AUDDIA INC. 10-K

Item 1. Business Overview of Auddia 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 to bring to market two industry first apps, Auddia and Vodacast. Auddia gives consumers the opportunity to listen to any AM/FM radio station with no commercials while personalizing the listening experience through skips, the insertion of on-demand content and the programming of audio routines to customize listening sessions such as a daily commute. The Auddia app represents the first time consumers can access the local content uniquely provided by radio in the commercial free and personalized manner many consumers have come to demand for media consumption. Vodacast is a podcasting app that provides an interactive digital feed to supplement podcast audio with additional content to tell deeper stories and give podcasters access to digital revenue for the first time. Vodacast is also introducing a new payments platform that allows consumers to make on-demand micropayments to enjoy any podcast episode commercial free, without needing to be a subscriber. Both of Auddia’s offerings address large and rapidly growing audiences. The Company has developed its AI platform on top of Google’s TensorFlow open source library that is being “taught” to know the difference between all types of audio content on the radio. For instance, the platform recognizes the difference between a commercial and a song and is learning the differences between all other content to include weather reports, traffic, news, sports, DJ conversation, etc. Not only does the technology learn the differences between the various types of audio segments, it also identifies the beginning and end of each piece of content. The Company is leveraging this technology platform to bring to market a premium AM/FM radio listening experience through the Auddia App. The Auddia App is intended to be downloaded by consumers who will pay a subscription fee in order to listen to any streaming AM/FM radio station without commercials. Advanced features will allow consumers to skip any content heard on the station, request audio content on-demand, and program an audio routine. We believe the Auddia App represents a significant differentiated audio streaming product that will be the first to come to market since the emergence of popular streaming music apps such as Pandora, Spotify, Apple Music, Amazon Music, etc. We believe that the most significant point of differentiation is that in addition to music, the Auddia App is intended to deliver non-music content that includes local sports, news, weather, traffic and the discovery of new music. Radio is the dominant audio platform for local content and new music discovery. The Company commissioned research to establish subscription pricing in accordance with an industry standard pricing analysis. Results of the research, which included nearly 2,000 responses, suggested $12/month as the optimal price to maximize revenue and indicated that 29% of respondents were at least likely to subscribe to the product. The majority of respondents who self-identified as being listeners to paid services such as SiriusXM and streaming music providers indicated a likely intent to purchase. We believe this implies a preference for the local content inherent in AM/FM broadcasting. The Company is currently finalizing development and testing of the minimally viable product (“MVP”) version of the Auddia App and expects to initiate the first consumer pilots in the second quarter of 2021 with a full commercial launch to follow later in 2021. The Company has also developed a new podcasting platform called Vodacast. The platform is unique in that it is designed to add new monetization channels for podcasters while delivering a superior content experience for listeners. Vodacast leverages technologies and proven product concepts from the Company’s previously developed and deployed platform to deliver on these objectives for the radio industry. 1 With podcasting growing and predicted to grow at a rapid rate, Vodacast was conceptualized to fill a void in this emerging audio media space. Vodacast aims to be the preferred podcasting solution for podcasters by offering a platform that allows podcasters to deliver digital content feeds that match the audio of their podcast episodes, and by enabling podcasters to make additional revenue from new digital advertising channels; subscription channels; on-demand fees for exclusive content; and through direct donations from their listeners. Today, podcasters do not have a preference as to where their listeners access their episodes, as virtually all listening options (mobile apps and web players) deliver only their podcast audio. By creating a platform on which they can make net new and higher margin revenue, we believe that podcasters will promote Vodcast to their listeners, thus creating a powerful, organic marketing dynamic. A primary feature of the Vodacast platform is a synchronized digital feed that listeners can view and interact with and which accompanies each episode. Podcasters and their digital teams will be able to build these interactive feeds using The Vodacast Hub, a content management system that also serves as a tool to plan and manage a podcast episode. The digital feed activates a new digital ad channel that turns every audio ad into a direct-response digital ad, increasing the effectiveness and value of their established audio ad model. The feed also presents a richer listening experience, as any element of a podcast episode can be supplemented with images, videos, text copy and web links. This feed appears fully synchronized in the Vodacast mobile app, and it can also be hosted and accessed independently (e.g., through any browser), making the content feed universally distributable. Vodacast will also introduce an 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, but it 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. Vodacast mobile apps are available today through the iOS and Android app stores. History of Auddia The Company was