Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission File No. 001-40071

AUDDIA INC.

(Exact Name of Registrant as Specified in Its Charter)

(303)219-9771

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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.

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 May 14, 2021, 11,291,829August 11, 2023, there were 19,947,223 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.

AUDDIA INC.

20212023 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:

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

Auddia Inc.

Condensed Balance Sheets (Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

Auddia Inc.

Condensed Statements of Operations (Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

Auddia Inc.

Condensed Statements of Changes in Shareholders’ Equity (Deficit) (Unaudited)

Three Months Ended March 31, 2020

Three Months Ended March 31, 2021

The accompanying notes are an integral part of these unaudited condensed financial statements.

Auddia Inc.

Condensed Statements of Cash Flows (Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

Auddia Inc.

Condensed Statements of Operations (Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

Auddia Inc.

Condensed Statements of Changes in Shareholders’ Equity (Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

Auddia Inc.

Condensed Statements of Cash Flows (Unaudited)

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., formerly Clip Interactive, LLC, (the “Company”, “Auddia”, “we”, “our”) is a technology company that makes radio broadcastsis reinventing how consumers engage with audio through the development of a proprietary AI platform for audio and streaming audio content digitally actionable and measurable. On January 14, 2012,innovative technologies for podcasts. Clip Interactive, LLC was initially formed as a Colorado limited liability company on January 14, 2012, and on November 25, 2019, changed its trade name to Auddia.

On February 16, 2021, the Company completed an initial public offering (the “IPO”) of 3,991,818 units, at $4.125 per unit, consisting of one share of common stock and one Series A warrant to purchase one share of common stock at an exercise price of $4.54 per share. In addition, the underwriters exercised their option to purchase 598,772 Series A warrants to cover over-allotments.over-allotments and were issued 319,346 in representative warrants at an exercise price of $5.15625 per share. After deducting underwritersunderwriters’ commissions and expenses, the Company received net proceeds of approximately $15.1$15.1 million and its common stock startedcommenced trading on Nasdaq under the ticker symbol “AUUD”. Concurrently with the IPO, holders of the Company’s promissory notes, convertible notes, and related party notes, along with accrued interest, were converted into 6,814,570 shares of the Company’s common stock.

EffectiveConcurrently with the IPO the Company converted from a Colorado limited liability company to a Delaware corporation. This accounting change has been given retrospective treatment in the financial statements.

Basis of Presentation

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

Unaudited 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, 2022 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.

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.

Reclassification of Presentation

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

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.

Cash and Restricted Cash

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at March 31, 2021 or December 31, 2020. Restricted cash at March 31, 2021 represents cash held as collateral for the outstanding balance on our line of credit.

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. At March 31, 2021 and December 31, 2020, the Company had approximately $7.7 million and $0, respectively, 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.

Deferred Offering Costs

The Company capitalized certain legal, professional accounting and other third-party fees that are directly associated with in-process stock financings as deferred offering costs until such financings were consummated. After consummation of the equity financing, these costs were recorded as a reduction to additional paid-in capital generated as a result of the offering.

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 for complyingto comply with certain new or revised accounting standards that have different effective dates for public and private companies.

Note 2 – Revenue Recognition

Legacy platform phase out

From 2014 through 2020, the Company was successful in deploying its platform across 580 major radio stations and 1.6 million monthly active users. The Company’s legacy product served the broadcast industry by providing a platform that allows for the delivery of actionable digital ads that are synchronized with broadcast and streaming audio ads. Broadcasters offer mobile and web digital interfaces to their listeners, typically for their individual stations. Our Interactive Radio Platform provides mobile and web products that provide end users (listeners) with a visual display of everything a radio station has played in recent history (referred to as a “station feed”).

In addition to displaying album art for songs played, and digital insertions for station promotions and programs (e.g., a radio station contest), the station feed also includes a digital element for each audio ad that was played. These interactive, synchronized digital ads generate additional revenue for broadcasters and allowed for the collection of meaningful advertising analytics which we present to broadcasters through an analytics dashboard.

The Company began phasing out its Interactive Radio Platform in early 2020 and ceased operations related to the legacy platform by August 1, 2020. Much of the core technology of this platform is being leveraged for re-use with our new products, Auddia and Vodacast, currently under development. Furthermore, our well established relationships with more than a dozen broadcasters through the sales, marketing and digital services operations are being maintained as we seek to deploy the Auddia App at national scale.

The Company’s legacy contracts with customers generally fell within two formats: (1) those that encompass development services, access to the Company’s interactive technology platform through a hosted business model and the ability to execute placement of spot advertising through the Company’s interactive technology platform, or (2) contracts exclusively for digital advertising placement of spot ads through the Company’s mobile apps and web players. The Company allocated the transaction price to each separate performance obligation as applicable within each contract based upon their relative selling prices.

Development service fee revenue

Revenue generated from development services were comprised of services for the development, design and customization of software applications for station branded mobile apps and web/desktop players for radio stations. The mobile apps enabled our customer’s users to interact with the live broadcast and streaming content while providing attribution to each station and enabling local and national digital monetization capabilities.

The web/desktop player provided a listening platform that enables full interactive radio capabilities for desktop users that prefer web based listening. The Company determined that the development, design, build and deployment, configuration, and customization are a bundle of professional services provided to the customer for the purpose of the Mobile and Web Desktop Apps and were considered a single performance obligation. Revenue was recognized over time as the services are satisfied and any advanced payments received were not recognized as revenue but instead was recorded in a deferred contract liability until the customer’s services were satisfied. The Company no longer provides these services.

