-grade content, marketing, data analytics, and automation solutions.

This is an asset-light approach, scaling AI revenue on top of existing frontier model infrastructure without the associated capital expenditure risks. We're already making progress rolling out AI services to our existing client base, plus using AI to improve our margins across the B2B segment of our portfolio. This has already resulted in a significant lift on the sales side also. Sticking with the RevenueZen example, Q1 2026 was the strongest quarter in the past year for this business, with five new clients closed at $38K in new monthly recurring revenue, a record number for this business. In addition, the B2C segment is benefiting from improved AI-powered data analytics, which is also something we plan to roll out as a new service to existing and new B2B clients.

As we make more acquisitions and grow our portfolio, this AI-powered services layer will become increasingly important in scaling our platform. With acquisitions at the forefront of our strategy in 2026, I want to spend a few minutes on how we are thinking about deals today because our framework has evolved meaningfully from the one we were operating under a year ago. The first thing to understand is that our balance sheet position has changed. With our convertible note facility and our newly announced $100 million equity facility in place, we have access to a level of capital that we simply did not have the past several years. That has changed the type of business we can pursue. We are seeing more established leadership teams, less customer concentration, and more recurring revenue than we were seeing 12 months ago.

Our pipeline currently targets acquisitions totaling $5 million-$10 million in annual adjusted EBITDA at an average multiple of 2-4x trading 12-month adjusted EBITDA before year-end. As a result, we believe the proposed acquisitions could approximately double our revenue run rate and bring our portfolio to profitability on a consolidated basis. The second thing, and this is where the AI thesis really comes in, is that every business we acquire makes the next acquisition easier and even more accretive. We have spent significant time and effort building an AI infrastructure across the portfolio. Instruction files, agent workflows, content production systems, client reporting, automation, and media buying optimization. Once that infrastructure exists, the marginal cost of plugging in a new acquisition drops meaningfully. A holding company is the ideal structure to deploy this. One team, multiple AI agents applied across every business in the portfolio.

The more businesses we own, the more valuable that infrastructure becomes. That is a flywheel that most companies cannot replicate. It also creates a specific kind of acquisition opportunity. There are a large number of profitable online businesses out there that have not adopted AI in any meaningful way within verticals that we already operate in, marketing agencies and e-commerce brands, where we've already proven what our AI operating model can do to margins. Many of them trade at lower valuations precisely because they look like they're at the end of their growth runway. We're also looking to expand into financial media and investor services, where we see significant opportunities to build a larger, more diversified platform. We can acquire businesses at attractive multiples and apply our AI operating playbook to drive immediate margin improvement and revenue growth. That is the recipe.

Buy at a relative discount, apply the playbook, expand margins, and recycle the cash flow into the next deal. Every deal makes the next one more accretive because the platform underneath gets better with each addition. To summarize the key takeaways from today's call, in the first quarter, we made deliberate decisions that reduced near-term revenue but materially improved the operating profile of both segments. We secured a $100 million equity facility post-quarter to fund accretive acquisitions, expand our AI services layer, and incrementally grow our digital asset reserve. We regained Nasdaq minimum bid price compliance on May first, and we have reengaged the acquisition pipeline with a sharper framework, larger target sizes, and a clearer view of how each new business compounds the value of the platform beneath. The plan is the same one we have been executing against.

Control parent company costs, grow portfolio cash flow, and acquire additional profitable businesses. What has changed is the position we are operating from. The balance sheet is stronger, the operating model is more efficient, the AI infrastructure is real and producing measurable results, and the capital is in place. Our job from here is execution. With that, I'll hand it back over to the operator to open the call for Q&A.

Thank you. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Yegor Zadoriny with Private Investor. Please proceed with your question.

Good morning. Thank you for taking my questions. I got a few, if I may. You discussed acquisition looking between $5-$10 in aggregate in adjusted EBITDA, can you give more color on how many companies or what size of companies you're looking at? Just trying to get a better understanding of what you're looking at in terms of sizes of the company and the actual amount of companies, just to get an idea of, you know, integration. Any color would be helpful.

Sure. Typically it hasn't changed substantially compared to historically. I would say the minimum that we're targeting is about $1 million in EBITDA from a single company, but we're also looking at ones that are doing $2 million or $3 million. As always, we'll take smaller ones if it makes sense. In terms of quantity, we've got a pretty active pipeline. I think if we acquire as many companies as we'd like to, maybe half a dozen, it's really about finding the businesses that we feel confident running and the valuation makes sense and the business is in good shape. I think what's changed since our ELOC announcement and the other financing in November is that we do have much larger businesses coming into our pipeline, and sellers understand we're able to make larger acquisitions.

Maybe this answer changes in six months or so, but right now, I'd say that kind of $1 million-$3 million EBITDA size.

Thank you. Am I correct in reading that the gross margin declined from 61%-49%?

Yeah.

Is that something?

So-

You think? Mm-hmm.

Sorry. Go ahead with your question.

Yeah. Can you clarify whether, you know, lower gross margin is mostly a temporary mix, or is that something we can look forward to, that you're going to be more in, like, a 50 range moving on?

I'll let Adam answer that because he actually touched upon that in his remarks. Yeah, Adam, do you want to take this one?

