Filed Pursuant to Rule 424(b)(3)
Registration No. 333-275441
PROSPECTUS SUPPLEMENT NO. 5
(To Prospectus Dated February 2, 2024)
AUDDIA INC.
Up to 2,105,263 Shares of Common Stock
This prospectus supplement No. 5 updates, amends
and supplements the prospectus dated February 2, 2024 (the “Prospectus”), relating to the offering and resale by White Lion
Capital LLC (“White Lion” or the “Selling Securityholder”) of up to 2,105,263 shares of our common stock, par
value $0.001 per share.
The shares of common stock being offered by the
Selling Securityholder have been or may be issued and sold to the Selling Securityholder pursuant to the purchase agreement (the “Purchase
Agreement”) effective as of November 6, 2024, that we entered into with White Lion. See “The White Lion Transaction”
in the Prospectus for a description of the Purchase Agreement and “Selling Securityholder” for additional information regarding
White Lion.
This prospectus supplement incorporates into our
prospectus the information contained in our Quarterly Report on Form 10-Q filed with the SEC on August 9, 2024, which is attached.
You should read this prospectus supplement in
conjunction with the Prospectus, including any supplements and amendments thereto. This prospectus supplement is qualified by reference
to the Prospectus except to the extent that the information in the prospectus supplement supersedes the information contained in the Prospectus.
This prospectus supplement is not complete without,
and may not be delivered or utilized except in connection with, the Prospectus, including any supplements and amendments thereto.
You should carefully consider matters discussed under the caption
“Risk Factors” beginning on page 18 of the Prospectus.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of the Prospectus
or this prospectus supplement. Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is August
19, 2024.
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ |
Quarterly REPORT pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|
For the quarterly period ended June 30, 2024 |
|
Or |
|
☐ |
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|
For the transition period from _____________ to _____________ |
Commission File No. 001-40071
AUDDIA INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
|
45-4257218 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
|
|
|
1680 38th Street, Suite 130
Boulder, CO |
|
80301 |
Address of Principal Executive Offices |
|
Zip Code |
(303) 219-9771
(Registrant’s telephone
number, including area code)
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
|
|
|
|
Common Stock, par value $0.001 per share |
|
AUUD |
|
The Nasdaq Stock Market |
|
|
|
|
|
Warrants, each exercisable for one share of Common Stock |
|
AUUDW |
|
The Nasdaq Stock Market |
Indicate by check mark whether the registrant: (1)
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ |
Accelerated Filer ☐ |
Non-accelerated Filer ☒ |
Smaller Reporting Company ☒ |
|
Emerging Growth Company ☒ |
If an emerging growth company, indicate by check mark
if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12(b)-2 of the Exchange Act). Yes ☐ No ☒
As of August 7, 2024, there were 2,794,196
shares of the registrant’s common stock, $0.001 par value per share, outstanding.
AUDDIA INC.
2024 QUARTERLY REPORT ON
FORM 10-Q
TABLE OF CONTENTS
Unless we state otherwise or the context otherwise
requires, the terms “Auddia,” “we,” “us,” “our” and the “Company” refer to
Auddia Inc., a Delaware corporation.
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This Quarterly Report on
Form 10-Q, or Quarterly Report, contains forward-looking statements that involve risks and uncertainties. We make such forward-looking
statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities
laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”,
“expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”,
“predicts”, “potential”, “continue” or the negative of these terms or other comparable terminology.
Forward-looking statements
are neither historical facts nor assurances of future performance, and are based only on our current beliefs, expectations and assumptions
regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future
conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in
circumstances that are difficult to predict and many of which are outside of our control. Therefore, you should not rely on any of these
forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those
indicated in the forward-looking statements include, among others, the following:
|
· |
the sufficiency of our existing cash to meet our working capital and capital expenditure needs over the next 12 months and our need to raise additional capital; |
|
· |
our ability to generate revenue from new software services; |
|
· |
our limited operating history; |
|
· |
our ability to maintain proper and effective internal financial controls; |
|
· |
our ability to continue to operate as a going concern; |
|
· |
changes in laws, government regulations and policies and interpretations thereof; |
|
· |
our ability to obtain and maintain protection for our intellectual property; |
|
· |
the risk of errors, failures or bugs in our platform or products; |
|
· |
our ability to attract and retain qualified employees and key personnel; |
|
· |
our ability to manage our rapid growth and organizational change effectively; |
|
· |
the possibility of security vulnerabilities, cyberattacks and network disruptions, including breaches of data security and privacy leaks, data loss, and business interruptions; |
|
· |
our compliance with data privacy laws and regulations; |
|
· |
our ability to develop and maintain our brand cost-effectively; and |
|
· |
the other factors set forth elsewhere in this Quarterly Report and in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023. |
These forward-looking statements
speak only as of the date of this Form 10-Q and are subject to business and economic risks. We do not undertake any obligation to update
or revise the forward-looking statements to reflect events that occur or circumstances that exist after the date on which such statements
were made, except to the extent required by law.
PART I – FINANCIAL INFORMATION
Item 1. |
Financial Statements |
Auddia Inc.
Condensed Balance Sheets
| |
| | | |
| | |
| |
June
30, 2024 | | |
December 31, 2023 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | |
| |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 1,882,205 | | |
$ | 804,556 | |
Accounts receivable, net | |
| 358 | | |
| 494 | |
Prepaid assets | |
| 121,101 | | |
| 50,608 | |
Other current assets | |
| 17,189 | | |
| 7,150 | |
Total current assets | |
| 2,020,853 | | |
| 862,808 | |
| |
| | | |
| | |
Non-current assets: | |
| | | |
| | |
Property and equipment, net of accumulated depreciation | |
| 13,838 | | |
| 18,099 | |
Intangible assets, net of accumulated amortization | |
| 3,279 | | |
| 3,947 | |
Software development costs, net of accumulated amortization | |
| 2,912,855 | | |
| 3,347,935 | |
Operating lease right of use asset | |
| 88,397 | | |
| – | |
Deferred offering costs | |
| 101,328 | | |
| 170,259 | |
Total non-current assets | |
| 3,119,697 | | |
| 3,540,240 | |
Total assets | |
$ | 5,140,550 | | |
$ | 4,403,048 | |
| |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and accrued liabilities | |
$ | 313,266 | | |
$ | 911,664 | |
Notes payable to related party, net of debt issuance costs | |
| – | | |
| 3,025,000 | |
Current portion of operating lease liability | |
| 23,621 | | |
| – | |
Stock awards liability | |
| 26,276 | | |
| 45,964 | |
Total current liabilities | |
| 363,163 | | |
| 3,982,628 | |
Non-current operating lease liability | |
| 68,825 | | |
| – | |
Total liabilities | |
| 431,988 | | |
| 3,982,628 | |
| |
| | | |
| | |
Commitments and contingencies (Note 5) | |
| – | | |
| – | |
| |
| | | |
| | |
Shareholders' equity: | |
| | | |
| | |
Series B Preferred stock - $0.001
par value, 3,000 authorized and 2,314
and 0
shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | |
| 2 | | |
| – | |
Common stock - $0.001 par value, 100,000,000 authorized and 2,794,196 and 854,162 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | |
| 2,794 | | |
| 854 | |
Additional paid-in capital | |
| 89,759,849 | | |
| 80,962,896 | |
Accumulated deficit | |
| (85,054,083 | ) | |
| (80,543,330 | ) |
Total shareholders' equity | |
| 4,708,562 | | |
| 420,420 | |
Total liabilities and shareholders' equity | |
$ | 5,140,550 | | |
$ | 4,403,048 | |
The accompanying notes are an integral part of these
unaudited condensed financial statements.
Auddia Inc.
Condensed Statements of Operations
(Unaudited)
| |
| | | |
| | | |
| | | |
| | |
| |
Three Months Ended | | |
Six Months Ended | |
| |
June 30, | | |
June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
Revenue | |
$ | – | | |
$ | – | | |
$ | – | | |
$ | – | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Direct cost of services | |
| 50,227 | | |
| 45,038 | | |
| 98,400 | | |
| 87,339 | |
Sales and marketing | |
| 216,868 | | |
| 223,760 | | |
| 363,263 | | |
| 448,879 | |
Research and development | |
| 159,588 | | |
| 180,363 | | |
| 325,095 | | |
| 390,489 | |
General and administrative | |
| 734,325 | | |
| 892,510 | | |
| 1,945,124 | | |
| 1,819,336 | |
Depreciation and amortization | |
| 493,382 | | |
| 442,618 | | |
| 977,128 | | |
| 885,653 | |
Total operating expenses | |
| 1,654,390 | | |
| 1,784,290 | | |
| 3,709,010 | | |
| 3,631,696 | |
Loss from operations | |
| (1,654,390 | ) | |
| (1,784,290 | ) | |
| (3,709,010 | ) | |
| (3,631,696 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other expense: | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (16,647 | ) | |
| (538,572 | ) | |
| (169,355 | ) | |
| (846,478 | ) |
Change in fair value of warrants | |
| (632,388 | ) | |
| – | | |
| (632,388 | ) | |
| – | |
Total other expense | |
| (649,035 | ) | |
| (538,572 | ) | |
| (801,743 | ) | |
| (846,478 | ) |
Loss before income taxes | |
| (2,303,425 | ) | |
| (2,322,862 | ) | |
| (4,510,753 | ) | |
| (4,478,174 | ) |
Provision for income taxes | |
| – | | |
| – | | |
| – | | |
| – | |
Net loss | |
$ | (2,303,425 | ) | |
$ | (2,322,862 | ) | |
$ | (4,510,753 | ) | |
$ | (4,478,174 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per share attributable to common stockholders | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
$ | (0.86 | ) | |
$ | (3.78 | ) | |
$ | (2.38 | ) | |
$ | (7.96 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average common shares outstanding | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
| 2,677,712 | | |
| 614,092 | | |
| 1,891,556 | | |
| 562,346 | |
The accompanying notes are an integral part of these
unaudited condensed financial statements.
Auddia Inc.
