The accompanying notes are an integral part of
these unaudited condensed financial statements.
The accompanying notes are an integral part of
these unaudited condensed financial statements.
The accompanying notes are an integral part of
these unaudited condensed financial statements.
The accompanying notes are an integral part of
these unaudited condensed financial statements.
Notes to Condensed Financial Statements (Unaudited)
Note 1 - Description of Business, Basis of Presentation and Summary
of Significant Accounting Policies
Description of Business
Auddia Inc., formerly Clip Interactive, LLC, (the
“Company”, “Auddia”, “we”, “our”) is a technology company that is reinventing how consumers
engage with audio through the development of a proprietary AI platform for audio and innovative technologies for podcasts. Clip Interactive,
LLC was initially formed as a Colorado limited liability company on January 14, 2012 and on November 25, 2019 changed its trade name to
Auddia.
On February 16, 2021, the Company completed an
initial public offering (the “IPO”) of 3,991,818 units, at $4.125 per unit, consisting of one share of common stock and one
Series A warrant to purchase one share of common stock at an exercise price of $4.54 per share. In addition, the underwriters exercised
their option to purchase 598,772 Series A warrants to cover over-allotments and were issued 319,346 in representative warrants at an exercise
price of $5.15625 per share. After deducting underwriters commissions and expenses, the Company received net proceeds of approximately
$15.1 million and its common stock commenced trading on Nasdaq under the ticker symbol “AUUD”. Concurrently with the IPO,
holders of the Company’s promissory notes, convertible notes, and related party notes, along with accrued interest, were converted
into 6,814,570 shares of the Company’s common stock.
Concurrently with the IPO the Company converted
from a Colorado limited liability company to a Delaware corporation. This accounting change has been given retrospective treatment in
the condensed financial statements.
Basis of Presentation
The accompanying financial statements have been
prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
Unaudited interim financial information
The condensed financial statements of the Company
included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the
“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with
GAAP have been condensed or omitted from this Quarterly Report, as is permitted by such rules and regulations. Accordingly, these condensed
financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual
Report on Form 10-K. The results for any interim period are not necessarily indicative of results for any future period.
Use of Estimates
The preparation of condensed financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
The condensed financial statements include some
amounts that are based on management's best estimates and judgments. The most significant estimates relate to valuation of capital stock,
warrants and options to purchase shares of the Company's common stock, and the estimated recoverability and amortization period for capitalized
software development costs. These estimates may be adjusted as more current information becomes available, and any adjustment could be
significant.
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 June 30, 2022
or December 31, 2021.
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 June 30, 2022 and December 31, 2021, the Company had $2,022,091 and $5,910,758, 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.
Software Development Costs
The Company accounts for costs incurred in the
development of computer software as software research and development costs until the preliminary project stage is completed, management
has committed to funding the project, and completion and use of the software for its intended purpose is probable.
The Company ceases capitalization of development
costs once the software has been substantially completed and is available for its intended use. Software development costs are amortized
over a useful life estimated by the Company’s management of five years. Costs associated with significant upgrades and enhancements
that result in additional functionality are capitalized. Capitalized costs are subject to an ongoing assessment of recoverability based
on anticipated future revenues and changes in software technologies.
Unamortized capitalized software development costs
determined to be in excess of anticipated future net revenues are considered impaired and expensed during the period of such determination.
Software development costs of $617,411 and $259,463 were capitalized for the three months ended June 30, 2022 and 2021, respectively and
$1,278,625 and $551,538 were capitalized for the six months ended June 30, 2022 and 2021, respectively. Amortization of capitalized software
development costs were $262,703 and $0 for the three months ended June 30, 2022 and 2021, respectively and $430,739 and $0 for the six
months ended June 30, 2022 and 2021, respectively and are included in depreciation and amortization expense.
Revenue Recognition
Revenue will be measured according to Accounting
Standards Codification (“ASC”) 606, Revenue – Revenue from Contracts with Customers, and 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 condensed statements of operations. Collected taxes will be recorded within Other current
liabilities until remitted to the relevant taxing authority.
Subscriber revenue will consist primarily of subscription
fees and other ancillary subscription-based revenues. Revenue will be recognized on a straight-line basis when the performance obligations
to provide each service for the period are satisfied, which is over time as our subscription services are continuously available and can
be consumed by customers at any time. There is no revenue recognized for unpaid trial subscriptions.
Customers may pay for the services in advance
of the performance obligation and therefore these prepayments are recorded as deferred revenue. The deferred revenue will be recognized
as revenue in our statement of operations as the services are provided.
Share-Based Compensation
The Company accounts for share-based compensation
arrangements with employees, directors, and consultants and recognizes the compensation expense for share-based awards based on the estimated
fair value of the awards on the date of grant in accordance with ASC 718.
Compensation expense for all share-based awards
is based on the estimated grant-date fair value and recognized in earnings over the requisite service period (generally the vesting period).
The Company records share-based compensation expense related to non-employees over the related service periods.
Certain stock awards include a net-share settlement
feature that provides the grantee an option to withhold shares to satisfy tax withholding requirements and are classified as a share-based
compensation liability. Cash paid to satisfy tax withholdings is classified as financing activities in the condensed statements of cash
flows.
