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 November 14, 2022,May 19, 2023, 12,514,76314,812,929 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.

AUDDIA INC.

20222023 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 Stockholders’Shareholders’ Equity (Unaudited)

NineThree Months Ended September 30, 2021

Nine Months Ended September 30,March 31, 2022

Three Months Ended March 31, 2023

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 is reinventing how consumers engage with audio through the development of a proprietary AI platform for audio and 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 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 commenced 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.

Concurrently 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 condensed 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. 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 condensed 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.

Going Concern

At March 31, 2023 the Company had cash of $239,040. As described below (see Note 8 – Subsequent Events), in April 2023 the Company raised $1.87 million that we believe will fund our operations into the third quarter of fiscal 2023. The Company has based this estimate, however, on assumptions that may prove to be wrong. We will need additional funding to complete the development of our full product line, scale products with a demonstrated market fit and generate revenue and cash flow. 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.

Cash and Future Funding Requirements

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 September 30, 2022March 31, 2023 or December 31, 2021.2022.

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 September 30, 2022 and DecemberMarch 31, 2021,2023, the Company had no deposits in excess of federally insured limits. At December 31, 2022, the Company had approximately $628,3301.4 and $5,910,758, respectively,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.

The Company historically has incurred significant losses and negative cash flows from operations since our inception. As of September 30, 2022,At March 31, 2023, the Company had cash of approximately $1.0 million239,040. As described below (see Note 8 – Subsequent Events), in more detail in Note 10, on November 14, 2022,April 2023 the Company enteredraised $1.87 million that we believe will fund our operations into a secured debt financing agreement for $2.0 million and an equity line facility for additional proceeds.

The Company believes that its cash on hand asthe third quarter of September 30, 2022 combined with the $2.0 million of cash received from the November 14, 2022 secured debt financing plus funds available from the equity line facility will be sufficient to fund current operations for the next twelve months.fiscal 2023. The Company has based these estimates,this estimate, however, on assumptions that may prove to be wrong, and could spend available financial resources much faster than we currently expect. The Companywrong. We will need additional funding to complete the development of our full product line, scale products with a demonstrated market fit and generate revenue and cash flow. Management has plans to secure such additional funding. If we are unable to raise additional fundscapital when needed or on acceptable terms, we would be forced to continue fundingdelay, reduce, or eliminate our technology development and commercialization efforts beyond twelve months.efforts.

Management has secured additional funding after March 31, 2023, as described in more detail in Note 8 – Subsequent Events:

The Company believes that with its cash on hand as of March 31, 2023, of 239,040, combined with the proceeds from the New Note and the White Lion common stock sales of $750,000 and $1.12 million, respectively, and by exercising our option to extend the Prior Note to November 30, 2023, we will be able to fund our operations into the third quarter of fiscal 2023. The Company has based this estimate, however, on assumptions that may prove to be wrong. We will need additional funding to complete the development of our full product line, scale products with a demonstrated market fit and generate revenue and cash flow. Management intends 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.

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 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 considered impaired and expensed during the period of such determination. Software development costs of $394,893270,574 and $353,418661,214 were capitalized for the three months ended September 30,March 31, 2023, and 2022, and 2021, respectively and $1,673,517 and $904,956 were capitalized for the nine months ended September 30, 2022 and 2021, respectively. Amortization of capitalized software development costs were $262,703436,425 and $73,369168,036 for the three months ended September 30,March 31, 2023, and 2022, and 2021, respectively and $693,441 and $73,369 for the nine months ended September 30, 2022 and 2021, respectively and are included in depreciation and amortization expense.

Revenue Recognition

Revenue will be measured according to Accounting Standards Codification (“ASC”) 606, Revenue – Revenue from Contracts with Customers, and will beis recognized based on consideration specified in a contract with a customer, and will excludeexcludes 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 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 are recorded as deferred revenue. The deferred revenue will be recognized as revenue in our 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 stock 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.

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

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 $28,5296,610 and $10,4268,091 for the ninethree months ended September 30,March 31, 2023, and 2022, and 2021, respectively related to property and equipment and amortization expense of $693,441436,425 and $73,369168,036 for the ninethree months ended September 30,March 31, 2023, and 2022, and 2021, respectively related to software development costs.

Note 3 – Balance Sheet Disclosures

Accounts payable and accrued liabilities consist of the following:

Note 4 – Line of CreditNote Payable to Related Party

In November 2022, the Company entered into a Secured Bridge Note (“Prior Note”) financing with an existing stockholder of the Company. The principal amount of the Note is $2,200,000 including an original issue discount of $200,000. The Prior Note bears interest an annual rate of 10% and matures in May 2023. The Prior 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 $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. The Company had a linehas the option to extend the maturity date by six months to November 2023. In the event of credit which was repaid in full on July 8, 2021. Interest accrued at a variablean extension, the interest rate based on the bank’s prime rate plus 1% (4.25% atPrior Note will increase to 20% and the Company will issue to the lender an additional 300,000 warrants.