originally formed in 2012 as Clip Interactive, LLC to provide the broadcast radio industry with digital consumer products (mobile apps and web applications) that increased radio listener engagement and generated new revenue for radio stations from digital ads synchronized to the audio ad. In late 2017 the Company recognized a need to provide the radio industry with a new capability that would allow for a more efficient business model, similar to the subscription models that had emerged for music and video through companies like Apple, Spotify, SiriusXM and NetFlix. The Company began to conceptualize what would become Auddia, a commercial-free subscription platform for broadcasters and radio listeners. Management of the Company commenced evaluating essential aspects of the opportunity such as technical feasibility, consumer viability, basic economics, intellectual property matters and basic legality. The Company’s Executive Chairman, Chief Executive Officer and Chief Technology Officer all have experience in performing similar assessments for consumer facing products in various industries, including elections, gaming, secure document processing, and digital advertising. Further, our Executive Chairman has extensive experience developing strategy and determining business viability of products in the several previous companies that he founded. Management’s assessment also included metrics from subscription platforms for broadcast audio content, which show that consumers are willing to pay a subscription fee for commercial-free audio content. For example, SiriusXM, Inc. offers a service that demonstrates the viability of a commercial-free broadcast audio product that is purchased by consumers, in their case, for an average $13 (estimated) per month. SiriusXM has 34.9 million subscribers (end of 2019) at this average price point. SiriusXM does not offer the local content and personalities that local broadcast radio exclusively delivers. In early 2018 and over the period of next year, management analyzed and assessed the commercial viability of the proposed Auddia platform to determine whether a subscription-based commercial free radio service would generate consumer interest. This assessment was based upon: (a) the Company’ experience in having developed, deployed and operated over 580 mobile apps for broadcast radio companies over the last seven years; (b) discussions of the Auddia concept with radio industry leaders, most of whom were our current or previous customers; (c) discussions with radio industry analysts; and (d) research into the state of broadcast and subscription radio industries. As part of the management assessment, in January of 2019, we commenced discussions with a Harris Insights and Analytics, LLC (“Harris”), to assist management in gauging consumer response to our planned service, and in March of 2019 we commissioned Harris to conduct a survey. The results of that survey, when integrated with our internally developed analysis, supported our conclusion of consumer interest and viability of the product. Harris asked consumers to answer a variety of questions exploring their interest in such a service; how much they would be willing to pay; and several other related topics. Our interpretation of the results of the survey, also supported our assessment that consumers will continue to listen to local radio channels, and they are willing to pay a monthly subscription fee to avoid commercials. 2 Based upon management’s analysis, the above discussions, and industry research, the Company concluded that a subscription product for local radio’s audio content, where commercials are removed, was of great interest to the radio broadcast industry. Further, the Company also concluded that consumers would be interested in subscribing to commercial free local audio content that only local radio produces and broadcasts, and that Auddia would have commercial viability. The Company’s Vodcast platform was conceptualized during this transition period described above, when management recognized the opportunity to leverage previously developed technology and mobile app capabilities to provide products to podcasters and podcast listeners in the burgeoning podcasting space. Having provided interactive digital content feeds for radio stations for several years, a similar product for podcasting was explored. The Company presented a product concept to podcasters and podcaster “rep firms” and sufficient interest from those explorations warranted the development of a minimally viable mobile app product, branded Vodacast. Eventually, with further support and interest from prospect podcasters and listeners, the product was expanded to include both iOS and Android mobile apps and the development of the Vodcast Hub, which is the platform’s content management system. The Company is poised to execute early, small-scale marketing trials in which podcasters will promote the Vodcast mobile app to their listeners via the audio of their podcast episodes. The incentive for podcasters to promote Vodacast comes from the monetization features that are inherent on the platform, where podcasters understand that a “download” or unique listening session generates more revenue for podcasters when it occurs on the Vodcast mobile app. The expectation is that listeners will convert at sufficiently high rates to justify wide scale launch and broad promotion by podcasters. Overview of the Evolving Audio Ecosystem and the Positioning of AM/FM Broadcast Radio We believe that audio as a medium is experiencing a renaissance as advanced artificial intelligence capabilities such as voice recognition are ushering in an era where voice is becoming the most efficient interface to interact with audio and video content. Historically, audio has been a passive medium where content is selected by a professional program director and delivered to large audiences who have no choice in personalizing the delivered content. But audio is now transitioning to an active medium where consumers can interact with streaming