[PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed financial statements for Auddia Inc. for the period ended June 30, 2023 [Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed financial statements for Auddia Inc. for the period ended June 30, 2023, including balance sheets, statements of operations, changes in shareholders' equity, and cash flows [Condensed Balance Sheets](index=5&type=section&id=Condensed%20Balance%20Sheets) As of June 30, 2023, Auddia's total assets increased to $7.71 million from $6.11 million at year-end 2022, mainly due to a rise in cash Condensed Balance Sheet Highlights (Unaudited) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash | $3,605,144 | $1,661,434 | | Total current assets | $3,659,292 | $1,661,571 | | Total assets | $7,711,968 | $6,111,526 | | **Liabilities & Equity** | | | | Accounts payable and accrued liabilities | $511,202 | $324,138 | | Notes payable to related party, net | $2,838,898 | $1,775,956 | | Total current liabilities | $3,380,190 | $2,261,443 | | Total shareholders' equity | $4,331,778 | $3,850,083 | [Condensed Statements of Operations](index=6&type=section&id=Condensed%20Statements%20of%20Operations) Auddia reported no revenue for the three and six months ended June 30, 2023, with net loss widening primarily due to increased interest expense Statement of Operations Summary (Unaudited) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $0 | $0 | $0 | $0 | | Loss from operations | ($1,784,290) | ($2,048,362) | ($3,631,696) | ($3,800,609) | | Interest expense | ($538,572) | ($2,023) | ($846,478) | ($3,035) | | **Net loss** | **($2,322,862)** | **($2,050,385)** | **($4,478,174)** | **($3,803,644)** | | Net loss per share | ($0.15) | ($0.16) | ($0.32) | ($0.30) | [Condensed Statements of Changes in Shareholders' Equity](index=7&type=section&id=Condensed%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) For the six months ended June 30, 2023, shareholders' equity increased from $3.85 million to $4.33 million, driven by common share and warrant issuances offset by net loss - Key activities impacting shareholders' equity in the first six months of 2023 include the issuance of **7,096,514 common shares**, net of costs, which contributed **$3.96 million**, and the issuance of warrants adding **$383,004**, offset by the period's net loss of **$2.32 million**[13](index=13&type=chunk) [Condensed Statements of Cash Flows](index=8&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2023, net cash used in operating activities was $2.21 million, while financing activities provided a net inflow of $4.69 million, resulting in a net cash increase of $1.94 million Cash Flow Summary (Six Months Ended June 30) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($2,214,729) | ($2,632,846) | | Net cash used in investing activities | ($529,503) | ($1,282,433) | | Net cash provided by (used in) financing activities | $4,687,941 | ($88,723) | | **Net increase (decrease) in cash** | **$1,943,710** | **($4,004,002)** | | **Cash, end of period** | **$3,605,144** | **$2,341,289** | [Notes to Condensed Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) The notes detail accounting policies and significant events, including going concern uncertainty, related-party debt, recent equity financing, and Nasdaq compliance - The company's financial statements were prepared under the assumption of it being a going concern, but recurring losses and the need for additional financing raise substantial doubt, with current cash levels expected to be depleted by **November 2023**[29](index=29&type=chunk) - The company entered into additional secured bridge note financing with a related party in April 2023 for **$825,000** and amended the terms of a prior note, increasing its interest rate to **20%** and issuing additional warrants[44](index=44&type=chunk)[47](index=47&type=chunk) - In Q2 2023, the company raised capital through sales of common stock under its White Lion equity line agreement, receiving approximately **$1.3 million**, and through a separate offering of common stock that yielded net proceeds of **$2.7 million**[68](index=68&type=chunk)[69](index=69&type=chunk) - The company received a Nasdaq deficiency notice for failing to meet the **$2.5 million** minimum stockholder's equity requirement as of March 31, 2023, but regained compliance with **$4.33 million** in stockholder's equity as of June 30, 2023[52](index=52&type=chunk)[53](index=53&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's pre-revenue status, accumulated deficit, wider net loss due to higher interest expenses, and critical liquidity concerns requiring additional funding [Overview](index=18&type=section&id=Overview) Auddia is a technology company developing its AI-powered audio Superapp, faidr, and is in the early commercialization phase with significant accumulated losses and a need for substantial additional funding - Auddia's core product is the **faidr Superapp**, which uses a proprietary AI platform to offer commercial-free AM/FM radio, personalized content, and podcasts[73](index=73&type=chunk)[74](index=74&type=chunk) - The company has incurred significant operating losses, with an accumulated deficit of **$76.2 million** as