As of March 31, 2023, and December 31, 2020) but at no time less than 4.0%. Monthly interest payments were required, with any outstanding principal due on July 10, 2021. Interest expense for2022, the nine months ended September 30, 2022 and 2021balance of the Note, net of debt issuance costs, was $02,026,897 and $66,4121,775,956, respectively. Interest expense related to the Note for the three months ended March 31, 2023, was $305,941.

The line of credit was collateralized by all assetsOn April 17, 2023, the Company entered into an additional Secured Bridge Note (“New Note”) financing with the same accredited investor and significant existing stockholder and also amended the terms of the Company, including $2,000,000 of cash held in a control account at the lender. The Company also maintained a minimum balance at the lender to cover two months 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 line of credit was amended and the Company paid down the outstanding principal balance on its bank line of credit from $6,000,000 to $2,000,000 and the available principal balance for the line of credit was reduced from $6,000,000 to $2,000,000. Further, the $6,000,000 of cash collateral previously provided by the two shareholders was released. The remaining principal balance of $2,000,000 was repaid in full and the line of credit was terminated on July 8, 2021.

The shareholder who previously provided the $2,000,000 control account had a collateral agreement with the Company which isNote as described in Note 6. This agreement was terminated in March 2021.

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

Convertible notes payable

The Company had convertible notes outstanding at December 31, 2020 in the amount of $2,295,305, inclusive of accrued interest. 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. Interest expense for the nine months ended September 30, 2022 and 2021 was $0 and $16,586, respectively.

Accrued fees to a related party

The Company had an agreement with a shareholder to provide collateral for a bank line of credit describedmore detail in Note 48 – Line of Credit. The amount of the cash collateral provided by the shareholder to the bank was $2,000,000. 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, the Company converted accrued fees of $725,000 into an unsecured note payable, which bore interest at 33% annually and had a maturity date of December 31, 2021. The fees that accrued on the collateral arrangement were 33% percent of the collateral amount annually plus an annual renewal fee of $50,000. Interest expense for the nine months ended September 30, 2022 and 2021 was $0 and $208,727, respectively. This collateral agreement terminated in March 2021.

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

Subsequent Events.

Promissory notes payable

The Company had promissory notes payable outstanding that were scheduled to mature on December 31, 2021 and accrue interest at 6%. The notes and accrued interest would convert into equity, upon a qualified IPO 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 portion of the bonus allocation of 1,038,342 shares made available to the investors. Interest expense for the nine months ended September 30, 2022 and 2021 was $0 and $14,454, respectively.

In conjunction with the February 2021 IPO, all of the Promissory Notes collectively 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 in February 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. The Company paid this deferred compensation in the first quarter of 2021.

The Company had convertible notes payable to related parties in the amounts of $200,000 and $50,000, without a stated interest rate or stated maturity date. Two other existing investors entered into a convertible note related to services provided to the Company in the amount of $17,197. The Company also issued a convertible note payable to a related party for consulting services incurred by the Company in the amount of $486,198. The Company paid these Notes in the first quarter of 2021.

The Company had a short term loan of $500,000 short term loan from a related party. The balance was repaid in February 2021.

Cares Act Paycheck Protection Program loan

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.

The First Loan was set to mature in April 2022 and the Second Loan was set to mature in January 2023. The PPP Loans bore interest at a rate of 1% per annum. Beginning November 2020, the Company was required to make 18 monthly payments of principal and interest in the amount of $14,370 related to the First Loan. The PPP Loans may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The proceeds from the Loans may only be used for payroll costs (including benefits), interest on mortgage obligations, rent, utilities and interest on certain other debt obligations.

The PPP Loans contained customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the lender or breaching the terms of the Loan documents. The occurrence of an event of default will result in an increase in 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.

Pursuant to the terms of the CARES Act and the PPP, the Company applied for forgiveness for both the PPP Loans. On June 15, 2021, the Company received confirmation that the First Loan was approved for forgiveness and the Company recorded $268,662 in PPP loan extinguishment to other income during the year ended December 31, 2021. On November 2, 2021, the Company received confirmation that the Second Loan was approved for forgiveness and the Company recorded $267,482 in PPP loan extinguishment to other income during the year ended December 31, 2021. The amount eligible for forgiveness was based on the amount 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.

Note 75 – Commitments and Contingencies

Operating Lease

In April 2021, the Company entered into a lease agreement for a new primary office space in Boulder, Colorado comprising of 8,639 square feet. The lease commenced on May 15, 2021, and terminatesterminated after 12 months. The lease has an initial base rent of $7,150 per month, with the first 15 days rent free and includes three separate six month renewal options, subject to fixed rate escalation increases. The Company exercised its first six month renewal option to extendsubsequently extended the lease through November 2022. In November 2022, the Company amended the lease, reducing the square footage rented to 2,160 with a base rent of $4,018 per month. The Company previously leased approximately 3,000 square feet of office space that expired on April 30, 2021.amended lease terminates after 13 months. Rent expense was as follows:  $12,053 and $21,449 for the three months ended March 31, 2023, and 2022, respectively.

