Auddia Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter report. The filing was signed March 23, 2023.
Business context
Auddia is an early-stage audio technology company developing faidr, an app combining AM/FM radio, podcasts and exclusive audio programming, and a podcast platform. The company launched faidr nationally in February 2022. It reported no revenue in either 2022 or 2021 while developing and marketing its products.
Financial results and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $6.72 million | $5.57 million |
| Operating loss | $6.72 million | $5.57 million |
| Net loss | $6.90 million | $13.48 million |
| Cash used in operating activities | $4.75 million | $5.47 million |
| Cash used in investing activities | $1.93 million | $1.55 million |
- Cash at year-end was $1.66 million, down from $6.35 million in 2021. Management estimated this would fund current operating plans only into the second quarter of 2023.
- Working capital was deficient by approximately $600,000. Total assets were $6.11 million; current liabilities were $2.26 million; shareholders’ equity was $3.85 million.
- Accumulated deficit was $71.74 million. No meaningful operating margin can be assessed because revenue was zero.
- Software development costs of $1.93 million were capitalized in 2022; net software development assets were $4.13 million at year-end. The auditor identified impairment assessment of these assets as a critical audit matter.
- The company reported $1.78 million of net carrying value for its secured bridge note at year-end. The note has $2.2 million principal, bears 10% interest, is secured by substantially all company assets and matures May 31, 2023. It may be extended to November 30, 2023, at 20% interest, with additional warrants.
Changes versus the prior year
- Operating expenses rose approximately 21%, chiefly reflecting higher sales and marketing expense (up 126%), research and development (up 64%), and depreciation and amortization. General and administrative expense fell 21%.
- Net loss narrowed by $6.58 million, largely because 2021 included an $8.14 million finance charge related to debt converted in connection with the IPO. The 2022 operating loss increased by $1.15 million.
- Cash used in operations declined by approximately $719,000, while investing cash outflow rose by approximately $378,000. Financing provided $2.0 million in 2022, versus $13.25 million in 2021, which included IPO proceeds and warrant exercises.
- In November 2022, the company also entered a stock purchase agreement giving it the option, subject to conditions and limits, to sell up to $10 million of stock to White Lion Capital through December 2023. The agreement includes a 2,501,700-share cap absent stockholder approval and an issue price tied to trading prices.
Outlook, risks and unusual items
- Going concern: The auditor’s report and management disclosures state that recurring losses, working-capital deficiency and the need for additional financing raise substantial doubt about the company’s ability to continue as a going concern. Management planned to seek funding; failure to obtain it could force delays, reductions or termination of development and commercialization.
- Product traction: The filing cites March 2023 company-reported results: a 10% subscription conversion rate in the iOS app during the first 45 days after subscriptions launched, faidrRadio at 33% of app plays, and progress toward a mid-2023 cost-per-install target of $1.80. These are post-period operating claims, not audited financial results.
- Funding and dilution: The bridge note is with a significant existing shareholder and carries collateral, conversion and warrant provisions. The White Lion facility is not committed funding available without conditions; sales are subject to volume, price, ownership and share-count limits. Additional financing may dilute shareholders or be unavailable on acceptable terms.
- Legal and content risks: The business depends on music licensing and its interpretation of consumer time-shifting rights. Copyright or other claims could require feature changes, licenses or payments. A pre-IPO investor asserted damages of less than approximately $300,000; no complaint had been filed, and the company said it believes it has a meritorious defense.
- Controls: Management concluded disclosure controls were ineffective due to material weaknesses in financial reporting controls that remained unremediated at December 31, 2022. Remediation documentation and testing were still in progress. The auditor did not audit or opine on internal-control effectiveness.
- Other key risks: No revenue yet; limited operating history; competition; ability to acquire and retain users and podcasters; software reliability and cybersecurity; privacy regulation; intellectual-property protection; and potential Nasdaq listing and capital-raising challenges.
- No specific financial guidance was provided. Management expected continued losses and cash needs while it developed, marketed and sought to scale faidr and the podcast platform.
Important facts for investors to verify
- Cash runway and whether the company raised additional capital after year-end; verify the status and repayment, extension or conversion of the May 2023-maturity bridge note.
- Actual paid subscriber counts, retention, subscription revenue, user acquisition costs and whether the reported early conversion and play-share metrics persisted beyond the initial period.
- Terms, availability and actual use of the White Lion equity facility, including remaining share-cap capacity and potential dilution.
- Progress on content licenses and legal exposure relating to faidr’s recording, buffering and ad-skipping features.
- Whether financial-reporting material weaknesses were remediated and whether software development assets remain recoverable based on actual commercial performance.