Emerging Growth Company Status
The Company is an emerging growth company, as
defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies
can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards
apply to private companies. The Company has elected to use this extended transition period for complying with certain new or revised accounting
standards that have different effective dates for public and private companies.
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 | |
| | |
| |
| |
June 30 2022 | | |
December 31, 2021 | |
Computers and equipment | |
$ | 771,127 | | |
$ | 767,318 | |
Furniture | |
| 7,262 | | |
| 7,262 | |
Software | |
| 5,228 | | |
| 5,228 | |
Accumulated depreciation | |
| (723,436 | ) | |
| (707,042 | ) |
Total property and equipment, net | |
$ | 60,181 | | |
$ | 72,766 | |
| |
| | | |
| | |
Software development costs | |
| 5,977,375 | | |
$ | 4,698,752 | |
Accumulated amortization | |
| (1,966,418 | ) | |
| (1,535,680 | ) |
Total software development costs, net | |
$ | 4,010,957 | | |
$ | 3,163,071 | |
The Company recognized depreciation expense of
$16,393 and $5,040 for the six months ended June 30, 2022 and 2021, respectively related to property and equipment and amortization expense
of $430,739 and $0 for the six months ended June 30, 2022 and 2021, respectively related to software development costs.
Note 3 – Balance Sheet Disclosures
Accounts payable and accrued liabilities consist
of the following:
Schedule of accounts payable and accrued liabilities | |
| | |
| |
| |
June 30, 2022 | | |
December 31, 2021 | |
Accounts payable and accrued expenses | |
$ | 277,409 | | |
$ | 210,929 | |
Credit cards payable | |
| 1,900 | | |
| 12,267 | |
Accounts payable and accrued liabilities | |
$ | 279,309 | | |
$ | 223,196 | |
Note 4 – Line of Credit
The Company had a line of credit which was repaid
in full on July 8, 2021. Interest accrued at a variable rate based on the bank’s prime rate plus 1% (4.25% at December 31, 2020)
but at no time less than 4.0%. Monthly interest payments were required, with any outstanding principal due on July 10, 2021. Interest
expense for the six months ended June 30, 2022 and 2021 was $0 and $69,132, respectively.
The line of credit was collateralized by all assets
of the Company, including $2,000,000 of cash held in a control account at the lender. The Company also maintained a minimum balance at
the lender to cover two months of interest payments. Prior to our IPO, the line of credit was collateralized by $6,000,000 of cash assets
of two shareholders held in control accounts at the lender.
Following the Company’s IPO in February
2021 the line of credit was amended and the Company paid down the outstanding principal balance on its bank line of credit from $6,000,000
to $2,000,000 and the available principal balance for the line of credit was reduced from $6,000,000 to $2,000,000. Further, the $6,000,000
of cash collateral previously provided by the two shareholders was released. The remaining principal balance of $2,000,000 was repaid
in full and the line of credit was terminated on July 8, 2021.
The shareholder who previously provided the $2,000,000
control account had a collateral agreement with the Company which is described in Note 6. This agreement was terminated in March 2021.
Note 5 – Convertible Notes Payable,
Notes Payable to Related Parties and Promissory Notes
Convertible notes payable
The Company had convertible notes outstanding
at December 31, 2020 in the amount of $2,295,305, inclusive of accrued interest. These convertible notes accrued interest at 6.0% per
year and were scheduled to mature on December 31, 2021. In conjunction with the February 2021 IPO, the Notes automatically converted into
2,066,176 shares of common stock at discounts ranging from 50% to 75% of the IPO price. Interest expense for the six months ended June
30, 2022 and 2021 was $0 and $16,586, respectively.
Accrued fees to a related party
The Company had an agreement with a shareholder
to provide collateral for a bank line of credit described in Note 4 – Line of Credit. The amount of the cash collateral provided
by the shareholder to the bank was $2,000,000. The collateral agreement required a commitment to pay collateral fees of $710,000 (comprised
of annual interest of $660,000 plus the $50,000 renewal fee) to the shareholder and issue 3,454 common stock warrants. In January 2019,
in connection with the collateral agreement, the Company converted accrued fees of $725,000 into an unsecured note payable, which bore
interest at 33% annually and had a maturity date of December 31, 2021. The fees that accrued on the collateral arrangement were 33% percent
of the collateral amount annually plus an annual renewal fee of $50,000. Interest expense for the six months ended June 30, 2022 and 2021
was $0 and $208,727, respectively. This collateral agreement terminated in March 2021.
In conjunction with the February 2021 IPO, the
notes payable and accrued interest due to this shareholder were converted to 1,667,859 shares of common stock.
Promissory notes payable
The Company had promissory notes payable outstanding
that were scheduled to mature on December 31, 2021 and accrue interest at 6%. The notes and accrued interest would convert into equity,
upon a qualified IPO at a per share valuation equal to $40.0 million. In addition, each investor in the Promissory Notes would receive
shares and warrants based on a formula that takes into account the number of shares and warrants the investor owned before the investment
in these Promissory Notes, as well as a portion of the bonus allocation of 1,038,342 shares made available to the investors. Interest
expense for the six months ended June 30, 2022 and 2021 was $0 and $14,454, respectively.
In conjunction with the February 2021 IPO, all
of the Promissory Notes collectively converted into 3,080,535 shares of common stock.
The Company recognized a finance charge to interest
expense of $8,141,424 related to the conversion of the convertible notes, notes payable to related parties and promissory notes in February
2021.
