# Giftify, Inc.: Form 10-Q for the period ended Jun 30, 2024

- Company: [Giftify, Inc.](/companies/gift.md) (CIK 1760233)
- Form: 10-Q
- Filed: 2024-08-14
- Accepted by EDGAR: Aug 14, 2024, 20:00 ET
- Period: 2024-06-30
- Accession: 0001493152-24-032141
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1760233/000149315224032141/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1760233/000149315224032141/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $20.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2024-01-01 to 2024-06-30 | $41.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-04-01 to 2024-06-30 | $16.8m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2024-01-01 to 2024-06-30 | $35.0m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-04-01 to 2024-06-30 | $3.3m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-01-01 to 2024-06-30 | $6.5m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-04-01 to 2024-06-30 | $9.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2024-01-01 to 2024-06-30 | $15.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-04-01 to 2024-06-30 | −$7.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-01-01 to 2024-06-30 | −$10.4m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | −$7.7m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | −$10.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.30 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | −$0.43 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.30 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | −$0.43 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 25,751,441 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 25,377,832 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | −$2.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-01-01 to 2024-06-30 | $449.6k | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2024-06-30 | $4.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-30 | $11.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $40.5m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $12.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-30 | $16.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-06-30 | $23.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 41,477 characters.

Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative report on our financial condition, results of operations, and liquidity. This discussion and analysis should be read in conjunction with the attached unaudited Condensed Consolidated Financial Statements and notes thereto and our Annual Report on Form 10-K for the year ended December 31, 2023, including the audited Consolidated Financial Statements and notes thereto. The following discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed in the forward-looking statements. Please also see the cautionary language at the beginning of this Quarterly Report regarding forward-looking statements.

### Background

On March 1, 2020, we acquired the assets of Restaurant.com, Inc. Restaurant.com, Inc. is a pioneer in the restaurant deal space and the nation’s largest restaurant-focused digital deals brand.

On February 28, 2022, the Company completed the acquisition of GameIQ, a California corporation, that is a developer of consumer gamification technologies for retail businesses. The Company issued 600,000 restricted shares of its common stock with a fair value of $300,000, and promissory notes aggregating $140,914 and bearing interest at 1% per annum, to Balazs Wellisch, President and co-founder, and Quentin Blackford, Director, of GameIQ. Each note required repayment in nine equal biannual installments, with the first installment due on the nine-month anniversary of the closing. Balazs Wellisch became Chief Technology Officer of Restaurant.com, a subsidiary of the Company.

On December 29, 2023, RDE, Inc. completed the acquisition of CardCash Exchange, Inc. (“CardCash”). The acquisition was made pursuant to a plan of merger agreement dated August 18, 2023, between RDE, and Elliott Bohn, in his capacity as stockholder representative for CardCash’s stockholders. The Company acquired all of the issued and outstanding equity interests of CardCash from CardCash’s stockholders for $26,682,000, made up of 6,108,007 shares of RDE’s common stock with a fair value of $24,432,000 or $4.00 per share, $750,000 in cash (including $250,000 advanced in October 2023), and the issuance of notes payable for $1,500,000. Elliot Bohm, President of CardCash prior to the merger with RDE, remains as President of CardCash following the closing of the merger and has joined the Board of Directors of RDE as well as serving as a member of the Board of Directors of CardCash. Marc Ackerman, Chief Operating Officer of CardCash prior to the merger with RDE, continues to serve as Chief Operating Officer of CardCash following the closing of the merger.

### Business Overview

We have two principal divisions, B2C and B2B, for both CardCash and for Restaurant.com.

#### CardCash

CardCash operates as a leading gift card exchange platform, facilitating the purchase and sale of unwanted gift cards at discounted rates for both consumers and businesses. The Company’s mission is to provide a seamless marketplace for individuals looking to maximize the value of their gift cards while also offering businesses innovative solutions to leverage this market.

CardCash’s core service offering includes the buying and selling of gift cards from over 1,100 retailers, such as Target, Home Depot, Starbucks and TJ Maxx, among others. By connecting buyers and sellers, CardCash enables consumers to unlock value from unused gift cards and save significant amounts on their purchases.