Condensed Statements of Changes in Stockholders’
Equity
for the Three and Six Months Ended June 30, 2024
and 2023
(Unaudited)
| |
| | |
| | | |
| | |
| | | |
| | | |
| | | |
| | |
| |
Series
B
Preferred
Stock | | |
Common
Stock | | |
| | |
| | |
| |
| |
Number of Shares | | |
Par Value | | |
Number of Shares | | |
Par Value | | |
Additional
Paid-In-Capital | | |
Accumulated
Deficit | | |
Total | |
Balance, December 31, 2023 | |
– | | |
$ | – | | |
854,162 | | |
$ | 854 | | |
$ | 80,962,896 | | |
$ | (80,543,330 | ) | |
$ | 420,420 | |
Issuance of common shares, net of costs | |
– | | |
| – | | |
1,340,034 | | |
| 1,340 | | |
| 3,605,168 | | |
| – | | |
| 3,606,508 | |
Offering costs | |
– | | |
| – | | |
– | | |
| – | | |
| (44,404 | ) | |
| – | | |
| (44,404 | ) |
Share-based compensation | |
– | | |
| – | | |
– | | |
| – | | |
| 173,289 | | |
| – | | |
| 173,289 | |
Net loss | |
– | | |
| – | | |
– | | |
| – | | |
| – | | |
| (2,207,328 | ) | |
| (2,207,328 | ) |
Balance, March 31, 2024 | |
– | | |
| – | | |
2,194,196 | | |
| 2,194 | | |
| 84,696,949 | | |
| (82,750,658 | ) | |
| 1,948,485 | |
Issuance of common shares, net of costs | |
– | | |
| – | | |
600,000 | | |
| 600 | | |
| 1,245,400 | | |
| – | | |
| 1,246,000 | |
Issuance of Series B preferred stock and warrants | |
2,314 | | |
| 2 | | |
– | | |
| – | | |
| 2,238,573 | | |
| – | | |
| 2,238,575 | |
Conversion of debt to equity | |
– | | |
| – | | |
– | | |
| – | | |
| 1,543,772 | | |
| – | | |
| 1,543,772 | |
Offering costs | |
– | | |
| – | | |
– | | |
| – | | |
| (97,333 | ) | |
| – | | |
| (97,333 | ) |
Share-based compensation | |
– | | |
| – | | |
– | | |
| – | | |
| 132,488 | | |
| – | | |
| 132,488 | |
Net loss | |
– | | |
| – | | |
– | | |
| – | | |
| – | | |
| (2,303,425 | ) | |
| (2,303,425 | ) |
Balance, June 30, 2024 | |
2,314 | | |
$ | 2 | | |
2,794,196 | | |
$ | 2,794 | | |
$ | 89,759,849 | | |
$ | (85,054,083 | ) | |
$ | 4,708,562 | |
| |
Series
B
Preferred
Stock | | |
Common
Stock | | |
| | |
| | |
| |
| |
Number of Shares | | |
Par Value | | |
Number of Shares | | |
Par Value | | |
Additional
Paid-In-Capital | | |
Accumulated
Deficit | | |
Total | |
Balance, December 31, 2022 | |
– | | |
$ | – | | |
506,198 | | |
$ | 506 | | |
$ | 75,585,411 | | |
$ | (71,735,834 | ) | |
$ | 3,850,083 | |
Exercise of restricted stock units and warrants | |
– | | |
| – | | |
7,830 | | |
| 8 | | |
| 42,789 | | |
| – | | |
| 42,797 | |
Share-based compensation | |
– | | |
| – | | |
– | | |
| – | | |
| 357,680 | | |
| – | | |
| 357,680 | |
Net loss | |
– | | |
| – | | |
– | | |
| – | | |
| – | | |
| (2,155,312 | ) | |
| (2,155,312 | ) |
Balance, March 31, 2023 | |
– | | |
| – | | |
514,028 | | |
| 514 | | |
| 75,985,880 | | |
| (73,891,146 | ) | |
| 2,095,248 | |
Issuance of common shares, net of costs | |
– | | |
| – | | |
283,861 | | |
| 284 | | |
| 3,963,600 | | |
| – | | |
| 3,963,884 | |
Issuance of warrants | |
– | | |
| – | | |
– | | |
| – | | |
| 383,004 | | |
| – | | |
| 383,004 | |
Share-based compensation | |
– | | |
| – | | |
– | | |
| – | | |
| 224,856 | | |
| – | | |
| 224,856 | |
Reclassification of share-based compensation liability | |
– | | |
| – | | |
– | | |
| – | | |
| (12,352 | ) | |
| – | | |
| (12,352 | ) |
Net loss | |
– | | |
| – | | |
– | | |
| – | | |
| – | | |
| (2,322,862 | ) | |
| (2,322,862 | ) |
Balance, June 30, 2023 | |
– | | |
$ | – | | |
797,888 | | |
$ | 798 | | |
$ | 80,544,988 | | |
$ | (76,214,008 | ) | |
$ | 4,331,778 | |
The accompanying notes are an integral part of these
unaudited condensed financial statements.
Auddia Inc.
Condensed Statements of Cash Flows
(Unaudited)
| |
| | | |
| | |
| |
Six Months Ended June 30, | |
| |
2024 | | |
2023 | |
Cash flows from operating activities: | |
| | | |
| | |
Net loss | |
$ | (4,510,753 | ) | |
$ | (4,478,174 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
| | | |
| | |
Finance charge associated with debt issuance cost | |
| – | | |
| 695,947 | |
Depreciation and amortization | |
| 977,128 | | |
| 885,653 | |
Share-based compensation expense | |
| 305,777 | | |
| 582,536 | |
Change in fair value of warrants | |
| 632,388 | | |
| – | |
Amortization of right of use asset | |
| 6,914 | | |
| – | |
Change in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 136 | | |
| (234 | ) |
Prepaid assets | |
| (70,493 | ) | |
| (65,286 | ) |
Other current assets | |
| (10,039 | ) | |
| – | |
Accounts payable and accrued liabilities | |
| 37,986 | | |
| 164,830 | |
Lease liabilities | |
| (2,865 | ) | |
| – | |
Net cash used in operating activities | |
| (2,633,821 | ) | |
| (2,214,728 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of property and equipment | |
| (8,518 | ) | |
| – | |
Software capitalization | |
| (528,602 | ) | |
| (529,503 | ) |
Net cash used in investing activities | |
| (537,120 | ) | |
| (529,503 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Offering costs | |
| (72,807 | ) | |
| – | |
Net settlement of share-based compensation liability | |
| (19,686 | ) | |
| (78,580 | ) |
Proceeds from related party debt, net of original issue discount | |
| – | | |
| 750,000 | |
Repayments of related party debt | |
| (2,750,000 | ) | |
| – | |
Proceeds from issuance of preferred shares, net of issuance costs | |
| 2,238,575 | | |
| – | |
Proceeds from issuance of common shares, net of issuance costs | |
| 4,852,508 | | |
| 4,016,521 | |
Net cash provided by financing activities | |
| 4,248,590 | | |
| 4,687,941 | |
| |
| | | |
| | |
Net increase in cash | |
| 1,077,649 | | |
| 1,943,710 | |
| |
| | | |
| | |
Cash, beginning of year | |
| 804,556 | | |
| 1,661,434 | |
| |
| | | |
| | |
Cash and restricted cash, end of period | |
$ | 1,882,205 | | |
$ | 3,605,144 | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid for Interest | |
$ | 1,045 | | |
$ | 4,460 | |
Cash paid for taxes | |
$ | – | | |
$ | – | |
| |
| | | |
| | |
Supplemental disclosures of non-cash activity: | |
| | | |
| | |
Reclassification of deferred offering cost | |
$ | 68,931 | | |
$ | 52,637 | |
Original issue discount and issuance of warrants on related party debt | |
$ | – | | |
$ | 458,004 | |
Issuance of warrants in connection with related party debt | |
$ | 911,384 | | |
$ | – | |
Right of use asset and assumption of operating lease liability | |
$ | 95,311 | | |
$ | – | |
The accompanying notes are an integral part of these
unaudited condensed financial statements.
Auddia Inc.
Notes to Condensed Financial Statements (Unaudited)
Note 1 – Description of Business, Basis of Presentation and
Summary of Significant Accounting Policies
Description of Business
Auddia Inc., (the “Company”, “Auddia”,
“we”, “our”) is a technology company that is reinventing how consumers engage with audio through the development
of a proprietary AI platform for audio and innovative technologies for podcasts. The Company is incorporated in Delaware and headquartered
in Colorado.
Basis of Presentation
The accompanying financial statements have been prepared
in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
Interim Financial Information
The condensed financial statements of the Company
included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the
“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with
GAAP have been condensed or omitted from this Quarterly Report, as is permitted by such rules and regulations. The condensed balance sheet
as of December 31, 2023 has been derived from the financial statements included in the Company’s annual report on Form 10-K. Accordingly,
these condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s
Annual Report on Form 10-K. The results for any interim period are not necessarily indicative of results for any future period. The Company
recorded all adjustments necessary for a fair statement of the results for the interim period and all such adjustments are of a normal
recurring nature.
Reverse Stock Split
The Company filed an amendment to its Certificate
of Incorporation with the Secretary of State in Delaware which became effective as of 5:00 P.M. Eastern Time on February 26, 2024. As
a result, every twenty-five (25) issued shares of common stock were automatically combined into one share of common stock.
Shares of the Company’s common stock were assigned
a new CUSIP number (05072K 206) and began trading on a split-adjusted basis on February 27, 2024.
The reverse stock split did not change the authorized
number of shares of the Company’s common stock. No fractional shares were issued and any fractional shares resulting from the reverse
stock split were rounded up to the nearest whole share. Therefore, stockholders with less than 25 shares received one share of stock.
All stock amounts have been retrospectively adjusted
to account for the reverse stock split. The reverse stock split applies to the Company’s outstanding warrants, stock options and
restricted stock units. The number of shares of common stock into which these outstanding securities are convertible or exercisable were
adjusted proportionately as a result of the reverse stock split. The exercise prices of any outstanding warrants or stock options were
also proportionately adjusted in accordance with the terms of those securities and the Company’s equity incentive plans.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
The condensed financial statements include some amounts
that are based on management’s best estimates and judgments. The most significant estimates relate to valuation of capital stock,
warrants and options to purchase shares of the Company’s common stock, and the estimated recoverability and amortization period
for capitalized software development costs. These estimates may be adjusted as more current information becomes available, and any adjustment
could be significant.
Risks and Uncertainties
The Company is subject to various risks and uncertainties
frequently encountered by companies in the early stages of development. Such risks and uncertainties include, but are not limited to,
its limited operating history, competition from other companies, limited access to additional funds, dependence on key personnel, and
management of potential rapid growth. To address these risks, the Company must, among other things, develop its customer base; implement
and successfully execute its business and marketing strategy; develop follow-on products; provide superior customer service; and attract,
retain, and motivate qualified personnel. There can be no guarantee that the Company will be successful in addressing these or other such
risks.
Emerging Growth Company Status
The Company is an emerging growth company, as defined
in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay
adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply
to private companies. The Company has elected to use this extended transition period to comply with certain new or revised accounting
standards that have different effective dates for public and private companies.
Going Concern
The Company had cash and cash equivalents of $1,882,205
as of June 30, 2024. The Company will need additional funding to complete the development of the full product line and scale products
with a demonstrated market fit. The Company raised an additional $7.1 million during 2024 and paid down $2.75 million in Secured Bridge Notes. Management has plans to secure such additional funding. If the Company is unable to raise capital when needed or on acceptable terms,
the Company will be forced to delay, reduce, or eliminate technology development and commercialization efforts.
As a result of the Company’s recurring losses
from operations, and the need for additional financing to fund its operating and capital requirements, there is uncertainty regarding
the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to
the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Management
has plans to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern,
such as the White Lion equity line of credit (refer to Note 7) and additional future financing agreements. However, management cannot
provide any assurances that the Company will be successful in accomplishing any of its plans. These financial statements do not include
any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern. The Company’s current level of cash is not sufficient
to execute the business plan. For the foreseeable future, the Company will incur significant operating expenses, capital expenditures
and working capital funding that will deplete cash on hand during the fourth quarter of 2024.
Cash and Cash Equivalents
The Company had cash on hand of $1,879,187 and $801,448
as of June 30, 2024 and December 31, 2023, respectively.
The Company considers all highly liquid instruments
purchased with an original maturity of three months or less to be cash equivalents. The Company had cash equivalents of $3,018 and $3,108
as of June 30, 2024 and December 31, 2023, respectively.
The Company maintains cash deposits at several financial
institutions, which are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s cash balance may at times
exceed these limits. As of June 30, 2024, the Company had approximately $1.6 million in excess of federally insured limits. As of December
31, 2023, the Company had approximately $0.6 million in excess of federally insured limits. The Company continually monitors its positions
with, and the credit quality of, the financial institutions with which it invests.
Software Development Costs
The Company accounts for costs incurred in the development
of computer software as software research and development costs until the preliminary project stage is completed, management has committed
to funding the project, and completion and use of the software for its intended purpose is probable.
The Company ceases capitalization of development costs
once the software has been substantially completed and is available for its intended use. Software development costs are amortized over
a useful life estimated by the Company’s management of three years. Costs associated with significant upgrades and enhancements
that result in additional functionality are capitalized. Capitalized costs are subject to an ongoing assessment of recoverability based
on anticipated future revenues and changes in software technologies.
Unamortized capitalized software development costs
determined to be in excess of anticipated future net revenues are considered impaired and expensed during the period of such determination.
The Company determined that no such impairments were required during the three and six months ended June 30, 2024 and 2023. Software development
costs of $255,214 and $258,929 were capitalized for the three months ended June 30, 2024 and 2023, respectively. Software development
costs of $528,602 and $529,503 were capitalized for the six months ended June 30, 2024 and 2023, respectively. Amortization of capitalized
software development costs was $486,764 and $436,425 for the three months ended June 30, 2024, and 2023, respectively and $963,682 and
$872,850 for the six months ended June 30, 2024 and 2023, respectively, and is included in depreciation and amortization expense in the
Company’s condensed statement of operations.
Revenue Recognition
Revenue will be measured according to Accounting Standards
Codification (“ASC”) 606, Revenue – Revenue from Contracts with Customers, and will be recognized based on consideration
specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company
will recognize revenue when a performance obligation is satisfied by transferring control over a service or product to a customer. The
Company will report revenues net of any tax assessed by a governmental authority that is both imposed on, and concurrent with, a specific
revenue-producing transaction between a seller and a customer in the condensed statements of operations. Collected taxes will be recorded
within Other current liabilities until remitted to the relevant taxing authority.
