Table of Contents
PRELIMINARY OFFERING CIRCULAR DATED
JULY 26, 2024
An
offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information
contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may offers
to buy be accepted before the offering statement filed with the Commission is qualified. This Preliminary Offering Circular shall not
constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which
such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect
to satisfy our obligation to deliver a Final Offering Circular by sending you a notice within two business days after the completion of
our sale to you that contains the URL where the Final Offering Circular or the offering statement in which such Final Offering Circular
was filed may be obtained.
OFFERING CIRCULAR
Auddia Inc.
28,301,887 Shares of Common Stock
By this offering circular (the “Offering
Circular”), Auddia Inc., a Delaware corporation, is offering on a “best-efforts” basis a maximum of 28,301,887 shares
of its common stock, par value $0.001 per share (the “Offered Shares”), at a fixed price of $1.65 to $3.65 per share (to
be fixed by post-qualification supplement), pursuant to Tier 2 of Regulation A of the United States Securities and Exchange Commission
(the “SEC”). There is no minimum purchase requirement for investors in this offering.
This offering is being conducted on a “best-efforts”
basis, which means that there is no minimum number of Offered Shares that must be sold by us for this offering to close; thus, we may
receive no or minimal proceeds from this offering. None of the proceeds received will be placed in an escrow or trust account. All proceeds
from this offering will become immediately available to us and may be used as they are accepted. Purchasers of the Offered Shares will
not be entitled to a refund and could lose their entire investments. Please see the “Risk Factors” section, beginning on page
8, for a discussion of the risks associated with a purchase of the Offered Shares.
We estimate that this offering will commence
within two days of SEC qualification; this offering will terminate at the earliest of (a) the date on which the maximum offering has
been sold, (b) one year from the date of SEC qualification, or (c) the date on which this offering is earlier terminated by us, in our
sole discretion. (See “Plan of Distribution”).
|
|
Number
of Shares |
|
|
Price to
Public(1) |
|
|
Commissions(2) |
|
|
Proceeds to
Company(3) |
|
Per Share: |
|
|
– |
|
|
$ |
2.65 |
|
|
$ |
0 |
|
|
$ |
2.44 |
|
Total Minimum: |
|
|
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Total Maximum: |
|
|
28,301,887 |
|
|
$ |
75,000,000 |
|
|
$ |
0 |
|
|
$ |
75,000,000 |
|
(1) |
Assumes a public offering price of $2.65, which represents the midpoint of the offering price range of $1.65 to $3.65
per share |
|
|
(2) |
We may also offer the Offer Shares through registered broker-dealers and we may pay finders. However, information as to any such broker-dealer or finder shall be disclosed in an amendment to this Offering Circular. |
|
|
(3) |
Does not account for the payment of expenses of this offering estimated at $525,000. See “Plan of Distribution.” |
Our common stock is listed on The Nasdaq Capital
Market (“Nasdaq”), under the symbol “AUUD.” On July 25, 2024, the last reported sale price of our common stock
was $1.41 per share.
Investing in the Offered Shares is speculative
and involves substantial risks. You should purchase Offered Shares only if you can afford a complete loss of your investment. See “Risk Factors”, beginning on page 8, for a discussion of certain risks that you should consider before purchasing any of the Offered
Shares.
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION
DOES NOT PASS UPON THE MERITS OF, OR GIVE ITS APPROVAL TO, ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON
THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION
FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE
EXEMPT FROM REGISTRATION.
The use of projections or forecasts in this
offering is prohibited. No person is permitted to make any oral or written predictions about the benefits you will receive from an investment
in Offered Shares.
No sale may be made to you in this offering,
if you do not satisfy the investor suitability standards described in this Offering Circular under “Plan of Distribution—State Law Exemption and Offerings to “Qualified Purchasers” on page 18. Before making any representation that you satisfy the
established investor suitability standards, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on
investing, we encourage you to refer to www.investor.gov.
This Offering Circular follows the disclosure
format of Form S-1, pursuant to the General Instructions of Part II(a)(1)(ii) of Form 1-A.
The date of this Offering Circular is _______________,
2024.
TABLE OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
The information contained
in this Offering Circular includes forward-looking statements, which involve risks and uncertainties. These forward-looking statements
can be identified by the use of forward-looking terminology, including the terms “believe,” “estimate,” “project,”
“anticipate,” “expect,” “seek,” “predict,” “continue,” “possible,”
“intend,” “may,” “might,” “will,” “could,” would” or “should”
or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include all matters
that are not historical facts. They appear in a number of places throughout this Offering Circular and the documents incorporated by reference
in this Offering Circular, and include statements regarding our intentions, beliefs or current expectations concerning, among other things,
our product candidates, research and development, commercialization objectives, prospects, strategies, the industry in which we operate
and potential collaborations. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based
upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict
the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. Forward-looking
statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance
or results will be achieved. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this
Offering Circular may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.
Forward-looking statements
speak only as of the date of this Offering Circular. You should not put undue reliance on any forward-looking statements. We assume no
obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting
forward-looking information, except to the extent required by applicable laws. If we update one or more forward-looking statements, no
inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
You should read this Offering
Circular, the documents incorporated by reference in this Offering Circular, and the documents that we reference in this Offering Circular
and have filed with the SEC as exhibits to this Offering Circular with the understanding that our actual future results, levels of activity,
performance and events and circumstances may be materially different from what we expect. All forward-looking statements are based upon
information available to us on the date of this Offering Circular.
By their nature, forward-looking
statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the
future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations,
financial condition, business and prospects may differ materially from those made in or suggested by the forward-looking statements contained
in this Offering Circular. In addition, even if our results of operations, financial condition, business and prospects are consistent
with the forward-looking statements contained (or incorporated by reference) in this Offering Circular, those results may not be indicative
of results in subsequent periods.
Forward-looking statements
necessarily involve risks and uncertainties, and our actual results could differ materially from those anticipated in the forward-looking
statements due to a number of factors, including those set forth below under “Risk Factors” and elsewhere in this Offering
Circular. The factors set forth below under “Risk Factors” and other cautionary statements made in this Offering Circular
should be read and understood as being applicable to all related forward-looking statements wherever they appear in this Offering Circular.
The forward-looking statements contained in this Offering Circular represent our judgment as of the date of this Offering Circular. We
caution readers not to place undue reliance on such statements. Except as required by law, we undertake no obligation to update publicly
any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. All subsequent
written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety
by the cautionary statements contained above and throughout this Offering Circular.
You should read this Offering
Circular, the documents incorporated by reference in this Offering Circular, and the documents that we reference in this Offering Circular
and have filed as exhibits to this Offering Circular completely and with the understanding that our actual future results may be materially
different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
OFFERING CIRCULAR SUMMARY
The following summary highlights
material information contained in this Offering Circular. This summary does not contain all of the information you should consider before
purchasing our common stock. Before making an investment decision, you should read this Offering Circular carefully, including the section
entitled “Risk Factors,” included elsewhere in this Offering Circular and the documents incorporated by reference as listed
in the “Incorporation of Certain Information by Reference” section of this Offering Circular. Except as otherwise indicated
herein or as the context otherwise requires, references in this Offering Circular and the documents incorporated by reference in this
Offering Circular to “Auddia,” “the Company,” “we,” “us” and “our” refer to
Auddia Inc.
Overview
Auddia is a technology company
headquartered in Boulder, CO that is reinventing how consumers engage with audio through the development of a proprietary AI platform
for audio and innovative technologies for podcasts. Auddia is leveraging these technologies within its industry-first audio Superapp,
faidr (previously known as the Auddia App).
faidr gives consumers the
opportunity to listen to any AM/FM radio station with commercial breaks replaced with personalized audio content, including popular and
new music, news, and weather. The faidr app represents the first-time consumers can combine the local content uniquely provided by AM/FM
radio with commercial-free and personalized listening many consumers demand from digital-media consumption. In addition to commercial-free
AM/FM, faidr includes podcasts – also with ads removed or easily skipped by listeners – as well as exclusive content, branded
faidrRadio, which includes new artist discovery, curated music stations, and Music Casts. Music Casts are unique to faidr. Hosts and DJs
can combine on-demand talk segments with dynamic music streaming, which allows users to hear podcasts with full music track plays embedded
in the episodes.
Auddia has also developed
a differentiated podcasting capability with ad-reduction features and also provides a unique suite of tools that helps podcasters create
additional digital content for their podcast episodes as well as plan their episodes, build their brand, and monetize their content with
new content distribution channels. This podcasting feature also gives users the ability to go deeper into the stories through supplemental,
digital content, and eventually comment and contribute their own content to episode feeds.
The combination of AM/FM streaming
and podcasting, with Auddia’s unique, technology-driven differentiators, addresses large and rapidly growing audiences.
The Company has developed
its AI platform on top of Google’s TensorFlow open-source library that is being “taught” to know the difference between
all types of audio content on the radio. For instance, the platform recognizes the difference between a commercial and a song and is learning
the differences between all other content to include weather reports, traffic, news, sports, DJ conversation, etc. Not only does the technology
learn the differences between the various types of audio segments, but it also identifies the beginning and end of each piece of content.
The Company is leveraging
this technology platform within its premium AM/FM radio listening experience through the faidr App. The faidr App is intended to be downloaded
by consumers who will pay a subscription fee in order to listen to any streaming AM/FM radio station and podcasts, all with commercial
interruptions removed from the listening experience, in addition to the faidrRadio exclusive content offerings. Advanced features will
allow consumers to skip any content heard on the station and request audio content on-demand. We believe the faidr App represents a significant
differentiated audio streaming product, or Superapp, that will be the first to come to market since the emergence of popular streaming
music apps such as Pandora, Spotify, Apple Music, Amazon Music, etc. We believe that the most significant point of differentiation
is that in addition to ad-free AM/FM streaming and ad-reduced podcasts, the faidr App is intended to deliver non-music content that includes
local sports, news, weather, traffic and the discovery of new music alongside exclusive programming. No other audio streaming app available
today, including category leaders like TuneIn, iHeart, and Audacy, can compete with faidr’s full product offerings.
The Company launched an MVP
version of faidr through several consumer trials in 2021 to measure consumer interest and engagement with the App. The full app launched
on February 15, 2022, and included all major U.S. radio stations in the US. In February 2023, the Company added faidrRadio, Auddia’s
exclusive content offerings, to the app. Podcasts (standard) were added to the app for the iOS version before the end of Q1 2023 as planned
and added to the Android app in May of 2023. Podcast functionality will continue to be enhanced through 2024, including the deployment
of the Company’s ad-reduction technology.
The Company also developed
a testbed differentiated podcasting capability called Vodacast, which leveraged technologies and proven product concepts to differentiate
its podcasts offering from other competitors in the radio-streaming product category.
With podcasting growing and
predicted to grow at a rapid rate, the Vodacast podcast platform was conceptualized to fill a void in the emerging audio media space.
The platform was built to become the preferred podcasting solution for podcasters by enabling them to deliver digital content feeds that
match the audio of their podcast episodes, and by enabling podcasters to make additional revenue from new digital advertising channels,
subscription channels, on-demand fees for exclusive content, and through direct donations from their listeners. Throughout 2023, Auddia
has been migrating their podcasting capabilities into the flagship faidr app with the intention to sunset the Vodacast platform and instead
bring the advanced podcasting functionality that was found on Vodacast into faidr as part of the overall strategy to build a single audio
Superapp. This includes Auddia’s new podcast ad-reduction technology.
Today, podcasters do not have
a preference as to where their listeners access their episodes, as virtually all listening options (mobile apps and web players) deliver
only their podcast audio. By creating significant differentiation on which they can make net new and higher margin revenue, we believe
that podcasters will promote faidr to their listeners, thus creating a powerful, organic marketing dynamic.
One innovative and proprietary
part of Auddia’s podcast capabilities, originally presented on their Vodacast differentiated podcasting capability, is the availability
of tools to create and distribute an interactive digital feed, which supplements podcast episode audio with additional digital. These
content feeds allow podcasters to tell deeper stories to their listeners while giving podcasters access to digital revenue for the first
time. Podcasters will be able to build these interactive feeds using The Podcast Hub, a content management system that was originally
developed and trialed as part of Auddia’s Vodacast platform, which also serves as a tool to plan and manage podcast episodes. The
digital feed activates a new digital ad channel that turns every audio ad into a direct-response, relevant-to-the-story, digital ad, increasing
the effectiveness and value of their established audio ad model. The feed also presents a richer listening experience, as any element
of a podcast episode can be supplemented with images, videos, text and web links. This feed will appear fully synchronized in the faidr
mobile App, and it also can be hosted and accessed independently (e.g., through any browser), making the content feed universally distributable.
Over time, users will be able
to comment, and podcasters will be able to grant some users publishing rights to add content directly into the feed on their behalf. This
will create another first for podcasting, a dialog between creator and fan, synchronized to the episode content. The interactive feed
for podcasts has been developed and tested on Vodacast and is expected to be another differentiator added into faidr for podcast listeners
later in 2024.
The podcast capabilities within
faidr will also introduce a unique and industry first multi-channel, highly flexible set of revenue channels that podcasters can activate
in combination to allow listeners to choose how they want to consume and pay for content. “Flex Revenue” allows podcasters
to continue to run their standard audio ad model and complement those ads with direct response enabled digital ads in each episode content
feed, increasing the value of advertising on any podcast. “Flex Revenue” will also activate subscriptions, on-demand fees
for content (e.g., listen without audio ads for a micro payment fee) and direct donations from listeners. Using these channels in combination,
podcasters can maximize revenue generation and exercise higher margin monetization models, beyond basic audio advertising. “Flex
Revenue” and the initial inclusion of the new revenue channels that come with it will be added to podcasting in the faidr app, and
the first elements of this new monetization capability is expected to be commercially available in 2024, beginning with subscription
plans to access ad-reduction in podcasts.
The faidr mobile App is available
today through the iOS and Android App stores.
Recent Developments
Private Placement of Preferred Stock and
Common Warrants
On April 23, 2024, we entered
into the 2024 SPA with the Selling Stockholders for a convertible preferred stock and warrants financing. At the closing, we issued 2,314
shares of Series B Convertible Preferred Stock at a purchase price of $1,000 per share of Series B Convertible Preferred Stock. The Series
B Convertible Preferred Stock is convertible into common stock at an initial conversion price of $1.851 per share of common stock. The
Company also issued the Common Warrants exercisable for 1,250,137 shares of common stock with a five-year term.
The Common Warrants are immediately
exercisable for $1.851 per share of common stock, subject to certain adjustments, including with respect to stock dividends, splits, subsequent
rights offerings, pro rata distributions and a Fundamental Transaction (as defined in the Common Warrant) and until the fifth anniversary
of the original issuance date (the “Expiration Date”). The exercise of the Warrants are subject to beneficial ownership limitations.
In connection with the PIPE
Offering, we entered into a Registration Rights Agreement with the Purchasers, dated April 23, 2024 (the “Registration Rights Agreement”).
The Registration Rights Agreement provides that we shall file a registration statement covering the resale of all of the Registrable Securities
(as defined in the Registration Rights Agreement) with the SEC no later than the 30th calendar day following the date of the Registration
Rights Agreement, and have the registration statement declared effective by the SEC as promptly as possible after the filing thereof,
but in any event no later than the 60th calendar day following the date of the Registration Rights Agreement.
On May 23, 2024, the Company
filed a registration statement with the SEC registering up to 5,905,898 shares of common stock in connection with the PIPE Offering.
Mergers and Acquisitions Strategy
We are exploring various merger
and acquisition options as part of a broader strategy which aims to scale the business more rapidly; accelerate user adoption and subscriber
growth; enter new markets (international); and open new pathways toward raising capital. The overall strategy focuses on three areas:
(1) acquiring users of a radio-streaming app, (2) bringing our proprietary ad-free products to that the acquired userbase to generate
significant subscription revenue, and (3) bringing together other differentiated features into the larger audio Superapp platform.
RFM Acquisition
On January 26, 2024, we entered
into a Purchase Agreement (the “RFM Purchase Agreement”), pursuant to which we agreed to acquire RadioFM (the “RFM Acquisition”),
which is currently a component of both AppSmartz and RadioFM (partnerships under common control). The aggregate consideration for the
RFM Acquisition is $13,000,000 (plus $2,000,000 in contingent consideration if certain post-close milestones are reached), in addition
to the assumption of certain liabilities, as may be adjusted pursuant to the terms of the RFM Purchase Agreement.
In March 2024, the parties
mutually agreed to terminate the RFM Purchase Agreement.
Reverse
Share Split
We filed an amendment to our
Certificate of Incorporation with the Secretary of State in Delaware which became effective as of 5:00 P.M. Eastern Time on February 26,
2024. As a result, every twenty-five (25) issued shares of common stock were automatically combined into one share of common stock.
Shares of our common stock
were assigned a new CUSIP number (05072K 206) and began trading on a split-adjusted basis on February 27, 2024.
The reverse stock split did
not change the authorized number of shares of our common stock. No fractional shares were issued and any fractional shares resulting from
the reverse stock split were rounded up to the nearest whole share. Therefore, stockholders with less than 25 shares received one share
of stock.
The reverse stock split applied
to our outstanding warrants, stock options and restricted stock units. The number of shares of common stock into which these outstanding
securities are convertible or exercisable were adjusted proportionately as a result of the reverse stock split. The exercise prices of
any outstanding warrants or stock options were also proportionately adjusted in accordance with the terms of those securities and our
equity incentive plans.
Going Concern Opinion
Our working capital deficiency,
stockholders’ deficit, and recurring losses from operations raise substantial doubt about our ability to continue as a going concern.
As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements
for the year ended December 31, 2023 with respect to this uncertainty. Our ability to continue as a going concern will require us to obtain
additional funding.
The Company secured approximately
$7.2 million in additional financing year-to-date through April 2024, which enabled us to pay down $2.75 million in connection with the
Secured Bridge Notes and will only be sufficient to fund our current operating plans into the third quarter of 2024. The Company has based
these estimates, however, on assumptions that may prove to be wrong. We will need additional funding to complete the development of our
full product line and scale products with a demonstrated market fit. Management has plans to secure such additional funding. If we are
unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce, or eliminate our technology development
and commercialization efforts.
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.
Our Corporate Information
We
were originally formed as Clip Interactive, LLC in January 2012, as a limited liability company under the laws of the State of Colorado.
Immediately prior to our initial public offering in February 2021, we converted into a Delaware corporation pursuant to a statutory conversion
and were renamed Auddia Inc.
Our principal executive offices
are located at 1680 38th Street, Suite 130, Boulder, CO 80301. Our main telephone number is (303) 219-9771. Our internet website
is www.auddia.com. The information contained in, or that can be accessed through, our website is not incorporated by reference and is
not a part of this Offering Circular.
Offering Summary
Securities Offered |
|
The Offered Shares, 28,301,887 shares of common stock, are being offered
by the Company in a “best-efforts” offering. |
|
|
|
Offering Price Per Share |
|
$1.65 to $3.65 per Offered Share (to be fixed by post-qualification
supplement). |
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|
Shares Outstanding Before This Offering |
|
2,794,196 shares of common stock issued and outstanding as of July 11,
2024. |
|
|
|
Shares Outstanding After This Offering |
|
31,096,083 shares of common stock issued and outstanding, assuming all of the Offered Shares are sold hereunder. |
|
|
|
Minimum Number of Shares to Be Sold in This Offering |
|
None |
|
|
|
Investor Suitability Standards |
|
The Offered Shares are being offered and sold to “qualified purchasers” (as defined in Regulation A under the Securities Act of 1933, as amended (the “Securities Act”). “Qualified purchasers” include any person to whom securities are offered or sold in a Tier 2 offering pursuant to Regulation A under the Securities Act. |
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|
|
Market for our Common Stock |
|
Our common stock is listed on Nasdaq under the symbol “AUUD.” |
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|
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Termination of this Offering |
|
This offering will terminate at the earliest of (a) the date on which all of the Offered Shares have been sold, (b) the date which is one year from this offering being qualified by the SEC and (c) the date on which this offering is earlier terminated by us, in our sole discretion. (See “Plan of Distribution”). |
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|
|
Use of Proceeds |
|
We intend to use the net proceeds from this offering to build out and complete our product offerings, expand our sales and marketing efforts, fund acquisitions and other working capital and general corporate purposes. See “Use of Proceeds”. |
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|
|
Risk Factors |
|
An investment in the Offered Shares involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investments. You should carefully consider the information included in the Risk Factors section of this Offering Circular, as well as the other information contained in this Offering Circular, prior to making an investment decision regarding the Offered Shares. |
The number of shares outstanding after this offering is based on 2,794,196
shares of our common stock outstanding as of July 11, 2024, and excludes:
|
· |
8,929 shares of our common stock reserved for issuance under outstanding stock options granted under our 2013 Equity Incentive Plan, |
|
· |
10,990 shares of our common stock reserved for issuance under outstanding restricted stock units granted under our 2020 Equity Incentive Plan, |
|
· |
39,632 shares of our common stock reserved for issuance under outstanding stock options granted under our 2020 Equity Incentive Plan, |
|
· |
103,308 shares of our common stock reserved for future grant under our 2020 Equity Incentive Plan, |
|
· |
32,150 shares of our common stock reserved for issuance under outstanding stock options and outstanding RSUs granted as employment inducement awards to four of our former and current executives outside of our 2013 and 2020 Equity Incentive Plans, |
|
· |
1,026,674 shares of common stock reserved for issuance upon the exercise of outstanding common stock warrants, |
|
· |
139,956 shares of common stock reserved for issuance upon the exercise of our publicly traded outstanding Series A Warrants, |
|
· |
1,250,137 shares of common stock reserved for issuance upon the exercise of warrants sold in a private placement, |
|
· |
12,774 shares of common stock reserved for issuance upon the exercise of an outstanding IPO underwriter representative common stock warrant, and |
|
· |
Up to 5,165,263 shares or $5,147,492 of common stock that may be sold in the future by the Company to While Lion pursuant to the Equity Line Purchase Agreement. |
Continuing Reporting Requirements Under Regulation
A
We are required to file
periodic and other reports with the SEC, pursuant to the requirements of Section 13(a) of the Exchange Act. Our continuing reporting obligations
under Regulation A are deemed to be satisfied as long as we comply with our Section 13(a) reporting requirements.
RISK FACTORS
An investment in the
Offered Shares involves substantial risks. You should carefully consider the following risk factors, in addition to the other information
contained in this Offering Circular, before purchasing any of the Offered Shares. The occurrence of any of the following risks might cause
you to lose a significant part of your investment. The risks and uncertainties discussed below are not the only ones we face, but do represent
those risks and uncertainties that we believe are most significant to our business, operating results, prospects and financial condition.
Some statements in this Offering Circular, including statements in the following risk factors, constitute forward-looking statements.
See “Cautionary Statement Regarding Forward-Looking Statements”.
Summary of Risk Factors
The following is a short description
of the risks and uncertainties you should carefully consider in evaluating our business and us which are more fully described under the
heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023
Form 10-K”), which report is incorporated by reference in this offering circular. The factors listed below and in the annual
report and quarterly reports, represent certain important factors that we believe could cause our business results to differ. These factors
are not intended to represent a complete list of the general or specific risks that may affect us. It should be recognized that other
risks may be significant, presently or in the future, and the risks set forth below may affect us to a greater extent than indicated.
If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected.
Risks related to our financial position and
need for additional capital
| · | Our auditors have expressed substantial doubt about our ability to continue as a going concern, which
may hinder our ability to obtain further financing. |
| · | We have incurred significant net losses since inception and anticipate that we will continue to incur
net losses for the foreseeable future and may never achieve or maintain profitability. |
| · | We will need additional funding, which may not be available on acceptable terms, or at all. Failure to
obtain this capital when needed may force us to delay, limit or terminate our product development efforts or other operations. |
| · | Raising additional capital may cause dilution to our existing stockholders, restrict our operations or
require us to relinquish rights to our technologies and product candidates. |
| · | We have generated historical revenue from our mobile app platform for radio stations, but future revenue
growth is dependent on new software services. |
| · | Our limited operating history of our current business plan may make
it difficult for investors to evaluate the success of our business to date and to assess our future viability. |
| · | We have identified material weaknesses in our internal control over financial reporting. Failure to achieve
and maintain effective internal control over financial reporting could result in our failure to accurately or timely report our financial
condition or results of operations, which could have a material adverse effect on our business and securities prices. |
| · | If we fail to maintain proper and effective internal controls, our ability to produce accurate financial
statements on a timely basis could be impaired, which would adversely affect our business. |
Risks related to the development of our products
| · | Our subscription revenue margins and our freedom to operate our faidr radio platform rely on continuity
of the established music licensing framework. |
| · | Our faidr platform will rely on the established “personal use exemption” which allows individuals
to record content for time-shifting purposes. |
| · | If we are unable to obtain and maintain patent protection for our products and product candidates, or
if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and
product candidates similar or identical to ours, and our ability to successfully commercialize our products and product candidates may
be adversely affected. |
| · | Real or perceived errors, failures or bugs in our platform or products could materially and adversely
affect our operating results and growth prospects. |
Risks related to our business operations
| · | Our recently announced growth strategy includes seeking acquisitions
of other companies or assets in our industry sector. We may not be successful in identifying, making and integrating business or asset
acquisitions, if any, in the future. |
| · | Our future success depends on our ability to retain key employees, consultants and advisors and to attract,
retain and motivate qualified personnel. |
| · | If we are unable to manage expected growth in the scale and complexity of our operations, our performance
may suffer. |
| · | Any cybersecurity-related attack, significant data breach or disruption
of the information technology systems or networks on which we rely could negatively affect our business. |
| · | Changing regulations and increased awareness relating to privacy, information security and data protection
could increase our costs, affect or limit how we collect and use personal information and harm our brand. |
| · | Our business depends on a strong brand, and if we are not able to develop, maintain and enhance our brand,
our business and operating results may be harmed. Moreover, our brand and reputation could be harmed if we were to experience significant
negative publicity. |
| · | Enacted and future legislation may increase the difficulty and cost for us to commercialize our product
candidates and may affect the prices we may set. |
| · | We may be subject to litigation, disputes or regulatory inquiries for a variety of claims, which could
adversely affect our results of operations, harm our reputation or otherwise negatively affect our business. |
Risks related to our
intellectual property
| · | Our business is subject to the risks of earthquakes, fire, floods and other natural catastrophic events,
and to interruption by man-made problems such as power disruptions, computer viruses, cyberattack, data security breaches or terrorism. |
| · | Any failure to protect our intellectual property rights could impair our business. |
| · | If third parties claim that we infringe upon or otherwise violate their intellectual property rights,
our business could be adversely affected. |
| · | Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual
property infringement and other losses. |
Risks related to ownership of common stock
| · | A significant portion of our total outstanding shares are eligible for sale into the public market. Substantial
sales of our shares into the public market could cause the market price of our common stock to drop significantly, even if our business
is performing well. |
| · | The issuance of common stock pursuant to our equity line facility may cause substantial dilution to our
existing shareholders, and the sale of such shares acquired by our equity line provider could cause the price of our common stock to decline. |
| · | The price of our common stock may be volatile and fluctuate substantially, which could result in substantial
losses for investors in our securities. |
| · | If securities analysts do not publish research or reports about our business or if they publish negative
evaluations of our stock, the price of our stock could decline. |
| · | We may not be able to continue our current listing of our common stock on the Nasdaq Capital Market. A
delisting of our common stock from Nasdaq could limit the liquidity of our stock, increase its volatility and hinder our ability to raise
capital. |
| · | We are an “emerging growth company,” and the reduced disclosure requirements applicable to
emerging growth companies may make our common stock less attractive to investors. |
| · | We continue to incur increased costs as a result of operating as a public company, and our management
will be required to devote substantial time to new compliance initiatives. |
| · | Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley
Act could have a material adverse effect on our business and stock price. |
| · | Provisions in our corporate charter and our bylaws and under Delaware law could make an acquisition of
us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our
current management. |
| · | Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future,
capital appreciation, if any, will be your sole source of gain. |
| · | Our charter provides that the Court of Chancery of the State of Delaware is the exclusive forum for certain
litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial
forum for such disputes with us or our directors, officers or employees. |
Risks Relating to
this Offering and Ownership of Our Securities
Purchasers in the
offering will suffer immediate dilution.
If
you purchase Offered Shares in this offering, the value of your shares based on our pro forma net tangible book value will
immediately be less than the offering price you paid. This reduction in the value of your equity is known as dilution. At an assumed
public offering price of $2.65 per share, which represents the midpoint of the offering price range herein, purchasers of common
stock in this offering will experience immediate dilution of approximately $0.26 per share, representing the difference between the
assumed public offering price per share in this offering and our pro forma as adjusted net tangible book value per share as of March
31, 2024, after giving effect to the Pro Forma Adjustments (as defined herein), this offering, and after deducting estimated
offering expenses payable by us. See “Dilution.”
You may experience
future dilution as a result of future equity offerings or acquisitions.
In
order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into
or exchangeable for our common stock at prices that may not be the same as the price per share in this offering. We may sell shares or
other securities in any future offering at a price per share that is less than the price per share paid by investors in this offering,
and investors purchasing shares or other securities in the future could have rights superior to existing stockholders. The price per share
at which we sell additional shares of our common stock, or securities convertible or exchangeable into our common stock, in future transactions
or acquisitions may be higher or lower than the price per share paid by investors in this offering.
In
addition, we may engage in one or more potential acquisitions in the future, which could involve issuing our common stock as some or all
of the consideration payable by us to complete such acquisitions. If we issue common stock or securities linked to our common stock, the
newly issued securities may have a dilutive effect on the interests of the holders of our common stock. Additionally, future sales of
newly issued shares used to effect an acquisition could depress the market price of our common stock.
This is a “best
efforts” offering; no minimum amount of Offered Shares is required to be sold, and we may not raise the amount of capital we believe
is required for our business.
There
is no required minimum number of Offered Shares that must be sold as a condition to completion of this offering. Because there is no minimum
offering amount required as a condition to the closing of this offering, the actual offering amount, and proceeds to us are not presently
determinable and may be substantially less than the maximum amounts set forth in this Offering Circular. We may sell fewer than all of
the Offered Shares offered hereby, which may significantly reduce the amount of proceeds received by us, and investors in this offering
will not receive a refund in the event that we do not sell an amount of Offered Shares sufficient to pursue the business goals outlined
in this Offering Circular. Thus, we may not raise the amount of capital we believe is required for our business and may need to raise
additional funds, which may not be available or available on terms acceptable to us. Despite this, any proceeds from the sale of the Offered
Shares offered by us will be available for our immediate use, and because there is no escrow account and no minimum offering amount in
this offering, investors could be in a position where they have invested in us, but we are unable to fulfill our objectives due to a lack
of interest in this offering.
Our management
will have broad discretion over the use of the net proceeds from this offering.
We
currently intend to use the net proceeds from the sale of Offered Shares under this offering, together with our existing cash, to build
out the product platforms, expand our sales and marketing efforts, and for general and administration expenses and other general corporate
purposes. We have not reserved or allocated specific amounts for any of these purposes and we cannot specify with certainty how we will
use the net proceeds. See “Use of Proceeds”. Accordingly, our management will have considerable discretion in the application
of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being
used appropriately. We may use the net proceeds for corporate purposes that do not increase our operating results or market value.
Risks related to Financial,
Operational, Commercial and Manufacturing matters
Our auditors have
expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain further financing.
Our past working capital deficiency,
stockholders’ deficit and recurring losses from operations raised substantial doubt about our ability to continue as a going concern.
As a result, our independent registered public accounting firm has included an explanatory paragraph in its report on our financial statements
for the year ended December 31, 2023 with respect to this uncertainty. Our existing cash of $804,556 at December 31, 2023. The Company
secured approximately $7.2 million in additional financing year-to-date through April 2024, which enabled us to pay down $2.75 million
in connection with the Secured Bridge Notes and will only be sufficient to fund our current operating plans into the third quarter of
2024. The Company has based these estimates, however, on assumptions that may prove to be wrong. We will need additional funding to complete
the development of our full product line and scale products with a demonstrated market fit. Management has plans to secure such additional
funding. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce, or eliminate our technology
development and commercialization efforts.