CardCash purchases unwanted gift cards at a value lower than their face worth and subsequently retails them at a discounted rate to discerning shoppers nationwide. This avenue not only allows individuals to obtain cash for their unneeded gift cards but also enables them to make cost-effective purchases through discounted gift cards.

With advanced fraud prevention technology, known as FraudFix, CardCash ensures the security and integrity of all transactions conducted on its platform. This commitment to trust and reliability has contributed to its success in saving consumers over $100 million since its inception.

#### Restaurant.com

Restaurant.com is a pioneer in the restaurant deal space and the nation’s largest restaurant-focused digital deals brand. We derive our revenue from transactions in which we sell discount certificates for restaurants on behalf of third-party restaurants. Founded in 1999, we connect digital consumers, businesses, and communities offering dining and merchant deal options nationwide at over 182,500 restaurants and retailers to over 7.8 million customers. Our 10,000 core restaurants and 170,000 Dining Discount Pass restaurants and retailers extend nationwide. Our top three B2C markets are New York, Chicago and Los Angeles.

#### Restaurant.com Business to Customer Division

Our B2C division accounted for 45% of gross revenue in our fiscal year ended December 31, 2023. To our database of 6.2 million customers, we sell:

- Discounted certificates for 10,000 restaurants. The certificates range from $5 to $100 and never expire.
- Discount Dining Passes, which provide discounts at 170,000 restaurants and other retailers. These passes provide multiple uses for six months.
- “Specials by Restaurant.com” which bundle Restaurant.com certificates with a variety of other entertainment options, including theatre, movies, wine and travel. Customers have favored these bundled offering (“Specials”), generating significantly greater revenue per customer when compared to purchasing our other products. The average order value for these Specials sales is nearly five times a certificate purchase. Specials generated over 5% of our past year’s B2C revenue from 60% of the B2C orders for the fiscal year ended December 31, 2023. We believe that our relationships with small businesses presents a significant revenue opportunity through such cross-promotions.

#### Restaurant.com Business to Business Division

Our B2B division accounted for 55% of our gross revenue in our fiscal year ended December 31, 2023. We sell certificates and Discount Dining Passes to corporations and marketers, which use them to:

- generate new customers;
- increase sales at the point of sale;
- reward points/customer loyalty;
- convert to paperless billing and auto-bill payment.
- motivate specific customer behavior such as free home repair estimates and test drives for auto dealers;
- renew subscriptions and memberships; and
- address customer service issues.

#### Restaurant.com Other Business

We also generate revenue through third-party offers and display ad revenue. This comprises a de minimis portion of our gross revenue.

#### Restaurant.com Attractive Customer Demographics

We intend to grow and leverage our customer database of 6.2 million which we believe is of value to merchants for a variety of services and products.

### Inflation

Global inflation also increased during 2021 and in 2022. The Russia and Ukraine conflict and other geopolitical conflicts, as well as related international response, have exacerbated inflationary pressures, including causing increases in the price for goods and services and global supply chain disruptions, which have resulted and may continue to result in shortages in food products, materials and services. Such shortages have resulted and may continue to result in inflationary cost increases for labor, fuel, food products, materials and services, and could continue to cause costs to increase as well as result in the scarcity of certain materials. We cannot predict any future trends in the rate of inflation or other negative economic factors or associated increases in our operating costs and how that may impact our business. To the extent we and the restaurant customers we service are unable to recover higher operating costs resulting from inflation or otherwise mitigate the impact of such costs on our and their business, our revenues and gross profit could decrease, and our financial condition and results of operations could be adversely affected.

### Going Concern

The Company has a history of reporting net losses and negative operating cash flows. At June 30, 2024, the Company had cash of $4,663,623 available to fund its operations, including expansion plans, and to service its debt, and a working capital deficit of $1,133,903.

Our consolidated financial statements have been presented on the basis that it will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have experienced operating losses and negative operating cash flows during 2023 and 2022. We have financed our working capital requirements through borrowings from various sources and the sale of our equity securities.