of June 30, 2023, and expects expenses to increase with the national rollout of the faidr app[84](index=84&type=chunk) - The company is exploring acquisitions of AM/FM streaming aggregators to accelerate user acquisition and is in advanced discussions with two properties[89](index=89&type=chunk) [Results of operations](index=22&type=section&id=Results%20of%20operations) For Q2 2023, Auddia reported no revenue and a net loss of $2.3 million, primarily due to a $537k rise in interest expense, partially offset by a 70% decrease in sales and marketing expenses Comparison of Three Months Ended June 30, 2023 and 2022 | Account | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $0 | $0 | $0 | | Sales and marketing | $223,760 | $740,019 | ($516,259) | | Depreciation and amortization | $442,618 | $271,005 | $171,613 | | Loss from operations | ($1,784,290) | ($2,048,362) | $264,072 | | Interest expense | ($538,572) | ($2,023) | ($536,549) | | **Net loss** | **($2,322,862)** | **($2,050,385)** | **($272,477)** | Comparison of Six Months Ended June 30, 2023 and 2022 | Account | H1 2023 | H1 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $0 | $0 | $0 | | Sales and marketing | $448,879 | $1,097,086 | ($648,207) | | Depreciation and amortization | $885,653 | $447,132 | $438,521 | | Loss from operations | ($3,631,696) | ($3,800,609) | $168,913 | | Interest expense | ($846,478) | ($3,035) | ($843,443) | | **Net loss** | **($4,478,174)** | **($3,803,644)** | **($674,530)** | [Liquidity and capital resources](index=26&type=section&id=Liquidity%20and%20capital%20resources) As of June 30, 2023, Auddia had $3.6 million in cash but a working capital deficit of approximately $0.4 million, requiring additional funding as current reserves are expected to be depleted by November 2023 - The company had cash of **$3,605,144** as of June 30, 2023, but will need to raise additional funds as this is not sufficient to execute its business plan and is expected to be depleted by **November 2023**[29](index=29&type=chunk)[127](index=127&type=chunk)[135](index=135&type=chunk) - In April 2023, the company entered into an additional Secured Bridge Note financing, receiving **$750,000** in gross proceeds[122](index=122&type=chunk) - In April 2023, the company closed on two sales of Common Stock under the White Lion Purchase Agreement, receiving aggregate proceeds of approximately **$1.12 million**[126](index=126&type=chunk) Cash Flow Summary (Six Months Ended June 30) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Operating activities | ($2,214,729) | ($2,632,846) | | Investing activities | ($529,503) | ($1,282,433) | | Financing activities | $4,687,941 | ($88,723) | | **Change in cash** | **$1,943,710** | **($4,004,002)** | [Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Auddia is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, Auddia is not required to provide the information required under this item[145](index=145&type=chunk) [Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2023, due to previously identified material weaknesses in internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were not effective as of the end of the period covered by the report due to material weaknesses in internal control over financial reporting[146](index=146&type=chunk) - Remediation actions taken during the quarter include strengthening internal processes, engaging outside consultants, documenting internal controls, and hiring additional accounting resources[147](index=147&type=chunk) [PART II – OTHER INFORMATION](index=32&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This section covers other information including legal proceedings, risk factors, and exhibits [Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal matters in the ordinary course of business, with one specific pre-IPO investor claim for less than $300,000 noted - A pre-IPO investor has contacted the Company claiming damages of less than approximately **$300,000**, with no complaint filed and the outcome neither probable nor estimable as of the reporting date[51](index=51&type=chunk)[150](index=150&type=chunk) [Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) A new material risk factor concerns the company's growth strategy of pursuing acquisitions, highlighting potential difficulties in identifying targets, securing funding, and integrating acquired businesses - A new risk factor has been introduced related to the company's growth strategy of making strategic acquisitions, which may not be successful in identifying, making, and integrating such acquisitions[151](index=151&type=chunk) - The success of this strategy is subject to risks including capital market volatility limiting funding, difficulty in identifying suitable candidates, and challenges in performing due diligence and integrating acquired businesses[152](index=152&type=chunk)[153](index=153&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports this item as not applicable for the period, with no repurchases of equity securities during the three months ended June 30, 2023 - The company reports this item as 'Not applicable' and states it did not repurchase any of its equity securities during the three months ended June 30, 2023[154](index=154&type=chunk) [Defaults Upon Senior Securities](index=32&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - None reported[154](index=154&type=chunk) [Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company reported that it has no mine safety disclosures - None[154](index=154&type=chunk) [Other Information](index=32&type=section&id=Item%205.