Auddia Inc. — Q1 2023 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2023, compared with Q1 2022. Auddia is developing its faidr audio app and podcasting platform; it reported no revenue in either period.
Financial results and liquidity
- Revenue: $0, unchanged year over year. With no revenue, profit margins are not meaningful.
- Operating expenses: $1.85 million, up $95,158 (5.4%). Operating loss was $1.85 million, versus $1.75 million.
- Net loss: $2.16 million, compared with $1.75 million; loss per share was $0.17 versus $0.14.
- Cash flow: Operating cash used was $1.07 million, versus $1.23 million. Investing cash used was $271,000, primarily capitalized software development; financing cash used was $79,000. Cash declined $1.42 million during the quarter.
- Cash and working capital: Cash was $239,040 at quarter-end, down from $1.66 million at December 31, 2022. Management reported a working-capital deficit of approximately $2.2 million.
- Debt: The secured related-party bridge note had $2.2 million principal, including original issue discount; its balance net of debt issuance costs was $2.03 million. The note is secured by substantially all company assets. Q1 interest expense was $307,906, including $250,941 in debt-related finance charges.
- Assets and equity: Total assets were $4.63 million, including $3.97 million of net capitalized software. Shareholders’ equity was $2.10 million, down from $3.85 million at year-end.
Changes versus Q1 2022
- Net loss widened by $402,054, mainly due to higher amortization and bridge-note-related interest and finance charges.
- Depreciation and amortization increased $266,908 to $443,035 as the faidr and podcasting apps entered amortization.
- Sales and marketing expense fell 37% to $225,118, while research and development expense rose 41% to $210,126. General and administrative expense declined 8.9% to $926,826.
- Operating cash use improved by approximately 13%; software capitalization fell to $270,574 from $661,214.
Outlook, financing, and risks
- Going concern: The company disclosed substantial doubt about its ability to continue as a going concern, citing recurring losses, low cash, and the need for further financing. It said additional funding is needed to complete product development and scale products; failure to raise funds could force delays or cuts.
- Subsequent financing: In April, Auddia received $750,000 gross proceeds from a new secured note and approximately $1.12 million from issuing 1,962,220 shares through its White Lion equity line. Management estimated these proceeds, quarter-end cash, and a potential extension of the prior note would fund operations into Q3 2023; it cautioned that this estimate depends on assumptions that may be wrong.
- The new note has $825,000 principal, a 10% rate, and a July 31, 2023 maturity, with an option to extend to November 30 at 20%. The April financing and amendments also provided for warrants covering 1.25 million shares at $0.61 per share, subject to stated exercisability terms and ownership limits. The prior note’s maturity extension likewise raises its rate to 20%. These terms create refinancing and potential dilution risks.
- Strategy: Auddia said it had begun pursuing acquisitions to accelerate user and revenue growth, with advanced discussions involving three properties. Any acquisition would require additional funding; completion is not assured.
- Controls: Management concluded disclosure controls were not effective at a reasonable assurance level. Previously identified material weaknesses in financial reporting remained unremediated pending sufficient documentation and testing, despite remediation efforts and additional accounting resources.
- Contingency: A pre-IPO investor asserted potential damages of less than approximately $300,000; no complaint had been filed. The company said it believes it has a meritorious defense. It also reported ordinary-course litigation and did not expect current matters to have a material adverse effect.
- No formal revenue or earnings guidance was provided. Management expects operating losses and cash use to increase as it develops and markets its products.
Important facts for investors to verify
- Whether the April financing and subsequent cash use supported the stated runway into Q3 2023, and what additional capital is required.
- Current status, maturity and extension terms of both secured notes, including interest, collateral, and potential share conversion or warrant dilution.
- Progress toward monetization: the company reported zero revenue despite app launches and product additions.
- Status and funding requirements of the three potential acquisition discussions.
- Whether management has documented, tested, and remediated the material weaknesses in internal financial controls.
- Any developments in the investor claim, and the recoverability of capitalized software development costs.