Auddia Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Auddia develops audio products, including the faidr app for commercial-free AM/FM radio, podcasts and exclusive content, and podcast creation and monetization tools. The financial statements are unaudited.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $1.830 million | $1.328 million | $5.461 million | $5.129 million |
| Operating loss | $1.830 million | $1.328 million | $5.461 million | $5.129 million |
| Interest expense | $287,000 | $2,000 | $1.133 million | $5,000 |
| Net loss | $2.116 million | $1.330 million | $6.595 million | $5.134 million |
| Basic and diluted loss per share | $(0.11) | $(0.11) | $(0.41) | $(0.41) |
With no revenue, a revenue margin comparison is not meaningful. Q3 operating expenses rose 38% year over year; nine-month expenses rose 6%. Higher amortization and general and administrative expense contributed to the increases. Nine-month sales and marketing expense declined 45%, primarily reflecting lower launch-related staffing, consulting and promotional costs.
- Cash and liquidity: Cash was $2.20 million at September 30, 2023, versus $1.66 million at December 31, 2022. The company reported a working capital deficit of approximately $1.4 million.
- Cash flow, nine months: Operating activities used $3.405 million and investing activities used $743,000, mainly for capitalized software development. Financing activities provided $4.686 million, mainly from share issuance and related-party debt. Cash increased by $538,000.
- Debt: Current related-party notes, net of issuance costs, totaled $2.994 million. The notes are secured by substantially all company assets. The prior note carries a 20% stated rate after extension; the newer note was extended to November 30, 2023, and its rate increased to 20% under the extension terms.
- Balance sheet: Total assets were $6.042 million, total liabilities $3.627 million and shareholders’ equity $2.415 million. Capitalized software costs, net, were $3.546 million.
- Equity and dilution: Shares outstanding were 19.947 million at September 30, compared with 12.655 million at December 31, 2022. The company also reported 5.422 million warrants outstanding.
Material changes, outlook and risks
- Revenue remained zero in both comparable periods, although faidr was available through app stores and podcasts were added to its iOS and Android apps. Management expected the first elements of podcast monetization to be commercially available before the end of 2023; the filing gives no revenue forecast or profitability target.
- Management stated that September cash was expected to fund current operating plans only into February 2024. It said additional funding is required, and that failure to obtain financing could force delays, reductions or elimination of development and commercialization efforts. The filing raises substantial doubt about the company’s ability to continue as a going concern within one year after issuance.
- On November 6, 2023, Auddia entered a replacement White Lion equity facility allowing, but not requiring, the company to sell up to $10 million of shares through December 31, 2024, subject to contractual limitations and conditions. The filing does not establish that this amount will be available or sufficient.
- Management said it was in advanced discussions regarding two potential audio-streaming acquisition targets and was seeking to complete one or more transactions. Such transactions would require additional funding; there is no assurance they will occur.
- Nasdaq confirmed the company had regained compliance with the stockholders’ equity requirement. Separately, after failure to meet the $1.00 minimum bid-price requirement, Nasdaq issued a delisting determination on October 24, 2023. Auddia requested a hearing; trading was to continue while the appeal was pending, with a hearing expected in mid-January 2024.
- Disclosure controls and procedures were deemed ineffective at a reasonable assurance level because of material weaknesses in internal control over financial reporting. Management described remediation efforts but said further implementation and assessment were needed.
- A pre-IPO investor asserted damages of less than approximately $300,000; no complaint had been filed, and the outcome was neither probable nor estimable. Management reported no active litigation as of the financial statements’ issuance.
- Management cited inflationary cost pressures, financing needs, limited operating history, product commercialization and market-acceptance risks, and execution and integration risks from potential acquisitions. It reported no software impairment for the periods presented.
Most important facts for investors to verify
- Whether Auddia secured sufficient financing after the reported cash runway, including actual availability and use of the White Lion facility.
- Repayment, extension or refinancing of the secured related-party notes that were due November 30, 2023, and the associated interest and warrant terms.
- The outcome of the Nasdaq bid-price appeal and the company’s continued listing status.
- Whether faidr and podcast products generate paying users and revenue, and whether the stated monetization plans were achieved.
- Progress in remediating internal-control material weaknesses and any resulting changes to reporting reliability.
- Potential dilution from further equity financing, outstanding warrants and other share-based awards.