Note 6 – Notes Payable
Notes payable to related parties and deferred
salary
An executive officer of the Company agreed to
defer receipt of compensation to preserve liquidity in the Company. The accumulated amount of compensation owed to this executive officer
was approximately $631,000. The Company paid this deferred compensation in the first quarter of 2021.
The Company had convertible notes payable to related
parties in the amounts of $200,000 and $50,000, without a stated interest rate or stated maturity date. Two other existing investors entered
into a convertible note related to services provided to the Company in the amount of $17,197. The Company also issued a convertible note
payable to a related party for consulting services incurred by the Company in the amount of $486,198. The Company paid these Notes in
the first quarter of 2021.
The Company had a short term loan of $500,000
short term loan from a related party. The balance was repaid in February 2021.
Cares Act Paycheck Protection Program loan
The Company entered into a promissory note evidencing
an unsecured loan (the “First Loan”) in the amount of $268,662 made to the Company under the Paycheck Protection Program (the
“PPP”). In January 2021, the Company entered into a second promissory note (the “Second Loan” or combined with
the first loan, the “PPP Loans”) of $267,482 under the PPP. The PPP was established under the CARES Act and is administered
by the U.S. Small Business Administration.
The First Loan was set to mature in April 2022
and the Second Loan was set to mature in January 2023. The PPP Loans bore interest at a rate of 1% per annum. Beginning November 2020,
the Company was required to make 18 monthly payments of principal and interest in the amount of $14,370 related to the First Loan. The
PPP Loans may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The proceeds from the Loans may only
be used for payroll costs (including benefits), interest on mortgage obligations, rent, utilities and interest on certain other debt obligations.
The PPP Loans contained customary events of default
relating to, among other things, payment defaults, making materially false and misleading representations to the lender or breaching the
terms of the Loan documents. The occurrence of an event of default will result in an increase in the interest rate to 18% per annum and
provides the lender with customary remedies, including the right to require immediate payment of all amounts owed under the PPP Loans.
Pursuant to the terms of the CARES Act and the
PPP, the Company applied for forgiveness for both the PPP Loans. On June 15, 2021, the Company received confirmation that the First Loan
was approved for forgiveness and the Company recorded $268,662 in PPP loan extinguishment to other income during the year ended December
31, 2021. On November 2, 2021, the Company received confirmation that the Second Loan was approved for forgiveness and the Company recorded
$267,482 in PPP loan extinguishment to other income during the year ended December 31, 2021. The amount eligible for forgiveness was based
on the amount of Loan proceeds used by the Company (during the eight-week period after the lender makes the first disbursement of Loan
proceeds) for the payment of certain covered costs, including payroll costs (including benefits), interest on mortgage obligations, rent
and utilities, subject to certain limitations and reductions in accordance with the CARES Act and the PPP.
Note 7 – Commitments and Contingencies
Operating Lease
In April 2021, the Company entered into a lease
agreement for a new primary office space in Boulder, Colorado comprising of 8,639 square feet. The lease commenced on May 15, 2021 and
terminates after 12 months. The lease has an initial base rent of $7,150 per month, with the first 15 days rent free and includes three
separate six month renewal options, subject to fixed rate escalation increases. The Company exercised it’s first six month renewal
option to extend the lease through November 2022. The Company previously leased approximately 3,000 square feet of office space that
expired on April 30, 2021. Rent expense was as follows:
Schedule of rent expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
|
Six Months Ended June 30 |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Rent expense |
|
$ |
21,733 |
|
|
|
13,437 |
|
|
$ |
43,182 |
|
|
|
31,490 |
|
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.
Note 8 - Share-based Issuances
Stock Options
The following table presents the activity for
stock options outstanding:
Schedule of stock option activity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Non-Qualified |
|
|
Average |
|
|
|
Options |
|
|
Exercise Price |
|
Outstanding - December 31, 2021 |
|
|
1,504,791 |
|
|
$ |
2.96 |
|
Granted |
|
|
293,750 |
|
|
|
1.79 |
|
Forfeited/canceled |
|
|
– |
|
|
|
– |
|
Exercised |
|
|
– |
|
|
|
– |
|
Outstanding – June 30, 2022 |
|
|
1,798,541 |
|
|
$ |
2.77 |
|
The following table presents the composition of
options outstanding and exercisable:
Options outstanding and exercisable | | |
| | |
| | |
| | |
| | |
| |
| | |
| Options Outstanding | | |
| Options Exercisable | |
Exercise Prices | | |
| Number | | |
| Price* | | |
| Life* | | |
| Number | | |
| Price* | |
$2.70 | | |
| 68,518 | | |
$ | 2.70 | | |
| 1.33 | | |
| 68,518 | | |
$ | 2.70 | |
$2.90 | | |
| 53,128 | | |
$ | 2.90 | | |
| 5.54 | | |
| 53,128 | | |
$ | 2.90 | |
$4.26 | | |
| 171,263 | | |
$ | 4.26 | | |
| 7.13 | | |
| 152,217 | | |
$ | 4.26 | |
$2.79 | | |
| 1,211,882 | | |
$ | 2.79 | | |
| 9.01 | | |
| 545,939 | | |
$ | 2.79 | |
$1.79 | | |
| 293,750 | | |
$ | 1.79 | | |
| 9.65 | | |
| 7,500 | | |
$ | 1.79 | |
Total – June 30, 2022 | | |
| 1,798,541 | | |
$ | 2.77 | | |
| 7.48 | | |
| 827,302 | | |
$ | 3.05 | |
________________________
* |
Price and Life reflect the weighted average exercise price and weighted average remaining contractual life, respectively. |
During the six months ended June 30, 2022, the
Company granted 293,750 stock options to certain executives and key employees. Under the terms of the option agreements, the options are
subject to certain vesting requirements. The fair value of each award is determined using the Black-Scholes option-pricing model which
values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, and
the risk-free interest rate over the expected life of the option. The expected volatility was determined considering comparable companies
historical stock prices as a peer group for the fiscal year the grant occurred and prior fiscal years for a period equal to the expected
life of the option. The risk-free interest rate was the rate available from the St. Louis Federal Reserve Bank with a term equal to the
expected life of the option. The expected life of the option was estimated based on a mid-point method calculation.
