AUDDIA INC. 10-Q

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ Quarterly REPORT pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2023 Or ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________ to _____________ Commission File No. 001-40071 AUDDIA INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 45-4257218 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 2100 Central Ave. , Suite 200 Boulder , Colorado 80301 Address of Principal Executive Offices Zip Code (303) 219-9771 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.001 per share AUUD The Nasdaq Stock Market Warrants, each exercisable for one share of Common Stock AUUDW The Nasdaq Stock Market Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large Accelerated Filer ☐ Accelerated Filer ☐ Non-accelerated Filer ☒ Smaller Reporting Company ☒ Emerging Growth Company ☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Exchange Act). Yes ☐ No ☒ As of May 19, 2023, 14,812,929 shares of the registrant’s common stock, $0.001 par value per share, were outstanding. AUDDIA INC. 2023 QUARTERLY REPORT ON FORM 10-Q TABLE OF CONTENTS Page No. PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) 1 Condensed Balance Sheets 1 Condensed Statements of Operations 2 Condensed Statements of Changes in Shareholders’ Equity 3 Condensed Statements of Cash Flows 4 Notes to Condensed Financial Statements 5 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 Item 4. Controls and Procedures 21 PART II – OTHER INFORMATION Item 1. Legal Proceedings 23 Item 1A. Risk Factors 23 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23 Item 3. Defaults Upon Senior Securities 23 Item 4. Mine Safety Disclosures 23 Item 5. Other Information 23 Item 6. Exhibits 24 Signatures 25 i Unless we state otherwise or the context otherwise requires, the terms “Auddia,” “we,” “us,” “our” and the “Company” refer to Auddia Inc., a Delaware corporation. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, “continue” or the negative of these terms or other comparable terminology. Forward-looking statements are neither historical facts nor assurances of future performance, and are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: · the ultimate impact of the ongoing coronavirus (COVID-19) pandemic, or any other health epidemic, on our business, results of operations, cash flows, financial condition and liquidity, and the global economy as a whole; · the sufficiency of our existing cash to meet our working capital and capital expenditure needs over the next 12 months and our need to raise additional capital; · our ability to generate revenue from new software services; · our limited operating history; · our ability to maintain proper and effective internal financial controls; · our ability to continue to operate as a going concern; · risks associated with potential future acquisitions that we may consider and complete in the future; · changes in laws, government regulations and policies and interpretations thereof; · our ability to obtain and maintain protection for our intellectual property; · the risk of errors, failures or bugs in our platform or products; · our ability to attract and retain qualified employees and key personnel; · our ability to manage our rapid growth and organizational change effectively; · the possibility of security vulnerabilities, cyberattacks and network disruptions, including breaches of data security and privacy leaks, data loss, and business interruptions; · our compliance with data privacy laws and regulations; · our ability to develop and maintain our brand cost-effectively; · our ability to maintain the listing of our common stock on Nasdaq; and · the other factors set forth elsewhere in this Quarterly Report and in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022. These forward-looking statements speak only as of the date of this Form 10-Q and are subject to business and economic risks. We do not undertake any obligation to update or revise the forward-looking statements to reflect events that occur or circumstances that exist after the date on which such statements were made, except to the extent required by law. ii PART I – FINANCIAL INFORMATION Item 1. Financial Statements Auddia Inc. Condensed Balance Sheets (Unaudited) As of March 31, 2023 December 31, 2022 ASSETS Current assets: Cash $ 239,040 $ 1,661,434 Accounts receivable, net 297 137 Prepaid insurance 52,200 – Total current assets 291,537 1,661,571 Non-current assets: Property and equipment, net of accumulated depreciation 34,470 41,080 Software development costs, net of accumulated amortization 3,968,374 4,134,225 Deferred offering costs 222,896 222,896 Prepaids and other non-current assets 110,796 51,754 Total non-current assets 4,336,536 4,449,955 Total assets $ 4,628,073 $ 6,111,526 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 488,191 $ 324,138 Note payable to related party, net of debt issuance costs 2,026,897 1,775,956 Stock awards liability 17,739 161,349 Total current liabilities 2,532,826 2,261,443 Commitments and contingencies – – Shareholders’ equity: Preferred stock - $ 0.001 par value, 10,000,000 authorized and 0 shares issued and outstanding at March 31, 2023 and December 31, 2022 – – Common stock - $ 0.001 par value, 100,000,000 authorized and 12,850,709 and 12,654,949 shares issued and outstanding at March 31, 2023 and December 31, 2022 12,850 12,654 Additional paid-in capital 75,973,544 75,573,263 Accumulated deficit ( 73,891,147 ) ( 71,735,834 ) Total shareholders’ equity 2,095,247 3,850,083 Total liabilities and shareholders’ equity $ 4,628,073 $ 6,111,526 The accompanying notes are an integral part of these unaudited condensed financial statements. 1 Auddia Inc. Condensed Statements of Operations (Unaudited) Three Months Ended March 31, 2023 2022 Revenue $ – $ – Operating expenses: Direct cost of services 42,301 52,562 Sales and marketing 225,118 357,066 Research and development 210,126 148,763 General and administrative 926,826 1,017,730 Depreciation and amortization 443,035 176,127 Total operating expenses 1,847,406 1,752,248 Loss from operations ( 1,847,406 ) ( 1,752,248 ) Other (expense) income: Interest expense ( 307,906 ) ( 1,010 ) Interest income – – Total other expense ( 307,906 ) ( 1,010 ) Net loss before taxes ( 2,155,312 ) ( 1,753,258 ) Taxes – – Net loss $ ( 2,155,312 ) $ ( 1,753,258 ) Net loss per share attributable to common shares Basic and diluted $ ( 0.17 ) $ ( 0.14 ) Weighted average common shares outstanding Basic and diluted 12,750,654 12,464,540 The accompanying notes are an integral part of these unaudited condensed financial statements. 2 Auddia Inc. Condensed Statements of Changes in Shareholders’ Equity (Unaudited) Three Months Ended March 31, 2022 Common Stock Additional Paid-In Accumulated Shares Value Capital Deficit Total Balance, December 31, 2021 12,416,408 $ 12,416 $ 74,236,910 $ ( 64,838,389 ) $ 9,410,937 Exercise of restricted stock units and warrants 98,355 98 ( 98 ) – – Share-based compensation – – 385,908 – 385,908 Reclassification of shared-based compensation award to liability – – ( 128,534 ) – ( 128,534 ) Net loss – – – ( 1,753,258 ) ( 1,753,258 ) Balance, March 31, 2022 12,514,763 $ 12,514 $ 74,494,186 $ ( 66,591,647 ) $ 7,915,053 Three Months Ended March 31, 2023 Common Stock Additional Paid-In Accumulated Shares Value Capital Deficit Total Balance, December 31, 2022 12,654,949 $ 12,654 $ 75,573,263 $ ( 71,735,834 ) $ 3,850,083 Exercise of restricted stock units 195,760 196 42,601 – 42,797 Share-based compensation – – 357,680 – 357,680 Net loss – – – ( 2,155,312 ) ( 2,155,312 ) Balance, March 31, 2023 12,850,709 $ 12,850 $ 75,973,544 $ ( 73,891,147 ) $ 2,095,247 The accompanying notes are an integral part of these unaudited condensed financial statements. 3 Auddia Inc. Condensed Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 2,155,312 ) $ ( 1,753,258 ) Adjustments to reconcile net loss to net cash used in operating activities: Finance charge associated with debt issuance cost 250,941 – Depreciation and amortization 443,035 176,127 Share-based compensation expense 357,680 385,908 Change in assets and liabilities: Accounts receivable ( 160 ) 31 Prepaid insurance ( 52,200 ) – Prepaids and other non-current assets ( 59,043 ) ( 45,136 ) Accounts payable and accrued liabilities 141,818 6,332 Net cash used in operating activities ( 1,073,241 ) ( 1,229,996 ) Cash flows from investing activities: Software capitalization ( 270,574 ) ( 661,214 ) Purchase of property and equipment – ( 3,809 ) Net cash used in investing activities ( 270,574 ) ( 665,023 ) Cash flows from financing activities: Net settlement of share-based compensation awards ( 78,580 ) ( 88,722 ) Net cash used in financing activities ( 78,580 ) ( 88,722 ) Net decrease in cash ( 1,422,394 ) ( 1,983,741 ) Cash, beginning of period 1,661,434 6,345,291 Cash, end of period $ 239,040 $ 4,361,550 Supplemental disclosures of cash flow information: Cash paid for interest $ 1,012 $ 1,010 Cash paid for income taxes $ – $ – The accompanying notes are an integral part of these unaudited condensed financial statements. 