We may not be able
to continue our current listing of our common stock on the Nasdaq Capital Market. A delisting of our common stock from Nasdaq could limit
the liquidity of our stock, increase its volatility and hinder our ability to raise capital.
We
may not be able to satisfy the requirements for the continued listing of our common stock on Nasdaq.
In particular, the Nasdaq
listing rules require listed securities to maintain a minimum bid price of $1.00 per share. As previously reported in our Current Report
on Form 8-K filed on November 28, 2023, we received a written notice from Nasdaq indicating that we were was not in compliance with the
$1.00 minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing. As a result, the Nasdaq staff determined
to delist our Common Stock from Nasdaq, unless we timely requests an appeal of the Staff’s determination to a Hearings Panel (the
“Panel”), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series. Our hearing with the Panel occurred
on January 18, 2024.
On
November 21, 2023, we received a written notice from Nasdaq indicating that we are not in compliance with Nasdaq Listing Rule 5550(b)(1),
which requires companies listed on The Nasdaq Capital Market to maintain a minimum of $2,500,000 in stockholders’ equity for continued
listing (the “Stockholders’ Equity Requirement”). In its quarterly report on Form 10-Q for the period ended September
30, 2023, we reported stockholders’ equity of $2,415,012, and, as a result, do not currently satisfy Listing Rule 5550(b)(1). Nasdaq’s
November written notice has no immediate impact on the listing of our common stock. Our hearing with the Panel occurred on January 18,
2024. The hearing addressed all outstanding listing compliance matters, including compliance with the Stockholders’ Equity Notice
as well as compliance with the Bid Price Requirement.
On January 30, 2024, the Panel
granted our request for an exception to the Exchange’s listing rules until April 22, 2024, to demonstrate with all applicable continued
listing requirements for the Nasdaq Capital Market.
On
March 20, 2024, we received a letter from Nasdaq stating we had regained compliance with the minimum bid requirement. The Panel reminded
us that although we regained compliance with the minimum bid requirement, we are also required to regain compliance with the equity requirement.
Therefore, this matter will remain open until we demonstrate compliance with all requirements.
On April 16, 2024, the Company
received a letter from Nasdaq granting an exception to the Exchange’s listing rules until May 20, 2024, to demonstrate compliance
with Listing Rule 5550(b)(1) (the “Equity Rule”.)
On May 24, 2024, the Company
received a letter from Nasdaq indicating that the Company has regained compliance with the equity requirement in Listing rule 5550(b)
(1) (the Equity Rule”.) The Company will be subject to a Mandatory Panel Monitor for a period of one year from the date of the letter
in accordance with application of Listing Rule 5815(d)(4)(B).
If our common stock is delisted
by Nasdaq, our common stock may be eligible for quotation on an over-the-counter quotation system or on the pink sheets. Upon any such
delisting, our common stock would become subject to the regulations of the SEC relating to the market for penny stocks. A penny stock
is any equity security not traded on a national securities exchange that has a market price of less than $5.00 per share. The regulations
applicable to penny stocks may severely affect the market liquidity for our common stock and could limit the ability of shareholders to
sell securities in the secondary market. In such a case, an investor may find it more difficult to dispose of or obtain accurate quotations
as to the market value of our common stock, and there can be no assurance that our common stock will be eligible for trading or quotation
on any alternative exchanges or markets.
Delisting from Nasdaq could
adversely affect our ability to raise additional financing through public or private sales of equity securities, would significantly affect
the ability of investors to trade our securities and would negatively affect the value and liquidity of our common stock. Delisting could
also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest
and fewer business development opportunities.
If
our common stock is delisted by Nasdaq, our common stock may be eligible for quotation on an over-the-counter quotation system or on the
pink sheets. Upon any such delisting, our common stock would become subject to the regulations of the SEC relating to the market for penny
stocks. A penny stock is any equity security not traded on a national securities exchange that has a market price of less than $5.00 per
share. The regulations applicable to penny stocks may severely affect the market liquidity for our common stock and could limit the ability
of shareholders to sell securities in the secondary market. In such a case, an investor may find it more difficult to dispose of or obtain
accurate quotations as to the market value of our common stock, and there can be no assurance that our common stock will be eligible for
trading or quotation on any alternative exchanges or markets.
Delisting
from Nasdaq could adversely affect our ability to raise additional financing through public or private sales of equity securities, would
significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our common
stock. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional
investor interest and fewer business development opportunities.
DILUTION
If you invest in our common
stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the public offering
price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering.
Our historical net tangible
book value as of March 31, 2024, was $(1,325,388), or $(0.60) per share of common stock based on 2,194,196 shares of common stock outstanding
as of March 31, 2024. Historical net tangible book value per share is calculated by subtracting our total liabilities from our total tangible
assets, which is total assets less intangible assets and Deferred Offering costs, and dividing this amount by the number of shares of
common stock outstanding as of such date.
After giving effect to (i)
the issuance of 600,000 shares of our common stock for $1,246,000 subsequent to March 31, 2024 (the “Pro Forma Adjustments”),
our pro forma net tangible book value would have been approximately $(79,388), or $(0.03) per share.
After giving further effect
to the assumed sale by us of the Offered Shares at an assumed public offering price of $2.65 per share (which represents the midpoint
of the offering price range herein), and after deducting estimated offering expenses, our pro forma as adjusted net tangible book value
as of March 31, 2024 would have been approximately $74,395,612 or $2.39 per share of common stock. This represents an immediate increase
in the net tangible book value of $2.42 per share to our existing stockholders and an immediate and substantial dilution in net tangible
book value of $0.26 per share to new investors. The following table illustrates this hypothetical per share dilution:
Assumed public offering price per share |
|
$ |
2.65 |
|
Historical net tangible book value per share as of March 31, 2024 |
|
$ |
(0.60) |
|
Increase in net tangible book value per share attributable to the Pro Forma Adjustments |
|
$ |
0.58 |
|
Pro forma net tangible book value per share as of March 31, 2024 |
|
$ |
(0.03) |
|
Increase in pro forma net tangible book value per share attributable to this offering |
|
$ |
2.42 |
|
Pro forma as adjusted net tangible book value per share as of March 31, 2024 after giving effect to this offering |
|
$ |
2.39 |
|
Dilution per share to purchasers of Offered Shares in this offering |
|
$ |
0.26 |
|
A
$1.00 increase in the assumed public offering price of $3.65 per Offered Share, would increase the pro forma as adjusted net tangible
book value per share by $3.22, and increase dilution to new investors by $0.46 per share, in each case assuming that the number of Offered
Shares offered by us, as set forth on the cover page of this Offering Circular, remains the same and after deducting estimated offering
expenses payable by us.
The pro forma as adjusted
information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to
adjustment based on the actual public offering price of our Offered Shares and other terms of this offering determined at pricing.
The
number of shares outstanding after this offering is based on 2,194,196 shares of our common stock outstanding as of March 31, 2024, and
excludes:
|
· |
9,476 shares of our common stock reserved for issuance under outstanding stock options granted under our 2013 Equity Incentive Plan, |
|
· |
10,990 shares of our common stock reserved for issuance under outstanding restricted stock units granted under our 2020 Equity Incentive Plan, |
|
· |
39,632 shares of our common stock reserved for issuance under outstanding stock options granted under our 2020 Equity Incentive Plan, |
|
· |
103,308 shares of our common stock reserved for future grant under our 2020 Equity Incentive Plan, |
|
· |
32,150 shares of our common stock reserved for issuance under outstanding stock options and outstanding RSUs granted as employment inducement awards to four of our former and current executives outside of our 2013 and 2020 Equity Incentive Plans, |
|
· |
64,154 shares of common stock reserved for issuance upon the exercise of outstanding common stock warrants, |
|
· |
139,956 shares of common stock reserved for issuance upon the exercise of our publicly traded outstanding Series A Warrants, |
|
· |
1,250,137 shares of common stock reserved for issuance upon the exercise of warrants sold in a private placement, |
|
· |
12,774 shares of common stock reserved for issuance upon the exercise of an outstanding IPO underwriter representative common stock warrant, and |
|
· |
Up to 5,165,263 shares or $5,147,492 of common stock that may be
sold in the future by the Company to While Lion pursuant to the Equity Line Purchase Agreement. |
USE OF PROCEEDS
The table below sets forth
the estimated proceeds we would derive from this offering, assuming the sale of 25%, 50%, 75% and 100% of the Offered Shares at an assumed
per share price of $2.65, which represents the midpoint of the offering price range herein. There is, of course, no guaranty that we will
be successful in selling any of the Offered Shares in this offering.
|
|
Assumed Percentage of Offered Shares Sold in This Offering |
|
|
|
25% |
|
|
50% |
|
|
75% |
|
|
100% |
|
Offered Shares sold |
|
|
7,075,472 |
|
|
|
14,150,943 |
|
|
|
21,226,415 |
|
|
|
28,301,887 |
|
Gross proceeds |
|
$ |
18,750,000 |
|
|
$ |
37,500,000 |
|
|
$ |
56,250,000 |
|
|
$ |
75,000,000 |
|
Offering expenses (1) |
|
|
(187,500 |
) |
|
|
(337,500 |
) |
|
|
(450,000 |
) |
|
|
(525,000 |
) |
Net proceeds |
|
$ |
18,562,500 |
|
|
$ |
37,162,500 |
|
|
$ |
55,800,000 |
|
|
$ |
74,475,000 |
|
(1) |
Represents placement agent fees, legal and accounting fees and expenses and out-of-pocket costs of escrow and clearing agent (See “Plan of Distribution”). |
We
intend to use the net proceeds from this offering for working capital and other general corporate purposes.
We reserve the right to change
the foregoing use of proceeds, should our management believe it to be in the best interest of our company. The allocations of the proceeds
of this offering presented above constitute the current estimates of our management and are based on our current plans, assumptions made
with respect to the industry in which we currently or, in the future, expect to operate, general economic conditions and our future revenue
and expenditure estimates.
Investors are cautioned that
expenditures may vary substantially from the estimates presented above. Investors must rely on the judgment of our management, who will
have broad discretion regarding the application of the proceeds of this offering. The amounts and timing of our actual expenditures will
depend upon numerous factors, including market conditions, cash generated by our operations (if any), business developments and the rate
of our growth. We may find it necessary or advisable to use portions of the proceeds of this offering for other purposes.
In the event we do not obtain
the entire offering amount hereunder, we may attempt to obtain additional funds through private offerings of our securities or by borrowing
funds. Currently, we do not have any committed sources of financing.
PLAN OF DISTRIBUTION
In General
Our company is offering a
maximum of 28,301,887 Offered Shares on a “best-efforts” basis, at a fixed price of $2.65, which represents the midpoint
of the offering price range of $1.65 to $3.65 per share (to be fixed by post-qualification supplement). There is no minimum purchase
requirement for investors in this offering. This offering will terminate at the earliest of (a) the date on which the maximum offering
has been sold, (b) the date which is one year from this offering being qualified by the SEC or (c) the date on which this offering is
earlier terminated by us, in our sole discretion.
There is no minimum number
of Offered Shares that we are required to sell in this offering. All funds derived by us from this offering will be immediately available
for use by us, in accordance with the uses set forth in the section entitled “Use of Proceeds” of this Offering Circular.
No funds will be placed in an escrow account during the offering period and no funds will be returned once an investor’s subscription
agreement has been accepted by us.
We intend to sell the Offered
Shares in this offering through the efforts of our Executive Chairman, Jeffery Thramann. Mr. Thramann will not receive any compensation
for offering or selling the Offered Shares. We believe that Mr. Thramann is exempt from registration as a broker-dealer under the provisions
of Rule 3a4-1 promulgated under the Exchange Act. In particular, Mr. Thramann:
| · | is not subject to a statutory disqualification, as that term is defined in Section 3(a)(39) of the Securities
Act; and |
| · | is not to be compensated in connection with his participation by the payment of commissions or other remuneration
based either directly or indirectly on transactions in securities; and |
| · | is not an associated person of a broker or dealer; and |
| · | meets the conditions of the following: |
| · | primarily performs, and will perform at the end of this offering, substantial duties for us or on our
behalf otherwise than in connection with transactions in securities; and |
| · | was not a broker or dealer, or an associated person of a broker or dealer, within the preceding 12 months;
and |
| · | did not participate in selling an offering of securities for any issuer more than once every 12 months
other than in reliance on paragraphs (a)(4)(i) or (iii) of Rule 3a4-1 under the Exchange Act. |
As of the date of this Offering
Circular, we have not entered into any agreements with selling agents for the sale of the Offered Shares. However, we reserve the right
to engage FINRA-member broker-dealers. In the event we engage FINRA-member broker-dealers, we expect to pay sales commissions of up to
3.0% of the gross offering proceeds from their sales of the Offered Shares. In connection with our appointment of a selling broker-dealer,
we intend to enter into a standard selling agent agreement with the broker-dealer pursuant to which the broker-dealer would act as our
non-exclusive sales agent in consideration of our payment of commissions of up to 3.0% on the sale of Offered Shares effected by the broker-dealer.
Procedures for Subscribing
If you are interested in subscribing
for Offered Shares in this offering, please submit a request for information by e-mail to Mr. Thramann at jeff@thramann.com; all relevant
information will be delivered to you by return e-mail. Thereafter, should you decide to subscribe for Offered Shares, you are required
to follow the procedures described in the subscription agreement included in the delivered information, which are:
| · | Electronically execute and deliver to us a subscription agreement; and |
| · | Deliver funds directly by check or by wire or electronic funds transfer via ACH to our specified bank
account. |
Right to Reject Subscriptions
After we receive your complete,
executed subscription agreement and the funds required under the subscription agreement have been transferred to us, we have the right
to review and accept or reject your subscription in whole or in part, for any reason or for no reason. We will return all monies from
rejected subscriptions immediately to you, without interest or deduction.
Acceptance of Subscriptions
Conditioned upon our acceptance
of a subscription agreement, we will countersign the subscription agreement and issue the Offered Shares subscribed. Once you submit the
subscription agreement and it is accepted, you may not revoke or change your subscription or request your subscription funds. All accepted
subscription agreements are irrevocable.
This Offering Circular will
be furnished to prospective investors upon their request via electronic PDF format and will be available for viewing and download 24 hours
per day, 7 days per week on our company’s page on the SEC’s website: www.sec.gov.
An investor will become a
shareholder of the Company and the Offered Shares will be issued, as of the date of settlement. Settlement will not occur until an investor’s
funds have cleared and we accept the investor as a shareholder.
By executing the subscription
agreement and paying the total purchase price for the Offered Shares subscribed, each investor agrees to accept the terms of the subscription
agreement and attests that the investor meets certain minimum financial standards.
An approved trustee must process
and forward to us subscriptions made through IRAs, Keogh plans and 401(k) plans. In the case of investments through IRAs, Keogh plans
and 401(k) plans, we will send the confirmation and notice of our acceptance to the trustee.
State Law Exemption and Offerings to “Qualified
Purchasers”
The Offered Shares are being
offered and sold to “qualified purchasers” (as defined in Regulation A under the Securities Act). As a Tier 2 offering pursuant
to Regulation A under the Securities Act, this offering will be exempt from state “Blue Sky” law review, subject to certain
state filing requirements and anti-fraud provisions, to the extent that the Offered Shares offered hereby are offered and sold only to
“qualified purchasers”.
“Qualified purchasers”
include any person to whom securities are offered or sold in a Tier 2 offering pursuant to Regulation A under the Securities Act. We reserve
the right to reject any investor’s subscription in whole or in part for any reason, including if we determine, in our sole and absolute
discretion, that such investor is not a “qualified purchaser” for purposes of Regulation A. We intend to offer and sell the
Offered Shares to qualified purchasers in every state of the United States.
Issuance of Offered Shares
Upon settlement, that is,
at such time as an investor’s funds have cleared and we have accepted an investor’s subscription agreement, we will either
issue such investor’s purchased Offered Shares in book-entry form or issue a certificate or certificates representing such investor’s
purchased Offered Shares.
Transferability of the Offered Shares
The Offered Shares will be
generally freely transferable, subject to any restrictions imposed by applicable securities laws or regulations.
Listing of Offered Shares
The Offered Shares will be
listed on The Nasdaq Capital Market under the symbol “AUUD.”
DESCRIPTION OF SECURITIES
The following description
is intended as a summary of our certificate of incorporation (which we refer to as our “charter”) and our bylaws, each of
which is filed as an exhibit to the Offering Circular, and to the applicable provisions of the Delaware General Corporation Law. Because
the following is only a summary, it does not contain all of the information that may be important to you. For a complete description,
you should refer to our charter and bylaws.
We
have two classes of securities registered under Section 12 of the Exchange Act. Our shares of common stock are listed on The Nasdaq Stock
Market under the trading symbol “AUUD.” Our Series A Warrants are listed on the Nasdaq Stock Market under the trading symbol
“AUUDW.”
Authorized Capital
Stock
Our
authorized capital stock consists of 100,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred
stock, par value $0.001 per share.
Common Stock
The
holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders. The holders
of our common stock do not have any cumulative voting rights. Holders of our common stock are entitled to receive ratably any dividends
declared by our board of directors out of funds legally available for that purpose, subject to any preferential dividend rights of any
outstanding preferred stock. Our common stock has no preemptive rights, conversion rights or other subscription rights or redemption or
sinking fund provisions.
In
the event of our liquidation, dissolution or winding up, holders of our common stock will be entitled to share ratably in all assets remaining
after payment of all debts and other liabilities and any liquidation preference of any outstanding preferred stock. Each outstanding share
of common stock is duly and validly issued, fully paid and non-assessable.
Preferred stock
Our
board will have the authority, without further action by our stockholders, to issue up to 10,000,000 shares of preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions thereof. These rights, preferences and privileges could
include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number
of shares constituting, or the designation of, such series, any or all of which may be greater than the rights of common stock. The issuance
of our preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive
dividend payments and payments upon our liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring
or preventing a change in control of our company or other corporate action.
Series A Preferred
Stock
On
November 10, 2023, we entered into a securities purchase agreement with Jeffrey Thramann, our Executive Chairman, pursuant to which we
issued and sold one (1) share of our newly designated Series A Preferred Stock for an aggregate purchase price of $1,000.
The
share of Series A Preferred Stock will have 30,000,000 votes and will vote together with the outstanding shares of our common stock as
a single class exclusively with respect to any proposal to amend our Certificate of Incorporation to effect a reverse stock split of our
common stock. The share of Series A Preferred Stock will be voted, without action by the holder, on any such reverse stock split proposal
in the same proportion as shares of common stock are voted on such proposal (excluding any shares of common stock that are not voted).
On
December 29, 2023, we redeemed the one outstanding share of Series A Preferred Stock in accordance with its terms. The redemption price
was $1,000. No Series A Preferred Stock remains outstanding.
The
Series A Preferred Stock otherwise has no voting rights, except as may otherwise be required by the General Corporation Law of the State
of Delaware. The share of Series A Preferred Stock is not convertible into, or exchangeable for, shares of any other class or series of
our stock or other securities. The share of Series A Preferred Stock has no rights with respect to any distribution of our assets, including
upon a liquidation, bankruptcy, reorganization, merger, acquisition, sale, dissolution or winding up, whether voluntarily or involuntarily.
The holder of the Share of Series A Preferred Stock will not be entitled to receive dividends of any kind. The share of Series A Preferred
Stock shall be redeemed in whole, but not in part, at any time (i) if such redemption is ordered by our board in its sole discretion or
(ii) automatically upon the effectiveness of the amendment to the Certificate of Incorporation implementing a reverse stock split. Upon
such redemption, the holder of the Series A Preferred Stock will receive consideration of $1,000.00 in cash.
Series B Convertible
Preferred Stock
On
April 23, 2024, we entered into a securities purchase agreement with accredited investors, pursuant to which we issued and sold 2,314
shares of our newly designated Series B Convertible Preferred Stock for an aggregate purchase price of $2,314,000.
Holders of the Series
B Convertible Preferred Stock will be entitled to dividends in the amount of 10% per annum, payable quarterly. We have the option to pay
dividends on the Series B Convertible Preferred Stock in additional shares of common stock. If we elect to pay in the form of common stock,
the number of dividend shares to be issued shall be calculated by using a “Dividend Conversion Price” equal to the lower of
(i) the then applicable Conversion Price (as defined in the Certificate of Designations) as in effect on the applicable dividend date,
or (ii) 90% of the lowest volume-weighted average price (“VWAP”) of the common stock during the five (5) consecutive trading
day period ending and including the trading day immediately preceding the applicable dividend date. We also have the option to cumulate
or “capitalize” the dividends, in which case the accrued dividend amount shall be added to the stated value of each share
of Series B Convertible Preferred Stock.
The
stated value of each share of Series B Convertible Preferred Stock (including all the unpaid dividends and other amounts payable on the
Series B Convertible Preferred Stock) will be convertible into common stock at an initial fixed Conversion Price of $1.851 per share of
common stock. The Series B Convertible Preferred Stock may be converted into shares of common stock at any time at the option of the holder.
The Series B Convertible Preferred Stock may also be converted into shares of common stock at our option if the closing price of the common
stock exceeds 300% of the Conversion Price for 20 consecutive trading days.
The
Conversion Price of the Series B Convertible Preferred Stock is subject to certain anti-dilution adjustments, including in the event of
any stock splits or combinations, certain dividends and distributions, reclassification, exchange or substitution of our common stock
or in the event that we grant, issue or sell (or enters into any agreement to grant, issue or sell), or are deemed to have granted, issued
or sold, any shares of common stock for a consideration per share (the “New Issuance Price”) less than a price equal to the
Conversion Price in effect immediately prior to such granting, issuance or sale or deemed granting, issuance or sale (the foregoing a
“Dilutive Issuance”) Immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an
amount equal to the New Issuance Price.
The
Series B Convertible Preferred Stock has no voting rights, except as may otherwise be required by the General Corporation Law of the State
of Delaware. The stated value of each share of Series B Convertible Preferred Stock (including all the unpaid dividends and other amounts
payable on the Series B Convertible Preferred Stock) will be convertible into common stock at an initial fixed Conversion Price of $1.851
per share of common stock. The Series B Convertible Preferred Stock may be converted into shares of common stock at any time at the option
of the holder.
The
Conversion Price of the Series B Convertible Preferred Stock is subject to certain anti-dilution adjustments, including in the event of
any stock splits or combinations, certain dividends and distributions, reclassification, exchange or substitution of our common stock
or in the event that we grant, issue or sell (or enters into any agreement to grant, issue or sell), or are deemed to have granted, issued
or sold, any shares of common stock for a consideration per share (the “New Issuance Price”) less than a price equal to the
Conversion Price in effect immediately prior to such granting, issuance or sale or deemed granting, issuance or sale (the foregoing a
“Dilutive Issuance”) Immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an
amount equal to the New Issuance Price.
The
Certificate of Designations contains customary events of default, or “Triggering Events”, including, among others, (i) certain
events of bankruptcy, insolvency or reorganization; (ii) failure to comply with the listing rules of Nasdaq; (iii) certain breaches of
the transaction agreements related to this financing; and (iv) any of the shares of the Series B Convertible Preferred Stock remaining
outstanding on or after April 23, 2026.
Upon
the occurrence of a Triggering Event, (i) the dividend rate on the Series B Convertible Preferred Stock will increase to 18%, and (ii)
the Conversion Price then in effect will be adjusted to an “Alternate Conversion Price” equal to the lowest of (i) the applicable
Conversion Price as then in effect, and (ii) the greater of (x) the “Floor Price” of $0.3702 and (y) 80% of the lowest VWAP
of the common stock during the five (5) consecutive trading day period immediately preceding the delivery or deemed delivery of the applicable
conversion notice.
At
any time, we shall have the right to redeem all, but not less than all, of the Series B Convertible Preferred Shares then outstanding
in cash at a 25% redemption premium to the greater of (i) the face value of our common stock underlying the Series B Convertible Preferred
Shares and (ii) the equity value of our common stock underlying the Series B Convertible Preferred Shares. The equity value of our common
stock underlying the Series B Convertible Preferred Shares is calculated using the greatest closing sale price of our common stock on
any trading day immediately preceding the date we notify the holders of our election to redeem and the date we make the entire payment
required.
Upon
our liquidation, dissolution or winding up, holders of Series B Convertible Preferred Stock shall be entitled to receive in cash out of
our assets, before any amount shall be paid to the holders of any of shares of common stock, an amount per shares of Series B Convertible
Preferred Stock equal to the sum of (i) the Black Scholes Value (as defined in the Warrants) with respect to the outstanding portion of
all Warrants held by such holder (without regard to any limitations on the exercise thereof) as of the date of such event and (ii) the
greater of (A) 125% of the applicable liquidation value and (B) the amount per share such holder would receive if such holder converted
such share of Series B Convertible Preferred Stock into common stock immediately prior to the date of such payment.
We
have no other shares of preferred stock are currently outstanding.
Anti-Takeover Effects
of Delaware Law and Provisions of Our Charter and Our Bylaws
Certain
provisions of the DGCL and of our charter and our bylaws could have the effect of delaying, deferring or preventing another party from
acquiring control of us and encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate
with our board of directors rather than pursue non-negotiated takeover attempts. These provisions include the items described below.
Delaware Anti-Takeover
Statute
We
are subject to the provisions of Section 203 of the DGCL. In general, Section 203 prohibits a publicly held Delaware corporation from
engaging in a “business combination” with an “interested stockholder” for a three-year period following the time
that this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. Under Section
203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following
conditions:
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before the stockholder became interested, our Board approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
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upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances, but not the outstanding voting stock owned by the interested stockholder; or |
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at or after the time the stockholder became interested, the business combination was approved by our Board and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder. |
Section 203 defines a
business combination to include:
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any merger or consolidation involving the corporation and the interested stockholder; |
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any sale, transfer, lease, pledge, exchange, mortgage or other disposition involving the interested stockholder of 10% or more of the assets of the corporation; |
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subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; or |
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the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. |
In
general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting
stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.
Board Composition
and Filling Vacancies
Our
charter provides that stockholders may remove directors only for cause and only by the affirmative vote of the holders of at least two-thirds
of our outstanding common stock. Our charter and bylaws authorize only our board of directors to fill vacant directorships, including
newly created seats. In addition, the number of directors constituting our board of directors may only be set by a resolution adopted
by a majority vote of our entire board of directors. These provisions would prevent a stockholder from increasing the size of our board
of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees. This makes it
more difficult to change the composition of our board of directors but promotes continuity of management.
No Written Consent
of Stockholders
Our
charter and bylaws provide that all stockholder actions are required to be taken by a vote of the stockholders at an annual or special
meeting, and that stockholders may not take any action by written consent in lieu of a meeting. This limit may lengthen the amount of
time required to take stockholder actions and would prevent the amendment of our bylaws or removal of directors by our stockholders without
holding a meeting of stockholders.
Meetings of Stockholders
Our
charter and bylaws provide that only a majority of the members of our Board then in office, our Executive Chairman or our Chief Executive
Officer may call special meetings of stockholders and only those matters set forth in the notice of the special meeting may be considered
or acted upon at a special meeting of stockholders.
Advance Notice Requirements
Our
bylaws provide advance notice procedures for stockholders seeking to bring matters before our annual meeting of stockholders or to nominate
candidates for election as directors at our annual meeting of stockholders. Our bylaws also specify certain requirements regarding the
form and content of a stockholder’s notice. These provisions might preclude our stockholders from bringing matters before our annual
meeting of stockholders or from making nominations for directors at our annual meeting of stockholders if the proper procedures are not
followed. We expect that these provisions might also discourage or deter a potential acquirer from conducting a solicitation of proxies
to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.
Amendment to Our Charter
and Bylaws
The
DGCL, provides, generally, that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a
corporation’s certificate of incorporation or bylaws, unless a corporation’s certificate of incorporation or bylaws, as the
case may be, requires a greater percentage. Our bylaws may be amended or repealed by a majority vote of our board of directors or the
affirmative vote of the holders of at least two-thirds of the votes that all our stockholders would be entitled to cast in an annual election
of directors. In addition, the affirmative vote of the holders of at least two-thirds of the votes that all our stockholders would be
entitled to cast in an election of directors is required to amend or repeal or to adopt certain provisions of our charter.
Undesignated Preferred
Stock
Our
charter provides for 10,000,000 authorized shares of preferred stock. The existence of authorized but unissued shares of preferred stock
may enable our board to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise.
For example, if in the due exercise of its fiduciary obligations, our board of directors were to determine that a takeover proposal is
not in the best interests of our stockholders, our board could cause shares of convertible preferred stock to be issued without stockholder
approval in one or more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer
or insurgent stockholder or stockholder group. In this regard, our charter grants our board broad power to establish the rights and preferences
of authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings
and assets available for distribution to holders of shares of common stock. The issuance may also adversely affect the rights and powers,
including voting rights, of these holders and may have the effect of delaying, deterring or preventing a change in control of us.
Choice of Forum
Our
charter provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings:
any derivative action or proceeding brought on behalf of the Company, any action asserting a claim of breach of a fiduciary duty owed
by any director, officer or other employee of the Company to the Company or the Company’s stockholders, any action asserting a claim
against the Company arising pursuant to any provision of the DGCL or the Company’s certificate of incorporation or bylaws, or any
action asserting a claim against the Company governed by the internal affairs doctrine. Our charter also provides that unless the Company
consents in writing to the selection of an alternative forum, the federal district courts of the United States of America shall be the
exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Despite the fact that
the certificate of incorporation provides for this exclusive forum provision to be applicable to the fullest extent permitted by applicable
law, Section 27 of the Exchange Act, creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created
by the Exchange Act or the rules and regulations thereunder and Section 22 of the Securities Act, creates concurrent jurisdiction for
federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations
thereunder. As a result, this provision of the Company’s certificate of incorporation would not apply to claims brought to enforce
a duty or liability created by the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction. However,
there is uncertainty as to whether a Delaware court would enforce the exclusive federal forum provisions for Securities Act claims and
that investors cannot waive compliance with the federal securities laws and rules and regulations thereunder.
Unless
the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America
shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.
Series A Warrants
Each
Series A Warrant represents the right to purchase one share of common stock at an exercise price of $113.4375. The Series A Warrants are
exercisable beginning February 17, 2021 will terminate on the 5th anniversary date the Series A Warrants are first exercisable. The exercise
price and number of shares for which each Series A Warrant may be exercised is subject to adjustment in the event of stock dividends,
stock splits, reorganizations or similar events affecting our common stock.
Holders
of the Series A Warrants may exercise their Series A Warrants to purchase shares of our common stock on or before the termination date
by delivering an exercise notice, appropriately completed and duly signed. Payment of the exercise price for the number of shares for
which the Series A Warrants is being exercised must be made within two trading days following such exercise. In the event that the registration
statement relating to the Series A Warrants shares (the “Warrant Shares”) is not effective, a holder of Series A Warrants
may only exercise its Series A Warrants for a net number of Warrant Shares pursuant to the cashless exercise procedures specified in the
Series A Warrants. Series A Warrants may be exercised in whole or in part, and any portion of a Series A Warrant not exercised prior to
the termination date shall be and become void and of no value. The absence of an effective registration statement or applicable exemption
from registration does not alleviate our obligation to deliver common stock issuable upon exercise of a Series A Warrant.
Upon
the holder’s exercise of a Series A Warrant, we will issue the shares of common stock issuable upon exercise of the Series A Warrant
within three trading days of our receipt of notice of exercise, subject to timely payment of the aggregate exercise price therefor.
The
shares of common stock issuable on exercise of the Series A Warrants will be, when issued in accordance with the Series A Warrants, duly
and validly authorized, issued and fully paid and non-assessable. We will authorize and reserve at least that number of shares of common
stock equal to the number of shares of common stock issuable upon exercise of all outstanding warrants.