As a result, management has concluded that there is substantial doubt about our ability to continue as a going concern. The Company’s independent registered public accounting firm, in its report on the Company’s consolidated financial statements for the year ended December 31, 2023, has also expressed substantial doubt about the Company’s ability to continue as a going concern. The Company’s consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company’s ability to continue as a going concern is dependent upon its ability to raise additional debt or equity capital to fund its business activities and to ultimately achieve sustainable operating revenues and profitability.

As market conditions present uncertainty as to the Company’s ability to secure additional funds, there can be no assurances that the Company will be able to secure additional financing on acceptable terms, as and when necessary to continue to conduct operations. There is also significant uncertainty as to the effect that the coronavirus may have on the Company’s business plans and the amount and type of financing available to the Company in the future.

If the Company is unable to obtain the cash resources necessary to satisfy the Company’s ongoing cash requirements, the Company could be required to scale back its business activities or to discontinue its operations entirely.

### Basis of Presentation

On August 18, 2023, RDE, Inc. (“RDE”) entered into an agreement and plan of merger to acquire CardCash Exchange Inc (“CardCash”). On December 29, 2023, the merger was completed. RDE’s operations are not considered significant compared to the operations of CardCash before the acquisition. Accordingly, for the purpose of the accompanying consolidated financial statements, periods before December 29, 2023 reflect the financial position, results of operations and cash flows of Card Cash prior to the acquisition, and is referred to as the “Predecessor”. Periods beginning after December 29, 2023 reflect the financial position, results of operations and cash flows of RDE consolidated with CardCash, and is referred to as the “Successor”. A black-line between the Successor and Predecessor periods has been placed in the consolidated financial statements and in the tables to the notes to the consolidated financial statements to highlight the lack of comparability between these periods. Collectively, RDE (Successor) and CardCash (Predecessor) are referred to as the “Company”.

### Results of Operations - Three months ended June 30, 2024, compared to three months ended June 30, 2023

### Sales

|  | Successor Three Months Ended June 30, 2024 | Predecessor Three Months Ended June 30, 2023 |
| --- | ---: | ---: |
| **Net Sales** | $20,020,502 | $21,091,657 |

Sales for the three months ended June 30, 2024, were $20,020,502, a decrease of approximately $1,071,155, or 5.1%, as compared to $21,091,657 in the three months ended June 30, 2023. During the current year period, we focused on improving our gross margin. We assessed the quality of our purchased gift card brands, allowing us to increase the sales price to our customers, resulting in a gross margin of 16.3%, as compared to a gross margin of 12.4% in the prior year period. While our sales decreased 5.1% over the prior year period, our gross profit increased over the prior year period.

|  | Successor Three Months Ended June 30, 2024 | Predecessor Three Months Ended June 30, 2023 |
| --- | ---: | ---: |
| **Cost of Sales** | $16,760,007 | $18,474,119 |

Cost of sales consists primarily of the cost to purchase merchant gift cards. Amortization of developed technology is excluded from cost of sales and included in amortization expense in the Statements of Operations.

Costs of sales for the three months ended June 30, 2024 decreased to $16,760,007, as compared to $18,474,119 during the three months ended June 30, 2023. Our cost of sales, as a percentage of sales, were 83.7% and 87.6%, respectively. The decline in our cost of sales, and the increase in our gross margin, as compared to the prior year period, is discussed above.

### Operating Expenses

|  | Successor Three Months Ended June 30, 2024 | Predecessor Three Months Ended June 30, 2023 |
| --- | ---: | ---: |
| Selling, General and Administrative Expenses | $9,832,270 | $2,835,513 |
| Amortization of capitalized software costs | 302,737 | 223,268 |
| Amortization of intangible assets | 607,917 | 75,000 |

Selling, general and administrative expenses consist of costs incurred to identify, communicate with and evaluate potential customers and related business opportunities, and compensation to officers and directors, as well as legal and other professional fees, lease expense, and other general corporate expenses. Management expects selling, general and administrative expenses to increase in future periods as the Company adds personnel and incurs additional costs related to its operation as a public company, including higher legal, accounting, insurance, compliance, compensation and other costs.

