RDE Inc

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the period December 30, 2023 to December 31, 2023 (Successor)

For the period January 1, 2023 to December 29, 2023 and

**year ended December 31, 2022 (Predecessor)

1. Organization, Basis of Presentation, and Summary of Significant Accounting Policies

RDE, Inc. (“RDE”) through its wholly-owned subsidiary Restaurant.com, Inc., has been in the business of connecting digital consumers, businesses and communities with dining and merchant deal options throughout the United States.

On August 18, 2023, RDE entered into an agreement and plan of merger to acquire CardCash Exchange Inc (“CardCash”). On December 29, 2023, the merger was completed and has been accounted for as a business combination using the acquisition method of accounting (See Note 3). CardCash was formed in 2013 and buys merchant gift cards and resells them at a markup.

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”.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern. In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 205-40,Going Concern, the Company’s management has evaluated whether there are conditions or events that raise substantial doubt about its ability to continue as a going concern within one year after the date the accompanying financial statements were issued. RDE and CardCash have a history of reporting net losses and negative operating cash flows. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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. The Company has financed its working capital requirements through borrowings from various sources and the sale of its equity securities.

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 and Principles of Consolidation

The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the financial statements of the Company’s wholly-owned operating subsidiary. Intercompany balances and transactions have been eliminated in consolidation. 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 CardCash prior 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 table to the notes to the consolidated financial statements to highlight the lack of comparability between the periods. Collectively, RDE (Successor) and CardCash (Predecessor) are referred to as the “Company”.

Use of Estimates

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. On an ongoing basis, management reviews its estimates and if deemed appropriate, those estimates are adjusted. Significant estimates include those related to assumptions used in valuing inventories at net realizable value, assumptions used in valuing assets acquired in business acquisitions, impairment testing of goodwill and other long-term assets, assumptions used in valuing stock-based compensation, the realizability of deferred tax assets and the related valuation allowance, accruals for potential liabilities, and assumptions used in the determination of the Company’s liquidity.

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.

Certain customers may receive incentives, which are accounted for as variable consideration. Provisions for sales returns are recognized in the period when the sale is recorded based upon the Company’s prior experience and current trends. These revenue reductions are established by the Company based upon management’s best estimates at the time of sale following the historical trend, adjusted to reflect known changes in the factors that impact such reserves and allowances, and the terms of agreements with customers. For the period January 1, 2023 to December 29, 2023, and for the year ended December 31, 2022, revenue of $86,661,944 and 97,008,102 was net of sales refunds and chargebacks of $2,650,481 and $3,684,492, respectively.

Amounts billed and due from the Company’s customers are classified as accounts receivable on the balance sheet. Amounts received in advance from customers are recorded as deferred revenue on the balance sheet until the performance obligations have been satisfied. The Company has elected to apply the practical expedient to not assess contracts for significant financing component because the period between the receipt of advance payment and the Company’s transfer of services to the customer is less than one year.

Other

Promotional gift cards

The Company sells Restaurant.com promotional gift cards which can only be used to redeem restaurant coupons offered by the Company on its website. Based on the Company’s historical redemption rates of its promotional gift cards, a portion of the sale of gift card revenue is recorded as deferred revenue liability at the time of sale and recognized as revenue in future periods based on historical redemption trend rates.

Sale of travel, vacation and merchandise

Revenue from transactions in which the Company sells complementary entertainment and travel offerings and consumer products on behalf of third-party merchants is reported on a net basis equal to the purchase price received from the customer for the voucher, less an agreed upon portion of the purchase price paid by the Company to its merchant partners.

Advertising

The Company also has agreements with selected third-party partners, such as Google Ads, wherein third-party website(s) and/or product(s) are shown or incorporated in the Company’s platform or website. The Company generates revenues based upon the number of times the third-party website(s) or product(s) are accessed or viewed by consumers from the Company’s platform or website. Revenue is recognized when its determinable, which is generally upon receipt of a statement and/or proceeds from the third-party partners.

Cost of Sales

Cost of sales consists primarily of the cost to purchase merchant gift cards, and transaction fees and costs.

