AUDDIA INC. 10-Q

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, 2023, which was filed with the SEC on April 1, 2024. 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, 2023, 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 commercial breaks replaced with personalized audio 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 – also with ads removed or easily skipped by listeners – as well as 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 differentiated podcasting capability with ad-reduction features and also 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 podcasting feature 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. The combination of AM/FM streaming and podcasting, with Auddia’s unique, technology-driven differentiators, addresses large and rapidly growing audiences. We have developed our 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. We are leveraging this technology platform within our 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 and podcasts, all with commercial interruptions removed from the listening experience, in addition to the faidrRadio exclusive content offerings. Advanced features will allow consumers to skip any content heard on the station and request audio content on-demand. 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 and ad-reduced podcasts, 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. No other audio streaming app available today, including category leaders like TuneIn, iHeart, and Audacy, can compete with faidr’s full product offerings. 20 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 were added to the app for the iOS version before the end of Q1 2023 as planned and added to the Android app in May of 2023. We also developed a testbed differentiated podcasting capability called Vodacast, which leveraged 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 Vodacast podcast platform was conceptualized to fill a void in the emerging audio media space. The platform was built to become 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. Throughout 2023 and 2024, Auddia has been migrating their podcasting capabilities into the flagship faidr app bringing the advanced podcasting functionality from Vodacast into faidr as part of the overall strategy to build a single audio Superapp. In July 2024, Auddia sunsetted the Vodacast app. Podcast functionality continues to be developed in faidr and in August 2024, we released our Forward+ and Chapter Visualization into our differentiated AI Podcast Player which delivers ad-reduction controls to a listener. 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 significant differentiation 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 Auddia’s podcast capabilities, originally presented on their Vodacast differentiated podcasting capability, 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 was originally developed and trialed as part of Auddia’s Vodacast platform, which 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 interactive feed for podcasts has been developed and tested on Vodacast and is expected to be another differentiator added into faidr for podcast listeners later in 2025. 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. “Flex Revenue” and the initial inclusion of the new revenue channels that come with it will be added to podcasting in the faidr app, and the first elements of this new monetization capability is expected to be commercially available in 2025, beginning with subscription plans to access ad-reduction in podcasts. The faidr mobile App is available today through the iOS and Android App stores. 21 We have funded our operations with proceeds from the February 2021 IPO, Series A warrants exercised in July 2021 and common share issuance during June of 2023. We obtained debt financing through a related party during November 2022 and April 2023. We sold common shares during April 2023, June 2023, and during the first and second quarters of 2024 pursuant to our equity line facility. Lastly, we entered into a securities purchase agreement with accredited investors for convertible preferred stock and warrants financing. Since our inception, we have incurred significant operating losses. As of September 30, 2024, we had an accumulated deficit of $87,003,511. 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; · continue to pursue and complete potential acquisitions of other companies; · 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. 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. As of September 30, 2024, we had cash and cash equivalents of $3,773,827. We secured approximately $10.4 million in additional financing during 2024. 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. However, 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. To accelerate user acquisition, revenue, and cash flow, we have explored numerous potential acquisition targets of AM/FM streaming aggregators over the past year and a half and will continue to explore new opportunities. Recent Developments Mergers and Acquisitions Strategy We are exploring various merger and acquisition options as part of a broader strategy which aims to scale the business more rapidly; accelerate user adoption and subscriber growth; enter new markets (international); and open new pathways toward raising capital. The overall strategy focuses on three areas: (1) acquiring users of a radio-streaming app, (2) bringing our proprietary ad-free products to the acquired userbase to generate significant subscription revenue, and (3) bringing together other differentiated features into the larger audio Superapp platform. We incurred $426,572 in costs related to evaluating potential acquisitions during the nine months ended September 30, 2024. 