4 Auddia Inc. Notes to Condensed Financial Statements (Unaudited) Note 1 - Description of Business, Basis of Presentation and Summary of Significant Accounting Policies Description of Business Auddia Inc., formerly Clip Interactive, LLC, (the “Company”, “Auddia”, “we”, “our”) is a technology company that is reinventing how consumers engage with audio through the development of a proprietary AI platform for audio and innovative technologies for podcasts. Clip Interactive, LLC was initially formed as a Colorado limited liability company on January 14, 2012, and on November 25, 2019, changed its trade name to Auddia. On February 16, 2021, the Company completed an initial public offering (the “IPO”) of 3,991,818 units, at $4.125 per unit, consisting of one share of common stock and one Series A warrant to purchase one share of common stock at an exercise price of $4.54 per share. In addition, the underwriters exercised their option to purchase 598,772 Series A warrants to cover over-allotments and were issued 319,346 in representative warrants at an exercise price of $5.15625 per share. After deducting 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”). Unaudited interim financial information The condensed financial statements of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this Quarterly Report, as is permitted by such rules and regulations. Accordingly, these condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K. The results for any interim period are not necessarily indicative of results for any future period. The Company recorded all adjustments necessary for a fair statement of the results for the interim period and all such adjustments are of a normal recurring nature. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The condensed financial statements include some amounts that are based on management's best estimates and judgments. The most significant estimates relate to valuation of capital stock, warrants and options to purchase shares of the Company's common stock, and the estimated recoverability and amortization period for capitalized software development costs. These estimates may be adjusted as more current information becomes available, and any adjustment could be significant. 5 Risks and Uncertainties The Company is subject to various risks and uncertainties frequently encountered by companies in the early stages of development. Such risks and uncertainties include, but are not limited to, its limited operating history, competition from other companies, limited access to additional funds, dependence on key personnel, and management of potential rapid growth. To address these risks, the Company must, among other things, develop its customer base; implement and successfully execute its business and marketing strategy; develop follow-on products; provide superior customer service; and attract, retain, and motivate qualified personnel. There can be no guarantee that the Company will be successful in addressing these or other such risks. Going Concern At March 31, 2023 the Company had cash of $ 239,040 . As described below (see Note 8 – Subsequent Events), in April 2023 the Company raised $1.87 million that we believe will fund our operations into the third quarter of fiscal 2023. The Company has based this estimate, however, on assumptions that may prove to be wrong. We will need additional funding to complete the development of our full product line, scale products with a demonstrated market fit and generate revenue and cash flow. Management has plans to secure such additional funding. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce, or eliminate our technology development and commercialization efforts. As a result of the Company’s recurring losses from operations, and the need for additional financing to fund its operating and capital requirements, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern. Cash and Future Funding Requirements The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at March 31, 2023 or December 31, 2022. The Company maintains cash deposits at several financial institutions, which are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s cash balance may at times exceed these limits. At March 31, 2023, the Company had no deposits in excess of federally insured limits. At December 31, 2022, the Company had approximately $ 1.4 million in excess of federally insured limits. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests. The Company historically has incurred significant losses and negative cash flows from operations since our inception. At March 31, 2023, the Company had cash of $ 239,040 . As described below (see Note 8 – Subsequent Events), in April 2023 the Company raised $1.87 million that we believe will fund our operations into the third quarter of fiscal 2023. The Company has based this estimate, however, on assumptions that may prove to be wrong. We will need additional funding to complete the development of our full product line, scale products with a demonstrated market fit and generate revenue and cash flow. Management has plans to secure such additional funding. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce, or eliminate our technology development and commercialization efforts. Management has secured additional funding after March 31, 2023, as described in more detail in Note 8 – Subsequent Events: - As previously disclosed, on November 14, 2022, the Company entered into a Secured Bridge Note (“Prior Note”) financing with one accredited investor who is a significant existing stockholder of the Company. On April 17, 2023, the Company entered into an additional Secured Bridge Note (“New Note”) financing with the same accredited investor. On April 18, 2023, the Company received $750,000 of gross proceeds in connection with the New Note. - In addition, on April 17 and April 20, 2023, the Company closed on two sales of Common Stock under our existing equity line purchase agreement with White Lion. The Company issued an aggregate of 1,962,220 common shares and received aggregate proceeds of approximately $1.12 million from these sales. The Company believes that with its cash on hand as of March 31, 2023, of 239,040, combined with the proceeds from the New Note and the White Lion common stock sales of $750,000 and $1.12 million, respectively, and by exercising our option to extend the Prior Note to November 30, 2023, we will be able to fund our operations into the third quarter of fiscal 2023. The Company has based this estimate, however, on assumptions that may prove to be wrong. We will need additional funding to complete the development of our full product line, scale products with a demonstrated market fit and generate revenue and cash flow. Management intends to secure such additional funding. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce, or eliminate our technology development and commercialization efforts. 6 Software Development Costs The Company accounts for costs incurred in the development of computer software as software research and development costs until the preliminary project stage is completed, management has committed to funding the project, and completion and use of the software for its intended purpose is probable. The Company ceases capitalization of development costs once the software has been substantially completed and is available for its intended use. Software development costs are amortized over a useful life estimated by the Company’s management of three years. Costs associated with significant upgrades and enhancements that result in additional functionality are capitalized. Capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in software technologies. Unamortized capitalized software development costs determined to be in excess of anticipated future net revenues are considered impaired and expensed during the period of such determination. Software development costs of $ 270,574 and $ 661,214 were capitalized for the three months ended March 31, 2023, and 2022, respectively. Amortization of capitalized software development costs were $ 436,425 and $ 168,036 for the three months ended March 31, 2023, and 2022, respectively and are included in depreciation and amortization expense. Revenue Recognition Revenue will be measured according to Accounting Standards Codification (“ASC”) 606, Revenue – Revenue from Contracts with Customers, and 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 will recognize revenue when we satisfy a performance obligation by transferring control over a service or product to a customer. We will report revenues net of any tax assessed by a governmental authority that is both imposed on, and concurrent with, a specific revenue-producing transaction between a seller and a customer in our condensed statements of operations. Collected taxes will be recorded within Other current liabilities until remitted to the relevant taxing authority. Subscriber revenue will consist primarily of subscription fees and other ancillary subscription-based revenues. Revenue will be recognized on a straight-line basis when the performance obligations to provide each service for the period are satisfied, which is