Auddia(AUUD) - 2021 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION 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) 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 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 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) 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] - Debt obligations totaling $15.19 million were converted into 6,814,570 shares of common stock[16] Condensed Statements of Cash Flows 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] Notes to Condensed Financial Statements 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] - 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] - On June 15, 2021, the company's first PPP loan of $268,662 was forgiven and recorded as other income[64] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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][78] - 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][80] Results of Operations 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] Liquidity and Capital Resources 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] - 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] - 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] Quantitative and Qualitative Disclosures About Market Risk 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] Controls and Procedures 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] - 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] - Remediation activities underway include strengthening internal policies, engaging outside consultants, and hiring additional accounting resources, including a new Chief Financial Officer[129] PART II – OTHER INFORMATION The second part of the report covers legal proceedings, risk factors, unregistered sales of equity, and other miscellaneous disclosures Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] - 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] Defaults Upon Senior Securities None - None[137] Mine Safety Disclosures None - None[137] Other Information None - None[137] Exhibits 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][140]