AUDDIA INC. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS Page Auddia Inc. Annual Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID: 457 ) F-1 Report of Independent Registered Public Accounting Firm (PCAOB ID: 229 ) F-2 Balance Sheets as of December 31, 2023 and 2022 F-4 Statements of Operations, Years Ended December 31, 2023 and 2022 F-5 Statements of Changes in Stockholders’ Equity, Years Ended December 31, 2023 and 2022 F-6 Statements of Cash Flows, Years Ended December 31, 2023 and 2022 F-7 Notes to Financial Statements F-8 45 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Auddia, Inc. Opinion on the Financial Statements We have audited the accompanying balance sheet of Auddia, Inc. (the Company) as of December 31, 2023, and the related statements of operations, changes in stockholders’ equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Substantial Doubt about the Company’s Ability to Continue as a Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a deficiency in stockholders’ equity that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Retrospective Adjustment for Reverse Stock Splits We have audited the adjustments to the 2022 financial statements to retrospectively apply the effects of the reverse stock split, as described in Notes 1 and 9. In our opinion, such retrospective adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2022 financial statements of the Company other than with respect to these retrospective adjustments for the reverse stock split and, accordingly, we do not express an opinion or any other form of assurance on the 2022 financial statements taken as a whole. /s/ Haynie & Company Haynie & Company Littleton, Colorado April 1, 2024 We have served as the Company’s auditor since 2023. F- 1 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders Auddia Inc. Boulder, Colorado Opinion on the Financial Statements We have audited, before the effects of the adjustments to retrospectively apply the effects of the reverse stock split described in Note 1 – Description of Business, Basis of Presentation and Summary of Significant Accounting Policies – Reverse Stock Split (Reverse Stock Split), the accompanying balance sheet of Auddia Inc. (the “Company”) at December 31, 2022, and the related statements of operations, changes in stockholders’ equity and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, before the effects of the adjustments to retrospectively apply the reverse stock split described in Note 1 – Description of Business, Basis of Presentation and Summary of Significant Accounting Policies – Reverse Stock Split (Reverse Stock Split), the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. We were not engaged to audit, review, or apply any procedures to the adjustments for the retrospective effect of the Stock Split described in Note 1 – Description of Business, Basis of Presentation and Summary of Significant Accounting Policies – Reverse Stock Split (Reverse Stock Split), and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments and disclosures are appropriate and have been properly applied. Those adjustments and disclosures were audited by Haynie & Company. (The 2022 financial statements before the effects of the adjustments discussed in Note 1 – Reverse Stock Split and the disclosures described in Note 6 – Share-based Compensation, Note 7 – Equity Financing – Warrants, and Note 9 – Net Loss Per Share are not presented herein). Going Concern Uncertainty The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a deficiency in working capital and shareholders’ equity that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. F- 2 Critical Audit Matters The critical audit matters communicated below are matters arising from the audit of the December 31, 2022 financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Intangible Assets Impairment Assessment As described in Notes 1 and 2 to the financial statements, the Company has software development costs of approximately $4.1 million at December 31, 2022. No directly observable market inputs are available to measure the fair value to determine if the asset is recoverable. Therefore, an estimate is derived indirectly and is based on a mix of cash flow and market models. The estimate that management used in calculating the fair values depend on assumptions specific to the nature of the markets in which its product operates with regard to the amount and timing of projected future revenues, operating cash flows, long-term subscriber demand forecasts, actions of competitors (competing content), capital expenditures, and future tax rates. The principal considerations for our determination that performing procedures relating to the intangible assets impairment assessment is a critical audit matter are the significant judgment by management when developing the fair value of the intangible assets. This led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the amount and timing of projected future cash flows. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing management’s process for developing the fair value estimate; evaluating the appropriateness of the valuation techniques; testing the completeness and accuracy of underlying data used in the model; and evaluating the significant assumptions used by management, including the amount and timing of projected future cash flows. Evaluating management’s assumptions related to the amount and timing of projected future cash flows and evaluating whether the assumptions used by management were reasonable considering the current and past performance of the intangible assets, the consistency with external market and industry data, and whether these assumptions were consistent with evidence obtained in other areas of the audit. /s/ Daszkal Bolton LLP Daszkal Bolton LLP Boca Raton, Florida March 20, 2023 We served as the Company’s auditor from 2020 to March 2023. F- 3 Auddia, Inc. Balance Sheets December 31, 2023 December 31, 2022 ASSETS Current assets: Cash $ 804,556 $ 1,661,434 Accounts receivable, net 494 137 Prepaid insurance 28,993 – Total current assets 834,043 1,661,571 Non-current assets: Property and equipment, net of accumulated depreciation 18,099 41,080 Software development costs, net of accumulated amortization 3,347,935 4,134,225 Deferred offering costs 170,259 222,896 Prepaids and other non-current assets 32,712 51,754 Total non-current assets 3,569,005 4,449,955 Total assets $ 4,403,048 $ 6,111,526 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 911,664 $ 324,138 Notes payable to related party, net of debt issuance costs 3,025,000 1,775,956 Stock awards liability 45,964 161,349 Total current liabilities 3,982,628 2,261,443 Total liabilities 3,982,628 2,261,443 Commitments and contingencies (Note 5) – – Shareholders' equity: Preferred stock - $ 0.001 par value, 10,000,000 authorized and 0 shares issued and outstanding – – Common stock - $ 0.001 par value, 100,000,000 authorized and 854,162 and 506,198 shares issued and outstanding December 31, 2023 and December 31, 2022, respectively (1) 854 506 Additional paid-in capital 80,962,896 75,585,411 Accumulated deficit ( 80,543,330 ) ( 71,735,834 ) Total shareholders' equity 420,420 3,850,083 Total liabilities and shareholders' equity $ 4,403,048 $ 6,111,526 (1) The Company’s common stock outstanding as of December 31, 2023 and 2022 has been retroactively restated for the effect of the 25-for-1 reverse stock split. See Accompanying Notes to Financial Statements. F- 4 Auddia, Inc. Statements of Operations Year Ended December 31, 2023 2022 Revenue $ – $ – Operating expenses: Direct cost of services 181,679 180,690 Sales and marketing 1,096,106 1,673,692 Research and development 781,017 654,879 General and administrative 3,576,729 3,223,520 Depreciation and amortization 1,840,837 991,639 Total operating expenses 7,476,368 6,724,420 Loss from operations ( 7,476,368 ) ( 6,724,420 ) Other (expense) income: Interest expense ( 1,331,128 ) ( 173,027 ) Interest income – 1 Total other expense ( 1,331,128 ) ( 173,026 ) Loss before income taxes ( 8,807,496 ) ( 6,897,446 ) Provision for income taxes – – Net loss $ ( 8,807,496 ) $ ( 6,897,446 ) Net loss per share attributable to common stockholders Basic and diluted $ ( 12.93 ) $ ( 13.79 ) Weighted average common shares outstanding (1) Basic and diluted 681,229 500,095 (1) The Company’s weighted average common shares outstanding for the years ended December 31, 2023 and 2022 have been retroactively restated for the effect of the 25-for-1 reverse stock split. See Accompanying Notes to Financial Statements. F- 5 Auddia Inc. Statements of Changes in Stockholders' Equity For the Years Ended December 31, 2023 and 2022 Year Ended December 31, 2023 Common Stock (1) Additional Number of Shares Par Value Paid-In- Capital (1) Accumulated Deficit Total Balance, December 31, 2022 506,198 $ 506 $ 75,585,411 $ ( 71,735,834 ) $ 3,850,083 Issuance of common shares, net of costs 283,861 284 3,963,601 – 3,963,885 Adjustments related to reverse stock split 56,310 56 ( 56 ) – – Exercise of Restricted Stock Units 7,830 8 ( 8 ) – – Issuance of warrants – – 383,004 – 383,004 Share-based compensation – – 1,025,420 – 1,025,420 Revaluation of share-based compensation liability – – 5,524 – 5,524 Cancelled shares ( 37 ) – – – – Net loss – – – ( 8,807,496 ) ( 8,807,496 ) Balance, December 31, 2023 850,303 $ 854 $ 80,962,896 $ ( 80,543,330 ) $ 420,420 Year Ended December 31, 2022 Common Stock (1) Additional Number of Shares Par Value Paid-In- Capital (1) Accumulated Deficit Total Balance, December 31, 2021 496,657 $ 496 $ 74,248,830 $ ( 64,838,389 ) $ 9,410,937 Issuance of common shares 5,607 6 222,889 – 222,896 Issuance of warrants – – 361,878 – 361,878 Exercise of restricted stock units and warrants 3,934 4 ( 4 ) – – Reclassification of share-based compensation award to liability – – ( 250,071 ) – ( 250,071 ) Share-based compensation – – 1,001,889 – 1,001,889 Net loss – – – ( 6,897,446 ) ( 6,897,446 ) Balance, December 31, 2022 506,198 $ 506 $ 75,585,411 $ ( 71,735,834 ) $ 3,850,083 (1) The Company’s changes in stockholders’ equity for the years ended December 31, 2023 and 2022 has been retroactively restated for the effect of the 25-for-1 reverse stock split. See Accompanying Notes to Financial Statements. F- 6 Auddia Inc. Statements of Cash Flows Year Ended December 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 8,807,496 ) $ ( 6,897,446 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Finance charge associated with debt issuance cost 882,049 137,834 Depreciation and amortization 1,840,837 991,639 Share-based compensation expense 1,025,420 1,001,889 Change in assets and liabilities: Accounts receivable ( 357 ) ( 50 ) Prepaid insurance ( 28,994 ) – Prepaids and other non-current assets 19,042 1,164 Accounts payable and accrued liabilities 565,292 12,220 Net cash used in operating activities ( 4,504,207 ) ( 4,752,750 ) Cash flows from investing activities: Software capitalization ( 1,029,157 ) ( 1,927,298 ) Purchase of property and equipment ( 2,409 ) ( 3,809 ) Net cash used in investing activities ( 1,031,566 ) ( 1,931,107 ) Cash flows from financing activities: Proceeds from issuance of promissory notes payable, net of OID – 2,000,000 Net settlement of share-based compensation liability ( 87,628 ) – Proceeds from related party debt 750,000 – Proceeds from issuance of common shares 4,016,523 – Net cash provided by financing activities 4,678,895 2,000,000 Net decrease in cash ( 856,878 ) ( 4,683,857 ) Cash, beginning of year 1,661,434 6,345,291 Cash and restricted cash, end of year $ 804,556 $ 1,661,434 Supplemental disclosures of cash flow information: Cash paid for Interest $ 6,000 $ 7,082 Supplemental disclosures of non-cash activity: Reclassification of deferred offering cost $ 52,637 $ – Original issue discount and issuance of warrants on related party debt $ 458,004 $ – See Accompanying Notes to Financial Statements. F- 7 Auddia Inc. Notes to Financial Statements For the Years Ended December 31, 2023 and 2022 Note 1 – Description of Business, Basis of Presentation and Summary of Significant Accounting Policies Description of Business Auddia Inc., (the “Company”, “Auddia”, “we”, “our”) is a technology company that is reinventing how consumers engage with audio through the development of a proprietary AI platform for audio and innovative technologies for podcasts. The Company is incorporated in Delaware and headquartered in Colorado. Basis of Presentation The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Reverse Stock Split The Company filed an amendment to its Certificate of Incorporation with the Secretary of State in Delaware which became effective as of 5:00 P.M. Eastern Time on February 26, 2024. As a result, every twenty-five (25) issued shares of common stock were automatically combined into one share of common stock. Shares of the Company’s common stock were assigned a new CUSIP number (05072K 206) and began trading on a split-adjusted basis on February 27, 2024. The reverse stock split will not change the authorized number of shares of the Company’s common stock. No fractional shares will be issued and any fractional shares resulting from the reverse stock split will be rounded up to the nearest whole share. Therefore, stockholders with less than 25 shares will receive one share of stock. The reverse stock split will apply to the Company’s outstanding warrants, stock options and restricted stock units. The number of shares of common stock into which these outstanding securities are convertible or exercisable will be adjusted proportionately as a result of the reverse stock split. The exercise prices of any outstanding warrants or stock options will also be proportionately adjusted in accordance with the terms of those securities and the Company’s equity incentive plans. F- 8 Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The financial statements include some amounts that are based on management's best estimates and judgments. The most significant estimates relate to valuation of capital stock, warrants and options to purchase shares of the Company's common stock, and the estimated recoverability and amortization period for capitalized software development costs. These estimates may be adjusted as more current information becomes available, and any adjustment could be significant. Risks and Uncertainties The Company is subject to various risks and uncertainties frequently encountered by companies in the early stages of development. Such risks and uncertainties include, but are not limited to, its limited operating history, competition from other companies, limited access to additional funds, dependence on key personnel, and management of potential rapid growth. To address these risks, the Company must, among other things, develop its customer base; implement and successfully execute its business and marketing strategy; develop follow-on products; provide superior customer service; and attract, retain, and motivate qualified personnel. There can be no guarantee that the Company will be successful in addressing these or other such risks. Cash The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at December 31, 2023 or 2022. The Company maintains cash deposits at several financial institutions, which are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s cash balance may at times exceed these limits. At December 31, 2023 and December 31, 2022, the Company had $ 554,556 and $ 1,411,434 , respectively, in excess of federally insured limits. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests. Property and Equipment Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided utilizing the straight-line method over the estimated useful lives for owned assets, ranging from two to five years . Software Development Costs The Company accounts for costs incurred in the development of computer software as software research and development costs until the preliminary project stage is completed, management has committed to funding the project, and completion and use of the software for its intended purpose is probable. The Company ceases capitalization of development costs once the software has been substantially completed and is available for its intended use. Software development costs are amortized over a useful life estimated by the Company’s management of three years. Costs associated with significant upgrades and enhancements that result in additional functionality are capitalized. Capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in software technologies. Unamortized capitalized software development costs determined to be in excess of anticipated future net revenues are considered impaired and expensed during the period of such determination. Software development costs of $ 1,029,157 and $ 1,927,298 were capitalized for the years ended December 31, 2023, and 2022, respectively. Amortization of capitalized software development costs were $ 1,815,447 and $ 956,144 for the years ended December 31, 2023 and 2022, respectively and are included in depreciation and amortization expense. F- 9 Deferred Offering Costs In November 2022, the Company entered into a Common Stock Purchase Agreement. Pursuant to such, the Company has the right, but not the obligation, to require the investor to purchase up to $10,000,000 in aggregate gross purchase price of newly issued shares of the Company common stock, subject to eligibility under the Company’s Form S-3. The Company’s right to