Auddia Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Auddia is developing audio products, including the faidr app for commercial-free AM/FM radio, podcasts and exclusive content, and a podcasting platform. The filing reports no revenue in either 2023 or the comparable 2022 periods.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $1.78 million | $2.05 million | $3.63 million | $3.80 million |
| Operating loss | $1.78 million | $2.05 million | $3.63 million | $3.80 million |
| Interest expense | $538,572 | $2,023 | $846,478 | $3,035 |
| Net loss | $2.32 million | $2.05 million | $4.48 million | $3.80 million |
| Basic and diluted loss per share | $(0.15) | $(0.16) | $(0.32) | $(0.30) |
With no revenue, a meaningful profit margin cannot be calculated. At June 30, cash was $3.61 million, versus $1.66 million at December 31, 2022. Total assets were $7.71 million; current liabilities were $3.38 million, including $2.84 million of related-party notes payable, net of debt issuance costs. Management reported a working-capital deficit of approximately $0.4 million. Shareholders’ equity was $4.33 million, and accumulated deficit was $76.21 million.
For the first six months, operating cash use was $2.21 million, investing cash use was $529,503, and financing cash provided was $4.69 million. Financing included $4.02 million of net proceeds from common-share issuance and $750,000 of related-party debt proceeds. Software development costs of $529,503 were capitalized. The filing does not report a meaningful gross margin because revenue was zero.
Changes versus the prior comparable period
- First-half net loss increased by $674,530 to $4.48 million, despite operating expenses declining by $168,913. The increase primarily reflects $843,443 more interest expense, including debt-related finance charges.
- Q2 net loss increased by $272,477. Operating expenses fell by $264,072, mainly as sales and marketing fell 70% to $223,760 after prior-year national-launch spending. Higher amortization and interest expense partly offset those savings.
- First-half depreciation and amortization nearly doubled to $885,653, largely reflecting amortization of the faidr and podcasting apps. First-half research and development expense rose 30% to $390,489.
- Cash increased by $1.94 million from year-end, principally because of equity and debt financing; operating and investing activities continued to consume cash.
- Common shares outstanding increased from 12.65 million at December 31, 2022 to 19.95 million at June 30, 2023. The company issued shares through its White Lion equity line and a June offering.
Outlook, risks and unusual items
- Going concern and funding: The company states that recurring losses and its need for additional financing raise substantial doubt about its ability to continue as a going concern within one year after issuance of the financial statements. Management says June 30 cash was insufficient to execute its business plan and expected cash to be depleted by November 2023 absent additional funding. It cited the White Lion equity line and other potential financing but gave no assurance of success.
- Debt: Related-party bridge notes are secured by substantially all company assets. The prior note’s maturity was extended to November 2023 at 20% interest. The April 2023 note was extended on July 31 to November 30, 2023; its rate increased to 20% effective August 1. Warrants became exercisable in connection with the extensions.
- Product and commercialization: Management expects continued spending on product development, marketing and operations. Initial podcast monetization features were expected to become commercially available before the end of 2023. No revenue or profitability guidance was provided.
- Potential acquisitions: The company said it was in advanced discussions regarding two potential AM/FM streaming properties and was targeting one or more agreements. Such transactions would require additional funding; completion is not assured.
- Nasdaq listing: June 30 equity of $4.33 million exceeded the $2.5 million continued-listing equity minimum. A separate minimum-bid-price deficiency remained, with an initial cure deadline of October 23, 2023; the company said it was considering options, potentially including a reverse split. Nasdaq also notified the company in August of a periodic-report filing delinquency; the company expected this filing to restore compliance.
- Controls and contingencies: Management concluded disclosure controls were not effective at a reasonable-assurance level due to material weaknesses, while remediation remained in progress. A pre-IPO investor asserted damages of less than approximately $300,000; no complaint had been filed, and the outcome was not considered probable or estimable. Management disclosed no active litigation as of the financial statements’ issuance date.
- Other risks: Management cited inflation-related cost pressure, limited operating history, dependence on future financing, product-market acceptance, competition, cybersecurity and privacy risks, and execution and integration risks related to acquisitions.
Important facts for investors to verify
- Whether the company obtained sufficient new financing to fund operations beyond its stated November 2023 cash-runway estimate, and the resulting dilution and financing terms.
- Whether the related-party notes were repaid, converted or further extended, and the resulting interest, warrant and collateral obligations.
- Whether faidr and podcast monetization launched as expected and began generating material revenue, subscribers and cash receipts.
- Whether Nasdaq bid-price and periodic-report filing requirements were met, and whether the company remains listed.
- Whether material weaknesses in financial reporting controls were remediated and independently assessed.
- Whether any acquisition discussions resulted in a transaction and how it was funded.