%20Other%20Information) The company reported no other information for the period - None[154](index=154&type=chunk) [Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section provides a list of all exhibits filed with the Form 10-Q, including corporate formation documents, various agreements, and equity incentive plans - The report includes an index of exhibits filed, such as the Certificate of Incorporation, Bylaws, Form of Series A Warrant, employment agreements, and equity incentive plans[156](index=156&type=chunk)[157](index=157&type=chunk)

Financial Performance - Total revenues for the three months ended March 31, 2023, were $0 as the company continues to develop and enhance its faidr and podcasting Apps to establish new revenue streams [98]. - The company incurred a net loss of $2,155,312 for the three months ended March 31, 2023, compared to a net loss of $1,753,258 for the same period in 2022, representing an increase in loss of $402,054 [96]. - As of March 31, 2023, the company had an accumulated deficit of $73.9 million, indicating significant operating losses since inception [85]. - Operating expenses for the three months ended March 31, 2023, totaled $1,847,406, an increase of $95,158 compared to $1,752,248 for the same period in 2022 [96]. - Cash used in operating activities for Q1 2023 was $1,073,241, a decrease of 12.7% compared to $1,229,996 in Q1 2022 [114]. - As of March 31, 2023, the company had cash of $239,040, down from $1,661,434 as of December 31, 2022, with a working capital deficiency of approximately $2.2 million [106]. - The company has an accumulated deficit of $73.9 million as of March 31, 2023, indicating ongoing financial challenges [119]. Expenses Breakdown - Research and development expenses increased by $61,363 to $210,126 for the three months ended March 31, 2023, compared to $148,763 in 2022, reflecting ongoing investment in technology [96]. - Direct Cost of Services decreased by $10,261 or 19.5%, from $52,562 in Q1 2022 to $42,301 in Q1 2023, primarily due to reduced platform hosting costs [99]. - Sales and marketing expenses decreased by $131,948 or 37%, from $357,066 in Q1 2022 to $225,118 in Q1 2023, attributed to reduced staffing and marketing spending [100]. - General and administrative expenses decreased by $90,904 or 8.9%, from $1,017,730 in Q1 2022 to $926,826 in Q1 2023, due to reduced stock compensation expenses [102]. - Depreciation and amortization expenses increased by $266,908 or 151.5%, from $176,127 in Q1 2022 to $443,035 in Q1 2023, related to the amortization of faidr and podcasting Apps [103]. - Total other expense increased by $306,896, from $1,010 in Q1 2022 to $307,906 in Q1 2023, primarily due to interest expense related to debt [104]. Funding and Growth Strategy - The company had cash of $239,040 as of March 31, 2023, and raised $1.87 million in April 2023, which is expected to fund operations into the third quarter of fiscal 2023 [88]. - The company raised $750,000 from a new Secured Bridge Note financing and $1.12 million from common stock sales, which are expected to fund operations into Q3 2023 [112]. - The company is pursuing an acquisition strategy to accelerate user acquisition and growth of revenue and cash flow, currently in advanced discussions with three potential acquisition targets [89]. - The company expects significant increases in expenses and capital requirements as it continues to develop and commercialize its products, particularly the faidr App [85]. - The company plans to secure additional funding to support its growth strategy and operations, indicating reliance on equity or debt financing [86]. Company Classification - The company qualifies as an "emerging growth company" and will adopt new accounting standards when private companies do so, unless it opts out or no longer qualifies [127]. - The company is classified as a "smaller reporting company" with a market value of stock held by non-affiliates below $700 million and annual revenue under $100 million in the last fiscal year [128]. - The company may continue to be a smaller reporting company if its market value remains below $250 million or if it meets specific revenue criteria [128]. - As a smaller reporting company, the company can present only the two most recent fiscal years of audited financial statements in its Annual Report on Form 10-K [128]. - The company has reduced disclosure obligations regarding executive compensation due to its status as a smaller reporting company [128]. - The company is not required to provide quantitative and qualitative disclosures about market risk as it is classified as a smaller reporting company [129]. Product Development - The faidr App was fully launched on February 15, 2022, and includes features such as commercial-free AM/FM radio, podcasts, and exclusive content offerings [80].

