Business Context and Reporting Period
The supplied filing is a Form 10-Q for RDE, Inc., not GIFTIFY, INC. It covers the quarter and six months ended June 30, 2023, with comparative periods ended June 30, 2022. RDE operates Restaurant.com, a digital platform offering restaurant coupons, travel and merchandise deals, advertising, and business-to-business gift card programs. The company reported 16,506,404 common shares outstanding as of August 7, 2023 and trades under the symbol RSTN on OTC Markets.
The interim financial statements are unaudited. Management identified one reporting unit and stated that the six-month results are not necessarily indicative of full-year results.
Financial Results and Key Metrics
| Metric | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 |
|---|---|---|---|---|
| Revenue | $721,488 | $1,811,154 | $1,533,199 | $2,570,934 |
| Cost of revenues | $101,389 | $497,733 | $196,266 | $598,298 |
| Gross margin | Approximately 86% | Approximately 73% | Approximately 87% | Approximately 77% |
| Loss from operations | $(1,833,516) | $(193,078) | $(2,232,701) | $(988,938) |
| Net income (loss) | $(1,840,686) | $(193,590) | $(2,265,602) | $78,491 |
| Basic and diluted EPS | $(0.12) | $(0.01) | $(0.15) | $0.01 |
| Net cash used in operating activities | Not separately provided for the quarter | Not separately provided for the quarter | $(981,092) | $(35,910) |
Reported gross margin improved because the prior-year period included costs associated with a large promotional arrangement. Despite this, operating and net margins remained significantly negative because selling, general and administrative expenses exceeded revenue. Six-month operating margin was approximately negative 146% and net margin was approximately negative 148%.
Six-month selling, general and administrative expense was $3,569,634, including substantial stock-based compensation. The company reported $1,265,685 of stock-based compensation adjustments in operating cash flow, including compensation for options, restricted stock, and shares issued for services.
Financial Position, Debt, and Liquidity
| Balance-sheet item | June 30, 2023 | December 31, 2022 |
|---|---|---|
| Cash and cash equivalents | $2,134,182 | $1,122,958 |
| Total current assets | $2,525,452 | $1,522,196 |
| Total liabilities | $3,093,305 | $4,623,821 |
| Total stockholders’ deficiency | $(273,935) | $(3,049,017) |
| Accounts payable | $1,315,192 | $1,206,615 |
- Current liabilities were $2,113,907, implying a current ratio of approximately 1.19x based on reported current assets.
- Debt and related obligations included approximately $38,637 of past-due convertible debt and accrued interest, $115,742 of acquisition notes and accrued interest, and $699,133 of SBA-related principal and accrued interest.
- The past-due convertible note has $20,000 of principal, bears interest at 15%, was originally due in July 2017, and was convertible into 25,758 common shares at June 30, 2023.
- Operating lease liabilities totaled $314,086 at June 30, 2023, following commencement of a new 36-month office lease in April 2023.
- Cash increased by $1,011,224 during the first six months, primarily because the company raised $2,005,000 through a private placement of 1,002,500 shares, partially offset by $981,092 of operating cash use and debt repayments.
Material Changes Versus the Prior Comparable Period
- Revenue declined 60% in the second quarter and 40% in the first six months. The main driver was the absence of a national mobile-provider promotional agreement that generated $1,106,447 of revenue in the first six months of 2022, including $1,106,447 in the second quarter period.
- Six-month B2B restaurant-coupon revenue fell to $873,542 from $1,953,709, while B2C revenue increased to $659,657 from $596,077.
- Six-month operating loss widened to $2,232,701 from $988,938, and the company moved from $78,491 of prior-year net income to a $2,265,602 net loss.
- Selling, general and administrative expense increased by $657,584 for the first six months, principally due to higher stock-based compensation. Excluding stock-based compensation, management reported a $70,625 decrease.
- 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, retiring the note.
- Shares outstanding increased from 14,152,378 at December 31, 2022 to 16,506,404 at June 30, 2023, reflecting equity financing, debt conversion, stock compensation, and shares issued for services.
- Prior-year other income included $1,025,535 of government-assistance debt forgiveness and gains on legal and vendor settlements. None of these gains recurred in 2023.
Guidance, Outlook, Risks, and Unusual Items
Management did not provide quantitative revenue or earnings guidance. Management expects selling, general and administrative costs to increase as personnel and public-company compliance costs grow, and expects cost of revenues to increase if revenue growth resumes.
The filing contains a substantial doubt regarding the company’s ability to continue as a going concern within one year. The company reported a six-month net loss of $2,265,602, operating cash use of $981,092, and stockholders’ deficiency of $273,935. Management stated that continued operations depend on obtaining additional debt or equity financing and achieving sustainable positive cash flow. Additional financing may be unavailable, contain restrictive terms, or dilute existing shareholders.
- Disclosure controls and procedures were determined to be ineffective as of June 30, 2023. The filing states that there were no material changes in internal control over financial reporting during the quarter.
- Inflation, economic conditions, supply-chain and labor costs, restaurant industry conditions, and lingering or renewed effects of COVID-19 could adversely affect demand, costs, and liquidity.
- Promotional gift-card redemption rates are estimates; differences from historical redemption patterns could materially affect deferred revenue and results.
- Customer and vendor concentration exists in receivables and payables, although no customer or vendor accounted for more than 10% of consolidated revenue or purchases during the first six months.
- No material pending legal proceedings were reported.
- After quarter-end, on August 18, 2023, RDE announced an agreement to acquire CardCash Exchange, Inc. for $2.0 million in cash and a promissory note plus 6,108,077 restricted shares valued at approximately $27.7 million. Closing is subject to conditions, including Nasdaq listing standards, and is targeted for the end of 2023. The transaction had not closed as of the filing date.
Most Important Facts to Verify
- Confirm that the filing and issuer correspond to the requested company: the supplied document identifies the registrant as RDE, Inc., while the request identifies GIFTIFY, INC.
- Assess the company’s ability to obtain financing and fund operations in light of the explicit going-concern qualification and negative operating cash flow.
- Verify the sustainability of revenue excluding the nonrecurring 2022 national-provider promotion, particularly the decline in B2B revenue.
- Review the dilution implications of the 2023 private placement, debt conversion, stock-based compensation, outstanding options, common stock issuable, and proposed CardCash shares.
- Evaluate the past-due convertible note, SBA obligations, acquisition notes, lease commitments, and accounts payable relative to available cash.
- Investigate the ineffective disclosure controls and any remediation plans.
- Confirm the closing status, financing requirements, valuation, and listing conditions for the proposed CardCash acquisition.