Business Context and Reporting Period
The filing is a Form 10-Q for the three months ended March 31, 2022. The filing identifies the registrant as RDE, Inc., not GIFTIFY, INC.; investors should verify the company and ticker identity. RDE operates Restaurant.com, a digital platform offering restaurant discounts, travel and merchandise deals, advertising, and business-to-business gift-card and incentive products. It also acquired GameIQ, a consumer gamification technology developer, effective February 28, 2022.
The company reported 13,803,261 common shares outstanding at March 31, 2022 and 14,186,604 shares outstanding as of June 24, 2022. The common stock traded under ticker RSTN on the OTCQB Venture Stage Marketplace.
Financial Results and Liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $759,780 | $810,485 | Down 6% |
| Cost of revenues | $100,565 | $113,110 | Down 11% |
| Operating loss | $795,860 | $1,751,501 | Loss reduced 55% |
| Net income (loss) | $272,081 | $(1,132,420) | Improved by $1,404,501 |
| Cash used in operations | $(431,356) | $(248,159) | Use increased |
| Cash balance | $1,511,774 | $1,247,003 | Period-end comparison |
Gross margin was approximately 86.8% in Q1 2022 versus 86.0% in Q1 2021. Operating margin was approximately negative 104.8%, compared with negative 216.1% in the prior-year quarter. Net margin was approximately 35.8% in Q1 2022 versus negative 139.7% in Q1 2021. The quarterly net income was substantially driven by non-operating and unusual gains rather than positive operating cash generation.
At March 31, 2022, total assets were $2,535,502, total liabilities were $4,708,625, and stockholders’ deficiency was $2,173,123. Current assets were $1,917,661 compared with current liabilities of $3,882,613, indicating a substantial working-capital deficit.
Debt and debt-like obligations included $1,825,914 of acquisition notes payable, including accrued interest; $691,264 of government assistance notes payable and accrued interest; and $34,887 of convertible debt assumed in the reverse merger. The Restaurant.com acquisition note had $1.5 million of principal, accrued interest of $184,932, a 6% interest rate, and a March 1, 2023 maturity date. The GameIQ notes totaled approximately $140,913 of principal and mature through February 2025. The convertible debt, including accrued interest, was convertible into 19,286 common shares.
Cash declined by $418,551 during the quarter. Investing activities provided $12,805 from cash acquired in the GameIQ acquisition, while there were no financing cash flows in Q1 2022. Subsequent to quarter-end, the company raised $250,000 through the sale of 100,000 common shares.
Material Changes Versus the Prior Comparable Period
- Revenue decreased $50,705, or approximately 6%, primarily reflecting lower business-to-business restaurant-coupon revenue. B2B revenue declined to $428,775 from $503,246, while B2C revenue increased to $322,797 from $300,230.
- Selling, general and administrative expense declined $820,281 to $1,436,595, largely because stock-based compensation decreased by approximately $840,325. Excluding stock-based compensation, SG&A increased approximately $20,044.
- Amortization expense declined to $18,480 from $192,000, although the GameIQ acquisition added new finite-lived intangible assets.
- The company recognized a $1,025,535 gain from forgiveness of a Paycheck Protection Program loan, compared with a $648,265 government-assistance forgiveness gain in Q1 2021.
- The company recognized a $69,000 gain from settling the Dupree Productions legal matter for $150,000, below the previously accrued amount.
- GameIQ added $146,361 of goodwill and $297,148 of intangible assets, funded with 600,000 common shares valued at $300,000, acquisition notes of approximately $140,914, and an assumed EIDL obligation.
- Common shares outstanding increased during the quarter through employee and director issuances and the 600,000-share GameIQ acquisition consideration. The company also granted options exercisable into 461,000 shares.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management expects revenue improvement during the second half of 2022 as COVID-19 impacts abate, but no quantitative revenue, earnings, or cash-flow guidance was provided. COVID-19 continues to affect restaurant activity, consumer spending, certificate redemptions, and demand. The company also identifies inflation, supply-chain disruption, labor and operating-cost increases, geopolitical events, and uncertainty in economic recovery as risks.
Management concluded that substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance of the financial statements. The company depends on additional debt or equity financing until it generates positive cash flow; financing may be unavailable, impose restrictions, or materially dilute existing shareholders.
The quarter’s reported net income depended heavily on the $1,025,535 loan-forgiveness gain and the $69,000 legal-settlement gain. Operating activities consumed $431,356 of cash despite reported net income. The company had a past-due convertible debt obligation and significant near-term liabilities.
Disclosure controls and procedures were reported as not effective as of March 31, 2022. Management reported no material changes in internal control over financial reporting during the quarter. No material off-balance-sheet arrangements were reported.
The Dupree Productions settlement of $150,000 was paid in April 2022. Subsequent to quarter-end, the company also issued 215,784 shares valued at $323,676 to consultants for services.
Facts Investors Should Verify
- Verify the issuer identity: the supplied metadata names GIFTIFY, INC., while the filing identifies RDE, Inc. and ticker RSTN.
- Assess the going-concern disclosure, negative working capital, stockholders’ deficiency, and dependence on additional financing.
- Reconcile debt maturities, accrued interest, current classifications, and any default or conversion provisions.
- Determine how much of Q1 net income was attributable to nonrecurring government-loan forgiveness and legal-settlement gains.
- Evaluate whether revenue can recover from the 6% year-over-year decline, particularly the reduction in B2B revenue.
- Review the GameIQ acquisition assumptions, provisional goodwill and intangible-asset valuations, and integration prospects.
- Assess the dilution impact of shares issued for employees, consultants, GameIQ, and subsequent financing, together with outstanding options and warrants.
- Investigate the reported ineffective disclosure controls and any remediation plans.