Shipping and Handling Costs

Shipping and handling costs billed to customers are recorded as revenue. The costs associated with shipping goods to customers are recorded as a delivery expense and are included in general and administrative.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less when purchased, to be cash and/or cash equivalents.

***Accounts Receivable ***

The Company’s trade accounts receivable are recorded at amounts billed to customers and presented on the balance sheet net of the allowance for estimated credit losses, if required. The allowance is determined by a variety of factors, including the age of the receivables, current economic conditions, historical losses and other information management obtains regarding the financial condition of customers. Receivables are charged off when they are deemed uncollectible. Due to the nature of the accounts receivable balance, no allowance for doubtful accounts was deemed necessary as of December 31, 2023 (Successor) and December 31, 2022 (Predecessor).

Inventories

Inventories consist of merchant gift cards on hand that are available for sale. Inventories are valued at the lower of cost and net realizable value, with cost determined on a first in, first-out basis. Adjustments, if required, reduce the cost of inventory to its net realizable value for estimated excess, obsolescence or impaired balances. Factors influencing these adjustments include changes in customer demand, rapid technological changes, and merchant bankruptcy. At December 31, 2023, there wereno write down of inventories. At December 31, 2022 (Predecessor) cumulative write down of inventories were $101,000.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization.

The Company accounts for capitalized software and website development costs to develop software programs to be used solely to meet the Company’s internal needs in accordance with ASC 350-40. Costs incurred during the application development stage for software programs to be used solely to meet its internal needs are capitalized. Capitalized website development costs are included in property and equipment, net. All ordinary maintenance costs are expensed as incurred. Amortization of capitalized software costs is excluded from cost of sales and included in amortization expense in the Statements of Operations.

Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the related assets. The Company provides for depreciation, as follows:

Expenditures for maintenance and repair costs are charged to expense as incurred.

*** 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.

Intangible Assets

The Company has certain intangible assets that were initially recorded at their fair value at the time of acquisition. The finite-lived intangible assets consist of customer relationships, trade name, and developed technology. Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful life of three years.

The Company reviews all finite-lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable. If the carrying value of an asset group is not recoverable, the Company recognizes an impairment loss for the excess carrying value over the fair value in our consolidated statements of operations. During the period January 1, 2023 to December 29, 2023, Card Cash (Predecessor) recorded impairment of intangible assets of $250,000.

Goodwill

Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of the business acquired. As of December 31, 2023 goodwill that arose from acquisition of CardCash (see Note 2) was $20,007,669. Under ASC 350Intangibles-Goodwill and Other, goodwill and other intangible assets with indefinite lives are not amortized, but instead are tested for impairment annually, or whenever events or circumstances indicate a potential impairment. The Company’s impairment testing is performed annually at December 31. Impairment of goodwill and indefinite lived intangible assets is determined by comparing the fair value of the Company’s reporting unit to the carrying value of the underlying net assets in the reporting unit. If the fair value of the reporting unit is determined to be less than the carrying value of its net assets, goodwill is deemed impaired and an impairment loss is recognized to the extent that the carrying value of goodwill exceeds the difference between the fair value of the reporting unit and the fair value of its other assets and liabilities. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker (the Company’s Chief Executive Officer) determined that there is only one reporting unit. At December 31, 2022 CardCash (Predecessor), determined its goodwill was impaired and recorded an impairment charge of $834,200.

Long-Lived Assets

The Company evaluates long-lived assets, other than goodwill and indefinite lived intangible assets, for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. The measurement of possible impairment is based upon the ability to recover the carrying value of the asset through the expected future undiscounted cash flows from the use of the asset and its eventual disposition. An impairment loss, equal to the difference between the asset’s fair value and its carrying value, is recognized when the estimated future undiscounted cash flows are less than its carrying amount. No impairment indicators were identified as of December 31, 2023 (Successor). During the period January 1, 2023 to December 29, 2023, an impairment of $738,740 was recorded by CardCash (Predecessor).