Subscriber revenue will consist primarily of subscription
fees and other ancillary subscription-based revenues. Revenue will be recognized on a straight-line basis when the performance obligations
to provide each service for the period are satisfied, which is over time as our subscription services are continuously available and can
be consumed by customers at any time. There is no revenue recognized for unpaid trial subscriptions.
Customers may pay for the services in advance of the
performance obligation and therefore these prepayments would be recorded as deferred revenue. The deferred revenue will be recognized
as revenue in the statement of operations as the services are provided.
Share-Based Compensation
The Company accounts for share-based compensation
arrangements with employees, directors, and consultants and recognizes the compensation expense for share-based awards based on the estimated
fair value of the awards on the date of grant in accordance with ASC 718.
Compensation expense for all share-based awards is
based on the estimated grant-date fair value and recognized in earnings over the requisite service period (generally the vesting period).
The Company records share-based compensation expense related to non-employees over the related service periods.
Certain share-based compensation awards include a
net-share settlement feature that provides the grantee an option to withhold shares to satisfy tax withholding requirements and are classified
as a share-based compensation liability. Cash paid to satisfy tax withholdings is classified as financing activities in the condensed
statements of cash flows.
Warrants
The Company
account for warrants as equity-classified instruments, based on an assessment of the warrant’s specific terms and applicable authoritative
guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”).
The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability
pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether
the warrants are indexed to the Company’s own Common Stock, among other conditions for equity classification. This assessment, which
requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end
date while the warrants are outstanding.
In connection
with the amendment to the Secured Bridge Notes (see Note 4), the Company converted $911,384,
consisting of accrued interest and the original issue discount on the Bridge Notes, into equity securities. As a result of the conversion,
the Company recognized a change in the fair value of warrants in the amount of $632,388
during the three and six months ended June 30, 2024.
Reclassifications
Certain prior period amounts
have been reclassified to conform to the current period presentation. The reclassifications did not have an impact on net loss as previously
reported.
Note 2 – Property & Equipment, Intangible
Assets, and Software Development Costs
Property and equipment and software development costs
consisted of the following as of:
Schedule of property and equipment and software development costs | |
| | |
| |
| |
June 30, 2024 | | |
December 31, 2023 | |
| |
| | |
| |
Computers and equipment | |
$ | 106,870 | | |
$ | 102,348 | |
Furniture | |
| 11,258 | | |
| 7,263 | |
Accumulated depreciation | |
| (104,290 | ) | |
| (91,512 | ) |
Total property and equipment, net | |
$ | 13,838 | | |
$ | 18,099 | |
| |
| | | |
| | |
Domain name | |
$ | 3,947 | | |
$ | 3,947 | |
Accumulated amortization | |
| (668 | ) | |
| – | |
Total intangible assets, net | |
$ | 3,279 | | |
$ | 3,947 | |
| |
| | | |
| | |
Software development costs | |
$ | 8,183,809 | | |
$ | 7,655,206 | |
Accumulated amortization | |
| (5,270,954 | ) | |
| (4,307,271 | ) |
Total software development costs, net | |
$ | 2,912,855 | | |
$ | 3,347,935 | |
The Company recognized depreciation
expense of $6,284
and $6,193 for
the three months ended June 30, 2024 and 2023, respectively related to property and equipment, amortization expense of $334 and
$0
for the three months ended June 30, 2024 and 2023, respectively related to intangible assets, and amortization expense of $486,764
and $436,425
for the three months ended June 30, 2024 and 2023, respectively related to software development costs. The Company recognized
depreciation expense of $12,778
and $12,803 for
the six months ended June 30, 2024 and 2023, respectively related to property and equipment, amortization expense of $668
and $0 for
the six months ended June 30, 2024 and 2023, respectively related to intangible assets, and amortization expense of $963,682
and $872,850
for the six months ended June 30, 2024 and 2023, respectively related to software development costs.
Note 3 – Accounts Payable and Accrued
Liabilities
Accounts payable and accrued liabilities consist of
the following:
Schedule of accounts payable and accrued liabilities | |
| | |
| |
| |
June 30, 2024 | | |
December 31, 2023 | |
| |
| | |
| |
Accounts payable and accrued liabilities | |
$ | 304,587 | | |
$ | 424,510 | |
Credit cards payable | |
| 8,679 | | |
| 16,975 | |
Accrued interest | |
| – | | |
| 470,179 | |
Total accounts payable and accrued liabilities | |
$ | 313,266 | | |
$ | 911,664 | |
Note 4 – Notes Payable to Related Party,
net of debt issuance costs
During November 2022, the
Company entered into a Secured Bridge Note (the “Prior Note”) financing with an accredited investor and existing shareholder
of the Company. The Prior Note had a principal amount of $2,200,000, including an original issue discount of $200,000. The Prior Note
bore interest at an annual stated interest rate of 10% with an original maturity date of May of 2023. The Prior Note is secured by a lien
on substantially all of the Company’s assets. At maturity, the lender had the option to convert the original issue discount and
accrued but unpaid interest into shares of the Company’s common stock at a fixed conversion price of $30.75 per share. The conversion
option was available to the lender at the earlier of (i) maturity, or (ii) payback of all the principal. The embedded conversion option
was not accounted for separately, in accordance with the guidance outlined in ASC 815-40, as it was considered indexed to the Company’s
shares. The Company had the option to extend the maturity date by six months to November 2023. In the event of an extension, the Company
will issue additional warrants, and the interest rate on the Note will increase to 20%.
In connection with the Prior
Note financing, the Company issued 12,000 common stock warrants with a five-year term at an exercise price of $52.50 per share. At the
time of issuance, the common stock warrants were valued at $361,878 and recorded as a debt discount to the Prior Note. The issued common
stock warrants were classified as equity as they were indexed to the Company’s shares in accordance with ASC 815-40.
During April 2023, the Company
entered into an additional Secured Bridge Note (the “New Note”) financing with the same accredited investor and significant
existing shareholder. The New Note had a principal amount of $825,000, including an original issue discount of $75,000. The New Note bore
interest at an annual stated interest rate of 10% with an original maturity date of July 2023. The New Note is secured by a lien on substantially
all of the Company’s assets. At maturity, the lender had the option to convert the original issue discount and accrued but unpaid
interest into shares of the Company’s common stock at a fixed conversion price of $52.50 per share. The conversion option was available
to the lender at the earlier of (i) maturity, or (ii) payback of all the principal. The embedded conversion option was not accounted for
separately, in accordance with the guidance outlined in ASC 815-40, as it was considered indexed to the Company’s shares.
In connection with the New
Note financing, the Company issued 26,000 common stock warrants with a five-year term at an exercise price of $52.50 per share, from which
13,000 common stock warrants were exercisable immediately and were exercisable in the event that the loan term is extended. At the time
of issuance, the common stock warrants were valued at $252,940, which was recorded as an additional debt discount to the New Note. The
issued common stock warrants were classified as equity as they were indexed to the Company’s shares in accordance with ASC 815-40.
During April 2023, the Company
also modified the terms of the Prior Note and cancelled the original 12,000 common stock warrants issued with the Prior Note. The Company
recognized the modification in accordance with ASC 815-40-35, which resulted in the recognition of debt discount in the amount of $35,981.
In lieu of the cancelled common stock warrants, the Company issued 24,000 new common stock warrants with a five-year term at an exercise
price of $52.50 per share. From the newly issued 24,000 new common stock warrants, 12,000 common stock warrants were fully vested and
immediately exercisable, while the remaining 12,000 common stock warrants remained unvested. The issued common stock warrants were classified
as equity as they were indexed to the Company’s shares in accordance with ASC 815-40.
In May of 2023, the Company
renegotiated with the lender an extension of the maturity date of the Prior Note for six months to November 2023 with an increased annual
interest rate of 20% and issued an additional 12,000 common stock warrants to the lender. The additional common stock warrants were valued
at $94,083 and recorded as an additional debt discount. The issued common stock warrants were classified in equity as they were considered
indexed to the Company’s shares in accordance with ASC 815-40. In connection with this extension, the 12,000 outstanding unvested
warrants became vested and exercisable.
On July 31, 2023, the Company
extended the maturity date of the New Note to November 30, 2023. In connection with such extension, 13,000 outstanding unvested common
stock warrants became vested and exercisable. There was no change in the application of the accounting under ASC 815-40.
As of June 30, 2024 and December 31, 2023, the balance
of the Prior Note, net of debt issuance costs, was $0 and $2,200,000, respectively. Interest expense related to the Prior Note, including
interest incurred, amortization of the debt discount, and the warrant amortization for the three months ended June 30, 2024 and 2023 was
$11,000 and $261,861, respectively. Interest expense related to the Prior Note, including interest incurred, amortization of the debt
discount, and the warrant amortization for the six months ended June 30, 2024 and 2023 was $121,000 and $261,861, respectively. As of
June 30, 2024 and December 31, 2023, the balance of the New Note issued in April 2023, net of debt issuance costs, was $0 and $825,000
respectively. Interest expense related to the New Note, including interest incurred, amortization of the debt discount, and the warrant
amortization for the three months ended June 30, 2024 and 2023 was $4,068 and $273,204. Interest expense related to the New Note, including
interest incurred, amortization of the debt discount, and the warrant amortization for the six months ended June 30, 2024 and 2023 was
$45,205 and $273,204.
On April 9, 2024, the Company
and the investor entered into an Amendment and Waiver Agreement relating to the Bridge Notes.
The Company agreed to pay
$2.75 million in cash to the Investor in repayment of the principal of the Bridge Notes (exclusive of the $275,000 of original issue discount
on the Bridge Notes) shortly after the closing by the Company of one or more equity financings with total gross proceeds to the Company
of not less than $6,000,000.
On April 26, 2024, the Company
repaid $2.75 million of principal on its Secured Bridge Notes.
Effective April 9, 2024,
the Investor converted $911,384 (the “Rollover Amount”) which is equal to the (i) unpaid accrued interest on the Bridge Notes
plus (ii) the original issue discount (“OID”) on the Bridge Notes, into equity securities of the Company (the “Rollover
Securities”).
The Rollover Securities consist
of (i) 463,337 prefunded common stock warrants with a per share exercise price of $0.001 per share (the “Prefunded Warrants”)
and (ii) 463,337 non-prefunded warrants (the “Non-Prefunded Warrants”) with a per share exercise price equal to $1.967. As
of the date and time of the Amendment and Waiver Agreement, the Nasdaq Minimum Price (as defined in the applicable Nasdaq listing rules)
for the Company’s common stock was $1.966.
The number of Prefunded Warrants
was determined by dividing the Rollover Amount by $1.967. The number of Non-Prefunded Warrants is equal to the number of Prefunded Warrants
(i.e. 100% warrant coverage). The Non-Prefunded Warrants have a price adjustment provision which will adjust the exercise price downward
in the event that the Company issues equity securities in the future at an effective per share price below the then current exercise price.
In order to assure compliance with applicable Nasdaq rules, the Non-Prefunded Warrants shall not be exercisable for six months following
the date of issue.
The Company issued
to the Investor 50,000
new common stock warrants with a five-year term as a loan extension fee (“Fee Warrants”). The exercise price of these
additional Fee Warrants is $1.967.
The Fee Warrants have a price adjustment provision which will adjust the exercise price downward in the event that the Company issues
equity securities in the future at an effective per share price below the then current exercise price. In order to assure compliance
with applicable Nasdaq rules, the Fee Warrants shall not be exercisable for six months following the date of issue.
The Non-Prefunded Warrants and Fee Warrants had a total valuation of
$811,402 and the Prefunded Warrants had a valuation of $732,370. As a result, the Company recorded $911,384 as a non-cash charge in connection
with the issuance of warrants related to the Secured Bridge Notes and a change in the fair value of warrants of $632,388, which is included
in other expense in the accompanying statements of operations. All Warrants were classified as equity as they were indexed to the Company’s
shares in accordance with ASC 815-40.
The Company agreed to adjust
the exercise price of the Investor’s Existing Warrants from $15.25 (after adjustment for the recent reverse stock) to $1.967 per
share.
The Investor will not be
able to receive shares upon exercise of any of the foregoing securities, unless prior stockholder approval is obtained, if (i) the number
of shares to be issued would exceed 20% of the Company’s outstanding number of shares at a discount to the applicable Nasdaq Minimum
Price or (ii) the number of shares to be issued would result in in a Change of Control within the meaning of Nasdaq Rule 5635(b).