Selling, general and administrative expenses were $9,832,270 for the three months ended June 30, 2024, as compared to $2,835,513 for the three months ended June 30, 2023, an increase of $6,996,757. The increase was from the recording of $6,214,545 of stock-based compensation expense during the three months ended June 30, 2024, which did not occur in the prior year period. The remaining change in selling, general and administrative expenses was from general changes in our business and operations.

*Amortization of capitalized software costs*. Amortization expenses are primarily attributable to the Company’s capitalized software development costs. Amortization expenses were $302,737 for the three months ended June 30, 2024, as compared to $223,268 during the three months ended June 30, 2023.

*Amortization of intangible assets.* Amortization expenses are primarily attributable to the Company’s amortization of intangible assets with finite lives. Amortization expenses were $607,917 for the three months ended June 30, 2024, as compared to $75,000 during the three months ended June 30, 2023.

### Loss from Operations

|  | Successor Three Months Ended June 30, 2024 | Predecessor Three Months Ended June 30, 2023 |
| --- | ---: | ---: |
| **Loss from Operations** | $7,482,429 | $516,243 |

For the three months ended June 30, 2024, we incurred a loss from operations of $7,482,429, as compared to a loss from operations of $506,243 for the three months ended June 30, 2023. The increase in loss from operations was due to our increased gross profit offset by increased stock-based compensation expense, operating costs, and amortization expense, as discussed above.

### Other Income (Expenses)

|  | Successor Three Months Ended June 30, 2024 | Predecessor Three Months Ended June 30, 2023 |
| --- | ---: | ---: |
| Other Income (Expenses) | $(261,917) | $(170,414) |

We had other expenses of $261,917 for the three months ended June 30, 2024, as compared to other expenses of $170,414 for the three months ended June 30, 2023. Other expenses consist solely of interest expenses offset by interest income.

### Net Loss

|  | Successor Three Months Ended June 30, 2024 | Predecessor Three Months Ended June 30, 2023 |
| --- | ---: | ---: |
| Net Loss | $7,744,646 | $686,657 |

We realized a net loss of $7,744,646 for the three months ended June 30, 2024, as compared to a net loss of $676,657 for the three months ended June 30, 2023. The increase in net loss was due to our increased gross profit offset by increased stock-based compensation expense, operating costs, amortization expense, and interest expense, as discussed above.

### Modified EBITDA

In addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance. However, Modified EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of liquidity. We define Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization, stock-based compensation, and fair value of common stock issued for services.

Management considers our core operating performance to be that which our managers can affect in any particular period through their management of the resources that affect our underlying revenue and profit generating operations during that period. Non-GAAP adjustments to our results prepared in accordance with GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Modified EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Modified EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Set forth below is a reconciliation of net loss to Modified EBITDA for the three months ended June 30, 2024 and 2023 (unaudited):

|  | Successor Three Months Ended June 30, 2024 | Predecessor Three Months Ended June 30, 2023 |
| --- | ---: | ---: |
| Net loss | $(7,744,646) | $(686,657) |
| Modified EBITDA adjustments: |  |  |
| Interest income | (5,223) | - |
| Interest expense | 267,440 | 170,414 |
| Amortization of intangible assets | 607,917 | 75,000 |
| Amortization of capitalized software costs | 302,738 | 223,268 |
| Stock option and other noncash compensation | 6,214,545 | - |
| Total EBITDA adjustments | $7,387,417 | $468,682 |
| Modified EBITDA | $(357,229) | $(217,975) |

We present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Modified EBITDA in developing our internal budgets, forecasts and strategic plan; in analyzing the effectiveness of our business strategies in evaluating potential acquisitions; making compensation decisions; and in communications with our board of directors concerning our financial performance. Modified EBITDA has limitations as an analytical tool, which includes, among others, the following:

- Modified EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
- Modified EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
- Modified EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; and
- Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Modified EBITDA does not reflect any cash requirements for such replacements.

