Business Context and Reporting Period
The provided filing is a Form 10-Q for RDE, Inc., not GIFTIFY, INC. It covers the quarter and nine months ended September 30, 2023, filed November 13, 2023. RDE operates Restaurant.com, a digital platform offering restaurant coupons, gift cards, travel and merchandise deals, and advertising. The filing identifies the common stock ticker as RSTN.
The interim financial statements are unaudited and prepared under U.S. GAAP. Management identifies one reporting unit.
Key Financial Metrics
| Metric | Three months ended September 30, 2023 | Three months ended September 30, 2022 | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 |
|---|---|---|---|---|
| Revenue | $572,916 | $824,747 | $2,106,115 | $3,395,681 |
| Cost of revenues | $59,417 | $38,798 | $255,683 | $637,096 |
| Gross margin | 89.6% | 95.3% | 87.9% | 81.2% |
| Operating loss | $(190,054) | $(566,911) | $(2,422,755) | $(1,555,849) |
| Net loss | $(191,970) | $(596,342) | $(2,457,572) | $(517,851) |
| Net margin | (33.5%) | (72.3%) | (116.7%) | (15.2%) |
| Operating cash flow | Not separately presented | Not separately presented | $(1,001,156) | $(717,244) |
Third-quarter revenue consisted primarily of restaurant coupons ($502,176), travel, vacation and merchandise ($35,723), and advertising ($35,017). For the nine-month period, restaurant coupons generated $1,810,092, travel, vacation and merchandise generated $171,416, and advertising generated $124,607.
At September 30, 2023, cash and cash equivalents were $2,613,868, compared with $1,122,958 at December 31, 2022. Total current assets were $2,901,945 and total current liabilities were $2,018,672, producing reported working capital of approximately $883,273. Total liabilities were $2,976,994, and stockholders’ equity was $196,302, compared with a deficiency of $3,049,017 at year-end 2022.
Debt included $695,446 of principal and accrued interest under SBA EIDL loans, $115,949 of acquisition notes, and a past-due convertible note totaling $39,387. The $1.5 million Restaurant.com acquisition note, plus accrued interest, was converted into 554,859 common shares in March 2023 and retired.
Cash increased by $1,490,910 during the first nine months of 2023. Financing activities provided $2,492,066, primarily from a private placement of 1,252,500 shares for net proceeds of $2,504,750. Operating activities consumed $1,001,156, and there were no investing cash flows.
Material Changes Versus the Prior Comparable Period
- Third-quarter revenue decreased 31% year over year; nine-month revenue decreased 38%.
- The nine-month decline primarily reflected the absence of a 2022 national mobile-provider promotion that generated $1,106,447 of revenue.
- Third-quarter net loss improved to $191,970 from $596,342, despite lower revenue, primarily because of lower selling, general and administrative expenses and lower interest expense.
- Nine-month net loss worsened to $2,457,572 from $517,851. The prior-year period benefited from a $1,025,535 gain from forgiveness of government assistance notes, a $69,000 legal settlement gain, and a $28,600 vendor settlement gain, none of which recurred.
- Nine-month selling, general and administrative expense increased modestly to $4,273,187 from $4,227,766, principally because stock-based compensation increased by approximately $817,958, partially offset by a $637,681 employee retention tax refund.
- The company issued restricted stock and stock options during 2023, resulting in substantial non-cash compensation expense. Nine-month stock-based compensation included $242,697 for options, $140,000 for directors, $521,945 for employees, and $523,500 for services.
- The company entered into a new 36-month office lease in April 2023. Operating lease liabilities totaled $286,101 at September 30, 2023.
Outlook, Risks, Contingencies, and Unusual Items
There is no quantitative revenue, earnings, or cash-flow guidance in the filing. Management expects selling, general and administrative expenses to increase as the company adds personnel and incurs additional public-company, compliance, legal, accounting, insurance, and compensation costs.
On August 18, 2023, RDE entered into a merger agreement to acquire CardCash Exchange, a secondary gift-card exchange. Subject to closing conditions, including meeting Nasdaq Capital Market listing standards, consideration would include $2 million in cash and a promissory note, plus 6,108,077 restricted shares valued at approximately $27.7 million as of signing. The transaction was targeted to close by the end of 2023 and would materially dilute existing shareholders if completed.
Management states that substantial doubt exists regarding the company’s ability to continue as a going concern within one year after issuance of the financial statements. The company expects to require additional debt or equity financing until operations generate sufficient cash flow. Financing may be unavailable or may impose restrictive terms or substantial dilution.
Reported risks include continued operating losses and negative operating cash flow, dependence on additional financing, concentration among certain customers and vendors, uncertainty in promotional gift-card redemption rates, inflation, economic conditions, supply-chain and labor-cost pressures, and possible effects from COVID-19. Management states that COVID-19 did not materially affect the reported 2023 periods but cannot predict future effects.
The filing reports no material pending legal proceedings and no off-balance-sheet arrangements. Disclosure controls and procedures were deemed not effective as of September 30, 2023. Management reported no material changes in internal control over financial reporting during the quarter.
The filing contains an apparent inconsistency in third-quarter selling, general and administrative expense: the financial statements report $703,553, while the MD&A discussion reports $669,386. The reported total operating expenses and operating loss appear to use the financial-statement figure.
Important Facts for Investors to Verify
- Verify the issuer identity: the supplied filing is for RDE, Inc. and ticker RSTN, not GIFTIFY, INC.
- Assess the going-concern qualification, projected cash runway, and the company’s ability to obtain financing.
- Review the terms, closing status, financing requirements, valuation, and dilution implications of the proposed CardCash merger.
- Reconcile the inconsistent third-quarter SG&A amounts reported in the financial statements and MD&A.
- Evaluate the sustainability of revenue after the loss of the 2022 mobile-provider promotion and the decline in B2B revenue.
- Review past-due convertible debt, SBA loan repayment requirements, acquisition-note terms, and potential share conversion or dilution.
- Assess the impact of stock-based compensation and remaining unrecognized compensation expense on future results and dilution.
- Determine whether the company has remediated the ineffective disclosure controls and procedures identified in the filing.