sell shares under this agreement extends to December 2023. In consideration for the commitments by the investor under the agreement, the Company issued 5,607 shares of common stock to the investor. The Company recognized $ 222,896 of deferred offering costs relating to the issuance of these shares. Long-Lived Assets The Company reviews its tangible and limited lived intangible long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. If a potential impairment is indicated, the Company compares the carrying amount of the asset to the undiscounted future cash flows associated with the asset. In the event the future cash flows are less than their carrying value, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. The Company determined long-lived assets were no t impaired at December 31, 2023 and 2022. Income Taxes The Company accounts for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events. A valuation allowance is established to reduce deferred tax assets to their estimated realizable value when, in the opinion of management, it is more likely than not that some portion or all of the deferred income tax assets will not be realized in the future. The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as a part of income tax expense. Prior to the Company’s conversion to a Delaware corporation in February 2021, the Company was a limited liability company and had elected to be treated as a pass-through entity for income tax purposes. Accordingly, taxable income and losses of the Company were reported on the income tax returns of its members, and no provision for federal income taxes have been recorded in the accompanying financial statements. Had the Company been a taxable entity, no provision for income taxes would have been recorded as the Company has sustained losses since inception. Revenue Recognition Revenue will be measured according to Accounting Standards Codification (“ASC”) 606, Revenue – Revenue from Contracts with Customers, and will be recognized based on consideration specified in a contract with a customer and will exclude any sales incentives and amounts collected on behalf of third parties. We will recognize revenue when we satisfy a performance obligation by transferring control over a service or product to a customer. We will report revenues net of any tax assessed by a governmental authority that is both imposed on, and concurrent with, a specific revenue-producing transaction between a seller and a customer in our statements of operations. Collected taxes, if applicable, will be recorded within other current liabilities until remitted to the relevant taxing authority. Subscriber revenue will consist primarily of subscription fees and other ancillary subscription-based revenues. Revenue is recognized on a straight-line basis when the performance obligations to provide each service for the period are satisfied, which is over time as our subscription services are continuously available and can be consumed by customers at any time. There is no revenue recognized for unpaid trial subscriptions. Customers may pay for the services in advance of the performance obligation and therefore these prepayments are recorded as deferred revenue. The deferred revenue is recognized as revenue in our statement of operations as the services are provided. Advertising Costs The Company expenses advertising costs as incurred. Advertising expense for the year ended December 31, 2023, and December 31, 2022 was $ 585,876 and $ 760,940 , respectively. F- 10 Share-Based Compensation The Company accounts for share-based compensation arrangements with employees, directors, and consultants and recognizes the compensation expense for share-based awards based on the estimated fair value of the awards on the date of grant. Compensation expense for all share-based awards is based on the estimated grant-date fair value and recognized in earnings over the requisite service period (generally the vesting period). The Company records share-based compensation expense related to non-employees over the related service periods. Net Loss per Share Basic loss per share common share is calculated based on the weighted-average number of common shares outstanding in accordance with FASB ASC Topic 260, Earnings per Share . Diluted net loss per share is calculated based on the weighted-average number of common shares outstanding plus the effect of dilutive potential common shares. When the Company reports a net loss, the calculation of diluted net loss per share excludes potential common shares as the effect would be anti-dilutive. Potential common shares are composed of shares of common issuable upon the exercise of options and warrants. Liquidity, Capital Resources and Going Concern Our existing cash of $ 804,556 at December 31, 2023 will only be sufficient to fund our current operating plans into February 2024. The Company secured approximately $3.6 million of additional financing in February and March 2024, but will need to obtain additional financing to pay off debt and to extend current operations into the second quarter of 2024 (see Note 10). The Company has based these estimates, however, on assumptions that may prove to be wrong. We will need additional funding to complete the development of our full product line and scale products with a demonstrated market fit. Management has plans to secure such additional funding. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce, or eliminate our technology development and commercialization efforts. As a result of the Company’s recurring losses from operations, and the need for additional financing to fund its operating and capital requirements, there is uncertainty regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively, which raises substantial doubt as to the Company’s ability to continue as a going concern. Emerging Growth Company Status The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies. F- 11 Note 2 – Property & Equipment and Software Development Costs Property and equipment and software development costs consisted of the following as of: Schedule of property, equipment and software development costs December 31, 2023 December 31, 2022 Computers and equipment $ 102,348 $ 99,939 Furniture 7,263 7,262 Accumulated depreciation ( 91,512 ) ( 66,121 ) Total property and equipment, net $ 18,099 $ 41,080 – Software development costs $ 7,655,206 $ 6,626,049 Accumulated amortization ( 4,307,271 ) ( 2,491,824 ) Total software development costs, net $ 3,347,935 $ 4,134,225 The Company recognized depreciation expense of $ 25,391 and $ 35,495 for the years ended December 31, 2023, and 2022, respectively related to property and equipment and amortization expense of $ 1,815,447 and $ 956,144 for the years ended December 31, 2023 and 2022, respectively related to software development costs. Note 3 – Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consist of the following: Schedule of accounts payable and accrued liabilities December 31, 2023 December 31, 2022 Accounts payable and accrued liabilities $ 424,510 $ 289,955 Credit cards payable 16,975 6,072 Accrued interest 470,179 28,111 Total accounts payable and accrued liabilities $ 911,664 $ 324,138 F- 12 Note 4 – Notes Payable to Related Party, net of debt issuance costs During November 2022, the Company entered into a Secured Bridge Note (the “Prior Note”) financing with an accredited investor and existing shareholder of the Company. The Prior Note had a principal amount of $ 2,200,000 , including an original issue discount of $ 200,000 . The Prior Note bore interest at an annual stated interest rate of 10% with an original maturity date of May of 2023. The Prior Note is secured by a lien on substantially all of the Company’s assets. At maturity, the lender had the option to convert the original issue discount and accrued but unpaid interest into shares of the Company’s common stock at a fixed conversion price of $30.75 per share. The conversion option was available to the lender at the earlier of (i) maturity, or (ii) payback of all the principal. The embedded conversion option was not accounted for separately, in accordance with the guidance outlined in ASC 815-40, as it was considered indexed to the Company’s shares. The Company had the option to extend the maturity date by six months to November 2023. In the event of an extension, the Company will issue additional warrants, and the interest rate on the Note will increase to 20%. In connection with the Prior Note financing, the Company issued 12,000 common stock warrants with a five-year term at an exercise price of $52.50 per share. At the time of issuance, the common stock warrants were valued at $ 361,878 and recorded as a debt discount to the Prior Note. The issued common stock warrants were classified as equity as they were indexed to the Company’s shares in accordance with ASC 815-40. During April 2023, the Company entered into an additional Secured Bridge Note (the “New Note”) financing with the same accredited investor and significant existing shareholder. The New Note had a principal amount of $ 825,000 , including an original issue discount of $ 75,000 . The New Note bore interest at an annual stated interest rate of 10% with an original maturity date of July 2023. The New Note is secured by a lien on substantially all of the Company’s assets. At maturity, the lender had the option to convert the original issue discount and accrued but unpaid interest into shares of the Company’s common stock at a fixed conversion price of $52.50 per share. The conversion option was available to the lender at the earlier of (i) maturity, or (ii) payback of all the principal. The embedded conversion option was not accounted for separately, in accordance with the guidance outlined in ASC 815-40, as it was considered indexed to the Company’s shares. In connection with the New Note financing, the Company issued 26,000 common stock warrants with a five-year term at an exercise price of $52.50 per share, from which 13,000 common stock warrants were exercisable immediately and were exercisable in the event that the loan term is extended. At the time of issuance, the common stock warrants were valued at $ 252,940 , which was recorded as an additional debt discount to the New Note. The issued common stock warrants were classified as equity as they were indexed to the Company’s shares in accordance with ASC 815-40. During April 2023, the Company also modified the terms of the Prior Note and cancelled the original 12,000 common stock warrants issued with the Prior Note. The Company recognized the modification in accordance with ASC 815-40-35, which resulted in the recognition of debt discount in the amount of $ 35,981 . In lieu of the cancelled common stock warrants, the Company issued 24,000 new common stock warrants with a five-year term at an exercise price of $ 52.50 per share. From the newly issued 24,000 new common stock warrants, 12,000 common stock warrants were fully vested and immediately exercisable, while the remaining 12,000 common stock warrants remained unvested. The issued common stock warrants were classified as equity as they were indexed to the Company’s shares in accordance with ASC 815-40. In May of 2023, the Company renegotiated with the lender an extension of the maturity date of the Prior Note for six months to November 2023 with an increased annual interest rate of 20% and issued an additional 12,000 common stock warrants to the lender. The additional common stock warrants were valued at $ 94,083 and recorded as an additional debt discount. The issued common stock warrants were classified in equity as they were considered indexed to the