SEC Form 10-K Summary
Filing and reporting period: The provided filing is RDE, Inc.’s Form 10-K for the fiscal year ended December 31, 2022, filed March 7, 2023. The request metadata identifies GIFTIFY, INC., but the filing text identifies the registrant as RDE, Inc., trading under ticker RSTN. This entity discrepancy should be verified.
Business Context
RDE operates Restaurant.com, a digital marketplace for restaurant discounts, dining passes, entertainment, travel and consumer products. The company reported 7.8 million registered customers, access to more than 182,500 restaurants and retailers, and 27 full-time employees at December 31, 2022. Revenue is generated through B2C sales, B2B corporate and marketing programs, third-party offers and advertising.
- B2C revenue was $1.27 million, or approximately 28% of total revenue.
- B2B revenue was $3.15 million, or approximately 71% of total revenue.
- Mobile represented 49% of B2C revenue and more than 60% of B2C orders.
- The company acquired GameIQ on February 28, 2022, issuing 600,000 shares and notes with original principal totaling approximately $140,914.
Financial Results and Key Metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $4.445 million | $3.324 million | +34% |
| Cost of revenues | $825,242 | $394,023 | +109% |
| Gross profit | $3.619 million | $2.929 million | +24% |
| Gross margin | 81.4% | 88.1% | Down 6.7 percentage points |
| Operating loss | $2.287 million | $5.508 million | Loss decreased $3.221 million |
| Operating margin | (51.5%) | (165.8%) | Improved |
| Net loss | $1.279 million | $4.991 million | Loss decreased $3.713 million |
| Net loss per share | $0.09 | $0.41 | Improved |
| Cash from operating activities | $(1.054) million | $(1.260) million | Use decreased $207,000 |
| Cash balance | $1.123 million | $1.930 million | Down $807,367 |
| Stockholders’ deficiency | $3.049 million | $3.020 million | Deficiency increased $29,278 |
The company’s reported 2022 operating expenses were $6.731 million, including $5.463 million of selling, general and administrative expense, $184,795 of amortization and $258,714 of impaired intangible asset write-offs. Advertising costs were $485,531, compared with $601,941 in 2021.
Liquidity, Debt and Capital Resources
- Current assets were $1.522 million versus current liabilities of $3.851 million, indicating significant working-capital pressure.
- Total liabilities were $4.624 million and exceeded total assets of $1.575 million.
- Debt and accrued interest included $1.880 million of acquisition notes, $706,576 of government assistance notes, and $37,137 of past-due convertible debt.
- The company stated that it needed approximately $600,000 over the following 12 months to finance operations and service debt.
- Management stated that available cash was expected to last until approximately November 2023, absent additional financing or improved cash generation.
- Financing activities provided $233,399, including $250,000 from the sale of 100,000 common shares.
- The $1.026 million Paycheck Protection Program loan and accrued interest were forgiven in February 2022 and produced a $1.026 million gain.
- The $1.5 million Restaurant.com acquisition note, plus approximately $270,000 of accrued interest, was converted into 554,859 common shares on March 1, 2023.
Material Changes Versus 2021
- Revenue increased $1.121 million, primarily due to a temporary agreement with a national mobile telephone provider that generated $1.106 million of 2022 revenue from May through August.
- B2B revenue increased approximately $1.287 million, while B2C revenue decreased approximately $159,000.
- Cost of revenues increased substantially because of Fandango movie-ticket costs associated with the provider agreement.
- SG&A decreased $1.780 million, primarily because stock-based compensation declined by $1.939 million.
- Operating loss and net loss narrowed materially, although the company remained unprofitable and generated negative operating cash flow.
- The company recognized $258,714 of GameIQ intangible-asset impairment, compared with $570,030 of intangible-asset impairment in 2021.
- GameIQ contributed $12,514 of revenue and a $17,752 net loss from March 1 through December 31, 2022, according to unaudited acquisition disclosure.
- Common shares outstanding increased from 12,879,428 at year-end 2021 to 14,152,378 at year-end 2022, before the subsequent debt conversion.
Outlook, Risks and Unusual Items
Management and the independent auditor concluded that substantial doubt exists regarding the company’s ability to continue as a going concern. The company depends on raising additional debt or equity capital, achieving sustainable revenue growth and reaching profitability. The financial statements contain no adjustments for the possible outcome of this uncertainty.
- The company has recurring losses, negative operating cash flow, an accumulated deficit of $61.570 million and a stockholders’ deficiency of $3.049 million.
- Management identified no committed credit facility or other ready borrowing arrangement.
- COVID-19-related restaurant and consumer activity restrictions continued to be cited as risks, although management expected improvement as the pandemic abated.
- Inflation, labor costs, economic conditions, restaurant closures, merchant retention, competition and consumer discretionary spending may affect revenue and margins.
- The company faces regulatory uncertainty regarding discount certificates and dining passes, including gift-card, abandoned-property, payments, privacy, tax and money-transmission laws.
- Cybersecurity, payment processing, website availability, search-engine rankings and reliance on third-party technology and marketing channels are material operating risks.
- Disclosure controls and procedures were reported as ineffective at December 31, 2022, although management separately concluded that internal control over financial reporting was effective. The auditor did not provide an internal-control attestation because the company is a smaller reporting company.
- Unusual or nonrecurring items included the $1.026 million loan-forgiveness gain, a $69,000 legal-settlement gain, a $28,600 vendor-settlement gain and the $1.106 million mobile-provider arrangement revenue.
Most Important Facts to Verify
- Confirm whether the filing belongs to GIFTIFY, INC. or RDE, Inc.; the provided document consistently identifies RDE, Inc. and Restaurant.com.
- Assess the going-concern qualification, projected cash runway and the company’s ability to raise at least the approximately $600,000 identified funding requirement.
- Verify post-year-end treatment of the $1.770 million Restaurant.com acquisition note conversion and the resulting share dilution.
- Determine how much 2022 revenue was recurring versus attributable to the temporary $1.106 million provider agreement.
- Review the past-due $37,137 convertible debt and remaining EIDL obligations, including repayment terms.
- Reconcile the inconsistent descriptions of B2B revenue as 40%, 50% and approximately 71% of revenue in different sections of the filing.
- Investigate the ineffective disclosure-controls conclusion and any remediation plans.
- Evaluate potential liabilities related to unredeemed certificates, abandoned-property laws, taxes, privacy, payments regulation and cybersecurity.