If,
at any time a Series A Warrant is outstanding, we consummate any fundamental transaction, as described in the Series A Warrants and generally
including any consolidation or merger into another corporation, the consummation of a transaction whereby another entity acquires more
than 50% of our outstanding common stock, or the sale of all or substantially all of our assets, or other transaction in which our common
stock is converted into or exchanged for other securities or other consideration, the holder of any Series A Warrants will thereafter
receive upon exercise of the Series A Warrants, the securities or other consideration to which a holder of the number of shares of common
stock then deliverable upon the exercise or conversion of such Series A Warrants would have been entitled upon such consolidation or merger
or other transaction.
The
Series A Warrants are not exercisable by their holder to the extent (but only to the extent) that such holder or any of its affiliates
would beneficially own in excess of 4.99% of our common stock.
Amendments
and waivers of the terms of the Series A Warrants require the written consent of the holder of such Series A Warrants and us. The Series
A Warrants will be issued in book-entry form under a warrant agent agreement between V-Stock Transfer Company, Inc. as warrant agent,
and us, and shall initially be represented by one or more book-entry certificates deposited with The Depository Trust Company, or DTC,
and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC.
You
should review a copy of the warrant agent agreement and the form of the Series A Warrants, each of which are included as exhibits to this
Offering Circular.
Transfer Agent, Registrar, Warrant Agent
The transfer agent and registrar
for our common stock and the warrant agent for our Series A Warrants is VStock Transfer LLC, 18 Lafayette Place, Woodmere, NY 11598.
As of July 3, 2024, there
were 2,794,196 shares of our common stock outstanding, and approximately 141 stockholders of record. No shares of our preferred stock
are designated, issued or outstanding.
Other Warrants
At July 3, 2024, we had 1,039,448
outstanding common stock warrants. The 463,337 prefunded warrants have an exercise price of $0.001 per share. The non-prefunded warrants
have a weighted-average exercise price of $16.36. 1,129,404 of the outstanding warrants are currently exercisable and have a weighted
average remaining contractual life of approximately 4.6 years as of July 3, 2024.
These warrants have a net
exercise provision under which its holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net
amount of shares based on the fair market value of the underlying shares at the time of exercise of the warrant after deduction of a number
of shares equal in value to the aggregate exercise price. The warrants contain provisions for the adjustment of the exercise price and
the number of shares issuable upon the exercise of the warrant in the event of certain stock dividends, stock splits, reorganizations,
reclassifications and consolidations.
Outstanding Stock Options and Restricted Stock
Units
At July 3, 2024, we had 8,929
outstanding common stock options, with a weighted-average exercise price of $3.65, which were granted under the Clip Interactive, LLC
2013 Equity Incentive Plan. We ceased granting awards under the 2013 Plan upon the implementation of the 2020 Plan described below.
At July 3, 2024, we had zero
shares of our common stock reserved for issuance under outstanding stock options and outstanding Restricted Stock Units granted as employment
inducement awards to four of our former and current executives outside of our 2013 and 2020 Equity Incentive Plans.
2020 Equity Incentive Plan
The Company’s 2020 Equity
Incentive Plan, which became effective upon the completion of the IPO in February 2021, serves as the successor equity incentive plan
to the 2013 Plan. The 2020 Plan currently has an aggregate of 150,036 shares of common stock authorized for issuance, after giving effect
to the “evergreen” increase of 39,893 shares as of January 1, 2024.
The 2020 Equity Incentive
Plan contains an “evergreen” provision, pursuant to which the number of shares of common stock reserved for issuance pursuant
to awards under such plan shall be increased on the first day of each year beginning January 1, 2022 and ending January 1, 2030 equal
to the lesser of (a) five percent (5%) of the shares of stock outstanding (on an as converted basis) on the last day of the immediately
preceding fiscal year and (b) such smaller number of shares of stock as determined by our board of directors.
At July 3, 2024 under our
2020 Equity Incentive Plan, there were (i) 39,632 outstanding common stock options with a weighted average exercise price of $51.48 (ii)
10,990 outstanding restricted stock units, and (iii) 103,308 shares remaining available for future grant.
BUSINESS
Reference is made to the information
described under “Item 1. Business” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 that we filed
with the Commission on April 1, 2024. See “Incorporation of Certain Information by Reference” beginning on page 55
of this Offering Circular.
Recent Developments
Reference
is made to the information set forth under the heading “Recent Developments” in the Offering Circular Summary section beginning
on page 6 of this offering circular.
Employees
As of the date of this Offering
Circular, we had 12 total employees, 7 of whom were engaged in full-time research and development activities and 5 of whom were engaged
in general administration. The Company also works with 1 full-time contractor who supports research and development and 2 part-time contractors
who support general administration activities. None of our employees is represented by any collective bargaining unit. We believe that
we maintain good relations with our employees.
Properties
In April 2021, the Company
entered a twelve-month non-cancelable operating sublease for approximately 8,600 square feet of office space, with an initial base rent
of $7,150 per month with three, separate six-month renewal options, subject to fixed rate escalation increases. In November of 2022, the
Company amended the sublease to reflect a new term that expired on December 14, 2023, and was not renewed by the parties. The square footage
rented was reduced to approximately 2,160 square feet at the cost of $4,018 per month. As of December 31, 2023, the Company was negotiating
a new office space lease and entered into a temporary month-to-month lease for $1,600 per month until negotiations were finalized. On
March 25, 2024, the Company entered into a new 37-month operating lease commencing on April 1, 2024 with two separate two year renewal
options. The monthly base rent for months two through 14 is $2,456, increasing to $3,070 for months 15 through 26, and ending at $3,684
for months 27 through 37. Rent expense was $61,724 and $104,223 for the years ended December 31, 2023, and 2022, respectively.
Legal Proceedings
From time to time, we may
be involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently a party
to any material legal proceedings, the adverse outcome of which, in our management’s opinion, individually or in the aggregate,
could have a material adverse effect on the results of our operations or financial position. There are no material proceedings in which
any of our directors, officers or affiliates or any registered or beneficial stockholder of more than 5% of our common stock is an adverse
party or has a material interest adverse to our interest.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the
following discussion and analysis of our financial condition and results of operations in conjunction with the audited financial statements
(prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and related notes
included elsewhere in this Offering Circular. The following discussion contains forward-looking statements that are subject to risks and
uncertainties. See “Cautionary Statement Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks,
and assumptions associated with those statements. Actual results could differ materially from those discussed in or implied by forward-looking
statements as a result of various factors, including those discussed below and elsewhere in this Offering Circular, particularly in the
section entitled “Risk Factors.” Unless we state otherwise or the context otherwise requires, the terms “we,”
“us,” “our” and the “Company” refer to Auddia, Inc.
The following discussion
of our financial condition and the results of operations should be read in conjunction with the financial statements and footnotes thereto
appearing elsewhere in this offering circular and in conjunction with the Management’s Discussion and Analysis of Financial Condition
and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 that we filed with the
Commission on April 1, 2024 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 that we filed with the Commission
on May 14, 2024. See “Incorporation of Certain Information by Reference” beginning on page 55 of this Offering Circular.
The financial statements have been prepared in accordance with U.S. GAAP.
Overview
Auddia
is a technology company headquartered in Boulder, CO that is reinventing how consumers engage with audio through the development of a
proprietary AI platform for audio and innovative technologies for podcasts. Auddia is leveraging these technologies within its industry-first
audio Superapp, faidr (previously known as the Auddia App).
faidr
gives consumers the opportunity to listen to any AM/FM radio station with commercial breaks replaced with personalized audio content,
including popular and new music, news, and weather. The faidr app represents the first-time consumers can combine the local content uniquely
provided by AM/FM radio with commercial-free and personalized listening many consumers demand from digital-media consumption. In addition
to commercial-free AM/FM, faidr includes podcasts - also with ads removed or easily skipped by listeners - as well as exclusive content,
branded faidrRadio, which includes new artist discovery, curated music stations, and Music Casts. Music Casts are unique to faidr. Hosts
and DJs can combine on-demand talk segments with dynamic music streaming, which allows users to hear podcasts with full music track plays
embedded in the episodes.
Auddia
has also developed a differentiated podcasting capability with ad-reduction features and also provides a unique suite of tools that helps
podcasters create additional digital content for their podcast episodes as well as plan their episodes, build their brand, and monetize
their content with new content distribution channels. This podcasting feature also gives users the ability to go deeper into the stories
through supplemental, digital content, and eventually comment and contribute their own content to episode feeds. The combination of AM/FM
streaming and podcasting, with Auddia’s unique, technology-driven differentiators, addresses large and rapidly growing audiences.
The
Company has developed its AI platform on top of Google’s TensorFlow open-source library that is being “taught” to know
the difference between all types of audio content on the radio. For instance, the platform recognizes the difference between a commercial
and a song and is learning the differences between all other content to include weather reports, traffic, news, sports, DJ conversation,
etc. Not only does the technology learn the differences between the various types of audio segments, but it also identifies the beginning
and end of each piece of content.
The
Company is leveraging this technology platform within its premium AM/FM radio listening experience through the faidr App. The faidr App
is intended to be downloaded by consumers who will pay a subscription fee in order to listen to any streaming AM/FM radio station and
podcasts, all with commercial interruptions removed from the listening experience, in addition to the faidrRadio exclusive content offerings.
Advanced features will allow consumers to skip any content heard on the station and request request audio content on-demand. We believe
the faidr App represents a significant differentiated audio streaming product, or Superapp, that will be the first to come to market since
the emergence of popular streaming music apps such as Pandora, Spotify, Apple Music, Amazon Music, etc. We believe that the most significant
point of differentiation is that in addition to ad-free AM/FM streaming and ad-reduced podcasts, the faidr App is intended to deliver
non-music content that includes local sports, news, weather, traffic and the discovery of new music alongside exclusive programming. No
other radio streaming app available today, including category leaders like TuneIn, iHeart, and Audacy, can compete with faidr’s
full product offerings.
The
Company launched an MVP version of faidr through several consumer trials in 2021 to measure consumer interest and engagement with the
App. The full app launched on February 15, 2022, and included all major U.S. radio stations in the US. In February 2023, we added faidrRadio,
our exclusive content offerings, to the app. Podcasts (standard) were added to the app for the iOS version before the end of Q1 2023 as
planned and added to the Android app in May of 2023. Podcast functionality will continue to be enhanced through 2024, including the deployment
of the Company’s ad-reduction technology.
The
Company also developed a testbed differentiated podcasting capability called Vodacast, which leveraged technologies and proven product
concepts to differentiate its podcasts offering from other competitors in the radio-streaming product category.
With
podcasting growing and predicted to grow at a rapid rate, the Vodacast podcast platform was conceptualized to fill a void in the emerging
audio media space. The platform was built to become the preferred podcasting solution for podcasters by enabling them to deliver digital
content feeds that match the audio of their podcast episodes, and by enabling podcasters to make additional revenue from new digital advertising
channels, subscription channels, on-demand fees for exclusive content, and through direct donations from their listeners. Throughout 2023
and early 2024, Auddia has been migrating their podcasting capabilities into the flagship faidr app with the intention to sunset the Vodacast
platform and instead bring the advanced podcasting functionality that was found on Vodacast into faidr as part of the overall strategy
to build a single audio Superapp. This includes Auddia’s new podcast ad-reduction technology.
Today,
podcasters do not have a preference as to where their listeners access their episodes, as virtually all listening options (mobile apps
and web players) deliver only their podcast audio. By creating significant differentiation on which they can make net new and higher margin
revenue, we believe that podcasters will promote faidr to their listeners, thus creating a powerful, organic marketing dynamic.
One
innovative and proprietary part of Auddia’s podcast capabilities, originally presented on their Vodacast differentiated podcasting
capability, is the availability of tools to create and distribute an interactive digital feed, which supplements podcast episode audio
with additional digital. These content feeds allow podcasters to tell deeper stories to their listeners while giving podcasters access
to digital revenue for the first time. Podcasters will be able to build these interactive feeds using The Podcast Hub, a content management
system that was originally developed and trialed as part of Auddia’s Vodacast platform, which also serves as a tool to plan and
manage podcast episodes. The digital feed activates a new digital ad channel that turns every audio ad into a direct-response, relevant-to-the-story,
digital ad, increasing the effectiveness and value of their established audio ad model. The feed also presents a richer listening experience,
as any element of a podcast episode can be supplemented with images, videos, text and web links. This feed will appear fully synchronized
in the faidr mobile App, and it also can be hosted and accessed independently (e.g., through any browser), making the content feed universally
distributable.
Over
time, users will be able to comment, and podcasters will be able to grant some users publishing rights to add content directly into the
feed on their behalf. This will create another first for podcasting, a dialog between creator and fan, synchronized to the episode content.
The interactive feed for podcasts has been developed and tested on Vodacast and is expected to be another differentiator added into faidr
for podcast listeners later in 2024.
The
podcast capabilities within faidr will also introduce a unique and industry first multi-channel, highly flexible set of revenue channels
that podcasters can activate in combination to allow listeners to choose how they want to consume and pay for content. “Flex Revenue”
allows podcasters to continue to run their standard audio ad model and complement those ads with direct response enabled digital ads in
each episode content feed, increasing the value of advertising on any podcast. “Flex Revenue” will also activate subscriptions,
on-demand fees for content (e.g., listen without audio ads for a micro payment fee) and direct donations from listeners. Using these channels
in combination, podcasters can maximize revenue generation and exercise higher margin monetization models, beyond basic audio advertising.
“Flex Revenue” and the initial inclusion of the new revenue channels that come with it will be added to podcasting in the
faidr app, and the first elements of this new monetization capability is expected to be commercially available in 2024, beginning with
subscription plans to access ad-reduction in podcasts.
The
faidr mobile App is available today through the iOS and Android App stores.
We
have funded our operations with proceeds from the February 2021 IPO, Series A warrants exercised in July 2021 and common share issuance
during June of 2023. We also obtained debt financing through a related party during November 2022 and April 2023. In addition, we sold
common shares during April 2023, June 2023, and the first quarter of 2024 pursuant to our equity line facility. Since our inception, we
have incurred significant operating losses. As of March 31, 2024, we had an accumulated deficit of $82,750,658. Our ability to generate
product revenue sufficient to achieve profitability will depend heavily on the successful development and commercialization of one or
more of our Apps. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities,
particularly if and as we:
| · | nationally launch our faidr App and as we continue training our proprietary AI technology and make product
enhancements; |
| · | continue to develop and expand our technology and functionality to advance the faidr app; |
| · | rollout our product on a national basis, which will include increasing our sales and marketing costs related
to the promotion of our products. faidr promotion will include a combination of a) purchasing ads directly from broadcasters or b) participating
broadcasters to promote without purchasing ads, but sharing a portion of subscription proceeds based on listening activity on those stations; |
| · | continue to pursue and complete potential acquisitions of other companies; |
| · | hire additional business development, product management, operational and marketing personnel; |
| · | continue market studies of our products; and |
| · | add operational and general administrative personnel which will support our product development programs,
commercialization efforts and our transition to operating as a public company. |
As
a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such
time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity,
debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. We may
be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If
we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue
the development and commercialization of one or more of our product candidates.
Because
of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased
expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not
become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable
to continue our operations at planned levels and be forced to reduce or terminate our operations.
As
of March 31, 2024, we had cash and cash equivalents of $2,732,538. The Company secured approximately $3.6 million in additional financing
in February and March 2024. We will need additional funding to fund our debt, 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 potential targets and seeking to execute one or more agreements in the near term. These business development transactions would
require additional funding.
Recent Developments
Mergers and Acquisitions
Strategy
We
are exploring various merger and acquisition options as part of a broader strategy which aims to scale the business more rapidly; accelerate
user adoption and subscriber growth; enter new markets (international); and open new pathways toward raising capital. The overall strategy
focuses on three areas: (1) acquiring users of a radio-streaming app, (2) bringing our proprietary ad-free products to the acquired userbase
to generate significant subscription revenue, and (3) bringing together other differentiated features into the larger audio Superapp platform.
The
Company incurred $301,097 in costs related to evaluating potential acquisitions during the three months ended March 31, 2024.
RFM Acquisition
On
January 26, 2024, we entered into a Purchase Agreement (the “RFM Purchase Agreement”), pursuant to which we agreed to acquire
RadioFM (the “RFM Acquisition”), which is currently a component of both AppSmartz and RadioFM (partnerships under common control).
The aggregate consideration for the RFM Acquisition is $13,000,000 (plus $2,000,000 in contingent consideration if certain post-close
milestones are reached), in addition to the assumption of certain liabilities, as may be adjusted pursuant to the terms of the RFM Purchase
Agreement.
In
March 2024, the parties mutually agreed to terminate the RFM Purchase Agreement.
Nasdaq Deficiency Notices
The
Nasdaq listing rules require listed securities to maintain a minimum bid price of $1.00 per share. As previously reported in our Current
Report on Form 8-K filed on November 28, 2023, we received a written notice from Nasdaq indicating that the Company was not in compliance
with the $1.00 minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing. As a result, the Nasdaq
staff determined to delist the Company’s Common Stock from Nasdaq, unless the Company timely requests an appeal of the Staff’s
determination to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series.
Our hearing with the Panel occurred on January 18, 2024.
On
November 21, 2023, we received a written notice from Nasdaq indicating that we are not in compliance with Nasdaq Listing Rule 5550(b)(1),
which requires companies listed on The Nasdaq Capital Market to maintain a minimum of $2,500,000 in stockholders’ equity for continued
listing (the “Stockholders’ Equity Requirement”). In our quarterly report on Form 10-Q for the period ended September
30, 2023, we reported stockholders’ equity of $2,415,012, and, as a result, did not satisfy Listing Rule 5550(b)(1). Nasdaq’s
November written notice had no immediate impact on the listing of our common stock. Our hearing with the Panel occurred on January 18,
2024 and addressed all outstanding listing compliance matters, including compliance with the Stockholders’ Equity Notice as well
as compliance with the Bid Price Requirement.
On
January 30, 2024, the Panel granted the Company’s request for an exception to Nasdaq’s listing rules until April 22, 2024,
to demonstrate compliance with all applicable continued listing requirements for the Nasdaq Capital Market.
On
March 20, 2024, we received a letter from Nasdaq stating we had regained compliance with the minimum bid requirement. The Panel reminded
us that although we regained compliance with the minimum bid requirement, we are also required to regain compliance with the equity requirement.
Therefore, this matter will remain open until we demonstrate compliance with all requirements.
On
April 16, 2024, the Company received a letter from Nasdaq granting an exception to the Exchange’s listing rules until May 20, 2024,
to demonstrate compliance with Listing Rule 5550(b)(1) (the “Equity Rule”.)
On May 24, 2024, the Company
received a letter from Nasdaq indicating that the Company has regained compliance with the equity requirement in Listing rule 5550(b)
(1) (the Equity Rule”.) The Company will be subject to a Mandatory Panel Monitor for a period of one year from the date of the letter
in accordance with application of Listing Rule 5815(d)(4)(B).
Reverse Share Split
The
Company filed an amendment to its Certificate of Incorporation with the Secretary of State in Delaware which became effective as of 5:00
P.M. Eastern Time on February 26, 2024. As a result, every twenty-five (25) issued shares of common stock were automatically combined
into one share of common stock.
Shares
of the Company’s common stock were assigned a new CUSIP number (05072K 206) and began trading on a split-adjusted basis on February
27, 2024.
The
reverse stock split did not change the authorized number of shares of the Company’s common stock. No fractional shares were issued
and any fractional shares resulting from the reverse stock split were rounded up to the nearest whole share. Therefore, stockholders with
less than 25 shares received one share of stock.
The
reverse stock split applied to the Company’s outstanding warrants, stock options and restricted stock units. The number of shares
of common stock into which these outstanding securities are convertible or exercisable were adjusted proportionately as a result of the
reverse stock split. The exercise prices of any outstanding warrants or stock options were also proportionately adjusted in accordance
with the terms of those securities and the Company’s equity incentive plans.
Impact of Inflation
We have recently experienced
higher costs across our business as a result of inflation, including higher costs related to employee compensation and outside services.
We expect inflation to continue to have a negative impact throughout 2024, and it is uncertain whether we will be able to offset the impact
of inflationary pressures in the near term.
Components of our results of operations
Operating expenses
Direct costs of services
Direct
cost of services consists primarily of costs incurred related to our technology and development of our Apps, including hosting and other
technology related expenses. We expect our direct costs of services to increase in the future as we continue to develop and enhance our
technology related to the faidr and podcasting Apps.
Sales and marketing
Our
sales and marketing expenses consist primarily of salaries, direct to consumer promotional spend and consulting services, all of which
are related to the sales and promotion performed during the period. We expect our sales and marketing expenses to fluctuate period by
period as we release new upgrades and enhancements within our Apps and look to generate revenue through customer acquisition, retention,
and subscription conversion.
Research and development
Since
our inception, we have focused significant resources on our research and development activities related to the software development of
our technology. We account for costs incurred in the development of computer software as software research and development costs until
the preliminary project stage is completed, management has committed to funding the project, and completion and use of the software for
its intended purpose is probable. We cease capitalization of development costs once the software has been substantially completed and
is available for its intended use. Software development costs are amortized over a useful life estimated by our management of three years.
Costs associated with significant upgrades and enhancements that result in additional functionality are capitalized. Capitalized costs
are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in software technologies. Unamortized
capitalized software development costs determined to be in excess of anticipated future net revenues are impaired and expensed during
the period of such determination. We expect to continue to incur research and development expenses and capitalization in the future as
we continue to develop and enhance our faidr and podcasting Apps.
General and administrative
Our
general and administrative expenses consist primarily of salaries and related costs, including payroll taxes, benefits, stock-based compensation,
and professional fees related to auditing, tax, general legal services, and consulting services. We expect our general and administrative
expenses to continue to increase in the future as we right-size our operating activities and prepare for commercialization of our products
and support our operations as a public company, including increased expenses related to legal, accounting, insurance, regulatory and tax-related
services associated with maintaining compliance with exchange listing and Securities and Exchange Commission requirements, directors and
officers liability insurance premiums and investor relations activities.
Other income and expense
The
other income and expense category primarily consists of interest expense attributed to the debt and conversion features of the Notes payable
to related party.
Results of operations
Comparison of the Years ended December
31, 2023 and 2022
The following table summarizes
our results of operations:
| |
Year Ended | | |
| |
| |
December 31, 2023 | | |
December 31, 2022 | | |
Change $ | |
Revenue | |
$ | – | | |
$ | – | | |
$ | – | |
| |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | |
Direct cost of services | |
| 181,679 | | |
| 180,690 | | |
| 989 | |
Sales and marketing | |
| 1,096,106 | | |
| 1,673,692 | | |
| (577,586 | ) |
Research and development | |
| 781,017 | | |
| 654,879 | | |
| 126,138 | |
General and administrative | |
| 3,576,729 | | |
| 3,223,520 | | |
| 353,209 | |
Depreciation and amortization | |
| 1,840,837 | | |
| 991,639 | | |
| 849,198 | |
Total operating expenses | |
| 7,476,368 | | |
| 6,724,420 | | |
| 751,948 | |
Loss from operations | |
| (7,476,368 | ) | |
| (6,724,420 | ) | |
| (751,948 | ) |
| |
| | | |
| | | |
| | |
Other (expense) income: | |
| | | |
| | | |
| | |
Interest expense | |
| (1,331,128 | ) | |
| (173,027 | ) | |
| (1,158,101 | ) |
Interest income | |
| – | | |
| 1 | | |
| (1 | ) |
Total other expense | |
| (1,331,128 | ) | |
| (173,026 | ) | |
| (1,158,102 | ) |
Loss before income taxes | |
| (8,807,495 | ) | |
| (6,897,446 | ) | |
| (1,910,049 | ) |
Provision for income taxes | |
| – | | |
| – | | |
| | |
Net loss | |
$ | (8,807,495 | ) | |
$ | (6,897,446 | ) | |
$ | (1,910,049 | ) |
Revenue
Total
revenues for the years ended December 31, 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
Direct
Cost of Services increased by $989 or 0.5% to $181,679 for the year ended December 31, 2023, compared to $180,690 for the year ended December
31, 2022. This remained relatively flat due to ongoing cost of services to maintain the faidr app.
Sales and marketing
Sales
and marketing expenses decreased by $577,586 or 34.5% to $1,096,106 for the year ended December 31, 2023 compared to $1,673,692 for the
year ended December 31, 2022. The decrease in sales and marketing expenses as of December 31, 2023 compared to December 31, 2022 was primarily
attributed to reduced marketing promotion costs associated with the national launch of the faidr app. We expect our sales and marketing
expenses to fluctuate period by period as we release new upgrades and enhancements within our Apps and look to generate revenue through
customer acquisition, retention, and subscription conversion.
Research and development
Research
and development expenses increased by $126,138 or 19.3% to $781,017 for the year ended December 31, 2023 from $654,879 for the year ended
December 31, 2022 primarily due to a reduction in the level of capitalized software expenses. We are continually developing enhancements
to both our faidr and podcasting Apps and will continue capitalize software costs to the extent that such development qualifies for capitalization.
General and administrative
General
and administrative expenses increased by $353,209 or 11.0% to $3,576,729 for the year ended December 31, 2023 compared to $3,223,520 for
the year ended December 31, 2022. The increase resulted primarily from an increase in professional fees, such as, accounting and legal
expenses.
Depreciation and
amortization
Depreciation
and amortization expenses increased by $849,198 or 85.6% to $1,840,837 for the year ended December 31, 2023 compared to $991,639 for the
year ended December 31, 2022. The increase is entirely related to the increased amortization of our faidr and podcasting Apps.
Other expense,
net
Total
other expenses increased by $1,158,102 to $1,331,128 for the year ended December 31, 2023 compared to $173,026 for the year ended December
31, 2022. The increase is related to actual and imputed interest expense attributed to the Secured Bridge Notes issued during November
of 2022 and April 2023.
Income taxes
Since
our inception in 2012, until the corporate conversion in February 2021, we were organized as a Colorado limited liability company for
federal and state income tax purposes and treated as a partnership for U.S. income tax purposes. As such, we were not viewed as a taxpaying
entity in any jurisdiction and do not require a provision for income taxes. Each member of our company was responsible for the tax liability,
if any, related to its proportionate share of our taxable income.
Effective
on February 16, 2021, we became treated as a corporation for U.S. income tax purposes and thus became subject to U.S. federal, state and
local income taxes and are be taxed at the prevailing corporate tax rates. Among other things, we may begin to generate net operating
losses at the corporate level. We will account for income taxes using an asset and liability approach, which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements but
have not been reflected in taxable income. A valuation allowance is established to reduce deferred tax assets to its estimated realizable
value, which is zero based on our operating history.
Comparison of the three months ended
March 31, 2024 and 2023:
The following table summarizes
our results of operations:
| |
Three Months Ended | | |
| | |
| |
| |
March 31, 2024 | | |
March 31, 2023 | | |
Change $ | | |
Change % | |
Revenue | |
$ | – | | |
$ | – | | |
$ | – | | |
| 0.0% | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Direct cost of services | |
| 48,173 | | |
| 42,301 | | |
| 5,872 | | |
| 13.9% | |
Sales and marketing | |
| 146,395 | | |
| 225,118 | | |
| (78,723 | ) | |
| -35.0% | |
Research and development | |
| 165,507 | | |
| 210,126 | | |
| (44,619 | ) | |
| -21.2% | |
General and administrative | |
| 1,210,799 | | |
| 926,826 | | |
| 283,973 | | |
| 30.6% | |
Depreciation and amortization | |
| 483,746 | | |
| 443,035 | | |
| 40,711 | | |
| 9.2% | |
Total operating expenses | |
| 2,054,620 | | |
| 1,847,406 | | |
| 207,214 | | |
| 11.2% | |
Loss from operations | |
| (2,054,620 | ) | |
| (1,847,406 | ) | |
| (207,214 | ) | |
| 11.2% | |
| |
| | | |
| | | |
| | | |
| | |
Other (expense) income: | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (152,708 | ) | |
| (307,906 | ) | |
| 155,198 | | |
| -50.4% | |
Total other expense | |
| (152,708 | ) | |
| (307,906 | ) | |
| 155,198 | | |
| -50.4% | |
Loss before income taxes | |
| (2,207,328 | ) | |
| (2,155,312 | ) | |
| (52,016 | ) | |
| 2.4% | |
Provision for income taxes | |
| – | | |
| – | | |
| – | | |
| 0.0% | |
Net loss | |
$ | (2,207,328 | ) | |
$ | (2,155,312 | ) | |
$ | (52,016 | ) | |
| 2.4% | |
Revenue
Total
revenues for the three months ended March 31, 2024 and 2023 were $0 as we continue to develop and enhance our faidr and podcasting Apps
to establish new revenue streams.
Direct cost of services
Direct
Cost of Services increased $5,872 or 13.9% from $42,301 for the three months ended March 31, 2023, compared to $48,173 for the three months
ended March 31, 2024. This increase was primarily the result of an increase in music service costs.
Sales and marketing
Sales
and marketing expenses decreased by $78,723 or 35.0% from $225,118 for the three months ended March 31, 2023 to $146,395 for the three
months ended March 31, 2024, which was primarily attributed to reduced marketing promotion costs associated with the national launch of
the faidr app. We expect our sales and marketing expenses to fluctuate period by period as we release new upgrades and enhancements within
our Apps and look to generate revenue through customer acquisition, retention, and subscription conversion.
Research and development
Research
and development expenses decreased by $44,619 or 21.2% from $210,126 for the three months ended March 31, 2023, to $165,507 for the three
months ended March 31, 2024, which was primarily due to lower consulting fees.
General and administrative
General
and administrative expenses increased by $283,973 or 30.6%, from $926,826 for the three months ended March 31, 2023, compared to $1,210,799
for the three months ended March 31, 2024. The increase was primarily driven by a $276,097 increase in accounting and legal fees related
to the evaluation of potential acquisitions and additional regulatory filings that occurred during the three months ended March 31, 2024.
Depreciation and amortization
Depreciation
and amortization expenses increased by $40,711 or 9.2%, from $443,035 for the three months ended March 31, 2023, compared to $483,746
for the three months ended March 31, 2024. The increase is entirely related to the increased amortization of our faidr and podcasting
Apps.
Other income (expense),
net
Total
other expenses decreased by $155,198, from $307,906 for the three months ended March 31, 2023, to $152,708 for the three months ended
March 31, 2024. The interest expense for the three months ended March 31, 2024 includes the interest component on the notes payable, while
the interest expense for the three months ended March 31, 2023 includes both the interest expense and amortization of the original debt
discount. The discount was fully amortized in 2023.
Liquidity and capital
resources
Sources of liquidity
We
have incurred operating losses since our inception and have an accumulated deficit as a result of ongoing efforts to develop and commercialize
our faidr and podcasting Apps. As of March 31, 2024 and December 31, 2023, we had cash and cash equivalents of $2,732,538 and $804,556,
respectively. We have a deficit in working capital in the amount of approximately $1.4 million as of March 31, 2024. We anticipate that
operating losses and net cash used in operating activities will increase over the next 12 months as we continue to develop and market
our products. The Company secured $3.56 million of additional financing in April 2024, which enabled us to pay down $2.75 million in connection
with the Secured Bridge Notes and will only be sufficient to fund our current operating plans into the third quarter of 2024. The Company
has based these estimates, however, on assumptions that may prove to be wrong. We will need additional funding to complete the development
of our full product line and scale products with a demonstrated market fit. Management has plans to secure such additional funding. If
we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce, or eliminate our technology development
and commercialization efforts.
Interim Bridge Financings
As
previously disclosed, on November 14, 2022, we entered into a Secured Bridge Note (“Prior Note”) financing with one of our
accredited investors, a significant existing shareholder of the Company. We received $2,000,000 of gross proceeds from the Prior Note
financing.
On
April 17, 2023, we entered into an additional Secured Bridge Note (“New Note”) financing with the same accredited investor
from the Prior Note financing. We received $750,000 of gross proceeds from the New Note financing. The New Note was issued with a principal
amount of $825,000, 10% interest rate and a maturity date on July 31, 2023. The New Note is secured by a lien on substantially all of
our assets. At maturity of the New Note, the accredited investor, or our lender, has the option to convert any original issue discount
and accrued but unpaid interest into shares of our common stock at a fixed conversion price of $15.25 per share.