over time as our subscription services are continuously available and can be consumed by customers at any time. There is no revenue recognized for unpaid trial subscriptions. Customers may pay for the services in advance of the performance obligation and therefore these prepayments are recorded as deferred revenue. The deferred revenue will be recognized as revenue in our statement of operations as the services are provided. Share-Based Compensation The Company accounts for share-based compensation arrangements with employees, directors, and consultants and recognizes the compensation expense for share-based awards based on the estimated fair value of the awards on the date of grant in accordance with ASC 718. Compensation expense for all share-based awards is based on the estimated grant-date fair value and recognized in earnings over the requisite service period (generally the vesting period). The Company records share-based compensation expense related to non-employees over the related service periods. Certain stock awards include a net-share settlement feature that provides the grantee an option to withhold shares to satisfy tax withholding requirements and are classified as a share-based compensation liability. Cash paid to satisfy tax withholdings is classified as financing activities in the condensed statements of cash flows. Emerging Growth Company Status The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies. 7 Note 2 – Property & Equipment and Software Development Costs Property and equipment and software development costs consisted of the following as of: Schedule of property, equipment and software development costs March 31, 2023 December 31, 2022 Computers and equipment $ 99,939 $ 99,939 Furniture 7,262 7,262 Accumulated depreciation ( 72,731 ) ( 66,121 ) Total property and equipment, net $ 34,470 $ 41,080 Software development costs $ 6,896,623 $ 6,626,049 Accumulated amortization ( 2,928,249 ) ( 2,491,824 ) Total software development costs, net $ 3,968,374 $ 4,134,225 The Company recognized depreciation expense of $ 6,610 and $ 8,091 for the three months ended March 31, 2023, and 2022, respectively related to property and equipment and amortization expense of $ 436,425 and $ 168,036 for the three months ended March 31, 2023, and 2022, respectively related to software development costs. Note 3 – Balance Sheet Disclosures Accounts payable and accrued liabilities consist of the following: Schedule of accounts payable and accrued liabilities March 31, 2023 December 31, 2022 Accounts payable and accrued liabilities $ 389,183 $ 289,955 Credit cards payable 15,897 6,072 Accrued interest 83,111 28,111 Accounts payable and accrued liabilities $ 488,191 $ 324,138 Note 4 – Note Payable to Related Party In November 2022, the Company entered into a Secured Bridge Note (“Prior Note”) financing with an existing stockholder of the Company. The principal amount of the Note is $ 2,200,000 including an original issue discount of $ 200,000 . The Prior Note bears interest an annual rate of 10 % and matures in May 2023. The Prior Note is secured by a lien on substantially all of the Company’s assets. At maturity, the lender has the option to convert any original issue discount and accrued but unpaid interest into shares of the Company’s common stock at a fixed conversion price of $ 1.23 per share. The conversion right is available to the lender at the earlier of (i) maturity, or (ii) payback of all the principal. In connection with the Prior Note financing, the Company issued 300,000 common stock warrants with a five-year term and an exercise price of $ 2.10 per share. The warrants were valued at $ 361,878 , which was recorded as an additional debt discount. The Company has the option to extend the maturity date by six months to November 2023. In the event of an extension, the interest rate on the Prior Note will increase to 20% and the Company will issue to the lender an additional 300,000 warrants. As of March 31, 2023, and December 31, 2022, the balance of the Note, net of debt issuance costs, was $ 2,026,897 and $ 1,775,956 , respectively. Interest expense related to the Note for the three months ended March 31, 2023, was $305,941. On April 17, 2023, the Company entered into an additional Secured Bridge Note (“New Note”) financing with the same accredited investor and significant existing stockholder and also amended the terms of the Prior Note as described in more detail in Note 8 – Subsequent Events. 8 Note 5 – Commitments and Contingencies Operating Lease In April 2021, the Company entered into a lease agreement for office space in Boulder, Colorado comprising 8,639 square feet. The lease commenced on May 15, 2021, and terminated after 12 months. The Company subsequently extended the lease through November 2022. In November 2022, the Company amended the lease, reducing the square footage rented to 2,160 with a base rent of $4,018 per month. The amended lease terminates after 13 months. Rent expense was $ 12,053 and $ 21,449 for the three months ended March 31, 2023, and 2022, respectively. Litigation In the normal course of business, the Company is party to litigation from time to time. The Company maintains insurance to cover certain actions and believes that resolution of such litigation will not have a material adverse effect on the Company. Contingencies A pre-IPO investor has contacted the Company claiming damages caused by alleged acts and omissions arising from a private financing by the Company. No complaint has been filed by the investor. The alleged damages asserted by the investor are less than approximately $300,000. The Company believes it has meritorious defense to the investor's claims. Note 6 - Share-based Issuances 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, 2022 1,663,173 $ 2.45 Granted 150,200 1.12 Forfeited/canceled ( 2,500 ) 1.79 Exercised – – Outstanding - March 31, 2023 1,810,873 $ 2.34 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 0.58 68,518 $ 2.70 $2.90 53,128 $ 2.90 4.61 53,128 $ 2.90 $4.26 171,197 $ 4.26 6.23 165,591 $ 4.26 $2.79 772,194 $ 2.79 7.73 506,872 $ 2.79 $1.79 206,250 $ 1.79 8.49 68,437 $ 1.79 $1.21 389,386 $ 1.21 9.45 258,793 $ 1.21 $1.12 150,200 $ 1.12 9.86 – $ 1.12 Total - March 31, 2023 1,810,873 $ 2.34 7.85 1,121,339 $ 2.58 ________________________ * Price and Life reflect the weighted average exercise price and weighted average remaining contractual life, respectively. 9 During the three months ended March 31, 2023, the Company granted 150,200 stock options to an executive. Under the terms of the option agreement, the options are subject to certain vesting requirements. The fair value of each award is determined using the Black-Scholes option-pricing model which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, and the risk-free interest rate over the expected life of the option. The expected volatility was determined considering comparable companies historical stock prices as a peer group for the fiscal year the grant occurred and prior fiscal years for a period equal to the expected life of the option. The risk-free interest rate was the rate available from the St. Louis Federal Reserve Bank with a term equal to the expected life of the option. The expected life of the option was estimated based on a mid-point method calculation. Restricted Stock Units The following table presents the activity for restricted stock units outstanding: Schedule of restricted stock outstanding Weighted Restricted Average Grant Stock Units Date Fair Value Outstanding - December 31, 2022 563,858 $ 2.14 Granted 37,500 1.24 Forfeited/canceled – – Vested/issued ( 289,108 ) 1.88 Outstanding – March 31, 2023 312,250 $ 2.28 During the three months ended March 31, 2023, the Company granted 37,500 restricted stock units. Under terms of the restricted stock agreement, the restricted stock units are subject to a certain vesting schedule. In 2023, certain restricted stock unit holders elected a net-share settlement for vested shares to satisfy income tax requirements. The Company applied modification accounting in accordance with ASC 718 and recorded the expected value of these share-based awards as a liability. The Company recognized a share-based compensation liability as of March 31, 2023, of $ 17,739 related to the fair value of vested shares over the service period. The Company recognized share-based compensation expense related to stock options and restricted stock units of $ 357,680 and $ 385,908 for the three months ended March 31, 2023, and 2022, respectively. The remaining unvested share-based compensation expense of $ 1,616,569 is expected to be recognized over the next 37 months. Warrants The following table presents the activity for warrants outstanding: Schedule of warrant activity Weighted Warrants Average Outstanding Exercise Price Outstanding - December 31, 2022 4,472,099 $ 4.62 Granted – – Forfeited/cancelled/restored – – Exercised – – Outstanding - March 31, 2023 4,472,099 $ 4.62 All of the outstanding warrants are exercisable and have a weighted average remaining contractual life of approximately 2.82 years as of March 31, 2023. 