Restricted Stock Units
The following table presents the activity for
restricted stock units outstanding:
Schedule of warrant activity | |
| | |
| |
| |
| | |
Weighted | |
| |
Restricted | | |
Average | |
| |
Stock Units | | |
Exercise Price | |
Outstanding - December 31, 2021 | |
| 424,500 | | |
$ | – | |
Granted | |
| 150,000 | | |
| – | |
Forfeited/canceled | |
| – | | |
$ | – | |
Vested/issued | |
| (143,625 | ) | |
| – | |
Outstanding – June 30, 2022 | |
| 430,875 | | |
$ | – | |
During the six months ended June 30, 2022, the
Company granted 150,000 restricted stock units. Under terms of the restricted stock agreements, the restricted stock units are subject
to a four year vesting schedule.
During the six months ended June 30, 2022, certain
restricted stock unit holders elected a net-share settlement for vested shares to satisfy income tax requirements. The Company applied
modification accounting in accordance with ASC 718, and reclassified these share-based awards from equity classification to liability
classification. The Company recognized a share-based compensation liability as of June 30, 2022 of $47,073 related to the fair value of
vested shares over the service period.
The Company recognized share-based compensation
expense related to stock options and restricted stock units in the amounts of $671,829 and $31,951 for the six months ended June 30, 2022
and 2021, respectively. The remaining unvested share-based compensation expense of $2,444,906 is expected to be recognized over the next
45 months.
Warrants
The following table presents the activity for
warrants outstanding:
Schedule of warrant activity | |
| | | |
| | |
| |
| | |
Weighted | |
| |
Warrants | | |
Average | |
| |
Outstanding | | |
Exercise Price | |
Outstanding - December 31, 2021 | |
| 4,172,247 | | |
$ | 4.80 | |
| |
| | | |
| | |
Granted | |
| – | | |
| – | |
Forfeited/cancelled/restored | |
| – | | |
| – | |
Exercised | |
| (148 | ) | |
| 0.87 | |
Outstanding – June 30, 2022 | |
| 4,172,099 | | |
$ | 4.80 | |
In connection with the February 2021 IPO, the
Company issued 3,991,818 warrants to purchase shares of common stock and issued to 598,772 warrants to its underwriters to cover over-allotments.
The Company also issued 319,346 of representative warrants to its underwriters to purchase shares of common stock and these representative
warrants contain a cashless exercise feature.
During the six months ended June 30, 2022 certain
holders of our Pre-IPO warrants exercised 148 warrants for 112 shares of common stock at the net exercise price of $0.87 per share.
All of the outstanding warrants are exercisable
and have a weighted average remaining contractual life of approximately 3.44 years as of June 30, 2022.
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.
As of June 30, 2022 and 2021, 6,325,245 shares
and 4,239,600 shares, respectively of potentially dilutive weighted average shares were excluded from the calculation of diluted net loss
per share because their effect would have been anti-dilutive for the periods presented.
Note 10 – Subsequent Events
In accordance with Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) Topic 855, Subsequent Events, management has performed an evaluation of subsequent events through the date
that the financial statements were available to be issued on August 12, 2022 and has determined
that it does not have any material subsequent events to disclose in these financial statements.
`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, 2021, which was filed with the SEC on February 17, 2022. 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, 2021 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
We are 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. We are leveraging these technologies to bring to market two industry first Apps, Faidr and Vodacast.
The Faidr app gives consumers
the opportunity to listen to any AM/FM radio station with no commercials while personalizing the listening experience through skips, the
insertion of on-demand content and the programming of audio routines to customize listening sessions such as a daily commute. The Faidr
App represents the first-time consumers can access the local content uniquely provided by radio in the commercial free and personalized
manner many consumers have come to demand for media consumption.
We look to bring to market
a premium AM/FM radio listening experience through Faidr. The Faidr App is intended to be downloaded by consumers who will pay a subscription
fee to listen to any streaming AM/FM radio station without commercials. Advanced features will allow consumers to skip any content heard
on the station, request audio content on-demand, and program an audio routine. We believe Faidr represents a significant differentiated
audio streaming product 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 music, Faidr
is intended to deliver non-music content that includes local sports, news, weather, traffic and the discovery of new music. Radio is the
dominant audio platform for local content and new music discovery.
