AUDDIA INC. 10-Q

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