Auddia(AUUD) - 2023 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited condensed financial statements for Auddia Inc. for the period ended June 30, 2023 Financial Statements (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 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 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 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] Condensed Statements of Cash Flows 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 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] - 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][47] - 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][69] - 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][53] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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][74] - 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] - The company is exploring acquisitions of AM/FM streaming aggregators to accelerate user acquisition and is in advanced discussions with two properties[89] Results of operations 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 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][127][135] - In April 2023, the company entered into an additional Secured Bridge Note financing, receiving $750,000 in gross proceeds[122] - 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] 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 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] Controls and Procedures 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] - Remediation actions taken during the quarter include strengthening internal processes, engaging outside consultants, documenting internal controls, and hiring additional accounting resources[147] PART II – OTHER INFORMATION This section covers other information including legal proceedings, risk factors, and exhibits Legal Proceedings 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][150] Risk Factors 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] - 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][153] Unregistered Sales of Equity Securities and Use of Proceeds 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] Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None reported[154] Mine Safety Disclosures The company reported that it has no mine safety disclosures - None[154] Other Information The company reported no other information for the period - None[154] Exhibits 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][157]