Auddia Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited U.S. GAAP financial statements. Auddia develops audio products including Faidr, an ad-free AM/FM radio app, and Vodacast, a podcasting platform.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $1.75 million | $0.87 million; up $0.88 million |
| Operating loss | $1.75 million | $0.87 million |
| Net loss | $1.75 million | $9.30 million |
| Basic and diluted loss per share | $0.14 | $1.72 |
| Net cash used in operations | $1.23 million | $1.83 million |
| Cash used in investing | $0.67 million | $0.30 million |
- Cash was $4.36 million at March 31, 2022, down from $6.35 million at December 31, 2021. Total assets were $8.18 million; current liabilities were $269,340; shareholders’ equity was $7.92 million.
- No debt balance is reported at quarter-end. The bank line of credit was repaid and terminated in July 2021.
- Capitalized software development costs were $661,214 in Q1; net software development assets were $3.66 million. Depreciation and amortization expense was $176,127.
- No gross margin or operating margin is meaningful to assess because the company reported no revenue.
Material changes and unusual items
- Operating expenses increased 102% year over year. Sales and marketing rose to $357,066, research and development to $148,763, and general and administrative expense to $1.02 million. Management attributed increases primarily to product promotion, added development staffing, and share-based compensation.
- Net loss improved by $7.54 million year over year, principally because Q1 2021 included an $8.14 million noncash finance charge related to debt converted to equity in connection with the February 2021 IPO. The smaller Q1 2022 loss does not reflect revenue growth.
- Share-based compensation expense increased to $385,908 from $16,131. The company issued 98,355 shares through exercises/settlements during the quarter; 12,514,763 shares were outstanding at March 31, 2022.
Outlook, risks, and contingencies
- Faidr launched with major U.S. radio stations on February 15, 2022, with a 90-day free trial. Management expected to begin converting users to paid subscribers in Q2 and stated it expected to begin generating product revenue in Q3 2022.
- Management estimated that cash on hand would fund current operating plans through at least December 31, 2022, but cautioned that assumptions may prove wrong and additional capital may be needed. It expected operating losses, operating cash use, development spending, and marketing expenses to increase.
- Key execution risks include monetizing Faidr and Vodacast, user and podcaster acquisition and retention, competition, product and technology risks, and ability to raise capital. The company reported an accumulated deficit of $66.6 million.
- Disclosure controls were not effective at a reasonable assurance level due to material weaknesses in financial reporting controls, including insufficient accounting resources and inadequate segregation of duties. Remediation was underway but the weaknesses were not yet considered remediated.
- Management reported no litigation believed likely to have a material adverse effect, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements. Contractual commitments listed were $58,903 for the office lease and $275,504 for insurance premiums, all due within one year.
Important facts for investors to verify
- Whether Faidr began converting trial users to paying subscribers in Q2 and generated revenue in Q3 as management expected.
- Cash burn and financing needs against management’s estimated runway through year-end 2022.
- Progress in remediating the material weaknesses in internal control over financial reporting.
- Recoverability and useful-life assumptions for the $3.66 million net software development asset, as well as future amortization and impairment risk.
- Potential dilution: 4,172,099 warrants and 6,248,131 potentially dilutive weighted-average shares were reported as outstanding or excluded from diluted loss per share, respectively.