22 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. Nasdaq Deficiency Notices On November 21, 2023, we received a written notice from Nasdaq indicating that we are not in compliance with Nasdaq Listing Rule 5550(b)(1), which requires companies listed on The Nasdaq Capital Market to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing (the “Stockholders’ Equity Requirement”). In our quarterly report on Form 10-Q for the period ended September 30, 2023, we reported stockholders’ equity of $2,415,012, and, as a result, did not satisfy Listing Rule 5550(b)(1). Nasdaq’s November written notice had no immediate impact on the listing of our common stock. Our hearing with the Panel occurred on January 18, 2024 and addressed all outstanding listing compliance matters, including compliance with the Stockholders’ Equity Notice as well as compliance with the Bid Price Requirement. On January 30, 2024, the Panel granted the Company’s request for an exception to Nasdaq’s listing rules until April 22, 2024, to demonstrate compliance with all applicable continued listing requirements for the Nasdaq Capital Market. On April 16, 2024, the Company received a letter from Nasdaq granting an exception to the Exchange’s listing rules until May 20, 2024, to demonstrate compliance with Listing Rule 5550(b)(1) (the “Equity Rule”.) On May 24, 2024, we received a letter from Nasdaq indicating that we had regained compliance with the equity requirement in Listing rule 5550(b) (1) (the Equity Rule”.) We will be subject to a Mandatory Panel Monitor for a period of one year from the date of the letter in accordance with application of Listing Rule 5815(d)(4)(B). The Nasdaq listing rules require listed securities to maintain a minimum bid price of $1.00 per share. On October 16, 2024, we received a written notice from Nasdaq indicating that we were not in compliance with the $1.00 minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing. The Bid Price Notice does not result in the immediate delisting of our common stock from the Nasdaq Capital Market. The Bid Price Notice indicated that we have 180 calendar days (or until April 14, 2025) in which to regain compliance. 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. 23 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. Impact of Inflation We have recently experienced higher costs across our business as a result of inflation, including higher costs related to employee compensation and outside services. We expect inflation to continue to have a negative impact throughout 2024, and it is uncertain whether we will be able to offset the impact of inflationary pressures in the near term. 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. 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 our 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 Notes payable to related party. 24 Results of operations Comparison of the three months ended September 30, 2024 and 2023 The following table summarizes our results of operations: Three Months Ended September 30, 2024 September 30, 2023 Change $ Change % Revenue $ – $ – – 0.0% Operating expenses: Direct cost of services 54,916 43,470 11,446 26.3% Sales and marketing 282,450 316,297 (33,847 ) -10.7% Research and development 233,085 227,133 5,952 2.6% General and administrative 881,439 777,496 103,943 13.4% Depreciation and amortization 495,960 465,166 30,794 6.6% Total operating expenses 1,947,850 1,829,562 118,288 6.5% Loss from operations (1,947,850 ) (1,829,562 ) (118,288 ) 6.5% Other expense: Interest expense (1,578 ) (286,920 ) 285,342 -99.4% Change in fair value of warrants – – (0 ) 100.0% Total other expense (1,578 ) (286,920 ) 285,342 -99.5% Loss before income taxes (1,949,428 ) (2,116,482 ) 167,054 -7.9% Provision for income taxes – – – 0.0% Net loss $ (1,949,428 ) $ (2,116,482 ) 167,054 -7.9% Revenue Total revenues for the three months ended September 30, 2024 and 2023 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 increased $11,446 or 26.3% from $43,470 for the three months ended September 30, 2023 compared to $54,916 for the three months ended September 30, 2024. This increase was primarily the result of an increase in hosting costs and music service costs. Sales and marketing Sales and marketing expenses decreased by $33,847 or (10.7%) from $316,297 for the three months ended September 30, 2023 to $282,450 for the three months ended September 30, 2024, which was primarily attributed to reduced marketing promotion costs associated with the national launch of the faidr app as the quarter was focused on ASO optimization. We expect our sales and marketing expenses to fluctuate period by period as we release new upgrades and enhancements within our faidr App and look to generate revenue through customer acquisition, retention, and subscription conversion. Research and development Research and development expenses increased by $5,952 or 2.6% from $227,133 for the three months ended September 30, 2023 to $233,085 for the three months ended September 30, 2024, which was primarily due to an increase in capitalized R&D expenses, partially offset by a decrease in content creator fees. 25 General and administrative General and administrative expenses increased by $103,943 or 13.4% from $777,496 for the three months ended September 30, 2023 compared to $881,439 for the three months ended September 30, 2024. The change was primarily driven by an increase in consulting, legal, and public company fees associated with the 2024 equity offerings. Depreciation and amortization Depreciation and amortization expenses increased by $30,794 or 6.6% from $465,166 for the three months ended September 30, 2023 compared to $495,960 for the three months ended September 30, 2024. The increase is entirely related to the increased amortization of our faidr and podcasting Apps. Other expense, net Total other expenses decreased by $285,342 or (99.5%) from $286,920 for the three months ended September 30, 2023 to $1,578 for the three months ended September 30, 2024. Interest expense decreased by $285,342 due to the repayment of notes payable to related party in April 2024. Comparison of the nine months ended September 30, 2024 and 2023 The following table summarizes our results of operations: Nine Months Ended September 30, 2024 September 30, 2023 Change $ Change % Revenue $ – $ – – 0.0% Operating expenses: Direct cost of services 153,316 130,809 22,507 17.2% Sales and marketing 645,713 765,176 (119,463 ) -15.6% Research and development 558,180 617,622 (59,442 ) -9.6% General and administrative 2,826,563 2,596,831 229,732 8.8% Depreciation and amortization 1,473,088 1,350,820 122,268 9.1% Total operating expenses 5,656,860 5,461,258 195,602 3.6% Loss from operations (5,656,860 ) (5,461,258 ) (195,602 ) 3.6% Other expense: Interest expense (170,933 ) (1,133,398 ) 962,465 -84.9% Change in fair value of warrants (632,388 ) – (632,388 ) 100.0% Total other expense (803,321 ) (1,133,398 ) 330,077 -29.1% Loss before income taxes (6,460,181 ) (6,594,656 ) 134,475 -2.0% Provision for income taxes – – – 0.0% Net loss $ (6,460,181 ) $ (6,594,656 ) 134,475 -2.0% Revenue Total revenues for the nine months ended September 30, 2024 and 2023 were $0 as we continue to develop and enhance our faidr and podcasting Apps to establish new revenue streams. 26 Direct cost of services Direct cost of services increased $22,507 or 17.2% from $130,809 for the nine months ended September 30, 2023 compared to $153,316 for the nine months ended September 30, 2024. This increase was primarily the result of an increase in hosting costs and data subscription fees. Sales and marketing Sales and marketing expenses decreased by $119,463 or (15.6%) from $765,176 for the nine months ended September 30, 2023 to $645,713 for the nine months ended September 30, 2024, which was primarily attributed to reduced marketing promotion costs 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 decreased by $59,442 or (9.6%) from $617,622 for the nine months ended September 30, 2023 to $558,180 for the nine months ended September 30, 2024, which was primarily due to lower consulting and content creator fees. General and administrative General and administrative expenses increased by $229,732 or 8.8% from $2,596,831 for the nine months ended September 30, 2023 compared to $2,826,563 for the nine months ended September 30, 2024. The increase was primarily driven by an increase in salary expense and professional fees to support compliance requirements related to potential acquisitions and equity offerings, partially offset by lower stock compensation expense. Depreciation and amortization Depreciation and amortization expenses increased by $122,268 or 9.1% from $1,350,820 for the nine months ended September 30, 2023 compared to $1,473,088 for the nine months ended September 30, 2024. The increase is entirely related to the increased amortization of our faidr and podcasting Apps. Other expense, net Total other expenses decreased by $330,077 or (29.1%) from $1,133,398 for the nine months ended September 30, 2023 to $803,321 for the nine months ended September 30, 2024. Interest expense decreased by $962,465 due to the repayment of notes payable to related party in April 2024. Interest expense was offset by $632,388 due to the change in the fair value of the notes payable converted to equity. 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 September 30, 2024 and December 31, 2023, we had cash and cash equivalents of $3,773,827 and $804,556, respectively. We have working capital in the amount of approximately $3.4 million as of September 30, 2024. 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. We secured $10.4 million of additional financing in 2024, which enabled us to pay down $2.75 million in connection with the Secured Bridge Notes and will only be sufficient to fund our current operating plans into the first quarter of 2025. 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. 27 Interim Bridge Financings As previously disclosed, on November 14, 2022, we entered into a Secured Bridge Note (“Prior Note”) financing with one of our accredited investors, a significant existing shareholder of the Company. We received $2,000,000 of gross proceeds from the Prior Note financing. On April 17, 2023, we entered into an additional Secured Bridge Note (“New Note”) financing with the same accredited investor from the Prior Note financing. We received $750,000 of gross proceeds from the New Note financing. The New Note was issued with a principal amount of $825,000, 10% interest rate and a maturity date on July 31, 2023. The New Note is secured by a lien on substantially all of our assets. At maturity of the New Note, the accredited investor, or our lender, has the option to convert any original issue discount and accrued but unpaid interest into shares of our common stock at a fixed