We recently launched
the Faidr App to include all major U.S. radio stations on February 15, 2022 and launched marketing campaigns for Faidr to build an audience
and demonstrate consumer interest. We are currently providing consumers a free trial of the App and started trialing subscriptions with
a subset of consumers in late second quarter. In addition, we are continuing to enhance the listening experience for consumers by: 1)
advancing the training of our proprietary AI technology primarily around talk stations and talk segments on music stations; 2) continual
improvements to the user interface and consumer interaction within the App; and 3) exploring additional content choices, including podcasting,
some of which will become available in the App during the year. We expect to continue to understand consumer interest for subscription
during the third quarter.
The Faidr mobile App
is available today through the iOS and Android App stores.
We also have developed
a podcasting platform called Vodacast. Vodacast 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 around their Podcast and monetize their content with new
monetization channels. One innovative and proprietary part of the Vodacast platform is the availability of tools to create and distribute
an interactive digital feed which supplements podcast episode audio with additional digital content. 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 Vodacast Hub, a content management system that also serves as a tool to plan and manage podcast
episodes. The digital feed activates a new digital ad channel that turns every audio ad into a direct-response 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 appears fully synchronized in the Vodacast
mobile App, and it also can be hosted and accessed independently (e.g., through any browser), making the content feed universally distributable.
Vodacast will also introduce
a unique and industry first multi-channel, highly flexible set of revenue channels that podcasters can activate in combination to allow
listeners to choose how they want to consume and pay for content. “Flex Revenue” allows podcasters to continue to run their
standard audio ad model and complement those ads with direct response enabled digital ads in each episode content feed, increasing the
value of advertising on any podcast. “Flex Revenue” will also activate subscriptions, on-demand fees for content (e.g., listen
without audio ads for a micro payment fee) and direct donations from listeners. Using these channels in combination, podcasters can maximize
revenue generation and exercise higher margin monetization models, beyond basic audio advertising.
The Vodacast mobile App
is available today through the iOS and Android App stores.
We launched marketing campaigns for Vodacast during
the second quarter to continue to grow our user base and encourage listeners to download the Vodacast App and listen to all their favorite
shows. Because podcasting is the type of audio content that music app users expect to find in their preferred apps and platforms (e.g.
TuneIn, iHeart, Audacy, Spotify), we are currently exploring the migration of podcasting and the full suite of tools and features from
Vodacast into our Faidr App to provide an all-inclusive and immersive listening experience. During this time, we have paused direct marketing
promotion related to the Vodacast App while we explore podcasting into Faidr.
We have funded our operations
with proceeds from the February 2021 IPO and Series A warrants exercise in July 2021. Since inception we have incurred significant operating
losses. As of June 30, 2022, we had an accumulated deficit of $68.6 million. Our ability to generate product revenue sufficient to achieve
profitability will depend heavily on the successful development and commercialization of one or more of our Apps.
As a part of our capital
strategy, we recently implemented certain cost saving initiatives that reduced our quarterly cash spend. This includes certain cost saving
initiatives related to our research and development and sales and marketing costs and includes a reduction of headcount and direct promotion
of our Apps while we continue to enhance our listening experience. We expect that our expenses and capital requirements will increase
again sometime in the future, particularly if and as we:
|
· |
continue training our proprietary AI technology and make additional product enhancements; |
|
· |
gain significant consumer interest in our products and increase marketing promotion to drive users to our Apps and convert users to subscribers; |
|
· |
identify and license new content that will add value to our products and drive consumer interest; |
|
· |
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 subscriptions, 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 in addition to the cost saving initiatives we have already made effective.
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 June 30, 2022,
we had cash of approximately $2.3 million, which we believe should fund our operating expenses and capital expenditure requirements through
at least December 31, 2022. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available
capital resources sooner than we expect. See “—Liquidity and capital resources.” To finance our operations beyond that
point, we will need to raise additional capital, which cannot be assured. If we are unable to raise additional capital in sufficient amounts
or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of our
Apps or other research and development initiatives.
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 Vodacast 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 continue
to promote the national commercial launch of our Faidr product and look to generate revenue for our products 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 the Company’s management of three years.
Costs associated with significant upgrades and enhancements that result in additional functionality are capitalized. Capitalized costs
are subject to an ongoing assessment of recoverability based on anticipated future revenues and changes in software technologies. Unamortized
capitalized software development costs determined to be in excess of anticipated future net revenues are impaired and expensed during
the period of such determination.
We recently implemented
certain cost saving initiatives which includes the reduction of a part of our research and development staff. We still expect to continue
to incur substantial research and development expenses and capitalization in the future, even after the reduction of headcount as we continue
to develop and enhance our Faidr and Vodacast 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 increase
in the future as we expand 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
Our other income and expense consist of interest
income related to our cash at financial institutions, debt extinguishment related to our PPP loans, interest expense from our line of
credit, and a finance charge related to conversion of outstanding debt into shares of common stock related to the February 2021 IPO. We
expect our other expense to decrease as we paid off our outstanding balance on our line of credit and will not incur any additional debt
conversion charges.