Note 5 – Commitments and Contingencies
Operating Lease
On March 25, 2024, the Company entered into a new
37-month operating lease commencing on April 1, 2024 with two separate two year renewal options. The monthly base rent for months two
through 14 is $2,456, increasing to $3,070 for months 15 through 26, and ending at $3,684 for months 27 through 37. Rent expense, as part
of general and administrative expenses in the condensed statement of operations, was $8,960 and $13,760 for the three and six months ended
June 30, 2024, respectively, which consisted of the new lease and a temporary month-to-month lease the Company entered into until a long-term
space was identified. Rent expense was $25,385 and $37,438 for the three and six months ended June 30, 2023, respectively, under the former
lease that terminated in December 2023.
Litigation
In the normal course of business, the Company is party
to litigation from time to time. The Company maintains insurance to cover certain actions and believes that resolution of such litigation
will not have a material adverse effect on the Company. There are no active litigations as of the date the financial statements were issued.
However, a pre-IPO investor has contacted the Company claiming damages caused by alleged acts and
omissions arising from a private financing by the Company. No complaint has been filed by the investor. The alleged damages asserted by
the investor are less than approximately $300,000. The outcome of the complaint was neither probable or estimable as of the date the financial
statements were issued, therefore, no accrual has been made.
NASDAQ Deficiencies
The Nasdaq listing rules
require listed securities to maintain a minimum bid price of $1.00 per share. As previously reported in the Current Report on Form 8-K
filed on November 28, 2023, the Company received a written notice from Nasdaq indicating that it was not in compliance with the $1.00
minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing. As a result, the Nasdaq staff determined
to delist the Company’s Common Stock from Nasdaq, unless the Company timely requests an appeal of the Staff’s determination
to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series. The hearing
with the Panel occurred on January 18, 2024.
On November 21, 2023, the
Company received a written notice from Nasdaq indicating that it was not in compliance with Nasdaq Listing Rule 5550(b)(1), which requires
companies listed on The Nasdaq Capital Market to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing
(the “Stockholders’ Equity Requirement”). In the Company’s quarterly report on Form 10-Q for the period ended
September 30, 2023, the Company reported stockholders’ equity of $2,415,012, and, as a result, did not satisfy Listing Rule 5550(b)(1).
Nasdaq’s November written notice had no immediate impact on the listing of our common stock. The hearing with the Panel occurred
on January 18, 2024, and addressed all outstanding listing compliance matters, including compliance with the Stockholders’ Equity
Notice as well as compliance with the Bid Price Requirement.
On January 30, 2024, the
Panel granted the Company’s request for an exception to Nasdaq’s listing rules until April 22, 2024, to demonstrate compliance
with all applicable continued listing requirements for the Nasdaq Capital Market.
On March 20, 2024, the Company
received a letter from Nasdaq stating it had regained compliance with the minimum bid requirement. The Panel reminded the Company that
although it regained compliance with the minimum bid requirement, it is also required to regain compliance with the equity requirement.
Therefore, this matter will remain open until the Company demonstrates compliance with all requirements.
On April 16, 2024, the Company
received a letter from Nasdaq granting an exception to the Exchange’s listing rules until May 20, 2024, to demonstrate compliance
with Listing Rule 5550(b)(1) (the “Equity Rule”).
On May 24, 2024, the Company received a letter from
Nasdaq indicating that the Company has regained compliance with the equity requirement in Listing rule 5550(b) (1) (the Equity Rule”.)
The Company will be subject to a Mandatory Panel Monitor for a period of one year from the date of the letter in accordance with application
of Listing Rule 5815(d)(4)(B).
The Company’s receipt
of these Nasdaq letters does not affect the Company’s business, operations or reporting requirements with the Securities and Exchange
Commission.
Note 6 – Share-based Issuances
Stock Options
The following table presents the activity for stock
options outstanding:
Schedule of activity for stock
options outstanding | |
| | |
| |
| |
Options | | |
Weighted Average Exercise Price | |
Outstanding - December 31, 2023 | |
| 84,895 | | |
$ | 47.79 | |
Granted | |
| – | | |
| – | |
Forfeited/canceled | |
| (847 | ) | |
| 59.48 | |
Exercised | |
| – | | |
| – | |
Outstanding – June 30, 2024 | |
| 84,048 | | |
$ | 47.68 | |
| |
| | |
| |
| |
Options | | |
Weighted Average Exercise Price | |
Outstanding - December 31, 2022 | |
| 66,527 | | |
$ | 61.25 | |
Granted | |
| 8,008 | | |
| 23.50 | |
Forfeited/canceled | |
| (7,958 | ) | |
| 37.50 | |
Exercised | |
| – | | |
| – | |
Outstanding – June 30, 2023 | |
| 66,577 | | |
$ | 59.50 | |
The following table presents the composition of options
outstanding and exercisable:
Schedule of options outstanding and exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding** |
|
|
Options Exercisable** |
|
Exercise Prices |
|
Number |
|
|
|
Price |
|
|
Life* |
|
|
Number |
|
|
|
Price* |
|
$67.56 |
|
346 |
|
|
$ |
67.56 |
|
|
0.25 |
|
|
346 |
|
|
$ |
67.56 |
|
$72.39 |
|
2,131 |
|
|
$ |
72.54 |
|
|
3.36 |
|
|
2,131 |
|
|
$ |
72.39 |
|
$106.50 |
|
6,853 |
|
|
$ |
106.50 |
|
|
4.98 |
|
|
6,853 |
|
|
$ |
106.50 |
|
$69.75 |
|
30,891 |
|
|
$ |
69.75 |
|
|
6.48 |
|
|
29,041 |
|
|
$ |
69.75 |
|
$44.75 |
|
7,550 |
|
|
$ |
44.75 |
|
|
6.89 |
|
|
4,475 |
|
|
$ |
44.75 |
|
$30.25 |
|
15,577 |
|
|
$ |
30.25 |
|
|
8.20 |
|
|
14,247 |
|
|
$ |
30.25 |
|
$9.90 |
|
2,000 |
|
|
$ |
9.90 |
|
|
8.94 |
|
|
500 |
|
|
$ |
9.90 |
|
$6.25 |
|
18,700 |
|
|
$ |
6.25 |
|
|
9.46 |
|
|
– |
|
|
$ |
6.25 |
|
Total – June 30, 2024 |
|
84,048 |
|
|
|
|
|
|
|
|
|
57,593 |
|
|
|
|
|
* |
Price and Life reflect the weighted average exercise price and weighted average remaining contractual life, respectively. |
** |
The Company’s options summarized above have been retroactively restated for the effect of the 25-for-1 reverse stock split. |
Restricted Stock Units
The following table presents the activity for restricted
stock units outstanding:
Schedule of activity for restricted
stock units outstanding | |
| | |
| |
| |
Restricted Stock Units | | |
Weighted Average Grant Date Fair Value | |
Outstanding - December 31, 2023 | |
| 11,490 | | |
$ | 59.36 | |
Granted | |
| – | | |
| – | |
Forfeited/canceled | |
| – | | |
| – | |
Vested/issued | |
| – | | |
| – | |
Outstanding – June 30, 2024 | |
| 11,490 | | |
$ | 59.36 | |
| |
| | |
| |
| |
Restricted Stock Units | | |
Weighted Average Grant Date Fair Value | |
Outstanding - December 31, 2022 | |
| 22,554 | | |
$ | 53.50 | |
Granted | |
| 1,500 | | |
| 31.00 | |
Forfeited/canceled | |
| (4,734 | ) | |
| 45.75 | |
Vested/issued | |
| (7,830 | ) | |
| 45.75 | |
Outstanding – June 30, 2023 | |
| 11,490 | | |
$ | 59.25 | |
The Company recognized share-based compensation expense
related to stock options and restricted stock units of $132,488 and $224,856 for the three months ended June 30, 2024 and 2023, respectively,
and $305,777 and $582,536 for the six months ended June 30, 2024 and 2023, respectively. The remaining unvested share-based compensation
expense of $414,721 is expected to be recognized over the next 42 months.
Note 7 – Equity Financings
Equity Line Sales of Common
Stock
On November 14, 2022, the
Company entered into a Common Stock Purchase Agreement (the “White Lion Purchase Agreement”) with White Lion Capital, LLC,
a Nevada limited liability company (“White Lion”) for an equity line facility.
In April and June 2023, the
Company closed on three sales of Common Stock under the White Lion Purchase Agreement. As a result, the Company issued an aggregate of
2,361,514 common shares and received aggregate proceeds of approximately $1.3 million.
Any proceeds that the Company
receives under the White Lion Purchase Agreement are expected to be used for working capital and general corporate purposes.
The White Lion Purchase Agreement prohibits the Company
from issuing and selling any shares of common stock to White Lion to the extent such shares, when aggregated with all other shares of
our common stock then beneficially owned by White Lion, would cause White Lion’s beneficial ownership of common stock to exceed
9.99% (the “Beneficial Ownership Cap”).
The Company recognized all offering costs related
to the equity line of credit as deferred offering costs in accordance with the guidance in ASC 835-30-S45.
Replacement Equity Line
with White Lion
On November
6, 2023, the Company entered into a new Common Stock Purchase Agreement and a related registration rights agreement with White Lion. Pursuant
to the new Common Stock Purchase Agreement, the Company has the right, but not the obligation to require White Lion to purchase, from
time to time until December 31, 2024, up to $10,000,000 in aggregate gross purchase price of newly issued shares of the Company’s
common stock, subject to certain limitations and conditions set forth in the Common Stock Purchase Agreement. In connection with the new
Common Stock Purchase Agreement, the parties agreed to terminate the previous Common Stock Purchase Agreement with White Lion.
During the six months ended
June 30, 2024, the Company closed on several sales of Common Stock under the White Lion Purchase Agreement. As a result, the Company issued
an aggregate of 1,940,000 common shares and received aggregate proceeds of approximately $4.9 million.
$2.3 Million Convertible
Preferred Stock and Warrants Financing
On April 23, 2024, the Company
entered into a securities purchase agreement with accredited investors for a convertible preferred stock and warrants financing. The Company
received $2,314,000 of gross proceeds in connection with the closing of this financing.
At the closing, the Company
issued 2,314 shares of Series B convertible preferred stock (“Series B Preferred Stock”) at a purchase price of $1,000 per
share of Series B Preferred Stock. The Series B Preferred Stock is convertible into Common Stock at an initial conversion price (“Conversion
Price”) of $1.851 per share of Common Stock. The Company also issued warrants (“Warrants”) exercisable for 1,250,137
shares of Common Stock with a five-year term and an initial exercise price of $1.851 per share.
The proceeds of this financing,
together with other available cash resources, were used to repay outstanding debt and for general corporate purposes.
Warrants
The following table presents
the activity for warrants outstanding:
Schedule of activity for warrants outstanding | |
| | |
| |
| |
Warrants | | |
Weighted Average Exercise Price | |
Outstanding - December 31, 2023 | |
| 216,884 | | |
$ | 96.00 | |
Granted | |
| 2,226,811 | | |
| 1.85 | |
Forfeited/cancelled/restored | |
| (14,154 | ) | |
| – | |
Exercised | |
| – | | |
| – | |
Outstanding – June 30, 2024 | |
| 2,429,541 | | |
$ | 15.00 | |
Note
8 – Leases under ASC 842
The Company leases certain office space under operating
leases for use in operations. The Company recognizes operating lease expense on a straight-line basis over the lease term. Management
determines if an arrangement is a lease at contract inception. Lease and non-lease components are accounted for as a single component
for all leases. Operating lease right to use (“ROU”) assets and liabilities are recognized at the lease commencement date
based on the present value of the future lease payments over the expected lease term, which includes optional renewal periods if the Company
determines it is reasonably certain that the option will be exercised. As the operating lease does not provide an implicit rate, the discount
rate used in the present value calculation represents the incremental borrowing rate determined using information available at the commencement
date. For the three and six months ended June 30, 2024, the Company recorded operating lease expense of $8,960 and $8,960, respectively,
which is included in general and administrative expenses in the Company’s accompanying condensed statements of operations. As of
June 30, 2024, weighted-average remaining lease term and discount rate were as follows:
Schedule of weighted-average remaining lease term and discount rate |
|
|
|
|
|
June 30, 2024 |
|
Weighted-average remaining lease term |
|
|
4.8 years |
|
Weighted-average discount rate |
|
|
8.6% |
|
The following is a maturity analysis of the annual
undiscounted cash flows reconciled to the carrying value of the operating lease liabilities as of June 30, 2024:
Schedule of annual undiscounted cash flows of leases | |
| |
Years Ended December 31, | |
| | |
2024 | |
$ | 14,735 | |
2025 | |
| 34,382 | |
2026 | |
| 41,749 | |
2027 | |
| 14,735 | |
Less imputed interest | |
| (13,155 | ) |
Total | |
$ | 92,446 | |
Note 9 – Subsequent Events
Management evaluated subsequent events and transactions that occurred after
the balance sheet date, up to the date that the financial statements were issued. Based upon this review, other than as set forth below,
management did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should be
read in conjunction with the unaudited condensed financial statements and related notes included elsewhere in this Quarterly Report and
our audited financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31,
2023, which was filed with the SEC on April 1, 2024. This discussion and analysis and other parts of this Quarterly Report contain forward-looking
statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding
our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially
from those anticipated in these forward-looking statements as a result of several factors, including those set forth under Part II, Item
1A, “Risk Factors” and elsewhere in this Quarterly Report. You should carefully read the “Risk Factors” section
of this Quarterly Report and of our Annual Report on Form 10-K for the year ended December 31, 2023, to gain an understanding of the important
factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled
“Special Note Regarding Forward-Looking Statements.”