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.

Contingencies

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 Company believes it has meritorious defense to the investor's claims.

Note 86 - Share-based Issuances

Stock Options

The following table presents the activity for stock options outstanding:

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

________________________ 

During the ninethree months ended September 30, 2022,March 31, 2023, the Company granted 683,136150,200 stock options to certain executives and key employees.an executive. Under the terms of the option agreements,agreement, 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:

During the ninethree months ended September 30, 2022,March 31, 2023, the Company granted 150,00037,500 restricted stock units. Under terms of the restricted stock agreements,agreement, the restricted stock units are subject to a four yearcertain vesting schedule.

During the nine months ended September 30, 2022,In 2023, certain restricted stock unit holders elected a net-share settlement for vested shares to satisfy income tax requirements. The Company applied modification accounting in accordance with ASC 718 and reclassifiedrecorded the expected value of these share-based awards from equity classification to liability classification.as a liability. The Company recognized a share-based compensation liability as of September 30, 2022March 31, 2023, of $119,38817,739 related to the fair value of vested shares over the service period.

The Company recognized share-based compensation expense related to stock options and restricted stock units in the amounts of $698,486357,680 and $767,543385,908 for the ninethree months ended September 30,March 31, 2023, and 2022, and 2021, respectively. The remaining unvested share-based compensation expense of $2,444,9061,616,569 is expected to be recognized over the next 4537 months.

Warrants

The following table presents the activity for warrants outstanding:

In connection with the February 2021 IPO, the Company issued 4,590,590 Series A warrants to purchase shares of common stock. The Company also issued 319,346 of representative warrants to its underwriters to purchase shares of common stock and these representative warrants contain a cashless exercise feature.

During the nine months ended September 30, 2022 certain holders of our Pre-IPO warrants exercised 148 warrants for 112 shares of common stock at the net exercise price of $0.87 per share.

All of the outstanding warrants are exercisable and have a weighted average remaining contractual life of approximately 3.192.82 years as of September 30, 2022.March 31, 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’s stock outstanding during the period. For the calculation of diluted net loss per share, net loss per share attributable to common stockholders for basic net loss per share is adjusted by the effect of dilutive securities, including awards under our equity compensation plans.

As of September 30,March 31, 2023, and 2022, and 2021, 6,271,2196,669,184 shares and 4,632,7766,248,131 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 108 – Subsequent Events

OnInterim Bridge Financing

Additional Secured Bridge Note Financing

As previously disclosed, on November 14, 2022, the Company entered into a secured debtSecured Bridge Note (“Prior Note”) financing agreement (the “Convertible Note”) with one accredited investor who is a currentsignificant existing stockholder of the Company. The ConvertibleCompany received $2,000,000 of gross proceeds in connection with that financing.

On April 17, 2023, the Company entered into an additional Secured Bridge Note (“New Note”) financing with the same accredited investor. The Company received $750,000 of gross proceeds in connection with the New Note financing.

The principal amount of the New Note is $825,000. The New Note has a face value10% interest rate and matures on July 31, 2023. The New Note is secured by a lien on substantially all of $2.2 millionthe Company’s assets.

At maturity, the investor has the option to convert any original issue discount and accrued but unpaid interest on the New Note into shares of the Company’s common stock. The fixed conversion price is $0.61 per share.

In connection with the New Note financing, the Company issued to the investor 650,000 common stock warrants with a 10% discount, in whichfive-year term and a fixed $0.61 per share exercise price. 325,000 of such warrants are exercisable immediately. The other 325,000 of such warrants would only become exercisable if the Company will receive $2 million in net proceeds. The Convertible Note has a maturity date of Maythe New Note is extended in accordance with the terms of the New Note.

If the New Note remains outstanding as of July 31, 2023, and can be extended at the Company’sCompany has the option to extend the maturity date of the New Note to November 30, 2023. Upon such extension, the interest rate on the New Note will be increased to 20% rather than 10%, and the 325,000 portion of the warrants shall become exercisable.

Amendments to Prior Secured Bridge Note Financing

In connection with the New Note financing, the parties agreed to make certain amendments to the Prior Note financing.

The Convertibleparties agreed to cancel the 300,000 common stock warrants issued November 14, 2022, in connection with the Prior Note bears interest at 10%financing.

In addition, the Company issued to the investor common stock warrants for 600,000 common shares, with an exercise price of $0.61 per common share and a five-year term. 300,000 of such warrants are exercisable immediately. The other 300,000 of such warrants would only become exercisable if the maturity date of the Prior Note is extended in accordance with the terms of the Prior Note.