10 Note 7 – Net Loss Per Share Basic net loss per share is computed by dividing net loss, which is allocated based upon the proportionate amount of weighted average shares outstanding, to each class of stockholder’s stock outstanding during the period. For the calculation of diluted net loss per share, net loss per share attributable to common stockholders for basic net loss per share is adjusted by the effect of dilutive securities, including awards under our equity compensation plans. As of March 31, 2023, and 2022, 6,669,184 shares and 6,248,131 shares, respectively of potentially dilutive weighted average shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented. Note 8 – Subsequent Events Interim Bridge Financing Additional Secured Bridge Note Financing As previously disclosed, on November 14, 2022, the Company entered into a Secured Bridge Note (“Prior Note”) financing with one accredited investor who is a significant existing stockholder of the Company. The Company received $2,000,000 of gross proceeds in connection with that financing. On April 17, 2023, the Company entered into an additional Secured Bridge Note (“New Note”) financing with the same accredited investor. The Company received $750,000 of gross proceeds in connection with the New Note financing. The principal amount of the New Note is $825,000. The New Note has a 10% interest rate and matures on July 31, 2023. The New Note is secured by a lien on substantially all of the Company’s assets. At maturity, the investor has the option to convert any original issue discount and accrued but unpaid interest on the New Note into shares of the Company’s common stock. The fixed conversion price is $0.61 per share. In connection with the New Note financing, the Company issued to the investor 650,000 common stock warrants with a five-year term and a fixed $0.61 per share exercise price. 325,000 of such warrants are exercisable immediately. The other 325,000 of such warrants would only become exercisable if the maturity date of the New Note is extended in accordance with the terms of the New Note. If the New Note remains outstanding as of July 31, 2023, the Company has the option to extend the maturity date of the New Note to November 30, 2023. Upon such extension, the interest rate on the New Note will be increased to 20% rather than 10%, and the 325,000 portion of the warrants shall become exercisable. Amendments to Prior Secured Bridge Note Financing In connection with the New Note financing, the parties agreed to make certain amendments to the Prior Note financing. The parties agreed to cancel the 300,000 common stock warrants issued November 14, 2022, in connection with the Prior Note financing. In addition, the Company issued to the investor common stock warrants for 600,000 common shares, with an exercise price of $0.61 per common share and a five-year term. 300,000 of such warrants are exercisable immediately. The other 300,000 of such warrants would only become exercisable if the maturity date of the Prior Note is extended in accordance with the terms of the Prior Note. The investor will not be able to receive shares upon conversion or exercise, unless prior stockholder approval is obtained, if the number of shares to be issued to the investor, when aggregated with all other shares of common stock then owned by the investor beneficially or deemed beneficially owned by the investor, would (i) result in the investor owning more than the Beneficial Ownership Limitation (as defined below), as determined in accordance with Section 13 of the Securities Exchange Act of 1934 or (ii) otherwise constitute a Change of Control within the meaning of Nasdaq Rule 5635(b). The “Beneficial Ownership Limitation” shall be 19.99% of the number of shares of the common stock outstanding immediately prior to the proposed issuance of shares of common stock. 11 Equity Line Sales of Common Stock As previously disclosed, on November 14, 2022, the Company entered into a Common Stock Purchase Agreement (the “White Lion Purchase Agreement”) with White Lion Capital, LLC, a Nevada limited liability company (“White Lion”) for an equity line facility. On April 17 and April 20, 2023, the Company closed on two sales of Common Stock under the White Lion Purchase Agreement. The Company issued an aggregate of 1,962,220 common shares and received aggregate proceeds of approximately $1.12 million. 12 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the unaudited condensed financial statements and related notes included elsewhere in this Quarterly Report and our audited financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 23, 2023. This discussion and analysis and other parts of this Quarterly Report contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report. You should carefully read the “Risk Factors” section of this Quarterly Report and of our Annual Report on Form 10-K for the year ended December 31, 2022, to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.” Overview Auddia is a technology company headquartered in Boulder, CO that is reinventing how consumers engage with audio through the development of a proprietary AI platform for audio and innovative technologies for podcasts. Auddia is leveraging these technologies within its industry-first audio Superapp, faidr (previously known as the Auddia App). faidr gives consumers the opportunity to listen to any AM/FM radio station with no commercials while personalizing the listening experience through skips and the insertion of on-demand content, including popular and new music, news, and weather. The faidr app represents the first-time consumers can combine the local content uniquely provided by AM/FM radio with commercial-free and personalized listening many consumers demand from digital-media consumption. In addition to commercial-free AM/FM, faidr includes podcasts and exclusive content, branded faidrRadio, which includes new artist discovery, curated music stations, and Music Casts. Music Casts are unique to faidr. Hosts and DJs can combine on-demand talk segments with dynamic music streaming, which allows users to hear podcasts with full music track plays embedded in the episodes. Auddia has also developed a podcasting platform that provides a unique suite of tools that helps Podcasters create additional digital content for their podcast episodes as well as plan their episodes, build their brand, and monetize their content with new content distribution channels. This podcast platform also gives users the ability to go deeper into the stories through supplemental, digital content, and eventually comment and contribute their own content to episode feeds. Both of Auddia’s offerings address large and rapidly growing audiences. The Company has developed its AI platform on top of Google’s TensorFlow open-source library that is being “taught” to know the difference between all types of audio content on the radio. For instance, the platform recognizes the difference between a commercial and a song and is learning the differences between all other content to include weather reports, traffic, news, sports, DJ conversation, etc. Not only does the technology learn the differences between the various types of audio segments, but it also identifies the beginning and end of each piece of content. The Company is leveraging this technology platform within its premium AM/FM radio listening experience through the faidr App. The faidr App is intended to be downloaded by consumers who will pay a subscription fee in order to listen to any streaming AM/FM radio station without commercials, podcasts and the faidrRadio exclusive content offerings. Advanced features will allow consumers to skip any content heard on the station, request audio content on-demand, and program an audio routine. We believe the faidr App represents a significant differentiated audio streaming product, or Superapp, that will be the first to come to market since the emergence of popular streaming music apps such as Pandora, Spotify, Apple Music, Amazon Music, etc. We believe that the most significant point of differentiation is that in addition to ad-free AM/FM streaming, the faidr App is intended to deliver non-music content that includes local sports, news, weather, traffic and the discovery of new music alongside exclusive programming and podcasts. No other radio streaming app available today, including category leaders like TuneIn, iHeart, and Audacy, can compete with faidr’s full product offerings. 