Platform services fee revenue

Revenue generated from platform services were comprised of the customer’s use of the Company’s interactive technology platform that includes access rights to use the licensed software, software hosting, support and maintenance, data tracking analytics, advertising trafficking and monitoring of the mobile app and web/desktop player applications. The Company determined that the hosting of software, license access, support, training, maintenance and unspecified periodic upgrades or updates, monitoring hardware, interactive content management, access to content library, data and analytics dashboard, programming and Ad campaign training were a bundle of product and services that have the same period and pattern of transfer as the service to access the Company’s Platform and have been treated a single performance obligation. Revenue was recognized over time as the customer simultaneously receives and consumes the benefits provided by the Company’s platform services. The Company no longer provides these services.

Advertising revenue

The Company legacy contracts generated advertising revenue in two distinctive forms: one which was from third party advertisers that placed ads on the Company’s mobile apps and web players which were separate customer contracts whereby such advertising access was the only service and performance obligation within those contracts, and second was ad placements on the same platform but managed by the Company for its customers in connection with its contracts to provide development services and Platform access services to its customers.

The external advertising revenues were comprised of local and national interactive spots that were sourced and managed by customers or by third party service providers (such as Google), whereby the Company received a portion of the dollars spent by the advertiser. In late 2018, the Company decided to move to only internally managed digital advertising for 2019 and discontinued revenue sharing agreements with clients for advertising sourced by the client. Revenue was recognized as performance obligations were satisfied on a net basis as the Company was acting as an agent, which generally occurred as ads were delivered through the platform. We generally recognized revenue based on delivery information from the external providers campaign trafficking systems.

The internal advertising revenues were comprised of advertising fees for local and national interactive spot and local or digital only advertising campaign fees that were managed by the Company. For these advertising spots, the Company retained all the money spent on the advertising campaigns run on the Company’s interactive platform. Revenue was recognized as performance obligations were satisfied, which generally occurred as ads were delivered through the platform.

For Interactive and Digital Campaign and Spot Ad Fees which could include customer digital and interactive spot ad campaigns, interactive spot campaigns, the revenue was recognized at a point in time under the “as-invoiced” practical expedient, since customer usage driven variability was not required to be estimated but rather is allocated to the distinct time period in which the variable activity occurred.

Certain customers received platform fee credits or advertising discounts, which were considered as variable consideration in the determination of the transaction price. These performance obligations related to the fixed price arrangements were discounted ratably based on their relative standalone selling prices.

The Company is no longer providing these services.

Contract assets and liabilitiesGoing Concern

The Company had no contractcash of $3,605,144 as of June 30, 2023. 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.

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 8) 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 contractthe amounts and classification of liabilities at March 31, 2021 or December 31, 2020. The Company does not have any customer contracts, asthat might be necessary should the Company no longer providesbe unable to continue as a going concern. The Company’s current level of cash are not sufficient to execute our business plan. For the services mentioned above.foreseeable future, we will incur significant operating expenses, capital expenditures and working capital funding that will deplete our cash on hand by November 2023.

Practical expedients and exemptions

We expensed sales commissions when incurred because the duration of the contracts for which we paid commissions were less than one year. These costs were included in the sales and marketing line item of our Statements of Operations. Currently the Company does not have any significant acquisition costs which have been incurred associated with the acquisition of its customer contracts and therefore, no deferred customer acquisition costs have been recorded.

We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

The following table presents revenues disaggregated by revenue source:

Note 3 – Balance Sheet Disclosures

Accounts payable and accrued liabilities consist of the following:

Note 4 – Line of CreditCash

The Company entered into a lineconsiders all highly liquid instruments purchased with an original maturity of credit with a bank originally dated November 7, 2012 and amended it on November 5, 2016. On April 10, 2018 the Company refinanced its line-of-credit with a different bank and amended this agreement in July 2019 and March 2021. The available principal balance under the line of credit is currently $2,000,000, and the outstanding balance accrues interest at a variable rate based on the bank’s prime rate plus 1% (3.75% at March 31, 2021 and March 31, 2020) but at no timethree months or less than 4.0%. Monthly interest payments are required, with any outstanding principal due on July 10, 2021.

The line of credit is collateralized by all assets of the Company, including $2 million ofto be cash held in a control account at the lender.equivalents. The Company also maintains a minimum balance at the lender to cover two monthshad no cash equivalents as of interest payments. Prior to our IPO, the line of credit was collateralized by $6,000,000 of cash assets of two shareholders held in control accounts at the lender.

Following the Company’s IPO in February 2021, the Company paid down the outstanding principal balance on its bank line of credit from $6 million to $2 million and the available principal balance for the line of credit was reduced from $6 million to $2 million. As of March 31, 2021, $2.0 million of our cash serves as collateral for our outstanding balance on the line of credit. The $6 million of cash collateral previously provided by two shareholders was released.

The outstanding balance on the line of credit at March 31, 2021 andJune 30, 2023 or December 31, 2020 was $2,000,000 and $6,000,000, respectively and the line was fully drawn as of March 31, 2021. The shareholder who previously provided the $2,000,000 control account had a collateral agreement with the Company which is described in Note 5. This agreement terminated in March 2021.