9

### Results of Operations – Six months ended June 30, 2024, compared to six months ended June 30, 2023

### Sales

|  | Successor Six Months Ended June 30, 2024 | Predecessor Six Months Ended June 30, 2023 |
| --- | ---: | ---: |
| **Net Sales** | $41,542,396 | $45,253,385 |

Sales for the six months ended June 30, 2024, were $41,542,396, a decrease of approximately $3,710,989, or 8.2%, as compared to $45,253,385 in the six months ended June 30, 2023. During the current year period, we focused on improving our gross margin. We assessed the quality of our purchased gift card brands, allowing us to increase the sales price to our customers, resulting in a gross margin of 15.7%, as compared to a gross margin of 12.2% in the prior year period. While our sales decreased 8.2% over the prior year period, our gross profit increased over the prior year period.

|  | Successor Six Months Ended June 30, 2024 | Predecessor Six Months Ended June 30, 2023 |
| --- | ---: | ---: |
| **Cost of Sales** | $35,024,625 | $39,722,197 |

Cost of sales consists primarily of the cost to purchase merchant gift cards. Amortization of developed technology is excluded from cost of sales and included in amortization expense in the Statements of Operations.

Costs of sales for the six months ended June 30, 2024 decreased to $35,024,396, as compared to $39,722,197 during the six months ended June 30, 2023. Our cost of sales, as a percentage of sales, were 84.3% and 87.8%, respectively. The decline in our cost of sales, and the increase in our gross margin, as compared to the prior year period, is discussed above.

### Operating Expenses

|  | Successor Six Months Ended June 30, 2024 | Predecessor Six Months Ended June 30, 2023 |
| --- | ---: | ---: |
| Selling, General and Administrative Expenses | $15,046,311 | $5,638,341 |
| Amortization of capitalized software costs | 681,474 | 535,971 |
| Amortization of intangible assets | 1,215,834 | 150,000 |

Selling, general and administrative expenses consist of costs incurred to identify, communicate with and evaluate potential customers and related business opportunities, and compensation to officers and directors, as well as legal and other professional fees, lease expense, and other general corporate expenses. Management expects selling, general and administrative expenses to increase in future periods as the Company adds personnel and incurs additional costs related to its operation as a public company, including higher legal, accounting, insurance, compliance, compensation and other costs.

Selling, general and administrative expenses were $15,046,311 for the six months ended June 30, 2024, as compared to $5,638,341 for the six months ended June 30, 2023, an increase of $9,407,970. The increase was from the recording of $7,513,421 of stock-based compensation expense during the six months ended June 30, 2024, and approximately $202,000 of legal and professional fees related to our recent acquisition. Both of these current year expenses did not occur in the prior year period. The remaining change in selling, general and administrative expenses was from general changes in our business and operations.

*Amortization of capitalized software costs*. Amortization expenses are primarily attributable to the Company’s capitalized software development costs. Amortization expenses were $681,474 for the six months ended June 30, 2024, as compared to $535,971 during the six months ended June 30, 2023.

*Amortization of intangible assets.* Amortization expenses are primarily attributable to the Company’s amortization of intangible assets with finite lives. Amortization expenses were $1,214,834 for the six months ended June 30, 2024, as compared to $150,000 during the six months ended June 30, 2023.

### Loss from Operations

|  | Successor Six Months Ended June 30, 2024 | Predecessor Six Months Ended June 30, 2023 |
| --- | ---: | ---: |
| **Loss from Operations** | $10,425,848 | $793,124 |

For the six months ended June 30, 2024, we incurred a loss from operations of $10,425,848, as compared to a loss from operations of $793,124 for the six months ended June 30, 2023. The increase in loss from operations was due to our increased gross profit offset by increased stock-based compensation expense, operating costs, and amortization expense, as discussed above.

### Other Income (Expenses)

|  | Successor Six Months Ended June 30, 2024 | Predecessor Six Months Ended June 30, 2023 |
| --- | ---: | ---: |
| Other Income (Expenses) | $(509,518) | $(352,308) |

We had other expenses of $509,518 for the six months ended June 30, 2024, as compared to other expenses of $352,308 for the six months ended June 30, 2023. Other expenses consist of interest expenses offset by interest income.