Overview
Auddia is a technology company
headquartered in Boulder, CO that is reinventing how consumers engage with audio through the development of a proprietary AI platform
for audio and innovative technologies for podcasts. Auddia is leveraging these technologies within its industry-first audio Superapp,
faidr (previously known as the Auddia App).
faidr gives consumers the
opportunity to listen to any AM/FM radio station with commercial breaks replaced with personalized audio content, including popular and
new music, news, and weather. The faidr app represents the first-time consumers can combine the local content uniquely provided by AM/FM
radio with commercial-free and personalized listening many consumers demand from digital-media consumption. In addition to commercial-free
AM/FM, faidr includes podcasts – also with ads removed or easily skipped by listeners – as well as exclusive content, branded
faidrRadio, which includes new artist discovery, curated music stations, and Music Casts. Music Casts are unique to faidr. Hosts and DJs
can combine on-demand talk segments with dynamic music streaming, which allows users to hear podcasts with full music track plays embedded
in the episodes.
Auddia has also developed
a differentiated podcasting capability with ad-reduction features and also provides a unique suite of tools that helps podcasters create
additional digital content for their podcast episodes as well as plan their episodes, build their brand, and monetize their content with
new content distribution channels. This podcasting feature also gives users the ability to go deeper into the stories through supplemental,
digital content, and eventually comment and contribute their own content to episode feeds. The combination of AM/FM streaming and
podcasting, with Auddia’s unique, technology-driven differentiators, addresses large and rapidly growing audiences.
The Company has developed
its AI platform on top of Google’s TensorFlow open-source library that is being “taught” to know the difference between
all types of audio content on the radio. For instance, the platform recognizes the difference between a commercial and a song and is learning
the differences between all other content to include weather reports, traffic, news, sports, DJ conversation, etc. Not only does the technology
learn the differences between the various types of audio segments, but it also identifies the beginning and end of each piece of content.
The Company is leveraging this technology platform
within its premium AM/FM radio listening experience through the faidr App. The faidr App is intended to be downloaded by consumers who
will pay a subscription fee in order to listen to any streaming AM/FM radio station and podcasts, all with commercial interruptions removed
from the listening experience, in addition to the faidrRadio exclusive content offerings. Advanced features will allow consumers to skip
any content heard on the station and request audio content on-demand. We believe the faidr App represents a significant differentiated
audio streaming product, or Superapp, that will be the first to come to market since the emergence of popular streaming music apps such
as Pandora, Spotify, Apple Music, Amazon Music, etc. We believe that the most significant point of differentiation is that in addition
to ad-free AM/FM streaming and ad-reduced podcasts, the faidr App is intended to deliver non-music content that includes local sports,
news, weather, traffic and the discovery of new music alongside exclusive programming. No other audio streaming app available today, including
category leaders like TuneIn, iHeart, and Audacy, can compete with faidr’s full product offerings.
The Company launched an MVP
version of faidr through several consumer trials in 2021 to measure consumer interest and engagement with the App. The full app launched
on February 15, 2022, and included all major U.S. radio stations in the US. In February 2023, we added faidrRadio, our exclusive content
offerings, to the app. Podcasts (standard) were added to the app for the iOS version before the end of Q1 2023 as planned and added to
the Android app in May of 2023. Podcast functionality will continue to be enhanced through 2024, including the deployment of the Company’s
ad-reduction technology.
The Company also developed
a testbed differentiated podcasting capability called Vodacast, which leveraged technologies and proven product concepts to differentiate
its podcasts offering from other competitors in the radio-streaming product category.
With podcasting growing and
predicted to grow at a rapid rate, the Vodacast podcast platform was conceptualized to fill a void in the emerging audio media space.
The platform was built to become the preferred podcasting solution for podcasters by enabling them to deliver digital content feeds that
match the audio of their podcast episodes, and by enabling podcasters to make additional revenue from new digital advertising channels,
subscription channels, on-demand fees for exclusive content, and through direct donations from their listeners. Throughout 2023 and early
2024, Auddia has been migrating their podcasting capabilities into the flagship faidr app with the intention to sunset the Vodacast platform
and instead bring the advanced podcasting functionality that was found on Vodacast into faidr as part of the overall strategy to build
a single audio Superapp. This includes Auddia’s new podcast ad-reduction technology.
Today, podcasters do not
have a preference as to where their listeners access their episodes, as virtually all listening options (mobile apps and web players)
deliver only their podcast audio. By creating significant differentiation on which they can make net new and higher margin revenue, we
believe that podcasters will promote faidr to their listeners, thus creating a powerful, organic marketing dynamic.
One innovative and proprietary
part of Auddia’s podcast capabilities, originally presented on their Vodacast differentiated podcasting capability, is the availability
of tools to create and distribute an interactive digital feed, which supplements podcast episode audio with additional digital. These
content feeds allow podcasters to tell deeper stories to their listeners while giving podcasters access to digital revenue for the first
time. Podcasters will be able to build these interactive feeds using The Podcast Hub, a content management system that was originally
developed and trialed as part of Auddia’s Vodacast platform, which also serves as a tool to plan and manage podcast episodes. The
digital feed activates a new digital ad channel that turns every audio ad into a direct-response, relevant-to-the-story, digital ad, increasing
the effectiveness and value of their established audio ad model. The feed also presents a richer listening experience, as any element
of a podcast episode can be supplemented with images, videos, text and web links. This feed will appear fully synchronized in the faidr
mobile App, and it also can be hosted and accessed independently (e.g., through any browser), making the content feed universally distributable.
Over time, users will be
able to comment, and podcasters will be able to grant some users publishing rights to add content directly into the feed on their behalf.
This will create another first for podcasting, a dialog between creator and fan, synchronized to the episode content. The interactive
feed for podcasts has been developed and tested on Vodacast and is expected to be another differentiator added into faidr for podcast
listeners later in 2024.
The podcast capabilities
within faidr will also introduce a unique and industry first multi-channel, highly flexible set of revenue channels that podcasters can
activate in combination to allow listeners to choose how they want to consume and pay for content. “Flex Revenue” allows podcasters
to continue to run their standard audio ad model and complement those ads with direct response enabled digital ads in each episode content
feed, increasing the value of advertising on any podcast. “Flex Revenue” will also activate subscriptions, on-demand fees
for content (e.g., listen without audio ads for a micro payment fee) and direct donations from listeners. Using these channels in combination,
podcasters can maximize revenue generation and exercise higher margin monetization models, beyond basic audio advertising. “Flex
Revenue” and the initial inclusion of the new revenue channels that come with it will be added to podcasting in the faidr app, and
the first elements of this new monetization capability is expected to be commercially available in 2024, beginning with subscription plans
to access ad-reduction in podcasts.
The faidr mobile App is available
today through the iOS and Android App stores.
We have funded our operations
with proceeds from the February 2021 IPO, Series A warrants exercised in July 2021 and common share issuance during June of 2023. We obtained
debt financing through a related party during November 2022 and April 2023. We sold common shares during April 2023, June 2023, and during
the first and second quarters of 2024 pursuant to our equity line facility. Lastly, we entered into a securities purchase agreement with
accredited investors for convertible preferred stock and warrants financing. Since our inception, we have incurred significant operating
losses. As of June 30, 2024, we had an accumulated deficit of $85,054,083. Our ability to generate product revenue sufficient to achieve
profitability will depend heavily on the successful development and commercialization of one or more of our Apps. We expect that our expenses
and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:
|
· |
nationally launch our faidr App and as we continue training our proprietary AI technology and make product enhancements; |
|
· |
continue to develop and expand our technology and functionality to advance the faidr app; |
|
· |
rollout our product on a national basis, which will include increasing our sales and marketing costs related to the promotion of our products. faidr promotion will include a combination of a) purchasing ads directly from broadcasters or b) participating broadcasters to promote without purchasing ads, but sharing a portion of subscription proceeds based on listening activity on those stations; |
|
· |
continue to pursue and complete potential acquisitions of other companies; |
|
· |
hire additional business development, product management, operational and marketing personnel; |
|
· |
continue market studies of our products; and |
|
· |
add operational and general administrative personnel which will support our product development programs, commercialization efforts and our transition to operating as a public company. |
As a result, we will need
substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate
significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other
capital sources, which may include collaborations with other companies or other strategic transactions. We may be unable to raise additional
funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter
into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization
of one or more of our product candidates.
Because of the numerous risks
and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or
if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable.
If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations
at planned levels and be forced to reduce or terminate our operations.
As of June 30, 2024, we had
cash and cash equivalents of $1,882,205. The Company secured approximately $7.1 million in additional financing during 2024. We will need
additional funding to complete the development of our full product line and scale products with a demonstrated market fit. Management
has plans to secure such additional funding. However, if we are unable to raise capital when needed or on acceptable terms, we would be
forced to delay, reduce, or eliminate our technology development and commercialization efforts.
To
accelerate user acquisition, revenue, and cash flow, the Company has explored numerous potential acquisition targets of AM/FM streaming
aggregators over the past year and a half and continues to explore new opportunities.
Recent Developments
Mergers and Acquisitions
Strategy
We are exploring various
merger and acquisition options as part of a broader strategy which aims to scale the business more rapidly; accelerate user adoption and
subscriber growth; enter new markets (international); and open new pathways toward raising capital. The overall strategy focuses on three
areas: (1) acquiring users of a radio-streaming app, (2) bringing our proprietary ad-free products to the acquired userbase to generate
significant subscription revenue, and (3) bringing together other differentiated features into the larger audio Superapp platform.
We incurred $370,228 in costs
related to evaluating potential acquisitions during the six months ended June 30, 2024.
RFM Acquisition
On January 26, 2024, we entered
into a Purchase Agreement (the “RFM Purchase Agreement”), pursuant to which we agreed to acquire RadioFM (the “RFM Acquisition”),
which is currently a component of both AppSmartz and RadioFM (partnerships under common control). The aggregate consideration for the
RFM Acquisition is $13,000,000 (plus $2,000,000 in contingent consideration if certain post-close milestones are reached), in addition
to the assumption of certain liabilities, as may be adjusted pursuant to the terms of the RFM Purchase Agreement.
In March 2024, the parties
mutually agreed to terminate the RFM Purchase Agreement.
Nasdaq Deficiency Notices
The Nasdaq listing rules
require listed securities to maintain a minimum bid price of $1.00 per share. As previously reported in our Current Report on Form 8-K
filed on November 28, 2023, we received a written notice from Nasdaq indicating that the Company was not in compliance with the $1.00
minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing. As a result, the Nasdaq staff determined
to delist the Company’s Common Stock from Nasdaq, unless the Company timely requests an appeal of the Staff’s determination
to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series. Our hearing
with the Panel occurred on January 18, 2024.