Note 5 – Convertible Notes Payable, Notes Payable to Related Parties and Promissory Notes

Convertible notes payable

During the year ended December 31, 2020 investors purchased an additional $404,601 of our convertible notes, such that at December 31, 2020 the balance of the convertible notes, including accrued interest, was $2,295,305. These convertible notes accrued interest at 6.0% per year and were scheduled to mature on December 31, 2021. In conjunction with the February 2021 IPO, the Notes automatically converted into 2,066,176 shares of common stock at discounts ranging from 50% to 75% of the IPO price.

Accrued fees to a related party2022.

The Company had an agreement with a shareholder to provide collateral for a bank line of credit described in Note 4 – Line of Credit. The amount of themaintains cash collateral provideddeposits at several financial institutions, which are insured by the shareholderFederal Deposit Insurance Corporation up to the bank was $2.0 million.$250,000. The collateral agreement required a commitment to pay collateral fees of $710,000 (comprised of annual interest of $660,000 plus the $50,000 renewal fee) to the shareholder and issue 3,454 common stock warrants. In January 2019, in connection with the collateral agreement,Company’s cash balance may at times exceed these limits. At June 30, 2023, the Company converted accrued feeshad approximately $3.4 million in excess of $725,000 into an unsecured note payable, which bears interest at 33% annually and had a maturity date of December 31, 2021. The fees accruing on the collateral arrangement are 33% percent of the collateral amount annually plus an annual renewal fee of $50,000. Interest expense for the three months ended March 31, 2021 and 2020 was $120,381 and $212,952, respectively. The balance outstanding on the accrued collateral fees was $1,960,336federally insured limits. As at December 31, 2020, excluding the $725,000 unsecured note payable. This collateral agreement terminated in March 2021.

In conjunction with the February 2021 IPO, the notes payable and accrued interest due to this shareholder converted to 1,667,859 shares of common stock.

Promissory notes payable

During the twelve months ended December 31, 2020,2022, the Company issued, to a numberhad approximately $1.4 million in excess of existing shareholders, in four separate tranches, $1,857,764 of Promissory Notes that accrue interest at a rate of 6% per yearfederally insured limits. The Company continually monitors its positions with, and mature on December 31, 2021. When issued, the notes incorporated the following attributes: interest on the Notes accrue at 6% and upon the successful completion of a qualified IPO by December 31, 2021, the notes and accrued interest would convert into equity at a per share valuation equal to $40.0 million. In addition, each investor in the Promissory Notes would receive shares and warrants based on a formula that takes into account the number of shares and warrants the investor owned before the investment in these Promissory Notes, as well as a portioncredit quality of, the bonus allocation of 1,038,342 shares made available to the investors.financial institutions with which it invests.

In conjunction with the February 2021 IPO, all the Promissory Notes converted into 3,080,535 shares of common stock.

The Company recognized a finance charge to interest expense of $8,141,424 related to the conversion of the convertible notes, notes payable to related parties and promissory notes during the three months ended March 31, 2021.

Note 6 – Notes Payable

Notes payable to related parties and deferred salary

An executive officer of the Company agreed to defer receipt of compensation to preserve liquidity in the Company. The accumulated amount of compensation owed to this executive officer was approximately $631,000 at December 31, 2020. The Company paid this deferred compensation in the first quarter 2021.

During 2019, the Company issued notes payable (the "Notes") to three related parties for $80,000, $200,000 and $50,000, respectively. The Notes did not accrue interest or have a stated maturity date. The outstanding note payable for $80,000 was repaid in January 2020. In December 2019, the two other note holders elected to convert their notes into convertible Notes due December 31, 2021. Two other existing investors, who were owed a total of $17,197 for services by the Company, also agreed to convert their payables into convertible Notes. During 2019 the Company issued a note payable to a related party for consulting services incurred by the Company in the amount of $486,198. As of December 31, 2020, the outstanding balance for consulting services was $440,904.

In October 2019, a shareholder obtained $400,000 of short term financing from an unrelated lender. The shareholder then agreed to make the proceeds of that short term financing available to the Company. In exchange, the Company assumed responsibility for all payments and charges (including principal, interest and fees) required under such short term financing agreement. Under the agreement the Company was advanced $188,000, net of $12,000 in closing fees, and the remaining $200,000 was put into an escrow account owned and controlled by the shareholder. A loan financing fee in the amount of $100,000 is due upon maturity, of which the amount relating to 2019 of $75,000 is included in accrued expenses at December 31, 2019. In December 2019, the Company made a principal payment in the amount of $57,203, and accordingly, the outstanding principal balance was $142,797 at December 31, 2019, and is included in Notes payable to related parties on the balance sheet. The remaining balance of $242,797 which included principal and loan financing fees, was repaid in January 2020.

In February 2020, the Company obtained a new $500,000 short term loan from the same related party. The Company was advanced $485,000, net of $15,000 in closing fees, and immediately placed $140,741 into an escrow account, owned and controlled by the shareholder to provide funds for the scheduled repayments. Repayment of the principal and loan financing fee occurs through weekly payments of $17,593 until the loan and financing fee is paid in full. The loan financing fee increases with the length of the payback period and is maximized at $165,000 after month five. The outstanding balance was repaid in February 2021.