### Net Loss

|  | Successor Six Months Ended June 30, 2024 | Predecessor Six Months Ended June 30, 2023 |
| --- | ---: | ---: |
| Net Loss | $10,935,366 | $1,117,035 |

We realized a net loss of $10,935,366 for the six months ended June 30, 2024, as compared to a net loss of $1,117,035 for the six months ended June 30, 2023. The increase in net loss was due to our increased gross profit offset by increased stock-based compensation expense, operating costs, amortization expense, and interest expense, as discussed above.

### Modified EBITDA

In addition to our GAAP results, we present Modified EBITDA as a supplemental measure of our performance. However, Modified EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities as a measure of liquidity. We define Modified EBITDA as net income (loss), plus interest expense, depreciation and amortization, stock-based compensation, and fair value of common stock issued for services.

Management considers our core operating performance to be that which our managers can affect in any particular period through their management of the resources that affect our underlying revenue and profit generating operations during that period. Non-GAAP adjustments to our results prepared in accordance with GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Modified EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Modified EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Set forth below is a reconciliation of net loss to Modified EBITDA for the six months ended June 30, 2024 and 2023 (unaudited):

|  | Successor Six Months Ended June 30, 2024 | Predecessor Six Months Ended June 30, 2023 |
| --- | ---: | ---: |
| Net loss | $(10,935,366) | $(1,117,035) |
| Modified EBITDA adjustments: |  |  |
| Income taxes | - | (28,397) |
| Interest income | (5,223) | - |
| Interest expense | 514,741 | 352,308 |
| Amortization of intangible assets | 1,215,834 | 150,000 |
| Amortization of capitalized software costs | 681,474 | 535,971 |
| Stock option and other noncash compensation | 7,295,921 | - |
| Fair value of common stock issued for services | 217,500 | - |
| Total EBITDA adjustments | $9,920,247 | $1,009,882 |
| Modified EBITDA | $(1,015,119) | $(107,153) |

We present Modified EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Modified EBITDA in developing our internal budgets, forecasts and strategic plan; in analyzing the effectiveness of our business strategies in evaluating potential acquisitions; making compensation decisions; and in communications with our board of directors concerning our financial performance. Modified EBITDA has limitations as an analytical tool, which includes, among others, the following:

- Modified EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
- Modified EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
- Modified EBITDA does not reflect future interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; and
- Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Modified EBITDA does not reflect any cash requirements for such replacements.

### Critical Accounting Policies and Estimates

The following discussion and analysis of financial condition and results of operations is based upon the Company’s consolidated financial statements for the years ended December 31, 2023 and 2022 presented elsewhere in this report, which have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Certain accounting policies and estimates are particularly important to the understanding of the Company’s financial position and results of operations and require the application of significant judgment by management or can be materially affected by changes from period to period in economic factors or conditions that are outside of the Company’s control. As a result, these issues are subject to an inherent degree of uncertainty. In applying these policies, management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on the Company’s historical operations, the future business plans and the projected financial results, the terms of existing contracts, trends in the industry, and information available from other outside sources.

### Revenue Recognition

The Company recognizes revenue in accordance with FASB ASC 606, *Revenue from Contracts with Customers.*

The Company buys merchant gift cards from the general public and distributors at a discount and then resells them at a markup. The Company also derives revenue from the sale of discount certificates for restaurants on behalf of third-party restaurants.

Revenue and costs of sales are recognized when control of the products transfers to our customer, which generally occurs at a point in time when the risk and title to the product transfers to the customer upon delivery to the customer. The Company’s performance obligations are satisfied at that time. The Company’s standard terms of delivery are included in its contracts of sale, order confirmation documents, and invoices. The Company recognizes revenue on a gross basis for the sales price of the merchant gift cards and discount certificates it collects.

### Stock-Based Compensation

The Company periodically issues share-based awards to employees and non-employees and consultants for services rendered. Stock options vest and expire according to terms established at the issuance date of each grant. Stock grants are measured at the grant date fair value. Stock-based compensation cost is measured at fair value on the grant date and is generally recognized as a charge to operations ratably over the requisite service, or vesting, period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services.

### Acquisitions and Business Combinations

The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and separately identified intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from, acquired technology, trademarks and trade names, useful lives, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which can be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded in the consolidated statements of operations.

### Recent Accounting Pronouncements

See discussion of recent accounting pronouncements in Note 2 to the accompanying financial statements.