Results of operations
Comparison of the three months ended
June 30, 2022 and 2021
The following table summarizes our results
of operations:
| |
Three Months Ended June 30, | | |
| |
| |
2022 | | |
2021 | | |
Increase/(Decrease) | |
Revenue | |
$ | – | | |
$ | – | | |
$ | – | |
| |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | |
Direct costs of service | |
| 43,532 | | |
| 76,058 | | |
| (32,526 | ) |
Sales and marketing | |
| 740,019 | | |
| 139,611 | | |
| 600,408 | |
Research and development | |
| 151,251 | | |
| 78,285 | | |
| 72,966 | |
General and administrative | |
| 842,555 | | |
| 706,627 | | |
| 135,928 | |
Depreciation and amortization | |
| 271,005 | | |
| 2,857 | | |
| 268,148 | |
| |
| | | |
| | | |
| | |
Total operating expense | |
| 2,048,362 | | |
| 1,003,438 | | |
| 1,044,924 | |
| |
| | | |
| | | |
| | |
Loss from operations | |
| (2,048,362 | ) | |
| (1,003,438 | ) | |
| (1,044,924 | ) |
Other income (expense), net: | |
| (2,023 | ) | |
| 249,917 | | |
| (251,940 | ) |
| |
| | | |
| | | |
| | |
Net loss | |
$ | (2,050,385 | ) | |
$ | (753,521 | ) | |
$ | (1,296,864 | ) |
Revenue
Total revenues were $0
for the three months ended June 30, 2022 and June 30, 2021. We are continuing to develop the new Faidr and Vodacast products to establish
new revenue streams and expect to start generating our first revenue during the third quarter of 2022.
Direct cost of services
Direct Cost of Services
decreased $32,526 or 42.8%, from $76,058 for the three months ended June 30, 2021 compared to $43,532 for the three months ended June
30, 2022. We continue to incur direct cost of services expense related to hosting and other music services related to our Faidr App and
expect these costs to increase in the future.
Sales and marketing
Sales and marketing expenses
increased by $600,408 or 430.1%, from $139,611 for the three months ended June 30, 2021 to $740,019 for the three months ended June 30,
2022 due to our increase in promotional activity related to the national launch of our Faidr App, and continued promotion for our Vodacast
App. The increase in marketing promotion was primarily understanding consumer interest and demand for our Faidr App. As a part of that
increased marketing spend, we were able to identify key metrics and user data which exceeded our initial targets for consumer downloads
and monthly active users (MAUs).
Research and development
Research and development
expenses increased by $72,966 or 93.2%, from $78,285 for the three months ended June 30, 2021 to $151,251 for the three months ended June
30, 2022 primarily related to additional staffing on our development team as we continued to advance the Faidr and Vodacast Apps. Our
research and development staffing and related development costs were $766,779 and capitalized software expenses of $617,411 for the three
months ended June 30, 2022 as compared to staffing and related development costs of $354,188 and capitalized software expenses of $259,463
for the three months ended June 30, 2021. The majority of development time was spent on our Faidr and Vodacast Apps. We started amortizing
capitalized development costs associated with Faidr during Q1 2022 and continue to amortize development expense related to Vodacast.
General and administrative
General and administrative
expenses increased by $135,928 or 19.2%, from $706,627 for the three months ended June 30, 2021 compared to $842,555 for the three months
ended June 30, 2022. The increase resulted primarily from increased stock compensation expense related to employee stock options granted
in Q3 2021 and Q1 2022 partially offset by lower professional fees related to our IPO and recruiting fees incurred during 2021. Stock
compensation expense was $285,920 and $15,820 for the three months ended June 30, 2022 and 2021, respectively.
Depreciation and amortization
Depreciation and amortization
expenses increased by $268,148, from $2,857 for the three months ended June 30, 2021 compared to $271,005 for the three months ended June
30, 2022. The increase is related to amortization of our Faidr and Vodacast Apps, which started amortization during Q1 2022 and Q4 2021,
respectively.
Other income (expense),
net
Total other income (expense)
decreased by $251,940, from $249,917 for the three months ended June 30, 2021 to ($2,023) for the three months ended June 30, 2022. The
decrease was mostly related to a net gain from the extinguishment of our first PPP loan during 2021.
Comparison of the six months ended June
30, 2022 and 2021
The following table summarizes our results
of operations:
| |
Six Months Ended June 30, | | |
| |
| |
2022 | | |
2021 | | |
Increase/(Decrease) | |
Revenue | |
$ | – | | |
$ | – | | |
$ | – | |
| |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | |
Direct costs of service | |
| 96,093 | | |
| 133,406 | | |
| (37,313 | ) |
Sales and marketing | |
| 1,097,086 | | |
| 263,115 | | |
| 833,971 | |
Research and development | |
| 300,015 | | |
| 125,282 | | |
| 174,733 | |
General and administrative | |
| 1,860,283 | | |
| 1,344,335 | | |
| 515,948 | |
Depreciation and amortization | |
| 447,132 | | |
| 5,040 | | |
| 442,092 | |
| |
| | | |
| | | |
| | |
Total operating expense | |
| 3,800,609 | | |
| 1,871,178 | | |
| 1,929,431 | |
| |
| | | |
| | | |
| | |
Loss from operations | |
| (3,800,609 | ) | |
| (1,871,178 | ) | |
| (1,929,431 | ) |
Other income (expense), net: | |
| (3,035 | ) | |
| (8,178,841 | ) | |
| 8,175,806 | |
| |
| | | |
| | | |
| | |
Net loss | |
$ | (3,803,644 | ) | |
$ | (10,050,019 | ) | |
$ | 6,246,375 | |
Revenue
Total revenues were $0
for the three months ended June 30, 2022 and June 30, 2021. We are continuing to develop the new Faidr and Vodacast products to establish
new revenue streams and expect to start generating our first revenue during the third quarter of 2022.