content through advanced algorithms and feedback mechanisms that include skipping content, providing thumbs up and thumbs down input, sharing content socially, creating playlists, following other playlists and customizing the programming of content routines for specific parts of the day through smart speakers like Alexa ( e.g., providing a morning routine). Advanced artificial intelligence capabilities are facilitating these new capabilities and accelerating the trend towards consumer consumption of on-demand personalized content. To support this trend, audio content needs to be understood, indexed, stored and made retrievable through search methods so it can be provided to consumers when they ask for particular content. Broadcast radio remains the dominant force in audio. The 2018 Share of Ear Study shows broadcast radio with a 46% share of listening and the next most popular form of listening being streaming audio at 14%. Although AM/FM radio continues to dominate audio listening, streaming audio is the fastest growing segment according to Share of Ear studies going back to 2014. We believe streaming audio will continue to grow as on-demand content in the form of streaming music podcasting, short-form audio and other emerging formats of audio content become more prevalent and artificial intelligence technologies facilitate the introduction of new and improved listening experiences. As streaming audio has demonstrated its growth trajectory, AM/FM radio has responded by streaming their radio stations but with, we believe, very little success in comparison to the streaming music players as measured by consumer listening. Most common streaming platforms in the U.S. offer a paid subscription model to eliminate or reduce advertisements during the listening experience. With very few exceptions, AM/FM radio has not adopted this model to date. Most AM/FM streams are simulcasts of the on-air station and carry the same advertisement load as the on-air product. In 2018, the average advertisement load was 16.1 minutes per hour. This means that if these 16.1 minutes were filled with the common 30-second spot, this would equate to 32 advertisements per hour. Given that the free ad-supported tiers of the music streaming services commonly limit ads to 4 per hour, a streaming service with 32 audio ads per hour is more disruptive to the content listening experience. We believe the combination of AM/FM radio’s advertisement load and the inability for listeners to skip content or request on-demand content in an AM/FM radio stream is the main reason broadcast radio is not gaining ground in the audio streaming market relative to the other music players. 3 The Company believes the Auddia App will give subscribers the technology solution they need to enjoy the local content presented by AM/FM radio while not only avoiding the interruption of 16.1 minutes of ads per hour, but also personalizing the listening experience with skips and on-demand content. We believe the Auddia App represents the consumer product broadcast radio needs to maintain or expand the lead it currently enjoys from a time spent listening perspective. Overview of Podcasting in the Audio Ecosystem Another area of significant change within the broader audio ecosystem, we believe, is that podcasting is an emerging new type of audio media and that there are opportunities to develop new forms of content consumption, distribution, and monetization around this new form of audio media. With more than 100 million monthly listeners in the U.S., podcasting has exploded within a relatively short period of time. Yet the core offering of a podcast is still very basic, including only audio content for the listener and leveraging audio advertising (embedded within the podcast episode content) as the primary and often exclusive mechanism for generating revenue. Like AM/FM radio, podcasting is ripe for disruption by third parties that bring new and expanded revenue models to the industry. Additionally, we believe podcasting is still in its infancy and because of that, opportunities exist to improve the overall media creation and consumption experience for podcasters and listeners alike, and that these improvements can create new channels of revenue for content creators. By leveraging more than six years of experience delivering synchronized digital content feeds for radio stations through their mobile apps and web players, the Company believes that basic podcasting audio, as a generic form of audio media, can be enhanced to provide a better content experience for listeners while providing a more robust platform on which podcasters as content creators can more effectively monetize their work. Software Products and Services The Auddia App The Auddia App is our flagship product and is expected to generate the majority of the Company’s future revenue. How the Auddia App Works An Auddia subscriber will select a specific streaming radio station to record and be able to listen to that station without commercials. The Auddia App will record the station in real time and the App’s AI algorithm will identify the beginning and end of audio content segments as well as other content, including commercials. When the recorded station is played back by the Auddia App subscriber, the Auddia App will cover the commercial segments with other content such as additional music. The Company is developing strategies and content relationships to access additional content sources to cover commercials and respond to skips across other content platforms such as sports, news, talk and weather. As the audio content ecosystem continues to expand, the Company believes Auddia will represent an attractive distribution platform for content providers. There is no guarantee the audio content ecosystem will continue to expand along its current trajectory or that the Company will be able to secure access to content in an economically advantageous manner, both of which would negatively impact the user experience within Auddia. The Company has not yet secured the rights from content providers to place any audio content into the Auddia platform in an on-demand use case. The Auddia App is built on a proprietary artificial intelligence platform developed and owned by the Company and subject to one issued patent and additional patent applications that are pending. Copyright Law The Company does not believe it requires direct licensing with copyrighted, primarily music, content. This is because the Auddia App will not “play” any music. Rather, the Auddia App subscriber will choose the public URL of a radio station that is already paying the music industry or other content providers the statutory rate for radio set by the Copyright Review Board. As such, direct licensing with the music groups and other copyrighted content is not required. 4 The Auddia App’s architecture presents a built-in digital audio recorder (“DAR”) to take advantage of the “Fair Use” exemption to the copyright laws. The Fair Use doctrine was established by Sony Corp. of America v. Universal City Studios, Inc. , 464 U.S. 417 (1984), also known as the “Betamax case”, is a decision by the Supreme Court of the United States which ruled that the making of individual copies of complete television shows by recording television content, for purposes of time shifting, does not constitute copyright infringement, but is “Fair Use”. The Court also ruled that the manufacturers of home video recording devices, such as Betamax or other Video Tape Recorders, cannot be liable for infringement. Auddia App’s DAR is analogous to how Digital Video Recording (“DVR”) technology leverages the Fair Use exemption to allow users to record broadcast television shows. With the Auddia App’s DAR, users are selecting radio stations to record and utilizing technology within the Auddia App to cover commercials with additional content. Case law further supporting the Fair Use exemption for DVR has been established through the case of Fox Broadcasting v. Dish Network L.L.C. ,723 F.3d 1067 (9th Cir. 2013), where it was held that as to a direct copyright infringement claim, the record did not establish that the provider, rather than its customers, made copies of television programs for viewing. Further, the broadcaster did not establish a likelihood of success on its claim of secondary infringement because, although it established a prima facie case of direct infringement by customers, the television provider showed that it was likely to succeed on its affirmative defenses that the customers' copying was a “fair use". Although the personal use exemption has been consistently upheld by the Supreme Court, there is no guarantee the exemption will not be challenged. Vodacast Vodacast is an interactive podcasting platform (the “Vodacast App”) the Company is building that will allow podcasters to give their audiences an interactive audio experience. Podcast listeners will be able to see video and other digital content that correlates with the podcast audio and is presented to the listener as a digital feed within the Vodacast App. All content presented in the digital feed can be synched to the podcast audio content. This allows podcast listeners to visually experience and interact with audio content in podcasts. Much of the core technology we use in Vodacast to create the feed of digital content synchronized to the audio content of the podcast is based on the core technology and product concepts the Company has used historically to provide synchronized digital feeds to over 580 radio stations. Additional technology needs to be built to fully develop the Vodacast user interface and distributed content management system. Vodacast introduces a new digital revenue stream to podcasters, such as synchronized digital advertising while providing end users a new digital content channel that compliments the core audio channel of the podcast. Below are hypothetical screenshots for a generic Podcast. The image on the left is an example of a show feed while the image on the right is an example of an episode feed. Within the episode feed, digital ads can be placed to drive revenue. Business Model and Customer Acquisition Strategy for Auddia and Vodacast The Company has a seven-year plus history of working closely with the broadcast radio industry in the United States to help the industry adapt to both digital advertising and digital media technologies. After the Company filed initial patent applications on the artificial intelligence technology for Auddia technology in January of 2018, we researched the value of the Auddia App and the importance of subscription revenue and interacted with several leading broadcasters. Based on these continuing interactions with numerous broadcast radio groups, the Company believes we will be able to utilize our existing relationships with broadcast radio to drive customer acquisition for the Auddia App. Recently the Company announced its first broadcast radio partnership. Radio stations owned by broadcasters will be economically incentivized to promote the Auddia App to their listeners. We intend to leverage subscription revenue to compensate radio broadcasters for promotional support, their increased music streaming fees and access to their local content. We believe that if broadcasters can generate increased revenue from their content, they can decrease their on-air advertising load while increasing the price paid for each commercial, as the commercial is more likely to be heard by consumers in a less cluttered advertising environment. In addition, we intend to offer tiered subscriptions to the Auddia App where lower priced subscriptions allow a small number of advertisements. These advertisements can be targeted better than on-air ads and therefore can attract higher rates if there is a large enough audience to be targeted. 5 Our business model is based on creating a pool of subscription and advertising revenue across all streaming stations utilizing the Auddia platform. This subscription pool, less radio station advertising costs and increased music streaming fees, is expected to be shared with radio stations based on the time each listener spends listening to a station on the Auddia App. We believe this business model will result in broadcasters promoting the listening of their stations on the Auddia App, similar to how radio stations are currently using air time to promote the listening of their stations on Alexa and other smart speaker systems. The Company expects radio promotion will result in an efficient customer acquisition cost in comparison to other subscription audio services. The Vodacast platform will be marketed to podcasters and podcasting companies with business-to-business strategies that focus on communicating the value propositions of the Vodacast platform. The potential to earn new, incremental revenue on the Vodacast platform, in addition to the other key value propositions of the platform, is expected to organically drive podcasters to promote the platform directly to their listeners. Direct-to-consumer marketing will be done in partnership with podcasters who leverage their audio content programs to promote to their established audiences. As is the case with other proven marketing strategies, we intend to have our partners benefit from a participative revenue share, higher ad revenue, and higher margins on advertising through the Vodacast platform. Our Legacy Interactive Radio Platform From 2014 through 2020, the Company was successful in deploying our platform across 580 major radio stations and 1.6 million monthly active users. Although this represents a meaningful user base, it is a small fraction of the listening audience represented by the 580 stations on the Company’s platform. We believe the two main reasons radio was not able to drive more users to the platform are that the number of consumers willing to download an individual radio station app is small and that to appeal to a greater digital audience the core listening experience of radio needs to incorporate a premium offering that includes skips, on-demand content and a commercial-free option. The Company’s legacy product served the broadcast industry by providing a platform that allows for the delivery of actionable digital ads that are synchronized with broadcast and streaming audio ads. Broadcasters offered mobile and web digital interfaces to their listeners, typically for their individual stations. Our Interactive Radio Platform provides mobile and web products that provided end users (listeners) with a visual display of everything a radio station has played in recent history (referred to as a “station feed”). In addition to displaying album art for songs played, and digital insertions for station promotions and programs (e.g., a radio station contest), the station feed also includes a digital element for each audio ad that was played. These interactive, synchronized digital ads generate additional revenue for broadcasters and allow for the collection of meaningful advertising analytics which we present to broadcasters through an analytics dashboard. The Company began phasing out the Interactive Radio Platform in 2020 and ceased operations related to all legacy deployments and services by July 1, 2020. Much of the core technology of this platform is being leveraged for re-use with our new products, Auddia and Vodacast, currently under development. Furthermore, our well established relationships with more than a dozen broadcasters through the sales, marketing and digital services operations are being maintained as we seek to deploy the Auddia App at national scale. Intellectual Property We rely on a combination of patents, trade secrets, non-disclosure agreements, and other intellectual property to protect the proprietary technologies that we believe are important to our business. Our success will depend in part on our ability to obtain and maintain patent and other proprietary protection for commercially important inventions and know-how, defend and enforce our patents, maintain our licenses, preserve our trade secrets, and operate without infringing valid and enforceable patents and other proprietary rights of third parties. We also rely on continuing technological innovation to develop, strengthen, and maintain our proprietary position in the field of interactive audio. The Company holds issued patents and has patents pending in the areas of audio content monitoring, identification, distribution and presentation. The Company’s intellectual property has been used in the development of products that allow broadcasters and audio content distributors to present digital content and supplemental audio and video content along with and even synchronized with their standard audio content. These products introduce new consumer use scenarios, such as offering direct response to audio ads (such as a standard broadcast radio commercial). The products give consumers, via smartphone applications, a mechanism to identify both the content and the source of content and allow the consumer to act on what they may have heard and/or receive additional information about what they heard. 6 On March 12, 2019, the United States Patent and Technology Office issued a patent to the Company (titled “Method and System for Sub-Audible Signaling”) that covers an advanced “watermarking” technology to attach source-attribution information, as well as highly detailed content descriptors into an audio broadcast or stream. We believe this technology improves the state of the art by potentially increasing the amount of information that can be embedded in an audio stream or broadcast, as well as supporting the real time addition of sub-audio information. The Company does not utilize this patent technology in its current products, but the technology may be useful for future products or potential licensing to others. However, there can be no assurance that this patent or the technology underlying the patent will be utilized or licensed by the Company or, even if utilized or licensed, this patented technology will result in revenues or profits. The most recent intellectual property to be submitted for patent application is a set of technologies that are integral to the development and operation of consumer-oriented platform that can deliver commercial free broadcast radio content. These technologies involve distributed content monitoring ( e.g., on the smartphones of consumers) and content identification, including the identification of the beginning and end of specific segments of content, such as a song or an ad. Combining these capabilities with time-shifting and real-time audio content replacement provides the end user with a dynamic, multi-source, commercial free audio content experience that can include the local content heard on the radio as well as any other content available form an accessible source. This intellectual property serves as the cornerstone of the Company’s new focus and allows the Company to eventually expand to provide numerous and various audio content sources on a single platform. In June 2020 the United States Patent and Technology Office approved the first of these patent applications (titled “Seamless Integration of Radio Broadcast Audio with Streaming Audio”) that details a process that can be used to monitor, time shift and play an over the air radio broadcast. This patent will protect key Company functionality that is central to the delivery of our core offering of commercial free radio. For example, using this technology, when a commercial break is detected on the over the air broadcast, alternate content from local or streaming sources can be injected to cover the break. Additionally, a second broadcast radio station can be similarly time shifted and used as alternate content. This intellectual property gives the Company exclusive advantages when dealing with established music rights and content costs issues related to broadcast versus streaming music. This gives the Company leverage when working with both the broadcast industry and the music industry, and options to deliver services from lower cost, over the air audio content sources. The Company holds trademarks and is in the process of applying for trademarks for key products and brands. The Company holds the trademark for a product named PLAZE, which is a potential commercial-free music streaming product that is a future, strategic opportunity of the business. The Company also holds the trademark for AUDDIA which is used as both the corporate brand name as well as the name of the consumer-facing mobile application that delivers the Company’s commercial free radio service. The Company holds the trademark for VODACAST which is used as the brand name for their podcasting platform. A Third Party has Alleged Trademark Infringement On September 24, 2020, we received Cease and Desist Letter alleging that the ticker symbol AUDD infringes upon the claimant’s trademark “audD”. There is no claim concerning our proprietary technology. The claimant was seeking a permanent injunction against infringement, damages, and attorneys’ fees. The Company abandoned AUDD as a ticker symbol and is now using AUUD. While we intend to defend this lawsuit vigorously and believe that we have valid defenses to these claims, there can be no assurance that a favorable outcome will be obtained. In addition, any intellectual property litigation to which we become a party may require us to do one or more of the following: · cease selling, licensing, or using products or features that incorporate the intellectual property rights that we allegedly infringe, misappropriate, or violate; · make substantial payments for legal fees, settlement payments, or other costs or damages, including indemnification of third parties; · obtain a license or enter into a royalty agreement, either of which may not be available on reasonable terms or at all, in order to obtain the right to sell or use the relevant intellectual property; or · redesign the allegedly infringing products to avoid infringement, misappropriation, or violation, which could be costly, time-consuming, or impossible. 7 Intellectual property litigation is typically complex, time consuming, and expensive to resolve and would divert the time and attention of our management and technical personnel. It may also result in adverse publicity, which could harm our reputation and ability to attract or retain customers. As we grow, we may experience a heightened risk of allegations of intellectual property infringement. An adverse result in any litigation claims against us could have a material adverse effect on our business, financial condition, and results of operations. Competition Our audio service offerings face competition from alternative media platforms and technologies, such as broadband wireless, satellite radio, audio broadcasting by cable television systems and internet-based streaming music services, as well as consumer products, such as portable digital audio players and other mobile devices, smart phones and tablets, gaming consoles, in-home entertainment and enhanced automotive platforms. These alternative platforms and technology are offered by much larger and well-established music service company’s such as SiriusXM. iHeart Media, Spotify, TuneIn, and the like. These technologies and alternative media platforms compete with our services for audience share and advertising revenues. There can be no assurance that we will be able to compete successfully in the audio marketplace. We are a small, relatively new company and we do not currently consider the Company to be a significant participant in its industry. Further, our success is dependent upon our development of new services and products for both broadcasters and consumer listeners, and there can be no assurance that we will have the resources to acquire new technologies or to introduce new services to compete with other new technologies or services. Other companies employing new technologies or services could more successfully implement such new technologies or services or otherwise increase competition with our business. Employees As of December 31, 2020, we had 11 total employees, 8 of whom were engaged in full-time research and development activities and 3 of whom were engaged in general administration. The Company also works with 1 full-time contractor who supports research and development and 3 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. Health, Safety and Wellness We believe that our employees are the summation of our successes, which is why we offer an excellent health and benefits program to our employees and their families. We offer our employees comprehensive health insurance as well as optional dental and vision coverage. Additionally, we provide our employees and paid vacation, holiday, family leave and sick leave, with numerous other benefits offered to our employees. Beginning in February 2020, we took various actions in order to minimize the risk of COVID-19 to our employees, our clients, and the communities in which we operate, and in March 2020, we prohibited all business-related travel until further notice and began transitioning our employees to work-from-home arrangements. Our sales employees have been conducting all meetings with current and prospective clients virtually since March 2020, and we expect this practice to continue for the foreseeable future. As of December 31, 2020, 100% of our employees were working remotely. Despite working remotely, we continue to maintain our commitment to ensuring our employees’ health, safety and wellness. Refer to “Impact of the COVID-19 Pandemic” included in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information about the impact that COVID-19 has had on our business. 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, would 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. 8 Facilities The Company leases approximately 3,000 square feet of office space under a non-cancelable operating sublease. Rent expense was $72,999 and $144,853 for the year ended December 31, 2020 and 2019, respectively. In October 2019, the Company entered into a new sublease, with monthly rent of $5,000 plus a pro-rata share of utilities. In October 2020, the Company renewed this sublease for an additional seven months, on the same terms, which will expire on April 30, 2021. We are currently searching for a new principal office and believe that suitable space, at commercially reasonable terms, is readily available to accommodate the current and future needs of our operations. Regulatory and Certifications We are subject to varying degrees of regulations in each of the jurisdictions in which we provide services. Local laws and regulations, and their interpretation and enforcement, differ significantly among those jurisdictions. Data privacy has become a significant issue in the United States and in other countries. The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Many federal, state and foreign government bodies and agencies have adopted or are considering adopting laws and regulations affecting or regarding the collection, use and disclosure of personal information. In the United States, these include, for example, rules and regulations promulgated under the authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996, the Family Medical Leave Act of 1993, the ACA, state breach notification laws and state privacy laws, such as the California Consumer Privacy Act of 2018 (the “CCPA”), the California Privacy Rights Act (the “CPRA”) and the Illinois Biometric Information Privacy Act (the “IBIPA”). Further, because some of our clients have establishments internationally, the European Union’s General Data Protection Regulation (“GDPR”) and other foreign data privacy laws may impact our processing of certain client and employee information. We rely on a combination of copyrights, trademarks, service marks, trade secret laws and contractual restrictions to establish and protect our intellectual property rights. We also have a number of registered and unregistered trademarks and will continue to evaluate the registration of additional trademarks as appropriate. We do not have any patents or patent applications pending. Segment Information We operate in a single operating segment and a single reporting segment. Operating segments are defined as components of an enterprise about which separate financial information is regularly evaluated by the chief operating decision maker function (which is fulfilled by our chief executive officer) in deciding how to allocate resources and in assessing performance. Our chief executive officer allocates resources and assesses performance based upon financial information at the level. Since we operate in one operating segment, all required financial segment information is presented in the financial statements. 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. In connection with our initial public offering (“IPO”) in February 2021, we converted into a Delaware corporation pursuant to a statutory conversion under the name Auddia Inc. Our principal executive offices are located at 5755 Central Ave., Suite C, Boulder, CO 80301. Our main telephone number is (303) 219-9771. Our internet website is www.auddia.com. The information contained in or accessible from our website is not incorporated into this Annual Report, and you should not consider it part of this Annual Report. We have included our website address in this Annual Report solely as an inactive textual reference. We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth company until the earlier of: (i) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. 9 Available Information Our internet address is www.Auddia.com and our investor relations website is located at investors.Auddia.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports can be found on our investor relations website, free of charge, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information contained on our website is not incorporated by reference into this Form 10-K. The SEC maintains a public website, www.sec.gov, which includes information about and the filings of issuers that file electronically with the SEC.