Company’s shares in accordance with ASC 815-40. In connection with this extension, the 12,000 outstanding unvested warrants became vested and exercisable. On July 31, 2023, the Company extended the maturity date of the New Note to November 30, 2023. In connection with such extension, 13,000 outstanding unvested common stock warrants became vested and exercisable. There was no change in the application of the accounting under ASC 815-40. F- 13 As of December 31, 2023, and December 31, 2022, the balance of the Prior Note, net of debt issuance costs, was $ 2,200,000 and $ 1,775,956 , respectively. Interest expense related to the Prior Note, including interest incurred, amortization of the debt discount, and the warrant amortization for the year ended December 31, 2023, was $ 868,084 . As of December 31, 2023, the balance of the New Note issued in April 2023, net of debt issuance costs, was $ 825,000 . Interest expense related to the New Note, including interest incurred, amortization of the debt discount, and the warrant amortization for the year ended December 31, 2023 was $ 457,044 . The Company is currently in discussions with the accredited investor regarding an agreement where (i) the Company would agree to repay the $2.75 million principal of the bridge financing out of the proceeds of a next round financing, and (ii) the accrued interest and original issue discount on the bridge financing would be converted into equity securities. Note 5 – Commitments and Contingencies Operating Lease In April 2021, the Company entered into a lease agreement for office space in Boulder, Colorado comprising 8,639 square feet. The lease commenced on May 15, 2021, and terminated after 12 months. The Company subsequently extended the lease through November 2022. In November 2022, the Company amended the lease, reducing the square footage rented to 2,160 with a base rent of $4,018 per month, which expired on December 14, 2023. Rent expense, as part of general and administrative expenses as included in the Condensed Statement of Operations, was $ 61,724 and $ 104,223 for the years ended December 31, 2023, and 2022, respectively. Litigation In the normal course of business, the Company is party to litigation from time to time. The Company maintains insurance to cover certain actions and believes that resolution of such litigation will not have a material adverse effect on the Company. There are no active litigations as of the date the financial statements were issued. However, a pre-IPO investor has contacted the Company claiming damages caused by alleged acts and omissions arising from a private financing by the Company. No complaint has been filed by the investor. The alleged damages asserted by the investor are less than approximately $300,000. The outcome of the complaint was neither probable or estimable as of the date the financial statements were issued. Note 6 - Share-based Compensation Stock Options The following table presents the activity for stock options outstanding: Schedule of stock option activity Options Weighted Average Exercise Price Outstanding - December 31, 2021 60,192 $ 74.00 Granted 27,325 36.50 Forfeited/canceled ( 20,990 ) 65.75 Exercised – – Outstanding - December 31, 2022 66,527 $ 61,13 Granted 26,708 11.42 Forfeited/canceled ( 8,358 ) 37.76 Exercised – – Outstanding - December 31, 2023 84,877 $ 47.79 F- 14 The following table presents the composition of options outstanding and exercisable: Schedule of options outstanding and exercisable Options Outstanding ** Options Exercisable ** Exercise Prices Number Price Life* Number Price* $67.50 891 $ 67.50 0.50 891 $ 67.50 $72.50 2,125 $ 72.50 3.86 2,125 $ 72.50 $106.50 6,848 $ 106.50 5.48 6,848 $ 106.50 $69.75 30,888 $ 69.75 6.98 22,125 $ 69.75 $44.75 7,850 $ 44.75 7.71 4,025 $ 44.75 $30.25 15,575 $ 30.25 8.70 11,682 $ 30.25 $9.90 2,000 $ 9.90 9.44 – $ 9.90 $6.25 18,700 $ 6.25 9.96 – $ 6.25 Total - December 31, 2023 84,877 47,696 ________________________ * Price and Life reflect the weighted average exercise price and weighted average remaining contractual life, respectively. ** The Company’s options summarized above have been retroactively restated for the effect of the 25-for-1 reverse stock split. During the year ended December 31, 2023, the Company granted 26,708 stock options to certain executives and key employees. Under the terms of the option agreements, the options are subject to certain vesting requirements. The assumptions used in the Black-Scholes valuation method for these options which were issued in 2023 is as follows: Schedule of assumptions Risk free interest rate 3.76 % - 4.24 % Expected term (years) 6.22 - 6.38 Expected volatility 77 % - 8.8 % Expected dividends 0 % These assumptions listed above for 2023 were derived using i) the risk free interest rate published by the federal reserve on the date of grant, ii) the expected term used is the average of the contractual term plus the weighted average vesting term, iii) the volatility was derived using rates from third-party valuation reports of other financial instruments for the applicable quarter and iv) the expected dividends rate used is taken from the applicable option award agreement. Restricted Stock Units The following table presents the activity for restricted stock units outstanding: Schedule of restricted stock units outstanding Restricted Stock Units Weighted Average Grant Date Fair Value Outstanding - December 31, 2021 16,980 $ – Granted 11,319 – Forfeited/canceled ( 1,815 ) – Exercised ( 3,930 ) 44.75 Outstanding - December 31, 2022 22,554 $ 53.61 Granted 1,500 31.00 Forfeited/canceled ( 4,734 ) 45.66 Exercised ( 7,830 ) 45.66 Outstanding - December 31, 2023 11,490 $ 59.36 During the year ended December 31, 2023, the Company granted 1,500 restricted stock units. Under terms of the restricted stock agreements, the