Cares Act Paycheck Protection Program loan

In April 2020, the Company entered into a promissory note evidencing an unsecured loan (the “First Loan”) in the amount of $268,662 made to the Company under the Paycheck Protection Program (the “PPP”). In January 2021, the Company entered into a second promissory note (the “Second Loan” or combined with the first loan, the “PPP Loans”) of $267,482 under the PPP. The PPP was established under the CARES Act and is administered by the U.S. Small Business Administration.Software Development Costs

The First Loan matures in April 2022 and the Second Loan matures in January 2023. The PPP Loans bear interest at a rate of 1% per annum. Beginning November 2020, the Company is required to make 18 monthly payments of principal and interestaccounts for costs incurred in the amountdevelopment of $14,370 relatedcomputer software as software research and development costs until the preliminary project stage is completed, management has committed to funding the First Loan. The PPP Loans may be prepaid byproject, and completion and use of the Company at any time prior to maturity with no prepayment penalties. The proceeds from the Loan may only be usedsoftware for payroll costs (including benefits), interest on mortgage obligations, rent, utilities and interest on certain other debt obligations.its intended purpose is probable.

The PPP Loans contain customary eventsCompany ceases capitalization of default relatingdevelopment 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 among other things, payment defaults, making materially falsean ongoing assessment of recoverability based on anticipated future revenues and misleading representationschanges 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. We determined that no such impairments were required during the three months and six month period ended June 30, 2023. Software development costs of $258,929 and $617,411 were capitalized for the three months ended June 30, 2023, and 2022, respectively and $529,503 and $1,278,625 were capitalized for the six months ended June 30, 2023 and 2022, respectively. Amortization of capitalized software development costs were $436,425 and $262,703 for the three months ended June 30, 2023, and 2022, respectively and $872,850 and $430,739 for the six months ended June 30, 2023 and 2022, respectively and are 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. We will recognize revenue when we satisfy a performance obligation by transferring control over a service or product to a customer. We 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 our condensed statements of operations. Collected taxes will be recorded within Other current liabilities until remitted to the lender or breachingrelevant 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 termsperformance 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 Loan documents.performance obligation and therefore these prepayments are recorded as deferred revenue. The occurrencedeferred revenue will be recognized as revenue in our statement of an event of default will result in an increase inoperations as the interest rate to 18% per annum and provides the lender with customary remedies, including the right to require immediate payment of all amounts owed under the PPP Loans.services are provided.

Pursuant toShare-Based Compensation

The Company accounts for share-based compensation arrangements with employees, directors, and consultants and recognizes the termscompensation expense for share-based awards based on the estimated fair value of the CARES Act and the PPP, the Company plans to apply to the lender for forgiveness for the amount dueawards on the PPP Loans, which it has already initiated. The amount eligibledate of grant in accordance with ASC 718.

Compensation expense for forgivenessall share-based awards is based on the amountestimated 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 Loan proceeds used by the Company (during the eight-week period after the lender makes the first disbursement of Loan proceeds) for the payment of certain covered costs, including payroll costs (including benefits), interest on mortgage obligations, rent and utilities, subject to certain limitations and reductions in accordance with the CARES Act and the PPP. While the Company expects 100% of the loan to be forgiven, no assurance can be given that the Company will obtain forgiveness of the PPP Loans in whole or in part.cash flows.

Recently Adopted ASUs

ASU 2016-13-Financial Instruments-Credit Losses- The new guidance makes significant changes to the accounting for credit losses on financial instruments and disclosures about them. Specifically, the new CECL impairment model requires an estimate of expected credit losses, measured over the contractual life of an instrument, that considers forecasts of future economic conditions in addition to information about past events and current conditions. The Company adopted the new standard beginning January 1, 2023. The adoption of the new standard did not have a material impact to the Company’s financial statements.

Note 2 – Property & Equipment and Software Development Costs

Property and equipment and software development costs consisted of the following as of:

The Company recognized depreciation expense of $6,193 and $8,302 for the three months ended June 30, 2023, and 2022, respectively related to property and equipment and amortization expense of $436,425 and $262,703 for the three months ended June 30, 2023, and 2022, respectively related to software development costs. The Company recognized depreciation expense of $12,803 and $16,393 for the six months ended June 30, 2023, and 2022, respectively related to property and equipment and amortization expense of $872,850 and $430,739 for the six months ended June 30, 2023, and 2022, respectively related to software development costs.

Note 3 – Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consist of the following:

Note 4 – Notes Payable to Related Party, net of debt issuance costs

In November 2022, the Company entered into a Secured Bridge Note (the “Prior Note”) financing with an existing shareholder of the Company. The principal amount of the Prior Note was $2,200,000 including an original issue discount of $200,000. The Prior Note bears interest at a stated rate of 10% and had 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 any original issue discount and accrued but unpaid interest into shares of the Company’s common stock at a fixed conversion price of $1.23 per share. The conversion right is available to the lender at the earlier of (i) maturity, or (ii) payback of all the principal. In connection with the Prior Note financing, the Company issued 300,000 common stock warrants with a five-year term and an exercise price of $2.10 per share. The warrants were valued at $361,878, which was recorded as an additional debt discount. During May of 2023, the Company extended the maturity date by six months to November 2023 at an increased annual interest rate of 20% and the issuance of an additional 300,000 warrants. The additional warrants were valued at $94,083, which was also recorded as an additional debt discount. The embedded conversion option was not accounted for separately as, in accordance with the guidance outlined in ASC 815-40, it was considered indexed to the Company’s shares. Similarly, the issued warrants were classified in equity as they were also considered indexed to the Company’s shares in accordance with ASC 815-40.