conversion price of $15.25 per share. In connection with the New Note financing, we issued 26,000 common stock warrants to the accredited investor with a five-year term and a fixed $15.25 per share exercise price, from which 13,000 of these common stock warrants are exercisable immediately. The remaining 13,000 common stock warrants would only become exercisable if the maturity date of the New Note is extended in accordance with the terms of the New Note. As of July 31, 2023, we extended the maturity date of the New Note to November 30, 2023. Upon the July 31, 2023 extension, the interest rate on the New Note increased to 20% from 10%, and the remaining portion of the 13,000 common stock warrants became exercisable. As of November 30, 2023, we extended the maturity date of the Prior Note and New Note to March 31, 2024. All terms of the Prior Note and New Note, such as interest rate and exercisable common stock warrants remained the same. The accredited investor did not exercise the common stock warrants as of December 31, 2023 or subsequent to December 31, 2023 and as of the date of this filing. Further, in connection with the New Note financing, the parties agreed to make certain amendments to the Prior Note financing. Specifically, the parties agreed to cancel the 12,000 common stock warrants issued as part of the prior financing and, in lieu of the cancelled warrants, issued the investor common stock warrants for 24,000 common shares with an exercise price of $15.25 per common share and a five-year term. From the newly issued 24,000 common stock warrants, 12,000 common stock warrants were exercisable immediately, while the other 12,000 common stock warrants became exercisable at the time of extension of the maturity date of the Prior Note during May of 2023. In order for the accredited investor to receive common shares from a conversion or exercise of the common stock warrants, an approval is required from the shareholders, if the number of common shares to be issued to the accredited investor, when aggregated with all other shares of common stock beneficially or deemed beneficially owned by the accredited 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. On April 9, 2024, we entered into an Amendment and Waiver Agreement with the Investor relating to the Bridge Notes. We agreed to pay $2.75 million in cash to the Investor in repayment of the principal of the Bridge Notes (exclusive of the $275,000 of original issue discount on the Bridge Notes) shortly after the closing of one or more equity financings with total gross proceeds to us of not less than $6,000,000. On April 26, 2024, we repaid $2.75 million of principal on our Secured Bridge Notes. Effective April 9, 2024, the Investor converted $911,384, which is equal to the (i) unpaid accrued interest on the Bridge Notes plus (ii) the OID on the Bridge Notes, into equity securities. 28 The Rollover Securities consist of (i) 463,337 Prefunded Warrants with a per share exercise price of $0.001 per share and (ii) 463,337 Non-Prefunded Warrants with a per share exercise price equal to $1.967. As of the date and time of the Amendment and Waiver Agreement, the Nasdaq Minimum Price (as defined in the applicable Nasdaq listing rules) for our common stock was $1.966. The number of Prefunded Warrants was determined by dividing the Rollover Amount by $1.967. The number of Non-Prefunded Warrants is equal to the number of Prefunded Warrants (i.e. 100% warrant coverage). The Non-Prefunded Warrants have a price adjustment provision which will adjust the exercise price downward in the event that we issue equity securities in the future at an effective per share price below the then current exercise price. In order to assure compliance with applicable Nasdaq rules, the Non-Prefunded Warrants shall not be exercisable for six months following the date of issue. We issued to the Investor 50,000 Fee Warrants with a five-year term as a loan extension fee. The exercise price of these additional Fee Warrants is $1.967. The Fee Warrants have a price adjustment provision which will adjust the exercise price downward in the event that we issue equity securities in the future at an effective per share price below the then current exercise price. In order to assure compliance with applicable Nasdaq rules, the Fee Warrants shall not be exercisable for six months following the date of issue. We agreed to adjust the exercise price of the Investor’s Existing Warrants from $15.25 (after adjustment for the recent reverse stock) to $1.967 per share. The Investor will not be able to receive shares upon exercise of any of the foregoing securities, unless prior stockholder approval is obtained, if (i) the number of shares to be issued would exceed 20% of our outstanding number of shares at a discount to the applicable Nasdaq Minimum Price or (ii) the number of shares to be issued would result in in a Change of Control within the meaning of Nasdaq Rule 5635(b). Equity Line Sales of Common Stock On November 14, 2022, we 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, we closed on two sales of Common Stock under the White Lion Purchase Agreement. We issued an aggregate of 1,962,220 common shares and received aggregate proceeds of approximately $1.12 million. Replacement Equity Line with White Lion On November 6, 2023, we 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, we have 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 our 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. Through September 30, 2024, we have sold 4,815,263 shares to White Lion for total proceeds of $8,176,048. We currently have effective registration statements that registers for resale by White Lion up to 2,200,090 remaining shares of common stock that we may issue 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 our common stock. 