13 We launched an MVP version of faidr through several consumer trials in 2021 to measure consumer interest and engagement with the App. The full app launched on February 15, 2022, and included all major U.S. radio stations in the US. In February 2023, we added faidrRadio, our exclusive content offerings, to the app. Podcasts for iOS were added in Q1, 2023. The Company has also developed its podcasting platform, which leverages technologies and proven product concepts to differentiate its podcasts offering from other competitors in the radio streaming product category. With podcasting growing and predicted to grow at a rapid rate, the Auddia podcast platform was conceptualized to fill a void in the emerging audio media space. The platform aims to be the preferred podcasting solution for podcasters by enabling them to deliver digital content feeds that match the audio of their podcast episodes, and by enabling podcasters to make additional revenue from new digital advertising channels; subscription channels; on-demand fees for exclusive content; and through direct donations from their listeners. Today, podcasters do not have a preference as to where their listeners access their episodes, as virtually all listening options (mobile apps and web players) deliver only their podcast audio. By creating a platform on which they can make net new and higher margin revenue, we believe that podcasters will promote faidr to their listeners, thus creating a powerful, organic marketing dynamic. One innovative and proprietary part of the podcast platform is the availability of tools to create and distribute an interactive digital feed which supplements podcast episode audio with additional digital. These content feeds allow podcasters to tell deeper stories to their listeners while giving podcasters access to digital revenue for the first time. Podcasters will be able to build these interactive feeds using The Podcast Hub, a content management system that also serves as a tool to plan and manage podcast episodes. The digital feed activates a new digital ad channel that turns every audio ad into a direct-response, relevant-to-the-story, digital ad, increasing the effectiveness and value of their established audio ad model. The feed also presents a richer listening experience, as any element of a podcast episode can be supplemented with images, videos, text and web links. This feed will appear fully synchronized in the faidr mobile App, and it also can be hosted and accessed independently (e.g., through any browser), making the content feed universally distributable. Over time, users will be able to comment, and podcasters will be able to grant some users publishing rights to add content directly into the feed on their behalf. This will create another first for podcasting, a dialog between creator and fan, synchronized to the episode content. The podcast capabilities within faidr will also introduce a unique and industry first multi-channel, highly flexible set of revenue channels that podcasters can activate in combination to allow listeners to choose how they want to consume and pay for content. “Flex Revenue” allows podcasters to continue to run their standard audio ad model and complement those ads with direct response enabled digital ads in each episode content feed, increasing the value of advertising on any podcast. “Flex Revenue” will also activate subscriptions, on-demand fees for content (e.g., listen without audio ads for a micro payment fee) and direct donations from listeners. Using these channels in combination, podcasters can maximize revenue generation and exercise higher margin monetization models, beyond basic audio advertising. The faidr mobile App is available today through the iOS and Android App stores. We have funded our operations with proceeds from the February 2021 IPO and Series A warrants exercise in July 2021. Since inception we have incurred significant operating losses. As of March 31, 2023, we had an accumulated deficit of $73.9 million. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and commercialization of one or more of our Apps. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we: · nationally launch our faidr App and as we continue training our proprietary AI technology and make product enhancements; · continue to develop and expand our technology and functionality to advance the faidr app; · rollout our product on a national basis, which will include increasing our sales and marketing costs related to the promotion of our products. faidr promotion will include a combination of a) purchasing ads directly from broadcasters or b) participating broadcasters to promote without purchasing ads, but sharing a portion of subscription proceeds based on listening activity on those stations; · hire additional business development, product management, operational and marketing personnel; · continue market studies of our products; and · add operational and general administrative personnel which will support our product development programs, commercialization efforts and our transition to operating as a public company. 14 As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. At March 31, 2023, the Company had cash of $239,040. As described above (see Note 8 – Subsequent Events), in April 2023 the Company raised $1.87 million that we believe will fund our operations into the third quarter of fiscal 2023. The Company has based this estimate, however, on assumptions that may prove to be wrong. We will need additional funding to complete the development of our full product line, scale products with a demonstrated market fit and generate revenue and cash flow. Management has plans to secure such additional funding. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce, or eliminate our technology development and commercialization efforts. As a result of the Company’s recurring losses from operations, and the need for additional financing to fund its operating and capital requirements, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern. In April 2023, the Company announced that it had begun to pursue an acquisition strategy to accelerate user acquisition and growth of revenue and cash flow. The Company has explored numerous potential acquisition targets of AM/FM streaming aggregators over the past year and a half and continues to explore new opportunities. At present, the Company is in advanced active discussions with three properties. Additional funding would be required to complete any of these potential acquisitions. Refer to Item 1A. Risk Factors under PART II – OTHER INFORMATION in this Form 10-Q for risk factors associated with this growth strategy. Components of our results of operations Operating expenses Direct costs of services Direct cost of services consists primarily of costs incurred related to our technology and development of our Apps, including hosting and other technology related expenses. We expect our direct costs of services to increase in the future as we continue to develop and enhance our technology related to the faidr and podcasting Apps. Sales and marketing Our sales and marketing expenses consist primarily of salaries, direct to consumer promotional spend and consulting services, all of which are related to the sales and promotion performed during the period. We expect our sales and marketing expenses to fluctuate period by period as we release new upgrades and enhancements within our Apps and look to generate revenue through customer acquisition, retention, and subscription conversion. 15 Research and development Since our inception, we have focused significant resources on our research and development activities related to the software development of our technology. We account for costs incurred in the development of computer software as software research and development costs until the preliminary project stage is completed, management has committed to funding the project, and completion and use of the software for its intended purpose is probable. We cease capitalization of development costs once the software has been substantially completed and is available for its intended use. Software development costs are amortized over a useful life estimated by the Company’s management of three years. Costs associated with significant upgrades and enhancements that result in additional functionality are capitalized. Capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in software technologies. Unamortized capitalized software development costs determined to be in excess of anticipated future net revenues are impaired and expensed during the period of such determination. We expect to continue to incur research and development expenses and capitalization in the future as we continue to develop and enhance our faidr and podcasting Apps. General and administrative Our general and administrative expenses consist primarily of salaries and related costs, including payroll taxes, benefits, stock-based compensation, and professional fees related to auditing, tax, general legal services, and consulting services. We expect our general and administrative expenses to continue to increase in the future as we right-size our operating activities and prepare for commercialization of our products and support our operations as a public company, including increased expenses related to legal, accounting, insurance, regulatory and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission requirements, directors and officers liability insurance premiums and investor relations activities. Other income and expense The other income and expense category primarily consists of interest expense attributed to the debt and conversion features of the Secured Bridge Note (aka the Prior Note). We expect our other expense to fluctuate period by period dependent upon either the payoff