Auddia(AUUD) - 2022 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents Auddia Inc.'s unaudited condensed financial statements for Q1 2022, including balance sheets, operations, equity, and cash flows Condensed Balance Sheets 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 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 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] Condensed Statements of Cash Flows 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 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] Concurrently, all promissory notes, convertible notes, and related party notes were converted into 6,814,570 shares of common stock[28] - Software development costs of $661,213 were capitalized in Q1 2022, compared to $292,075 in Q1 2021[36] Amortization of these costs was $168,036 in Q1 2022[36] - 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] - Share-based compensation expense was $385,908 for Q1 2022, a significant increase from $16,131 in Q1 2021[72] The remaining unvested expense of $2,598,005 is expected to be recognized over the next 47 months[72] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's business strategy, Q1 2022 financial results, and liquidity, focusing on product development and future funding needs 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] - 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][83] - 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] Results of Operations 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] Liquidity and Capital Resources 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] - The company's primary funding events were the February 2021 IPO (approx. $15.2M net proceeds)[109] and the July 2021 warrant exercises (approx. $5.0M proceeds)[110] - 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] 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 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] Controls and Procedures 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] - 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] - Remediation activities include strengthening internal policies, engaging outside consultants, documenting internal controls, and hiring additional experienced accounting resources, including the current CFO[132] PART II – OTHER INFORMATION Legal Proceedings The company reports no material legal proceedings that would adversely affect its business or financial condition - The company reports no material legal proceedings[136] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] - 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][140] Defaults, Mine Safety, and Other Information 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] Exhibits 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]