The investor will not be able to receive shares upon conversion or exercise, unless prior stockholder approval is obtained, if the number of shares to be issued to the investor, when aggregated with all other shares of common stock then owned by the investor beneficially or deemed beneficially owned by the 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 Convertible Note includes 300,000 warrants at a strike price of 150%“Beneficial Ownership Limitation” shall be 19.99% of the most recent closing price.  In addition,number of shares of the common stock outstanding immediately prior to the proposed issuance of shares of common stock.

Equity Line Sales of Common Stock

As previously disclosed, 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 stock purchase agreement with one accredited investor. The equity line facility is for up to $10 million of potential sales subject to certain limitations, would occur, at the Company's option, from time to time over the period ending December 31, 2023. The equity line will be structured as a registered take down off of the Company's existing universal shelf S-3 registration statement which was declared effective on April 18, 2022.facility.

On April 17 and April 20, 2023, the Company closed on two sales of Common Stock under the White Lion Purchase Agreement. The Company issued an aggregate of 1,962,220 common shares and received aggregate proceeds of approximately $1.12 million.

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, 2021,2022, which was filed with the SEC on February 17, 2022.March 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, 20212022, 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, Faidr and Vodacast.within its industry-first audio Superapp, faidr (previously known as the Auddia App).

The Faidr appfaidr 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 Faidr Appfaidr app represents the first-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 lookAuddia 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 bringgo deeper into the stories through supplemental, digital content, and eventually comment and contribute their own content to marketepisode 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 this technology platform within its premium AM/FM radio listening experience through Faidr.the faidr App. The Faidrfaidr 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 Faidrthe 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 music, Faidrad-free AM/FM streaming, the faidr 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 launched an MVP version of faidr through several consumer trials in 2021 to measure consumer interest and engagement with the Faidr App to includeApp. The full app launched on February 15, 2022, and included all major U.S. radio stations onin the US. In February 15, 2022 and launched marketing campaigns for Faidr to build an audience and demonstrate consumer interest. We are currently providing consumers a free trial of the App and started trialing subscriptions with a subset of consumers in late second quarter. We have been continuing to enhance the listening experience for consumers by: 1) advancing the training of2023, we added faidrRadio, our proprietary AI technology primarily around talk stations and talk segments on music stations; 2) continual improvementsexclusive content offerings, to the user interface and consumer interaction within the App; and 3) exploring additional content choices, including podcasting, some of which will become availableapp. Podcasts for iOS were added in the App during the year. We are running additional subscription trials during the first part of the fourth quarter and expect to provide initial consumer subscription metrics during the fourth quarter.Q1, 2023.

The Faidr mobile App is available today throughCompany has also developed its podcasting platform, which leverages technologies and proven product concepts to differentiate its podcasts offering from other competitors in the iOS and Android App stores.radio streaming product category.

We also have developedWith 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 platform called Vodacast. Vodacast provides a unique suite of tools that helps Podcasters create additionalsolution for podcasters by enabling them to deliver digital content forfeeds 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 well as planto where their listeners access their episodes, buildas virtually all listening options (mobile apps and web players) deliver only their brand aroundpodcast 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 Podcast and monetize their content with new monetization channels. listeners, thus creating a powerful, organic marketing dynamic.

One innovative and proprietary part of the Vodacastpodcast platform is the availability of tools to create and distribute an interactive digital feed which supplements podcast episode audio with additional digital content.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 VodacastPodcast Hub, a content management system that 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 appearswill appear fully synchronized in the Vodacastfaidr 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.

VodacastThe 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.

The Vodacastfaidr mobile App is available today through the iOS and Android App stores.

We launched marketing campaigns for Vodacast during the second quarter to continue to grow our user base and encourage listeners to download the Vodacast App and listen to all their favorite shows. Because podcasting is the type of audio content that music app users expect to find in their preferred apps and platforms (e.g. TuneIn, iHeart, Audacy, Spotify), we are currently exploring the migration of podcasting and the full suite of tools and features from Vodacast into our Faidr App to provide an all-inclusive and immersive listening experience. During this time, we have paused direct marketing promotion related to the Vodacast App while we explore podcasting into Faidr.

We have funded our operations with proceeds from the February 2021 IPO and Series A warrants exercise in July 2021. Since inception we have incurred significant operating losses. As of September 30, 2022,March 31, 2023, we had an accumulated deficit of approximately $70.0$73.9 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.