Financial Position - As of December 31, 2022, the company reported cash and equivalents of $1.66 million, which is only sufficient to fund current operating plans into the second quarter of 2023[84]. - The company had stockholders equity of $3.85 million as of December 31, 2022, exceeding the Nasdaq minimum requirement of $2.5 million[158]. - As of March 10, 2023, executive officers, directors, and principal stockholders beneficially own approximately 37% of the outstanding common stock, allowing them to control most matters submitted to stockholders[149]. - The company has not declared or paid cash dividends on its capital stock and intends to retain future earnings for business growth[174]. - As of December 31, 2022, the company had cash and cash equivalents totaling $1,661,434[250]. - The company primarily invests in demand deposit accounts and money market funds, focusing on capital preservation and liquidity needs[250]. Operating Losses and Expenses - The company incurred net losses of $6,897,446 and $13,478,069 for the years ended December 31, 2022, and 2021, respectively[86]. - Cash used in operations for the year ended December 31, 2022, was $4,752,750[86]. - The company anticipates significant expenses related to the national launch of the faidr App, recruiting content creators, and technology development, which will increase operating losses[86]. - The company expects to continue incurring significant expenses and operating losses for the foreseeable future, with no assurance of achieving profitability[87]. Revenue and Growth - Future revenue growth is heavily dependent on the successful development and commercialization of new software services[94]. - The company has made significant investments in brand promotion, but these may not generate proportional revenue increases[125]. Internal Controls and Compliance - The company has identified material weaknesses in internal control over financial reporting, which could adversely affect financial statement accuracy[95]. - The company has identified material weaknesses in its internal control over financial reporting, which may affect compliance with Section 404 of the Sarbanes-Oxley Act[167]. - Compliance with evolving privacy and data protection regulations, such as GDPR and CCPA, may incur substantial costs and affect business practices[120]. Capital and Stockholder Concerns - The company may seek additional capital through public and private equity offerings, which could dilute existing stockholders' interests[92]. - The company issued 4,590,590 Series A Warrants in the IPO, which could lead to dilution for existing stockholders if exercised[151]. - In July 2021, holders exercised 3,498,898 Series A Warrants, leaving 1,091,692 outstanding as of March 10, 2023[151]. - The company may face delisting from Nasdaq, which could adversely affect liquidity, increase volatility, and hinder capital raising efforts[160]. - The company is classified as an "emerging growth company" and intends to rely on reduced disclosure requirements, which may affect stock attractiveness[162]. - The company’s charter includes anti-takeover provisions that may discourage beneficial acquisitions and limit stockholder influence[171]. - The company’s stock may be subject to penny stock regulations if delisted, affecting market liquidity and trading[159]. - The company’s exclusive forum provisions may limit stockholders' ability to bring claims in favorable jurisdictions, potentially discouraging lawsuits[178]. Personnel and Management - The company is highly dependent on its executive team, and the loss of key personnel could adversely impact its objectives[111]. - Recruiting and retaining qualified personnel is critical, with intense competition leading to high turnover rates[112]. - The company must effectively manage expected growth in operations, requiring expansion of managerial and operational systems[113]. Cybersecurity and Legal Risks - Cybersecurity-related attacks or data breaches could significantly harm the company's reputation and business operations[114]. - The company faces potential liabilities from cybersecurity incidents that may exceed available insurance coverage[116]. - The company may incur substantial liability related to indemnification obligations with customers regarding data security and confidentiality breaches[147]. - The company may face claims from third parties regarding open source software, which could lead to litigation and additional costs[143]. - The company may face litigation or regulatory inquiries that could adversely affect its operations and reputation[128]. Market and Competitive Risks - The company relies on the established music licensing framework, and any changes could impact operational costs and content access[102]. - The patent prosecution process is expensive and time-consuming, and failure to secure patents could adversely affect the company's competitive position[106]. - The company faces risks related to intellectual property, including potential claims of infringement that could be costly and time-consuming to defend[139]. - The company has applied for patent protection in the U.S. but cannot assure that any applications will result in issued patents[134]. - The company relies on unpatented proprietary technology and confidentiality agreements to protect its trade secrets, but these measures may not be sufficient[135]. - The company's common stock price is likely to be volatile, influenced by factors such as competitive products, regulatory developments, and financial results[153]. Investment Risks - Future investment income may fall short of expectations due to changes in interest rates, potentially leading to losses in principal[251]. - The market value of fixed rate securities may be adversely affected by rising interest rates, while floating rate securities may yield less income if rates fall[251].

PART I – FINANCIAL INFORMATION [Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents Auddia Inc.'s unaudited condensed financial statements for Q1 2022, including balance sheets, operations, equity, and cash flows [Condensed Balance Sheets](index=5&type=section&id=Condensed%20Balance%20Sheets) Auddia Inc.'s balance sheet as of March 31, 2022, shows total assets of $8.18 million, a decrease from year-end 2021, primarily due to reduced cash Condensed Balance Sheet Highlights (Unaudited) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash | $4,361,550 | $6,345,291 | | Total current assets | $4,452,502 | $6,345,378 | | Software development costs, net | $3,656,249 | $3,163,071 | | Total assets | $8,184,393 | $9,634,133 | | **Liabilities & Equity** | | | | Total current liabilities | $269,340 | $223,196 | | Total stockholders' equity | $7,915,053 | $9,410,937 | | Total liabilities and stockholders' equity | $8,184,393 | $9,634,133 | [Condensed Statements of Operations](index=6&type=section&id=Condensed%20Statements%20of%20Operations) The company reported no