On November 21, 2023, we
received a written notice from Nasdaq indicating that we are not in compliance with Nasdaq Listing Rule 5550(b)(1), which requires companies
listed on The Nasdaq Capital Market to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing (the “Stockholders’
Equity Requirement”). In our quarterly report on Form 10-Q for the period ended September 30, 2023, we reported stockholders’
equity of $2,415,012, and, as a result, did not satisfy Listing Rule 5550(b)(1). Nasdaq’s November written notice had no immediate
impact on the listing of our common stock. Our hearing with the Panel occurred on January 18, 2024 and addressed all outstanding
listing compliance matters, including compliance with the Stockholders’ Equity Notice as well as compliance with the Bid Price Requirement.
On January 30, 2024, the
Panel granted the Company’s request for an exception to Nasdaq’s listing rules until April 22, 2024, to demonstrate compliance
with all applicable continued listing requirements for the Nasdaq Capital Market.
On March 20, 2024, we received
a letter from Nasdaq stating we had regained compliance with the minimum bid requirement. The Panel reminded us that although we regained
compliance with the minimum bid requirement, we are also required to regain compliance with the equity requirement. Therefore, this matter
will remain open until we demonstrate compliance with all requirements.
On April 16, 2024, the Company
received a letter from Nasdaq granting an exception to the Exchange’s listing rules until May 20, 2024, to demonstrate compliance
with Listing Rule 5550(b)(1) (the “Equity Rule”.)
On May 24, 2024, we received a letter from Nasdaq
indicating that we had regained compliance with the equity requirement in Listing rule 5550(b) (1) (the Equity Rule”.) We will be
subject to a Mandatory Panel Monitor for a period of one year from the date of the letter in accordance with application of Listing Rule
5815(d)(4)(B).
Reverse
Share Split
The Company filed an amendment
to its Certificate of Incorporation with the Secretary of State in Delaware which became effective as of 5:00 P.M. Eastern Time on February
26, 2024. As a result, every twenty-five (25) issued shares of common stock were automatically combined into one share of common stock.
Shares of the Company’s
common stock were assigned a new CUSIP number (05072K 206) and began trading on a split-adjusted basis on February 27, 2024.
The reverse stock split did
not change the authorized number of shares of the Company’s common stock. No fractional shares were issued and any fractional shares
resulting from the reverse stock split were rounded up to the nearest whole share. Therefore, stockholders with less than 25 shares received
one share of stock.
The reverse stock split applied
to the Company’s outstanding warrants, stock options and restricted stock units. The number of shares of common stock into which
these outstanding securities are convertible or exercisable were adjusted proportionately as a result of the reverse stock split. The
exercise prices of any outstanding warrants or stock options were also proportionately adjusted in accordance with the terms of those
securities and the Company’s equity incentive plans.
Impact of Inflation
We have recently experienced higher costs across our
business as a result of inflation, including higher costs related to employee compensation and outside services. We expect inflation to
continue to have a negative impact throughout 2024, and it is uncertain whether we will be able to offset the impact of inflationary pressures
in the near term.
Components of our results of operations
Operating expenses
Direct costs of services
Direct cost of services consists
primarily of costs incurred related to our technology and development of our Apps, including hosting and other technology related expenses.
We expect our direct costs of services to increase in the future as we continue to develop and enhance our technology related to the faidr
and podcasting Apps.
Sales and marketing
Our sales and marketing expenses
consist primarily of salaries, direct to consumer promotional spend and consulting services, all of which are related to the sales and
promotion performed during the period. We expect our sales and marketing expenses to fluctuate period by period as we release new upgrades
and enhancements within our Apps and look to generate revenue through customer acquisition, retention, and subscription conversion.
Research and development
Since our inception, we have
focused significant resources on our research and development activities related to the software development of our technology. We account
for costs incurred in the development of computer software as software research and development costs until the preliminary project stage
is completed, management has committed to funding the project, and completion and use of the software for its intended purpose is probable.
We cease capitalization of development costs once the software has been substantially completed and is available for its intended use.
Software development costs are amortized over a useful life estimated by our management of three years. Costs associated with significant
upgrades and enhancements that result in additional functionality are capitalized. Capitalized costs are subject to an ongoing assessment
of recoverability based on anticipated future revenues and changes in software technologies. Unamortized capitalized software development
costs determined to be in excess of anticipated future net revenues are impaired and expensed during the period of such determination.
We expect to continue to incur research and development expenses and capitalization in the future as we continue to develop and enhance
our faidr and podcasting Apps.
General and administrative
Our general and administrative
expenses consist primarily of salaries and related costs, including payroll taxes, benefits, stock-based compensation, and professional
fees related to auditing, tax, general legal services, and consulting services. We expect our general and administrative expenses to continue
to increase in the future as we right-size our operating activities and prepare for commercialization of our products and support our
operations as a public company, including increased expenses related to legal, accounting, insurance, regulatory and tax-related services
associated with maintaining compliance with exchange listing and Securities and Exchange Commission requirements, directors and officers
liability insurance premiums and investor relations activities.
Other income and expense
The other income and expense
category primarily consists of interest expense attributed to the debt and conversion features of the Notes payable to related party.
Results of operations
Comparison of the three months ended June
30, 2024 and 2023
The following table summarizes our results of operations:
| |
Three Months Ended | | |
| | |
| |
| |
June 30, 2024 | | |
June 30, 2023 | | |
Change $ | | |
Change % | |
Revenue | |
$ | – | | |
$ | – | | |
| – | | |
| 0.0% | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Direct cost of services | |
| 50,227 | | |
| 45,038 | | |
| 5,189 | | |
| 11.5% | |
Sales and marketing | |
| 216,868 | | |
| 223,760 | | |
| (6,892 | ) | |
| (3.1% | ) |
Research and development | |
| 159,588 | | |
| 180,363 | | |
| (20,775 | ) | |
| (11.5% | ) |
General and administrative | |
| 734,325 | | |
| 892,510 | | |
| (158,185 | ) | |
| (17.7% | ) |
Depreciation and amortization | |
| 493,382 | | |
| 442,618 | | |
| 50,764 | | |
| 11.5% | |
Total operating expenses | |
| 1,654,390 | | |
| 1,784,289 | | |
| (129,899 | ) | |
| (7.3% | ) |
Loss from operations | |
| (1,654,390 | ) | |
| (1,784,289 | ) | |
| 129,899 | | |
| (7.3% | ) |
| |
| | | |
| | | |
| | | |
| | |
Other expense: | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (16,647 | ) | |
| (538,572 | ) | |
| 521,925 | | |
| (96.9% | ) |
Change in fair value of warrants | |
| (632,388 | ) | |
| – | | |
| (632,388 | ) | |
| 100.0% | |
Total other expense | |
| (649,035 | ) | |
| (538,572 | ) | |
| (110,463 | ) | |
| 20.5% | |
Loss before income taxes | |
| (2,303,425 | ) | |
| (2,322,861 | ) | |
| 19,436 | | |
| (0.8% | ) |
Provision for income taxes | |
| – | | |
| – | | |
| – | | |
| 0.0% | |
Net loss | |
$ | (2,303,425 | ) | |
$ | (2,322,861 | ) | |
| 19,436 | | |
| (0.8% | ) |
Revenue
Total revenues for the three
months ended June 30, 2024 and 2023 were $0 as we continue to develop and enhance our faidr and podcasting Apps to establish new revenue
streams.
Direct cost of services
Direct cost of services increased
$5,189 or 11.5% from $45,038 for the three months ended June 30, 2023 compared to $50,227 for the three months ended June 30, 2024. This
increase was primarily the result of an increase in hosting costs and music service costs.
Sales and marketing
Sales and marketing expenses
decreased by $6,892 or (3.1%) from $223,760 for the three months ended June 30, 2023 to $216,868 for the three months ended June 30, 2024,
which was primarily attributed to reduced marketing promotion costs associated with the national launch of the faidr app. We expect our
sales and marketing expenses to fluctuate period by period as we release new upgrades and enhancements within our Apps and look to generate
revenue through customer acquisition, retention, and subscription conversion.
Research and development
Research and development
expenses decreased by $20,775 or (11.5%) from $180,363 for the three months ended June 30, 2023 to $159,588 for the three months ended
June 30, 2024, which was primarily due to lower salary, consulting and content creator fees.
General and administrative
General and administrative
expenses decreased by $158,185 or (17.7%) from $892,510 for the three months ended June 30, 2023 compared to $734,325 for the three months
ended June 30, 2024. The decrease was primarily driven by lower stock compensation expense, partially offset by an increase in salary
expense and professional fees to support compliance requirements related to recent equity funding.
Depreciation and amortization
Depreciation and amortization
expenses increased by $50,764 or 11.5% from $442,618 for the three months ended June 30, 2023 compared to $493,382 for the three months
ended June 30, 2024. The increase is entirely related to the increased amortization of our faidr and podcasting Apps.
Other expense, net
Total other expenses
increased by $110,463 or 20.5% from $538,572 for the three months ended June 30, 2023 to $649,035 for the three months ended June 30,
2024. Interest expense decreased by $521,925 due to the repayment of notes payable to related party in April 2024. Interest expense was
offset by $632,388 due to the change in the fair value of the notes payable converted to equity.
Comparison of the six months ended June
30, 2024 and 2023
The following table summarizes our results of operations:
| |
Six Months Ended | | |
| | |
| |
| |
June 30, 2024 | | |
June 30, 2023 | | |
Change $ | | |
Change % | |
Revenue | |
$ | – | | |
$ | – | | |
| – | | |
| 0.0% | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Direct cost of services | |
| 98,400 | | |
| 87,339 | | |
| 11,061 | | |
| 12.7% | |
Sales and marketing | |
| 363,263 | | |
| 448,879 | | |
| (85,616 | ) | |
| (19.1% | ) |
Research and development | |
| 325,095 | | |
| 390,489 | | |
| (65,394 | ) | |
| (16.7% | ) |
General and administrative | |
| 1,945,124 | | |
| 1,819,336 | | |
| 125,788 | | |
| 6.9% | |
Depreciation and amortization | |
| 977,128 | | |
| 885,653 | | |
| 91,475 | | |
| 10.3% | |
Total operating expenses | |
| 3,709,010 | | |
| 3,631,696 | | |
| 77,314 | | |
| 2.1% | |
Loss from operations | |
| (3,709,010 | ) | |
| (3,631,696 | ) | |
| (77,314 | ) | |
| 2.1% | |
| |
| | | |
| | | |
| | | |
| | |
Other expense: | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (169,355 | ) | |
| (846,478 | ) | |
| 677,123 | | |
| (80.0% | ) |
Change in fair value of warrants | |
| (632,388 | ) | |
| – | | |
| (632,388 | ) | |
| 100.0% | |
Total other expense | |
| (801,743 | ) | |
| (846,478 | ) | |
| 44,735 | | |
| (5.3% | ) |
Loss before income taxes | |
| (4,510,753 | ) | |
| (4,478,174 | ) | |
| (32,579 | ) | |
| 0.7% | |
Provision for income taxes | |
| – | | |
| – | | |
| – | | |
| 0.0% | |
Net loss | |
$ | (4,510,753 | ) | |
$ | (4,478,174 | ) | |
| (32,579 | ) | |
| 0.7% | |
Revenue
Total revenues for the six
months ended June 30, 2024 and 2023 were $0 as we continue to develop and enhance our faidr and podcasting Apps to establish new revenue
streams.
Direct cost of services
Direct cost of services increased
$11,061 or 12.7% from $87,339 for the six months ended June 30, 2023 compared to $98,400 for the six months ended June 30, 2024. This
increase was primarily the result of an increase in hosting costs and data subscription fees.
Sales and marketing
Sales and marketing expenses
decreased by $85,616 or (19.1%) from 448,879 for the six months ended June 30, 2023 to $363,263 for the six months ended June 30, 2024,
which was primarily attributed to reduced marketing promotion costs associated with the national launch of the faidr app. We expect our
sales and marketing expenses to fluctuate period by period as we release new upgrades and enhancements within our Apps and look to generate
revenue through customer acquisition, retention, and subscription conversion.
Research and development
Research and development
expenses decreased by $65,394 or (16.7%) from $390,489 for the six months ended June 30, 2023 to $325,095 for the three months ended June
30, 2024, which was primarily due to lower consulting fees.
General and administrative
General and administrative
expenses increased by $125,788 or 6.9% from $1,819,336 for the six months ended June 30, 2023 compared to $1,945,124 for the six months
ended June 30, 2024. The increase was primarily driven by an increase in salary expense and professional fees to support compliance requirements
related to potential acquisitions, partially offset by lower stock compensation expense.
