Auddia Inc. — Q3 2021 Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2021; unaudited. Auddia is developing AI-based audio products, including the Auddia commercial-free AM/FM listening app and the Vodacast podcast platform. The company had phased out its legacy radio platform by August 2020.
Financial performance and liquidity
| Metric | Three months ended September 30, 2021 | Nine months ended September 30, 2021 | Comparable 2020 period |
|---|---|---|---|
| Revenue | $0 | $0 | $1,040 and $110,919, respectively |
| Operating expenses | $2.05 million | $3.92 million | $0.49 million and $2.21 million, respectively |
| Operating loss | $2.05 million | $3.92 million | $0.49 million and $2.10 million, respectively |
| Net loss | $2.05 million | $12.10 million | $0.93 million and $3.48 million, respectively |
| Operating cash used | Not presented for the quarter | $4.32 million | $1.60 million for nine months |
- At September 30, cash was $8.08 million, total assets $10.94 million, current liabilities $625,197, and stockholders’ equity $10.32 million. Implied working capital was approximately $7.46 million.
- Cash increased from $117,914 at December 31, 2020. Nine-month investing cash use was $967,425, including $904,957 capitalized software development costs; financing provided $13.25 million.
- There was no line-of-credit balance at quarter-end, following repayment and termination in July 2021. The balance had been $6.0 million at year-end 2020. The remaining balance-sheet debt was a $267,482 PPP loan, subsequently forgiven in November 2021.
- No meaningful gross margin is available for the current period because revenue was zero. Management reported an accumulated deficit of $63.46 million.
Material changes versus 2020
- Revenue fell to zero after the legacy platform was discontinued; Auddia had not yet established material revenue from its new apps.
- Q3 operating expenses increased by $1.57 million year over year, mainly from higher general and administrative expenses, including $735,592 of stock-based compensation, and increased sales and marketing.
- Nine-month net loss rose by $8.62 million, primarily reflecting an $8.14 million finance charge recognized on conversion of debt to equity at the IPO. The charge was noncash; the cash-flow statement adds it back in reconciling net loss to operating cash use.
- The February 2021 IPO and July warrant exercises raised equity capital; debt obligations were converted into shares, and the company repaid its credit line. Shares outstanding rose to 12,414,638 from 485,441 at year-end 2020.
Outlook, risks and unusual items
- Auddia began a consumer trial in July 2021 in southern Virginia and northern North Carolina, with additional trials planned for Q4 2021. Management said it was training its AI technology and anticipated a national station launch once training was complete.
- Vodacast was available in app stores; management reported achieving a minimum viable product in Q3 and expected monetization features to become available in late 2021 and 2022. These are forward-looking expectations, not reported results.
- Management believed cash would fund operating and capital needs for at least 12 months from September 30, 2021, but cautioned that its estimates rely on assumptions and that additional financing may be needed. It expected operating losses and cash use to increase as product development, trials and marketing continued.
- The company reported material weaknesses in internal control over financial reporting, including insufficient accounting resources and inadequate segregation of duties. Disclosure controls were therefore concluded to be ineffective at a reasonable assurance level; remediation was ongoing and not yet complete.
- Other notable items include $2.84 million of unrecognized share-based compensation expected over 46 months, and approximately $7.8 million of cash above FDIC-insured limits at quarter-end. The company reported no known legal proceedings expected to have a material adverse effect and no material changes to its previously disclosed risk factors.
- Key risks include the ability to generate revenue from new services, product adoption and commercialization, access to additional capital, competition, technology and cybersecurity issues, privacy compliance, intellectual property protection, and continued operations.
Important facts for investors to verify
- Whether cash burn and spending plans remain consistent with management’s stated minimum 12-month liquidity outlook.
- Progress and measurable adoption, retention and monetization of the Auddia and Vodacast apps, including timing and scope of any broader launch.
- Whether the internal-control material weaknesses are remediated and controls operate effectively over a sufficient period.
- The dilution implications of common shares, warrants, options and restricted stock units; the filing reported 4.18 million warrants and 1.51 million options outstanding at September 30, 2021.
- Confirmation of the Second PPP loan forgiveness disclosed as a subsequent event in November 2021, and any future financing requirements.