restricted stock units are subject to certain vesting requirements. The Company recognized share-based compensation expense related to stock options and restricted stock units of $ 1,025,420 and $ 1,001,889 for the years ended December 31, 2023 and 2022, respectively. The remaining unvested share-based compensation expense of $ 717,274 is expected to be recognized over the next 48 months. F- 15 Note 7 – Equity Financings Equity Line Sales of Common Stock On November 14, 2022, the Company entered into a Common Stock Purchase Agreement (the “White Lion Purchase Agreement”) with White Lion Capital, LLC, a Nevada limited liability company (“White Lion”) for an equity line facility. In April 2023 and June 2023, the Company closed on three sales of Common Stock under the White Lion Purchase Agreement. As a result, the Company issued an aggregate of 94,461 common shares and received aggregate proceeds of approximately $ 1.3 million . Any proceeds that the Company receives under the White Lion Purchase Agreement are expected to be used for working capital and general corporate purposes. The aggregate number of shares of common stock that the Company can sell to White Lion under the White Lion Purchase Agreement (including the Commitment Shares) may in no case exceed 100,068 shares of the common stock (which is equal to approximately 19.99% of the shares of the common stock outstanding immediately prior to the execution of the White Lion Purchase Agreement) (the “Exchange Cap”), unless shareholder approval is obtained to issue purchase shares above the Exchange Cap, in which case the Exchange Cap will no longer apply. The Company recognized all offering costs related to the equity line of credit as deferred offering costs in accordance with the guidance in ASC 835-30-S45. Sale of Common Shares (S-3 offering) In June 2023, the Company sold 189,400 shares of common stock in a registered public offering with net proceeds of $ 2.7 million . Replacement Equity Line with White Lion On November 6, 2023, the Company entered into a new Common Stock Purchase Agreement and a related registration rights agreement with White Lion. Pursuant to the new Common Stock Purchase Agreement, the Company has the right, but not the obligation to require White Lion to purchase, from time to time until December 31, 2024, up to $10,000,000 in aggregate gross purchase price of newly issued shares of the Company’s common stock, subject to certain limitations and conditions set forth in the Common Stock Purchase Agreement. In connection with the new Common Stock Purchase Agreement, the parties agreed to terminate the previous Common Stock Purchase Agreement with White Lion. See Note 10 for subsequent activity related to the equity line with White Lion. F- 16 Warrants The following table presents the activity for warrants outstanding: Schedule of warrants outstanding Warrants Weighted Average Exercise Price Outstanding – December 31, 2021 166,890 $ 120 Granted 12,000 $ 52.50 Forfeited/cancelled/restored – $ – Exercised ( 6 ) $ 21.75 Outstanding - December 31, 2022 178,884 $ 115.50 Granted 38,000 $ 15.25 Forfeited/cancelled/restored – $ – Exercised – $ – Outstanding - December 31, 2023 216,884 $ 96.00 During the year ended December 31, 2022, in connection with the issuance of the Prior Note, the Company issued 12,000 warrants to purchase shares of common stock at the exercise price of $52.50 per share. During the year ended December 31, 2022, 6 warrants were exercised using the cashless option into 4 shares of common stock. During the year ended December 31, 2023, in connection with the New Note financing, the Company issued 26,000 warrants to purchase shares of common stock at the exercise price of $15.25 per share. During the year ended December 31, 2023, in connection with the modification of the Prior Note, the Company cancelled the original 12,000 common stock warrants and issued 24,000 new common stock warrants at an exercise price of $15.25 per share. F- 17 Note 8 – Income Taxes For the year ended December 31, 2023 and 2022, the Company recorded no income tax benefit for the net operating losses incurred during the year, due to the uncertainty of realizing a benefit from those items. The following is a reconciliation of the statutory federal income tax rate to the effective tax rate reported in the financial statements: Schedule of effective income tax rate reconciliation 2023 2022 U.S. federal statutory rate 21.0 % 21.0 % Effects of: State and local taxes, net of federal benefit 4.5 % 4.5 % Prior year true-ups ( 1.0 ) % ( 0.6 ) % Other ( 0.1 ) % ( 0.5 ) % Change in valuation allowance ( 24.4 ) % ( 24.4 )% Effective rate – % – % Significant components of the Company’s deferred tax assets as of December 31, 2023 and 2022 are summarized below. 2023 2022 Deferred tax assets: Federal net operation losses $ 4,135,331 $ 2,324,319 State net operation losses 713,407 397,846 Stock based compensation 731,311 618,691 Other assets 12,773 12,772 Total deferred tax assets 5,592,822 3,353,628 Deferred income tax liabilities: Capitalized software ( 742,450 ) ( 556,492 ) Property & equipment ( 4,451 ) ( 10,103 ) Total deferred tax liabilities ( 746,901 ) ( 566,595 ) Net deferred tax assets 4,845,921 2,787,033 Valuation allowance ( 4,845,921 ) ( 2,787,033 ) Net deferred tax asset, net of valuation allowance $ – $ – F- 18 For the year ended December 31, 2023, the Company has federal and state net operating loss carryforwards of $ 19,692,052 and $ 19,692,052 , respectively. The federal net operating loss carryforwards do not have an expiration, however, are limited to 80% of the excess of taxable income over the total net operating loss deduction. The state net operating loss carryforwards will conform to the federal provisions. After weighing all available positive and negative evidence for the periods