In
connection with the New Note financing, we issued 26,000 common stock warrants to the accredited investor with a five-year term and a
fixed $15.25 per share exercise price, from which 13,000 of these common stock warrants are exercisable immediately. The remaining 13,000
common stock warrants would only become exercisable if the maturity date of the New Note is extended in accordance with the terms of the
New Note. As of July 31, 2023, we extended the maturity date of the New Note to November 30, 2023. Upon the July 31, 2023 extension, the
interest rate on the New Note increased to 20% from 10%, and the remaining portion of the 13,000 common stock warrants became exercisable.
As of November 30, 2023, we extended the maturity date of the Prior Note and New Note to March 31, 2024. All terms of the Prior Note and
New Note, such as interest rate and exercisable common stock warrants remained the same. The accredited investor did not exercise the
common stock warrants as of December 31, 2023 or subsequent to December 31, 2023 and as of the date of this filing.
Further,
in connection with the New Note financing, the parties agreed to make certain amendments to the Prior Note financing. Specifically, the
parties agreed to cancel the 12,000 common stock warrants issued as part of the prior financing and, in lieu of the cancelled warrants,
issued the investor common stock warrants for 24,000 common shares with an exercise price of $15.25 per common share and a five-year term.
From the newly issued 24,000 common stock warrants, 12,000 common stock warrants were exercisable immediately, while the other 12,000
common stock warrants became exercisable at the time of extension of the maturity date of the Prior Note during May of 2023.
In
order for the accredited investor to receive common shares from a conversion or exercise of the common stock warrants, an approval is
required from the shareholders, if the number of common shares to be issued to the accredited investor, when aggregated with all other
shares of common stock beneficially or deemed beneficially owned by the accredited investor would (i) result in the investor owning more
than the Beneficial Ownership Limitation (as defined below), as determined in accordance with Section 13 of the Securities Exchange Act
of 1934 or (ii) otherwise constitute a Change of Control within the meaning of Nasdaq Rule 5635(b). The “Beneficial Ownership Limitation”
shall be 19.99% of the number of shares of the common stock outstanding immediately prior to the proposed issuance of shares of common
stock.
On
April 9, 2024, the Company and the investor entered into an Amendment and Waiver Agreement relating to the Bridge Notes (refer to Note
8 of the condensed unaudited financial statements for additional information regarding the amendment to the secured bridge notes).
On
April 26, 2024, the Company repaid $2.75 million of principal in connection with the Secured Bridge Notes.
Equity Line Sales
of Common Stock
On
November 14, 2022, we entered into a Common Stock Purchase Agreement (the “White Lion Purchase Agreement”) with White Lion
Capital, LLC, a Nevada limited liability company (“White Lion”) for an equity line facility.
On
April 17 and April 20, 2023, we closed on two sales of Common Stock under the White Lion Purchase Agreement. We issued an aggregate of
1,962,220 common shares and received aggregate proceeds of approximately $1.12 million.
Replacement Equity
Line with White Lion
On
November 6, 2023, we entered into a new Common Stock Purchase Agreement and a related registration rights agreement with White Lion. Pursuant
to the new Common Stock Purchase Agreement, we have the right, but not the obligation to require White Lion to purchase, from time to
time until December 31, 2024, up to $10,000,000 in aggregate gross purchase price of newly issued shares of our common stock, subject
to certain limitations and conditions set forth in the Common Stock Purchase Agreement. In connection with the new Common Stock Purchase
Agreement, the parties agreed to terminate the previous Common Stock Purchase Agreement with White Lion.
Through
March 31, 2024, we sold 1,340,000 shares to White Lion for total proceeds of $3,606,508. Through the date of this report, we have sold
1,940,000 shares to White Lion for total proceeds of $4,852,508. We currently have effective registration statements that registers for
resale by White Lion up to 5,165,263 shares of common stock that we may issue to White Lion under the Equity Line Purchase Agreement.
After White Lion has acquired shares under the Equity Line Purchase Agreement, it may sell all, some or none of those shares. Sales to
White Lion by us pursuant to the Equity Line Purchase Agreement may result in substantial dilution to the interests of other holders of
our common stock.
Cash Flow Analysis
Our
cash flows from operating activities have historically been significantly impacted by our investment in sales and marketing to drive growth,
and research and development expenses. Our ability to meet future liquidity needs will be driven by our operating performance and the
extent of continued investment in our operations. Failure to generate sufficient revenues and related cash flows could have a material
adverse effect on our ability to meet our liquidity needs and achieve our business objectives.
For the Years ended
December 31, 2023 and 2022
The
following table summarizes the statements of cash flows for the years ended December 31, 2023, and 2022:
Cash Flow Analysis | |
Year Ended December 31, | |
| |
2023 | | |
2022 | |
Net cash provided by (used in): | |
| | | |
| | |
Operating activities | |
$ | (4,504,207 | ) | |
$ | (4,752,750 | ) |
Investing activities | |
| (1,031,566 | ) | |
| (1,931,107 | ) |
Financing activities | |
| 4,678,895 | | |
| 2,000,000 | |
Change in cash | |
$ | (856,878 | ) | |
$ | (4,683,857 | ) |
Operating Activities
Cash
used in operating activities for the year ended December 31, 2023, was $4,504,207, primarily resulting from our net loss of $8,807,496
and change in working capital of $554,983 related to an increase in accounts payable and accrued liabilities, offset by non-cash charges
of $3,748,306 related to depreciation and amortization, share based compensation expense, and finance charges associated with the debt
issuance costs of the Secured Bridge Notes. Cash used in operating activities for both periods consisted of personnel-related expenditures,
marketing and promotion costs, and public company administrative support costs such as legal and other professional support services.
Cash
used in operating activities for the year ended December 31, 2022, was $4,752,750, primarily resulting from our net loss of $6,897,446,
partially offset by non-cash charges of $2,131,362.
Investing Activities
Cash
flows used in investing activities for the years ended December 31, 2023, and December 31, 2022, consisting primarily of capitalization
of software development expenses of $1,029,157 and $1,927,298, respectively.
Financing Activities
Cash
flows generated in financing activities for the year ended December 31, 2023 was $4,678,895 and related primarily to cash proceeds from
the issuance of common shares of $4,016,523 and proceeds from related party debt of $750,000.
Cash
flows provided by financing activities for the year ended December 31, 2022 of $2,000,000 was associated with the proceeds from the secured
bridge note financing in November 2022.
For the three months
ended March 31, 2024 and 2023:
The
following table summarizes the statements of cash flows for the three months ended March 31, 2024 and 2023:
| |
Three Months Ended March 31, | |
| |
2024 | | |
2023 | |
Net cash provided by (used in): | |
| | | |
| | |
Operating activities | |
$ | (1,405,138 | ) | |
$ | (1,073,241 | ) |
Investing activities | |
| (273,388 | ) | |
| (270,574 | ) |
Financing activities | |
| 3,606,508 | | |
| (78,580 | ) |
Change in cash | |
$ | 1,927,982 | | |
$ | (1,422,394 | ) |
Operating activities
Cash
used in operating activities for the three months ended March 31, 2024 was ($1,405,138), primarily resulting from our net loss of ($2,207,328)
and change in working capital of $145,155 primarily related to an increase in accounts payable and accrued liabilities, offset by non-cash
charges of $657,035 related to depreciation and amortization and share based compensation expense. Cash used in operating activities for
both periods consisted of personnel-related expenditures, marketing and promotion costs, and public company administrative support costs
such as legal and other professional support services.
Cash
used in operating activities for the 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, 2024 was $273,388, consisting entirely of capitalization of software
development expenses.
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.
Financing activities
Cash
flows generated in financing activities for the three months ended March 31, 2024 was $3,606,508 and related entirely to cash proceeds
from the issuance of common shares of $3,606,508.
Cash
flows used in financing activities for the three months ended March 31, 2023, was $78,580 related to cash paid by us related to the net-share
settlement of vested restricted stock units during the quarter.
Funding Requirements
We
historically have incurred significant losses and negative cash flows from operations since our inception and had an accumulated deficit
of $82,750,658 and $80,543,330 as of March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024 and December 31, 2023, we
had cash and cash equivalents of $2,732,538 and $804,556, respectively. Our cash is comprised primarily of demand deposit accounts and
money market funds. We secured $3.56 million of additional financing in April 2024, which enabled us to pay down $2.75 million in connection
with the Secured Bridge Notes and will only be sufficient to fund our current operating plans into the third quarter of 2024. We have
based these estimates, however, on assumptions that may prove to be wrong. We will need additional funding to complete the development
of our full product line and scale products with a demonstrated market fit. Management has plans to secure such additional funding. If
we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce, or eliminate our technology development
and commercialization efforts.
We
expect our expenses to increase in connection with our ongoing activities, particularly as we continue the development, and marketing
and promotion of faidr. In addition, we expect to continue to incur additional costs associated with operating as a public company, including
legal, accounting, investor relations and other expenses. Our future funding requirements will depend on many factors, including, but
not limited to:
| · | the scope, progress, results, and costs related to the market acceptance of our products; |
| · | the ability to attract podcasters and content creators to faidr and retain listeners on the platform; |
| · | the costs, timing, and ability to continue to develop our technology; |
| · | effectively addressing any competing technological and market developments; and |
| · | avoiding and defending against intellectual property infringement, misappropriation and other claims. |
Contractual Obligations
The
following table summarizes our contractual obligations not on our Balance Sheet as of March 31, 2024, and the effects that such obligations
are expected to have on our liquidity and cash flows in future periods:
| |
Payments due by period | |
| |
Total | | |
Less Than 1 Year | | |
1 - 3 Years | | |
4 - 5 Years | | |
More Than 5 Years | |
Operating lease commitments: | |
| | | |
| | | |
| | | |
| | | |
| | |
Office lease (1) | |
$ | 109,285 | | |
$ | 27,014 | | |
$ | 78,587 | | |
$ | 3,684 | | |
$ | – | |
Total operating lease commitments | |
$ | 109,285 | | |
$ | 27,014 | | |
$ | 78,587 | | |
$ | 3,684 | | |
$ | – | |
(1) |
Represents minimum payments due for the lease of office space. |
Off-balance sheet
arrangements
We
did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and
regulations of the SEC.
Critical Accounting Estimates
Our
financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements
requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and
expenses, and related disclosures. On an ongoing basis, we continually evaluate our estimates and assumptions believed to be reasonable
under current facts and circumstances. Actual amounts and results may materially differ from these estimates made by management under
different assumptions and conditions.
Certain
accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position,
are described below. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating
our financial condition and results of operations.
Software Development
Costs
The
Company accounts for costs incurred in the development of computer software as software research and development costs until the preliminary
project stage is completed, management has committed to funding the project, and completion and use of the software for its intended purpose
is probable. The Company ceases capitalization of development costs once the software has been substantially completed and is available
for its intended use. Software development costs are amortized over a useful life estimated by the Company’s management of three
years. Costs associated with significant upgrades and enhancements that result in additional functionality are capitalized. Capitalized
costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in software technologies.
Unamortized capitalized software development costs determined to be in excess of anticipated future net revenues are impaired and expensed
during the period of such determination.
Equity-based compensation
Certain
of our employees and consultants have received grants of common shares in our company. These awards are accounted for in accordance with
guidance prescribed for accounting for equity-based compensation. Based on this guidance and the terms of the awards, the awards are equity
classified. The common shares receive distributions if any in an order of priority in accordance with our limited liability company agreement.
The
fair value of each award is determined using the Black-Scholes option-pricing model which values options based on the stock price at the
grant date, the expected life of the option, the estimated volatility of the stock, and the risk-free interest rate over the expected
life of the option. The expected volatility was determined considering comparable companies historical stock prices as a peer group for
the fiscal year the grant occurred and prior fiscal years for a period equal to the expected life of the option. The risk-free interest
rate was the rate available from the St. Louis Federal Reserve Bank with a term equal to the expected life of the option. The expected
life of the option was estimated based on a mid-point method calculation.
Prior
to our IPO in February 2021, we were a private company with no active public market for our common equity. Therefore, we have periodically
determined the overall value of our company and the estimated per share fair value of our common equity at their various dates using contemporaneous
valuations performed with the assistance of a third-party specialist and in accordance with the guidance outlined in the American Institute
of CPA’s Practice Aid.
Emerging growth company and smaller reporting company status
The
Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended
transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise
apply to private companies. We have elected to not “opt out” of this provision and, as a result, we will adopt new or revised
accounting standards at the time private companies adopt the new or revised accounting standard and will do so until such time that we
either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth
company.
We are also a “smaller
reporting company” meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue
was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either
(i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million
during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If
we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain
disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose
to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging
growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS
Executive officers and directors
Set forth below are the names, ages and positions
of our executive officers and directors as of July 11, 2024.
Name |
|
Age |
|
Position(s) held |
|
Served as a Director and/or Officer Since |
Executive Officers |
|
|
|
|
|
|
Jeffrey Thramann, M.D. |
|
59 |
|
Executive Chairman and Director |
|
2012 |
Michael Lawless |
|
61 |
|
Chief Executive Officer, Secretary & Director |
|
2012 |
John Mahoney |
|
59 |
|
Chief Financial Officer |
|
2023 |
Peter Shoebridge |
|
60 |
|
Chief Technology Officer |
|
2013 |
|
|
|
|
|
|
|
Non-Employee Directors |
|
|
|
|
|
|
Stephen Deitsch |
|
52 |
|
Director, Lead Independent Director |
|
2021 |
Timothy J. Hanlon |
|
58 |
|
Director |
|
2021 |
Thomas Birch |
|
71 |
|
Director |
|
2021 |
Executive officers
Jeffrey
Thramann, Executive Chairman. Dr. Thramann founded the Company in 2012 and oversees strategic initiatives, capitalization and
governance at the Company. This includes day-to-day involvement in working with senior management to establish the strategic vision of
the Company, prioritizing product launches, working with the CEO and CFO on the financial plans of the Company, and assisting the CEO
in recruitment and hiring of senior executives and the pursuit of business development activities. It also includes leading efforts to
secure capital for the Company, building the board of directors and leading board meetings. In 2002, Dr. Thramann was the founder and
became the chairman of Lanx, LLC. Lanx was an innovative medical device company focused on the spinal implant market and created the interspinous
process fusion space with the introduction of its patented Aspen product. Lanx was sold to Biomet, Inc., an international orthopedic conglomerate,
in 2013. Concurrent with Lanx, in 2006 Dr. Thramann was also the founder and chairman of ProNerve, LLC. ProNerve was a healthcare services
company that provided monitoring of nerve function during high risk surgical procedures affecting the brain and spinal cord. ProNerve
was sold to Waud Capital Partners, a private equity firm, in 2012.
Prior
to ProNerve and concurrent with Lanx, Dr. Thramann was the founder and chairman of U.S. Radiosurgery (USR). USR is a healthcare services
company that provides advanced radiosurgical treatments for tumors throughout the body. USR became the largest provider of robotic guided
CyberKnife treatments of such tumors in the U.S. and was sold to Alliance Healthcare Services (Nasdaq; AIQ) in 2011. From 2001 through
2008, Thramann was the founder and senior partner of Boulder Neurosurgical Associates, a neurosurgical practice serving Boulder County,
Colorado. Dr. Thramann is the named inventor on over 50 U.S. and international issued and pending patents. He completed his neurosurgical
residency and complex spinal reconstruction fellowship at the Barrow Neurological Institute in Phoenix, AZ, in 2001. He is a graduate
of Cornell University Medical College in New York City and earned a BS in electrical engineering management at the U. S. Military Academy
in West Point, NY. Dr. Thramann currently serves as the Executive Chairman of Aclarion, Inc. (NASDAQ: ACON), a healthcare technology company
that is leveraging MR Spectroscopy, biomarkers, and augmented intelligence algorithms to improve the diagnosis and treatment of chronic
low back pain.
Michael
Lawless, Chief Executive Officer and Director: Mr. Lawless is a technology startup veteran having held key leadership positions
in research and development, engineering, product development and operations. Prior to joining the Company in 2012, from 2009 to 2011
he was one of the founding executives and Chief Operating Officer of Trada, Inc., a company engaged in the business of crowdsourced digital
ad campaign creation and management. In addition to establishing the business operations and processes for Trada, he was responsible for
building and managing the product team and operating their internet advertising marketplace SaaS product. He earned a BS in Human Factors
Engineering from the U.S. Air Force Academy and his master’s degree in Experimental Psychology with an emphasis on Human-Computer
Interaction from The University of Dayton.
John E. Mahoney, Chief
Financial Officer: Mr. Mahoney joined the Company as Chief Financial Officer in November 2023. He brings over twenty years of
finance and operational experience in the services industry with both publicly traded and privately held companies. From 2019 to 2023,
he served as Chief Financial Officer at Quality Biomedical, Inc., a private equity backed and leading service provider in the Home Medical
Equipment industry. From 2014 to 2019, Mr. Mahoney served as Principal and Chief Financial Officer at CFO Leadership Services, LLC, a
fractional CFO service company. From 2005 to 2014, Mr. Mahoney served Vice President and Chief Financial Officer at TASQ Technology, Inc.,
a wholly owned subsidiary of First Data Corporation, who merged with Fiserv. a leading global credit card processing services company.
Mr. Mahoney is a certified public accountant. He earned his BS in Public Accountancy from Long Island University.
Peter Shoebridge, Chief
Technology Officer: Mr. Shoebridge joined the Company in 2013 and has over 35 years of professional experience in the software
development industry. He has been involved with internet related technologies since 1996. From 2008 to 2012, he was the CEO and co-founder
of Blue Yonder Gaming, Corp., a casino gaming systems and gaming company. Prior to Blue Yonder he was Vice President of engineering at
Sona Mobile, Inc and led the team that built the first wireless gaming system to receive federal regulatory approval. He also led the
team that built the Sona Gaming System, a server-based gaming platform. Mr. Shoebridge has worked in many different technology sectors
including the real-time financial industry, casino gaming including bingo systems, accounting and automotive. He was educated in London,
England.
Non-employee directors
Stephen
M. Deitsch, Director: Mr. Deitsch has extensive strategic, operational, and financial leadership experience at both publicly traded
and privately held companies. Since April 2024, Mr. Deitsch has served as Chief Financial Officer of OrganOx, a leading global medical
company. From September 2020 to March 2024, Mr. Deitsch has served as Chief Financial Officer of Paragon 28, Inc. (NYSE: FNA), a leading
global orthopedics company. From April 2017 to August 2019, Mr. Deitsch served as Senior Vice President and Chief Financial Officer of
BioScrip, Inc. (formerly Nasdaq: BIOS) which is now part of Option Care Health, Inc. (Nasdaq: OPCH). From August 2015 to April 2017, Mr.
Deitsch served as Executive Vice President, Chief Financial Officer and Corporate Secretary of Coalfire, Inc., a leading cyber-security
firm. Mr. Deitsch served as the Chief Financial Officer of Biomet Spine, Bone Healing, and Microfixation from July 2014 to July 2015 and
as Vice President Finance, Corporate Controller of Biomet, Inc. from February 2014 to July 2014. Mr. Deitsch was the Chief Financial Officer
of Lanx, Inc. from September 2009 until it was acquired by Biomet in October 2013. From 2002 to 2009, Mr. Deitsch served in various senior
financial leadership roles at Zimmer Holdings, Inc. (formerly NYSE: ZMH) and now part of Zimmer Biomet, Inc (NYSE: ZBH). Since 2022, Mr.
Deitsch has served as a director of Aclarion, Inc. (NASDAQ: ACON), a healthcare technology company that is leveraging MR Spectroscopy,
biomarkers, and augmented intelligence algorithms to improve the diagnosis and treatment of chronic low back pain. Mr. Deitsch holds a
B.S. in Accounting from Ball State University and has an inactive CPA license.
Timothy
J. Hanlon Director: Mr. Hanlon is the founder and Chief Executive Officer of the Chicago-based Vertere Group, LLC - a boutique
strategic consulting and advisory firm focused on helping forward-leaning media companies, brands, entrepreneurs, and investors benefit
from rapidly changing technological advances in marketing, media and consumer communications. Prior to forming Vertere in 2012, Mr. Hanlon
created and led corporate ventures practices at marketing agency holding companies Publicis Groupe and Interpublic Group, overseeing 70+
early-stage investments and partnerships - including over two dozen successful M&A and IPO exits - with notable firms such as: PlutoTV
(acquired by ViacomCBS); Data+Math (LiveRamp); Clypd (AT&T/Xandr); Sling Media (Echostar/Dish Network); Navic Networks (Microsoft);
Brightcove (IPO); and Visible World (Comcast), among others. Previously, Mr. Hanlon was Senior Vice President/Director, Emerging Contacts
for Publicis’ iconic media agency Starcom MediaVest Group, where he was chiefly responsible for pioneering all US client activity
and agency initiatives in the field of emerging media technologies - including the establishment of the firm’s ground-breaking “TV
2.0 Practice,” centered around evolutionary television platforms. Mr. Hanlon has over 25 years of extensive executive experience
in traditional, digital and “emerging” media & marketing - and his insights into the future of media, advertising and
marketing are regularly seen in major electronic, print and trade press outlets. Mr. Hanlon holds an MBA from the University of Chicago,
Booth Graduate School of Business, and a BA from Georgetown University.
Thomas
Birch, Director: Mr. Birch brings over 50 years of on-air, online, media, media research and media brokerage experience. Since
2005, Mr. Birch has been the owner and CEO of Lakes Media LLC, a six-station radio group operating in southern Virginia and northern North
Carolina. In addition, since 2018 Mr. Birch has also been a Director of Media Services Group, one of the nation’s largest brokers
of radio stations, television stations, broadcast towers and other broadcast-related entities. Mr. Birch was the founder and CEO of Birch
Research Corporation, a syndicated radio ratings and market research company. In 1987, Birch Research was acquired by Dutch publishing
conglomerate VNU (now known as Nielsen). Following the sale, the company merged with VNU subsidiary Scarborough Research and was renamed
Birch/Scarborough Research. Mr. Birch served as Chairman and CEO of the merged Birch/Scarborough entity until his departure in 1990. At
its peak, Birch/Scarborough employed more than 1,200 people nationwide and maintained sales offices in New York, Chicago, Los Angeles,
Atlanta, and Dallas and through its Canadian subsidiary Birch Radio/Canada, had offices in Toronto and Montreal. Mr. Birch was a Partner
and Chief Financial Officer of Simmons Market Research Bureau from 2001 to 2003, where he significantly reduced operating expenses, increased
operating profits and refinanced company debt which enabled the company to avoid bankruptcy and be positioned for acquisition in 2004
by Experian. From 1990 through 1999, Mr. Birch was owner and CEO of Opus Media Group, a radio group owner with stations operating in Florida,
Georgia, Louisiana and Mississippi. Mr. Birch is a member of the National Association of Broadcasters Committee on Local Radio Audience
Measurement (COLRAM) and continues to have a voice in the improvement of audience measurement metrics from Nielsen Audio and other research
providers. Mr. Birch is a native of Binghamton, NY and holds a BS from the School of Industrial and Labor Relations at Cornell University.
Family Relationships
There are no family relationships
among any of our directors or executive officers.
Legal Proceedings
Except as disclosed above,
there are no legal proceedings related to any of our directors or executive officers which are required to be disclosed pursuant to applicable
SEC rules.
Agreements with Directors
None of our directors were
selected pursuant to any arrangement or understanding, other than with our directors acting within their capacity as such.
EXECUTIVE
COMPENSATION
Non-Employee Director Compensation
Our
non-employee directors began serving on our board following our February 2021 IPO. Our Executive Chairman, Dr. Thramann, and our President
and Chief Executive Officer, Mr. Lawless, do not receive compensation for their services as a director.
Our
board of directors approved the following compensation for our non-employee directors in 2023. Our non-employee directors will receive
annual cash compensation of (i) $25,000 for service on the board (ii) $20,000 for service as the Audit Committee chair, (iii) $10,000
for Compensation Committee chair, and (iv) $10,000 for Nominating and Governance Committee chair. All cash payments will be made quarterly
in arrears, and pro-rated for any partial quarters of service.
The
following Director Compensation Table summarizes the compensation of each of our non-employee directors for services rendered to us during
the year ended December 31, 2023:
Name | |
Fees Earned or Paid in Cash ($) | | |
Stock Awards ($)(1) | | |
Option Awards ($) | | |
All Other Compensation ($)(1) | | |
Total ($) | |
Stephen Deitsch | |
| 45,000 | | |
| – | | |
| – | | |
| 7,412 | | |
| 52,412 | |
Timothy J. Hanlon | |
| 35,000 | | |
| – | | |
| – | | |
| 7,412 | | |
| 42,412 | |
Thomas Birch | |
| 35,000 | | |
| – | | |
| – | | |
| 7,412 | | |
| 42,412 | |
(1) |
Relates to cash payment made to directors for tax liability on RSUs. |
Executive Compensation Overview
As
an “emerging growth company,” we have opted to comply with the executive compensation disclosure rules applicable to “smaller
reporting companies,” as such term is defined in the rules promulgated under the Securities Act.
This
section provides an overview of the compensation awarded to, earned by, or paid to each individual who served as our principal executive
officer during our fiscal year 2023, and our next two most highly compensated executive officers in respect of their service to our company
for fiscal year 2023. Our named executive officers, or the Named Executive Officers, for the year ended December 31, 2023, are:
| · | Jeffrey Thramann, our Executive Chairman; |
| · | Michael Lawless, our Chief Executive Officer; and |
| · | Peter Shoebridge, our Chief Technical Officer |
Summary Compensation
Table Year Ended December 31, 2023
The following table contains
information about the compensation paid to or earned by each of our Named Executive Officers during the two most recently completed fiscal
years.
Name and
Principal Position |
|
Year |
|
Salary
($) |
|
|
Bonus
($)(2) |
|
Stock
Awards
($)(3) |
|
Option
Awards
($)(3) |
|
All Other
Compensation
($) |
|
Total
($) |
|
Jeffrey Thramann |
|
2023 |
|
300,000 |
(1) |
|
-0- |
|
-0- |
|
-0- |
|
-0- |
|
300,000 |
|
Executive Chairman |
|
2022 |
|
300,000 |
(1) |
|
-0- |
|
425,513 |
|
-0- |
|
-0- |
|
725,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Lawless |
|
2023 |
|
260,000 |
|
|
-0- |
|
-0- |
|
-0- |
|
-0- |
|
260,000 |
|
Chief Executive Officer |
|
2022 |
|
260,000 |
|
|
-0- |
|
-0- |
|
271,746 |
|
-0- |
|
531,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Shoebridge |
|
2023 |
|
225,000 |
|
|
-0- |
|
-0- |
|
-0- |
|
-0- |
|
225,000 |
|
Chief Technology Officer |
|
2022 |
|
225,000 |
|
|
-0- |
|
-0- |
|
101,828 |
|
-0- |
|
326,828 |
|
(1) |
Beginning after the Company’s IPO, Dr. Thramann earns an annual salary of $300,000. |
(2) |
The “Bonus” column represents discretionary bonuses earned pursuant to our annual incentive bonus program. Each of Dr. Thramann, Mr. Lawless and Mr. Shoebridge is each eligible to receive a bonus based on the achievement of certain business goals set by our Board on an annual basis. The maximum bonus opportunity for each of Messrs. Thramann, Lawless and Shoebridge, expressed as a percentage of their base salary, is 50%. As of the filing date of this Offering Circular, the Company has not approved or paid any annual cash bonuses for the 2023 year. |
(3) |
Represents the grant date fair value of RSU and stock option awards computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. For information regarding assumptions underlying the valuation of equity awards, see Note 6 to our consolidated financial statements included in this Offering Circular. |
Employment Agreements
Employment Arrangement with Dr. Thramann
Commencing after our February
2021 IPO, Dr. Thramann earns an annual salary of $300,000 for his service as our Executive Chairman.
Employment Agreement with Mr. Lawless
On October 13, 2021, we entered
into an employment agreement with Mr. Lawless, which supersedes and replaces a prior employment agreement dated February 6, 2012. The
employment agreement provides for an initial annual base salary of $260,000 as well as an entitlement to an annual incentive bonus, upon
certain conditions, in an amount determined by our board of directors. The target annual bonus for Mr. Lawless, expressed as a percentage
of base salary, is 50%.
If the Company terminates
Mr. Lawless’s employment without cause or Mr. Lawless terminates for good reason, he is entitled to receive nine months of base
salary, (ii) up to nine months of paid health insurance under COBRA, and (iii) any earned but unpaid bonus for a prior completed fiscal
year. In addition, in the event of a change of control and a subsequent termination of Mr. Lawless’ employment without cause, the
Company will accelerate the vesting of all of unvested stock options as of the later of the effective date of the change in control and
the last day of service.
Employment Agreement with Mr. Shoebridge
On October 13, 2021, we entered
into an employment agreement with Mr. Shoebridge, which supersedes and replaces a prior employment agreement dated April 1, 2014. The
employment agreement provides for an initial annual base salary of $225,000 as well as an entitlement to an annual incentive bonus, upon
certain conditions, in an amount determined by our board of directors. The target annual bonus for Mr. Shoebridge, expressed as a percentage
of base salary, is 50%.
If the Company terminates
Mr. Shoebridge’s employment without cause or Mr. Shoebridge terminates for good reason, he is entitled to receive nine months of
base salary, (ii) up to nine months of paid health insurance under COBRA, and (iii) any earned but unpaid bonus for a prior completed
fiscal year. In addition, in the event of a change of control and a subsequent termination of Mr. Shoebridge’s employment without
cause, the Company will accelerate the vesting of all of unvested stock options as of the later of the effective date of the change in
control and the last day of service.
Outstanding Equity Awards at December 31, 2023
The following table sets forth information regarding outstanding equity
awards held by our Named Executive Officers as of December 31, 2023.
|
|
|
|
Option Awards (1) |
|
Stock Awards (1)(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Grant
Date |
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable |
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable |
|
Option
Exercise
Price
($) |
|
Option
Expiration
Date |
|
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#) |
|
Market
Value of
Shares or
Units That
Have Not
Vested
($)(4)(3) |
|
Dr. Jeffrey Thramann |
|
8/11/2021 (4) |
|
– |
|
– |
|
– |
|
– |
6,000 |
|
– |
|
|
|
2/16/2022 (5) |
|
– |
|
– |
|
– |
|
– |
|
4,000 |
|
2,000 |
|
|
|
12/9/2022 (6) |
|
– |
|
– |
|
– |
|
– |
|
5,320 |
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Lawless |
|
8/15/2019 (7) |
|
3,221 |
|
– |
|
106.50 |
|
8/15/2029 |
|
– |
|
– |
|
|
|
8/11/2021 (8) |
|
6,000 |
|
– |
|
69.75 |
|
8/11/2031 |
|
– |
|
– |
|
|
|
9/8/2022 (9) |
|
11,320 |
|
– |
|
30.25 |
|
9/8/2032 |
|
– |
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Shoebridge |
|
8/15/2019 (7) |
|
1,097 |
|
– |
|
106.50 |
|
8/15/2029 |
|
– |
|
– |
|
|
|
8/11/2021 (8) |
|
6,000 |
|
– |
|
69.75 |
|
8/11/2031 |
|
– |
|
– |
|
|
|
9/8/2022 (9) |
|
4,258 |
|
– |
|
30.25 |
|
9/8/2032 |
|
– |
|
– |
|
_______________________
(1) |
Each equity award is subject to the terms of our 2021 or 2013 Equity Incentive Plan. |
(2) |
All RSUs are settled, and shares delivered on the vesting date. Accordingly, there are no vested RSUs that remain outstanding. |
(3) |
Based on the closing price of a share of the Company’s common stock on the Nasdaq Capital Market of $6.25 on December 29, 2023. |
(4) |
Represents RSU awards that vest 50% on February 16, 2022, 25% on February 16, 2023, and 25% on February 16, 2024. |
(5) |
Represents RSU awards that vest 33% on February 16, 2023, 33% on February 16, 2024, and 34% on February 16, 2025. |
(6) |
Represents RSU awards that vest 100% on February 16, 2023. |
|
|
(7) |
2019 grant represents option awards that vest 50% on August 15, 2019, grant date. The remaining portion of the option vests equally over 48 months. |
(8) |
2021 grant represents option awards that vest 50% on August 12, 2022, 25% on February 16, 2023, and 25% on February 16, 2024. |
(9) |
2022 grant represents option awards that vest 50% on the September 8, 2022, grant date. The remaining portion of the option vests in two equal installments on February 16, 2023, and February 16, 2024. |
MARKET PRICE OF AND DIVIDENDS ON THE COMPANY’S
COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
Our
common stock has been traded on the Nasdaq Stock Market under the symbol “AUUD” since our IPO on February 17, 2021. Our Series
A Warrants have been traded on the Nasdaq Stock Market under the symbol “AUUDW” since our IPO on February 17, 2021. As of
July 11, 2024, there were approximately 141 holders of record of our common stock and 1 holder of record of our Series A warrants. These
numbers are based on the actual number of holders registered at such date and does not include holders whose shares are held in “street
name” by brokers and other nominees.