As a part of our capital strategy, we recently implemented certain cost saving initiatives that reduced our quarterly cash spend. This includes certain cost saving initiatives related to our research and development and sales and marketing costs and includes a reduction of headcount and direct promotion of our Apps while we continue to enhance our listening experience. We expect that our expenses and capital requirements will increase again sometimesubstantially in the future,connection with our ongoing activities, particularly if and as we:

On November 14, 2022, the Company entered into

As a secured debt financing agreement with one accredited investor who is an existing stockholder of the Company.  The Companyresult, we will receive $2 million in net proceeds from this financing.  In addition, on November 14, 2022, the Company entered into an equity line stock purchase agreement with one accredited investor.  The equity line facility is for up to $10 million of potential sales subject to certain limitations, would occur, at the Company's option, from time to time over the period ending December 31, 2023.  The equity line will be structured as a registered take down off the Company's existing universal shelf S-3 registration statement which was declared effective on April 18, 2022. We may still need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from subscriptions,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 in addition to the cost saving initiatives we have already made effective.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 September 30, 2022, weAt March 31, 2023, the Company had cash of approximately $1.0$239,040. As described above (see Note 8 – Subsequent Events), in April 2023 the Company raised $1.87 million whichthat we believe shouldwill fund our operating expenses and capital expenditure requirements through at least December 31, 2022. We haveoperations into the third quarter of fiscal 2023. The Company has based this estimate, however, on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and capital resources.” To finance our operations beyond that point, wewrong. We will need additional funding to raisecomplete the development of our full product line, scale products with a demonstrated market fit and generate revenue and cash flow. Management has plans to secure such additional capital, which cannot be assured.funding. If we are unable to raise additional capital in sufficient amountswhen needed or on acceptable terms, acceptablewe would be forced to us, we may have to significantly delay, scale backreduce, or discontinue theeliminate our technology development orand commercialization of our Apps or other research and development initiatives. 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.

In April 2023, the Company announced that it had begun to pursue an acquisition strategy to accelerate user acquisition and growth of 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 three properties. Additional funding would be required to complete any of these potential acquisitions. Refer to Item 1A. Risk Factors under PART II – OTHER INFORMATION in this Form 10-Q for risk factors associated with this growth strategy.

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 Faidrfaidr 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 continue to promote the national commercial launch ofrelease new upgrades and enhancements within our Faidr productApps and look to generate revenue for our products 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 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 recently implemented certain cost saving initiatives which includes the reduction of a part of our research and development staff. We still expect to continue to incur substantial research and development expenses and capitalization in the future even after the reduction of headcount as we continue to develop and enhance our Faidrfaidr and Vodacastpodcasting 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 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

OurThe other income and expense consistcategory primarily consists of interest income related to our cash at financial institutions, debt extinguishment related to our PPP loans, interest expense from our line of credit, and a finance charge related to conversion of outstanding debt into shares of common stock relatedattributed to the February 2021 IPO.debt and conversion features of the Secured Bridge Note (aka the Prior Note). We expect our other expense to decrease as we paid off our outstanding balance on our linefluctuate period by period dependent upon either the payoff of credit and will not incur any additional debt conversion charges. the Prior Note or an extension of its term.

Results of operations

Comparison of the three months ended September 30,March 31, 2023, and 2022 and 2021

The following table summarizes our results of operations:

Revenue

Total revenues were $0 for the three months ended September 30,March 31, 2023, and 2022 and September 30, 2021. We are continuingwere $0 as we continue to develop the new Faidr and Vodacast productsenhance our faidr and podcasting Apps to establish new revenue streams and are currently running our first subscription trials and expect to start generating our first revenue during the fourth quarter of 2022.streams.

Direct cost of services

Direct costCost of servicesServices decreased $3,789$10,261 or 10.4%,19.5% from $36,501$52,562 for the three months ended September 30, 2021March 31, 2022, compared to $32,712$42,301 for the three months ended September 30, 2022.March 31, 2023. This decrease was primarily the result of a reduction in both platform hosting costs and other music services. We continue to incur direct cost of services expense related to hosting and other music services related to our Faidr Appthe faidr and podcasting Apps and expect these costs to increase in the future.

Sales and marketing

Sales and marketing expenses increaseddecreased by $89,717$131,948 or 42.9%37%, from $209,207$357,066 for the three months ended September 30, 2021March 31, 2022, to $298,924$225,118 for the three months ended September 30,March 31, 2023, primarily attributed to reduced staffing, consulting expense, and marketing and promotions spending as we right sized the marketing organization and ramped down other spending from the Q1 2022 due to our increase in promotional activity related tolevels that were associated with the national launch of the faidr App. We expect our Faidr App. The increase in marketing promotion was initially focused on understanding consumer interest and demand for our Faidr App and is shifting focus around user behavior and retention on our App.

Research and development

Research and development expenses increased by $62,275 or 52.2%, from $119,321 for the three months ended September 30, 2021 to $181,596 for the three months ended September 30, 2022 primarily related to additional staffing on our development team as we continued to advance the Faidr and Vodacast Apps. Our research and development staffing and related development costs were $576,491 and capitalized software expenses of $394,893 for the three months ended September 30, 2022 as compared to staffing and related development costs of $462,987 and capitalized software expenses of $353,418 for the three months ended September 30, 2021. The majority of development time was spent on our Faidr and Vodacast Apps. We started amortizing capitalized development costs associated with Faidr during Q1 2022 and continue to amortize development expense related to Vodacast.

