Auddia Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; financial statements are unaudited. Auddia develops an AI-enabled audio platform and the faidr app, combining AM/FM radio, podcasts and other audio features.
Financial results and position
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $2.05 million | $1.85 million; up 11.2% |
| Operating loss | $2.05 million | $1.85 million |
| Interest expense | $153,000 | $308,000 |
| Net loss | $2.21 million | $2.16 million; loss increased 2.4% |
| Basic and diluted loss per share | $1.98 | $4.23 |
| Cash used in operating activities | $1.41 million | $1.07 million |
| Cash used in investing activities | $273,000 | $271,000, all for software development |
| Cash at period end | $2.73 million | $805,000 at December 31, 2023 |
With no revenue, gross margin is not meaningful. General and administrative expense rose 30.6% to $1.21 million, primarily reflecting higher accounting and legal fees tied to acquisition reviews and regulatory filings. Sales and marketing declined 35.0%, while research and development declined 21.2%. The lower interest expense mainly reflects that the prior-year period included amortization of debt discount.
At March 31, 2024, total assets were $6.23 million, total liabilities $4.28 million, and shareholders’ equity $1.95 million. Current liabilities were $4.20 million, including $3.03 million of related-party notes payable; management reported working capital deficit of approximately $1.4 million. Capitalized software development costs, net, were $3.14 million. The filing states that cash on hand was expected to fund current operating plans only into Q3 2024.
Material changes, financing and subsequent events
- Q1 financing activities generated $3.61 million from White Lion equity-line share sales. The company issued 1.34 million shares during the quarter; its replacement equity line permits up to $10 million in purchases, subject to limitations, and may substantially dilute existing holders.
- After quarter-end, the company reported approximately $3.56 million of additional financing from further White Lion sales and an April preferred-stock financing. On April 23, it received $2.314 million gross for Series B convertible preferred stock and issued warrants for 1,250,137 common shares, both initially priced at $1.851 per share.
- On April 26, the company repaid $2.75 million of bridge-note principal. Under an April 9 agreement, $911,384 of accrued interest and original issue discount was converted into prefunded and non-prefunded warrants; the investor also received 50,000 fee warrants, and existing warrant exercise prices were reduced. The filing does not clearly state the remaining debt balance after these transactions.
- A 1-for-25 reverse stock split took effect February 26, 2024; share and per-share data were retrospectively adjusted. Shares outstanding were 2,194,196 at March 31 and 2,794,196 as of May 13.
- The company terminated its January agreement to acquire RadioFM in March. Management said it remained in advanced discussions with two potential acquisition targets; such transactions would require additional funding.
Outlook, risks and unusual matters
- Going concern: Recurring losses, expected cash depletion during Q3 2024 and dependence on additional financing raise substantial doubt about the company’s ability to continue as a going concern within one year after issuance of the financial statements. Management cited the White Lion equity line and potential future financings but gave no assurance of success.
- Nasdaq listing: The company regained compliance with the minimum bid-price requirement in March but still had to meet the $2.5 million equity requirement. Nasdaq extended the deadline to demonstrate equity compliance to May 20, 2024. Management believed recent financing would restore compliance; the filing does not establish that compliance was achieved.
- Product plans: Management expected to add podcast ad-reduction and monetization features to faidr during 2024. The filing gives no revenue guidance or assurance of commercial adoption.
- Other risks: The company cited substantial future funding needs, product-market acceptance, competition, inflationary cost pressure, software-development recoverability, cybersecurity and privacy risks, and potential dilution. Approximately $2.5 million of cash exceeded FDIC-insured limits at quarter-end.
- Contingency: A pre-IPO investor asserted potential damages of less than approximately $300,000; no complaint had been filed, the outcome was not considered probable or estimable, and no accrual was recorded.
- Controls: Management concluded disclosure controls were not effective at a reasonable assurance level because of material weaknesses in internal control over financial reporting. Remediation was underway but incomplete.
Key facts for investors to verify
- Current cash runway and financing needs, including the impact of post-quarter-end debt repayment and equity issuances.
- Remaining bridge-note obligations and the terms, potential dilution and exercise restrictions attached to the investor warrants and Series B securities.
- Whether Nasdaq equity compliance was achieved by the extended deadline.
- Progress toward monetizing faidr and podcasts, and whether product development costs remain recoverable.
- Whether internal-control material weaknesses are fully remediated and whether the company can sustain operations without further financing.