revenue and a net loss of $1.75 million for Q1 2022, a significant improvement from Q1 2021 due to non-recurring finance charges Statement of Operations Summary (Unaudited) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Revenue | $0 | $0 | | Total operating expenses | $1,752,248 | $867,740 | | Loss from operations | ($1,752,248) | ($867,740) | | Finance charge – convertible debt | $0 | ($8,141,424) | | Net loss | ($1,753,258) | ($9,296,498) | | Net loss per share (Basic and diluted) | ($0.14) | ($1.72) | [Condensed Statements of Changes in Shareholders' Equity](index=7&type=section&id=Condensed%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity) Shareholders' equity decreased to $7.92 million by March 31, 2022, primarily due to the net loss, partially offset by share-based compensation - The primary drivers of change in shareholders' equity for the three months ended March 31, 2022, were the **net loss of $1,753,258** and **share-based compensation of $385,908**[21](index=21&type=chunk) [Condensed Statements of Cash Flows](index=8&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) Net cash used in operating activities was $1.23 million in Q1 2022, leading to a total cash decrease of $1.98 million and an ending balance of $4.36 million Cash Flow Summary (Unaudited) | Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,229,996) | ($1,827,455) | | Net cash used in investing activities | ($665,023) | ($302,117) | | Net cash (used in) provided by financing activities | ($88,722) | $10,174,305 | | Net (decrease) increase in cash | ($1,983,741) | $8,044,733 | | Cash, end of period | $4,361,550 | $8,162,647 | [Notes to Condensed Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) Notes detail business, accounting policies, and key financial events including the 2021 IPO, debt conversion, and ongoing software capitalization - The company completed its IPO on February 16, 2021, raising **net proceeds of approximately $15.1 million**[28](index=28&type=chunk) Concurrently, all promissory notes, convertible notes, and related party notes were converted into **6,814,570 shares of common stock**[28](index=28&type=chunk) - Software development costs of **$661,213 were capitalized in Q1 2022**, compared to $292,075 in Q1 2021[36](index=36&type=chunk) Amortization of these costs was **$168,036 in Q1 2022**[36](index=36&type=chunk) - In Q1 2021, the company recognized a **finance charge of $8,141,424** related to the conversion of various notes into common stock upon the IPO[54](index=54&type=chunk) - Share-based compensation expense was **$385,908 for Q1 2022**, a significant increase from $16,131 in Q1 2021[72](index=72&type=chunk) The remaining unvested expense of **$2,598,005** is expected to be recognized over the next 47 months[72](index=72&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's business strategy, Q1 2022 financial results, and liquidity, focusing on product development and future funding needs [Overview](index=18&type=section&id=Overview) Auddia is a technology company developing Faidr for commercial-free radio and Vodacast for interactive podcasting, focusing on user acquisition and product enhancement - The Faidr app was launched on **February 15, 2022**, offering users a 90-day free trial with the expectation of converting them to paying subscribers in the second quarter[81](index=81&type=chunk) - The Vodacast platform provides podcasters with tools to create interactive digital content feeds, enabling new revenue streams beyond traditional audio ads, such as direct-response digital ads, subscriptions, and donations[82](index=82&type=chunk)[83](index=83&type=chunk) - The company has an **accumulated deficit of $66.6 million as of March 31, 2022**, and expects expenses to increase substantially with the national launch of Faidr and continued development of both apps[85](index=85&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Q1 2022 results show no revenue, with total operating expenses nearly doubling to $1.75 million due to increased marketing, R&D, G&A, and amortization costs Comparison of Operating Results (Q1 2022 vs Q1 2021) | Expense Category | Q1 2022 | Q1 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Sales and marketing | $357,066 | $123,458 | $233,608 | 189.2% | | Research and development | $148,763 | $46,997 | $101,766 | 216.5% | | General and administrative | $1,017,730 | $637,708 | $380,022 | 59.6% | | Depreciation and amortization | $176,127 | $2,183 | $173,944 | 7968.1% | | **Total operating expense** | **$1,752,248** | **$867,740** | **$884,508** | **101.9%** | - The decrease in net loss was primarily due to a **one-time finance charge of $8.14 million in Q1 2021** related to debt conversion upon the IPO, which did not recur in 2022[106](index=106&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity, primarily from its 2021 IPO and warrant exercises, totals $4.4 million in cash as of March 31, 2022, sufficient through year-end but requiring future funding - As of March 31, 2022, the company had **cash of $4.4 million**, which is believed to be sufficient to fund operations through at least December 31, 2022[118](index=118&type=chunk) - The company's primary funding events were the **February 2021 IPO (approx. $15.2M net proceeds)**[109](index=109&type=chunk) and the **July 2021 warrant exercises (approx. $5.0M proceeds)**[110](index=110&type=chunk) - During 2021, the company fully paid off its **$6.0 million bank line of credit** and eliminated all deferred compensation owed to a related party[110](index=110&type=chunk) Cash Flow Summary (Q1 2022 vs Q1 2021) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Operating activities | ($1,229,996) | ($1,827,455) | | Investing activities | ($665,023) | ($302,117) | | Financing activities | ($88,722) | $10,174,305 | [Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Auddia is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, Auddia is not required to provide quantitative and qualitative disclosures about market risk[127](index=127&type=chunk) [Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective as of March 31, 2022, due to material weaknesses in internal control over financial reporting - Management concluded that disclosure controls and procedures were **not effective** as of the end of the reporting period[128](index=128&type=chunk) - Material weaknesses were identified related to: 1) lacking a sufficient complement of professionals with appropriate accounting knowledge, and 2) not maintaining adequate segregation of duties in the financial reporting function[130](index=130&type=chunk) - Remediation activities include strengthening internal policies, engaging outside consultants, documenting internal controls, and hiring additional experienced accounting resources, including the current CFO[132](index=132&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material legal proceedings that would adversely affect its business