Dividends
We
have never paid any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for
use in the operation of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any
future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition,
operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth
information regarding the beneficial ownership of our common stock as of July 3, 2024, by (i) each person who beneficially owned more
than 5% of our outstanding shares of common stock, (ii) each director, (iii) each Named Executive Officer and (iv) all of our directors
and executive officers as a group. Unless otherwise indicated, the address of each executive officer and director is c/o Auddia, 1680
38th Street, Suite 130, Boulder, CO 80301.
The number of shares of common
stock “beneficially owned” by each stockholder is determined under rules issued by the SEC regarding the beneficial ownership
of securities. This information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial
ownership of shares of our common stock includes (1) any shares as to which the person or entity has sole or shared voting power or investment
power, and (2) any shares as to which the person or entity has the right to acquire beneficial ownership within 60 days after July 3,
2024.
The calculations set forth
below are based upon 2,794,196 shares of common stock outstanding at July 3, 2024. Unless otherwise indicated below, and subject to community
property laws where applicable, to our knowledge, all persons named in the table have sole voting and investment power with respect to
their shares of common stock.
| |
| Prior to Offering | |
Name of Beneficial Owner | |
| Amount and Nature of Beneficial Ownership | | |
| Approximate Percentage of Outstanding Shares of Common Stock | |
5% Stockholders: | |
| | | |
| | |
Jeffrey Thramann (1) | |
| 80,909 | | |
| 3.7% | |
Richard Minicozzi (2) | |
| 122,518 | | |
| 5.5% | |
| |
| | | |
| | |
Executive Officers and Directors: | |
| | | |
| | |
Michael Lawless (3) | |
| 16,986 | | |
| * | |
John E. Mahoney (4) | |
| – | | |
| --% | |
Peter Shoebridge (5) | |
| 9,436 | | |
| * | |
Stephen Deitsch (6) | |
| 1,281 | | |
| * | |
Timothy J. Hanlon (6) | |
| 1,281 | | |
| * | |
Thomas Birch (6) | |
| 1,281 | | |
| * | |
All directors and executive officers as a group (7 persons) | |
| 111,174 | | |
| 4.9% | |
___________________
* |
Represents beneficial ownership of less than 1%. |
(1) |
Dr. Thramann is also a director of the Company. Includes (i) 75,544 shares of common stock, and (ii) 5,365 shares underlying outstanding common stock warrants. Does not include (i) 38,760 shares of common stock underlying Series A warrants (which warrants are not currently exercisable by Dr. Thramann due to the operation of a 4.99% beneficial ownership exercise restriction contained in such warrants), and (ii) 5,500 shares underlying currently unvested RSUs granted under our 2021 equity incentive plan. |
(2) |
Includes (i) 70,108 shares of common stock, and (ii) 52,500 shares underlying outstanding common stock warrants. Does not include any shares relating to the conversion feature contained in the senior secured bridge note held by Mr. Minicozzi. Does not include 38,760 underlying outstanding common warrants due to the operation of a 4.99% beneficial ownership exercise restriction contained in such warrants. |
(3) |
Includes (i) 741 shares of common stock, and (ii) 16,246 shares of common stock underlying stock options exercisable within 60 days of December 31, 2023. Does not include 4,330 of unvested options granted under our equity incentive plans. |
(4) |
Does not include 18,700 of unvested option granted under Mr. Mahoney’s employment agreement. |
(5) |
Does not include 6,821 of unvested options granted under our equity incentive plans. |
(6) |
Includes 1,281 shares of common stock. Does not include 1,830 shares underlying currently unvested RSUs granted under our 2021 equity incentive plan. |
(1) |
Dr. Thramann is also a director of the Company. Includes (i) 75,544 shares of common stock, and (ii) 5,365 shares underlying outstanding common stock warrants. Does not include (i) 38,760 shares of common stock underlying Series A warrants (which warrants are not currently exercisable by Dr. Thramann due to the operation of a 4.99% beneficial ownership exercise restriction contained in such warrants), and (ii) 5,500 shares underlying currently unvested RSUs granted under our 2021 equity incentive plan. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Relationships and Transactions
In addition to the executive
officer and director compensation arrangements discussed above, below we describe transactions since January 1, 2022 to which we have
been or will be a participant, in which the amount involved in the transaction exceeds or will exceed $120,000 and in which any of our
directors, executive officers or beneficial holders of more than 5% of any class of our capital stock, or 5% security holders, or any
immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material
interest.
On November 14, 2022, we entered
into a secured bridge note financing with Richard Minicozzi, who is a significant existing stockholder of the Company, and received $2,000,000
of gross proceeds in connection with this financing. The principal amount of the secured note is $2,200,000. The secured note had a 10%
interest rate and maturity on May 31, 2023. The secured note is secured by a lien on substantially all of the Company’s assets.
At maturity, Mr. Minicozzi has the option to convert any original issue discount and accrued but unpaid interest into shares of our common
stock. In connection with the secured note financing, we issued Mr. Minicozzi 12,000 common stock warrants with a five-year term and a
fixed $52.50 per share exercise price.
On April 17, 2023, we entered
into an additional Secured Bridge Note (“New Note”) financing with Mr. Minicozzi. We received $750,000 of gross proceeds from
the New Note financing. The New Note was issued with a principal amount of $825,000, 10% interest rate and a maturity date on July 31,
2023. The New Note is secured by a lien on substantially all of our assets. At maturity of the New Note, Mr. Minicozzi, has the option
to convert any original issue discount and accrued but unpaid interest into shares of our common stock at a fixed conversion price of
$0.61 per share.
In connection with the New
Note financing, we issued 26,000 common stock warrants to Mr. Minicozzi with a five-year term and a fixed $15.25 per share exercise price,
from which 13,000 of these common stock warrants are exercisable immediately. The remaining 13,000 common stock warrants would only become
exercisable if the maturity date of the New Note is extended in accordance with the terms of the New Note. As of July 31, 2023, we extended
the maturity date of the New Note to November 30, 2023. Upon the July 31, 2023 extension, the interest rate on the New Note increased
to 20% from 10%, and the remaining portion of the 13,000 common stock warrants became exercisable. The accredited investor did not exercise
the common stock warrants as of December 31, 2023 or subsequent to December 31, 2023 and as of the date of this filing.
Further, in connection with
the New Note financing, we agreed with Mr. Minicozzi to make certain amendments to the Prior Note financing. Specifically, we agreed with
Mr. Minicozzi to cancel the 12,000 common stock warrants issued as part of the prior financing and, in lieu of the cancelled warrants,
we issued to Mr. Minicozzi common stock warrants for 24,000 common shares with an exercise price of $15.25 per common share and a five-year
term. From the newly issued 24,000 common stock warrants, 12,000 common stock warrants were exercisable immediately, while the other 12,000
common stock warrants became exercisable at the time of extension of the maturity date of the Prior Note during May of 2023.
On April 9, 2024, we entered
into an Amendment and Waiver Agreement relating to the bridge notes with Mr. Minicozzi. Mr. Minicozzi converted $911,384 (the “Rollover
Amount”) which is equal to the (i) unpaid accrued interest on the bridge notes plus (ii) the original issue discount (“OID”)
on the bridge notes, into equity securities of the Company (the “Rollover Securities”). The Rollover Securities consist of
(i) 463,337 prefunded common stock warrants with a per share exercise price of $0.001 per share (the “Prefunded Warrants”)
and (ii) 463,337 non-prefunded warrants (the “Non-Prefunded Warrants”) with a per share exercise price equal to $1.967. We
also issued Mr. Minicozzi 50,000 new common stock warrants with a five year term as a loan extension fee (“Fee Warrants”).
The exercise price of these additional Fee Warrants is $1.967.
We
agreed to adjust the exercise price of Mr. Minicozzi’s existing warrants from $15.25 (after adjustment for the recent reverse stock)
to $1.967 per share.
Mr. Minicozzi 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.
We
are currently in discussions with Mr. Minicozzi regarding an agreement where (i) the Company would agree to repay the $2.75 million principal
of the bridge financing out of the proceeds of a next round financing, and (ii) the accrued interest and original issue discount on the
bridge financing would be converted into equity securities.
Related Person Transaction Policy
We have adopted a related-person
transaction policy that requires audit committee review and approval of any transaction, arrangement or relationship in which we are a
participant and one of our executive officers, directors, director nominees or each person whom we know to beneficially own more than
5% of our outstanding common stock (a “5% stockholder”) (or their immediate family members), each of whom we refer to as a
“related person,” has a direct or indirect material interest.
EXPERTS
Haynie & Company, independent
registered public accounting firm, has audited the financial statements of the Company as of December 31, 2023 and for the year ended
December 31, 2023, as set forth in their report included herein. The report of Haynie & Company contains an explanatory paragraph
about the ability of the Company to continue as a going concern. The 2023 financial statements of the Company are included in this Offering
Circular in reliance of Haynie & Company’s report, given on their authority as experts in accounting and auditing.
Daszkal Bolton LLP, independent
registered public accounting firm, has audited the financial statements of Auddia Inc. (the “Company”) as of December 31,
2022 and for the year ended December 31, 2022, as set forth in their report included herein. The report of Daszkal Bolton LLP contains
an explanatory paragraph about the ability of the Company to continue as a going concern. The 2022 financial statements of the Company
are included in this Offering Circular in reliance of Daszkal Bolton LLP’s report, given on their authority as experts in accounting
and auditing.
LEGAL MATTERS
Certain legal matters with
respect to the Offered Shares offered by this Offering Circular will be passed upon by Carroll Legal LLC, Denver, CO.
WHERE YOU CAN FIND MORE INFORMATION
We have filed an offering
statement on Form 1-A with the SEC under the Securities Act with respect to the common stock offered by this Offering Circular. This Offering
Circular, which constitutes a part of the offering statement, does not contain all of the information set forth in the offering statement
or the exhibits and schedules filed therewith. For further information with respect to us and our common stock, please see the offering
statement and the exhibits and schedules filed with the offering statement. Statements contained in this Offering Circular regarding the
contents of any contract or any other document that is filed as an exhibit to the offering statement are not necessarily complete, and
each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit
to the offering statement. The offering statement, including its exhibits and schedules, may be accessed at the SEC’s website http://www.sec.gov.
These filings will be available as soon as reasonably practicable after we electronically file such material with, or furnish it to, the
SEC.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to “incorporate
by reference” information into this Offering Circular, which means that we can disclose important information to you by referring
you to another document filed separately with the SEC. The documents incorporated by reference into this Offering Circular contain important
information that you should read about us.
We disclose important information
to you by referring you to documents that we have previously filed with the SEC or documents that we will file with the SEC in the future.
The information incorporated by reference is considered to be part of this Offering Circular, and later information that we file with
the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below (other than documents
or information deemed to have been furnished and not filed in accordance with SEC rules, unless otherwise expressly incorporated by reference
herein):
|
· |
our Annual Report on Form 10-K for the year ended December 31, 2023; |
|
|
|
|
· |
our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024; |
|
|
|
|
· |
our Current Reports on Form 8-K filed with the SEC on January 26, 2024, February 2, 2024, February 27, 2024, April 15, 2024, and April 29, 2024; and |
|
|
|
|
· |
the description of our securities registered pursuant to Section 12 of the Exchange Act our Registration Statement on Form 8-A (File No. 001-40071), filed with the SEC under Section 12(b) of the Exchange Act, on February 16, 2021, including any amendment or report filed for the purpose of updating such description. |
We also incorporate by reference
all documents that we subsequently file with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act on or after the
date of this Offering Circular and prior to the termination of the offering of the shares hereunder. Nothing in this Offering Circular
shall be deemed to incorporate information furnished but not filed with the SEC, unless specifically noted otherwise.
Any statement made in this
Offering Circular or in a document incorporated by reference into this Offering Circular will be deemed to be modified or superseded for
purposes of this Offering Circular to the extent that a statement contained in this Offering Circular or in any other subsequently filed
document that also is incorporated by reference modifies or supersedes that statement. Any statement so modified or superseded will not
be deemed, except as so modified or superseded, to constitute a part of this Offering Circular.
You may request a copy of
the filings incorporated herein by reference, including exhibits to such documents that are specifically incorporated by reference, at
no cost, by writing or calling us at the following address or telephone number:
Auddia Inc.
Attn: Investor Relations
1680 38th Street, Suite 130
Boulder, CO 80301
Telephone: (303) 219-9771
In addition, you may access
the documents incorporated by reference herein free of charge on the SEC’s website. See also “Where You Can Find More Information.”
INDEX TO FINANCIAL STATEMENTS
Auddia Inc.
Unaudited Financial Statements for the Three
Months Ended March 31, 2024
Audited Financial Statements for the Years
Ended December 31, 2023 and 2022
PART I – FINANCIAL INFORMATION
Item 1. |
Financial Statements |
Auddia Inc.
Condensed Balance Sheets
| |
| | |
| |
| |
March 31, 2024 | | |
December 31, 2023 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | |
| |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 2,732,538 | | |
$ | 804,556 | |
Accounts receivable, net | |
| 435 | | |
| 494 | |
Prepaid insurance | |
| 25,423 | | |
| 28,993 | |
Other current assets | |
| 7,150 | | |
| 7,150 | |
Total current assets | |
| 2,765,546 | | |
| 841,193 | |
| |
| | | |
| | |
Non-current assets: | |
| | | |
| | |
Property and equipment, net of accumulated depreciation | |
| 11,605 | | |
| 18,099 | |
Intangible assets, net of accumulated amortization | |
| 3,613 | | |
| 3,947 | |
Software development costs, net of accumulated amortization | |
| 3,144,405 | | |
| 3,347,935 | |
Operating lease right of use asset | |
| 94,246 | | |
| – | |
Deferred offering costs | |
| 125,855 | | |
| 170,259 | |
Prepaids and other non-current assets | |
| 79,754 | | |
| 21,615 | |
Total non-current assets | |
| 3,459,478 | | |
| 3,561,855 | |
Total assets | |
$ | 6,225,024 | | |
$ | 4,403,048 | |
| |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and accrued liabilities | |
$ | 1,111,329 | | |
$ | 911,664 | |
Notes payable to related party, net of debt issuance costs | |
| 3,025,000 | | |
| 3,025,000 | |
Current portion of operating lease liability | |
| 21,492 | | |
| – | |
Stock awards liability | |
| 45,964 | | |
| 45,964 | |
Total current liabilities | |
| 4,203,785 | | |
| 3,982,628 | |
Non-current operating lease liability | |
| 72,754 | | |
| – | |
Total liabilities | |
| 4,276,539 | | |
| 3,982,628 | |
| |
| | | |
| | |
Commitments and contingencies (Note 5) | |
| - | | |
| - | |
| |
| | | |
| | |
Shareholders’ equity: | |
| | | |
| | |
Preferred stock - $0.001 par value, 10,000,000 authorized and 0 shares issued and outstanding | |
| – | | |
| – | |
Common stock - $0.001 par value, 100,000,000 authorized and 2,194,196 and 854,162 shares issued and outstanding March 31, 2024 and December 31, 2023, respectively | |
| 2,194 | | |
| 854 | |
Additional paid-in capital | |
| 84,696,949 | | |
| 80,962,896 | |
Accumulated deficit | |
| (82,750,658 | ) | |
| (80,543,330 | ) |
Total shareholders’ equity | |
| 1,948,485 | | |
| 420,420 | |
Total liabilities and shareholders’ equity | |
$ | 6,225,024 | | |
$ | 4,403,048 | |
The accompanying notes are an integral part of these
unaudited condensed financial statements.
Auddia Inc.
Condensed Statements of Operations
(Unaudited)
| |
| | | |
| | |
| |
Three Months Ended
March 31, | |
| |
2024 | | |
2023 | |
Revenue | |
$ | – | | |
$ | – | |
| |
| | | |
| | |
Operating expenses: | |
| | | |
| | |
Direct cost of services | |
| 48,173 | | |
| 42,301 | |
Sales and marketing | |
| 146,395 | | |
| 225,118 | |
Research and development | |
| 165,507 | | |
| 210,126 | |
General and administrative | |
| 1,210,799 | | |
| 926,826 | |
Depreciation and amortization | |
| 483,746 | | |
| 443,035 | |
Total operating expenses | |
| 2,054,620 | | |
| 1,847,406 | |
Loss from operations | |
| (2,054,620 | ) | |
| (1,847,406 | ) |
| |
| | | |
| | |
Other (expense) income: | |
| | | |
| | |
Interest expense | |
| (152,708 | ) | |
| (307,906 | ) |
Total other expense | |
| (152,708 | ) | |
| (307,906 | ) |
Loss before income taxes | |
| (2,207,328 | ) | |
| (2,155,312 | ) |
Provision for income taxes | |
| – | | |
| – | |
Net loss | |
$ | (2,207,328 | ) | |
$ | (2,155,312 | ) |
| |
| | | |
| | |
Net loss per share attributable to common stockholders | |
| | | |
| | |
Basic and diluted | |
$ | (1.98 | ) | |
$ | (4.23 | ) |
| |
| | | |
| | |
Weighted average common shares outstanding | |
| | | |
| | |
Basic and diluted | |
| 1,113,945 | | |
| 510,026 | |
The accompanying notes are an integral part of these
unaudited condensed financial statements.
Auddia Inc.
Condensed Statements of Changes in Shareholders’
Equity
for the Three Months Ended March 31, 2024 and 2023
(Unaudited)
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
Common Stock | | |
| | |
| | |
| |
| |
Number of Shares | | |
Par Value | | |
Additional Paid-In-Capital | | |
Accumulated Deficit | | |
Total | |
Balance, December 31, 2023 | |
| 854,162 | | |
$ | 854 | | |
$ | 80,962,896 | | |
$ | (80,543,330 | ) | |
$ | 420,420 | |
Issuance of common shares, net of costs | |
| 1,340,034 | | |
| 1,340 | | |
| 3,605,168 | | |
| – | | |
| 3,606,508 | |
Offering costs | |
| – | | |
| – | | |
| (44,404 | ) | |
| – | | |
| (44,404 | ) |
Share-based compensation | |
| – | | |
| – | | |
| 173,289 | | |
| – | | |
| 173,289 | |
Net loss | |
| – | | |
| – | | |
| – | | |
| (2,207,328 | ) | |
| (2,207,328 | ) |
Balance, March 31, 2024 | |
| 2,194,196 | | |
$ | 2,194 | | |
$ | 84,696,949 | | |
$ | (82,750,658 | ) | |
$ | 1,948,485 | |
| |
Common Stock | | |
| | |
| | |
| |
| |
Number of Shares | | |
Par Value | | |
Additional Paid-In-Capital | | |
Accumulated Deficit | | |
Total | |
Balance, December 31, 2022 | |
| 506,198 | | |
$ | 506 | | |
$ | 75,585,411 | | |
$ | (71,735,834 | ) | |
$ | 3,850,083 | |
Exercise of restricted stock units | |
| 7,830 | | |
| 8 | | |
| 42,789 | | |
| – | | |
| 42,797 | |
Share-based compensation | |
| – | | |
| – | | |
| 357,680 | | |
| – | | |
| 357,680 | |
Net loss | |
| – | | |
| – | | |
| – | | |
| (2,155,312 | ) | |
| (2,155,312 | ) |
Balance, March 31, 2023 | |
| 514,028 | | |
$ | 514 | | |
$ | 75,985,880 | | |
$ | (73,891,146 | ) | |
$ | 2,095,248 | |
The accompanying notes are an integral part of these
unaudited condensed financial statements.
Auddia Inc.
Condensed Statements of Cash Flows
(Unaudited)
| |
| | | |
| | |
| |
Three Months Ended March 31, | |
| |
2024 | | |
2023 | |
Cash flows from operating activities: | |
| | | |
| | |
Net loss | |
$ | (2,207,328 | ) | |
$ | (2,155,312 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
| | | |
| | |
Finance charge associated with debt issuance cost | |
| – | | |
| 250,941 | |
Depreciation and amortization | |
| 483,746 | | |
| 443,035 | |
Share-based compensation expense | |
| 173,289 | | |
| 357,680 | |
Change in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 59 | | |
| (160 | ) |
Prepaid insurance | |
| 3,569 | | |
| (52,200 | ) |
Prepaids and other non-current assets | |
| (58,138 | ) | |
| (59,043 | ) |
Operating lease right of use asset | |
| (94,246 | ) | |
| – | |
Accounts payable and accrued liabilities | |
| 199,665 | | |
| 141,818 | |
Lease liabilities | |
| 94,246 | | |
| – | |
Net cash used in operating activities | |
| (1,405,138 | ) | |
| (1,073,241 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Software capitalization | |
| (273,388 | ) | |
| (270,574 | ) |
Net cash used in investing activities | |
| (273,388 | ) | |
| (270,574 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Net settlement of share-based compensation liability | |
| – | | |
| (78,580 | ) |
Proceeds from issuance of common shares | |
| 3,606,508 | | |
| – | |
Net cash provided by financing activities | |
| 3,606,508 | | |
| (78,580 | ) |
| |
| | | |
| | |
Net decrease in cash and cash equivalents | |
| 1,927,982 | | |
| (1,422,395 | ) |
| |
| | | |
| | |
Cash and cash equivalents, beginning of year | |
| 804,556 | | |
| 1,661,434 | |
| |
| | | |
| | |
Cash and cash equivalents, end of period | |
$ | 2,732,538 | | |
$ | 239,039 | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid for Interest | |
$ | 1,045 | | |
$ | 1,012 | |
| |
| | | |
| | |
Supplemental disclosures of non-cash activity: | |
| | | |
| | |
Reclassification of deferred offering cost | |
$ | 44,404 | | |
$ | – | |
The accompanying notes are an integral part of these
unaudited condensed financial statements.
Auddia Inc.
Notes to Condensed Financial Statements (Unaudited)
Note 1 – Description of Business, Basis of Presentation and Summary
of Significant Accounting Policies
Description of Business
Auddia Inc., (the “Company”, “Auddia”,
“we”, “our”) is a technology company that is reinventing how consumers engage with audio through the development
of a proprietary AI platform for audio and innovative technologies for podcasts. The Company is incorporated in Delaware and headquartered
in Colorado.
Basis of Presentation
The accompanying financial statements have been prepared
in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
Interim Financial Information
The condensed financial statements of the Company
included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the
“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with
GAAP have been condensed or omitted from this Quarterly Report, as is permitted by such rules and regulations. The condensed balance sheet
as of December 31, 2023 has been derived from the financial statements included in the Company’s annual report on Form 10-K. Accordingly,
these condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s
Annual Report on Form 10-K. The results for any interim period are not necessarily indicative of results for any future period. The Company
recorded all adjustments necessary for a fair statement of the results for the interim period and all such adjustments are of a normal
recurring nature.
Reverse Stock Split
The Company filed an amendment to its Certificate
of Incorporation with the Secretary of State in Delaware which became effective as of 5:00 P.M. Eastern Time on February 26, 2024. As
a result, every twenty-five (25) issued shares of common stock were automatically combined into one share of common stock.
Shares of the Company’s common stock were assigned
a new CUSIP number (05072K 206) and began trading on a split-adjusted basis on February 27, 2024.
The reverse stock split did not change the authorized
number of shares of the Company’s common stock. No fractional shares were issued and any fractional shares resulting from the reverse
stock split were rounded up to the nearest whole share. Therefore, stockholders with less than 25 shares received one share of stock.
All stock amounts have been retrospectively adjusted to account for
the reverse stock split. The reverse stock split applies to the Company’s
outstanding warrants, stock options and restricted stock units. The number of shares of common stock into which these outstanding securities
are convertible or exercisable were adjusted proportionately as a result of the reverse stock split. The exercise prices of any outstanding
warrants or stock options were also proportionately adjusted in accordance with the terms of those securities and the Company’s
equity incentive plans.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
The condensed financial statements include some amounts
that are based on management’s best estimates and judgments. The most significant estimates relate to valuation of capital stock, warrants
and options to purchase shares of the Company’s common stock, and the estimated recoverability and amortization period for capitalized
software development costs. These estimates may be adjusted as more current information becomes available, and any adjustment could be
significant.
Risks and Uncertainties
The Company is subject to various risks and uncertainties
frequently encountered by companies in the early stages of development. Such risks and uncertainties include, but are not limited to,
its limited operating history, competition from other companies, limited access to additional funds, dependence on key personnel, and
management of potential rapid growth. To address these risks, the Company must, among other things, develop its customer base; implement
and successfully execute its business and marketing strategy; develop follow-on products; provide superior customer service; and attract,
retain, and motivate qualified personnel. There can be no guarantee that the Company will be successful in addressing these or other such
risks.
Emerging Growth Company Status
The Company is an emerging growth company, as defined
in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay
adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply
to private companies. The Company has elected to use this extended transition period to comply with certain new or revised accounting
standards that have different effective dates for public and private companies.
Going Concern
The Company had cash and cash equivalents of
$2,732,538 as of March 31, 2024. The Company will need additional funding to complete the development
of the full product line and scale products with a demonstrated market fit. The Company raised an additional $3.56 million in April 2024
and paid down $2.75 million in current debt due. Management has plans to secure such additional funding. If the Company is unable to raise
capital when needed or on acceptable terms, the Company will be forced to delay, reduce, or eliminate technology development and commercialization
efforts.
As a result of the Company’s recurring losses
from operations, and the need for additional financing to fund its operating and capital requirements, there is uncertainty regarding
the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to
the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Management
has plans to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern,
such as the White Lion equity line of credit (refer to Note 7) and additional future financing agreements. However, management cannot
provide any assurances that the Company will be successful in accomplishing any of its plans. These financial statements do not include
any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern. The Company’s current
level of cash is not sufficient to execute the business plan. For the foreseeable future, the Company will incur significant operating
expenses, capital expenditures and working capital funding that will deplete cash on hand during the third quarter of 2024.
Cash and Cash Equivalents
The Company considers all highly liquid instruments
purchased with an original maturity of three months or less to be cash equivalents. The Company had cash equivalents of approximately
$3,100 as of March 31, 2024 and December 31, 2023.
The Company maintains cash deposits at several financial
institutions, which are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s cash balance may at times
exceed these limits. As of March 31, 2024, the Company had approximately $2.5 million in excess of federally insured limits. As of December
31, 2023, the Company had approximately $0.6 million in excess of federally insured limits. The Company continually monitors its positions
with, and the credit quality of, the financial institutions with which it invests.
Software Development Costs
The Company accounts for costs incurred in the development
of computer software as software research and development costs until the preliminary project stage is completed, management has committed
to funding the project, and completion and use of the software for its intended purpose is probable.
The Company ceases capitalization of development costs
once the software has been substantially completed and is available for its intended use. Software development costs are amortized over
a useful life estimated by the Company’s management of three years. Costs associated with significant upgrades and enhancements
that result in additional functionality are capitalized. Capitalized costs are subject to an ongoing assessment of recoverability based
on anticipated future revenues and changes in software technologies.
Unamortized capitalized software development costs
determined to be in excess of anticipated future net revenues are considered impaired and expensed during the period of such determination.
The Company determined that no such impairments were required during the three months ended March 31, 2024 and 2023. Software development
costs of $273,388 and $270,574 were capitalized for the three months ended March 31, 2024 and 2023, respectively. Amortization of capitalized
software development costs was $476,918 and $436,425 for the three months ended March 31, 2024, and 2023, respectively and is included
in depreciation and amortization expense in the Company’s condensed statement of operations.
Revenue Recognition
Revenue will be measured according to Accounting Standards
Codification (“ASC”) 606, Revenue – Revenue from Contracts with Customers, and will be recognized based on consideration
specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. The Company
will recognize revenue when a performance obligation is satisfied by transferring control over a service or product to a customer. The
Company will report revenues net of any tax assessed by a governmental authority that is both imposed on, and concurrent with, a specific
revenue-producing transaction between a seller and a customer in the condensed statements of operations. Collected taxes will be recorded
within Other current liabilities until remitted to the relevant taxing authority.
Subscriber revenue will consist primarily of subscription
fees and other ancillary subscription-based revenues. Revenue will be recognized on a straight-line basis when the performance obligations
to provide each service for the period are satisfied, which is over time as our subscription services are continuously available and can
be consumed by customers at any time. There is no revenue recognized for unpaid trial subscriptions.
Customers may pay for the services in advance of the
performance obligation and therefore these prepayments would be recorded as deferred revenue. The deferred revenue will be recognized
as revenue in the statement of operations as the services are provided.
Share-Based Compensation
The Company accounts for share-based compensation
arrangements with employees, directors, and consultants and recognizes the compensation expense for share-based awards based on the estimated
fair value of the awards on the date of grant in accordance with ASC 718.
Compensation expense for all share-based awards is
based on the estimated grant-date fair value and recognized in earnings over the requisite service period (generally the vesting period).
The Company records share-based compensation expense related to non-employees over the related service periods.
Certain share-based compensation awards include a
net-share settlement feature that provides the grantee an option to withhold shares to satisfy tax withholding requirements and are classified
as a share-based compensation liability. Cash paid to satisfy tax withholdings is classified as financing activities in the condensed
statements of cash flows.
Reclassifications
Certain prior period amounts
have been reclassified to conform to the current period presentation. The reclassifications did not have an impact on net loss as previously
reported.
Note 2 – Property & Equipment, Intangible
Assets, and Software Development Costs
Property and equipment and software development costs
consisted of the following as of:
Schedule of property, equipment and software development costs | |
| | |
| |
| |
March 31, 2024 | | |
December 31,
2023 | |
| |
| | |
| |
Computers and equipment | |
$ | 102,348 | | |
$ | 102,348 | |
Furniture | |
| 7,263 | | |
| 7,263 | |
Accumulated depreciation | |
| (98,006 | ) | |
| (91,512 | ) |
Total property and equipment, net | |
$ | 11,605 | | |
$ | 18,099 | |
| |
| | | |
| | |
Domain name | |
$ | 3,947 | | |
$ | 3,947 | |
Accumulated amortization | |
| (334 | ) | |
| – | |
Total intangible assets, net | |
$ | 3,613 | | |
$ | 3,947 | |
| |
| | | |
| | |
Software development costs | |
$ | 7,928,594 | | |
$ | 7,655,206 | |
Accumulated amortization | |
| (4,784,190 | ) | |
| (4,307,271 | ) |
Total software development costs, net | |
$ | 3,144,405 | | |
$ | 3,347,935 | |
The Company recognized depreciation expense of $6,494
and $6,610 for the three months ended March 31, 2024 and 2023, respectively related to property and equipment, amortization expense of
$334 and $0 for the three months ended March 31, 2024 and 2023 related to intangible assets, and amortization expense of $476,918 and
$436,425 for the three months ended March 31, 2024 and 2023, respectively related to software development costs.
