SEC Form 10-Q Summary
Filing identity: The provided filing is for RDE, Inc., not GIFTIFY, INC. The report covers the quarter and six months ended June 30, 2022, and was filed July 29, 2022. RDE reported 14,152,378 shares outstanding as of July 15, 2022 and traded on OTCQB under ticker RSTN.
Business Context and Reporting Period
RDE operates Restaurant.com, a digital platform offering restaurant coupons, dining passes, travel and merchandise deals, advertising, and business-to-business incentive products. Management describes the platform as serving more than 7.8 million customers and approximately 182,500 restaurants and retailers. The company acquired GameIQ, a consumer gamification technology developer, on February 28, 2022.
The interim financial statements are unaudited and prepared under U.S. GAAP. Management states that the company has one operating segment.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 |
|---|---|---|
| Revenue | $1.811 million | $2.571 million |
| Cost of revenues | $497,733 | $598,298 |
| Gross margin | Approximately 72.5% | Approximately 76.7% |
| Operating loss | $193,078 | $988,938 |
| Operating margin | Approximately (10.7%) | Approximately (38.5%) |
| Net income (loss) | $(193,590) | $78,491 |
| Net earnings (loss) per share | $(0.01) | $0.01 |
| Net cash used in operating activities | Not separately provided | $(35,910) |
The six-month net income was substantially affected by a $1.026 million gain from forgiveness of a government assistance loan, as well as gains of $69,000 from a legal settlement and $28,600 from a vendor settlement.
Liquidity, Capitalization, and Debt
- Cash was $2.157 million at June 30, 2022, compared with $1.930 million at December 31, 2021.
- Total current assets were $2.483 million and total current liabilities were $4.056 million, implying a current ratio of approximately 0.61.
- Total liabilities were $4.856 million, compared with $5.529 million at year-end 2021.
- Stockholders’ deficiency improved to $(1.817) million from $(3.020) million at December 31, 2021.
- Acquisition notes payable, including accrued interest, totaled $1.848 million, of which $1.754 million was classified as current. This included the $1.5 million Restaurant.com note, maturing March 1, 2023, and $140,914 of GameIQ acquisition notes.
- Government assistance notes payable and accrued interest totaled $697,477, primarily related to EIDL loans. The $1.026 million PPP loan was forgiven in February 2022.
- Past-due convertible debt assumed in the reverse merger totaled $35,637, including $15,637 of accrued interest, and was convertible into 23,758 shares at $1.50 per share.
- Operating cash flow was negative despite reported net income. Financing activities provided $250,000 from the issuance of common stock, and investing activities provided $12,805 of cash acquired in the GameIQ transaction.
Material Changes Versus Prior Comparable Period
- Second-quarter revenue increased 130% to $1.811 million from $788,776. Six-month revenue increased 61% to $2.571 million from $1.599 million.
- The increase included $1.106 million of revenue from a one-month promotional agreement with a national mobile telephone provider that began and ended in May 2022.
- Business-to-business restaurant coupon revenue increased to $1.525 million in the second quarter from $409,579 in the prior-year quarter and to $1.954 million for the six months from $912,825.
- Cost of revenues increased to 27% of quarterly revenue and 23% of six-month revenue, compared with 12% and 13%, respectively, in the prior-year periods, primarily due to Fandango movie-ticket costs related to the mobile-provider promotion.
- SG&A decreased 47% for the quarter and 43% for the six months, largely because of lower stock-based compensation. Excluding stock-based compensation, management reported modest increases in SG&A.
- The quarterly net loss narrowed to $193,590 from $2.307 million. Six-month results shifted to net income of $78,491 from a $3.439 million net loss, primarily because of the PPP forgiveness gain and lower operating expenses.
- Common shares issued and outstanding increased to 14.119 million at June 30, 2022 from 12.879 million at December 31, 2021. The increase included shares issued for services, employees, the GameIQ acquisition, vendor settlement, and a $250,000 cash offering.
Outlook, Risks, Contingencies, and Unusual Items
- Management expects an improvement in revenue during the second half of 2022 as COVID-19 effects abate, but continues to identify pandemic-related restrictions, restaurant closures, reduced dining activity, and changes in consumer spending as material risks.
- Inflation, supply-chain disruptions, labor and operating-cost increases, and the Russia-Ukraine conflict may adversely affect revenue, gross profit, and financial condition.
- The company states that substantial doubt exists about its ability to continue as a going concern within one year after issuance of the financial statements. Management expects to require additional debt or equity financing; financing may be unavailable, impose restrictions, or dilute existing shareholders.
- The filing reports a concentration risk: one customer represented 61% of second-quarter revenue and 43% of six-month revenue.
- Management disclosed that its disclosure controls and procedures were not effective as of June 30, 2022. No material changes to internal control over financial reporting were reported during the quarter.
- The company settled the Dupree Productions matter for $150,000 on May 9, 2022, $69,000 below the accrued amount, producing a gain. Management reported no other pending proceedings expected to have a material adverse effect.
- GameIQ contributed $8,465 of revenue and a $16,485 net loss from March 1 through June 30, 2022. The GameIQ purchase price allocation remains provisional, with $443,509 allocated to software and technology.
- Subsequent to June 30, 2022, the company issued 33,333 shares valued at $20,000 for consulting services.
Investor Verification Priorities
- Confirm the filing’s registrant identity and ticker, because the supplied metadata identifies GIFTIFY, INC., while the filing identifies RDE, Inc. and RSTN.
- Assess the sustainability of revenue after the one-time $1.106 million mobile-provider promotion and the high concentration in one customer.
- Review liquidity, near-term maturities, and the company’s ability to refinance or repay the $1.754 million current portion of acquisition notes.
- Determine whether recurring operations can generate positive cash flow without additional equity or debt financing.
- Evaluate the effect of stock issuances, options, warrants, convertible debt, and future financing on dilution.
- Review the disclosed ineffective disclosure controls and any remediation or subsequent developments.
- Consider the going-concern uncertainty, COVID-19 and inflation risks, and the provisional accounting for the GameIQ acquisition.