or financial condition - The company reports **no material legal proceedings**[136](index=136&type=chunk) [Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's risk factors from the most recent Form 10-K are reported - No material changes to risk factors from the most recent Form 10-K are reported[137](index=137&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=28&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the use of proceeds from the February 2021 IPO and subsequent warrant exercises, primarily for debt reduction and operational expenses - Upon the IPO closing in February 2021, all outstanding pre-IPO equity and convertible debt automatically converted into **7,300,010 shares of common stock**[138](index=138&type=chunk) - Proceeds from the IPO and warrant exercises were used to fully pay off and terminate the company's line of credit, pay down accounts payable, and settle deferred compensation[139](index=139&type=chunk)[140](index=140&type=chunk) [Defaults, Mine Safety, and Other Information](index=28&type=section&id=Item%203,%204,%205) The company reports no defaults upon senior securities, no mine safety disclosures, and no other material information for the period - The company reports 'None' for Item 3 (Defaults Upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information)[141](index=141&type=chunk) [Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the Quarterly Report on Form 10-Q, including governance documents and material contracts - The report includes a list of exhibits filed, such as the Certificate of Incorporation, Bylaws, Warrant Agreements, and the 2020 Equity Incentive Plan[144](index=144&type=chunk)

Financial Performance - The company incurred significant net losses of $13,478,069 and $4,051,221 for the years ended December 31, 2021 and 2020, respectively[84]. - Cash used in operations for the year ended December 31, 2021 was $5,428,094, with cash and equivalents on hand of $6,345,291 at the same date[84]. - The company anticipates continued significant expenses and operating losses as it invests in the national launch of the Faidr App and recruitment of podcasters for the Vodacast App[84]. - Future revenue growth is heavily dependent on the successful development and commercialization of new software products[89]. - The company may need additional funding to complete the development of its full product line and scale products with demonstrated market fit[86]. Internal Controls and Compliance - The company has identified material weaknesses in its internal control over financial reporting, which could adversely affect its financial statements[91]. - The company expects to expend significant resources to develop necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act[97]. - The company may face increased costs and compliance challenges as it transitions to a public company, particularly regarding internal controls and financial reporting[160]. - The company has identified material weaknesses in its internal control over financial reporting, which may impact compliance with Section 404 of the Sarbanes-Oxley Act[163]. Intellectual Property and Legal Risks - The company seeks to protect its proprietary position by filing patent applications, but there is no guarantee that additional patents will be issued[100]. - The patent prosecution process is expensive and time-consuming, which may hinder the company's ability to obtain necessary patent protections[103]. - The company relies on its intellectual property for competitive advantage, but risks exist regarding the adequacy of protection[130]. - The company has applied for patent protection in the U.S. but cannot guarantee that any applications will result in issued patents[131]. - Claims of intellectual property infringement could lead to costly litigation and negatively impact operating profits[139]. - Indemnity provisions in agreements may expose the company to substantial liability for intellectual property infringement[145]. - The company may face increased litigation risks as its business expands, potentially affecting revenue and financial condition[127]. Operational Risks - The Faidr platform's operational costs may be impacted by changes in music licensing costs and rights to play music content[98]. - The company faces risks related to errors, failures, or bugs in its platform, which could adversely affect operating results and growth prospects[104]. - Retaining key employees and attracting qualified personnel is critical for the company's success, as competition for skilled personnel is intense[105][106]. - The company must effectively manage expected growth in operations, requiring expansion of managerial and operational systems to support product rollout and user projections[107]. - Cybersecurity-related attacks or significant data breaches could negatively impact the company's business, leading to unauthorized access and potential liabilities[109][110]. - Compliance with changing regulations regarding privacy and data protection may increase costs and affect how the company collects and uses personal information[114][116]. - The company may face challenges in addressing new laws and regulations, which could result in significant costs and affect its ability to process user data[117]. Market and Stock Information - The common stock price is expected to be volatile, influenced by factors such as competitive products, regulatory developments, and financial results[151]. - The company had cash and cash equivalents totaling $6,345,291 as of December 31, 2021, primarily invested in demand deposit accounts and money market funds[243]. - The company is classified as an "emerging growth company" and will remain so until total annual gross revenues exceed $1.07 billion or other specified conditions are met[158]. - The company does not anticipate paying cash dividends in the foreseeable future, with capital appreciation being the sole source of gain for investors[170]. - The company may not sustain an active trading market for its common stock and Series A Warrants, which could affect liquidity[154]. - The company issued 4,590,590 Series A Warrants in the IPO, which are exercisable for an equal number of shares of common stock[150]. - As of February 17, 2022, 1,091,692 Series A Warrants have been exercised, leaving 3,498,898 outstanding[150]. - The company’s corporate governance provisions may discourage or delay potential acquisitions, impacting stockholder interests[166]. Financial Statements and Reporting - Auddia Inc. reported its annual financial statements for the years ended December 31, 2021, and 2020, including balance sheets and statements of operations[246]. - The company has independent registered public accounting firm reports included in its annual financial statements[246]. - Statements of changes in stockholders' equity and cash flows for the years ended December 31, 2021, and 2020 are also part of the financial documentation[246].