Note 3 – Accounts Payable and Accrued
Liabilities
Accounts payable and accrued liabilities consist of
the following:
Schedule of accounts payable and accrued liabilities | |
| | |
| |
| |
March 31, 2024 | | |
December 31,
2023 | |
| |
| | |
| |
Accounts payable and accrued liabilities | |
$ | 478,882 | | |
$ | 424,510 | |
Credit cards payable | |
| 11,131 | | |
| 16,975 | |
Accrued interest | |
| 621,316 | | |
| 470,179 | |
Accounts payable and accrued liabilities | |
$ | 1,111,329 | | |
$ | 911,664 | |
Note 4 – Notes Payable to Related Party,
net of debt issuance costs
During November 2022, the
Company entered into a Secured Bridge Note (the “Prior Note”) financing with an accredited investor and existing shareholder
of the Company. The Prior Note had a principal amount of $2,200,000, including an original issue discount of $200,000. The Prior Note
bore interest at an annual stated interest rate of 10% with an original maturity date of May of 2023. The Prior Note is secured by a lien
on substantially all of the Company’s assets. At maturity, the lender had the option to convert the original issue discount and
accrued but unpaid interest into shares of the Company’s common stock at a fixed conversion price of $30.75 per share. The conversion
option was available to the lender at the earlier of (i) maturity, or (ii) payback of all the principal. The embedded conversion option
was not accounted for separately, in accordance with the guidance outlined in ASC 815-40, as it was considered indexed to the Company’s
shares. The Company had the option to extend the maturity date by six months to November 2023. In the event of an extension, the Company
will issue additional warrants, and the interest rate on the Note will increase to 20%.
In connection with
the Prior Note financing, the Company issued 12,000
common stock warrants with a five-year term at an exercise price of $52.50
per share. At the time of issuance, the common stock warrants were valued at $361,878
and recorded as a debt discount to the Prior Note. The issued common stock warrants were classified as equity as they were indexed
to the Company’s shares in accordance with ASC 815-40.
During April 2023, the Company
entered into an additional Secured Bridge Note (the “New Note”) financing with the same accredited investor and significant
existing shareholder. The New Note had a principal amount of $825,000, including an original issue discount of $75,000. The New Note bore
interest at an annual stated interest rate of 10% with an original maturity date of July 2023. The New Note is secured by a lien on substantially
all of the Company’s assets. At maturity, the lender had the option to convert the original issue discount and accrued but unpaid
interest into shares of the Company’s common stock at a fixed conversion price of $52.50 per share. The conversion option was available
to the lender at the earlier of (i) maturity, or (ii) payback of all the principal. The embedded conversion option was not accounted for
separately, in accordance with the guidance outlined in ASC 815-40, as it was considered indexed to the Company’s shares.
In connection with
the New Note financing, the Company issued 26,000
common stock warrants with a five-year term at an exercise price of $52.50
per share, from which 13,000
common stock warrants were exercisable immediately and were exercisable in the event that the loan term is extended. At the time of
issuance, the common stock warrants were valued at $252,940,
which was recorded as an additional debt discount to the New Note. The issued common stock warrants were classified as equity as
they were indexed to the Company’s shares in accordance with ASC 815-40.
During April 2023,
the Company also modified the terms of the Prior Note and cancelled the original 12,000
common stock warrants issued with the Prior Note. The Company recognized the modification in accordance with ASC 815-40-35, which
resulted in the recognition of debt discount in the amount of $35,981.
In lieu of the cancelled common stock warrants, the Company issued 24,000
new common stock warrants with a five-year term at an exercise price of $52.50
per share. From the newly issued 24,000 new common stock warrants, 12,000
common stock warrants were fully vested and immediately exercisable, while the remaining 12,000
common stock warrants remained unvested. The issued common stock warrants were classified as equity as they were indexed to the
Company’s shares in accordance with ASC 815-40.
In May of 2023, the
Company renegotiated with the lender an extension of the maturity date of the Prior Note for six months to November 2023 with an
increased annual interest rate of 20% and issued an additional 12,000
common stock warrants to the lender. The additional common stock warrants were valued at $94,083
and recorded as an additional debt discount. The issued common stock warrants were classified in equity as they were considered
indexed to the Company’s shares in accordance with ASC 815-40. In connection with this extension, the 12,000
outstanding unvested warrants became vested and exercisable.
On July 31, 2023,
the Company extended the maturity date of the New Note to November 30, 2023. In connection with such extension, 13,000
outstanding unvested common stock warrants became vested and exercisable. There was no change in the application of the accounting
under ASC 815-40.
As of March 31, 2024 and December 31, 2023, the balance
of the Prior Note, net of debt issuance costs, was $2,200,000. Interest expense related to the Prior Note, including interest incurred,
amortization of the debt discount, and the warrant amortization for the three months ended March 31, 2024 and 2023 was $110,000 and $305,941,
respectively. As of March 31, 2024 and December 31, 2023, the balance of the New Note issued in April 2023, net of debt issuance costs,
was $825,000. Interest expense related to the New Note, including interest incurred, amortization of the debt discount, and the warrant
amortization for the three months ended March 31, 2024 was $41,137.
On April 9, 2024, the Company and the investor entered
into an Amendment and Waiver Agreement relating to the Notes (see Note 9).
Note 5 – Commitments and Contingencies
Operating Lease
On March 25, 2024, the Company entered into
a new 37-month operating lease commencing on April 1, 2024 with two separate two year renewal options. The monthly base rent for
months two through 14 is $2,456, increasing to $3,070 for months 15 through 26, and ending at $3,684 for months 27 through 37. Rent
expense, as part of general and administrative expenses in the condensed statement of operations, was $22,480
for the three months ended March 31, 2024, which related to a temporary month-to-month lease the Company entered into until a
long-term space was identified. Rent expense was $12,053
for the three months ended March 31, 2023 under the former lease that terminated in December 2023.
Litigation
In the normal course of business, the Company
is party to litigation from time to time. The Company maintains insurance to cover certain actions and believes that resolution of such
litigation will not have a material adverse effect on the Company. There are no active litigations as of the date the financial statements
were issued. However, a pre-IPO investor has contacted the Company claiming damages caused by alleged
acts and omissions arising from a private financing by the Company. No complaint has been filed by the investor. The alleged damages
asserted by the investor are less than approximately $300,000. The outcome of the complaint was neither probable or estimable as of the
date the financial statements were issued, therefore, no accrual has been made.
NASDAQ Deficiencies
The Nasdaq listing rules
require listed securities to maintain a minimum bid price of $1.00 per share. As previously reported in the Current Report on Form 8-K
filed on November 28, 2023, the Company received a written notice from Nasdaq indicating that it was not in compliance with the $1.00
minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing. As a result, the Nasdaq staff determined
to delist the Company’s Common Stock from Nasdaq, unless the Company timely requests an appeal of the Staff’s determination
to a Hearings Panel (the “Panel”), pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series. The hearing
with the Panel occurred on January 18, 2024.
On November 21,
2023, the Company received a written notice from Nasdaq indicating that it was not in compliance with Nasdaq Listing Rule
5550(b)(1), which requires companies listed on The Nasdaq Capital Market to maintain a minimum of $2,500,000
in stockholders’ equity for continued listing (the “Stockholders’ Equity Requirement”). In the
Company’s quarterly report on Form 10-Q for the period ended September 30, 2023, the Company reported stockholders’
equity of $2,415,012,
and, as a result, did not satisfy Listing Rule 5550(b)(1). Nasdaq’s November written notice had no immediate impact on the
listing of our common stock. The hearing with the Panel occurred on January 18, 2024, and addressed all outstanding listing
compliance matters, including compliance with the Stockholders’ Equity Notice as well as compliance with the Bid Price
Requirement.
On January 30, 2024, the
Panel granted the Company’s request for an exception to Nasdaq’s listing rules until April 22, 2024, to demonstrate compliance
with all applicable continued listing requirements for the Nasdaq Capital Market.
On March 20, 2024, the Company received a letter
from Nasdaq stating it had regained compliance with the minimum bid requirement. The Panel reminded the Company that although it regained
compliance with the minimum bid requirement, it is also required to regain compliance with the equity requirement. Therefore, this matter
will remain open until the Company demonstrates compliance with all requirements.
On April 16, 2024, the Company received a letter
from Nasdaq granting an exception to the Exchange’s listing rules until May 20, 2024, to demonstrate compliance with Listing Rule
5550(b)(1) (the “Equity Rule”).
The Company intends to consider
all options to regain and maintain 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 6 – Share-based Issuances
Stock Options
The following table presents the activity for stock
options outstanding:
Schedule of stock option activity | |
| | |
| |
| |
Options | | |
Weighted Average Exercise Price | |
Outstanding - December 31, 2023 | |
| 84,895 | | |
$ | 47.79 | |
Granted | |
| – | | |
| – | |
Forfeited/canceled | |
| – | | |
| – | |
Exercised | |
| – | | |
| – | |
Outstanding – March 31, 2024 | |
| 84,895 | | |
$ | 47.79 | |
| |
| | |
| |
| |
| Options | | |
| Weighted Average Exercise Price | |
Outstanding - December 31, 2022 | |
| 66,527 | | |
$ | 61.25 | |
Granted | |
| 6,008 | | |
| 28.00 | |
Forfeited/canceled | |
| (100 | ) | |
| 44.75 | |
Exercised | |
| – | | |
| – | |
Outstanding – March 31, 2023 | |
| 72,435 | | |
$ | 58.50 | |
The following table presents the composition
of options outstanding and exercisable:
Schedule of options outstanding and exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding** |
|
|
Options Exercisable** |
|
Exercise Prices |
|
Number |
|
|
|
Price |
|
|
Life* |
|
|
Number |
|
|
|
Price* |
|
$67.56 |
|
893 |
|
|
$ |
67.56 |
|
|
0.25 |
|
|
893 |
|
|
$ |
67.56 |
|
$72.39 |
|
2,131 |
|
|
$ |
72.54 |
|
|
3.61 |
|
|
2,131 |
|
|
$ |
72.39 |
|
$106.50 |
|
6,853 |
|
|
$ |
106.50 |
|
|
5.23 |
|
|
6,853 |
|
|
$ |
106.50 |
|
$69.75 |
|
30,891 |
|
|
$ |
69.75 |
|
|
6.73 |
|
|
27,191 |
|
|
$ |
69.75 |
|
$44.75 |
|
7,850 |
|
|
$ |
44.75 |
|
|
7.46 |
|
|
4,475 |
|
|
$ |
44.75 |
|
$30.25 |
|
15,577 |
|
|
$ |
30.25 |
|
|
8.45 |
|
|
14,247 |
|
|
$ |
30.25 |
|
$9.90 |
|
2,000 |
|
|
$ |
9.90 |
|
|
9.19 |
|
|
– |
|
|
$ |
9.90 |
|
$6.25 |
|
18,700 |
|
|
$ |
6.25 |
|
|
9.71 |
|
|
– |
|
|
$ |
6.25 |
|
Total – March 31, 2024 |
|
84,895 |
|
|
|
|
|
|
|
|
|
55,790 |
|
|
|
|
|
* |
Price and Life reflect the weighted average exercise price and weighted average remaining contractual life, respectively. |
** |
The Company’s options summarized above have been retroactively restated for the effect of the 25-for-1 reverse stock split. |
Restricted Stock Units
The following table presents the activity for restricted
stock units outstanding:
Schedule of restricted stock outstanding | |
| | |
| |
| |
Restricted Stock Units | | |
Weighted Average Grant Date Fair Value | |
Outstanding - December 31, 2023 | |
| 11,490 | | |
$ | 59.36 | |
Granted | |
| – | | |
| – | |
Forfeited/canceled | |
| – | | |
| – | |
Vested/issued | |
| – | | |
| – | |
Outstanding – March 31, 2024 | |
| 11,490 | | |
$ | 59.36 | |
| |
| | |
| |
| |
Restricted Stock Units | | |
Weighted Average Grant Date Fair Value | |
Outstanding - December 31, 2022 | |
| 22,554 | | |
$ | 53.50 | |
Granted | |
| 1,500 | | |
| 31.00 | |
Forfeited/canceled | |
| – | | |
| – | |
Vested/issued | |
| (11,564 | ) | |
| 47.00 | |
Outstanding – March 31, 2023 | |
| 12,490 | | |
$ | 57.00 | |
The Company recognized share-based compensation expense
related to stock options and restricted stock units of $173,289 and $357,680 for the three months ended March 31, 2024 and 2023,
respectively. The remaining unvested share-based compensation expense of $535,010 is expected to be recognized over the next 45 months.
Note 7 – Equity Financings
Equity Line Sales of Common
Stock
On November 14, 2022, the
Company entered into a Common Stock Purchase Agreement (the “White Lion Purchase Agreement”) with White Lion Capital, LLC,
a Nevada limited liability company (“White Lion”) for an equity line facility.
In April and June 2023, the
Company closed on three sales of Common Stock under the White Lion Purchase Agreement. As a result, the Company issued an aggregate of
2,361,514 common shares and received aggregate proceeds of approximately $1.3 million.
Any proceeds that the Company
receives under the White Lion Purchase Agreement are expected to be used for working capital and general corporate purposes.
The White Lion Purchase Agreement prohibits the
Company from issuing and selling any shares of common stock to White Lion to the extent such shares, when aggregated with all other shares
of our common stock then beneficially owned by White Lion, would cause White Lion’s beneficial ownership of common stock to exceed
9.99% (the “Beneficial Ownership Cap”).
The Company recognized all offering costs related
to the equity line of credit as deferred offering costs in accordance with the guidance in ASC 835-30-S45.
Replacement Equity Line
with White Lion
On November
6, 2023, the Company entered into a new Common Stock Purchase Agreement and a related registration rights agreement with White Lion. Pursuant
to the new Common Stock Purchase Agreement, the Company has the right, but not the obligation to require White Lion to purchase, from
time to time until December 31, 2024, up to $10,000,000 in aggregate gross purchase price of newly issued shares of the Company’s
common stock, subject to certain limitations and conditions set forth in the Common Stock Purchase Agreement. In connection with the new
Common Stock Purchase Agreement, the parties agreed to terminate the previous Common Stock Purchase Agreement with White Lion.
In February and March 2024,
the Company closed on seven sales of Common Stock under the White Lion Purchase Agreement. As a result, the Company issued an aggregate
of 1,340,000 common shares and received aggregate proceeds of approximately $3.6 million.
Warrants
The following table presents
the activity for warrants outstanding:
Schedule of warrant activity |
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
Weighted Average Exercise Price |
|
Outstanding - December 31, 2023 |
|
|
217,448 |
|
|
$ |
96.00 |
|
Granted |
|
|
– |
|
|
|
– |
|
Forfeited/cancelled/restored |
|
|
– |
|
|
|
– |
|
Exercised |
|
|
– |
|
|
|
– |
|
Outstanding – March 31, 2024 |
|
|
217,448 |
|
|
$ |
96.00 |
|
Note 8 – Leases
The Company leases certain
office space under operating leases for use in operations. The Company recognizes operating lease expense on a straight-line basis over
the lease term. Management determines if an arrangement is a lease at contract inception. Lease and non-lease components are accounted
for as a single component for all leases. Operating lease right to use (“ROU”) assets and liabilities are recognized at the
lease commencement date based on the present value of the future lease payments over the expected lease term, which includes optional
renewal periods if the Company determines it is reasonably certain that the option will be exercised. As the operating lease does not
provide an implicit rate, the discount rate used in the present value calculation represents the incremental borrowing rate determined
using information available at the commencement date. For the three months ended March 31, 2024 and 2023, the Company recorded operating
lease expense of zero as the lease commences on April 1, 2024. At March 31, 2024, weighted-average remaining lease term and discount rate
were as follows:
Lease cost information | |
March 31, 2024 | |
Weighted-average remaining lease term | |
| 4.0 years | |
Weighted-average discount rate | |
| 8.6% | |
The following is a maturity analysis of the annual
undiscounted cash flows reconciled to the carrying value of the operating lease liabilities as of March 31, 2024:
Annual undiscounted cash flows of leases | |
| |
Years Ended December 31, | |
| |
2024 | |
$ | 19,647 | |
2025 | |
| 33,768 | |
2026 | |
| 41,135 | |
2027 | |
| 14,735 | |
Less imputed interest | |
| (15,039 | ) |
Total | |
$ | 94,246 | |
Note 9 – Subsequent Events
Notes Payable to Related Party
As previously disclosed in
Note 4, in November 2022 and April 2023, the Company entered into secured bridge note (“Bridge Notes”) financings with one
accredited investor who is a significant existing stockholder of the Company. The Company received $2.75 million of gross proceeds in
connection with the Bridge Note financings. The Bridge Notes are currently due. In connection with the issuance of the Bridge Notes, the
Holder also holds 50,000 common stock warrants with a current exercise price of $15.25 per share.
On April 9, 2024, the Company
and the investor entered into an Amendment and Waiver Agreement relating to the Bridge Notes.
Principal Repayment
The Company agreed
to pay $2.75 million in cash to the Investor in repayment of the principal of the Bridge Notes (exclusive of the $275,000 of
original issue discount on the Bridge Notes) shortly after the closing by the Company of one or more equity financings with total
gross proceeds to the Company of not less than $6,000,000.
On April 26, 2024, the
Company repaid $2.75 million of principal on its Secured Bridge Notes.
Equity Conversion
Effective April 9, 2024,
the Investor converted $911,384 (the “Rollover Amount”) which is equal to the (i) unpaid accrued interest on the Bridge Notes
plus (ii) the original issue discount (“OID”) on the Bridge Notes, into equity securities of the Company (the “Rollover
Securities”).
The Rollover Securities consist
of (i) 463,337 prefunded common stock warrants with a per share exercise price of $0.001 per share (the “Prefunded Warrants”)
and (ii) 463,337 non-prefunded warrants (the “Non-Prefunded Warrants”) with a per share exercise price equal to $1.967. As
of the date and time of the Amendment and Waiver Agreement, the Nasdaq Minimum Price (as defined in the applicable Nasdaq listing rules)
for the Company’s common stock was $1.966.
The number of Prefunded Warrants
was determined by dividing the Rollover Amount by $1.967. The number of Non-Prefunded Warrants is equal to the number of Prefunded Warrants
(i.e. 100% warrant coverage). The Non-Prefunded Warrants have a price adjustment provision which will adjust the exercise price downward
in the event that the Company issues equity securities in the future at an effective per share price below the then current exercise price.
In order to assure compliance with applicable Nasdaq rules, the Non-Prefunded Warrants shall not be exercisable for six months following
the date of issue.
Fee Warrants
The Company issued to the
Investor 50,000 new common stock warrants with a five-year term as a loan extension fee (“Fee Warrants”). The exercise price
of these additional Fee Warrants is $1.967. The Fee Warrants have a price adjustment provision which will adjust the exercise price downward
in the event that the Company issues equity securities in the future at an effective per share price below the then current exercise price.
In order to assure compliance with applicable Nasdaq rules, the Fee Warrants shall not be exercisable for six months following the date
of issue.
Repricing of Existing
Warrants
The Company agreed to adjust
the exercise price of the Investor’s Existing Warrants from $15.25 (after adjustment for the recent reverse stock) to $1.967 per
share.
Ownership and Exercise
Limitations
The Investor will not be
able to receive shares upon exercise of any of the foregoing securities, unless prior stockholder approval is obtained, if (i) the number
of shares to be issued would exceed 20% of the Company’s outstanding number of shares at a discount to the applicable Nasdaq Minimum
Price or (ii) the number of shares to be issued would result in in a Change of Control within the meaning of Nasdaq Rule 5635(b).
$2.3 Million Convertible
Preferred Stock and Warrants Financing
On April 23, 2024, the
Company entered into a securities purchase agreement with accredited investors for a convertible preferred stock and warrants financing.
The Company has received $2,314,000 of gross proceeds in connection with the closing of this financing.
At the closing, the Company
issued 2,314 shares of Series B convertible preferred stock (“Series B Preferred Stock”) at a purchase price of $1,000 per
share of Series B Preferred Stock. The Series B Preferred Stock is convertible into Common Stock at an initial conversion price (“Conversion
Price”) of $1.851 per share of Common Stock. The Company also issued warrants (“Warrants”) exercisable for 1,250,137
shares of Common Stock with a five year term and an initial exercise price of $1.851 per share.
The proceeds of this
financing, together with other available cash resources, will be used to repay outstanding debt and for general corporate purposes.
The Company believes
that the closing of this financing, together with other recent financing activities, will bring the Company back into compliance with
the Nasdaq stockholders’ equity requirement for continued listing on the Nasdaq Capital Market.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and
Stockholders of Auddia, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheet
of Auddia, Inc. (the Company) as of December 31, 2023, and the related statements of operations, changes in stockholders’ equity
(deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023,
and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted
in the United States of America.
Substantial Doubt about the Company’s
Ability to Continue as a Going Concern
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the
Company has suffered recurring losses from operations and has a deficiency in stockholders’ equity that raise substantial doubt
about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control
over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation
of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Retrospective Adjustment for Reverse Stock Splits
We have audited the adjustments to the 2022 financial statements to
retrospectively apply the effects of the reverse stock split, as described in Notes 1 and 9. In our opinion, such retrospective adjustments
are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2022 financial statements
of the Company other than with respect to these retrospective adjustments for the reverse stock split and, accordingly, we do not express
an opinion or any other form of assurance on the 2022 financial statements taken as a whole.
/s/ Haynie & Company
Haynie & Company
Littleton,
Colorado
April 1, 2024
We have served as the Company’s auditor since 2023.
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders
Auddia Inc.
Boulder, Colorado
Opinion on the Financial Statements
We have audited, before
the effects of the adjustments to retrospectively apply the effects of the reverse stock split described in Note 1 – Description
of Business, Basis of Presentation and Summary of Significant Accounting Policies – Reverse Stock Split (Reverse Stock Split), the
accompanying balance sheet of Auddia Inc. (the “Company”) at December 31, 2022, and the related statements of operations,
changes in stockholders’ equity and cash flows for the year ended December 31, 2022, and the related notes (collectively referred
to as the financial statements). In our opinion, before the effects of the adjustments to retrospectively apply the reverse stock split
described in Note 1 – Description of Business, Basis of Presentation and Summary of Significant Accounting Policies – Reverse
Stock Split (Reverse Stock Split), the financial statements present fairly, in all material respects, the financial position of the Company
at December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting
principles generally accepted in the United States of America.
We were not engaged to
audit, review, or apply any procedures to the adjustments for the retrospective effect of the Stock Split described in Note 1 –
Description of Business, Basis of Presentation and Summary of Significant Accounting Policies – Reverse Stock Split (Reverse Stock
Split), and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments and disclosures are
appropriate and have been properly applied. Those adjustments and disclosures were audited by Haynie & Company. (The 2022 financial
statements before the effects of the adjustments discussed in Note 1 – Reverse Stock Split and the disclosures described in Note
6 – Share-based Compensation, Note 7 – Equity Financing – Warrants, and Note 9 – Net Loss Per Share are not presented
herein).
Going Concern Uncertainty
The accompanying financial
statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements,
the Company has suffered recurring losses from operations and has a deficiency in working capital and shareholders’ equity that
raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit
in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required
to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for
our opinion.
Critical Audit Matters
The critical audit matters
communicated below are matters arising from the audit of the December 31, 2022 financial statements that were communicated or required
to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements
and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Intangible Assets Impairment Assessment
As described in Notes
1 and 2 to the financial statements, the Company has software development costs of approximately $4.1 million at December 31, 2022. No
directly observable market inputs are available to measure the fair value to determine if the asset is recoverable. Therefore, an estimate
is derived indirectly and is based on a mix of cash flow and market models. The estimate that management used in calculating the fair
values depend on assumptions specific to the nature of the markets in which its product operates with regard to the amount and timing
of projected future revenues, operating cash flows, long-term subscriber demand forecasts, actions of competitors (competing content),
capital expenditures, and future tax rates.
The principal considerations
for our determination that performing procedures relating to the intangible assets impairment assessment is a critical audit matter are
the significant judgment by management when developing the fair value of the intangible assets. This led to a high degree of auditor judgment,
subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the amount and
timing of projected future cash flows.
Addressing the matter
involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements.
These procedures included testing management’s process for developing the fair value estimate; evaluating the appropriateness of
the valuation techniques; testing the completeness and accuracy of underlying data used in the model; and evaluating the significant assumptions
used by management, including the amount and timing of projected future cash flows. Evaluating management’s assumptions related
to the amount and timing of projected future cash flows and evaluating whether the assumptions used by management were reasonable considering
the current and past performance of the intangible assets, the consistency with external market and industry data, and whether these assumptions
were consistent with evidence obtained in other areas of the audit.
/s/ Daszkal Bolton LLP
Daszkal Bolton LLP
Boca Raton, Florida
March 20, 2023
We served as the Company’s
auditor from 2020 to March 2023.
Auddia, Inc.
Balance Sheets
| |
| | | |
| | |
| |
December 31, 2023 | | |
December 31, 2022 | |
ASSETS | |
| | |
| |
Current assets: | |
| | | |
| | |
Cash | |
$ | 804,556 | | |
$ | 1,661,434 | |
Accounts receivable, net | |
| 494 | | |
| 137 | |
Prepaid insurance | |
| 28,993 | | |
| – | |
Total current assets | |
| 834,043 | | |
| 1,661,571 | |
| |
| | | |
| | |
Non-current assets: | |
| | | |
| | |
Property and equipment, net of accumulated depreciation | |
| 18,099 | | |
| 41,080 | |
Software development costs, net of accumulated amortization | |
| 3,347,935 | | |
| 4,134,225 | |
Deferred offering costs | |
| 170,259 | | |
| 222,896 | |
Prepaids and other non-current assets | |
| 32,712 | | |
| 51,754 | |
Total non-current assets | |
| 3,569,005 | | |
| 4,449,955 | |
Total assets | |
$ | 4,403,048 | | |
$ | 6,111,526 | |
| |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and accrued liabilities | |
$ | 911,664 | | |
$ | 324,138 | |
Notes payable to related party, net of debt issuance costs | |
| 3,025,000 | | |
| 1,775,956 | |
Stock awards liability | |
| 45,964 | | |
| 161,349 | |
Total current liabilities | |
| 3,982,628 | | |
| 2,261,443 | |
Total liabilities | |
| 3,982,628 | | |
| 2,261,443 | |
| |
| | | |
| | |
Commitments and contingencies (Note 5) | |
| – | | |
| – | |
| |
| | | |
| | |
Shareholders’ equity: | |
| | | |
| | |
Preferred stock - $0.001 par value, 10,000,000 authorized and 0 shares issued and outstanding | |
| – | | |
| – | |
Common stock - $0.001
par value, 100,000,000 authorized and 854,162
and 506,198 shares issued and outstanding December
31, 2023 and December 31, 2022, respectively (1) | |
| 854 | | |
| 506 | |
Additional paid-in capital | |
| 80,962,896 | | |
| 75,585,411 | |
Accumulated deficit | |
| (80,543,330 | ) | |
| (71,735,834 | ) |
Total shareholders’ equity | |
| 420,420 | | |
| 3,850,083 | |
Total liabilities and shareholders’ equity | |
$ | 4,403,048 | | |
$ | 6,111,526 | |
| (1) | The Company’s common stock outstanding as of December 31, 2023 and 2022 has been retroactively restated for the effect of the
25-for-1 reverse stock split. |
See Accompanying Notes to Financial Statements.
Auddia, Inc.
Statements of Operations
| |
| | | |
| | |
| |
Year Ended |
|
| |
December 31, |
|
| |
2023 | | |
2022 | |
Revenue | |
$ |
– | | |
$ |
– | |
| |
|
| | |
|
| |
Operating expenses: | |
| | | |
| | |
Direct cost of services | |
| 181,679 | | |
| 180,690 | |
Sales and marketing | |
| 1,096,106 | | |
| 1,673,692 | |
Research and development | |
| 781,017 | | |
| 654,879 | |
General and administrative | |
| 3,576,729 | | |
| 3,223,520 | |
Depreciation and amortization | |
| 1,840,837 | | |
| 991,639 | |
Total operating expenses | |
| 7,476,368 | | |
| 6,724,420 | |
Loss from operations | |
| (7,476,368 | ) | |
| (6,724,420 | ) |
| |
| | | |
| | |
Other (expense) income: | |
| | | |
| | |
Interest expense | |
| (1,331,128 | ) | |
| (173,027 | ) |
Interest income | |
| – | | |
| 1 | |
Total other expense | |
| (1,331,128 | ) | |
| (173,026 | ) |
Loss before income taxes | |
| (8,807,496 | ) | |
| (6,897,446 | ) |
Provision for income taxes | |
| – | | |
| – | |
Net loss | |
$ | (8,807,496 | ) | |
$ | (6,897,446 | ) |
| |
| | | |
| | |
Net loss per share attributable to common stockholders | |
| | | |
| | |
Basic and diluted | |
$ | (12.93 | ) | |
$ | (13.79 | ) |
| |
| | | |
| | |
Weighted average common shares outstanding (1) | |
| | | |
| | |
Basic and diluted | |
| 681,229 | | |
| 500,095 | |
| (1) | The Company’s weighted average common shares outstanding for the years ended December 31, 2023 and 2022 have been retroactively
restated for the effect of the 25-for-1 reverse stock split. |
See Accompanying Notes to Financial Statements.
Auddia Inc.
Statements of Changes in Stockholders’ Equity
For the Years Ended December 31, 2023 and 2022
| |
| | | |
| | | |
| | | |
| | | |
| | |
Year Ended December 31, 2023 | |
| | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| | |
| |
| |
| Common
Stock (1) | | |
| Additional | | |
| | | |
| | |
| |
| Number of Shares | | |
| Par Value | | |
| Paid-In-
Capital (1) | | |
| Accumulated Deficit | | |
| Total | |
| |
|
| | |
|
| | |
|
| | |
|
| | |
|
| |
Balance, December 31, 2022 | |
| 506,198 | | |
$ | 506 | | |
$ | 75,585,411 | | |
$ | (71,735,834 | ) | |
$ | 3,850,083 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common shares, net of costs | |
| 283,861 | | |
| 284 | | |
| 3,963,601 | | |
| – | | |
| 3,963,885 | |
Adjustments related to reverse stock split | |
| 56,310 | | |
| 56 | | |
| (56 | ) | |
| – | | |
| – | |
Exercise of Restricted Stock Units | |
| 7,830 | | |
| 8 | | |
| (8 | ) | |
| – | | |
| – | |
Issuance of warrants | |
| – | | |
| – | | |
| 383,004 | | |
| – | | |
| 383,004 | |
Share-based compensation | |
| – | | |
| – | | |
| 1,025,420 | | |
| – | | |
| 1,025,420 | |
Revaluation of share-based compensation liability | |
| – | | |
| – | | |
| 5,524 | | |
| – | | |
| 5,524 | |
Cancelled shares | |
| (37 | ) | |
| – | | |
| – | | |
| – | | |
| – | |
Net loss | |
| – | | |
| – | | |
| – | | |
| (8,807,496 | ) | |
| (8,807,496 | ) |
Balance, December 31, 2023 | |
| 850,303 | | |
$ | 854 | | |
$ | 80,962,896 | | |
$ | (80,543,330 | ) | |
$ | 420,420 | |
Year Ended December 31, 2022 | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| Common
Stock (1) | | |
| Additional | | |
| | | |
| | |
| |
| Number of Shares | | |
| Par Value | | |
| Paid-In-
Capital (1) | | |
| Accumulated Deficit | | |
| Total | |
Balance, December 31, 2021 | |
| 496,657 | | |
$ | 496 | | |
$ | 74,248,830 | | |
$ | (64,838,389 | ) | |
$ | 9,410,937 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common shares | |
| 5,607 | | |
| 6 | | |
| 222,889 | | |
| – | | |
| 222,896 | |
Issuance of warrants | |
| – | | |
| – | | |
| 361,878 | | |
| – | | |
| 361,878 | |
Exercise of restricted stock units and warrants | |
| 3,934 | | |
| 4 | | |
| (4 | ) | |
| – | | |
| – | |
Reclassification of share-based compensation award to liability | |
| – | | |
| – | | |
| (250,071 | ) | |
| – | | |
| (250,071 | ) |
Share-based compensation | |
| – | | |
| – | | |
| 1,001,889 | | |
| – | | |
| 1,001,889 | |
Net loss | |
| – | | |
| – | | |
| – | | |
| (6,897,446 | ) | |
| (6,897,446 | ) |
Balance, December 31, 2022 | |
| 506,198 | | |
$ | 506 | | |
$ | 75,585,411 | | |
$ | (71,735,834 | ) | |
$ | 3,850,083 | |
| (1) | The Company’s changes in stockholders’ equity for the years ended December 31, 2023 and 2022 has been retroactively restated
for the effect of the 25-for-1 reverse stock split. |
See Accompanying Notes to Financial Statements.
