Auddia Inc. 2022 Third-Quarter Form 10-Q Summary
Business context and reporting period
This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2022. Auddia is developing audio products, principally Faidr, an ad-free, personalized AM/FM radio app, and Vodacast, a podcasting platform. Faidr launched nationally in February 2022; the company reported no revenue in either the third quarter or first nine months of 2022.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $1.33 million | $2.05 million | $5.13 million | $3.92 million |
| Operating loss | $1.33 million | $2.05 million | $5.13 million | $3.92 million |
| Net loss | $1.33 million | $2.05 million | $5.13 million | $12.10 million |
| Basic and diluted loss per share | $0.11 | $0.17 | $0.41 | $1.25 |
- Quarterly operating expenses declined 35% year over year, mainly due to lower general and administrative costs. Sales and marketing and R&D rose, as did depreciation and amortization following the start of software amortization.
- Nine-month operating expenses increased 31% year over year. Sales and marketing rose to $1.40 million from $0.47 million, R&D to $0.48 million from $0.26 million, and depreciation and amortization to $0.72 million from $0.08 million; G&A declined to $2.40 million from $2.95 million.
- Nine-month net loss improved primarily because the prior-year period included an $8.14 million debt-conversion finance charge and a $0.27 million PPP loan extinguishment gain. The 2022 operating loss was higher despite the lower net loss.
- Cash was $0.96 million at September 30, 2022, down from $6.35 million at December 31, 2021. Working capital was approximately $0.58 million, based on current assets of $1.01 million and current liabilities of $0.43 million. Stockholders’ equity was $4.77 million; accumulated deficit was $69.97 million.
- For the first nine months, operating cash outflow was $3.62 million, investing cash outflow was $1.68 million, and financing cash outflow was $0.09 million. Investing outflow chiefly reflected $1.67 million of capitalized software development. The company reported no revenue-based margins.
- At quarter-end, liabilities included $315,599 of accounts payable and accrued liabilities and a $119,388 share-based compensation liability. The filing reports the prior bank line of credit was repaid and terminated in 2021; it reports no outstanding borrowing balance at September 30, 2022.
Material developments, outlook, and risks
- Management said it began subscription trials with some Faidr users in late Q2 and continued trials in early Q4. It expected to provide initial subscription metrics in Q4 2022 and anticipated beginning subscription conversion during 2023. These are expectations, not reported results or formal financial guidance.
- The company reported cost-saving measures, including reduced headcount and lower promotional activity, intended to reduce quarterly cash spend to approximately $1.0 million. Management said cash at September 30 was expected to fund operations through at least December 31, 2022, while the later financing arrangements were expected to extend funding. Estimates depend on assumptions and actual cash use could be higher.
- On November 14, 2022, after quarter-end, Auddia entered a secured financing with a current stockholder: $2.2 million face value, $2.0 million net proceeds, 10% interest, and maturity May 31, 2023, extendable at the company’s option to November 30, 2023. The note includes 300,000 warrants with an exercise price set at 150% of the most recent closing price.
- Also on November 14, Auddia entered an equity-line agreement for up to $10 million of potential stock sales, subject to limitations, at the company’s option through December 31, 2023. The company said the financing arrangements should support operations through Q3 2023, while noting further funding may be needed.
- Capitalized software development costs totaled $4.14 million net at quarter-end. Recoverability depends on anticipated future revenues and technology changes; impairment could be recorded if expected future net revenues do not support the carrying amount.
- Management concluded disclosure controls were not effective at a reasonable assurance level because of unremediated material weaknesses in financial reporting controls, including insufficient accounting expertise and inadequate segregation of duties. Remediation efforts were ongoing and were not yet considered complete.
- The company identified risks including continued losses and cash needs, uncertain product adoption and subscription revenue, limited operating history, competition, technology and cybersecurity risks, and dependence on additional financing. It reported no material changes to the risk factors in its 2021 Form 10-K and no legal proceedings believed likely to have a material adverse effect.
Important facts for investors to verify
- Whether Faidr trials convert into paying subscriptions and whether any revenue was generated after the filing’s stated expectation of Q4 2022.
- Actual cash burn and runway compared with management’s approximately $1.0 million quarterly cash-spend estimate and Q3 2023 funding expectation.
- Whether the $10 million equity line can be drawn, on what terms, and how much dilution it may cause; also review the secured note’s repayment and warrant terms.
- Progress in remediating the material weaknesses and evidence that revised financial controls are operating effectively.
- Recoverability of capitalized software costs and the effect of continued development spending and amortization on future results.