### Liquidity and Capital Resources

The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty concerning our ability to continue as a going concern.

Our consolidated financial statements have been presented on the basis that it will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We experienced operating losses and negative operating cash flows during 2023 and 2022. We have financed our working capital requirements through borrowings from various sources and the sale of equity securities.

We have a history of reporting net losses. At June 30, 2024, we had cash of $4,663,623 available to fund our operations, including expansion plans, and to service our debt, and a working capital deficit of $1,037,619. We anticipate our cash balance will last until at least June 2025. As a result, we have concluded that there is substantial doubt about the Company’s ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Our ability to continue as a going concern is dependent upon its ability to raise additional debt or equity capital to fund its business activities and to ultimately achieve sustainable operating revenues and profitability.

As market conditions present uncertainty as to our ability to secure additional funds, there can be no assurances that we will be able to secure additional financing on acceptable terms, as and when necessary, to continue to conduct operations. There is also significant uncertainty as to the amount and type of financing available to us in the future.

If we are unable to obtain the cash resources necessary to satisfy our ongoing cash requirements, we could be required to scale back its business activities or to discontinue its operations entirely.

Our consolidated statements of cash flows as discussed herein are presented below.

|  | Successor Six Months Ended June 30, 2024 | Predecessor Six Months Ended June 30, 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(2,341,031) | $(437,725) |
| Net cash used in investing activities | (449,646) | (450,000) |
| Net cash provided by financing activities | 3,354,563 | 343,742 |
| Net increase (decrease) in cash and cash equivalents | 563,886 | (543,983) |

#### Operating Activities

Cash provided by or used in operating activities primarily consists of net loss adjusted for certain non-cash items, including amortization of intangible assets, impairment of intangible assets, gain on forgiveness of government assistance notes payable, and the fair value of common stock issued for directors, employees, and service providers, and the effect of changes in working capital and other activities.

Cash used in operating activities for the six months ended June 30, 2024 was approximately $2,341,031 and consisted of our net loss, adjusted for non-cash items, including amortization of intangible assets, fair value of vested stock options, and the fair value of common stock issued to executives, employees, and advisors, and routine changes in working capital and other activities.

Cash used in operating activities for the six months ended June 30, 2023 was approximately $437,725 and consisted of our net loss, adjusted for non-cash items, including amortization of intangible assets, goodwill impairment, fair value of vested stock options, and the fair value of common stock issued to executives, and routine changes in working capital and other activities.

#### Investing Activities

Cash used for investing activities for the six months ended June 30, 2024 was $449,646, which was for capital expenditures.

Cash used for investing activities for the six months ended June 30, 2023, was $450,000, which was for capital expenditures.

#### Financing Activities

Cash provided by financing activities for the six months ended June 30, 2024 was $3,354,563, which was from proceeds of $2,921,500 on the private sale of common stock, borrowing on our line of credit balance of $933,063, and payment of $500,000 on our acquisition obligation.

Cash used in financing activities for the six months ended June 30, 2023 was $343,742, which was from borrowing on our line of credit facility of $343,742.

### Secured Revolving Line of Credit

The outstanding line of credit balance at June 30, 2024 and December 31, 2023 was:

|  | June 30, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Line of credit | $7,670,449 | $6,737,385 |

In November 2020, CardCash entered into an amended and restated promissory note for a revolving line of credit with availability of up to $10,000,000. The revolving line of credit is payable on demand, secured by the Company’s inventory, with interest based on the Wall Street Journal Prime Rate plus 3.00%, limited to a floor of 6.5%. At June 30, 2024 and December 31, 2023, the average interest rate was 12% and 12%, respectively. As of June 30, 2024, the Company was in compliance with customary debt covenants.

### Convertible Debt

On November 5, 2018, RDE completed the acquisition of Incumaker, Inc. and assumed certain outstanding convertible notes payable. At December 31, 2023, there was one remaining assumed convertible note payable outstanding that matured July 2017, and is past due. At June 30, 2024, the principal balance of $20,000, and accrued interest of $21,637, are convertible at $1.50 per share into 27,758 shares of the Company’s common stock.