29 Cash Flow Analysis Our cash flows from operating activities have historically been significantly impacted by 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 nine months ended September 30, 2024 and 2023: Nine Months Ended September 30, 2024 2023 Net cash provided by (used in): Operating activities $ (3,803,324 ) $ (3,404,954 ) Investing activities (799,535 ) (743,208 ) Financing activities 7,572,130 4,686,406 Change in cash $ 2,969,271 $ 538,244 Operating activities Cash used in operating activities for the nine months ended September 30, 2024 was ($3,803,324), primarily resulting from our net loss of ($6,460,181) and change in working capital of $112,262, offset by non-cash charges of $2,544,594 related to depreciation and amortization, share based compensation expense, and the change in fair value of warrants. 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. Cash used in operating activities for the nine months ended September 30, 2023, was ($3,404,954), primarily resulting from our net loss of ($6,594,656) and change in working capital of $188,517 related to an increase in accounts payable and accrued liabilities, offset by non-cash charges of $3,001,184 related to depreciation and amortization, share based compensation expense, and finance charges associated with the debt issuance costs of the Secured Bridge Notes. 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 used in investing activities for the nine months ended September 30, 2024 was ($799,535), consisting of the capitalization of software development expenses and purchase of computer equipment. Cash used in investing activities for the nine months ended September 30, 2023 was ($743,208), consisting entirely of capitalization of software development expenses. Financing activities Cash provided by financing activities for the nine months ended September 30, 2024 was $7,572,130, which consisted of cash proceeds from the issuance of common shares of $8,176,048 and cash proceeds from the issuance of preferred shares of $2,238,575. This was partially offset by the repayment of the note payable to related party of $2,750,000, payment of offering costs of $72,807 and net settlement of share-based compensation liability of $19,686. 30 Cash provided by financing activities for the nine months ended September 30, 2023 was $4,686,406 and related primarily to cash proceeds from the issuance of common shares of $4,016,521 and proceeds from related party debt of $750,000. Funding Requirements We historically have incurred significant losses and negative cash flows from operations since our inception and had an accumulated deficit of $87,003,511 and $80,543,330 as of September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024 and December 31, 2023, we had cash and cash equivalents of $3,773,827 and $804,556, respectively. Our cash is comprised primarily of demand deposit accounts and money market funds. We secured $10.4 million of additional financing in 2024, which enabled us to pay down $2.75 million in connection with the Secured Bridge Notes and will only be sufficient to fund our current operating plans into the first quarter of 2025. We have 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. 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; and · avoiding and defending against intellectual property infringement, misappropriation and other claims. Contractual Obligations The following table summarizes our contractual obligations as of September 30, 2024, 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) $ 98,233 $ 32,540 $ 65,693 $ – $ – Total operating lease commitments $ 98,233 $ 32,540 $ 65,693 $ – $ – (1) Represents minimum payments due for the lease of office space. 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. 31 Critical Accounting Estimates Our financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these 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. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position, are described below. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations. 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 impaired and expensed during the period of such determination. Equity-based compensation Certain of our employees and consultants have received grants of common shares in our company. These awards are accounted for in accordance with guidance prescribed for accounting for equity-based compensation. Based on this guidance and the terms of the awards, the awards are equity classified. The common shares receive distributions if any in an order of priority in accordance with our limited liability company agreement. 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. Prior to our IPO in February 2021, we were a private company with no active public market for our common equity. Therefore, we have periodically determined the overall value of our company and the estimated per share fair value of our common equity at their various dates using contemporaneous valuations performed with the assistance of a third-party specialist and in accordance with the guidance outlined in the American Institute of CPA’s Practice Aid. 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. 32 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.