General and administrative

General and administrative expenses decreased by $1,068,124 or 66.4%, from $1,608,344 for the three months ended September 30, 2021 compared to $540,220 for the three months ended September 30, 2022. The decrease resulted primarily from decreased stock compensation expense related to employee stock options and lower professional and recruiting fees that were incurred during 2021.

Depreciation and amortization

Depreciation and amortization expenses increased by $196,084 or 249%, from $78,755 for the three months ended September 30, 2021 compared to $274,839 for the three months ended September 30, 2022. The increase is related to amortization of our Faidr and Vodacast Apps, which started amortization during Q1 2022 and Q4 2021, respectively.

Other income (expense), net

Total other income (expense) decreased by $4,748 or 174.2%, from $2,725 for the three months ended September 30, 2021 to ($2,023) for the three months ended September 30, 2022. The decrease was entirely related to interest expense.

Comparison of the nine months ended September 30, 2022 and 2021

The following table summarizes our results of operations:

Revenue

Total revenues were $0 for the three months ended September 30, 2022 and September 30, 2021. We are continuing to develop the new Faidr and Vodacast products to establish new revenue streams and are currently running our first subscription trials and expect to start generating our first revenue during the fourth quarter of 2022.

Direct cost of services

Direct cost of services decreased by $23,726 or 15.6%, from $152,532 for the nine months ended September 30, 2021 compared to $128,806 for the nine months ended September 30, 2022. We continue to incur direct cost of services expense related to hosting and other music services related to our Faidr App and expect these costs to increase in the future.

Sales and marketing

Salessales and marketing expenses increasedto fluctuate period by $923,688 or 195.6%, from $472,322 for the nine months ended September 30, 2021period as we release new upgrades and enhancements within our Apps and look to $1,396,010 for the nine months ended September 30, 2022 due to our increase in promotional activity related to the national launch of our Faidr App,generate revenue through customer acquisition, retention, and continued promotion for our Vodacast App. The increase in marketing promotion was initially focused on understanding consumer interest and demand for our Faidr App and has continued with shifting focus around user behavior and retention on our App.subscription conversion.

Research and development 

Research and development expenses increased by 219,634$61,363 or 83.8%41.3%, from $261,977$148,763 for the ninethree months ended September 30, 2021March 31, 2022, to $481,611$210,126 for the ninethree months ended September 30, 2022March 31, 2023, primarily related to additionalreduced staffing, on our development team as we continue to advanceand an associated reduction in the Faidr and Vodacast Apps.level of capitalized software expenses. Our research and development staffing and related development costs were $2,155,128$480,700 and capitalized software expenses were $270,574 for the three months ended March 31, 2023, as compared to staffing costs of $809,976 and capitalized software expenses of $1,673,517$661,213 for the ninethree months ended September 30, 2022 as comparedMarch 31, 2022. We are continually developing enhancements to staffingboth our faidr and relatedpodcasting Apps and will continue capitalize software costs to the extent that such development costs of $1,161,880 and capitalized software expenses of $904,956qualifies for the nine months ended September 30, 2021. The majority of development time was spent on our Faidr and Vodacast Apps. We started amortizing capitalized development costs associated with Faidr during Q1 2022 and continue to amortize development expense related to Vodacast.capitalization.

General and administrative

General and administrative expenses decreased by $552,176$90,904 or 18.7%8.9%, from $2,952,679$1,017,730 for the ninethree months ended September 30, 2021March 31, 2022, compared to $2,400,503$926,826 for the ninethree months ended September 30, 2022.March 31, 2023. The decrease resulted primarily from decreasedreduced stock compensation expense related to cancelled employee stock optionsoption grants from Q1 2022. Stock compensation expense was $357,680 and lower professional$385,908 for the three months ended March 31, 2023, and recruiting fees that were incurred during 2021.2022, respectively. The remainder of the expense reduction was attributed to the timing and a decrease in the cost of our D&O insurance policy.

Depreciation and amortization

Depreciation and amortization expenses increased by $638,176$266,908 or 761.6%151.5%, from $83,795$176,127 for the ninethree months ended September 30, 2021March 31, 2022, compared to $721,971$443,035 for the ninethree months ended September 30, 2022.March 31, 2023. The increase is entirely related to the amortization of our Faidrfaidr and Vodacastpodcasting Apps, which started amortization during Q1 2022 and Q4 2021, respectively.