In connection with an additional financing with the same related party during April of 2023, the Company cancelled the original 300,000 warrants issued with the Prior Note and issued 600,000 new common stock warrants with a five-year term and an exercise price of $0.61 per share. The Company recognized the modification in accordance with ASC 815-40-35, which resulted in the recognition of additional debt discount in the amount of $35,981. Upon issue of the new common stock warrants, 300,000 were fully vested and immediately exercisable upon issue. The remaining 300,000 warrants were unvested.

During May of 2023, the Company extended the maturity date of the Prior Notes by six months to November 2023 at an increased annual interest rate of 20%. In connection with this extension, the 300,000 outstanding unvested warrants became vested and exercisable.

As of June 30, 2023, and December 31, 2022, the balance of the Prior Note, net of debt issuance costs, was $2,121,341 and $1,775,956, respectively. Interest expense related to the Prior Note for the three and six months ended June 30, 2023, was $261,861 and $567,802.

As noted above, the Company entered into an additional Secured Bridge Note (“New Note”) financing with the same accredited investor and significant existing shareholder during April of 2023. In addition, the Company also amended the terms of the Prior Note. The principal amount of the New Note is $825,000 including an original issue discount of $75,000. The New Note bears interest at an annual stated rate of 10% and matures in July 2023. The New Note is secured by a lien on substantially all of the Company’s assets. At maturity the lender has the option to convert any original issue discount and accrued but unpaid interest into shares of the Company’s common stock at a fixed conversion price of $0.61 per share. The conversion right is available to the lender at the earlier of (i) maturity, or (ii) payback of all the principal. In connection with the New Note financing, the Company issued 325,000 common stock warrants with a five-year term and an exercise price of $0.61 per share and an additional 325,000 common stock warrants with a five-year term and an exercise price of $0.61 per share that are exercisable in the event that the loan term is extended. The warrants were valued at $252,940, which was recorded as additional debt discount. Similar to the accounting for the Prior Note, the embedded conversion option was not accounted for separately as, in accordance with the guidance outlined in ASC 815-40, it was considered indexed to the Company’s shares. In addition, the issued warrants were classified in equity as they were also considered indexed to the Company’s shares in accordance with ASC 815-40.

As of June 30, 2023, the balance of the New Note issued in April 2023, net of debt issuance costs, was $717,557. Interest expense related to the New Note for the three and six months ended June 30, 2023 was $273,204, respectively.

On July 31, 2023, the Company extended the maturity date of the New Note to November 30, 2023. In connection with such extension, 325,000 outstanding unvested warrants became vested and exercisable.

Note 75 – Commitments and Contingencies

Operating Lease

In April 2021, the Company entered into a lease agreement for office space in Boulder, Colorado comprising 8,639 square feet. The lease commenced on May 15, 2021, and terminated after 12 months. The Company leases approximately 3,000subsequently extended the lease through November 2022. In November 2022, the Company amended the lease, reducing the square feetfootage rented to 2,160 with a base rent of office space under a non-cancelable operating sublease.$4,018 per month. The amended lease terminates after 13 months. Rent expense, as part of general and administrative expenses as included in the Condensed Statement of Operations, was $18,053$25,385 and $18,639$21,733 for the three months ended March 31, 2021June 30, 2023, and 2020,2022, respectively and $37,438 and $43,182 for the six months ended June 30, 2023, and 2022, respectively. In October 2019, the Company entered into a new sublease, with monthly rent of $5,000 plus a pro-rata share of utilities. In October 2020, the Company renewed this sublease for an additional seven months, on the same terms, which will expire on April 30, 2021. We recently entered into a new sublease for a new principal office and is discussed in more detail in Note 10.

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.

Collateral FeesNASDAQ deficiency

On May 23, 2023, we received a letter (the “Notice”) from the Listing Qualifications Staff of the Nasdaq Stock Market, LLC (“Nasdaq”) indicating that, based upon the Company’s reported stockholder’s equity of $2,095,247 at the end of March 31, 2023, we are not in compliance with the requirement to maintain a minimum stockholder’s equity of $2,500,000 for continued listing on the Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(b)(1) the “Stockholder’s Equity”). We were provided a compliance period of 45 calendar days from the date of the Notice, or until July 7, 2023, to submit a plan to regain compliance with the Stockholder’s Equity Requirement, pursuant to Nasdaq Listing Rule 5810(c)(2)(A).

On July 10, 2023, the Company received a letter from Nasdaq advising that the Company had been granted an extension to file a Form 10-Q for the quarter-ended June 30, 2023 evidencing compliance with Stockholder’s Equity requirement. If we do not regain compliance within the allotted compliance period, Nasdaq will provide notice that the Company’s Common Stock will be subject to delisting. The Company would then be entitled to appeal that determination to a Nasdaq hearings panel.

As disclosed elsewhere in the Quarterly Report, the Company’s stockholder’s equity as of June 30, 2023 is $4,331,778, which is $1,831,778 over the $2.5 million Nasdaq continued listing requirement.

Separately, on April 24, 2023 we received a letter from Nasdaq indicating that the Company is not in compliance with the $1.00 Minimum Bid Price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on the Nasdaq Capital Market (the “Bid Price Requirement”).