Auddia Inc.
Statements of Cash Flows
| |
| | | |
| | |
| |
Year Ended December 31, | |
| |
2023 | | |
2022 | |
Cash flows from operating activities: | |
| | | |
| | |
Net loss | |
$ | (8,807,496 | ) | |
$ | (6,897,446 | ) |
| |
| | | |
| | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |
| | | |
| | |
Finance charge associated with debt issuance cost | |
| 882,049 | | |
| 137,834 | |
Depreciation and amortization | |
| 1,840,837 | | |
| 991,639 | |
Share-based compensation expense | |
| 1,025,420 | | |
| 1,001,889 | |
Change in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (357 | ) | |
| (50 | ) |
Prepaid insurance | |
| (28,994 | ) | |
| – | |
Prepaids and other non-current assets | |
| 19,042 | | |
| 1,164 | |
Accounts payable and accrued liabilities | |
| 565,292 | | |
| 12,220 | |
Net cash used in operating activities | |
| (4,504,207 | ) | |
| (4,752,750 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Software capitalization | |
| (1,029,157 | ) | |
| (1,927,298 | ) |
Purchase of property and equipment | |
| (2,409 | ) | |
| (3,809 | ) |
Net cash used in investing activities | |
| (1,031,566 | ) | |
| (1,931,107 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from issuance of promissory notes payable, net of OID | |
| – | | |
| 2,000,000 | |
Net settlement of share-based compensation liability | |
| (87,628 | ) | |
| – | |
Proceeds from related party debt | |
| 750,000 | | |
| – | |
Proceeds from issuance of common shares | |
| 4,016,523 | | |
| – | |
Net cash provided by financing activities | |
| 4,678,895 | | |
| 2,000,000 | |
| |
| | | |
| | |
Net decrease in cash | |
| (856,878 | ) | |
| (4,683,857 | ) |
| |
| | | |
| | |
Cash, beginning of year | |
| 1,661,434 | | |
| 6,345,291 | |
| |
| | | |
| | |
Cash and restricted cash, end of year | |
$ | 804,556 | | |
$ | 1,661,434 | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid for Interest | |
$ | 6,000 | | |
$ | 7,082 | |
| |
| | | |
| | |
Supplemental disclosures of non-cash activity: | |
| | | |
| | |
Reclassification of deferred offering cost | |
$ | 52,637 | | |
$ | – | |
Original issue discount and issuance of warrants on related party debt | |
$ | 458,004 | | |
$ | – | |
See Accompanying Notes to Financial Statements.
Auddia Inc.
Notes to Financial Statements
For the Years Ended December 31, 2023 and 2022
Note 1 – Description of Business, Basis of Presentation
and Summary of Significant Accounting Policies
Description of Business
Auddia Inc., (the “Company”, “Auddia”,
“we”, “our”) is a technology company that is reinventing how consumers engage with audio through the development
of a proprietary AI platform for audio and innovative technologies for podcasts. The Company is incorporated in Delaware and headquartered
in Colorado.
Basis of Presentation
The accompanying financial statements have been
prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
Reverse Stock Split
The Company filed an amendment to its Certificate
of Incorporation with the Secretary of State in Delaware which became effective as of 5:00 P.M. Eastern Time on February 26, 2024. As
a result, every twenty-five (25) issued shares of common stock were automatically combined into one share of common stock.
Shares of the Company’s common stock were
assigned a new CUSIP number (05072K 206) and began trading on a split-adjusted basis on February 27, 2024.
The reverse stock split will not change the authorized
number of shares of the Company’s common stock. No fractional shares will be issued and any fractional shares resulting from the
reverse stock split will be rounded up to the nearest whole share. Therefore, stockholders with less than 25 shares will receive one
share of stock.
The reverse stock split will apply to the Company’s
outstanding warrants, stock options and restricted stock units. The number of shares of common stock into which these outstanding securities
are convertible or exercisable will be adjusted proportionately as a result of the reverse stock split. The exercise prices of any outstanding
warrants or stock options will also be proportionately adjusted in accordance with the terms of those securities and the Company’s
equity incentive plans.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
The 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.
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 December 31,
2023 or 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 December 31, 2023 and December 31, 2022, the Company had $554,556 and $1,411,434, 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.
Property and Equipment
Property and equipment are stated at cost, net
of accumulated depreciation. Depreciation is provided utilizing the straight-line method over the estimated useful lives for owned assets,
ranging from two to five years.
Software Development Costs
The Company accounts for costs incurred in the
development of computer software as software research and development costs until the preliminary project stage is completed, management
has committed to funding the project, and completion and use of the software for its intended purpose is probable.
The Company ceases capitalization of development
costs once the software has been substantially completed and is available for its intended use. Software development costs are amortized
over a useful life estimated by the Company’s management of three years. Costs associated with significant upgrades and enhancements
that result in additional functionality are capitalized. Capitalized costs are subject to an ongoing assessment of recoverability based
on anticipated future revenues and changes in software technologies.
Unamortized capitalized software development costs
determined to be in excess of anticipated future net revenues are considered impaired and expensed during the period of such determination.
Software development costs of $1,029,157 and $1,927,298 were capitalized for the years ended December 31, 2023, and 2022, respectively.
Amortization of capitalized software development costs were $1,815,447 and $956,144 for the years ended December 31, 2023 and 2022, respectively
and are included in depreciation and amortization expense.
Deferred Offering Costs
In November 2022, the Company entered into a Common Stock Purchase Agreement.
Pursuant to such, the Company has the right, but not the obligation, to require the investor to purchase up to $10,000,000 in aggregate
gross purchase price of newly issued shares of the Company common stock, subject to eligibility under the Company’s Form S-3. The
Company’s right to sell shares under this agreement extends to December 2023. In consideration for the commitments by the investor
under the agreement, the Company issued 5,607 shares of common stock to the investor. The Company recognized $222,896 of deferred offering
costs relating to the issuance of these shares.
Long-Lived Assets
The Company reviews its tangible and limited lived
intangible long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset
may not be recovered. If a potential impairment is indicated, the Company compares the carrying amount of the asset to the undiscounted
future cash flows associated with the asset. In the event the future cash flows are less than their carrying value, a loss is recognized
based on the amount by which the carrying value exceeds the fair value of the long-lived asset. The Company determined long-lived assets
were not impaired at December 31, 2023 and 2022.
Income Taxes
The Company accounts for income taxes using an
asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences
of events. A valuation allowance is established to reduce deferred tax assets to their estimated realizable value when, in the opinion
of management, it is more likely than not that some portion or all of the deferred income tax assets will not be realized in the future.
The Company recognizes benefits of uncertain tax
positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits,
as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. The Company’s policy
is to recognize interest and penalties related to unrecognized tax benefits as a part of income tax expense.
Prior to the Company’s conversion to a Delaware
corporation in February 2021, the Company was a limited liability company and had elected to be treated as a pass-through entity for income
tax purposes. Accordingly, taxable income and losses of the Company were reported on the income tax returns of its members, and no provision
for federal income taxes have been recorded in the accompanying financial statements. Had the Company been a taxable entity, no provision
for income taxes would have been recorded as the Company has sustained losses since inception.
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 will exclude 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 statements of operations. Collected taxes, if applicable, 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 is 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 is recognized as
revenue in our statement of operations as the services are provided.
Advertising Costs
The Company expenses advertising costs as incurred.
Advertising expense for the year ended December 31, 2023, and December 31, 2022 was $585,876 and $760,940, respectively.
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.
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.
Net Loss per Share
Basic loss per share common share is calculated
based on the weighted-average number of common shares outstanding in accordance with FASB ASC Topic 260, Earnings per Share. Diluted
net loss per share is calculated based on the weighted-average number of common shares outstanding plus the effect of dilutive potential
common shares. When the Company reports a net loss, the calculation of diluted net loss per share excludes potential common shares as
the effect would be anti-dilutive. Potential common shares are composed of shares of common issuable upon the exercise of options and
warrants.
Liquidity, Capital Resources and Going Concern
Our existing cash of $804,556 at December 31,
2023 will only be sufficient to fund our current operating plans into February 2024. The Company secured approximately $3.6 million of
additional financing in February and March 2024, but will need to obtain additional financing to pay off debt and to extend current operations
into the second quarter of 2024 (see Note 10). The Company has based these estimates, however, on assumptions that may prove to be wrong.
We will need additional funding to complete the development of our full product line and scale products with a demonstrated market fit.
Management has plans to secure such additional funding. If we are unable to raise capital when needed or on acceptable terms, we would
be forced to delay, reduce, or eliminate our technology development and commercialization efforts.
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.
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:
Schedule of property, equipment and software development costs | |
| | | |
| | |
| |
December 31, 2023 | | |
December 31, 2022 | |
| |
| | |
| |
Computers and equipment | |
$ | 102,348 | | |
$ | 99,939 | |
Furniture | |
| 7,263 | | |
| 7,262 | |
Accumulated depreciation | |
| (91,512 | ) | |
| (66,121 | ) |
Total property and equipment, net | |
$ | 18,099 | | |
$ | 41,080 | |
| |
| – | | |
| | |
| |
| | | |
| | |
Software development costs | |
$ | 7,655,206 | | |
$ | 6,626,049 | |
Accumulated amortization | |
| (4,307,271 | ) | |
| (2,491,824 | ) |
Total software development costs, net | |
$ | 3,347,935 | | |
$ | 4,134,225 | |
The Company recognized depreciation expense of
$25,391 and $35,495 for the years ended December 31, 2023, and 2022, respectively related to property and equipment and amortization expense
of $1,815,447 and $956,144 for the years ended December 31, 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:
Schedule of accounts payable and accrued liabilities | |
| | | |
| | |
| |
December 31, 2023 | | |
December 31, 2022 | |
| |
| | |
| |
Accounts payable and accrued liabilities | |
$ | 424,510 | | |
$ | 289,955 | |
Credit cards payable | |
| 16,975 | | |
| 6,072 | |
Accrued interest | |
| 470,179 | | |
| 28,111 | |
Total accounts payable and accrued liabilities | |
$ | 911,664 | | |
$ | 324,138 | |
Note 4 – Notes Payable to Related
Party, net of debt issuance costs
During November 2022, the Company entered
into a Secured Bridge Note (the “Prior Note”) financing with an accredited investor and existing shareholder of the
Company. The Prior Note had a principal amount of $2,200,000,
including an original issue discount of $200,000.
The Prior Note bore interest at an annual stated interest rate of 10% with an original maturity date of May of 2023. The Prior Note
is secured by a lien on substantially all of the Company’s assets. At maturity, the lender had the option to convert the
original issue discount and accrued but unpaid interest into shares of the Company’s common stock at a fixed conversion price
of $30.75 per share. The conversion option was available to the lender at the earlier of (i) maturity, or (ii) payback of all the
principal. The embedded conversion option was not accounted for separately, in accordance with the guidance outlined in ASC 815-40,
as it was considered indexed to the Company’s shares. The Company had the option to extend the maturity date by six months to
November 2023. In the event of an extension, the Company will issue additional warrants, and the interest rate on the Note will
increase to 20%.
In connection with the Prior Note financing, the
Company issued 12,000 common stock warrants with a five-year term at an exercise price of $52.50 per share. At the time of issuance, the
common stock warrants were valued at $361,878 and recorded as a debt discount to the Prior Note. The issued common stock warrants were
classified as equity as they were indexed to the Company’s shares in accordance with ASC 815-40.
During April 2023, the Company entered into an
additional Secured Bridge Note (the “New Note”) financing with the same accredited investor and significant existing shareholder.
The New Note had a principal amount of $825,000, including an original issue discount of $75,000. The New Note bore interest at an annual
stated interest rate of 10% with an original maturity date of July 2023. The New Note is secured by a lien on substantially all of the
Company’s assets. At maturity, the lender had the option to convert the original issue discount and accrued but unpaid interest
into shares of the Company’s common stock at a fixed conversion price of $52.50 per share. The conversion option was available to
the lender at the earlier of (i) maturity, or (ii) payback of all the principal. The embedded conversion option was not accounted for
separately, in accordance with the guidance outlined in ASC 815-40, as it was considered indexed to the Company’s shares.
In connection with the New Note financing, the
Company issued 26,000 common stock warrants with a five-year term at an exercise price of $52.50 per share, from which 13,000 common
stock warrants were exercisable immediately and were exercisable in the event that the loan term is extended. At the time of issuance,
the common stock warrants were valued at $252,940, which was recorded as an additional debt discount to the New Note. The issued common
stock warrants were classified as equity as they were indexed to the Company’s shares in accordance with ASC 815-40.
During April 2023, the Company also modified the
terms of the Prior Note and cancelled the original 12,000 common stock warrants issued with the Prior Note. The Company recognized the
modification in accordance with ASC 815-40-35, which resulted in the recognition of debt discount in the amount of $35,981. In lieu of
the cancelled common stock warrants, the Company issued 24,000 new common stock warrants with a five-year term at an exercise price of
$52.50 per share. From the newly issued 24,000 new common stock warrants, 12,000 common stock warrants were fully vested and immediately
exercisable, while the remaining 12,000 common stock warrants remained unvested. The issued common stock warrants were classified as
equity as they were indexed to the Company’s shares in accordance with ASC 815-40.
In May of 2023, the Company renegotiated with
the lender an extension of the maturity date of the Prior Note for six months to November 2023 with an increased annual interest rate
of 20% and issued an additional 12,000 common stock warrants to the lender. The additional common stock warrants were valued at $94,083
and recorded as an additional debt discount. The issued common stock warrants were classified in equity as they were considered indexed
to the Company’s shares in accordance with ASC 815-40. In connection with this extension, the 12,000 outstanding unvested warrants
became vested and exercisable.
On July 31, 2023, the Company extended the maturity
date of the New Note to November 30, 2023. In connection with such extension, 13,000 outstanding unvested common stock warrants became
vested and exercisable. There was no change in the application of the accounting under ASC
815-40.
As of December 31, 2023, and December 31, 2022,
the balance of the Prior Note, net of debt issuance costs, was $2,200,000
and $1,775,956,
respectively. Interest expense related to the Prior Note, including interest incurred, amortization of the debt discount, and the warrant
amortization for the year ended December 31, 2023, was $868,084.
As of December 31, 2023, the balance of the New Note issued in April 2023, net of debt issuance costs, was $825,000.
Interest expense related to the New Note, including interest incurred, amortization of the debt discount, and the warrant amortization
for the year ended December 31, 2023 was $457,044.
The Company is currently
in discussions with the accredited investor regarding an agreement where (i) the Company would agree to repay the $2.75 million principal
of the bridge financing out of the proceeds of a next round financing, and (ii) the accrued interest and original issue discount on the
bridge financing would be converted into equity securities.
Note 5 – 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 subsequently 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, which expired on December
14, 2023. Rent expense, as part of general and administrative expenses as included in the Condensed Statement of Operations, was $61,724 and
$104,223 for the years ended December 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. 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.
Note
6 - Share-based Compensation
Stock Options
The following table presents the activity for
stock options outstanding:
Schedule of stock option activity | |
| | | |
| | |
| |
Options | | |
Weighted Average Exercise Price | |
Outstanding - December 31, 2021 | |
| 60,192 | | |
$ | 74.00 | |
Granted | |
| 27,325 | | |
| 36.50 | |
Forfeited/canceled | |
| (20,990 | ) | |
| 65.75 | |
Exercised | |
| – | | |
| – | |
Outstanding - December 31, 2022 | |
| 66,527 | | |
$ | 61,13 | |
Granted | |
| 26,708 | | |
| 11.42 | |
Forfeited/canceled | |
| (8,358 | ) | |
| 37.76 | |
Exercised | |
| – | | |
| – | |
Outstanding - December 31, 2023 | |
| 84,877 | | |
$ | 47.79 | |
The following table presents the composition
of options outstanding and exercisable:
Schedule of options outstanding and exercisable | | |
| | | |
| | |
| | | |
| | | |
| |
| | |
| Options Outstanding ** | | |
| Options Exercisable ** | |
Exercise Prices | | |
| Number | | |
Price | | |
| Life* | | |
| Number | | |
Price* | |
$67.50 | | |
| 891 | | |
$67.50 | | |
| 0.50 | | |
| 891 | | |
$67.50 | |
$72.50 | | |
| 2,125 | | |
$72.50 | | |
| 3.86 | | |
| 2,125 | | |
$72.50 | |
$106.50 | | |
| 6,848 | | |
$106.50 | | |
| 5.48 | | |
| 6,848 | | |
$106.50 | |
$69.75 | | |
| 30,888 | | |
$69.75 | | |
| 6.98 | | |
| 22,125 | | |
$69.75 | |
$44.75 | | |
| 7,850 | | |
$44.75 | | |
| 7.71 | | |
| 4,025 | | |
$44.75 | |
$30.25 | | |
| 15,575 | | |
$30.25 | | |
| 8.70 | | |
| 11,682 | | |
$30.25 | |
$9.90 | | |
| 2,000 | | |
$9.90 | | |
| 9.44 | | |
| – | | |
$9.90 | |
$6.25 | | |
| 18,700 | | |
$6.25 | | |
| 9.96 | | |
| – | | |
$6.25 | |
Total - December 31, 2023 | | |
| 84,877 | | |
| | |
| | | |
| 47,696 | | |
| |
________________________
* |
Price and Life reflect the weighted average exercise price and weighted average remaining contractual life, respectively. |
** |
The Company’s options summarized above have been retroactively restated
for the effect of the 25-for-1 reverse stock split. |
During the year ended December 31, 2023, the Company
granted 26,708 stock options to certain executives and key employees. Under the terms of the option agreements, the options are subject
to certain vesting requirements.
The assumptions used in the Black-Scholes valuation
method for these options which were issued in 2023 is as follows:
Schedule of assumptions |
|
|
Risk free interest rate |
|
3.76% - 4.24% |
Expected term (years) |
|
6.22 - 6.38 |
Expected volatility |
|
77% - 8.8% |
Expected dividends |
|
0% |
These assumptions listed above for 2023 were derived
using i) the risk free interest rate published by the federal reserve on the date of grant, ii) the expected term used is the average
of the contractual term plus the weighted average vesting term, iii) the volatility was derived using rates from third-party valuation
reports of other financial instruments for the applicable quarter and iv) the expected dividends rate used is taken from the applicable
option award agreement.
Restricted Stock Units
The following table presents the activity for
restricted stock units outstanding:
Schedule of restricted stock units outstanding | |
| | | |
| | |
| |
Restricted
Stock Units | | |
Weighted Average
Grant Date
Fair Value | |
Outstanding - December 31, 2021 | |
| 16,980 | | |
$ | – | |
Granted | |
| 11,319 | | |
| – | |
Forfeited/canceled | |
| (1,815 | ) | |
| – | |
Exercised | |
| (3,930 | ) | |
| 44.75 | |
Outstanding - December 31, 2022 | |
| 22,554 | | |
$ | 53.61 | |
Granted | |
| 1,500 | | |
| 31.00 | |
Forfeited/canceled | |
| (4,734 | ) | |
| 45.66 | |
Exercised | |
| (7,830 | ) | |
| 45.66 | |
Outstanding - December 31, 2023 | |
| 11,490 | | |
$ | 59.36 | |
During the year ended December 31, 2023, the Company
granted 1,500 restricted stock units. Under terms of the restricted stock agreements, the restricted stock units are subject to certain
vesting requirements.
The Company recognized share-based compensation
expense related to stock options and restricted stock units of $1,025,420 and $1,001,889 for the years ended December 31, 2023 and 2022,
respectively. The remaining unvested share-based compensation expense of $717,274 is expected to be recognized over the next 48 months.
Note 7 – Equity Financings
Equity Line Sales
of Common Stock
On November 14, 2022,
the Company entered into a Common Stock Purchase Agreement (the “White Lion Purchase Agreement”) with White Lion Capital,
LLC, a Nevada limited liability company (“White Lion”) for an equity line facility.
In April 2023 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 94,461 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
100,068 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 189,400 shares
of common stock in a registered public offering with net proceeds of $2.7 million.
Replacement Equity
Line with White Lion
On November 6, 2023, the Company entered into
a new Common Stock Purchase Agreement and a related registration rights agreement with White Lion. Pursuant to the new Common Stock Purchase
Agreement, the Company has the right, but not the obligation to require White Lion to purchase, from time to time until December 31, 2024,
up to $10,000,000 in aggregate gross purchase price of newly issued shares of the Company’s common stock, subject to certain limitations
and conditions set forth in the Common Stock Purchase Agreement. In connection with the new Common Stock Purchase Agreement, the parties
agreed to terminate the previous Common Stock Purchase Agreement with White Lion. See Note 10 for subsequent activity related to the equity
line with White Lion.
Warrants
The following table presents the activity for
warrants outstanding:
Schedule of
warrants outstanding | |
| | | |
| | |
| |
Warrants | | |
Weighted Average Exercise Price | |
Outstanding – December 31, 2021 | |
| 166,890 | | |
$ | 120 | |
Granted | |
| 12,000 | | |
$ | 52.50 | |
Forfeited/cancelled/restored | |
| – | | |
$ | – | |
Exercised | |
| (6 | ) | |
$ | 21.75 | |
Outstanding - December 31, 2022 | |
| 178,884 | | |
$ | 115.50 | |
Granted | |
| 38,000 | | |
$ | 15.25 | |
Forfeited/cancelled/restored | |
| – | | |
$ | – | |
Exercised | |
| – | | |
$ | – | |
Outstanding - December 31, 2023 | |
| 216,884 | | |
$ | 96.00 | |
During the year
ended December 31, 2022, in connection with the issuance of the Prior Note, the Company issued 12,000 warrants to
purchase shares of common stock at the exercise price of $52.50 per share.
During the year ended
December 31, 2022, 6 warrants were exercised using the cashless option into 4 shares of common stock.
During the year ended
December 31, 2023, in connection with the New Note financing, the Company issued 26,000 warrants to purchase shares of common stock at
the exercise price of $15.25 per share.
During the year ended
December 31, 2023, in connection with the modification of the Prior Note, the Company cancelled the original 12,000
common stock warrants and issued 24,000
new common stock warrants at an exercise price of $15.25 per share.
Note
8 – Income Taxes
For the year ended December 31, 2023 and 2022,
the Company recorded no income tax benefit for the net operating losses incurred during the year, due to the uncertainty of realizing
a benefit from those items.
The following is a reconciliation of the statutory
federal income tax rate to the effective tax rate reported in the financial statements:
Schedule of effective income tax rate reconciliation | |
2023 | | |
2022 | |
U.S. federal statutory rate | |
| 21.0 % | | |
| 21.0 % | |
Effects of: | |
| | | |
| | |
State and local taxes, net of federal benefit | |
| 4.5 % | | |
| 4.5 % | |
Prior year true-ups | |
| (1.0)% | | |
| (0.6)% | |
Other | |
| (0.1)% | | |
| (0.5)% | |
Change in valuation allowance | |
| (24.4)% | | |
| (24.4)% | |
Effective rate | |
| – % | | |
| – % | |
Significant components of the Company’s
deferred tax assets as of December 31, 2023 and 2022 are summarized below.
| |
2023 | | |
2022 | |
Deferred tax assets: | |
| | | |
| | |
Federal net operation losses | |
$ | 4,135,331 | | |
$ | 2,324,319 | |
State net operation losses | |
| 713,407 | | |
| 397,846 | |
Stock based compensation | |
| 731,311 | | |
| 618,691 | |
Other assets | |
| 12,773 | | |
| 12,772 | |
Total deferred tax assets | |
| 5,592,822 | | |
| 3,353,628 | |
| |
| | | |
| | |
Deferred income tax liabilities: | |
| | | |
| | |
Capitalized software | |
| (742,450 | ) | |
| (556,492 | ) |
Property & equipment | |
| (4,451 | ) | |
| (10,103 | ) |
Total deferred tax liabilities | |
| (746,901 | ) | |
| (566,595 | ) |
| |
| | | |
| | |
Net deferred tax assets | |
| 4,845,921 | | |
| 2,787,033 | |
| |
| | | |
| | |
Valuation allowance | |
| (4,845,921 | ) | |
| (2,787,033 | ) |
| |
| | | |
| | |
Net deferred tax asset, net of valuation allowance | |
$ | – | | |
$ | – | |
For the year ended December 31, 2023, the Company
has federal and state net operating loss carryforwards of $19,692,052
and $19,692,052,
respectively.
The federal net operating loss carryforwards
do not have an expiration, however, are limited to 80% of the excess of taxable income over the total net operating loss deduction. The
state net operating loss carryforwards will conform to the federal provisions.
After weighing all available positive and negative
evidence for the periods ended December 31, 2023 and 2022, the Company has recorded a valuation allowance of $4,845,921 and $2,787,033,
respectively.
The Company continuously monitors its current
and prior filing positions in order to determine if any unrecognized tax positions should be recorded. The analysis involves considerable
judgement and is based on the best information available. For the periods ended December 31, 2023 and 2022, the Company is not aware
of any positions which require an uncertain tax position liability.
The Company is subject to taxation in the United
States and Colorado. The statute of limitations on the initial tax return filed for 2021 tax year will expire in 2025 for federal and
in 2026 for state jurisdictions.
Note
9 – 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.
Reverse Stock Split
On February 26, 2024, the Company effected
a 1-for-25 reverse stock split of its common stock. The reverse stock split applied to the Company’s outstanding warrants, stock options and
restricted stock units. The number of shares of common stock into which these outstanding securities are convertible or exercisable
were adjusted proportionately as a result of the reverse stock split. The exercise prices of any outstanding warrants or stock
options were also proportionately adjusted in accordance with the terms of those securities and the Company’s equity incentive
plans. All weighted average share amounts have been retroactively adjusted for the reverse stock split.
As of December 31, 2023, and 2022, 265,079
and 252,750,
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 10 – Subsequent Events
Management evaluated
subsequent events and transactions that occurred after the balance sheet date, up to the date that the financial statements were issued.
Based upon this review, other than as set forth below, management did not identify any subsequent events that would have required adjustment
or disclosure in the financial statements.
RFM Acquisition
On January 26, 2024, we entered into a Purchase
Agreement (the “RFM Purchase Agreement”), pursuant to which we agreed to acquire RadioFM (the “RFM Acquisition”),
which is currently a component of both AppSmartz and RadioFM (partnerships under common control). The aggregate consideration for the
RFM Acquisition is $13,000,000 (plus $2,000,000 in contingent consideration if certain post-close milestones are reached), in addition
to the assumption of certain liabilities, as may be adjusted pursuant to the terms of the RFM Purchase Agreement.
In March 2024, the parties mutually agreed to
terminate the RFM Purchase Agreement.
Reverse
Share Split
The Company filed an amendment to its Certificate
of Incorporation with the Secretary of State in Delaware which became effective as of 5:00 P.M. Eastern Time on February 26, 2024. As
a result, every twenty-five (25) issued shares of common stock were automatically combined into one share of common stock.
Shares of the Company’s common stock were
assigned a new CUSIP number (05072K 206) and began trading on a split-adjusted basis on February 27, 2024.
The reverse stock split did not change the authorized
number of shares of the Company’s common stock. No fractional shares were issued and any fractional shares resulting from the reverse
stock split were rounded up to the nearest whole share. Therefore, stockholders with less than 25 shares received one share of stock.
The reverse stock split applied to the Company’s
outstanding warrants, stock options and restricted stock units. The number of shares of common stock into which these outstanding securities
are convertible or exercisable were adjusted proportionately as a result of the reverse stock split. The exercise prices of any outstanding
warrants or stock options were also proportionately adjusted in accordance with the terms of those securities and the Company’s
equity incentive plans.
Equity
Line
From February 15, 2024 through March 19, 2024,
the Company has sold 1,340,000 shares to White Lion for total proceeds of $3,606,508. The Company currently has an effective registration
statement that registers for resale by White Lion up to 765,263 shares of common stock that may be issued to White Lion under the Equity
Line Purchase Agreement. After White Lion has acquired shares under the Equity Line Purchase Agreement, it may sell all, some or none
of those shares. Sales to White Lion by us pursuant to the Equity Line Purchase Agreement may result in substantial dilution to the interests
of other holders of the Company’s common stock.
Nasdaq Compliance
On March 20, 2024, the Company received a letter
from Nasdaq stating it had regained compliance with the minimum bid requirement. The Panel reminded the Company that although it regained
compliance with the minimum bid requirement, it is also required to regain compliance with the equity requirement. Therefore, this matter
will remain open until the Company demonstrates compliance with all requirements.
Operating Lease
On March 25, 2024, the Company entered into a
new 37-month operating lease commencing on April 1, 2024 with two separate two year renewal options. The monthly base rent for months
two through 14 is $2,456, increasing to $3,070 for months 15 through 26, and ending at $3,684 for months 27 through 37.
PART III – EXHIBITS
Exhibit
Number |
|
Description of Document |
Incorporated by reference from Form |
Filing
Date |
Exhibit
Number |
Filed
Herewith |
6.23 |
|
Secured Promissory Bridge Note dated November 14, 2022 |
8-K |
11-14-2022 |
10.1 |
|
6.24 |
|
Common Stock Warrant dated November 14, 2022 |
8-K |
11-14-2022 |
10.2 |
|
6.25 |
|
Security Agreement dated November 14, 2022 |
8-K |
11-14-2022 |
10.3 |
|
6.26 |
|
Common Stock Purchase Agreement, dated November 14, 2022, by and between Auddia Inc. and White Lion Capital LLC |
8-K |
11-14-2022 |
10.4 |
|
6.27 |
|
Common Stock Warrant for 600,000 shares dated April 17, 2023 |
8-K |
04-21-2023 |
10.2 |
|
6.28 |
|
Common Stock Warrant for 650,000 shares dated April 17, 2023 |
8-K |
04-21-2023 |
10.3 |
|
6.29 |
|
Form of 2023 Placement Agency Agreement |
8-K |
06-14-23 |
1.1 |
|
6.30 |
|
Form of Securities Purchase Agreement dated June 13, 2023 between Auddia Inc. and the Investors named therein |
8-K |
06-14-23 |
10.1 |
|
6.31 |
|
Common Stock Purchase Agreement, dated as of November 6, 2023, by and between White Lion Capital, LLC and Auddia Inc. |
8-K |
11-06-23 |
10.1 |
|
6.32 |
|
Registration Rights Agreement, dated as of November 6, 2023, by and between White Lion Capital, LLC and Auddia Inc. |
8-K |
11-06-23 |
10.2 |
|
6.33 |
|
Employment Agreement, effective as of November 27, 2023, between Auddia Inc. and John E. Mahoney |
8-K |
12-18-2023 |
10.1 |
|
6.34 |
|
Series A Preferred Securities Purchase Agreement dated November 11, 2023 between Auddia Inc. and Jeffrey Thramann |
8-K |
11-16-2023 |
10.1 |
|
6.35 |
|
Amendment and Waiver dated April 9, 2024 Relating to Senior Secured Bridge Notes |
8-K |
04-15-2024 |
10.1 |
|
6.36 |
|
Form of Securities Purchase Agreement |
10-Q |
05-14-2024 |
10.41 |
|
6.37 |
|
Form of Common Stock Warrant |
8-K |
04-29-2024 |
10.2 |
|
6.38 |
|
Form of Registration Rights Agreement |
8-K |
04-29-2024 |
10.3 |
|
10.1 |
|
Power of Attorney (included on signature page) |
|
|
|
X |
11.1 |
|
Consent of Daszkal Bolton LLP, Independent Registered Public Accounting Firm |
|
|
|
X |
11.2 |
|
Consent of Haynie & Company, Independent Registered Public Accounting Firm |
|
|
|
X |
11.3 |
|
Consent of Carroll Legal LLC (included in Exhibit 12.1) |
|
|
|
X |
12.1 |
|
Opinion of Carroll Legal LLC |
|
|
|
X |
____________________________
+ |
Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish the omitted schedules and exhibits to the Securities and Exchange Commission upon request. |
** |
Certain information contained in this Exhibit has been redacted and appears as “XXXXX” as the disclosure of same would be a disadvantage to the Registrant in the marketplace. |
# |
Indicates management contract or compensatory plan. |
SIGNATURES
Pursuant to the requirements
of Regulation A, the issuer certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form
1-A and has duly caused this offering statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city
of Boulder, in the State of Colorado, on this 26th day of July, 2024.
|
AUDDIA INC. |
|
|
|
|
By: |
|
/s/ Michael Lawless |
|
|
|
Michael Lawless |
|
|
|
Chief Executive Officer |
KNOW
ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael Lawless and John Mahoney
his or her true and lawful attorneys-in-fact and agents, with full power to act separately and full power of substitution and re-substitution,
for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Form 1-A offering
statement, and to file the same with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or his or her substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
This offering statement has
been signed by the following persons in the capacities and on the dates indicated.