Depreciation and amortization
Depreciation and amortization
expenses increased by $91,475 or 10.3% from $885,653 for the six months ended June 30, 2023 compared to $977,128 for the six months ended
June 30, 2024. The increase is entirely related to the increased amortization of our faidr and podcasting Apps.
Other expense, net
Total other expenses
decreased by $44,735 or 5.3% from $846,478 for the six months ended June 30, 2023 to $801,743 for the six months ended June 30, 2024.
Interest expense decreased by $677,123 due to the repayment of notes payable to related party in April 2024. Interest expense was offset
by $632,388 due to the change in the fair value of the notes payable converted to equity.
Liquidity and capital
resources
Sources of liquidity
We have incurred operating
losses since our inception and have an accumulated deficit as a result of ongoing efforts to develop and commercialize our faidr and podcasting
Apps. As of June 30, 2024 and December 31, 2023, we had cash and cash equivalents of $1,882,205 and $804,556, respectively. We have working
capital in the amount of approximately $1.7 million as of June 30, 2024. We anticipate that operating losses and net cash used in operating
activities will increase over the next 12 months as we continue to develop and market our products. We
secured $7.1 million of additional financing in 2024, which enabled us to pay down $2.75 million in connection with the Secured Bridge
Notes and will only be sufficient to fund our current operating plans into the fourth quarter of 2024. The Company has based these estimates,
however, on assumptions that may prove to be wrong. We will need additional funding to complete the development of our full product line
and scale products with a demonstrated market fit. Management has plans to secure such additional funding. If we are unable to raise capital
when needed or on acceptable terms, we would be forced to delay, reduce, or eliminate our technology development and commercialization
efforts.
Interim Bridge Financings
As previously disclosed,
on November 14, 2022, we entered into a Secured Bridge Note (“Prior Note”) financing with one of our accredited investors,
a significant existing shareholder of the Company. We received $2,000,000 of gross proceeds from the Prior Note financing.
On April 17, 2023, we entered
into an additional Secured Bridge Note (“New Note”) financing with the same accredited investor from the Prior Note financing.
We received $750,000 of gross proceeds from the New Note financing. The New Note was issued with a principal amount of $825,000, 10% interest
rate and a maturity date on July 31, 2023. The New Note is secured by a lien on substantially all of our assets. At maturity of the New
Note, the accredited investor, or our lender, has the option to convert any original issue discount and accrued but unpaid interest into
shares of our common stock at a fixed conversion price of $15.25 per share.
In connection with the New
Note financing, we issued 26,000 common stock warrants to the accredited investor with a five-year term and a fixed $15.25 per share exercise
price, from which 13,000 of these common stock warrants are exercisable immediately. The remaining 13,000 common stock warrants would
only become exercisable if the maturity date of the New Note is extended in accordance with the terms of the New Note. As of July 31,
2023, we extended the maturity date of the New Note to November 30, 2023. Upon the July 31, 2023 extension, the interest rate on the New
Note increased to 20% from 10%, and the remaining portion of the 13,000 common stock warrants became exercisable. As of November 30, 2023,
we extended the maturity date of the Prior Note and New Note to March 31, 2024. All terms of the Prior Note and New Note, such as interest
rate and exercisable common stock warrants remained the same. The accredited investor did not exercise the common stock warrants as of
December 31, 2023 or subsequent to December 31, 2023 and as of the date of this filing.
Further, in connection with
the New Note financing, the parties agreed to make certain amendments to the Prior Note financing. Specifically, the parties agreed to
cancel the 12,000 common stock warrants issued as part of the prior financing and, in lieu of the cancelled warrants, issued the investor
common stock warrants for 24,000 common shares with an exercise price of $15.25 per common share and a five-year term. From the newly
issued 24,000 common stock warrants, 12,000 common stock warrants were exercisable immediately, while the other 12,000 common stock warrants
became exercisable at the time of extension of the maturity date of the Prior Note during May of 2023.
In order for the accredited
investor to receive common shares from a conversion or exercise of the common stock warrants, an approval is required from the shareholders,
if the number of common shares to be issued to the accredited investor, when aggregated with all other shares of common stock beneficially
or deemed beneficially owned by the accredited investor would (i) result in the investor owning more than the Beneficial Ownership Limitation
(as defined below), as determined in accordance with Section 13 of the Securities Exchange Act of 1934 or (ii) otherwise constitute a
Change of Control within the meaning of Nasdaq Rule 5635(b). The “Beneficial Ownership Limitation” shall be 19.99% of the
number of shares of the common stock outstanding immediately prior to the proposed issuance of shares of common stock.
On April 9, 2024, we entered
into an Amendment and Waiver Agreement with the Investor relating to the Bridge Notes.
We agreed to pay $2.75 million
in cash to the Investor in repayment of the principal of the Bridge Notes (exclusive of the $275,000 of original issue discount on the
Bridge Notes) shortly after the closing of one or more equity financings with total gross proceeds to us of not less than $6,000,000.
On April 26, 2024, we repaid
$2.75 million of principal on our Secured Bridge Notes.
Effective April 9, 2024,
the Investor converted $911,384, which is equal to the (i) unpaid accrued interest on the Bridge Notes plus (ii) the OID on the Bridge
Notes, into equity securities.
The Rollover Securities consist
of (i) 463,337 Prefunded Warrants with a per share exercise price of $0.001 per share and (ii) 463,337 Non-Prefunded Warrants with a per
share exercise price equal to $1.967. As of the date and time of the Amendment and Waiver Agreement, the Nasdaq Minimum Price (as defined
in the applicable Nasdaq listing rules) for our common stock was $1.966.
The number of Prefunded Warrants
was determined by dividing the Rollover Amount by $1.967. The number of Non-Prefunded Warrants is equal to the number of Prefunded Warrants
(i.e. 100% warrant coverage). The Non-Prefunded Warrants have a price adjustment provision which will adjust the exercise price downward
in the event that we issue equity securities in the future at an effective per share price below the then current exercise price. In order
to assure compliance with applicable Nasdaq rules, the Non-Prefunded Warrants shall not be exercisable for six months following the date
of issue.
We issued to the Investor
50,000 Fee Warrants with a five-year term as a loan extension fee. The exercise price of these additional Fee Warrants is $1.967. The
Fee Warrants have a price adjustment provision which will adjust the exercise price downward in the event that we issue equity securities
in the future at an effective per share price below the then current exercise price. In order to assure compliance with applicable Nasdaq
rules, the Fee Warrants shall not be exercisable for six months following the date of issue.
We agreed to adjust the exercise
price of the Investor’s Existing Warrants from $15.25 (after adjustment for the recent reverse stock) to $1.967 per share.
The Investor will not be
able to receive shares upon exercise of any of the foregoing securities, unless prior stockholder approval is obtained, if (i) the number
of shares to be issued would exceed 20% of our outstanding number of shares at a discount to the applicable Nasdaq Minimum Price or (ii)
the number of shares to be issued would result in in a Change of Control within the meaning of Nasdaq Rule 5635(b).
Equity Line Sales of Common
Stock
On November 14, 2022, we
entered into a Common Stock Purchase Agreement (the “White Lion Purchase Agreement”) with White Lion Capital, LLC, a Nevada
limited liability company (“White Lion”) for an equity line facility.
On April 17 and April 20,
2023, we closed on two sales of Common Stock under the White Lion Purchase Agreement. We issued an aggregate of 1,962,220 common shares
and received aggregate proceeds of approximately $1.12 million.
Replacement Equity Line
with White Lion
On
November 6, 2023, we entered into a new Common Stock Purchase Agreement and a related registration rights agreement with White Lion. Pursuant
to the new Common Stock Purchase Agreement, we have the right, but not the obligation to require White Lion to purchase, from time to
time until December 31, 2024, up to $10,000,000 in aggregate gross purchase price of newly issued shares of our common stock, subject
to certain limitations and conditions set forth in the Common Stock Purchase Agreement. In connection with the new Common Stock Purchase
Agreement, the parties agreed to terminate the previous Common Stock Purchase Agreement with White Lion.
Through
June 30, 2024, we have sold 1,940,000 shares to White Lion for total net proceeds of $4,852,508. We currently have effective registration
statements that registers for resale by White Lion up to 5,165,263 shares of common stock that we may issue to White Lion under the Equity
Line Purchase Agreement. After White Lion has acquired shares under the Equity Line Purchase Agreement, it may sell all, some or none
of those shares. Sales to White Lion by us pursuant to the Equity Line Purchase Agreement may result in substantial dilution to the interests
of other holders of our common stock.
Cash Flow Analysis
Our cash flows from operating
activities have historically been significantly impacted by our investment in sales and marketing to drive growth, and research and development
expenses. Our ability to meet future liquidity needs will be driven by our operating performance and the extent of continued investment
in our operations. Failure to generate sufficient revenues and related cash flows could have a material adverse effect on our ability
to meet our liquidity needs and achieve our business objectives.
The following table summarizes
the statements of cash flows for the six months ended June 30, 2024 and 2023:
| |
Six Months Ended June 30, | |
| |
2024 | | |
2023 | |
Net cash provided by (used in): | |
| | | |
| | |
Operating activities | |
$ | (2,633,821 | ) | |
$ | (2,214,728 | ) |
Investing activities | |
| (537,120 | ) | |
| (529,503 | ) |
Financing activities | |
| 4,248,590 | | |
| 4,687,941 | |
Change in cash | |
$ | 1,077,649 | | |
$ | 1,943,710 | |
Operating activities
Cash used in operating
activities for the six months ended June 30, 2024 was ($2,633,821), primarily resulting from our net loss of ($4,510,753) and change in
working capital of $45,275, offset by non-cash charges of $1,922,207 related to depreciation and amortization, share based compensation
expense, and the change in fair value of warrants. Cash used in operating activities for both periods consisted of personnel-related expenditures,
marketing and promotion costs, and public company administrative support costs such as legal and other professional support services.
Cash used in operating activities
for the six months ended June 30, 2023, was ($2,214,729), primarily resulting from our net loss of ($4,478,174) and change in working
capital of $99,309 related to an increase in accounts payable and accrued liabilities, offset by non-cash charges of $2,164,136 related
to depreciation and amortization, share based compensation expense, and finance charges associated with the debt issuance costs of the
Secured Bridge Notes. Cash used in operating activities for both periods consisted of personnel-related expenditures, marketing and promotion
costs, and public company administrative support costs such as legal and other professional support services.
Investing activities
Cash flows used in investing
activities for the six months ended June 30, 2024 were ($537,120), consisting of the capitalization of software development expenses and
purchase of computer equipment.
Cash flows used in investing activities for the
six months ended June 30, 2023 were ($529,503), consisting entirely of capitalization of software development expenses.
Financing activities
Cash flows generated
in financing activities for the six months ended June 30, 2024 were $4,248,590, which consisted of cash proceeds from the issuance of
common shares of $4,852,508 and cash proceeds from the issuance of preferred shares of $2,238,575. This was partially offset by the repayment
of the note payable to related party of $2,750,000, payment of offering costs of $72,807 and net settlement of share-based compensation
liability of $19,686.
Cash flows generated in financing
activities for the six months ended June 30, 2023, were $4,687,941 and related primarily to cash proceeds from the issuance of common
shares of $4,016,521 and proceeds from related party debt of $750,000.
Funding Requirements
We historically have
incurred significant losses and negative cash flows from operations since our inception and had an accumulated deficit of $85,054,083
and $80,543,330 as of June 30, 2024 and December 31, 2023, respectively. As of June 30, 2024 and December 31, 2023, we had cash and cash
equivalents of $1,882,205 and $804,556, respectively. Our cash is comprised primarily of demand deposit accounts and money market funds.
We secured $7.1 million of additional financing in 2024, which enabled us to pay down $2.75 million
in connection with the Secured Bridge Notes and will only be sufficient to fund our current operating plans into the fourth quarter of
2024. We have based these estimates, however, on assumptions that may prove to be wrong. We will need additional funding to complete the
development of our full product line and scale products with a demonstrated market fit. Management has plans to secure such additional
funding. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce, or eliminate
our technology development and commercialization efforts.
We expect our expenses to
increase in connection with our ongoing activities, particularly as we continue the development, and marketing and promotion of faidr.
