AUDDIA INC. quarterly report, Q2 FY2021

Auddia Inc. — Q2 2021 Form 10-Q Summary

Reporting period: Quarter and six months ended June 30, 2021. Unaudited. Auddia is developing audio products; it phased out its legacy interactive radio platform by August 2020 and had not yet generated revenue from its new products during the periods reported.

Financial performance and position

Metric	Q2 2021	Six months 2021	Comparable 2020 period
Revenue	$0	$0	$45,103; $109,879
Operating expenses	$1.00 million	$1.87 million	$890,916; $1.79 million
Operating loss	$1.00 million	$1.87 million	$845,813; $1.68 million
Net loss	$753,521	$10.05 million	$1.32 million; $2.55 million
Net loss per share, basic and diluted	$0.07	$1.20	$2.73; $5.35
Cash used in operating activities	Not separately presented	$3.13 million	$1.22 million
Cash used in investing activities	Not separately presented	$575,373	$376,125

For each row with two comparable-period figures, the first is Q2 2020 and the second is the six months ended June 30, 2020. Gross margin is not meaningful because current-period revenue was zero.

At June 30, cash was $4.58 million, with a further $2.00 million restricted as collateral; total cash and restricted cash was $6.58 million. Current assets were $6.58 million and current liabilities $2.67 million. The company had $2.00 million outstanding on a fully drawn line of credit and a $267,482 PPP loan. Equity was $6.56 million, versus a $13.10 million deficit at December 31, 2020; accumulated deficit stood at $61.41 million.

Six-month financing cash inflow was $10.17 million, mainly from IPO proceeds, partly offset by debt repayments. The company capitalized $551,538 of software development costs. The six-month net loss included an $8.14 million noncash finance charge associated with conversion of pre-IPO debt to equity. Accordingly, the sharp year-over-year rise in six-month net loss does not reflect operating expenses alone.

Material changes and transactions

In February 2021, the IPO raised approximately $15.1–$15.2 million net, according to differing figures in the filing. The company issued 3,991,818 units and used proceeds in part to repay $4.00 million of bank debt, reduce payables, and pay deferred compensation.
Pre-IPO convertible notes, related-party notes and promissory notes converted into common shares at the IPO. The filing reports 6,814,570 shares issued for conversion in the equity statement; other transaction disclosures describe 7,300,010 shares for conversion of pre-IPO securities. Investors should verify the differing totals and scope.
Common shares outstanding rose from 485,441 at December 31, 2020 to 11,291,829 at June 30, 2021. The IPO also created substantial potential dilution: 5,268,270 warrants were outstanding at June 30, 2021.
In July, holders exercised approximately 1.1 million Series A warrants for approximately $5.0 million. The company also paid off and terminated its $2.0 million line of credit, releasing restricted cash. Management reported approximately $9.4 million of unrestricted cash after these transactions.
The first PPP loan, $268,662, was forgiven in June and recorded as other income. The company planned to seek forgiveness of the second $267,482 PPP loan; forgiveness was not assured.

Outlook, risks and unusual items

The Auddia app is intended to offer commercial-free, personalized AM/FM listening through a subscription model. The company completed MVP development and began a consumer trial in July 2021; it anticipated further trials in Q3 and a full commercial launch later in 2021. Vodacast was available in app stores, with additional monetization features expected from late 2021 into 2022.
Management expected operating losses and operating cash use to increase as it develops and markets the apps. It believed IPO proceeds and July warrant proceeds would fund current plans for at least 12 months, but cautioned that assumptions could prove wrong and additional capital might be needed sooner.
Key risks include the lack of established revenue from new products, limited operating history, execution and market-acceptance uncertainty, competition, capital needs, cybersecurity and privacy exposure, intellectual-property protection, and COVID-19 effects.
Disclosure controls were assessed as not effective at a reasonable-assurance level. Material weaknesses in financial reporting controls remained unremediated, including insufficient accounting resources and inadequate segregation of duties. Management described remediation efforts, but said additional time was needed to implement and assess controls.
Operating expenses increased year over year in Q2, particularly general and administrative costs associated with becoming a public company. Sales and marketing costs also rose. Research and development expense fell partly because more development costs were capitalized; the filing said amortization of capitalized costs would commence after the Auddia MVP was finalized.
The company reported no known legal proceedings expected to have a material adverse effect and no material changes to the risk factors in its 2020 Form 10-K.

Important facts for investors to verify

Whether Auddia can convert consumer trials into a commercial launch, paying subscribers and recurring revenue, and whether Vodacast can attract podcasters and listeners.
Cash runway and future financing needs against ongoing losses, rising planned development and marketing spending, and the company’s 12-month liquidity estimate.
The post-June cash position, including the July warrant proceeds, line-of-credit repayment and release of restricted cash; confirm subsequent cash use and remaining debt, including the second PPP loan.
The amount, recoverability and future amortization or impairment risk of capitalized software development costs ($2.39 million net at June 30).
Potential dilution from outstanding warrants and options, and reconciliation of the filing’s differing share-conversion figures.
Whether management remediates the disclosed material weaknesses and establishes effective disclosure and financial-reporting controls.