Other income (expense), net

Total other expense decreasedincreased by $8,171,058 or 99.9%,$306,896, from $8,176,116$1,010 for the ninethree months ended September 30, 2021March 31, 2022, to $5,058$307,906 for the ninethree months ended September 30, 2022.March 31, 2023. The decrease was mostlyincrease is related to a finance charge of $8,141,424 to interest expense relatedattributed to the debt and conversion features of outstandingthe Secured Bridge Note (aka the Prior Note), which included the finance charges associated with debt into 6.8 million sharesissuance costs totaling $250,941 and interest expense of common stock related to the February 2021 IPO. In addition, we paid off and terminated our line of credit during 2021 and no longer are incurring interest related to the line of credit.$55,000, respectively.

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 Faidrfaidr and Vodacastpodcasting Apps. As of September 30, 2022March 31, 2023, and December 31, 20212022, we had cash of $957,130$239,040 and $6,345,291,$1,661,434, respectively. We reduced our future quarterly cash spend throughhave a seriesdeficiency in working capital in the amount of cost saving initiatives during the third quarter of 2022 and deferral of promotional activity on the Faidr and Vodacast Apps.approximately $2.2 million at March 31, 2023. We anticipate that operating losses and net cash used in operating activities will continueincrease over the next 12 months as we continue to develop and market our products and work through consumer conversion to subscriptions throughout 2022 and expect the start of subscription conversion during 2023.products.

In February 2021, we completed an IPO of 3,991,818 units, at $4.125 per unit, consisting of one share of common stock and one warrant to purchase one share of common stock at an exercise price of $4.54 per share. After deducting underwriters’ commissions and expenses, we received net proceeds of approximately $15.2 million. Due to the successful completion of the IPO, all of our existing convertible debt, accrued interest, accrued fees payable to related parties, and promissory notes were converted into shares of common stock.Interim Bridge Financing

Following the Company’s IPO in February 2021, we paid down the outstanding principal balance on our bank line of credit from $6 million to $2 million. We and the bank agreed to reduce the maximum available balance for the line of credit to $2 million.

In July 2021, certain holders of our publicly traded Series A Warrants exercised approximately 1.1 million warrants for approximately 1.1 million shares of common stock at the cash exercise price of $4.5375 per share and as a result, we received additional cash proceeds of approximately $5.0 million. In addition, we paid the remaining $2.0 million, out of our restricted cash, to pay off and terminate our line of credit.

During the year ended December 31, 2021, we have reduced our bank debt by $6.0 million, paid down a significant percentage of our accounts payable, and eliminated all deferred compensation owed to a related party.Additional Secured Bridge Note Financing

As described in more detail in Note 10,previously disclosed, on November 14, 2022, the Company entered into a Secured Bridge Note (“Prior Note”) financing with one accredited investor who is a significant existing stockholder of the Company. The Company received $2,000,000 of gross proceeds in connection with that financing.

On April 17, 2023, the Company entered into an additional Secured Bridge Note (“New Note”) financing with the same accredited investor. The Company received $750,000 of gross proceeds in connection with the New Note financing.

The principal amount of the New Note is $825,000. The New Note has a 10% interest rate and matures on July 31, 2023. The New Note is secured debtby a lien on substantially all of the Company’s assets.

At maturity, the investor has the option to convert any original issue discount and accrued but unpaid interest on the New Note into shares of the Company’s common stock. The fixed conversion price is $0.61 per share.

In connection with the New Note financing, agreementthe Company issued to the investor 650,000 common stock warrants with a five-year term and a fixed $0.61 per share exercise price. 325,000 of such warrants are exercisable immediately. The other 325,000 of such warrants would only become exercisable if the maturity date of the New Note is extended in accordance with the terms of the New Note.

If the New Note remains outstanding as of July 31, 2023, the Company has the option to extend the maturity date of the New Note to November 30, 2023. Upon such extension, the interest rate on the New Note will be increased to 20% rather than 10%, and the 325,000 portion of the warrants shall become exercisable.

Amendments to Prior Secured Bridge Note Financing

In connection with the New Note financing, the parties agreed to make certain amendments to the Prior Note financing.

The parties agreed to cancel the 300,000 common stock warrants issued November 14, 2022, in connection with the Prior Note financing.

In addition, the Company issued to the investor common stock warrants for $2.0 million600,000 common shares, with an exercise price of $0.61 per common share and a five-year term. 300,000 of such warrants are exercisable immediately. The other 300,000 of such warrants would only become exercisable if the maturity date of the Prior Note is extended in accordance with the terms of the Prior Note.

The investor will not be able to receive shares upon conversion or exercise, unless prior stockholder approval is obtained, if the number of shares to be issued to the investor, when aggregated with all other shares of common stock then owned by the investor beneficially or deemed beneficially owned by the 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.

Equity Line Sales of Common Stock

As previously disclosed, 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 for additional potential proceeds.facility.

On April 17 and April 20, 2023, the Company closed on two sales of Common Stock under the White Lion Purchase Agreement. The Company issued an aggregate of 1,962,220 common shares and received aggregate proceeds of approximately $1.12 million.