Direct cost of services
Direct Cost of Services
decreased $37,313 or 28.0%, from $133,406 for the six months ended June 30, 2021 compared to $96,093 for the six months ended June 30,
2022. We continue to incur direct cost of services expense related to hosting and other music services related to our Faidr App and expect
these costs to increase in the future.
Sales and marketing
Sales and marketing expenses
increased by $833,971 or 317.0%, from $263,115 for the six months ended June 30, 2021 to $1,097,086 for the six months ended June 30,
2022 due to our increase in promotional activity related to the national launch of our Faidr App, and continued promotion for our Vodacast
App. The increase in marketing promotion was primarily understanding consumer interest and demand for our Faidr App. As a part of that
increased marketing spend, we were able to identify key metrics and user data which exceeded our initial targets for consumer downloads
and monthly active users (MAUs).
Research and development
Research and development
expenses increased by $174,733 or 139.5%, from $125,282 for the six months ended June 30, 2021 to $300,015 for the six months ended June
30, 2022 primarily related to additional staffing on our development team as we continue to advance the Faidr and Vodacast Apps. Our research
and development staffing and related development costs were $1,578,637 and capitalized software expenses of $1,278,625 for the six months
ended June 30, 2022 as compared to staffing and related development costs of $692,976 and capitalized software expenses of $551,538 for
the six months ended June 30, 2021. The majority of development time was spent on our Faidr and Vodacast Apps. We started amortizing capitalized
development costs associated with Faidr during Q1 2022 and continue to amortize development expense related to Vodacast.
General and administrative
General and administrative
expenses increased by $515,948 or 38.4%, from $1,344,335 for the six months ended June 30, 2021 compared to $1,860,283 for the six months
ended June 30, 2022. The increase resulted primarily from increased stock compensation expense related to employee stock options granted
in Q3 2021 and Q1 2022 partially offset by lower professional fees related to our IPO and recruiting fees incurred during 2021. Stock
compensation expense was $671,829 and $31,951 for the six months ended June 30, 2022 and 2021, respectively.
Depreciation and amortization
Depreciation and amortization
expenses increased by $442,092, from $5,040 for the six months ended June 30, 2021 compared to $447,132 for the six months ended June
30, 2022. The increase is related to amortization of our Faidr and Vodacast Apps, which started amortization during Q1 2022 and Q4 2021,
respectively.
Other income (expense),
net
Total other expense decreased
by $8,175,806, from $8,178,841 for the six months ended June 30, 2021 to $3,035 for the six months ended June 30, 2022. The decrease was
mostly related to a finance charge of $8,141,424 to interest expense related to the conversion of outstanding debt into 6.8 million shares
of common stock related to the February 2021 IPO. In addition, we paid off and terminated our line of credit during 2021 and no longer
are incurring interest related to the line of credit.
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 Vodacast
Apps. As of June 30, 2022 and December 31, 2021 we had cash of $2,341,289 and $6,345,291, respectively. We reduced our future quarterly
cash spend through a series of cost saving initiatives during the third quarter of 2022 and deferral of promotional activity on the Faidr
and Vodacast Apps. We anticipate that operating losses and net cash used in operating activities will continue over the next 12 months
as we continue to develop and market our products and work through consumer conversion to subscriptions throughout 2022 and expect the
start of subscription conversion during 2023.
In February 2021, we completed an IPO of 3,991,818
units, at $4.125 per unit, consisting of one share of common stock and one warrant to purchase one share of common stock at an exercise
price of $4.54 per share. After deducting underwriters’ commissions and expenses, we received net proceeds of approximately $15.2
million. Due to the successful completion of the IPO, all of our existing convertible debt, accrued interest, accrued fees payable to
related parties, and promissory notes were converted into shares of common stock.
Following the Company’s IPO in February
2021, we paid down the outstanding principal balance on our bank line of credit from $6 million to $2 million. We and the bank agreed
to reduce the maximum available balance for the line of credit to $2 million.
In July 2021, certain holders of our publicly
traded Series A Warrants exercised approximately 1.1 million warrants for approximately 1.1 million shares of common stock at the cash
exercise price of $4.5375 per share and as a result, we received additional cash proceeds of approximately $5.0 million. In addition,
we paid the remaining $2.0 million, out of our restricted cash, to pay off and terminate our line of credit.
During the year ended
December 31, 2021, we have reduced our bank debt by $6.0 million, paid down a significant percentage of our accounts payable, and eliminated
all deferred compensation owed to a related party.
Cash Flow Analysis
Our cash flows from operating
activities have historically been significantly impacted by revenues received, our investment in sales and marketing to drive growth,
and research and development expenses. Our ability to meet future liquidity needs will be driven by our operating performance and the
extent of continued investment in our operations. Failure to generate sufficient revenues and related cash flows could have a material
adverse effect on our ability to meet our liquidity needs and achieve our business objectives.