of the Prior Note or an extension of its term. Results of operations Comparison of the three months ended March 31, 2023, and 2022 The following table summarizes our results of operations: Three Months Ended March 31, 2023 2022 Increase/ (Decrease) Revenue $ – $ – $ – Operating expenses: Direct costs of service 42,301 52,562 (10,261 ) Sales and marketing 225,118 357,066 (131,948 ) Research and development 210,126 148,763 61,363 General and administrative 926,826 1,017,730 (90,904 ) Depreciation and amortization 443,035 176,127 266,908 Total operating expense 1,847,406 1,752,248 95,158 Loss from operations (1,847,406 ) (1,752,248 ) (95,158 ) Other income (expense), net: (307,906 ) (1,010 ) (306,896 ) Net loss $ (2,155,312 ) $ (1,753,258 ) $ (402,054 ) 16 Revenue Total revenues for the three months ended March 31, 2023, and 2022 were $0 as we continue to develop and enhance our faidr and podcasting Apps to establish new revenue streams. Direct cost of services Direct Cost of Services decreased $10,261 or 19.5% from $52,562 for the three months ended March 31, 2022, compared to $42,301 for the three months ended March 31, 2023. This decrease was primarily the result of a reduction in both platform hosting costs and other music services. We continue to incur direct cost of services expense related to hosting and other music services related to the faidr and podcasting Apps and expect these costs to increase in the future. Sales and marketing Sales and marketing expenses decreased by $131,948 or 37%, from $357,066 for the three months ended March 31, 2022, to $225,118 for the three months ended March 31, 2023, primarily attributed to reduced staffing, consulting expense, and marketing and promotions spending as we right sized the marketing organization and ramped down other spending from the Q1 2022 levels that were associated with the national launch of the faidr App. We expect our sales and marketing expenses to fluctuate period by period as we release new upgrades and enhancements within our Apps and look to generate revenue through customer acquisition, retention, and subscription conversion. Research and development Research and development expenses increased by $61,363 or 41.3%, from $148,763 for the three months ended March 31, 2022, to $210,126 for the three months ended March 31, 2023, primarily related to reduced staffing, and an associated reduction in the level of capitalized software expenses. Our research and development staffing costs were $480,700 and capitalized software expenses were $270,574 for the three months ended March 31, 2023, as compared to staffing costs of $809,976 and capitalized software expenses of $661,213 for the three months ended March 31, 2022. We are continually developing enhancements to both our faidr and podcasting Apps and will continue capitalize software costs to the extent that such development qualifies for capitalization. General and administrative General and administrative expenses decreased by $90,904 or 8.9%, from $1,017,730 for the three months ended March 31, 2022, compared to $926,826 for the three months ended March 31, 2023. The decrease resulted from reduced stock compensation expense related to cancelled employee stock option grants from Q1 2022. Stock compensation expense was $357,680 and $385,908 for the three months ended March 31, 2023, and 2022, respectively. The remainder of the expense reduction was attributed to the timing and a decrease in the cost of our D&O insurance policy. Depreciation and amortization Depreciation and amortization expenses increased by $266,908 or 151.5%, from $176,127 for the three months ended March 31, 2022, compared to $443,035 for the three months ended March 31, 2023. The increase is entirely related to the amortization of our faidr and podcasting Apps, which started amortization during Q1 2022 and Q4 2021, respectively. Other income (expense), net Total other expense increased by $306,896, from $1,010 for the three months ended March 31, 2022, to $307,906 for the three months ended March 31, 2023. The increase is related to interest expense attributed to the debt and conversion features of the Secured Bridge Note (aka the Prior Note), which included the finance charges associated with debt issuance costs totaling $250,941 and interest expense of $55,000, respectively. 17 Liquidity and capital resources Sources of liquidity We have incurred operating losses since our inception and have an accumulated deficit as a result of ongoing efforts to develop and commercialize our faidr and podcasting Apps. As of March 31, 2023, and December 31, 2022, we had cash of $239,040 and $1,661,434, respectively. We have a deficiency in working capital in the amount of approximately $2.2 million at March 31, 2023. We anticipate that operating losses and net cash used in operating activities will increase over the next 12 months as we continue to develop and market our products. Interim Bridge Financing Additional Secured Bridge Note Financing As previously disclosed, on November 14, 2022, the Company entered into a Secured Bridge Note (“Prior Note”) financing with one accredited investor who is a significant existing stockholder of the Company. The Company received $2,000,000 of gross proceeds in connection with that financing. On April 17, 2023, the Company entered into an additional Secured Bridge Note (“New Note”) financing with the same accredited investor. The Company received $750,000 of gross proceeds in connection with the New Note financing. The principal amount of the New Note is $825,000. The New Note has a 10% interest rate and matures on July 31, 2023. The New Note is secured by a lien on substantially all of the Company’s assets. At maturity, the investor has the option to convert any original issue discount and accrued but unpaid interest on the New Note into shares of the Company’s common stock. The fixed conversion price is $0.61 per share. In connection with the New Note financing, the Company issued to the investor 650,000 common stock warrants with a five-year term and a fixed $0.61 per share exercise price. 325,000 of such warrants are exercisable immediately. The other 325,000 of such warrants would only become exercisable if the maturity date of the New Note is extended in accordance with the terms of the New Note. If the New Note remains outstanding as of July 31, 2023, the Company has the option to extend the maturity date of the New Note to November 30, 2023. Upon such extension, the interest rate on the New Note will be increased to 20% rather than 10%, and the 325,000 portion of the warrants shall become exercisable. Amendments to Prior Secured Bridge Note Financing In connection with the New Note financing, the parties agreed to make certain amendments to the Prior Note financing. The parties agreed to cancel the 300,000 common stock warrants issued November 14, 2022, in connection with the Prior Note financing. In addition, the Company issued to the investor common stock warrants for 600,000 common shares, with an exercise price of $0.61 per common share and a five-year term. 300,000 of such warrants are exercisable immediately. The other 300,000 of such warrants would only become exercisable if the maturity date of the Prior Note is extended in accordance with the terms of the Prior Note. The investor will not be able to receive shares upon conversion or exercise, unless prior stockholder approval is obtained, if the number of shares to be issued to the investor, when aggregated with all other shares of common stock then owned by the investor beneficially or deemed beneficially owned by the investor, would (i) result in the investor owning more than the Beneficial Ownership Limitation (as defined below), as determined in accordance with Section 13 of the Securities Exchange Act of 1934 or (ii) otherwise constitute a Change of Control within the meaning of Nasdaq Rule 5635(b). The “Beneficial Ownership Limitation” shall be 19.99% of the number of shares of the common stock outstanding immediately prior to the proposed issuance of shares of common stock. 18 Equity Line Sales of Common Stock As previously disclosed, on November 14, 2022, the Company entered into a Common Stock Purchase Agreement (the “White Lion Purchase Agreement”) with White Lion Capital, LLC, a Nevada limited liability company (“White Lion”) for an equity line facility. On April 17 and April 20, 2023, the Company closed on two sales of Common Stock under the White Lion Purchase Agreement. The Company issued an aggregate of 1,962,220 common shares and received aggregate proceeds of approximately $1.12 million. The Company believes that with its cash on hand as of March 31, 2023, of $239,040, combined with the proceeds from the New Note and the White Lion Common Stock sales of $750,000 and $1.12 million, respectively, and by exercising our option to extend the Prior Note to November 30, 2023, we will be able to fund our operations into the third quarter of fiscal 2023. The Company has based this estimate, however, on assumptions that may prove to be wrong. We will need additional funding to complete the development of our full product line, scale products with a demonstrated market fit and generate revenue and cash flow. Management intends to secure such additional funding. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce, or eliminate our technology development and commercialization efforts. Cash Flow Analysis Our cash flows from operating activities have historically been significantly impacted by revenues received, our investment in sales and marketing to drive growth, and research and development expenses. Our ability to meet future liquidity needs will be driven by our operating performance and the extent of continued investment in our operations. Failure to generate sufficient revenues and related cash flows could have a material adverse effect on our ability to meet our liquidity needs and achieve our business objectives. The following table summarizes the statements of cash flows for the three months ended March 31, 2023, and 2022: Three Months Ended March 31, 2023 2022 % Change Net cash provided by (used in): Operating activities $ (1,073,241 ) $ (1,229,996 ) 12.7% Investing activities (270,574 ) (665,023 ) 59.3% Financing activities (78,580 ) (88,722 ) 11.4% Change in cash $ (1,422,394 ) $ (1,983,741 ) 28.3% Operating activities Cash used in operating activities for the three months ended March 31, 2023, was $1,073,241, primarily resulting from our net loss of $2,155,312 and change in working capital of $30,415 related to an increase in accounts payable and accrued liabilities, offset by non-cash charges of $1,051,656 related to depreciation and amortization, share based compensation expense, and finance charges associated with the debt issuance costs of the Secured Bridge Note (aka the Prior Note). Cash used in operating activities for both periods consisted of personnel-related expenditures, marketing and promotion costs, and public company administrative support costs such as legal and other professional support services. Investing activities Cash flows used in investing activities for the three months ended March 31, 2023, was $270,574, consisting entirely of capitalization of software development expenses. Cash flows used in investing activities for the three months ended March 31, 2022, was $665,023, primarily consisting of capitalization of software development expenses of $661,214. 19 Financing activities Cash flows used in financing activities for the three months ended March 31, 2023, was $78,580 related to cash paid by us related to the net-share settlement of vested restricted stock units during the quarter. Cash flows used in financing activities for the three months ended March 31, 2022, was $88,722 related to cash paid by the company related to the net-share settlement of vested restricted stock units during the quarter. Funding Requirements We historically have incurred significant losses and negative cash flows from operations since our inception and had an accumulated deficit of $73.9 million and $71.7 million as of March 31, 2023, and December 31, 2022, respectively. As of March 31, 2023, and December 31, 2022, we had cash of $239,040 and $1.66 million, respectively. Our cash is comprised primarily of demand deposit accounts and money market funds. At March 31, 2023, the Company had cash of $239,040. As described above (see Note 8 – Subsequent Events), in April 2023 the Company raised $1.87 million that we believe will fund our operations into the third quarter of fiscal 2023. The Company has based this estimate, however, on assumptions that may prove to be wrong. We will need additional funding to complete the development of our full product line, scale products with a demonstrated market fit and generate revenue and cash flow. Management has plans to secure such additional funding. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce, or eliminate our technology development and commercialization efforts. As a result of the Company’s recurring losses from operations, and the need for additional financing to fund its operating and capital requirements, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the development, and marketing and promotion of faidr. In addition, we expect to continue to incur additional costs associated with operating as a public company, including legal, accounting, investor relations and other expenses. Our future funding requirements will depend on many factors, including, but not limited to: · the scope, progress, results, and costs related to the market acceptance of our products · the ability to attract podcasters and content creators to faidr and retain listeners on the platform · the costs, timing, and ability to continue to develop our technology · effectively addressing any competing technological and market developments · avoiding and defending against intellectual property infringement, misappropriation, and other claims Contractual Obligations The following table summarizes our contractual obligations not on our Balance Sheet as of March 31, 2023, and the effects that such obligations are expected to have on our liquidity and cash flows in future periods: Payments due by period Total Less Than 1 Year 1 - 3 Years 4 - 5 Years More Than 5 Years Operating lease commitments: Office lease (1) $ 34,150 34,150 – – – Insurance premiums (2) 126,032 126,032 – – – Total operating lease commitments $ 160,182 160,182 – – – (1) Represents minimum payments due for the lease of office space without consideration of additional renewal options (2) Represents premium payments due related to D&O insurance policy from February 2023 – February 2024 20 Off-balance sheet arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. Critical Accounting Policies and Estimates Our condensed financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these condensed financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we continually evaluate our estimates and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results may materially differ from these estimates made by management under different assumptions and conditions. A summary of our critical accounting policies is presented in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2022. There were no material changes to our critical accounting policies during the three months ended March 31, 2023. The Company recorded all adjustments necessary for a fair statement of the results for the interim period and all such adjustments are of a normal recurring nature. Emerging growth company and smaller reporting company status The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to not “opt out” of this provision and, as a result, we will adopt new or revised accounting standards at the time private companies adopt the new or revised accounting standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. We are also a “smaller reporting company” meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. Item 3. Quantitative and Qualitative Disclosures about Market Risk We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective at a reasonable assurance level due to the material weaknesses in internal control over financial reporting described below. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. 21 Internal Control Over Financial Reporting In preparation of our financial statements to meet the requirements of our IPO, we determined that material weaknesses in our internal control over financial reporting existed during fiscal 2018 and remained unremediated as of March 31, 2023. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual and interim financial statements will not be detected or prevented on a timely basis. The material weaknesses we identified are related to the design and maintenance of an effective control environment commensurate with our financial reporting requirements. Specifically, we lacked a sufficient complement of professionals with an appropriate level of accounting knowledge, training, and experience to appropriately analyze, record and disclose accounting matters timely and accurately and we did not design and maintain controls to ensure adequate segregation of duties within our financial reporting function including the preparation and review of journal entries. In response to the material weaknesses, we took a number of actions to improve our internal control over financial reporting and determined that as of March 31, 2023, that although the controls that were designed have been implemented, the documentation and testing of such controls was not yet completed sufficiently enough to conclude that the material weaknesses have been remediated. Remediation Activities Management has been actively engaged in remediating the above-described material weaknesses. The following remedial actions have been taken during the quarter ended March 31, 2023: · continue to strengthen our internal policies, processes, and reviews, including drafting of related documentation thereof; · continue to engage outside consultants to ensure that appropriate level of knowledge and experience is applied based on risk and complexity of transactions and tasks under review; · complete the internal control documentation with our consultants who have been