Leases

The Company leases certain corporate office space under lease agreements. The Company determines whether a contract contains a lease at contract inception. A contract is or contains a lease if the contract conveys the right to control the use of the identified asset for a period of time in exchange for consideration. Control is determined based on the right to obtain all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset. Operating lease right-of-use assets (“ROU”) for operating leases represent the right to use an underlying asset for the lease term, and operating lease liabilities represent the obligation to make lease payments. Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Operating lease expense is recognized on a straight-line basis over the lease term and is included in the general and administrative line in the Company’s consolidated statements of operations.

Income Taxes

The Company uses an asset and liability approach for accounting and reporting for income taxes that allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense.

Advertising

The Company expenses advertising costs as incurred and amounted to $807,031 and $961,770 for the years ended December 31, 2023 and 2022, respectively, which are recorded in general and administrative in the Statements of Operations.

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.

The Company values its equity awards using the Black-Scholes option-pricing model, and accounts for forfeitures when they occur. Use of the Black-Scholes option pricing model requires the input of subjective assumptions, including expected volatility, expected term, and a risk-free interest rate. The expected volatility is based on the historical volatility of the Company’s common stock, calculated utilizing a look-back period approximately equal to the contractual life of the stock option being granted. The expected life of the stock option is calculated as the mid-point between the vesting period and the contractual term (the “simplified method”). The risk-free interest rate is estimated using comparable published federal funds rates.

Stock-based compensation expense recognized and recorded as part of selling, general and administrative expenses are as follows:

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed using the weighted average number of common shares issued and outstanding during the period. Diluted earnings (loss) per share is computed using the weighted average number of common shares and the dilutive effect of contingent shares outstanding during the period. Potentially dilutive contingent shares, which primarily consist of convertible notes and stock issuable upon the exercise of stock options and warrants, have been excluded from the calculation of diluted loss per share because their effect is anti-dilutive.

Loss per common share is computed by dividing net loss by the weighted average number of shares of common stock issued and outstanding during the respective periods. Basic and diluted loss per common share was the same for all periods presented because all convertible notes and stock issuable upon the exercise of stock options and warrants outstanding were anti-dilutive.

At December 31, 2023 and 2022, the Company excluded the outstanding convertible debt and securities summarized below, which entitle the holders thereof to acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.

The issuable and potentially issuable shares as summarized above. These potentially issuable common shares would have been anti-dilutive because the Company had a net loss for the periods December 30, 2023 to December 31, 2023, and January 1, 2023 to December 29, 2023, and for the year ended December 31, 2022, such common stock equivalents would have been excluded from the calculation of net loss per share.

Fair Value of Financial Instruments

Fair value of financial and non-financial assets and liabilities is defined as an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used to measure fair value, which prioritizes the inputs to valuation techniques used to measure fair value, is as follows:

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 – unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value.

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.

The carrying value of the Company’s financial instruments (consisting of cash, accounts receivables, deposits to credit card processor, prepaid expense and other current assets, accounts payable, accrued expenses, notes payable, and other liabilities) are considered to be representative of their respective fair values due to the short-term nature of those instruments.

Segment Information

Under ASC 280, Segment Reporting, operating segments are defined as components of an enterprise where discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), in deciding how to allocate resources and in assessing performance. The Company’s operation segment consists of one component, and the Company’s Chief Executive Officer, who is also the CODM, makes decisions and manages the Company’s operations as a single operating segment.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade accounts receivable and cash. The credit risk exposure surrounding trade accounts receivable is limited as these amounts represent the timing difference between payments being settled by credit card processors and the cash being provided to the Company.

No significant customers comprised more than 10% of accounts receivable or revenue as of and for the period ended December 31, 2023 (Successor), for the period ended December 29, 2023 (Predecessor) and for the year ended December 31, 2022 (Predecessor).

The Company maintains a balance at financial institutions, which at times exceed the federally insured limit. The Company has not experienced a loss on this account.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13,Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. The Company’s adopted ASU 2016-13 effective January 1, 2023, and there was no material effect on the Company’s financial position, results of operations and cash flows.

In May 2021, the FASB issued ASU 2021-04,Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The Company adopted ASU 2021-04 effective January 1, 2022. The adoption of ASU 2021-04 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.