[PART I – FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) The first part of the report details the company's financial statements, management's discussion and analysis, market risk disclosures, and internal controls [Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed financial statements for June 30, 2021, reflect a significant post-IPO financial transformation, including increased assets, positive equity, and zero revenue due to a strategic shift [Condensed Balance Sheets](index=5&type=section&id=Condensed%20Balance%20Sheets) As of June 30, 2021, the company's financial position significantly strengthened, with total assets increasing to $9.2 million, liabilities decreasing to $2.7 million, and stockholders' equity turning positive to $6.6 million post-IPO Condensed Balance Sheet Comparison (Unaudited) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total Current Assets** | **$6,583,211** | **$118,042** | | Cash | $4,583,211 | $117,914 | | Restricted Cash | $2,000,000 | $– | | **Total Assets** | **$9,222,651** | **$2,311,768** | | **Total Current Liabilities** | **$2,666,496** | **$15,415,018** | | Line of credit | $2,000,000 | $6,000,000 | | Convertible notes payable | $– | $2,146,775 | | **Total Stockholders' Equity (Deficit)** | **$6,556,155** | **($13,103,250)** | [Condensed Statements of Operations](index=6&type=section&id=Condensed%20Statements%20of%20Operations) For the six months ended June 30, 2021, the company reported zero revenue due to phasing out its legacy platform, resulting in a net loss of $10.05 million, primarily driven by an $8.14 million finance charge from debt conversion Statement of Operations Summary (Unaudited) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Revenue | $– | $109,879 | | Loss from operations | ($1,871,178) | ($1,678,256) | | Finance charge – convertible debt | ($8,141,424) | $– | | PPP loan extinguishment | $268,662 | $– | | **Net loss** | **($10,050,019)** | **($2,552,358)** | | **Net loss per share (Basic & Diluted)** | **($1.20)** | **($5.35)** | [Condensed Statements of Changes in Stockholders' Equity (Deficit)](index=7&type=section&id=Condensed%20Statements%20of%20Changes%20in%20Stockholders'%20Equity%20(Deficit)) Stockholders' equity dramatically improved from a $13.1 million deficit to a $6.6 million positive balance, driven by $14.5 million from the IPO and $15.2 million in debt-to-equity conversions, partially offset by a $10.05 million net loss - The company issued **3,991,818 shares** of common stock, raising **$14.48 million** in additional paid-in capital[16](index=16&type=chunk) - Debt obligations totaling **$15.19 million** were converted into **6,814,570 shares** of common stock[16](index=16&type=chunk) [Condensed Statements of Cash Flows](index=8&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) Net cash provided by financing activities was $10.17 million, primarily from IPO proceeds, while operating and investing activities used $3.13 million and $0.58 million respectively, leading to a $6.47 million increase in cash and restricted cash Cash Flow Summary (Six Months Ended June 30) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($3,133,635) | ($1,216,952) | | Net cash used in investing activities | ($575,373) | ($376,125) | | Net cash provided by financing activities | $10,174,305 | $1,821,794 | | **Net increase in cash and restricted cash** | **$6,465,297** | **$228,717** | - Non-cash activities included the conversion of **$15.19 million** of indebtedness into shares[21](index=21&type=chunk) [Notes to Condensed Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) The notes detail the February 2021 IPO, which raised $15.1 million and converted debt to equity, the phasing out of the legacy platform, the forgiveness of a PPP loan, and subsequent warrant exercises and line of credit termination - In February 2021, the company completed an IPO, receiving net proceeds of approximately **$15.1 million**; concurrently, various notes were converted into **6,814,570 shares** of common stock[23](index=23&type=chunk) - The company began phasing out its legacy Interactive Radio Platform in early 2020 and ceased its operations by August 1, 2020, resulting in **no revenue** for the current period[33](index=33&type=chunk) - On June 15, 2021, the company's first PPP loan of **$268,662** was forgiven and recorded as other income[64](index=64&type=chunk) - Subsequent to quarter end, in July 2021, the company received **~$5.0 million** from the exercise of Series A Warrants and paid off its **$2 million** line of credit, which was then terminated[73](index=73&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the strategic shift to new apps, resulting in zero revenue and changes in operating expenses, confirms sufficient liquidity from IPO and warrant exercises for the next 12 months, and addresses material weaknesses in internal controls [Overview](index=19&type=section&id=Overview) The company is a technology firm developing an AI audio platform, focusing on launching the Auddia App for commercial-free personalized radio and Vodacast for interactive podcasting, with Auddia trials beginning in July 2021 - The Auddia App allows users to listen to AM/FM radio without commercials and with personalized features; a consumer trial for the MVP version