The Company believes that with its cash on hand as of September 30, 2022March 31, 2023, of $239,040, combined with the $2.0 million of cash receivedproceeds from the New Note and the White Lion Common Stock sales of $750,000 and $1.12 million, respectively, and by exercising our option to extend the Prior Note to November 14, 2022 secured debt financing plus funds available from the equity line facility30, 2023, we will be sufficientable to fund current operating forour operations into the next twelve months.third quarter of fiscal 2023. The Company has based these estimates,this estimate, however, on assumptions that may prove to be wrong, and could spend available financial resources much faster than we currently expect. The Companywrong. We will need additional funding to raise additional funds to continue fundingcomplete the development of our technology developmentfull product line, scale products with a demonstrated market fit and commercialization efforts beyond twelve months.generate revenue and cash flow. Management intends 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.

Cash Flow Analysis

Our cash flows from operating activities have historically been significantly impacted by revenues received, 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 ninethree months ended September 30, 2022March 31, 2023, and 2021:2022:

Operating activities

Cash used in operating activities for the three months ended March 31, 2023, was $1,073,241, primarily resulting from our net loss of $2,155,312 and change in working capital of $30,415 related to an increase in accounts payable and accrued liabilities, offset by non-cash charges of $1,051,656 related to depreciation and amortization, share based compensation expense, and finance charges associated with the debt issuance costs of the Secured Bridge Note (aka the Prior Note). 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 three months ended March 31, 2023, was $270,574, consisting entirely of capitalization of software development expenses.

Cash flows used in investing activities for the three months ended March 31, 2022, was $665,023, primarily consisting of capitalization of software development expenses of $661,214.

Operating activities

Cash used in operating activities for the nine months ended September 30, 2022 was $3,622,112, primarily resulting from our net loss of $5,133,959, partially offset by non-cash charges of $1,420,457 primarily related to stock compensation expense and depreciation and amortization.

Cash used in operating activities for the nine months ended September 30, 2021 was $4,320,114, primarily resulting from our net loss of $12,099,421 and changes in working capital of $944,792, partially offset by non-cash charges of $8,724,099 primarily related to our conversion of outstanding debt to common stock from our February 2021 IPO. Changes in working capital primarily related to paying off outstanding accounts payable.

Cash used in operating activities primarily consisted of personnel-related expenditures, payments included costs of operations, and other sales efforts, research and development and administrative costs.

Investing activities

Cash flows used in investing activities for the nine months ended September 30, 2022 and 2021, consisted primarily of capitalization of software development expenses of $1,673,517 and $904,957, respectively.

Financing activities

Cash flows used in financing activities for the ninethree months ended September 30, 2022March 31, 2023, was $88,723 all from$78,580 related to cash used in relationpaid by us related to the netnet-share settlement of share-based compensation.vested restricted stock units during the quarter.

Cash flows provided byused in financing activities for the ninethree months ended September 30, 2021March 31, 2022, was $13,251,608 primarily$88,722 related to cash paid by the company related to the issuancenet-share settlement of common shares for $14,822,459 related to our February 2021 IPO, $4,953,552 related to exercises of our Series A warrants in July 2021, and proceeds fromvested restricted stock units during the second PPP loan in the amount of $267,482, partially offset by a $6,000,000 repayment on our line of credit, and repayment of deferred salary and related party notes payable of $930,636.quarter.

Funding Requirements

We historically have incurred significant losses and negative cash flows from operations since our inception.inception and had an accumulated deficit of $73.9 million and $71.7 million as of March 31, 2023, and December 31, 2022, respectively. As of September 30,March 31, 2023, and December 31, 2022, we had cash of approximately $1.0 million. We recently implemented cost saving initiatives to ensure$239,040 and $1.66 million, respectively. Our cash is comprised primarily of demand deposit accounts and money market funds.

At March 31, 2023, the Company had cash of $239,040. As described above (see Note 8 – Subsequent Events), in April 2023 the Company raised $1.87 million that we believe will fund our cash on hand will allow us enough time to finalize certain product enhancements and optimize consumer adoption and subscription. We expect these cost saving measures to reduce our quarterly cash burn rate to approximately $1.0 million. We recently enteredoperations into a debt financing agreement for $2.0 million in net proceeds. In addition, we entered into an equity line stock purchase agreement for up to $10.0 million in potential future proceeds, subject to certain limitations. We believe these combined financing arrangements, should capitalize our continued operations through Q3the third quarter of fiscal 2023. We haveThe Company has based these estimates,this estimate, however, on assumptions that may prove to be wrong,wrong. We will need additional funding to complete the development of our full product line, scale products with a demonstrated market fit and generate revenue and cash flow. Management has plans to secure such additional funding. If we could spend our available financial resources much faster than we currently expect and therefore would needare 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 funding sooner than we anticipate.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.

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 and timing will depend on many factors, including, but not limited to: