AUDDIA INC. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS Page Auddia Inc. Annual Financial Statements Report of Independent Registered Public Accounting Firm 41 Balance Sheets as of December 31, 2021 and 2020 43 Statements of Operations, Years Ended December 31, 2021 and 2020 44 Statements of Changes in Stockholders’ Equity (Deficit), Years Ended December 31, 2021, and 2020 45 Statements of Cash Flows, Years Ended December 31, 2021, and 2020 46 Notes to Financial Statements 47 40 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 the accompanying balance sheets of Auddia Inc. (f/k/a Clip Interactive, LLC.)(the “Company”) at December 31, 2021 and 2020, and the related statements of operations, changes in stockholders’ equity (deficit) and cash flows for each of the years in the two-year period ended December 31, 2021, 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 at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. 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 audits. 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 audits 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 audits, 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 audits 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 audits 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 audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the 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. 41 Intangible Assets Impairment Assessments As described in Notes 1 to the financial statements, the Company has software development costs of approximately $3.2 million at December 31, 2021. 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 net present value techniques utilizing post-tax cash flows and discount rates. The estimates that management used in calculating the net present 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 cash flows; long-term subscriber demand forecasts; actions of competitors (competing content), future tax and discount 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 net present value of the intangible assets. This in turn 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 and the discount rate. 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 net present value 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 and the discount rate. Evaluating management’s assumptions related to the amount and timing of projected future cash flows and the discount rate involved 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 We have served as the Company’s auditor since 2020 Boca Raton, Florida February 17, 2022 229 229 42 Auddia Inc. Balance Sheets December 31, 2021 and 2020 December 31, 2021 2020 ASSETS Current assets: Cash $ 6,345,291 $ 117,914 Accounts receivable, net 87 128 Total current assets 6,345,378 118,042 Non-current assets: Property and equipment, net 72,766 12,289 Software development costs, net 3,163,071 1,837,518 Deferred offering costs – 338,419 Prepaids and other non-current assets 52,918 5,500 Total non-current assets 3,288,755 2,193,726 Total assets $ 9,634,133 $ 2,311,768 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable and accrued liabilities $ 223,196 $ 1,553,284 Line of credit – 6,000,000 Convertible notes payable – 2,146,775 Notes payable to related parties and deferred salary – 1,628,197 Promissory Notes Payable – 1,857,764 PPP Loan – 268,662 Accrued fees to a related party – 1,960,336 Total current liabilities 223,196 15,415,018 Commitments and contingencies Stockholders’ equity (deficit): 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 12,416,408 and 485,441 shares issued and outstanding at December 31, 2021 and December 31, 2020 12,416 486 Additional paid-in capital 74,236,910 38,256,584 Accumulated deficit ( 64,838,389 ) ( 51,360,320 ) Total stockholders’ equity (deficit) 9,410,937 ( 13,103,250 ) Total liabilities and stockholders’ equity (deficit) $ 9,634,133 $ 2,311,768 See Accompanying Notes to Financial Statements. 43 Auddia Inc. Statement of Operations For the Years Ended December 31, 2021 and 2020 Year Ended December 31, 2021 2020 Revenue $ – $ 110,924 Operating expenses: Direct cost of services 190,187 402,016 Sales and marketing 740,652 322,369 Research and development 399,521 106,053 General and administrative 4,072,419 1,290,970 Depreciation and amortization 166,656 372,366 Total operating expenses 5,569,435 2,493,774 Loss from operations ( 5,569,435 ) ( 2,382,850 ) Other (expense) income: Finance charge – convertible debt ( 8,141,424 ) – PPP loan extinguishment 536,144 – Interest expense ( 306,555 ) ( 1,668,413 ) Interest income 3,201 42 Total other expense ( 7,908,634 ) ( 1,668,371 ) Net loss $ ( 13,478,069 ) $ ( 4,051,221 ) Net loss per share attributable to common stockholders Basic and diluted $ ( 1.30 ) $ ( 8.35 ) Weighted average common shares outstanding Basic and diluted 10,397,772 485,441 See Accompanying Notes to Financial Statements. 44 Auddia Inc. Statement of Changes in Stockholders’ Equity (Deficit) For the Years Ended December 31, 2021 and 2020 Common Stock Additional Paid-In Subscription Accumulated Shares Value Capital Receivable Deficit Total Balance, December 31, 2019 470,658 $ 471 $ 38,122,486 $ ( 42,735 ) $ ( 47,309,099 ) $ ( 9,228,877 ) Issuance of common shares 14,783 15 64,257 – – 64,272 Collection of subscription receivable – – – 42,735 – 42,735 Share-based compensation – – 69,841 – – 69,841 Net loss – – – – ( 4,051,221 ) ( 4,051,221 ) Balance, December 31, 2020 485,441 $ 486 $ 38,256,584 $ – $ ( 51,360,320 ) $ ( 13,103,250 ) Issuance of common shares 4,021,818 4,022 14,603,768 – – 14,607,790 Exercise of warrants 1,094,579 1,094 4,952,458 – – 4,953,552 Conversion of debt obligations 6,814,570 6,814 15,186,619 – – 15,193,433 Share-based compensation – – 1,237,481 – – 1,237,481 Net loss – – – – ( 13,478,069 ) ( 13,478,069 ) Balance, December 31, 2021 12,416,408 $ 12,416 $ 74,236,910 $ – $ ( 64,838,389 ) $ 9,410,937 See Accompanying Notes to Financial Statements. 45 Auddia Inc. Statement of Cash Flows For the Years Ended December 31, 2021 and 2020 Year Ended December 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 13,478,069 ) $ ( 4,051,221 ) Adjustments to reconcile net loss to net cash used in operating activities: Finance charge associated with debt-to-equity conversion 8,141,424 – Depreciation and amortization 166,656 372,366 Share-based compensation 1,237,481 69,841 Gain on PPP loan extinguishment ( 536,144 ) – Change in assets and liabilities: Accounts receivable 41 16,361 Prepaids and other non-current assets ( 47,418 ) – Accrued fees to a related party – 942,398 Accounts payable and accrued liabilities ( 955,516 ) 657,874 Net cash used in operating activities ( 5,471,545 ) ( 1,992,381 ) Cash flows from investing activities: Software capitalization ( 1,472,290 ) ( 867,578 ) Purchase of property and equipment ( 80,396 ) ( 2,686 ) Net cash used in investing activities ( 1,552,686 ) ( 870,264 ) Cash flows from financing activities: Repayment of line of credit ( 6,000,000 ) – Repayment of deferred salary ( 661,651 ) – Proceeds from related party debt 30,213 539,499 Repayments of related party debt ( 299,198 ) ( 345,297 ) Proceeds from issuance of promissory notes payable 15,000 – Proceeds from issuance of common stock 20,041,811 107,007 Proceeds from issuance of PPP Loan 267,482 268,662 Proceeds from issuance of convertible and related party notes payable – 2,262,365 Deferred offering costs capitalized ( 142,049 ) ( 141,908 ) Net cash provided by financing activities 13,251,608 2,690,328 Net increase (decrease) in cash 6,227,377 ( 172,317 ) Cash, beginning of year 117,914 290,231 Cash, end of year $ 6,345,291 $ 117,914 Supplemental disclosures of cash flow information: Cash paid for interest $ ( 66,412 ) $ ( 1,337,140 ) Supplemental disclosures of non-cash activity: Shares issued for conversion of indebtedness $ 15,193,433 $ – PPP loan extinguishment $ 536,144 $ – See Accompanying Notes to Financial Statements. 46 Auddia Inc. Notes to Financial Statements For the Year Ended December 31, 2021 Note 1 - Description of Business, Basis of Presentation and Summary of Significant Accounting Policies Description of Business Auddia Inc., formerly Clip Interactive, LLC, (the “Company”, “Auddia”, “we”, “our”) is a technology company that is reinventing how consumers engage with audio through the development of a proprietary AI platform for audio and innovative technologies for podcasts. Clip Interactive, LLC was initially formed as a Colorado limited liability company on January 14, 2012 and on November 25, 2019 changed its trade name to Auddia. On February 16, 2021, the Company completed an initial public offering (the “IPO”) of 3,991,818 units, at $4.125 per unit, consisting of one share of common stock and one warrant to purchase one share of common stock at an exercise price of $4.54 per share. In addition, the underwriters exercised their option to purchase 598,772 Series A warrants to cover over-allotments and were issued 319,346 in representative warrants at an exercise price of $5.15625 per share. After deducting underwriters commissions and expenses, the Company received net proceeds of approximately $15.1 million and its common stock commenced trading on Nasdaq under the ticker symbol “AUUD”. Concurrently with the IPO, holders of the Company’s promissory notes, convertible notes, and related party notes, along with accrued interest, were converted into 6,814,570 shares of the Company’s common stock. Concurrently with the IPO the Company converted from a Colorado limited liability company to a Delaware corporation. This accounting change has been given retrospective treatment in the condensed financial statements. Basis of Presentation The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). 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. Reclassification of Presentation Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. 47 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, 2021 or December 31, 2020. 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, 2021 and December 31, 2020, the Company had approximately $ 5.9 million and $ 0 , respectively, in excess of federally insured limits. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests. 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. 2 to 5 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 five 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 $ 1,515,741 and $ 867,578 were capitalized for the years ended December 31, 2021 and 2020, respectively. Amortization of capitalized software development costs were $ 146,737 and $ 368,332 for the years ended December 31, 2021 and 2020, respectively and are included in depreciation and amortization expense. 48 Deferred Offering Costs The Company deferred direct and incremental costs associated with its IPO that occurred in February 2021. The Company capitalized deferred offering costs of $ 142,049 and $ 141,908 during the years ended December 31, 2021 and 2020, respectively which were netted against IPO proceeds in February 2021. Deferred offering costs consisted principally of legal, advisory, and consulting fees incurred in connection with the formation and preparation for the IPO. 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 no t impaired at December 31, 2021 and December 31, 2020. 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 is measured according to Accounting Standards Codification (“ASC”) 606, Revenue – Revenue from Contracts with Customers, and is recognized based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. We recognize revenue when we satisfy a performance obligation by transferring control over a service or product to a customer. We 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 consolidated statements of comprehensive income. Collected taxes are recorded within Other current liabilities until remitted to the relevant taxing authority. Subscriber revenue consists 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. 49 Advertising Costs The Company expenses advertising costs as incurred. Advertising expense for the year ended December 31, 2021 was $ 130,565 . Advertising expense for the year ended December 31, 2020 was not significant. 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) income 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. Geographic Locations & Segments For the year ended December 31, 2021 and 2020, 100% of revenue attributable to customers and 100% of our net assets are located within the United States. 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. 50 Note 2 – Revenue Recognition Legacy platform phase out From 2014 through 2020, the Company was successful in deploying its platform across 580 major radio stations and 1.6 million monthly active users. The Company’s legacy product served the broadcast industry by providing a platform that allows for the delivery of actionable digital ads that are synchronized with broadcast and streaming audio ads. Broadcasters offer mobile and web digital interfaces to their listeners, typically for their individual stations. Our Interactive Radio Platform provided mobile and web products that provide end users (listeners) with a visual display of everything a radio station has played in recent history (referred to as a “station feed”). In addition to displaying album art for songs played, and digital insertions for station promotions and programs (e.g., a radio station contest), the station feed also included a digital element for each audio ad that was played. These interactive, synchronized digital ads generate additional revenue for broadcasters and allowed for the collection of meaningful advertising analytics which we presented to broadcasters through an analytics dashboard. The Company began phasing out its Interactive Radio Platform in early 2020 and ceased operations related to the legacy platform by August 1, 2020. Much of the core technology of this platform is being leveraged for re-use with our new products, Faidr 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 Faidr App on a national scale. The Company’s legacy contracts with customers generally fell within two formats: (1) those that encompass development services, access to the Company’s interactive technology platform through a hosted business model and the ability to execute placement of spot advertising through the Company’s interactive technology platform, or (2) contracts exclusively for digital advertising placement of spot ads through the Company’s mobile Apps and web players. The Company allocated the transaction price to each separate performance obligation as applicable within each contract based upon their relative selling prices. Development service fee revenue Revenue generated from development services were comprised of services for the development, design and customization of software applications for station branded mobile Apps and web/desktop players for radio stations. The mobile Apps enabled our customer’s users to interact with the live broadcast and streaming content while providing attribution to each station and enabling local and national digital monetization capabilities. The web/desktop player provided a listening platform that enables full interactive radio capabilities for desktop users that prefer web based listening. The Company determined that the development, design, build and deployment, configuration, and customization are a bundle of professional services provided to the customer for the purpose of the Mobile and Web Desktop Apps and were considered a single performance obligation. Revenue was recognized over time as the services are satisfied and any advanced payments received were not recognized as revenue but instead was recorded in a deferred contract liability until the customer’s services were satisfied. The Company no longer provides these services. Platform services fee revenue Revenue generated from platform services were comprised of the customer’s use of the Company’s interactive technology platform that includes access rights to use the licensed software, software hosting, support and maintenance, data tracking analytics, advertising trafficking and monitoring of the mobile App and web/desktop player applications. The Company determined that the hosting of software, license access, support, training, maintenance and unspecified periodic upgrades or updates, monitoring hardware, interactive content management, access to content library, data and analytics dashboard, programming and Ad campaign training were a bundle of product and services that have the same period and pattern of transfer as the service to access the Company’s Platform and have been treated a single performance obligation. Revenue was recognized over time as the customer simultaneously receives and consumes the benefits provided by the Company’s platform services. The Company no longer provides these services. 51 Advertising revenue The Company legacy contracts generated advertising revenue in two distinctive forms: one which was from third party advertisers that placed ads on the Company’s mobile Apps and web players which were separate customer contracts whereby such advertising access was the only service and performance obligation within those contracts, and second was ad placements on the same platform but managed by the Company for its customers in connection with its contracts to provide development services and Platform access services to its customers. The external advertising revenues were comprised of local and national interactive spots that were sourced and managed by customers or by third party service providers (such as Google), whereby the Company received a portion of the dollars spent by the advertiser. In late 2018, the Company decided to move to only internally managed digital advertising for 2019 and discontinued revenue sharing agreements with clients for advertising sourced by the client. Revenue was recognized as performance obligations were satisfied on a net basis as the Company was acting as an agent, which generally occurred as ads were delivered through the platform. We generally recognized revenue based on delivery information from the external providers campaign trafficking systems. The internal advertising revenues were comprised of advertising fees for local and national interactive spot and local or digital only advertising campaign fees that were managed by the Company. For these advertising spots, the Company retained all the money spent on the advertising campaigns run on the Company’s interactive platform. Revenue was recognized as performance obligations were satisfied, which generally occurred as ads were delivered through the platform. For Interactive and Digital Campaign and Spot Ad Fees which could include customer digital and interactive spot ad campaigns, interactive spot campaigns, the revenue was recognized at a point in time under the “as-invoiced” practical expedient, since customer usage driven variability was not required to be estimated but rather is allocated to the distinct time period in which the variable activity occurred. Certain customers received platform fee credits or advertising discounts, which were considered as variable consideration in the determination of the transaction price. These performance obligations related to the fixed price arrangements were discounted ratably based on their relative standalone selling prices. The Company no longer provides these services. Practical expedients and exemptions We expensed sales commissions when incurred because the duration of the contracts for which we paid commissions were less than one year. These costs were included in the sales and marketing line item of our Statements of Operations. Currently the Company does not have any significant acquisition costs which have been incurred associated with the acquisition of its customer contracts and therefore, no deferred customer acquisition costs have been recorded. We did not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we had the right to invoice for services performed. 52 The following table presents revenues disaggregated by revenue source: Schedule of disaggregated revenue Year Ended December 31, 2021 2020 Revenues Platform Service Fees (hosting services, support, data analytics) $ – $ 85,800 Digital advertising served by Clip Interactive – 25,124 $ – $ 110,924 Note 3 – 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, 2021 December 31, 2020 Computers and equipment $ 767,318 $ 688,922 Furniture 7,262 7,262 Software 5,228 5,228 Accumulated depreciation ( 707,042 ) ( 687,123 ) Total property and equipment, net $ 72,766 $ 12,289 Software development costs 4,698,752 $ 3,226,461 Accumulated amortization ( 1,535,680 ) ( 1,388,943 ) Total software development costs, net $ 3,163,071 $ 1,837,518 The Company recognized depreciation expense of $ 17,813 and $ 4,034 for the years ended December 31, 2021 and 2020, respectively related to property and equipment and amortization expense of $ 146,737 and $ 368,332 for the years ended December 31, 2021 and 2020, respectively related to software development costs. Note 4 – Balance Sheet Disclosures Accounts payable and accrued liabilities consist of the following: Schedule of accounts payable and accrued liabilities December 31, 2021 December 31, 2020 Accounts payable and accrued liabilities $ 210,929 $ 1,111,621 Credit cards payable 12,267 22,885 Accrued interest – 364,856 Wages payable – 53,922 Accounts payable and accrued liabilities $ 223,196 $ 1,553,284 53 Note 5 – Line of Credit On April 10, 2018 the Company refinanced its previous line of credit with a different bank and this agreement was amended in July 2019 and March 2021. The principal balance was repaid in full on July 8, 2021. Interest accrued at a variable rate based on the bank’s prime rate plus 1% (4.25% at December 31, 2020) but at no time less than 4.0%. Monthly interest payments were required, with any outstanding principal due on July 10, 2021. Interest expense for the year ended December 31, 2021 and 2020 was $ 66,412 and $ 276,980 , respectively. The line of credit was collateralized by all assets of the Company, including $2 million of cash held in a control account at the lender. The Company also maintained a minimum balance at the lender to cover two months of interest payments. Prior to our IPO, the line of credit was collateralized by $6,000,000 of cash assets of two shareholders held in control accounts at the lender. Following the Company’s IPO in February 2021 the line of credit was amended and the Company paid down the outstanding principal balance on its bank line of credit from $6 million to $2 million and the available principal balance for the line of credit was reduced from $6 million to $2 million. Further, the $6 million of cash collateral previously provided by the two shareholders was released. The remaining principal balance of $2 million was repaid in full and the line of credit was terminated on July 8, 2021 . The outstanding balance on the line of credit at December 31, 2020 was $ 6,000,000 . The shareholder who previously provided the $2,000,000 control account had a collateral agreement with the Company which is described in Note 6. This agreement was terminated in March 2021. Note 6 – Convertible Notes Payable, Notes Payable to Related Parties and Deferred Salary and Promissory Notes Convertible notes payable During the year ended December 31, 2020 investors purchased an additional $ 404,601 of our convertible notes, such that at December 31, 2020 the balance of the convertible notes, including accrued interest, was $ 2,295,305 . These convertible notes accrued interest at 6.0 % per year and were scheduled to mature on December 31, 2021 . In conjunction with the February 2021 IPO, the Notes automatically converted into 2,066,176 shares of common stock at discounts ranging from 50% to 75% of the IPO price. Interest expense for the year ended December 31, 2021 and 2020 was $ 16,586 and $ 128,674 , respectively. Accrued fees to a related party The Company had an agreement with a shareholder to provide collateral for a bank line of credit described in Note 5 – Line of Credit. The amount of the cash collateral provided by the shareholder to the bank was $2.0 million. The collateral agreement required a commitment to pay collateral fees of $710,000 (comprised of annual interest of $660,000 plus the $50,000 renewal fee) to the shareholder and issue 3,454 common stock warrants. In January 2019, in connection with the collateral agreement, the Company converted accrued fees of $ 725,000 into an unsecured note payable, which bore interest at 33 % annually and had a maturity date of December 31, 2021 . The fees that accrued on the collateral arrangement were 33% percent of the collateral amount annually plus an annual renewal fee of $50,000. Interest expense for the year ended December 31, 2021 and 2020 was $ 208,727 and $ 942,397 , respectively. The balance outstanding on the accrued collateral fees was $1,960,336 at December 31, 2020, excluding the $725,000 unsecured note payable. This collateral agreement terminated in March 2021. In conjunction with the February 2021 IPO, the notes payable and accrued interest due to this shareholder were converted to 1,667,859 shares of common stock. 54 Promissory notes payable During the twelve months ended December 31, 2020, the Company issued, to a number of existing shareholders, in four separate tranches, $ 1,857,764 of Promissory Notes that accrue interest at a rate of 6 % per year and were scheduled to mature on December 31, 2021 . When issued, the notes incorporated the following attributes: interest on the Notes accrue at 6% and upon the successful completion of a qualified IPO by December 31, 2021, the notes and accrued interest would convert into equity at a per share valuation equal to $40.0 million. In addition, each investor in the Promissory Notes would receive shares and warrants based on a formula that takes into account the number of shares and warrants the investor owned before the investment in these Promissory Notes, as well as a portion of the bonus allocation of 1,038,342 shares made available to the investors. Interest expense for the year ended December 31, 2021 and 2020 was $ 14,454 and $ 44,182 , respectively. In conjunction with the February 2021 IPO, all of the Promissory Notes collectively converted into 3,080,535 shares of common stock. The Company recognized a finance charge to interest expense of $ 8,141,424 related to the conversion of the convertible notes, notes payable to related parties and promissory notes during the year ended December 31, 2021. Note 7 – Notes Payable Notes payable to related parties and deferred salary An executive officer of the Company agreed to defer receipt of compensation to preserve liquidity in the Company. The accumulated amount of compensation owed to this executive officer was approximately $ 631,000 at December 31, 2020. The Company paid this deferred compensation in the first quarter of 2021. During 2019, the Company issued notes payable (the “Notes”) to three related parties for $ 80,000 , $ 200,000 and $ 50,000 , respectively. The Notes did not accrue interest or have a stated maturity date. The outstanding note payable for $ 80,000 was repaid in January 2020. In December 2019, the two other note holders elected to convert their notes into convertible Notes due December 31, 2021. Two other existing investors, who were owed a total of $17,197 for services by the Company, also agreed to convert their payables into convertible Notes. During 2019 the Company issued a note payable to a related party for consulting services incurred by the Company in the amount of $ 486,198 . As of December 31, 2020, the outstanding balance for consulting services was $ 440,904 . The Company paid these Notes in the first quarter of 2021. In October 2019, a shareholder obtained $ 400,000 of short term financing from an unrelated lender. The shareholder then agreed to make the proceeds of that short term financing available to the Company. In exchange, the Company assumed responsibility for all payments and charges (including principal, interest and fees) required under such short term financing agreement. Under the agreement the Company was advanced $188,000, net of $12,000 in closing fees, and the remaining $200,000 was put into an escrow account owned and controlled by the shareholder. A loan financing fee in the amount of $100,000 was due upon maturity, of which the amount relating to 2019 of $ 75,000 was included in accrued expenses at December 31, 2019. In December 2019, the Company made a principal payment in the amount of $ 57,203 , and accordingly, the outstanding principal balance was $ 142,797 at December 31, 2019, and was included in Notes payable to related parties on the balance sheet. The remaining balance of $ 242,797 which included principal and loan financing fees, was repaid in January 2020. In February 2020, the Company obtained a new $500,000 short term loan from the same related party. The Company was advanced $485,000, net of $15,000 in closing fees, and immediately placed $140,741 into an escrow account, owned and controlled by the shareholder to provide funds for the scheduled repayments. Repayment of the principal and loan financing fee occurs through weekly payments of $17,593 until the loan and financing fee is paid in full. The loan financing fee increases with the length of the payback period and was maximized at $165,000 after month five. The outstanding balance was repaid in February 2021. Interest expense related to notes payable for related parties for the year ended December 31, 2020 was $ 209,145 . 55 Cares Act Paycheck Protection Program loan In April 2020, the Company entered into a promissory note evidencing an unsecured loan (the “First Loan”) in the amount of $ 268,662 made to the Company under the Paycheck Protection Program (the “PPP”). In January 2021, the Company entered into a second promissory note (the “Second Loan” or combined with the first loan, the “PPP Loans”) of $ 267,482 under the PPP. The PPP was established under the CARES Act and is administered by the U.S. Small Business Administration. The First Loan was set to mature in April 2022 and the Second Loan was set to mature in January 2023. The PPP Loans bore interest at a rate of 1% per annum. Beginning November 2020, the Company was required to make 18 monthly payments of principal and interest in the amount of $14,370 related to the First Loan. The PPP Loans may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The proceeds from the Loans may only be used for payroll costs (including benefits), interest on mortgage obligations, rent, utilities and interest on certain other debt obligations. The PPP Loans contained customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the lender or breaching the terms of the Loan documents. The occurrence of an event of default will result in an increase in the interest rate to 18 % per annum and provides the lender with customary remedies, including the right to require immediate payment of all amounts owed under the PPP Loans. Pursuant to the terms of the CARES Act and the PPP, the Company applied for forgiveness for both the PPP Loans. On June 15, 2021, the Company received confirmation that the First Loan was approved for forgiveness and the Company recorded $ 268,662 in PPP loan extinguishment to other income during the year ended December 31, 2021. On November 2, 2021, the Company received confirmation that the Second Loan was approved for forgiveness and the Company recorded $ 267,482 in PPP loan extinguishment to other income during the year ended December 31, 2021. The amount eligible for forgiveness was based on the amount of Loan proceeds used by the Company (during the eight-week period after the lender makes the first disbursement of Loan proceeds) for the payment of certain covered costs, including payroll costs (including benefits), interest on mortgage obligations, rent and utilities, subject to certain limitations and reductions in accordance with the CARES Act and the PPP. Note 8 – Commitments and Contingencies Operating Lease In April 2021, the Company entered into a lease agreement for a new primary office space in Boulder, Colorado comprising of 8,639 square feet. The lease commenced on May 15, 2021 and terminates after 12 months. The lease has an initial base rent of $7,150 per month, with the first 15 days rent free and includes three separate six month renewal options, subject to fixed rate escalation increases. The Company previously leased approximately 3,000 square feet of office space that expired on April 30, 2021. Rent expense $ 75,336 and $ 72,999 for the year ended December 31, 2021 and 2020, 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. 56 Note 9 - Share-based Compensation Stock Options The following table presents the activity for stock options outstanding: Schedule of stock option activity Weighted Non-Qualified Average Options Exercise Price Outstanding - December 31, 2019 302,578 $ 3.21 Granted – – Forfeited/canceled ( 2,225 ) $ 3.21 Exercised – – Outstanding - December 31, 2020 300,353 $ 3.65 Granted 1,235,500 2.79 Forfeited/canceled ( 31,062 ) $ 3.01 Exercised – – Outstanding - December 31, 2021 1,504,791 $ 2.96 The following table presents the composition of options outstanding and exercisable: Options outstanding and exercisable Options Outstanding Options Exercisable Exercise Prices Number Price* Life* Number Price* $2.70 68,518 $ 2.70 1.82 68,518 $ 2.70 $2.90 53,128 $ 2.90 6.03 53,128 $ 2.90 $4.26 171,263 $ 4.26 7.63 143,425 $ 4.26 $2.79 1,211,882 $ 2.79 9.62 246,717 $ 2.79 Total - December 31, 2021 1,504,791 $ 2.96 8.90 511,788 $ 3.20 ________________________ * Price and Life reflect the weighted average exercise price and weighted average remaining contractual life, respectively. During the year ended December 31, 2021, the Company granted 1,235,500 stock options to certain executives and key employees. Under the terms of the option agreements, the options are subject to certain vesting requirements. 57 Restricted Stock Units The following table presents the activity for restricted stock units outstanding: Schedule of restricted stock unit activity Weighted Restricted Average Stock Units Exercise Price Outstanding - December 31, 2020 – $ – Granted 424,500 – Forfeited/canceled – $ – Exercised – – Outstanding – December 31, 2021 424,500 $ – During the year ended December 31, 2021, the Company granted 424,500 restricted stock units. Under terms of the restricted stock agreements, the restricted stock units are subject to a certain vesting schedule. The Company recognized share-based compensation expense related to stock options and restricted stock units of $ 1,237,481 and $ 69,841 for the year ended December 31, 2021 and 2020, respectively. The remaining unvested share-based compensation expense of $ 2,374,390 is expected to be recognized over the next 43 months. Warrants The following table presents the activity for warrants outstanding: Schedule of warrant activity Weighted Warrants Average Outstanding Exercise Price Outstanding - December 31, 2020 358,334 $ 7.02 Granted 4,909,936 $ 4.58 Forfeited/cancelled/restored – – Exercised ( 1,096,023 ) $ 4.52 Outstanding - December 31, 2021 4,172,247 $ 4.80 In connection with the February 2021 IPO, the Company issued 3,991,818 warrants to purchase shares of common stock and issued to 598,772 warrants to its underwriters to cover over-allotments. The Company also issued 319,346 of representative warrants to its underwriters to purchase shares of common stock and these representative warrants contain a cashless exercise feature. During the year ended December 31, 2021 certain holders of our publicly traded Series A Warrants exercised 1,091,692 warrants for 1,091,692 million shares of common stock at the cash exercise price of $ 4.5375 per share. In addition, certain holders of our Pre-IPO warrants exercised 4,331 warrants for 2,887 shares of common stock at the net exercise price of $ 0.87 per share. All of the outstanding warrants are exercisable and have a weighted average remaining contractual life of approximately 3.94 years as of December 31, 2021. 58 Note 10 – Stockholders’ Equity On February 17, 2021, the Company converted its LLC membership equity units into 485,441 shares of Common Stock with a $0.001 par value. The conversion has been given retrospective treatment. During 2020, the Company issued 14,783 shares of common stock for cash. Note 11 – Income Taxes For the year ended December 31, 2021, 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 December 31, 2021 Income tax expense (benefit) at federal statutory rate ( 2,830,394 ) 21.00 % State and local income taxes, net of federal tax benefit ( 243,572 ) 1.81 % Transaction costs 19,050 ( 0.14 % ) Change in valuation allowance 1,211,055 ( 8.99 % ) Income taxed as pass-through prior to IPO 1,799,759 ( 13.35 % ) Change in entity status 156,692 ( 1.16 % ) PPP loan forgiveness ( 112,590 ) 0.84 % Total – – Significant components of the Company’s deferred taxes consisted of the following: Schedule of deferred taxes December 31, 2021 Deferred income tax assets: Stock based compensation 458,026 Business interest limitation 33,113 Federal net operation losses 1,257,450 State net operation losses 272,447 Total deferred tax assets 2,021,036 Less: valuation allowance ( 1,211,055 ) Total deferred tax assets, net of valuation allowance 809,981 Deferred income tax liabilities: Capitalized software ( 808,165 ) Property & equipment ( 1,816 ) Total deferred tax liabilities ( 809,981 ) Total net deferred tax asset (liability) – 59 Note 12 – 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. December 31, 2021 and 2020, 5,009,315 and 655,485 , 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 13 – Subsequent Events On February 15, 2022, the Company released nationally it’s Faidr App for both iOs and Android devices. The Company plans to commence amortization of its capitalized development costs. The Company anticipates it will continue to incur future capitalized costs as it relates to enhancements and additional functionality related to the Faidr and Vodacast Apps. On February 17, 2022, the Company approved a grant of 350,000 restricted stock units and 293,750 stock options to employees and directors subject to certain vesting requirements. 60 Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure None.