Sure. The drop in gross margin doesn't actually reflect a change at the business level. It reflects a shift in the proportion of revenue coming from our services segment versus our like B2C digital product segment. Basically, the margin on a digital product is quite high. It's close to a 90% margin. Whereas our services segment is high for a services industry, it's like ranges from 50%-60%, depending on the business. Our current revenue reflects a larger percent of our revenue coming from our services segments than in Q1 last year, which had a larger percent of our revenue coming from the high-margin digital services segment. The margin change is really a reflection of a shift of proportion in revenue coming from services versus digital products.

As had been mentioned, we're also looking at scaling up advertising from our new more profitable base on the digital product side. We expect margin to creep up over the course of the year, both as we start to increase the proportion of sales in digital products and as our service agencies continue to see the benefits of implementing AI and, you know, margin expansion.

Got it. Thank you. May I ask a couple more?

Yeah, go ahead.

This one, I don't know how much you can tell me, but it was a little bit of a concern, so any color is helpful. You know, liquidated damages up in default of convertible notes in 2026 were around about $600-ish. You know, I'm not going to get into the note, but on the it's related to Eastern Standard note. There was also another that's getting kind of moved forward about $400. I was just trying to understand, you know, $600 there, $400 here, and that's another basically $1 million of kind of revenuesor whatever cash that's going away. How likely is this kind of thing to proceed moving forward, or do you think it's one-offs that hopefully won't repeat? I am just trying to get understanding of this, like one-off type of things that keep popping up.

Yeah, understood. The liquidated damages were one-off. The other question about the Eastern Standard note, which was really our intention when we first entered into the note in November, was to convert the remainder of the Eastern Standard seller note, which is about $800K, to common stock, rather than pay it off in September or October as originally intended and negotiated with them. After closing the transaction, that negotiation kind of changed, and it ended up saying, Actually, let's just go back to paying them off with cash in September, although the door is open to converting it instead.

Basically that part of the 8-K and the waiver was really just saying, Okay, this bit didn't get solved on the timeline we thought, so let's circle back to it in September. In terms of ongoing things, I think there are two things that have really caused a lot of these. The first one was really related to the actual when we entered into the note and a lot of those moving parts, and that's why we don't see that happening again. The other was a lot of the acquisitions we made in 2024, we used a heavy reliance on seller financing. The way we structured it was interest-only for two years or for 18 months or three years with a balloon payment at the end.

Whereas that's kind of what created the Eastern Standard note, and we had a RevenueZen note due at the end of this year and another one paid off at the end of last year. As we're targeting acquisitions now, we're going to avoid kind of creating this—I don't want to say time bomb, but you know, creating this thing where two years from now we have a balloon payment coming. That would either mean we pay more upfront cash or we make it so that the seller note amortizes and pays out over time rather than just interest only and then a big balloon. Kind of back to your question, do we think it will continue? It's not our intention, and we don't think it will be.

Sometimes the structure of a deal might have this element, and sometimes not. We're very mindful of not just continually creating these big cash payments obliged in the future.

Thank you. I just have a quick one. Is the current cash about the same? If you can share that, because I know we're running, it says kind of running low, $800-ish. Is it still the same, excluding the new equity?

We can't really share the finances beyond March 31st. Yeah, can't really comment on that. Obviously cash is something we're watching very carefully, and that's why the acquisitions are important too.

Thank you. Last one. You've been doing a little bit of restructuring and repositioning. Are you thinking that in Q1, this is gonna go into Q2 and Q3? How much more efficiency do you think you can add to lower expenses? Would love to get more color on that.

Yeah. I think I'll kind of start the answer, and then I'll pass it to Adam because he's more in the weeds than I am. Basically, I think the bulk of it was done at the end of Q4 and the beginning of Q1, really with Eastern Standard and RevenueZen, because they're our largest assets in that space. The smaller assets like DDSRank and Contentellect have an opportunity for us to improve the margins there and kind of just take the playbook from what we've done with the two bigger businesses and then map it across them. I think RevenueZen and Eastern Standard have room for improvement as well. I don't mean that in a negative way. I just think there's always room for further optimization.

Yeah, Adam, do you want to add anything there?

I mean, I think there's still room to eke out a single-point margin expansion across the services businesses over the course of the year. I do think that the bulk of the work in terms of integration and creating efficiency has been realized and that now, really, what the businesses need is sales volume. We've gotten to a point where they are comfortably able to fulfill and service their existing customer base, and we've added a ton of new capacity without adding new costs. What we'll really see as the year goes on is that we're going to continue to increase the number of customers we're serving at each business without needing to, you know, increase capacity, fulfillment, or overhead.

We'll see pretty significant, I think, margin expansion over the course of the year, but it's going to be a factor more of new sales coming in, you know, to a base that's been built to be very efficient, as opposed to finding increased efficiencies, you know, from existing revenue.

I understand. Okay. Greatly appreciate all the color, guys. Thank you.

Yeah, thanks. We appreciate the questions and are always happy to talk.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I will turn the floor back to Mr. Wells for final comments.

Thank you, and thanks, everybody, for joining us today. We plan to host our next quarterly conference call to discuss Q2 results in mid-August. Have a great rest of your day.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.