Auddia(AUUD) - 2023 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents Auddia Inc.'s unaudited condensed financial statements, including the balance sheets, statements of operations, changes in shareholders' equity, and cash flows, along with accompanying notes Condensed Balance Sheets The balance sheet shows a decrease in total assets and shareholders' equity, primarily driven by an increased accumulated deficit and a significant rise in related-party notes payable Condensed Balance Sheet Highlights (September 30, 2023 vs. December 31, 2022) | Metric | Sep 30, 2023 (Unaudited) | Dec 31, 2022 (Audited) | Change ($) | Change (%) | | :------------------------------------- | :----------------------- | :--------------------- | :--------- | :--------- | | Cash | $2,199,678 | $1,661,434 | $538,244 | 32.4% | | Total Current Assets | $2,256,956 | $1,661,571 | $595,385 | 35.8% | | Total Assets | $6,042,273 | $6,111,526 | $(69,253) | (1.1%) | | Accounts payable and accrued liabilities | $587,641 | $324,138 | $263,503 | 81.3% | | Notes payable to related party, net | $2,993,639 | $1,775,956 | $1,217,683 | 68.6% | | Total Current Liabilities | $3,627,261 | $2,261,443 | $1,365,818 | 60.4% | | Accumulated deficit | $(78,330,490) | $(71,735,834) | $(6,594,656) | 9.2% | | Total Shareholders' Equity | $2,415,012 | $3,850,083 | $(1,435,071) | (37.3%) | | Common Stock Outstanding (shares) | 19,947,223 | 12,654,949 | 7,292,274 | 57.6% | Condensed Statements of Operations Auddia reported no revenue for both periods, with net losses significantly increasing year-over-year due to higher operating expenses and a substantial rise in interest expense Condensed Statements of Operations Highlights (Three Months Ended September 30) | Metric | 2023 ($) | 2022 ($) | Change ($) | Change (%) | | :------------------------------------ | :------- | :------- | :--------- | :--------- | | Revenue | $0 | $0 | $0 | 0.0% | | Total Operating Expenses | $1,829,562 | $1,328,291 | $501,271 | 37.7% | | Loss from Operations | $(1,829,562) | $(1,328,291) | $(501,271) | 37.7% | | Interest Expense | $(286,920) | $(2,023) | $(284,897) | 14082.9% | | Net Loss | $(2,116,482) | $(1,330,314) | $(786,168) | 59.1% | | Net Loss Per Share (Basic & Diluted) | $(0.11) | $(0.11) | $0.00 | 0.0% | | Weighted Average Common Shares Outstanding | 19,947,223 | 12,514,763 | 7,432,460 | 59.4% | Condensed Statements of Operations Highlights (Nine Months Ended September 30) | Metric | 2023 ($) | 2022 ($) | Change ($) | Change (%) | | :------------------------------------ | :------- | :------- | :--------- | :--------- | | Revenue | $0 | $0 | $0 | 0.0% | | Total Operating Expenses | $5,461,258 | $5,128,901 | $332,357 | 6.5% | | Loss from Operations | $(5,461,258) | $(5,128,901) | $(332,357) | 6.5% | | Interest Expense | $(1,133,398) | $(5,058) | $(1,128,340) | 22308.0% | | Net Loss | $(6,594,656) | $(5,133,959) | $(1,460,697) | 28.4% | | Net Loss Per Share (Basic & Diluted) | $(0.41) | $(0.41) | $0.00 | 0.0% | | Weighted Average Common Shares Outstanding | 16,043,086 | 12,498,206 | 3,544,880 | 28.4% | Condensed Statements of Changes in Shareholders' Equity Shareholders' equity decreased from $3.85 million at the beginning of 2023 to $2.42 million by September 30, 2023, primarily due to the net loss, partially offset by proceeds from common share and warrant issuances Changes in Shareholders' Equity (Nine Months Ended September 30, 2023) | Item | Number of Shares | Par Value ($) | Additional Paid-In Capital ($) | Accumulated Deficit ($) | Total ($) | | :---------------------------------- | :--------------- | :------------ | :----------------------------- | :---------------------- | :---------- | | Balance, January 1, 2023 | 12,654,949 | 12,654 | 75,573,262 | (71,735,834) | 3,850,083 | | Issuance of common shares, net of costs | 7,096,514 | 7,097 | 3,956,787 | – | 3,963,884 | | Issuance of warrants | – | – | 383,004 | – | 383,004 | | Net loss | – | – | – | (6,594,656) | (6,594,656) | | Balance, September 30, 2023 | 19,947,223 | 19,947 | 80,725,555 | (78,330,490) | 2,415,012 | Condensed Statements of Cash Flows Auddia experienced a net increase in cash of $538,244 for the nine months ended September 30, 2023, driven by substantial cash provided by