In November 2023, the FASB issued ASU 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expense categories that are regularly provided to the chief operating decision maker and included in each reported measure of a segment’s profit or loss. The update also requires all annual disclosures about a reportable segment’s profit or loss and assets to be provided in interim periods and for entities with a single reportable segment to provide all the disclosures required by ASC 280,Segment Reporting, including the significant segment expense disclosures. This standard will be effective for the Company on January 1, 2024 and interim periods beginning in fiscal year 2025, with early adoption permitted. The updates required by this standard should be applied retrospectively to all periods presented in the financial statements. The Company does not expect this standard to have a material impact on its results of operations, financial position or cash flows.

In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-04,Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. The ASU requires buyers to disclose information about their supplier finance programs. Interim and annual requirements include the disclosure of outstanding amounts under the obligations as of the end of the reporting period, and annual requirements include a roll-forward of those obligations for the annual reporting period, as well as a description of payment and other key terms of the programs. This update is effective for annual periods beginning after December 15, 2022, and interim periods within those fiscal years, except for the requirement to disclose roll-forward information, which is effective for fiscal years beginning after December 15, 2023. The Company adopted ASU 2022-04 on January 1, 2023, and there was no material impact on our financial statements.

Other recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

2. Acquisition of Card Cash

On December 29, 2023, RDE completed the acquisition of CardCash. The acquisition was made pursuant to an agreement and plan of merger dated August 18, 2023 between RDE and CardCash. RDE acquired all of the issued and outstanding equity of CardCash for $26,682,000, made up of the issuance of 6,108,007 shares of the RDE’s common stock valued at $24,682,000, the issuance of a note payable for $1,500,000, and payment of $750,000 in cash.

RDE utilized the acquisition method of accounting for the acquisition in accordance with ASC 805,Business Combinations, and allocated the purchase price to CardCash’s tangible assets, identifiable intangible assets, and assumed liabilities at their estimated fair values as of the date of acquisition. The fair value assigned to the developed technology was determined using the relief from royalty method. The fair value assigned to trade name were determined using the relief from royalty method. The fair value of the customer relationships was determined using the multi-period excess earnings method, which estimates the direct cash flow expected to be generated from the existing customers acquired. The cash flows were based on estimates used to value the acquisition, and the discount rates applied were benchmarked with reference to the implied rate of return from the transaction model, as well as the weighted average cost of capital. The valuation assumptions took into consideration the Company’s estimates of customer attrition and revenue growth projections. The excess of the purchase price paid by the Company over the estimated fair value of identified tangible and intangible assets has been recorded as goodwill. Goodwill also represents the future benefits as a result of the acquisition that the Company believes will enhance the Company’s product offerings and lineup available to both new and existing customers and generate future synergies within the discount coupon and giftcard business.

At the date of the acquisition and as of this Annual Report on Form 10-K, management has not yet finalized its valuation analysis. The fair values of the assets acquired, as set forth below, are considered provisional and subject to adjustment as additional information is obtained through the purchase price measurement period (a period of up to one year from the closing date). Any prospective adjustments through the purchase price measurement period would change the fair value allocation as of the acquisition date. The Company is still in the process of reviewing underlying models, assumptions and discount rates used in the valuation of provisional goodwill and intangible assets.

The following table summarizes the allocation of the fair value of the purchase consideration to the fair value of tangible assets, identifiable intangible assets, and assumed liabilities of CardCash on the date of acquisition:

The amount of revenue and net loss of CardCash included in the Company’s (Successor) consolidated statements of operations during the period December 30, 2023 to December 31, 2023, waszero and $5,000,000, respectively.

The following unaudited pro forma statements of operations present the Company’s pro forma results of operations after giving effect to the purchase of CardCash based on the historical financial statements of the Company and CardCash. The unaudited pro forma statements of operations for the years ended December 31, 2023 and 2022 give effect to the transaction as if it had occurred on January 1, 2022.