The letter indicated that the Company will be provided 180 calendar days (or until October 23, 2023) in which to regain compliance. If at any time during this 180 calendar day period the bid price of the Company’s common stock closes at or above $1.00 per share for a minimum of ten consecutive business days, Nasdaq will provide the Company with a written confirmation of compliance and the matter will be closed.

Alternatively, if the Company fails to regain compliance with Rule 5550(a)(2) prior to the expiration of the initial 180 calendar day period, the Company may be eligible for an additional 180 calendar day compliance period, provided (i) it meets the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Nasdaq Capital Market (except for the Bid Price Requirement) and (ii) it provides written notice to Nasdaq of its intention to cure this deficiency during the second compliance period by effecting a reverse stock split, if necessary. In the event the Company does not regain compliance with Rule 5550(a)(2) prior to the expiration of the initial 180 calendar day period, and if it appears to the Staff that the Company will not be able to cure the deficiency, or if the Company is not otherwise eligible, the Staff will provide the Company with written notification that its securities are subject to delisting from The Nasdaq Capital Market. At that time, the Company may appeal the delisting determination to a Hearings Panel.

The Company previously had a commitmentintends to pay annual collateral fees as described in Note 6. This commitment terminated in March 2021. consider all options to regain compliance with all Nasdaq continued listing requirements.

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 86 - Share-based CompensationIssuances

Stock Options

The following table presents the activity for stock options outstanding:

The following table presents the composition of options outstanding and exercisable:

________________________

* Price and Life reflect the weighted average exercise price and weighted average remaining contractual life, respectively.

During the six months ended June 30, 2023, the Company granted 200,200 stock options. Under the terms of the option agreements, the options are subject to certain vesting requirements. 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.

Restricted Stock Units

The following table presents the activity for restricted stock units outstanding:

Warrants

The following table presents the activity for warrants outstanding:

In connection with the February 2021 IPO, the Company issued 3,991,818 warrants to purchase shares of common stock. The Company also issued to its underwriters 598,772 warrants to cover over-allotments. All5,097,099 of the outstanding warrants are currently exercisable and have a weighted average remaining contractual life of approximately 4.792.94 years as of March 31, 2021.June 30, 2023.

Note 97 – Net Loss Per Share

Basic net loss per share is computed by dividing net loss, which is allocated based upon the proportionate amount of weighted average shares outstanding, to each class of stockholder’sshareholder’s stock outstanding during the period. For the calculation of diluted net loss per share, net loss per share attributable to common stockholdersshareholders for basic net loss per share is adjusted by the effect of dilutive securities, including awards under our equity compensation plans.

As of March 31, 2021June 30, 2023, and 2020, 2,750,3312022, 8,505,540 shares and 644,7516,325,245 shares, respectively of potentially dilutive weighted average shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented.

Note 8 – 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 aggregate number of shares of common stock that the Company can sell to White Lion under the White Lion Purchase Agreement (including the Commitment Shares) may in no case exceed 2,501,700 shares of the common stock (which is equal to approximately 19.99% of the shares of the common stock outstanding immediately prior to the execution of the White Lion Purchase Agreement) (the “Exchange Cap”), unless shareholder approval is obtained to issue purchase shares above the Exchange Cap, in which case the Exchange Cap will no longer apply.

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.

Sale of Common Shares (S-3 offering)

In June 2023, the Company sold 4,735,000 shares of common stock with net proceeds of $2.7 million.

Note 109 – Subsequent Events

InThe Company extended the maturity date of the April 2021,2023 note (described in note 4 to the financial statements) to November 30, 2023. As a result of the extension, the annual interest rate increased to 20% effective August 1^st. Further, the 325,000 contingently exercisable warrants issued with the loan became immediately exercisable.

Nasdaq Non-Compliance

On August 23, 2023, the Company entered intoreceived a lease agreement for a new primary office spacenotice from Nasdaq notifying the Company that because the Company remains delinquent in Boulder, CO comprising of 8,639 square feet. The lease will begin May 15, 2021 and terminates after 12 months. The lease has an initial base rent of $7,150 per month,filing its Form 10-Q, the Company no longer complies with Nasdaq Listing Rule 5250(c)(1), which requires companies with securities listed on Nasdaq to timely file all required periodic reports with the first 15 days rent free and includes three separate six month renewal options,SEC.

The notice received from Nasdaq has no immediate effect on the listing or trading of the Company’s securities on Nasdaq. However, if the Company would fail to timely regain compliance with Rule 5250(c)(1), the Company’s securities would be subject to fixed rate escalation increases.delisting from Nasdaq.

Under the Nasdaq rules, the Company has until October 22, 2023 (60 days after Nasdaq’s notice) to submit a plan to regain compliance with the Rule 5250(c)(1). The Company expects that with the filing of this Form 10-Q , we have regained compliance with Rule 5250(c)(1).

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, 2020,2022, which was filed with the SEC on March 31, 2020.23, 2023. 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, 20202022, 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

We areAuddia 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. We areAuddia is leveraging these technologies to bring to market two industry first apps,within its industry-first audio Superapp, faidr (previously known as the Auddia and Vodacast.App).

Auddiafaidr gives consumers the opportunity to listen to any AM/FM radio station with no commercials while personalizing the listening experience through skips and the insertion of on-demand content, including popular and the programming of audio routines to customize listening sessions such as a daily commute.new music, news, and weather. The Auddiafaidr app represents the first timefirst-time consumers can accesscombine 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 and 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 commercial free and personalized manner many consumers have come to demand for media consumption.episodes.