financing activities, which offset cash used in operating and investing activities Condensed Statements of Cash Flows Highlights (Nine Months Ended September 30) | Activity | 2023 ($) | 2022 ($) | Change ($) | | :------------------------------------ | :--------- | :--------- | :--------- | | Net Cash Used in Operating Activities | $(3,404,954) | $(3,622,112) | $217,158 | | Net Cash Used in Investing Activities | $(743,208) | $(1,677,326) | $934,118 | | Net Cash Provided by (Used in) Financing Activities | $4,686,406 | $(88,723) | $4,775,129 | | Net Increase (Decrease) in Cash | $538,244 | $(5,388,161) | $5,926,405 | | Cash, End of Period | $2,199,678 | $957,130 | $1,242,548 | Notes to Condensed Financial Statements The notes detail Auddia's business, accounting policies, and financial statement items, including going concern, software costs, related-party debt, and recent equity financings - Auddia Inc. is a technology company focused on reinventing audio engagement through a proprietary AI platform for audio and innovative podcast technologies, primarily via its faidr Superapp[29][82] - The Company has recurring losses from operations and needs additional funding, raising substantial doubt about its ability to continue as a going concern within one year. Management plans to secure funding through an equity line of credit and future financing agreements[36][37] Software Development Costs (Nine Months Ended September 30) | Metric | 2023 ($) | 2022 ($) | Change ($) | Change (%) | | :------------------------------------ | :------- | :------- | :--------- | :--------- | | Capitalized Software Development Costs | $743,208 | $1,673,517 | $(930,309) | (55.6%) | | Amortization Expense | $1,331,823 | $693,441 | $638,382 | 92.1% | - The company entered into Secured Bridge Notes with an existing shareholder in November 2022 and April 2023, resulting in a balance of $2,993,639 (net of debt issuance costs) as of September 30, 2023. These notes bear interest and include warrant issuances[52][54][55] - In April and June 2023, Auddia issued an aggregate of 2,361,514 common shares under the White Lion Purchase Agreement, generating approximately $1.3 million in proceeds. Additionally, a registered public offering in June 2023 sold 4,735,000 common shares, yielding $2.7 million in net proceeds[77][78] - On November 6, 2023, Auddia entered into a new Common Stock Purchase Agreement with White Lion Capital, LLC, granting the company the right to sell up to $10,000,000 in common stock until December 31, 2024, replacing the previous agreement[79] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Auddia's financial condition, operations, and business model, focusing on faidr app development, liquidity challenges, funding needs, and recent Nasdaq compliance issues - Auddia is developing a proprietary AI platform for audio and innovative podcast technologies, leveraging them in its 'faidr' Superapp, which offers commercial-free AM/FM radio, podcasts, and exclusive content[82][83][86] - The faidr app launched fully in February 2022, with faidrRadio added in February 2023 and podcast functionality rolled out to iOS (Q1 2023) and Android (May 2023). The podcast platform aims to provide tools for content creation, monetization (Flex Revenue), and interactive digital feeds[88][90][92] - The company has incurred significant operating losses, with an accumulated deficit of $78.3 million as of September 30, 2023. Existing cash of $2.2 million is only sufficient until February 2024, necessitating substantial additional funding for product development, national launch, and growth strategy, including potential acquisitions[94][95][96][97] - Auddia regained compliance with the Nasdaq Stockholders' Equity Requirement by August 25, 2023, but received a delisting notice on October 24, 2023, for failing to meet the $1.00 Minimum Bid Price requirement. The company has requested a hearing to appeal this decision[100][101][102] Operating Expenses and Net Loss (Nine Months Ended September 30, 2023 vs. 2022) | Expense Category | 2023 ($) | 2022 ($) | Change ($) | Change (%) | | :-------------------------- | :------- | :------- | :--------- | :--------- | | Direct cost of services | 130,809 | 128,806 | 2,003 | 1.6% | | Sales