In addition, we expect to continue to incur additional costs associated with operating as a public company, including legal, accounting,
investor relations and other expenses. Our future funding requirements will depend on many factors, including, but not limited to:
|
· |
the scope, progress, results, and costs related to the market acceptance of our products; |
|
|
· |
the ability to attract podcasters and content creators to faidr and retain listeners on the platform; |
|
|
· |
the costs, timing, and ability to continue to develop our technology; |
|
|
· |
effectively addressing any competing technological and market developments; and |
|
|
· |
avoiding and defending against intellectual property infringement, misappropriation and other claims. |
|
Contractual Obligations
The following table summarizes
our contractual obligations as of June 30, 2024, and the effects that such obligations are expected to have on our liquidity and cash
flows in future periods:
| |
Payments due by period | |
| |
Total | | |
Less Than 1 Year | | |
1 - 3 Years | | |
4 - 5 Years | | |
More Than 5 Years | |
Operating lease commitments: | |
| | | |
| | | |
| | | |
| | | |
| | |
Office lease (1) | |
$ | 105,601 | | |
$ | 30,698 | | |
$ | 74,903 | | |
$ | – | | |
$ | – | |
Total operating lease commitments | |
$ | 105,601 | | |
$ | 30,698 | | |
$ | 74,903 | | |
$ | – | | |
$ | – | |
(1) |
Represents minimum payments due for the lease of office space. |
Off-balance sheet arrangements
We did not have during the
periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Critical Accounting Estimates
Our financial statements
and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make
estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related
disclosures. On an ongoing basis, we continually evaluate our estimates and assumptions believed to be reasonable under current facts
and circumstances. Actual amounts and results may materially differ from these estimates made by management under different assumptions
and conditions.
Certain accounting policies
that require significant management estimates and are deemed critical to our results of operations or financial position, are described
below. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial
condition and results of operations.
Software Development Costs
The Company accounts for
costs incurred in the development of computer software as software research and development costs until the preliminary project stage
is completed, management has committed to funding the project, and completion and use of the software for its intended purpose is probable.
The Company ceases capitalization of development costs once the software has been substantially completed and is available for its intended
use. Software development costs are amortized over a useful life estimated by the Company’s management of three years. Costs associated
with significant upgrades and enhancements that result in additional functionality are capitalized. Capitalized costs are subject to an
ongoing assessment of recoverability based on anticipated future revenues and changes in software technologies. Unamortized capitalized
software development costs determined to be in excess of anticipated future net revenues are impaired and expensed during the period of
such determination.
Equity-based compensation
Certain of our employees
and consultants have received grants of common shares in our company. These awards are accounted for in accordance with guidance prescribed
for accounting for equity-based compensation. Based on this guidance and the terms of the awards, the awards are equity classified. The
common shares receive distributions if any in an order of priority in accordance with our limited liability company agreement.
The fair value of each award
is determined using the Black-Scholes option-pricing model which values options based on the stock price at the grant date, the expected
life of the option, the estimated volatility of the stock, and the risk-free interest rate over the expected life of the option. The expected
volatility was determined considering comparable companies historical stock prices as a peer group for the fiscal year the grant occurred
and prior fiscal years for a period equal to the expected life of the option. The risk-free interest rate was the rate available from
the St. Louis Federal Reserve Bank with a term equal to the expected life of the option. The expected life of the option was estimated
based on a mid-point method calculation.
Prior to our IPO in February
2021, we were a private company with no active public market for our common equity. Therefore, we have periodically determined the overall
value of our company and the estimated per share fair value of our common equity at their various dates using contemporaneous valuations
performed with the assistance of a third-party specialist and in accordance with the guidance outlined in the American Institute of CPA’s
Practice Aid.
Emerging growth company and smaller reporting company status
The Jumpstart Our Business
Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to
comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private
companies. We have elected to not “opt out” of this provision and, as a result, we will adopt new or revised accounting standards
at the time private companies adopt the new or revised accounting standard and will do so until such time that we either (i) irrevocably
elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.
We are also a “smaller reporting company”
meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue was less than $100
million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value
of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently
completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting
company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements
that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two
most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies,
smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
We are a smaller reporting company as defined
by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 4. |
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were
effective after taking remedial actions to address the material weaknesses in internal control over financial reporting reported in prior
filings. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information required
to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. We believe that
a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system
are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a
company have been detected.
Changes in Internal Control Over Financial Reporting
Management has been actively engaged in remediating
the material weaknesses discussed in our Form 10-K for the period ended December 31, 2023 filed with SEC on April 1, 2024. The following
remedial actions have been taken during the six months ended June 30, 2024:
|
· |
Completed the internal control documentation along with engaging outside consultants to assist in the design, implementation and documentation of internal controls to address the relevant risks; |
|
· |
Performed risk-based scoping activities to identify key business processes, and engaged an outside internal control specialist team to assist in designing, documenting, and implementing internal controls to address relevant risks; |
|
· |
Implemented the internal control procedures identified
in the scoping and documentation processes;
|
|
· |
Hired additional accounting resources with appropriate levels of experience, including a new Chief Financial Officer in 2023; and |
|
· |
Continue to engage outside consultants to ensure that the appropriate level of knowledge and experience is applied based on risk and complexity of transactions and tasks under review. |
The process of implementing an effective financial
reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory
environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations.
As we continue to evaluate and take actions to improve our internal control over financial reporting, we may take additional actions to
address control deficiencies or modify certain of the remediation measures described above.
We believe the above actions will
be effective in remediating the material weaknesses described above and we will continue to devote significant time and attention to these
remedial efforts.
PART II – OTHER INFORMATION
Item 1. |
Legal Proceedings |
From
time to time, we are involved in various disputes, claims, suits, investigations, and legal proceedings arising in the ordinary course
of business. We believe that the resolution of current pending legal matters will not have a material adverse effect on our business,
financial condition, results of operations or cash flows. Nonetheless, we cannot predict the outcome of these proceedings, as legal matters
are subject to inherent uncertainties, and there exists the possibility that the ultimate resolution of these matters could have a material
adverse effect on our business, financial condition, results of operations or cash flows. For additional information, see “Note
5. Commitments and Contingencies” to our financial statements included in this Form 10-Q.
In addition to the information
set forth in this Form 10-Q, you should carefully consider the risk factors disclosed under the heading “Risk Factors” in
Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to our risk
factors from those included in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
Not applicable.
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities
during the quarter ended June 30, 2024.
Item 3. |
Defaults Upon Senior Securities |
Item 4. |
Mine Safety Disclosures |
None.
Item 5. |
Other Information |
During the quarter
ended June 30, 2024, no director or officer of the Company adopted or terminated or otherwise had in effect a “Rule 10b5-1 trading
arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
The exhibits required by
Item 601 of Regulation S-K and Item 15(b) of this Quarterly Report are listed in the Exhibit Index below. The exhibits listed in
the Exhibit Index are incorporated by reference herein.
Exhibit
Number |
|
Description of Document |
|
Incorporated by reference from
Form |
|
Filing
Date |
|
Exhibit
Number |
|
Filed
Herewith |
|
|
|
|
|
|
|
|
|
|
|
10.21 |
# |
Executive Officer Employment Agreement for Brian Hoff dated October 13, 2021 |
|
8-K |
|
10-15-2021 |
|
10.3 |
|
|
10.22 |
# |
Executive Officer Employment Agreement for Timothy Ackerman effective as of February 6, 2023 |
|
8-K |
|
02-16-2023 |
|
10.1 |
|
|
10.23 |
|
Secured Promissory Bridge Note dated November 14, 2022 |
|
8-K |
|
11-14-2022 |
|
10.1 |
|
|
10.24 |
|
Common Stock Warrant dated November 14, 2022 |
|
8-K |
|
11-14-2022 |
|
10.2 |
|
|
10.25 |
|
Security Agreement dated November 14, 2022 |
|
8-K |
|
11-14-2022 |
|
10.3 |
|
|
10.26 |
|
Common Stock Purchase Agreement, dated November 14, 2022, by and between Auddia Inc. and White Lion Capital LLC |
|
8-K |
|
11-14-2022 |
|
10.4 |
|
|
10.27 |
|
Secured Promissory Bridge Note dated November 14, 2022 |
|
8-K |
|
11-14-2022 |
|
10.1 |
|
|
10.28 |
|
Common Stock Warrant dated November 14, 2022 |
|
8-K |
|
11-14-2022 |
|
10.2 |
|
|
10.29 |
|
Security Agreement dated November 14, 2022 |
|
8-K |
|
11-14-2022 |
|
10.3 |
|
|
10.30 |
|
Common Stock Purchase Agreement, dated November 14, 2022, by and between Auddia Inc. and White Lion Capital LLC |
|
8-K |
|
11-14-2022 |
|
10.4 |
|
|
10.31 |
|
Secured Promissory Bridge Note dated April 17, 2023 |
|
8-K |
|
04-21-2023 |
|
10.1 |
|
|
10.32 |
|
Common Stock Warrant for 600,000 shares dated April 17, 2023 |
|
8-K |
|
04-21-2023 |
|
10.2 |
|
|
10.33 |
|
Common Stock Warrant for 650,000 shares dated April 17, 2023 |
|
8-K |
|
04-21-2023 |
|
10.3 |
|
|
10.34 |
|
Form of 2023 Placement Agency Agreement |
|
8-K |
|
06-14-23 |
|
1.1 |
|
|
10.35 |
|
Form of Securities Purchase Agreement dated June 13, 2023 between Auddia Inc. and the Investors named therein |
|
8-K |
|
06-14-23 |
|
10.1 |
|
|
10.36 |
|
Common Stock Purchase Agreement, dated as of November 6, 2023, by and between White Lion Capital, LLC and Auddia Inc. |
|
8-K |
|
11-06-23 |
|
10.1 |
|
|
10.37 |
|
Registration Rights Agreement, dated as of November 6, 2023, by and between White Lion Capital, LLC and Auddia Inc. |
|
8-K |
|
11-06-23 |
|
10.2 |
|
|
10.38 |
# |
Employment Agreement, effective as of November 27, 2023, between Auddia Inc. and John E. Mahoney |
|
8-K |
|
12-18-2023 |
|
10.1 |
|
|
10.39 |
|
Series A Preferred Securities Purchase Agreement dated November 11, 2023 between Auddia Inc. and Jeffrey Thramann |
|
8-K |
|
11-16-2023 |
|
10.1 |
|
|
10.40 |
|
Amendment and Waiver dated April 9, 2024 Relating to Senior Secured Bridge Notes |
|
8-K |
|
04-15-2024 |
|
10.1 |
|
|
10.41 |
|
Form of Securities Purchase Agreement dated April 23, 2024 |
|
10-Q |
|
05-14-2024 |
|
10.41 |
|
|
10.42 |
|
Form of Common Stock Warrant dated April 23, 2024 |
|
8-K |
|
04-29-2024 |
|
10.2 |
|
|
10.43 |
|
Form of Registration Rights Agreement dated April 23, 2024 |
|
8-K |
|
04-29-2024 |
|
10.3 |
|
|
31.1 |
|
Section 302
Certification by the Corporation’s Chief Executive Officer |
|
|
|
|
|
|
|
X |
31.2 |
|
Section 302
Certification by the Corporation’s Chief Financial Officer |
|
|
|
|
|
|
|
X |
32.1 |
|
Section 906
Certification by the Corporation’s Chief Executive Officer |
|
|
|
|
|
|
|
X |
32.2 |
|
Section 906
Certification by the Corporation’s Chief Financial Officer |
|
|
|
|
|
|
|
X |
97.1 |
|
Auddia Clawback Policy |
|
10-K |
|
04-01-2024 |
|
97.1 |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101). |
___________________________
# |
Indicates management contract or compensatory plan. |
** |
Certain information contained in this Exhibit has been redacted and appears as “XXXXX” as the disclosure of same would be a disadvantage to the Registrant in the marketplace |
SIGNATURES
Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
AUDDIA INC. |
|
|
|
By: |
/s/ Michael Lawless |
|
|
Michael Lawless
President, Chief Executive Officer, Director |
|
By: |
/s/ John Mahoney |
|
|
John Mahoney
Chief Financial Officer |
Date: August 7, 2024
Auddia (NASDAQ:AUUD)
Historical Stock Chart
From Jul 2024 to Aug 2024
Auddia (NASDAQ:AUUD)
Historical Stock Chart
From Aug 2023 to Aug 2024