We areAuddia has also developed a podcasting platform that 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 podcast platform 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.

Both of Auddia’s offerings address 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 ourthis technology platform to bring to market awithin its premium AM/FM radio listening experience through the Auddiafaidr App. The Auddiafaidr 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 without commercials.commercials, podcasts and the faidrRadio exclusive content offerings. Advanced features will allow consumers to skip any content heard on the station, request audio content on-demand, and program an audio routine. We believe the Auddiafaidr 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 music,ad-free AM/FM streaming, the Auddiafaidr App is intended to deliver non-music content that includes local sports, news, weather, traffic and the discovery of new music. Radio is the dominant audio platform for local contentmusic alongside exclusive programming and new music discovery.podcasts. No other radio streaming app available today, including category leaders like TuneIn, iHeart, and Audacy, can compete with faidr’s full product offerings.

We are currently finalizing development and testing of the minimally viable product (“MVP”)launched an MVP version of the Auddia App and expect to initiate the firstfaidr through several consumer trials in 2021 to measure consumer interest and engagement with the second quarterApp. 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 were added to the app for the iOS version before the end of 2021 with a full commercial launchQ1 2023 as planned, and added to follow laterthe Android app in 2021.May of 2023. Podcast functionality will continue to be enhanced through 2023 and into 2024.

We haveThe Company has also developed a newits podcasting platform, called Vodacast. Vodacastwhich leverages 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 Auddia podcast platform was conceptualized to fill a void in the emerging audio media space. The platform aims to be 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. 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 a platform 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 the podcast platform is a podcasting app that providesthe availability of tools to create and distribute an interactive digital feed to supplementwhich supplements podcast episode audio with additional digital. These content feeds allow podcasters to tell deeper stories and giveto their listeners while giving podcasters access to digital revenue for the first time. The platform is unique in that it is designed to add new monetization channels for podcasters while delivering a superior content experience for listeners. Vodacast is a synchronized digital feed that listeners can view and interact with and which accompanies each episode. Podcasters and their digital teams will be able to build these interactive feeds using The VodacastPodcast Hub, a content management system that also serves as a tool to plan and manage a podcast episode.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 copy and web links. This feed appearswill appear fully synchronized in the Vodacastfaidr mobile app,App, and it also can also be hosted and accessed independently (e.g., through any browser), making the content feed universally distributable.

VodacastOver 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 podcast capabilities within faidr will also introduce ana 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-responsedirect response enabled digital ads in each episode content feed, but itincreasing 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. TheseFlex Revenue and the initial inclusion of the new revenue channels arethat 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 to Podcasters starting latebefore the end of 2023.

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 into 2022.common share issuance during June of 2023. We also obtained debt financing through a related party during November 2022 and April 2023. In addition, we sold common shares during April 2023 and June 2023. Since its inception, we have incurred significant operating losses. Since inception we have incurred significant operating losses. As of June 30, 2023, we had an accumulated deficit of $76.2 million. 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:

The Vodacast mobile app is available today

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 iOSsale 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 Android app stores.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, 2023, we had cash of $3,605,144. 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. At present, the Company is in advanced active discussions with two properties and is targeting to execute one or more agreements in the near term. These business development transactions would require additional funding.

Recent Developments

Nasdaq Deficiency Notice

On May 23, 2023, we received a letter (the “Notice”) from the Listing Qualifications Staff of the Nasdaq Stock Market, LLC (“Nasdaq”) indicating that, based upon the Company’s reported stockholder’s equity of $2,095,247 at the end of March 31, 2023, we are not in compliance with the requirement to maintain a minimum stockholder’s equity of $2,500,000 for continued listing on the Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(b)(1) the “Stockholder’s Equity”). We were provided a compliance period of 45 calendar days from the date of the Notice, or until July 7, 2023, to submit a plan to regain compliance with the Stockholder’s Equity Requirement, pursuant to Nasdaq Listing Rule 5810(c)(2)(A).

On July 10, 2023, the Company received a letter from Nasdaq advising that the Company had been granted an extension to file a Form 10-Q for the quarter-ended June 30, 2023 evidencing compliance with Stockholder’s Equity requirement. If we do not regain compliance within the allotted compliance period, Nasdaq will provide notice that the Company’s Common Stock will be subject to delisting. The Company would then be entitled to appeal that determination to a Nasdaq hearings panel.

As disclosed elsewhere in the Quarterly Report, the Company’s stockholder’s equity as of June 30, 2023 is $4,331,778, which is $1,831,778 over the $2.5 million Nasdaq continued listing requirement.

Separately, on April 24, 2023 we received a letter from Nasdaq indicating that the Company is not in compliance with the $1.00 Minimum Bid Price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on the Nasdaq Capital Market (the “Bid Price Requirement”).

The letter indicated that the Company will be provided 180 calendar days (or until October 23, 2023) in which to regain compliance. If at any time during this 180 calendar day period the bid price of the Company’s common stock closes at or above $1.00 per share for a minimum of ten consecutive business days, Nasdaq will provide the Company with a written confirmation of compliance and the matter will be closed.