and marketing | 765,176 | 1,396,010 | (630,834) | (45.2%) | | Research and development | 617,622 | 481,611 | 136,011 | 28.2% | | General and administrative | 2,596,831 | 2,400,503 | 196,328 | 8.2% | | Depreciation and amortization | 1,350,820 | 721,971 | 628,849 | 87.1% | | Total Operating Expenses | 5,461,258 | 5,128,901 | 332,357 | 6.5% | | Interest expense | (1,133,398) | (5,058) | (1,128,340) | 22308.0% | | Net Loss | (6,594,656) | (5,133,959) | (1,460,697) | 28.4% | Cash Flow Summary (Nine Months Ended September 30, 2023 vs. 2022) | Activity | 2023 ($) | 2022 ($) | Change ($) | | :------------------------ | :--------- | :--------- | :--------- | | Operating activities | (3,404,954) | (3,622,112) | 217,158 | | Investing activities | (743,208) | (1,677,326) | 934,118 | | Financing activities | 4,686,406 | (88,723) | 4,775,129 | | Change in cash | 538,244 | (5,388,161) | 5,926,405 | Contractual Obligations (as of September 30, 2023) | Obligation | Total ($) | Less Than 1 Year ($) | 1-3 Years ($) | 4-5 Years ($) | More Than 5 Years ($) | | :---------------------- | :-------- | :------------------- | :------------ | :------------ | :-------------------- | | Office lease | 25,000 | 25,000 | – | – | – | | Insurance premiums | 18,000 | 18,000 | – | – | – | | Total | 43,000 | 43,000 | – | – | – | Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Auddia Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide market risk disclosures[151] Item 4. Controls and Procedures Management concluded that Auddia's disclosure controls and procedures were not effective as of September 30, 2023, due to material weaknesses in internal control over financial reporting, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective at a reasonable assurance level as of September 30, 2023, due to material weaknesses in internal control over financial reporting[152] - Remedial actions taken include strengthening internal policies, processes, and reviews; engaging outside consultants for expertise and internal control documentation; and hiring additional accounting resources[153] PART II – OTHER INFORMATION Item 1. Legal Proceedings Auddia is involved in ordinary course legal disputes, with no active litigations, and believes pending matters, including a pre-IPO investor claim, will not have a material adverse effect - As of the financial statement issuance date, there are no active litigations[59][155] - A pre-IPO investor has claimed damages of less than $300,000 due to alleged acts and omissions from a private financing, but no complaint has been filed, and the outcome is neither probable nor estimable[59] Item 1A. Risk Factors No material changes to risk factors from the 10-K, except for new risks associated with the recently announced growth strategy involving potential acquisitions - No material changes to risk factors from the 2022 Form 10-K, except for risks associated with the recently announced growth strategy of seeking acquisitions[156] - Acquisition risks include capital market volatility limiting funds, adverse effects from stock price volatility on using common stock for acquisitions, difficulty identifying suitable candidates, challenges in negotiating terms, and potential failures in due diligence and integration[157][158] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable, as the company did not repurchase any equity securities during the three months ended September 30, 2023 - Item is not applicable[159] - No equity securities were repurchased during the three months ended September 30, 2023[159] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None[161] Item 4. Mine Safety Disclosures There are no mine safety disclosures to report - None[161] Item 5. Other Information No other information is reported under this item - None[161] Item 6. Exhibits This section lists all required exhibits by Item 601 of Regulation S-K and Item 15(b) of the Quarterly Report, incorporated by reference - Lists all required exhibits, incorporated by reference[162] Signatures The report is duly signed by Michael Lawless, President, CEO, Interim CFO, and Director of Auddia Inc., dated November 14, 2023 - Signed by Michael Lawless, President, CEO, Interim CFO, and Director[166] - Date: November 14, 2023[166]