Auddia Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The filing was signed May 14, 2021. Auddia is developing audio products; its legacy interactive radio platform had ceased operations by August 2020.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $0 | $64,776 |
| Operating expenses | $867,740 | $897,219 |
| Operating loss | $867,740 | $832,443 |
| Other expense | $8,428,758 | $400,548 |
| Net loss | $9,296,498 | $1,232,991 |
| Net loss per share, basic and diluted | $1.72 | $2.62 |
| Net cash used in operating activities | $1,827,455 | $530,096 |
| Net cash used in investing activities | $302,117 | $197,138 |
| Cash and restricted cash at period-end | $8,162,647 | $117,914 at Dec. 31, 2020 |
Revenue and gross margin are not meaningful for Q1 2021 because the company reported no revenue. The prior-year revenue comprised $51,600 of platform fees and $13,176 of third-party digital advertising. The $8.14 million finance charge associated with conversion of debt to equity drove most of the year-over-year increase in net loss; it was added back in the operating cash-flow reconciliation.
At March 31, 2021, total assets were $10.45 million, current liabilities $3.15 million, and shareholders’ equity $7.29 million. Cash included $2.0 million restricted as collateral for the fully drawn $2.0 million bank line of credit; unrestricted cash was $6.16 million. The line bears a variable rate with a 4.0% minimum and was due July 10, 2021. PPP loans totaled approximately $536,000 and remained outstanding. The filing does not provide a clear total-debt figure beyond the listed liabilities.
Material changes and capital transactions
- In February 2021, Auddia completed an IPO of 3,991,818 units at $4.125 each, with one common share and one warrant per unit. The company reported net proceeds of approximately $15.1–$15.2 million.
- IPO proceeds were used in part to repay $4.0 million of the bank line, secure the remaining $2.0 million balance with company cash, reduce accounts payable, and pay deferred compensation.
- Pre-IPO notes, accrued interest and related-party obligations converted into common shares. The statements report 6,814,570 shares issued for debt conversion; common shares outstanding increased from 485,441 at year-end to 11,291,829 at March 31.
- Operating cash use rose to $1.83 million, principally reflecting working-capital changes, including payments of outstanding payables. Software development capitalization was $292,075, versus $194,452 in Q1 2020.
Outlook, risks and unusual items
- Management expected to begin consumer trials of the Auddia app in Q2 2021 and a full commercial launch later in 2021. Vodacast was available in the iOS and Android app stores; planned podcast monetization features were expected from late 2021 into 2022.
- Management said IPO proceeds were expected to fund current plans for at least 12 months, while warning that assumptions could prove wrong and further capital might be needed. It expected operating losses, cash use, product-development spending, and sales, marketing and public-company costs to increase.
- The filing reports no revenue from the new products during the quarter. Ability to launch, attract users and podcasters, establish new revenue streams, and obtain additional financing are key execution and funding risks. Other cited risks include competition, intellectual property, cybersecurity and privacy, personnel, and COVID-19 effects.
- The PPP loans were subject to repayment unless forgiven. The company planned to apply for forgiveness and expected full forgiveness, but gave no assurance of the outcome.
- Disclosure controls were deemed ineffective at a reasonable assurance level. Material weaknesses in accounting resources and segregation of duties remained unremediated at March 31, 2021; remediation efforts were ongoing.
- The filing’s cover page marks “No” for having filed all required reports during the preceding 12 months. Investors should clarify the reason and any filing-compliance implications.
- No material litigation or material changes to previously disclosed risk factors were reported. A new 8,639-square-foot Boulder office lease was signed in April 2021, beginning May 15, with initial monthly base rent of $7,150.
Most important facts to verify
- Whether Auddia met its stated trial and commercial-launch timelines, and whether the apps generated paying users or revenue.
- Cash burn and runway, including the $2.0 million restricted cash balance, upcoming line-of-credit maturity, and any subsequent refinancing or repayment.
- PPP loan forgiveness status and any remaining repayment obligations.
- Progress and independent evidence of remediation of material weaknesses in internal controls.
- The reason for the cover-page “No” response on timely filing history and any related SEC reporting issues.
- Potential dilution from outstanding warrants and options, alongside the substantial increase in shares outstanding following the IPO and debt conversions.