launched in July 2021[76](index=76&type=chunk)[78](index=78&type=chunk) - Vodacast is a podcasting app that adds a synchronized, interactive digital feed to audio content, creating new monetization opportunities for podcasters beyond standard audio ads[79](index=79&type=chunk)[80](index=80&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) For the six months ended June 30, 2021, revenue dropped to zero due to the legacy platform's termination, direct costs decreased, sales and G&A expenses rose, and the net loss widened to $10.1 million, primarily due to an $8.1 million finance charge Comparison of Six Months Ended June 30, 2021 and 2020 | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Revenue | $– | $109,879 | ($109,879) | | Direct costs of service | $133,406 | $297,578 | ($164,172) | | Sales and marketing | $263,115 | $205,422 | $57,693 | | General and administrative | $1,349,375 | $1,142,698 | $206,677 | | Other income (expense), net | ($8,178,841) | ($874,102) | ($7,304,739) | | **Net loss** | **($10,050,019)** | **($2,552,358)** | **($7,497,661)** | - The increase in other expense was almost entirely due to a finance charge of **$8,141,424** related to the conversion of outstanding debt into common stock upon the IPO in February 2021[105](index=105&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity significantly improved post-IPO, with $15.2 million in net proceeds and $6.6 million cash as of June 30, 2021; subsequent warrant exercises provided $5.0 million, enabling the company to fund operations for at least 12 months - The company received net proceeds of approximately **$15.2 million** from its February 2021 IPO[108](index=108&type=chunk) - In July 2021, the company received an additional **~$5.0 million** in cash from the exercise of Series A Warrants and subsequently paid off and terminated its line of credit[110](index=110&type=chunk) - Management believes that net proceeds from the IPO and warrant exercises will be sufficient to fund current operating plans through at least the next 12 months[117](index=117&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Auddia Inc. is not required to provide the information for this item - The company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item[124](index=124&type=chunk) [Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls were ineffective as of June 30, 2021, due to material weaknesses in internal control over financial reporting, including insufficient accounting expertise and lack of segregation of duties, with remediation efforts underway - Management concluded that disclosure controls and procedures were **not effective** as of June 30, 2021, due to material weaknesses[125](index=125&type=chunk) - Identified material weaknesses include: a lack of sufficient professionals with appropriate accounting knowledge and experience, and inadequate segregation of duties within the financial reporting function[128](index=128&type=chunk) - Remediation activities underway include strengthening internal policies, engaging outside consultants, and hiring additional accounting resources, including a new Chief Financial Officer[129](index=129&type=chunk) [PART II – OTHER INFORMATION](index=30&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) The second part of the report covers legal proceedings, risk factors, unregistered sales of equity, and other miscellaneous disclosures [Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently aware of any legal proceedings that would have a material adverse effect on its business, financial condition, or results of operations - The company is not currently a party to any material legal proceedings[133](index=133&type=chunk) [Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes have occurred to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[134](index=134&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Upon IPO closing in February 2021, pre-IPO equity and convertible debt converted into 7,300,010 common shares in an exempt transaction, with IPO proceeds used for debt reduction, cash reserves, and other operational payments - In February 2021, pre-IPO equity and convertible debt automatically converted into **7,300,010 shares** of common stock, exempt from registration under Section 3(a)(9) of the Securities Act[135](index=135&type=chunk) - IPO proceeds have been used as described in the prospectus, including reducing bank debt by **$4.0 million** and funding a **$2.0 million** cash reserve for collateral[136](index=136&type=chunk) [Defaults Upon Senior Securities](index=30&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) None - None[137](index=137&type=chunk) [Mine Safety Disclosures](index=30&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) None - None[137](index=137&type=chunk) [Other Information](index=30&type=section&id=Item%205.%20Other%20Information) None - None[137](index=137&type=chunk) [Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section provides an index of the exhibits filed with the Quarterly Report on Form 10-Q, including certifications by the CEO and CFO - The report includes an exhibit index listing all documents filed with the report, such as the CEO and CFO certifications under Sections 302 and 906[139](index=139&type=chunk)[140](index=140&type=chunk)