ended December 31, 2023 and 2022, the Company has recorded a valuation allowance of $ 4,845,921 and $ 2,787,033 , respectively. The Company continuously monitors its current and prior filing positions in order to determine if any unrecognized tax positions should be recorded. The analysis involves considerable judgement and is based on the best information available. For the periods ended December 31, 2023 and 2022, the Company is not aware of any positions which require an uncertain tax position liability. The Company is subject to taxation in the United States and Colorado. The statute of limitations on the initial tax return filed for 2021 tax year will expire in 2025 for federal and in 2026 for state jurisdictions. Note 9 – Net Loss Per Share Basic net loss per share is computed by dividing net loss, which is allocated based upon the proportionate amount of weighted average shares outstanding, to each class of stockholder’s stock outstanding during the period. For the calculation of diluted net loss per share, net loss per share attributable to common stockholders for basic net loss per share is adjusted by the effect of dilutive securities, including awards under our equity compensation plans. Reverse Stock Split On February 26, 2024, the Company effected a 1-for-25 reverse stock split of its common stock. The reverse stock split applied to the Company’s outstanding warrants, stock options and restricted stock units. The number of shares of common stock into which these outstanding securities are convertible or exercisable were adjusted proportionately as a result of the reverse stock split. The exercise prices of any outstanding warrants or stock options were also proportionately adjusted in accordance with the terms of those securities and the Company’s equity incentive plans. All weighted average share amounts have been retroactively adjusted for the reverse stock split. As of December 31, 2023, and 2022, 265,079 and 252,750 , respectively of potentially dilutive weighted average shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented. Note 10 – Subsequent Events Management evaluated subsequent events and transactions that occurred after the balance sheet date, up to the date that the financial statements were issued. Based upon this review, other than as set forth below, management did not identify any subsequent events that would have required adjustment or disclosure in the financial statements. RFM Acquisition On January 26, 2024, we entered into a Purchase Agreement (the “RFM Purchase Agreement”), pursuant to which we agreed to acquire RadioFM (the “RFM Acquisition”), which is currently a component of both AppSmartz and RadioFM (partnerships under common control). The aggregate consideration for the RFM Acquisition is $13,000,000 (plus $2,000,000 in contingent consideration if certain post-close milestones are reached), in addition to the assumption of certain liabilities, as may be adjusted pursuant to the terms of the RFM Purchase Agreement. In March 2024, the parties mutually agreed to terminate the RFM Purchase Agreement. F- 19 Reverse Share Split The Company filed an amendment to its Certificate of Incorporation with the Secretary of State in Delaware which became effective as of 5:00 P.M. Eastern Time on February 26, 2024. As a result, every twenty-five (25) issued shares of common stock were automatically combined into one share of common stock. Shares of the Company’s common stock were assigned a new CUSIP number (05072K 206) and began trading on a split-adjusted basis on February 27, 2024. The reverse stock split did not change the authorized number of shares of the Company’s common stock. No fractional shares were issued and any fractional shares resulting from the reverse stock split were rounded up to the nearest whole share. Therefore, stockholders with less than 25 shares received one share of stock. The reverse stock split applied to the Company’s outstanding warrants, stock options and restricted stock units. The number of shares of common stock into which these outstanding securities are convertible or exercisable were adjusted proportionately as a result of the reverse stock split. The exercise prices of any outstanding warrants or stock options were also proportionately adjusted in accordance with the terms of those securities and the Company’s equity incentive plans. Equity Line From February 15, 2024 through March 19, 2024, the Company has sold 1,340,000 shares to White Lion for total proceeds of $3,606,508. The Company currently has an effective registration statement that registers for resale by White Lion up to 765,263 shares of common stock that may be issued to White Lion under the Equity Line Purchase Agreement. After White Lion has acquired shares under the Equity Line Purchase Agreement, it may sell all, some or none of those shares. Sales to White Lion by us pursuant to the Equity Line Purchase Agreement may result in substantial dilution to the interests of other holders of the Company’s common stock. Nasdaq Compliance On March 20, 2024, the Company received a letter from Nasdaq stating it had regained compliance with the minimum bid requirement. The Panel reminded the Company that although it regained compliance with the minimum bid requirement, it is also required to regain compliance with the equity requirement. Therefore, this matter will remain open until the Company demonstrates compliance with all requirements. Operating Lease On March 25, 2024, the Company entered into a new 37-month operating lease commencing on April 1, 2024 with two separate two year renewal options. The monthly base rent for months two through 14 is $2,456, increasing to $3,070 for months 15 through 26, and ending at $3,684 for months 27 through 37. F- 20 Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure None.