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Michael Lawless |
|
President, Chief Executive Officer and Director |
|
July 26, 2024 |
Michael Lawless |
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/ John E. Mahoney |
|
Chief Financial Officer |
|
July 26, 2024 |
John E. Mahoney |
|
(Principal Financial and Accounting Officer) |
|
|
/s/ Jeffrey Thramann |
|
Executive Chairman and Director |
|
July 26, 2024 |
Jeffrey Thramann |
|
|
|
|
|
|
|
|
|
/s/ Stephen Deitsch |
|
Director |
|
July 26, 2024 |
Stephen Deitsch |
|
|
|
|
|
|
|
|
|
/w/ Timothy Hanlon |
|
Director |
|
July 26, 2024 |
Timothy Hanlon |
|
|
|
|
|
|
|
|
|
/s/ Thomas Birch |
|
Director |
|
July 26, 2024 |
Thomas Birch |
|
|
|
|
|
|
|
|
|
Exhibit 4.1
NOTICE TO INVESTORS
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK,
SUITABLE ONLY FOR PERSONS WHO CAN BEAR THE ECONOMIC RISK FOR AN INDEFINITE PERIOD OF TIME AND WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT.
INVESTORS SHOULD FURTHER UNDERSTAND THAT THIS INVESTMENT IS ILLIQUID AND IS EXPECTED TO CONTINUE TO BE ILLIQUID FOR AN INDEFINITE PERIOD
OF TIME.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND
ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND STATE SECURITIES OR
BLUE SKY LAWS. ALTHOUGH AN OFFERING STATEMENT (THE “OFFERING STATEMENT”) HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
(THE “SEC”), THAT OFFERING STATEMENT DOES NOT INCLUDE THE SAME INFORMATION THAT WOULD BE INCLUDED IN A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT. THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, ANY STATE SECURITIES COMMISSION
OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON THE MERITS OF THE OFFERING TO WHICH THIS SUBSCRIPTION
AGREEMENT RELATES OR THE ADEQUACY OR ACCURACY OF THIS SUBSCRIPTION AGREEMENT OR ANY OTHER MATERIALS OR INFORMATION MADE AVAILABLE TO PROSPECTIVE
INVESTORS IN CONNECTION WITH THE OFFERING TO WHICH THIS SUBSCRIPTION AGREEMENT RELATES. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE SECURITIES OFFERED HEREBY CANNOT BE SOLD
OR OTHERWISE TRANSFERRED, EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT. IN ADDITION, THE SECURITIES OFFERED HEREBY CANNOT BE SOLD OR OTHERWISE
TRANSFERRED, EXCEPT IN COMPLIANCE WITH APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS.
TO DETERMINE THE AVAILABILITY OF EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AS SUCH MAY RELATE TO THE OFFERING TO WHICH THIS SUBSCRIPTION AGREEMENT RELATES,
THE COMPANY IS RELYING ON EACH INVESTOR’S REPRESENTATIONS AND WARRANTIES INCLUDED IN THIS SUBSCRIPTION AGREEMENT AND THE OTHER INFORMATION
PROVIDED BY EACH INVESTOR IN CONNECTION HEREWITH.
PROSPECTIVE INVESTORS MAY NOT TREAT THE CONTENTS
OF THIS SUBSCRIPTION AGREEMENT, THE OFFERING CIRCULAR OR ANY OF THE OTHER MATERIALS PROVIDED BY THE COMPANY (COLLECTIVELY, THE “OFFERING
MATERIALS”), OR ANY PRIOR OR SUBSEQUENT COMMUNICATIONS FROM THE COMPANY OR ANY OF ITS OFFICERS, EMPLOYEES OR AGENTS (INCLUDING “TESTING
THE WATERS” MATERIALS), AS INVESTMENT, LEGAL OR TAX ADVICE. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATIONS
OF THE COMPANY AND THE TERMS OF THE OFFERING TO WHICH THIS SUBSCRIPTION AGREEMENT RELATES, INCLUDING THE MERITS AND THE RISKS INVOLVED.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT SUCH INVESTOR’S OWN COUNSEL, ACCOUNTANTS AND OTHER PROFESSIONAL ADVISORS AS TO INVESTMENT,
LEGAL, TAX AND OTHER RELATED MATTERS CONCERNING SUCH INVESTOR’S PROPOSED INVESTMENT IN THE COMPANY.
THE OFFERING MATERIALS MAY CONTAIN FORWARD-LOOKING
STATEMENTS AND INFORMATION RELATING TO, AMONG OTHER THINGS, THE COMPANY, ITS BUSINESS PLAN, ITS OPERATING STRATEGY AND ITS INDUSTRY. THESE
FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF, ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO, THE COMPANY’S
MANAGEMENT. WHEN USED IN THE OFFERING MATERIALS, THE WORDS “ESTIMATE,” “PROJECT,” “BELIEVE,” “ANTICIPATE,”
“INTEND,” “EXPECT” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, WHICH CONSTITUTE
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS REFLECT MANAGEMENT’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO
RISKS AND UNCERTAINTIES THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING
STATEMENTS. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON
WHICH THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO REVISE OR UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS
OR CIRCUMSTANCES AFTER SUCH DATE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
SUBSCRIPTION AGREEMENT
This subscription agreement
(the “Subscription Agreement” or the “Agreement”) is entered into by and between Auddia Inc., a Delaware corporation
(the Company), and the undersigned investor (“Investor”), as of the date set forth on the signature page hereto. Any term
used but not defined herein shall have the meaning set forth in the Offering Circular (defined below).
RECITALS
WHEREAS,
the Company is offering for sale a maximum of 28,301,887 shares of its common stock, par value $0.0001 per share (the “Offered
Shares”), pursuant to Tier 2 of Regulation A promulgated under the Securities Act (the “Offering”) at a fixed price
of $1.65 to $3.65 per share (the “Share Purchase Price”), on a best-efforts basis.
WHEREAS, Investor desires to
acquire that number of Offered Shares (the “Subject Offered Shares”) as set forth on the signature page hereto at the Share
Purchase Price.
WHEREAS, the Offering will
terminate at the earliest of: (a) the date on which the maximum offering has been sold, (b) one year from the date of SEC qualification,
or (c) the date on which this offering is earlier terminated by us, in our sole discretion (in each case, the “Termination Date”).
NOW, THEREFORE, for and in
consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto do hereby agree as follows:
1.
Subscription.
(a)
Investor hereby irrevocably subscribes for, and agrees to purchase, the Subject Offered Shares set forth on the signature
page hereto at the Share Purchase Price, upon the terms and conditions set forth herein. The aggregate purchase price for the Subject
Offered Shares subscribed by Investor (the “Purchase Price”) is payable to the Company in the manner provided in Section 2(a).
(b)
Investor understands that the Offered Shares are being offered pursuant to the Offering Circular dated ___, 2024, and
its exhibits, as supplemented from time to time (the “Offering Circular”), as filed with the SEC. By subscribing for the Subject
Offered Shares, Investor acknowledges that Investor has received and reviewed a copy of the Offering Circular and any other information
required by Investor to make an investment decision with respect to the Subject Offered Shares.
(c)
This Subscription Agreement may be accepted or rejected in whole or in part, for any reason or for no reason, at any
time prior to the Termination Date, by the Company in its sole and absolute discretion. The Company will notify Investor whether this
Subscription Agreement is accepted or rejected. If rejected, Investor’s payment shall be returned to Investor without interest and
all of Investor’s obligations hereunder shall terminate, except for Section 5 hereof, which shall remain in force and effect.
(d)
The terms of this Subscription Agreement shall be binding upon Investor and Investor’s permitted transferees,
heirs, successors and assigns (collectively, the “Transferees”); provided, however, that for any such transfer to be
deemed effective, the proposed Transferee shall have executed and delivered to the Company, in advance, an instrument in form acceptable
to the Company in its sole discretion, pursuant to which the proposed Transferee shall acknowledge and agree to be bound by the representations
and warranties of Investor and the terms of this Subscription Agreement. No transfer of this Agreement may be made without the consent
of the Company, which consent may be withheld by the Company in its sole and absolute discretion.
2.
Payment and Purchase Procedure. The Purchase Price shall be paid simultaneously with Investor’s delivery
of this Subscription Agreement. Investor shall deliver payment of the Purchase Price of the Subject Offered Shares in the manner set forth
in Section 8 hereof. Investor acknowledges that, in order to subscribe for Offered Shares, Investor must comply fully with the purchase
procedure requirements set forth in Section 8 hereof.
3.
Representations and Warranties of the Company. The Company represents and warrants to Investor that each of the
following is true and complete in all material respects as of the date of this Subscription Agreement:
(a)
The Company is a corporation duly formed, validly existing and in good standing under the laws of the State of Delaware.
The Company has all requisite power and authority to own and operate its properties and assets, to execute and deliver this Subscription
Agreement, the Subject Offered Shares and any other agreements or instruments required hereunder. The Company is duly qualified and is
authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities
and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do
so would not have a material adverse effect on the Company or its business;
(b)
The issuance, sale and delivery of the Subject Offered Shares in accordance with this Subscription Agreement have been
duly authorized by all necessary corporate action on the part of the Company. The Subject Offered Shares, when issued, sold and delivered
against payment therefor in accordance with the provisions of this Subscription Agreement, will be duly and validly issued, fully paid
and non-assessable; and
(c)
The acceptance by the Company of this Subscription Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of the Company. Upon the Company’s acceptance of this Subscription
Agreement, this Subscription Agreement shall constitute a valid and binding agreement of the Company, enforceable against the Company
in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors’ rights and, (ii) as limited by general principles of equity that restrict
the availability of equitable remedies.
(d)
Assuming the accuracy of Investor’s representations and warranties set forth in Section 4 hereof, no order, license,
consent, authorization or approval of, or exemption by, or action by or in respect of, or notice to, or filing or registration with, any
governmental body, agency or official is required by or with respect to the Company in connection with the execution, delivery and performance
by the Company of this Subscription Agreement except (i) for such filings as may be required under Regulation A or under any applicable
state securities laws, (ii) for such other filings and approvals as have been made or obtained, or (iii) where the failure to obtain any
such order, license, consent, authorization, approval or exemption or give any such notice or make any filing or registration would not
have a material adverse effect on the ability of the Company to perform its obligations hereunder.
(e)
The authorized and outstanding securities of the Company immediately prior to the initial investment in the Offered
Shares is as set forth in the Offering Circular. Except as set forth in the Offering Circular, there are no outstanding options, warrants,
rights (including conversion or preemptive rights and rights of first refusal), or agreements of any kind (oral or written) for the purchase
or acquisition from the Company of any of its securities.
(f)
Complete copies of the Company’s financial statements meeting the requirements of Form 1-A under the Securities
Act (the “Financial Statements”) have been made available to Investor and appear in the Offering Statement. The Financial
Statements are based on the books and records of the Company and fairly present in all material respects the financial condition of the
Company as of the respective dates they were prepared and the results of the operations and cash flows of the Company for the periods
indicated. The auditing firm which has audited the Financial Statements is an independent accounting firm within the rules and regulations
adopted by the SEC.
(g)
Except as set forth in the Offering Circular, there is no pending action, suit, proceeding, arbitration, mediation,
complaint, claim, charge or investigation before any court, arbitrator, mediator or governmental body, or to the Company’s knowledge,
currently threatened in writing (a) against the Company or (b) against any consultant, officer, manager, director or key employee of the
Company arising out of his or her consulting, employment or board relationship with the Company or that could otherwise materially impact
the Company.
4.
Representations and Warranties of Investor. Investor represents and warrants to the Company that each of the
following is true and complete in all material respects as of the date of this Subscription Agreement:
(a)
Requisite Power and Authority. Investor has all necessary power and authority under all applicable provisions
of law to execute and deliver this Subscription Agreement and to carry out the provisions hereof. Upon due delivery hereof, this Subscription
Agreement will be a valid and binding obligation of Investor, enforceable in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights
and (ii) as limited by general principles of equity that restrict the availability of equitable remedies.
(b)
Company Offering Circular; Company Information. Investor acknowledges the public availability of the Offering
Circular which can be viewed on the SEC Edgar Database at www.sec.gov, and that Investor has reviewed the Offering Circular. Investor
acknowledges that the Offering Circular makes clear the terms and conditions of the Offering and that the risks associated therewith are
described. Investor has had an opportunity to discuss the Company’s business, management and financial affairs with management of
the Company and has had the opportunity to review the Company’s operations and facilities. Investor has also had the opportunity
to ask questions of, and receive answers from, the Company and its management regarding the terms and conditions of the Offering. Investor
acknowledges that, except as set forth herein, no representations or warranties have been made to Investor, or to any advisor or representative
of Investor, by the Company with respect to the business or prospects of the Company or its financial condition.
(c)
Investment Experience; Investor Suitability. Investor has sufficient experience in financial and business matters
so as to be capable of evaluating the merits and risks of an investment in the Offered Shares, and to make an informed decision relating
thereto. Alternatively, Investor has utilized the services of a purchaser representative and, together, they have sufficient experience
in financial and business matters so as to be capable of evaluating the merits and risks of an investment in the Offered Shares, and to
make an informed decision relating thereto. Investor has evaluated the risks of an investment in the Offered Shares, including those described
in the section of the Offering Circular entitled “Risk Factors”, and has determined that such an investment is suitable for
Investor. Investor has adequate financial resources for an investment of this character. Investor is capable of bearing a complete loss
of Investor’s investment in the Offered Shares.
(d)
No Registration. Investor understands that the Offered Shares are not being registered under the Securities Act
on the ground that the issuance thereof is exempt under Regulation A promulgated under the Securities Act, and that reliance on such exemption
is predicated, in part, on the truth and accuracy of Investor’s representations and warranties, and those of the other purchasers
of the Offered Shares in the Offering.
Investor further understands
that the Offered Shares are not being registered under the securities laws of any state, on the basis that the issuance thereof is exempt
as an offer and sale not involving a registrable public offering in such state.
Investor covenants not to
sell, transfer or otherwise dispose of any Offered Shares, unless such Offered Shares have been registered under the Securities Act and
under applicable state securities laws or exemptions from such registration requirements are available.
(e)
Illiquidity and Continued Economic Risk. Investor acknowledges and agrees that there is a limited public market
for the Offered Shares and that there is no guarantee that a market for their resale will continue to exist. Investor must, therefore,
bear the economic risk of the investment in the Subject Offered Shares indefinitely and Investor acknowledges that Investor is able to
bear the economic risk of losing Investor’s entire investment in the Subject Offered Shares.
(f)
Valuation; Arbitrary Determination of Share Purchase Price by the Company. Investor acknowledges that the Share
Purchase Price of the Offered Shares in the Offering was set by the Company on the basis of the Company’s internal valuation and
no warranties are made as to value. Investor further acknowledges that future offerings of securities of the Company may be made at lower
valuations, with the result that Investor’s investment will bear a lower valuation.
(g)
Domicile. Investor maintains Investor’s domicile (and is not a transient or temporary resident) at the
address provided herein.
(h)
Foreign Investors. If Investor is not a United States person (as defined by Section 7701(a)(30) of the Internal
Revenue Code of 1986, as amended), Investor hereby represents that Investor is in full compliance with the laws of Investor’s jurisdiction
in connection with any invitation to subscribe for the Offered Shares or any use of this Subscription Agreement, including, without limitation,
(1) the legal requirements within Investor’s jurisdiction for the purchase of the Subject Offered Shares, (2) any foreign exchange
restrictions applicable to such purchase, (3) any governmental or other consents that may need to be obtained, and (4) the income tax
and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale or transfer of the Subject Offered
Shares. Investor’s subscription and payment for and continued beneficial ownership of the Subject Offered Shares will not violate
any applicable securities or other laws of Investor’s jurisdiction.
(i)
Fiduciary Capacity. If Investor is purchasing the Subject Offered Shares in a fiduciary capacity for another
person or entity, including, without limitation, a corporation, partnership, trust or any other juridical entity, Investor has been duly
authorized and empowered to execute this Subscription Agreement and all other related documents. Upon request of the Company, Investor
will provide true, complete and current copies of all relevant documents creating Investor, authorizing Investor’s investment in
the Company and/or evidencing the satisfaction of the foregoing.
5.
Indemnity. The representations, warranties and covenants made by Investor herein shall survive the consummation
of this Subscription Agreement. Investor agrees to indemnify and hold harmless the Company and its officers, directors and agents, and
each other person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, against any and all loss,
liability, claim, damage and expense whatsoever (including, but not limited to, any and all reasonable attorneys’ fees, including
attorneys’ fees on appeal) and expenses reasonably incurred in investigating, preparing or defending against any false representation
or warranty or breach of failure by Investor to comply with any covenant or agreement made by Investor herein or in any other document
furnished by Investor to any of the foregoing in connection with the transaction contemplated hereby.
6.
Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of
the State of New York, applicable to agreements made in and wholly to be performed in that jurisdiction with regards to the choice of
law rules of such state, except for matters arising under the Securities Act or the Securities Exchange Act of 1934, as amended, which
matters shall be construed and interpreted in accordance with such laws.
7.
Notices. Notice, requests, demands and other communications relating to this Subscription Agreement and the transactions
contemplated herein shall be in writing and shall be deemed to have been duly given if and when (a) delivered personally, on the date
of such delivery; or (b) mailed by registered or certified mail, postage prepaid, return receipt requested, in the third day after the
posting thereof; or (c) e-mailed on the date of such delivery to the address of the respective parties as follows, if to the Company,
to Auddia Inc. 1680 38th Street, Suite 130, Boulder, Colorado 80301, Attention: Jeffrey Thramann, Executive Chairman. If to Investor,
at Investor’s address supplied in connection herewith, or to such other address as may be specified by written notice from time
to time by the party entitled to receive such notice. Any notices, requests, demands or other communications by email shall be confirmed
by letter given in accordance with (a) or (b) above.
8.
Purchase Procedure. Investor acknowledges that, in order to subscribe for the Subject Offered Shares, Investor
must, and Investor does hereby, deliver (in a manner described below) to the Company:
(a)
a single executed counterpart of the Subscription Agreement, which shall be delivered to the Company either by (1) physical
delivery to: Auddia Inc. 1680 38th Street, Suite 130 Boulder, Colorado 80301, Attention: Jeffrey Thramann, Executive Chairman; (2) e-mail
to: jeff@thramann.com; and
(b)
payment of the Purchase Price, which shall be delivered in the manner set forth in Annex I attached hereto and made
a part hereof.
9.
Miscellaneous. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter,
singular or plural, as the identity of the person or persons or entity or entities may require. Other than as set forth herein, this Subscription
Agreement is not transferable or assignable by Investor. The representations, warranties and agreements contained herein shall be deemed
to be made by, and be binding upon, Investor and Investor’s heirs, executors, administrators and successors and shall inure to the
benefit of the Company and its successors and assigns. None of the provisions of this Subscription Agreement may be waived, changed or
terminated orally or otherwise, except as specifically set forth herein or except by a writing signed by the Company and Investor. In
the event any part of this Subscription Agreement is found to be void or unenforceable, the remaining provisions are intended to be separable
and binding with the same effect as if the void or unenforceable part were never in this Subscription Agreement. This Subscription Agreement
supersedes all prior discussions and agreements between the Company and Investor, if any, with respect to the subject matter hereof and
contains the sole and entire agreement between the Company and Investor with respect to the subject matter hereof. The terms and provisions
of this Subscription Agreement are intended solely for the benefit of each party hereto and their respective successors and assigns, and
it is not the intention of the parties to confer, and no provision hereof shall confer, third-party beneficiary rights upon any other
person. The headings used in this Subscription Agreement have been inserted for convenience of reference only and do not define or limit
the provisions hereof. In the event that either party hereto shall commence any suit, action or other proceeding to interpret this Subscription
Agreement, or determine to enforce any right or obligation created hereby, then such party, if it prevails in such action, shall recover
its reasonable costs and expenses incurred in connection therewith, including, but not limited to, reasonable attorneys’ fees and
expenses and costs of appeal, if any. All notices and communications to be given or otherwise made to Investor shall be deemed to be sufficient
if sent by e-mail to such address provided by Investor herein. Unless otherwise specified in this Subscription Agreement, Investor shall
send all notices or other communications required to be given hereunder to the Company via e-mail at jeff@thramann.com. Any such notice
or communication shall be deemed to have been delivered and received on the first business day following that on which the e-mail has
been sent (assuming that there is no error in delivery). As used in this Section 9, the term “business day” shall mean any
day other than a day on which banking institutions in The City of New York are legally closed for business. This Subscription Agreement
may be executed in one or more counterparts. No failure or delay by any party in exercising any right, power or privilege under this Subscription
Agreement shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive
of any rights or remedies provided by law.
10.
Consent to Electronic Delivery of Notices, Disclosures and Forms. Investor understands that, to the fullest extent
permitted by law, any notices, disclosures, forms, privacy statements, reports or other communications (collectively, “Communications”)
regarding the Company, Investor’s investment in the Company and the Subject Offered Shares (including annual and other updates and
tax documents) may be delivered by electronic means, such as by e-mail. Investor hereby consents to electronic delivery as described in
the preceding sentence. In so consenting, Investor acknowledges that e-mail messages are not secure and may contain computer viruses or
other defects, may not be accurately replicated on other systems or may be intercepted, deleted or interfered with, with or without the
knowledge of the sender or the intended recipient. Investor also acknowledges that an e-mail from the Company may be accessed by recipients
other than Investor and may be interfered with, may contain computer viruses or other defects and may not be successfully replicated on
other systems. Neither the Company, nor any of its respective officers, directors and affiliates, and each other person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act (collectively, the “Company Parties”), gives any warranties
in relation to these matters. Investor further understands and agrees to each of the following: (a) other than with respect to tax documents
in the case of an election to receive paper versions, none of the Company Parties will be under any obligation to provide Investor with
paper versions of any Communications; (b) electronic Communications may be provided to Investor via e-mail or a website of a Company Party
upon written notice of such website’s internet address to such Investor. In order to view and retain the Communications, Investor’s
computer hardware and software must, at a minimum, be capable of accessing the Internet, with connectivity to an internet service provider
or any other capable communications medium, and with software capable of viewing and printing a portable document format (“PDF”)
file created by Adobe Acrobat. Further, Investor must have a personal e-mail address capable of sending and receiving e-mail messages
to and from the Company Parties. To print the documents, Investor will need access to a printer compatible with his or her hardware and
the required software; (c) if these software or hardware requirements change in the future, a Company Party will notify the Investor through
written notification. To facilitate these services, Investor must provide the Company with his or her current e-mail address and update
that information as necessary. Unless otherwise required by law, Investor will be deemed to have received any electronic Communications
that are sent to the most current email address that the Investor has provided to the Company in writing; (d) none of the Company Parties
will assume liability for nonreceipt of notification of the availability of electronic Communications in the event Investor’s e-mail
address on file is invalid; Investor’s e-mail or Internet service provider filters the notification as “spam” or “junk
mail”; there is a malfunction in Investor’s computer, browser, internet service or software; or for other reasons beyond the
control of the Company Parties; and (e) solely with respect to the provision of tax documents by a Company Party, Investor agrees to each
of the following: (1) if Investor does not consent to receive tax documents electronically, a paper copy will be provided, and (2) Investor’s
consent to receive tax documents electronically continues for every tax year of the Company until Investor withdraws its consent by notifying
the Company in writing.
Investor certifies that Investor has read this
entire Subscription Agreement and that every statement made by Investor herein is true and complete.
The Company may not be offering the Offered
Shares in every state. The Offering Materials do not constitute an offer or solicitation in any state or jurisdiction in which the Offered
Shares are not being offered. The information presented in the Offering Materials was prepared by the Company solely for the use by prospective
investors in connection with the Offering. Nothing contained in the Offering Materials is or should be relied upon as a promise or representation
as to the future performance of the Company.
The Company reserves the right, in its sole
discretion and for any reason whatsoever, to modify, amend and/or withdraw all or a portion of the Offering and/or accept or reject, in
whole or in part, for any reason or for no reason, any prospective investment in the Offered Shares. Except as otherwise indicated, the
Offering Materials speak as of their date. Neither the delivery nor the purchase of the Offered Shares shall, under any circumstances,
create any implication that there has been no change in the affairs of the Company since that date.
[ SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the undersigned
has executed this Subscription Agreement on the date set forth below.
Dated: ______________.
INDIVIDUAL INVESTOR |
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________________________________________
(Signature) |
________________________________________
(Subscription Amount) |
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________________________________________
(Printed Name) |
________________________________________
(Number of Offered Shares Subscribed) |
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CORPORATION/LLC/TRUST INVESTOR |
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________________________________________
(Name of Corporation/LLC/Trust) |
________________________________________
(Subscription Amount) |
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________________________________________
(Signature) |
________________________________________
(Number of Offered Shares Subscribed) |
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________________________________________
(Printed Name) |
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________________________________________
(Title) |
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PARTNERSHIP INVESTOR |
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________________________________________
(Name of Partnership) |
________________________________________
(Subscription Amount) |
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________________________________________
(Signature) |
________________________________________
(Number of Offered Shares Subscribed) |
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________________________________________
(Printed Name) |
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________________________________________
(Title) |
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INVESTOR INFORMATION
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Name of Investor
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SSN or EIN |
Street Address
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City
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State |
Zip Code |
Phone
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E-mail |
State/Nation of Residency |
Name and Title of Authorized Representative, if investor is an entity or custodial account
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Type of Entity or Custodial Account (IRA, Keogh, corporation, partnership, trust, limited liability company, etc.)
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Jurisdiction of Organization
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Date of Organization |
Account Number |
CHECK ONE:
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_____ Individual Investor |
_____ Custodian Entity |
_____ Tenants-in-Common* |
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_____ Community Property* |
_____ Corporation |
_____ Joint Tenants* |
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_____ LLC |
_____ Partnership |
_____ Trust |
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*If the Subject Offered Shares are intended to be held as
Community Property, as Tenants-In-Common or as Joint Tenancy, then each party (owner) must execute this Subscription Agreement. |
The foregoing subscription for ________________
Offered Shares, a Subscription Amount of $____________, is hereby accepted on behalf of Auddia Inc. a Delaware corporation, this ___
day of ____, 202___.
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AUDDIA INC. |
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By: _____________________________________ |
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Jeffrey Thramann |
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Executive Chairman |
ANNEX I
WIRE INSTRUCTIONS – AUDDIA INC.
Exhibit 11.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
We consent to the inclusion in this Offering Statement
on Form 1-A of our report dated March 20, 2023, with respect to the financial statements of Auddia Inc. as of December 31, 2022 and for
the year then ended. Our audit report includes an explanatory paragraph relating to Auddia Inc.’s ability to continue as a going
concern.
We also consent to the reference to our firm under
the caption “Experts”.
/s/ Daszkal Bolton LLP
Boca Raton, Florida
July 26, 2024
Exhibit 11.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
We hereby consent to the use of our report dated April 1, 2024, on the financial statements of Auddia, Inc. as of December 31, 2023 and
for the year then ended included herein on the Regulation A Offering Circular of Auddia, Inc. on Form 1-A and to the reference to our
firm under the heading “Experts”.
/s/ Haynie & Company
Salt Lake City, Utah
July 26, 2024
Exhibit 12.1
Carroll Legal LLC
1449 Wynkoop Street
Suite 507
Denver, CO 80202
July 26, 2024
Auddia Inc.
1680 38th Street, Suite 130
Boulder, Colorado 80301
Re: Offering Statement on Form 1-A
Ladies and Gentlemen:
We have acted as special counsel to Auddia Inc., a Delaware corporation
(the “Company”), in connection with the filing of the offering statement (the “Offering Statement”) on Form 1-A
with the Securities and Exchange Commission (the “Commission”) pursuant to Regulation A under the Securities Act of 1933,
as amended (the “Act”).
The Offering Statement relates to the proposed offering and sale of
shares of the Company’s common stock (the “Common Stock”), $0.001 par value per share (the “Common Shares”).
The Common Shares are to be offered and sold in the manner described
in the Offering Statement.
In connection herewith, we have examined the Offering Statement. We
have also examined originals or copies, certified or otherwise identified to our satisfaction, of the Company’s Certificate of Incorporation
and Bylaws (both as amended to date), and such other records, agreements and instruments of the Company, certificates of public officials
and officers of the Company, and such other documents, records and instruments, and we have made such legal and factual inquiries, as
we have deemed necessary or appropriate as a basis for us to render the opinions hereinafter expressed.
In our examination of the foregoing, we have assumed the genuineness
of all signatures, the legal competence and capacity of natural persons, the authenticity of documents submitted to us as originals and
the conformity with authentic original documents of all documents submitted to us as copies or by facsimile or other means of electronic
transmission, or which we obtained from the Commission’s Electronic Data Gathering, Analysis and Retrieval system (“Edgar”)
or other sites maintained by a court or governmental authority or regulatory body and the authenticity of the originals of such latter
documents. If any documents we examined in printed, word processed or similar form has been filed with the Commission on Edgar or such
court or governmental authority or regulatory body, we have assumed that the document so filed is identical to the document we examined
except for formatting changes. When relevant facts were not independently established, we have relied without independent investigation
as to matters of fact upon statements of governmental officials and certificates and statements of appropriate representatives of the
Company.
Based upon the foregoing and in reliance thereon, and subject to the
assumptions, comments, qualifications, limitations and exceptions set forth herein, we are of the opinion, that:
(i) the
Common Shares, when issued against payment therefor as set forth in the Offering Statement, will be validly issued, fully paid and non-assessable.
Our opinions herein reflect only the application of the General Corporation
Law of the State of Delaware. The opinions set forth herein are made as of the date hereof and are subject to, and may be limited by,
future changes in factual matters, and we undertake no duty to advise you of the same. The opinions expressed herein are based upon the
law in effect (and published or otherwise generally available) on the date hereof, and we assume no obligation to revise or supplement
these opinions should such law be changed by legislative action, judicial decision or otherwise. In rendering our opinions, we have not
considered, and hereby disclaim any opinion as to, the application or impact of any laws, cases, decisions, rules or regulations of any
other jurisdiction, court or administrative agency.
We do not render any opinions except as set forth above. We hereby
consent to the filing of this opinion letter as Exhibit 12.1 to the Offering Statement and to the use of our name under the caption “Legal
Matters” in the Offering Statement. We also consent to your filing copies of this opinion letter as an exhibit to the Offering Statement
with agencies of such states as you deem necessary in the course of complying with the laws of such states regarding the offering and
sale of the Common Shares. In giving such consent, we do not thereby concede that we are within the category of persons whose consent
is required under Section 7 of the Act or the rules and regulations of the Commission thereunder.
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CARROLL LEGAL LLC |
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By: |
/s/ James H. Carroll |
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James H. Carroll |
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Managing Member |
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