3. Property and Equipment, Net

Property and equipment, net consisted of the following:

The depreciation expense on property and equipment was as follows:

At December 29, 2023 (Predecessor), the Company determined certain of its capitalized website development costs were impaired and recorded an impairment charge of $738,740 on the accompanying Consolidated Statements of Operations.

4. Goodwill and Intangible Assets

Goodwill and intangible assets consist of the following:

On December 29, 2023, in relation to the acquisition of CardCash (See Note 2), the Company recorded intangible assets of $6,700,000 (provisional). During the period January 1, 2023 to December 29, 2023, CardCash (Predecessor) recorded amortization expense of $300,000, and at December 29, 2023, determined its Intangible Assets were impaired and recorded an impairment charge of $250,000. At December 31, 2022, CardCash (Predecessor), determined its Goodwill was impaired and recorded an impairment charge of $834,200.

Identifiable intangibles are amortized over their estimated remaining useful lives, which are as follows:

Amortization expense on intangible assets was as follows:

Estimated amortization expense for the Company is as follows:

5. Leases

The Company leases office facilities under noncancelable operating lease agreements. During the period from January 1, 2023 through December 29, 2023 (Predecessor) and December 30, 2023 through December 31, 2023 (Successor), the Company had leases for office facilities in Woodbridge, New Jersey and Schaumburg, Illinois.

The components of lease expense were as follows:

Supplemental information related to leases was as follows:

Maturities of the Company’s operating lease liabilities are as follows as of December 31, 2023:

6. Secured Revolving Line of Credit

The outstanding line of credit balance at December 31, 2023 and December 31, 2022 was:

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 December 31, 2023 and 2022, the average interest rate was 12% and 11%, respectively. The revolving line of credit was assumed by the Company in conjunction with the acquisition of CardCash (See Note 2). As of December 31, 2023 the Company was in compliance with customary debt covenants.

7. Convertible Debt

Convertible debt consists of the following at December 31, 2023 and December 31, 2022:

Private Investor

On May 6, 2016, CardCash entered into a convertible promissory note with an investor for the principal amount of $10,000,000. The note, as amended, was secured by tangible and intangible assets of the CardCash, interest of 4% per annum, and matured in June 2023.

As of December 31, 2022, the Convertible Promissory Note had an aggregate principal balance outstanding of $10,000,000 and accrued interest payable of $3,014,037. During the period January 1, 2023 to December 29, 2023, additional interest of $556,608 was accrued.

On December 29, 2023, contemporaneous with the acquisition of CardCash (see Note 2), the Private Investor converted the convertible promissory note into equity of CardCash as settlement of the outstanding balance, with the right to receive 2,702,231 shares of RDE common stock with a fair value of $10,808,925. As a result, CardCash recorded a gain of $2,761,720 to account for the difference between the debt settled and the fair value of the RDE common stock issued.

Incumaker, Inc.

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 December 31, 2023, the principal balance of $20,000, and accrued interest of $20,137, are convertible at $1.50 per share into 26,758 shares of the Company’s common stock.

8. Notes Payable

Notes payable consists of the following at December 31, 2023 and December 31, 2022:

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 2). $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.

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.

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.

Former Investor

On May 6, 2016, CardCash entered into a promissory note with a former investor for the principal amount of $7,500,000. The maturity date of the Promissory Note is 60 days after repayment of the Convertible Promissory Note (See Note 7). Interest shall accrue and be added to the unpaid principal balance at the rate of 8.0% per annum. Principal and interest is due at maturity. As of December 31, 2022, total interest accrued amounted to $6,224,092. During the period January 1, 2023 to December 29, 2023, additional interest of $1,578,975 was accrued.

On December 29, 2023, contemporaneous with the acquisition of CardCash (see Note 2), the Former Investor converted the promissory note into equity of CardCash as settlement of the outstanding balance, with the right to receive 3,047,197 shares of RDE common stock with a fair value of $12,188,787. As a result, the Company recorded a gain of $3,114,280 to account the difference between the debt settled and the fair value of the RDE common stock issued.

9. Income Taxes

No federal tax provision has been provided for the periods December 30, 2023 to December 31, 2023, January 1, 2023 to December 29, 2023, and the year ended December 31 2022, due to the losses incurred during the periods. Reconciled below is the difference between the income tax rate computed by applying the U.S. federal statutory rate and the effective tax rates for the respective period:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets as of December 31, 2023 and 2022 are summarized below.

In assessing the potential realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during the periods in which those temporary differences become deductible. As of December 31, 2023 and 2022, management was unable to determine if it is more likely than not that the Company’s deferred tax assets will be realized and has therefore recorded an appropriate valuation allowance against deferred tax assets at such dates.

At December 31, 2023, the Company has available net operating loss carryforwards for federal and state income tax purposes of approximately $5,350,000 federal net operating losses, if not utilized earlier, will begin to expire in the year ending December 31, 2031, subject to Internal Revenue Service limitations, including change in ownership regulations.

10. Stockholders’ Equity (Deficiency)

Preferred Stock

The Company is authorized to issue a total of 10,000,000 shares of preferred stock, par value $0.001 per share. As of December 31, 2023 and 2022, there wereno shares of preferred stock issued and outstanding.

As of December 31, 2015, the Company was authorized to issue 60,500,000 shares of stock,50,000,000 shares of which are designated as Common Stock and 10,500,000 are designated as Convertible Preferred Stock each with a par value of $0.0001 per share. As of December 31, 2022, the number of outstanding shares of Common Stock was 29,035,625. Each share of Common Stock is entitled to one vote.

On December 29, 2023, the Convertible Preferred Stock was retired, and the Company reclassified the balance to additional paid in capital, a component of the shareholders’ equity.

Convertible Preferred Stock consists of the following:

Dividends

The holders of the Series B Preferred Stock shall not receive a cumulative dividend. The holders of the Series B Preferred Stock are entitled to participate with other stockholders on any dividends or distributions made by the Company on its capital stock.

Mandatory Conversion

Upon the closing of the sale of shares of Common Stock to the public at a price of at least $3.00 per share or a reverse public company merger or similar transaction resulting in aggregate gross proceeds to the Company and the selling shareholders or an aggregate public float of Common Stock of at least $25 million, then all Series B Preferred Stock shall automatically be converted into shares of Common Stock.

Conversion Rights

Each share of Series B Preferred Stock shall be convertible at the option of the holder at any time and without payment of additional consideration into shares of Common Stock.

For the Series B Convertible Preferred Stock, the conversion ratio is determined by dividing the Series B original issue price ($3.31201 per share, subject to any appropriate proportionate adjustment) by the Series B original issue price.

Voting

Each holder of outstanding shares of preferred stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which their shares of preferred stock are convertible as of the record date.

Common Stock

The Company is authorized to issue a total of 750,000,000 shares of common stock, par value $0.001 per share. As of December 31, 2023, the Company had 24,119,967 shares of common stock issued, issuable and outstanding.

Issuance of Common Stock for Acquisition of CardCash

During the period December 29, 2023 to December 31, 2023, RDE issued 6,108,007 shares of common stock with a fair value of $24,432,000, or $4.00 per share, as partial consideration paid on the acquisition of CardCash (see Note 2).

Issuance of Restricted Stock to Employees (Successor)

On December 29, 2023, the Company granted an aggregate of 2,500,000 shares of the Company’s restricted stock to its executives with an aggregate fair value of $10,000,000, or $4.00 per share (see Note 12). The restricted stock grant vest 50% on the grant date, and 25% on each subsequent anniversary date. During the year ended December 31, 2023, the Company recorded stock compensation for 1,250,000 of these shares of restricted stock with a fair value of $5,000,000 based upon its vesting term, leaving 1,250,000 of the shares with a fair value of $5,000,000 remaining to be expensed upon vesting in future periods through December 29, 2027.

Common Stock Issuable (Successor)

At December 31, 2023,383,343 shares of common stock with an aggregate value of $383,000 have not been issued and are reflected as common stock issuable in the accompanying consolidated financial statements.

11. Stock-Based Compensation

The Company issues common stock and stock options as incentive compensation to directors and as compensation for the services of employees, contractors and consultants of the Company.

The fair value of a stock option award is calculated on the grant date using the Black-Scholes option-pricing model. The risk-free interest rate is based on the U.S. Treasury yield curve in effect as of the grant date. The expected dividend yield assumption is based on the Company’s expectation of dividend payouts and is assumed to be zero. The expected volatility is based on the historical volatility of the Company’s common stock, calculated utilizing a look-back period approximately equal to the contractual life of the stock option being granted. The expected life of the stock option is calculated as the mid-point between the vesting period and the contractual term (the “simplified method”). The fair market value of the common stock is determined by reference to the quoted market price of the common stock on the grant date.

The expected term represents the weighted-average period of time that share option awards granted are expected to be outstanding giving consideration to vesting schedules and historical participant exercise behavior; the expected volatility is based upon historical volatility of the Company’s common stock; the expected dividend yield is based on the fact that the Company has not paid dividends in the past and does not expect to pay dividends in the future; and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of measurement corresponding with the expected term of the share option award.

A summary of stock option activity is presented below:

Stock-based compensation expense was as follows:

As of December 31, 2023, the aggregate amount of unvested compensation related to stock options was approximately $141,304 which will be recognized as an expense as the options vest in future periods through February 28, 2024.

The weighted average remaining contractual life of common stock options outstanding and exercisable at December 31, 2023 was 5.82 years. Based on a fair market value of $4.00 per share on December 31, 2023, the intrinsic value attributed to exercisable but unexercised common stock options was $1,514,150 at December 31, 2023.

The exercise prices of common stock options outstanding and exercisable at December 31, 2023 are as follows:

12. Commitments and Contingencies

From time to time the Company may be named in claims arising in the ordinary course of business. Currently, there are no such legal proceedings that are pending against the Company or that involve the Company that, in the opinion of management, could reasonably be expected to have a material adverse effect on the Company’s business or financial condition.

Employment Agreements

Ketan Thakker

Effective July 1, 2023, RDE entered into a new employment agreement with Ketan Thakker, its Chairman, President and Chief Executive Officer, pursuant to which Mr. Thakker’s annual salary is $250,000, increasing to $400,000 on July 1, 2024. In addition, Mr. Thakker may be entitled to receive, at the discretion of our Board, a cash bonus based on the performance goals of our Company.

In the event of a change of control of our company, Mr. Thakker may terminate his employment within six months after such event and will be entitled to continue to be paid pursuant to the terms of his employment agreement.

Elliot Bohm and Marc Ackerman

Effective on December 29, 2023, with the closing of the acquisition of CardCash (see Note 2), the Company entered into an Employment Agreements with Elliot Bohm and Mark Ackerman. Mr. Bohm was the President of CardCash and Mr. Ackerman was the Chief Operating Officer of CardCash prior to the acquisition by RDE, and will remain in those positions following the acquisition. Bohm will also join the Board of Directors of RDE.

Under the terms of the four-year agreements, Mr. Bohm and Mr. Ackerman shall each receive an annual base salary of $375,000 and a one-time award of 1,250,000 restricted shares of RDE’s common stock with aggregate fair value of $10 million,50% vesting immediately and 50% vesting over 4 years.

If Mr. Bohn’s or Mr. Ackerman’s employment is terminated by the Company without cause, as defined under their employment agreements, Mr. Bohn or Mr. Ackerman will be entitled to (a) twelve months’ base salary, (b) Earned but Unpaid Amounts, as defined, (c) all vested equity awards shall be retained and all unvested equity awards shall be accelerated and be deemed vestedand (d) other benefits, as defined, for health, life, disability and similar employee benefit plans will continue, as defined.

Mr. Bohm and Mr. Ackerman also entered into a confidentiality and non-competition agreement in conjunction with his employment agreement which contains covenants restricting them from engaging in any activities competitive with our business during the term of the employment agreement and one year thereafter and prohibiting him from disclosure of confidential information regarding our company at any time.

13. Subsequent Events

Subsequent to December 31, 2023, the Company received net proceeds of $2,809,000 for the sale of 1,404,500 shares of common stock at $2.00 per share, as part of a private placement.