Auddia Inc. — 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing was signed April 1, 2024. Auddia is an early-stage audio technology company developing faidr, an app combining AM/FM radio, podcasts and exclusive audio features.
Business context and outlook
faidr is designed to replace radio commercials with other audio and provide podcast ad-reduction and interactive content. During 2023, Auddia added faidrRadio and podcast functionality, and moved Vodacast podcast capabilities into faidr. Management expects further podcast features and initial subscription-based ad-reduction monetization in 2024. The company had not generated revenue from these products by year-end.
Management is exploring acquisitions to accelerate user growth, but an announced agreement to acquire RadioFM for $13 million plus up to $2 million contingent consideration was terminated by mutual agreement in March 2024. No quantitative revenue or earnings guidance is provided.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $7.48 million | $6.72 million |
| Operating loss | $7.48 million | $6.72 million |
| Interest expense | $1.33 million | $173,027 |
| Net loss | $8.81 million | $6.90 million |
| Cash used in operating activities | $4.50 million | $4.75 million |
| Cash used in investing activities | $1.03 million | $1.93 million |
| Cash provided by financing activities | $4.68 million | $2.00 million |
With no revenue, gross margin and operating margin are not meaningful. The increased net loss primarily reflects higher operating expenses and substantially higher interest expense. Depreciation and amortization rose to $1.84 million from $992,000, largely due to amortization of capitalized app development costs. Sales and marketing expense fell 34.5% to $1.10 million; research and development rose 19.3% to $781,000; general and administrative expense rose 11.0% to $3.58 million.
At December 31, 2023, cash was $804,556, total assets $4.40 million, total liabilities $3.98 million and stockholders’ equity $420,420. The company reported a working-capital deficiency of approximately $3.1 million. Related-party secured bridge notes had $3.025 million principal outstanding, with accrued interest contributing to accounts payable and accrued liabilities of $912,000. The notes are secured by substantially all company assets.
After year-end, Auddia reported approximately $3.6 million of financing proceeds from White Lion equity-line sales through March 19, 2024, in exchange for 1.34 million shares. At March 31, 2024, it reported approximately $2.8 million cash and approximately $4.0 million debt due, and was seeking refinancing and additional capital. The filing warns that further equity issuance may significantly dilute shareholders.
Material changes, risks and unusual items
- The independent auditor expressed substantial doubt about Auddia’s ability to continue as a going concern. Year-end cash was expected to fund operations only into February 2024; financing secured afterward was expected to extend operations into the second quarter, subject to assumptions and further funding needs.
- Net loss increased by $1.91 million year over year. Interest expense increased by $1.16 million, associated with secured bridge notes, including imputed interest and debt issuance costs. The notes’ interest rate increased to 20% following extensions.
- Auddia completed a 1-for-25 reverse stock split effective February 26, 2024. The filing retrospectively adjusts share and per-share data for the split. The company reported 2,194,196 common shares outstanding as of March 29, 2024.
- Nasdaq granted an extension through April 22, 2024 to demonstrate continued-listing compliance. The company regained compliance with the minimum bid-price requirement in March 2024, but still needed to meet the stockholders’ equity requirement.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end. Unremediated material weaknesses include insufficient qualified accounting personnel, inadequate segregation of duties, and insufficient written accounting and reporting procedures. Remediation efforts were ongoing.
- Key business risks include obtaining capital, converting users into paying subscribers, competition, software reliability and cybersecurity, privacy regulation, intellectual-property protection, and uncertainty around copyright and the legality of recording or altering radio streams. The company also notes that content rights and licensing costs could affect product availability and economics.
- A pre-IPO investor asserted damages of less than approximately $300,000; no complaint had been filed, and the company said the outcome was not probable or estimable. The filing reports no active litigation as of issuance and no material legal proceeding expected by management to materially affect results.
- Inflation increased employee compensation and outside-service costs; management expected continued pressure in 2024. No dividends are anticipated in the foreseeable future.
Important facts for investors to verify
- Whether Auddia has secured enough financing to meet near-term obligations, refinance the related-party notes and fund operations beyond the second quarter of 2024.
- Current debt balances, maturity and repayment terms, accrued interest, and the status of any proposed debt-to-equity conversion.
- Nasdaq compliance with the stockholders’ equity requirement and the resulting listing status.
- White Lion equity-line availability, subsequent share issuance or resales, and the fully diluted share count after the reverse split.
- Actual faidr adoption, subscriber conversion, retention, product-launch progress and the first revenue generated from subscriptions or podcast monetization.
- Progress remediating material weaknesses and the effect of continued software capitalization and amortization on reported results.