engaged to assist in the design, implementation, and documentation of internal controls to address the relevant risks; and · hired additional accounting resources with appropriate levels of experience, including a new chief financial officer in February of 2023 The process of implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. As we continue to evaluate and take actions to improve our internal control over financial reporting, we may take additional actions to address control deficiencies or modify certain of the remediation measures described above. While progress has been made to enhance our internal control over financial reporting, we are still in the process of implementing these processes, procedures, and controls. Additional time is required to complete this phase and to assess and ensure the sustainability of these procedures. We believe the above actions will be effective in remediating the material weaknesses described above and we will continue to devote significant time and attention to these remedial efforts. However, the material weaknesses cannot be considered remediated until the applicable remedial controls have been documented and tested such that management has concluded that these controls are operating effectively. Changes in Internal Control Over Financial Reporting Other than the applicable remediation efforts described in “Remediation of Previously Reported Material Weaknesses” above, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the first quarter of 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 22 PART II – OTHER INFORMATION Item 1. Legal Proceedings From time to time, we are involved in various disputes, claims, suits, investigations, and legal proceedings arising in the ordinary course of business. We believe that the resolution of current pending legal matters will not have a material adverse effect on our business, financial condition, results of operations or cash flows. Nonetheless, we cannot predict the outcome of these proceedings, as legal matters are subject to inherent uncertainties, and there exists the possibility that the ultimate resolution of these matters could have a material adverse effect on our business, financial condition, results of operations or cash flows. For additional information, see “Note 5. Commitments and Contingencies” to our financial statements included in this Form 10-Q. Item 1A. Risk Factors In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors disclosed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. Except as set forth below, there have been no material changes to our risk factors from those included in our Annual Report on Form 10-K for the year ended December 31, 2022. While our recently announced growth strategy includes seeking acquisitions of other companies or assets in our industry sector, we may not be successful in identifying, making and integrating business or asset acquisitions, if any, in the future. As announced in April 2023, we anticipate that a component of our growth strategy may be to make strategically focused acquisitions of businesses or assets. Pursuit of this strategy may be restricted by the on-going volatility and uncertainty within the capital markets which may significantly limit the availability of funds for such acquisitions. Our ability to use shares of our common stock in an acquisition transaction may be adversely affected by the volatility in the price of our common stock and by the potential requirement of shareholder approval under applicable Nasdaq listing rules. In addition to restricted funding availability, the success of our recently announced strategy will depend on our ability to identify suitable acquisition candidates and to negotiate acceptable financial and other terms. There is no assurance that we will be able to do so. The success of an acquisition also depends on our ability to perform adequate due diligence before the acquisition and on our ability to integrate the acquisition after it is completed. While we intend to commit significant resources to ensure that we conduct comprehensive due diligence, there can be no assurance that all potential risks and liabilities will be identified in connection with an acquisition. Similarly, while we expect to commit substantial resources, including management time and effort, to integrating acquired businesses into ours, there is no assurance that we will be successful in integrating these businesses. If we fail in performing adequate due diligence or in successfully integrating acquired businesses, our future operations would be negatively impacted. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None. Issuer Purchases of Equity Securities We did not repurchase any of our equity securities during the three months ended March 31, 2023. Item 3. Defaults Upon Senior Securities None. Item 4. Mine Safety Disclosures None. Item 5. Other Information None. 23 Item 6. Exhibits The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Quarterly Report are listed in the Exhibit Index below. The exhibits listed in the Exhibit Index are incorporated by reference herein. Exhibit Number Description of Document Incorporated by reference from Form Filing Date Exhibit Number Filed Herewith 2.2 Form of Plan of Conversion 8-K 02-22-2021 2.1 3.1 Certificate of Incorporation of the Company 8-K 02-22-2021 3.1 3.2 Bylaws of the Company 8-K 02-22-2021 3.2 3.3 Form of Warrant after Conversion from an LLC to a Corporation S-1/A 01-28-2020 3.5 3.4 Form of Series A Warrant S-1/A 02-05-2021 3.6 4.1 Form of Common Stock Certificate S-1/A 10-08-2020 4.1 4.2 Form of Representative’s Common Stock Purchase Warrant 8-K 02-22-2021 4.1 4.3 Description of Securities 10-K 03-31-2021 4.3 10.1 # Employment Agreement of Michael T. Lawless S-1 01-10-2020 10.1 10.2 # Employment Agreement of Peter Shoebridge S-1 01-10-2020 10.2 10.3 # Form of Auddia Inc. 2020 Equity Incentive Plan S-1/A 10-22-2020 10.3 10.4 Collateral and Security Agreement with Related Party (Minicozzi) S-1/A 01-28-2020 10.4 10.5 Form of Amendment to Collateral and Security Agreement with Related Party S-1/A 10-08-2020 10.5 10.6 Form of Convertible Promissory Note S-1/A 01-28-2020 10.6 10.7 Business Loan Agreement and Guaranty of Related Party with Bank of the West S-1/A 01-28-2020 10.7 10.8 ** Agreement with Major United States Broadcast Company S-1/A 01-28-2020 10.8 10.9 Form of Bridge Note S-1/A 10-22-2020 10.9 10.10 Form of Warrant Agent Agreement S-1/A 02-05-2021 10.10 10.11 Amendment to Bridge Note S-1/A 10-22-2020 10.14 10.12 Amended Business Loan Agreement with Bank of the West 10-K 03-31-2021 10.15 10.13 # First Amendment to 2020 Equity Incentive Plan S-8 08-10-2021 99.2 10.14 # Form of Stock Option Grant Notice and Stock Option Agreement under 2020 Equity Incentive Plan S-8 08-10-2021 99.3 10.15 # Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under 2020 Equity Incentive Plan S-8 08-10-2021 99.4 10.16 # Form of Inducement Stock Option Grant Notice and Inducement Stock Option Agreement S-8 08-10-2021 99.5 10.17 # Clip Interactive, LLC 2013 Equity Incentive Plan S-8 08-10-2021 99.6 10.18 # Form of Stock Option Grant Notice and Stock Option Agreement under 2013 Equity Incentive Plan S-8 08-10-2021 99.7 10.19 # Executive Officer Employment Agreement for Michael Lawless dated October 13, 2021 8-K 10-15-2021 10.1 10.20 # Executive Officer Employment Agreement for Peter Shoebridge dated October 13, 2021 8-K 10-15-2021 10.2 10.21 # Executive Officer Employment Agreement for Brian Hoff dated October 13, 2021 8-K 10-15-2021 10.3 10.22 # Executive Officer Employment Agreement for Timothy Ackerman effective as of February 6, 2023 8-K 02-16-2023 10.1 10.23 Secured Promissory Bridge Note dated November 14, 2022 8-K 11-14-2022 10.1 10.24 Common Stock Warrant dated November 14, 2022 8-K 11-14-2022 10.2 10.25 Security Agreement dated November 14, 2022 8-K 11-14-2022 10.3 10.26 Common Stock Purchase Agreement, dated November 14, 2022, by and between Auddia Inc. and White Lion Capital LLC 8-K 11-14-2022 10.4 10.27 Secured Promissory Bridge Note dated April 17, 2021 8-K 04-21-2023 10.1 10.28 Common Stock Warrant for 600,000 shares dated April 17, 2023 8-K 04-21-2023 10.2 10.29 Common Stock Warrant for 650,000 shares dated April 17, 2023 8-K 04-21-2023 10.3 31.1 Section 302 Certification by the Corporation’s Chief Executive Officer X 31.2 Section 302 Certification by the Corporation’s Chief Financial Officer X 32.1 Section 906 Certification by the Corporation’s Chief Executive Officer X 32.2 Section 906 Certification by the Corporation’s Chief Financial Officer X 101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101). ___________________________ # Indicates management contract or compensatory plan. ** Certain information contained in this Exhibit has been redacted and appears as “XXXXX” as the disclosure of same would be a disadvantage to the Registrant in the marketplace 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AUDDIA INC. By: /s/ Michael Lawless Michael Lawless President, Chief Executive Officer and Director By: /s/ Tim Ackerman Tim Ackerman Chief Financial Officer Date: May 19, 2023 25