Alternatively, if the Company fails to regain compliance with Rule 5550(a)(2) prior to the expiration of the initial 180 calendar day period, the Company may be eligible for an additional 180 calendar day compliance period, provided (i) it meets the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Nasdaq Capital Market (except for the Bid Price Requirement) and (ii) it provides written notice to Nasdaq of its intention to cure this deficiency during the second compliance period by effecting a reverse stock split, if necessary. In the event the Company does not regain compliance with Rule 5550(a)(2) prior to the expiration of the initial 180 calendar day period, and if it appears to the Staff that the Company will not be able to cure the deficiency, or if the Company is not otherwise eligible, the Staff will provide the Company with written notification that its securities are subject to delisting from The Nasdaq Capital Market. At that time, the Company may appeal the delisting determination to a Hearings Panel.

The Company intends to consider all options to regain compliance with all Nasdaq continued listing requirements.

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.

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 2023, 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 consistconsists primarily of costs incurred related to our technology and development of our Apps, including hosting and other technology related expenses. Historically, we had higher direct costs of services related to our legacy platform, however, since the termination of our legacy services and platform in August 2020, these costs have been reduced. We expect our direct costs of services to increase in the future as we continue to develop and enhance our technology related to the Auddiafaidr and Vodacastpodcasting 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 the Company’s management of fivethree 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 substantial research and development expenses and capitalization in the future as we continue to develop and enhance our Auddiafaidr and Vodacast apps.

Sales and marketing

Our sales and marketing expenses consist primarily of salaries and consulting services, related to the sales, promotion and commercial trials related to our products. We expect our sales and marketing expenses to continue to increase as we look to commercialize and generate revenue for our products to attract and retain users.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 expandright-size our operating activities and prepare for potential 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 Secured Bridge Note (aka the Prior Note). We expect our other expense to fluctuate period by period dependent upon either the payoff of the Prior Note or an extension of its term.

Results of operations

Comparison of the three months ended March 31, 2021June 30, 2023, and 20202022

The following table summarizes our results of operations:

Revenue

Total revenues were $0 for the three months ended March 31, 2021, compared to $64,776 for the three months ended March 31, 2020. The decrease in revenue can be attributed to the August 2020 termination of our legacy platform which eliminated all platform feeJune 30, 2023, and advertising revenue while2022 were $0 as we continue to develop the new Auddia and Vodacast productsenhance our faidr and podcasting Apps to establish new revenue streams.

Direct cost of services

Direct costCost of services decreased by $81,269Services increased $1,506 or 59%,3.5% from $138,663$43,532 for the three months ended March 31, 2020June 30, 2022, compared to $57,394$45,038 for the three months ended March 31, 2021.June 30, 2023. This decreaseincrease was primarily resulted from the terminationresult of our legacy services and the decreased need fora slight increase in both platform hosting staff reductions to the team working on the current platform,costs and other related direct expenses.music services.

Sales and marketing

Sales and marketing expenses decreased by $516,259 or 70%, from $740,019 for the three months ended June 30, 2022, to $223,760 for the three months ended June 30, 2023, primarily attributed to reduced staffing, consulting expense, and marketing and promotions costs as compared to Q2 2022 that were 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 increased by $2,442$29,112 or 5%19%, from $44,555$151,251 for the three months ended March 31, 2020June 30, 2022, to $46,997$180,363 for the three months ended March 31, 2021June 30, 2023, primarily related to capitalization of researchslightly increased staffing cost. We are continually developing enhancements to both our faidr and development time. During the first quarter of 2021, the majority of the researchpodcasting Apps and development efforts were spent on our new apps, Vodacast and Auddia, which have not been commercially released, therefore $292,075 of research and development expenses were capitalized in the three months ended March 31, 2021 compared to $194,452 capitalized in the three months ended March 31, 2020.

Sales and marketing

Sales and marketing expenses increased by $26,349 or 27%, from $97,104 for the three months ended March 31, 2020 compared to $123,458 for the three months ended March 31, 2021 as we increased marketing expenses primarily relatedwill continue capitalize software costs to the promotion andextent that such development of the Auddia app.qualifies for capitalization.

General and administrative

General and administrative expenses increased by $22,994$49,955 or 4%less than 1%, from $616,897$842,555 for the three months ended March 31, 2020June 30, 2022, compared to $639,891$892,510 for the three months ended March 31, 2021.June 30, 2023. The increase resulted primarily from increased costsan increase in legal fees during Q2 2023 not directly related to being a public companydebt and having higher legal and other professional fees due to preparing to operate as a public company.equity issuance costs.

Interest expense/Depreciation and amortization

Depreciation and amortization expenses increased by $171,613 or 63%, from $271,005 for the three months ended June 30, 2022, compared to $442,618 for the three months ended June 30, 2023. The increase is entirely related to the increased amortization of our faidr and podcasting Apps.

Other income (expense), net

Total other expenses increased by $536,549, from $2,023 for the three months ended June 30, 2022, to $538,572 for the three months ended June 30, 2023. The increase is related to actual and imputed interest expense netattributed to the Secured Bridge Notes issued during November of 2022 and April 2023 (Refer to Note 4 of the condensed unaudited financial statements for additional information regarding the secured bridge notes).

Comparison of the six months ended June 30, 2023, and 2022

Revenue

Total interest expense/revenues for the six months ended June 30, 2023, and 2022 were $0 as we continue to develop and enhance our faidr and podcasting Apps to establish new revenue streams.

Direct cost of services