### Notes Payable

#### CardCash Acquisition Notes Payable

On December 29, 2023, the Company issued two year promissory notes totaling $1,500,000 as partial consideration for the acquisition of CardCash (see Note 3). $750,000 is payable on the December 29, 2025, bearing simple annual interest of 5%, and $750,000 is to be paid upon the earlier of (a) the completion of a firm commitment underwriting RDE’s initial public offering to allow the Company to become listed on the Nasdaq Capital Market or (b) December 29, 2024. As of December 31, 2023, the notes payable had an aggregate principal balance outstanding of $1,500,000. As of June 30, 2024, the notes payable had an aggregate principal balance outstanding of $1,500,000 and accrued interest payable of $37,500.

#### GameIQ Acquisition Note Payable

On February 1, 2022, RDE issued two notes payable for the purchase of GameIQ, one for $78,813 and another for $62,101. In accordance with Notes, the Company promised to pay the principal together with interest at 1% upon the earlier of (i) nine equal biannual installments with the first installment due on October 1, 2022, and the final payment due February 1, 2025 (the “Maturity Date”).

As of December 31, 2023, the notes payable had an aggregate principal balance outstanding of $102,199 and accrued interest payable of $821. As of June 30, 2024, the notes payable had an aggregate principal balance outstanding of $102,199 and accrued interest payable of $1,233.

#### Economic Injury Disaster Loans (EIDL)

On June 17, 2020, RDE received $150,000 of proceeds applicable to loans administered by the SBA as disaster loan assistance under the Covid-19 Economic Injury Disaster Loan (EIDL) Program. On July 14, 2021, the Company received an additional $350,000 of proceeds pursuant to the loan. On July 21, 2020, the Company received $150,000 of proceeds applicable to loans administered by the SBA as disaster loan assistance under the Covid-19 EIDL Program. On January 31, 2022, the Company assumed an additional $14,500 EIDL, and accrued interest of $900, as part of the consideration paid for the acquisition of GameIQ.

The loans bear interest at 3.75% per annum, with a combined repayment of principal and interest of $3,500 per month beginning 12 months from the date of the promissory note over a period of 30 years. As of December 31, 2023, the note payable had a principal balance outstanding of $664,500 and accrued interest payable of $27,259. As of June 30, 2024, the note payable had a principal balance outstanding of $664,500 and accrued interest payable of $19,714.

### Off-Balance Sheet Arrangements

None.

## Controls and procedures

As filed, 4,553 characters.

#### Evaluation of Disclosure control and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Securities and Exchange Act of 1934 Rules 13a-15(f). Based on this evaluation, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2024. As of June 30, 2024, management’s assessment identified the following material weaknesses in the Company’s internal control over financial reporting:

We continue to have a material weakness in our internal control over financial reporting as disclosed in the December 31, 2023, Annual Report on Form 10-K, in that we had inadequate segregation of duties consistent with control objectives. Specifically, certain personnel have the ability to both (i) create and post journal entries within our general ledger system and (ii) prepare and review account reconciliations; and (ii) we did not design and maintain effective controls over certain information technology (“IT”) general controls for information systems that are relevant to the preparation of our consolidated financial statements. Specifically, we did not design and maintain effective program change management controls to ensure that information technology program and data changes affecting certain financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately.

Notwithstanding the identified material weaknesses, management has concluded that the Financial Statements included in this Annual Report on Form 10-K present fairly, in all material respects, the Company’s financial position, results of operations and cash flows for the periods disclosed in conformity with U.S. GAAP.

#### Remediation Plan

Management has been actively engaged in developing and implementing remediation plans to address material weaknesses described above. These remediation efforts are ongoing and include or are expected to include designing and implementing controls to formalize roles and review responsibilities to align with our team’s skills and experience and designing and implementing controls over segregation of duties, and designing and implementing IT general controls, including controls over the review and update of user access rights and privileges and program change management controls.

#### Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

#### Inherent Limitations on the Effectiveness of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

## Risk factors

As filed, 163 characters.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Filed Aug 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-032141. Last ingested by Listed: Oct 24, 2026, 15:07 ET. No prices; not investment advice.