The following table summarizes
the statements of cash flows for the six months ended June 30, 2022 and 2021:
| |
Six Months Ended June 30, | | |
| |
| |
2022 | | |
2021 | | |
% Change | |
Net cash provided by (used in): | |
| | | |
| | | |
| | |
Operating activities | |
$ | (2,632,846 | ) | |
$ | (3,133,635 | ) | |
| (16.0% | ) |
Investing activities | |
| (1,282,433 | ) | |
| (575,373 | ) | |
| 122.9% | |
Financing activities | |
| (88,723 | ) | |
| 10,174,305 | | |
| (100.9% | ) |
Change in cash and restricted cash | |
$ | (4,004,002 | ) | |
$ | 6,465,297 | | |
| (161.9% | ) |
Operating activities
Cash used in operating
activities for the six months ended June 30, 2022 was $2,632,846, primarily resulting from our net loss of $3,803,644, partially offset
by non-cash charges of $1,118,961 primarily related to stock compensation expense and depreciation and amortization.
Cash used in operating
activities for the six months ended June 30, 2021 was $3,133,635, primarily resulting from our net loss of $10,050,019 and changes in
working capital of $993,369, partially offset by non-cash charges of $7,909,753 primarily related to our conversion of outstanding debt
to common stock from our February 2021 IPO. Changes in working capital primarily related to paying off outstanding accounts payable.
Cash used in operating
activities primarily consisted of personnel-related expenditures, payments included costs of operations, and other sales efforts, research
and development and administrative costs.
Investing activities
Cash flows used in investing
activities for the six months ended June 30, 2022 and 2021, consisted primarily of capitalization of software development expenses of
$1,278,625 and $551,538, respectively.
Financing activities
Cash flows used in financing
activities for the six months ended June 30, 2022 was $88,723 all from cash used in relation to the net settlement of share-based compensation.
Cash flows provided by
financing activities for the six months ended June 30, 2021 was $10,174,305 primarily related to the issuance of common shares for $14,822,459
related to our February 2021 IPO and proceeds from the second PPP loan in the amount of $267,482, partially offset by a $4,000,000 repayment
on our line of credit, and repayment of deferred salary and related party notes payable of $930,636.
Funding Requirements
We historically have
incurred significant losses and negative cash flows from operations since our inception. As of June 30, 2022, we had cash of $2.3 million.
Our cash is comprised primarily of demand deposit accounts and money market funds. We believe our current cash on hand should be sufficient
to fund our operations through at least December 31, 2022. We are currently in the process of raising additional short-term funding that,
if completed, would extend our current cash availability through the second quarter 2023. We have based these estimates, however, on assumptions
that may prove to be wrong, and we could spend our available financial resources much faster than we currently expect and therefore would
need to raise longer term funding sooner than we anticipate. 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 part of our funding strategy, we recently
implemented cost saving initiatives to ensure our cash on hand will allow us enough time to finalize certain product enhancements and
optimize consumer adoption and subscription. We expect these cost saving measures to reduce our quarterly cash burn rate by
$500,000 to $700,000 as compared to the second quarter 2022. With the combination of cost saving initiatives and the additional short-term
funding we are pursuing, we believe our cash availability will be able to extend through the second quarter 2023.
We expect to continue to incur costs associated with operating as a public company, including legal, accounting, investor
relations and other expenses. Our future funding requirements and timing will depend on many factors, including, but not limited to:
|
· |
the scope, progress, results and costs related to our Faidr App and obtaining market adoption and subscription conversion; |
|
|
· |
the costs, timing and ability to continue to develop our technology; |
|
|
· |
effectively addressing any competing technological and market developments; |
|
|
· |
avoiding and defending against intellectual property infringement, misappropriation and other claims |
|
Contractual Obligations
The following table summarizes
our contractual obligations not on our Balance Sheet as of June 30, 2022 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) | |
$ | 37,170 | | |
| 37,170 | | |
| -0- | | |
| -0- | | |
| -0- | |
Insurance premiums (2) | |
| 165,303 | | |
| 165,303 | | |
| -0- | | |
| -0- | | |
| -0- | |
Total operating lease commitments | |
$ | 202,473 | | |
| 202,473 | | |
| -0- | | |
| -0- | | |
| -0- | |
(1) |
Represents minimum payments due for the lease of office space without consideration of additional renewal options |
(2) |
Represents premium payments due related to D&O insurance policy from February 2022 – February 2023 |
Off-balance sheet
arrangements
We did not have during
the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the
SEC.
Critical Accounting Policies and Estimates
Our condensed financial
statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these condensed financial statements
requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and
expenses, and related disclosures. On an ongoing basis, we continually evaluate our estimates and assumptions believed to be reasonable
under current facts and circumstances. Actual amounts and results may materially differ from these estimates made by management under
different assumptions and conditions.
A summary of our critical accounting policies
is presented in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual
Report on Form 10-K for the year ended December 31, 2021. There were no material changes to our critical accounting policies during the
six months ended June 30, 2022.
Emerging growth company and smaller reporting company status
The Jumpstart Our Business
Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to
comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private
companies. We have elected to not “opt out” of this provision and, as a result, we will adopt new or revised accounting standards
at the time private companies adopt the new or revised accounting standard and will do so until such time that we either (i) irrevocably
elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.
We are also a “smaller reporting company”
meaning that the market value of our stock held by non-affiliates is less than $700 million and our annual revenue was less than $100
million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value
of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently
completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting
company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements
that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two
most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies,
smaller reporting companies have reduced disclosure obligations regarding executive compensation.