Amesite(AMST) - 2022 Q4 - Annual Report

FORM 10-K Cover Page - Amesite Inc. filed its Annual Report on Form 10-K for the fiscal year ended June 30, 2022, and is a non-accelerated filer and a smaller reporting company[1][3][4] Key Company Information | Detail | Value | | :--- | :--- | | State of Incorporation | Delaware | | IRS Employer Identification No. | 82-3431718 | | Registrant's Telephone Number | (734) 876-8141 | | Trading Symbol | AMST | | Exchange | The Nasdaq Stock Market LLC | | Common Stock Outstanding (Sept 22, 2022) | 30,300,305 shares | | Market Value of Non-Affiliate Common Stock (Dec 31, 2021) | ~$22,649,369 | Cautionary Note Regarding Forward-Looking Statements - This section highlights that the Annual Report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[9][10] - Key risks include the platform's ability to generate revenue, the company's ability to continue as a going concern, obtain funding, and protect intellectual property[9] - The company assumes no obligation to update or revise forward-looking statements[10] PART I Item 1. Business Amesite Inc. is an AI software company providing cloud-based learning platforms and content creation services for businesses and educational institutions Business Overview - Amesite is a high-tech artificial intelligence software company providing a cloud-based platform for business and university-delivered education and upskilling[13] - The company offers a white-label platform to universities, museums, businesses, and government agencies, generating revenue from platform licensing and user fees[14] - Amesite has received an innovation award for its product and 10 workplace excellence awards, including 4 national ones[14] Our Strategy - Amesite delivers Learning Community Environments (LCEs) to businesses and educational institutions, enabling them to offer branded learning products with ease[15] - The company's revenue is derived from license fees and user fees, targeting customers with large user cohorts to scale revenue[16] - Amesite aims to provide accessible and highly targeted learning programs, leveraging proprietary data on learner behavior to improve engagement and effectiveness[15][16] Our Proprietary Technology - Amesite's technology uses artificial intelligence algorithms to improve learning outcomes by assisting learners in accessing and utilizing platform content[19] - The platform features a flexible and scalable full-stack solution with robust front-end tools, integrating best-in-class third-party tools and custom features[18] - Learner data is collected with permission and used solely to improve learning outcomes, with a strict policy against selling or distributing data to third parties[21] Our Research and Development Programs - R&D focuses on improving learner engagement with cloud-based platforms by continuously gathering data and incorporating useful tools[23] - Programs aim to enhance instructor experience by developing tools for timely content delivery, fair assessments, and repeatable outcomes[23] - R&D also includes integrating new technologies into the learning products and qualifying information to provide carefully curated, relevant, and timely materials[24] Our Intellectual Property - Amesite has received two U.S. patents and has five pending U.S. patent applications, including one covering its artificial intelligence platform[25] - The company protects its source codes, methodologies, algorithms, and techniques as trade secrets[26] - Service marks for AMESITE, KEEP LEARNING, and LCE have been registered with the United States Patent and Trademark Office[26] Competition - The online and software industries for higher education are characterized by rapid technological evolution, fierce competition, and strong intellectual property defense[28] - Competitors include Online Program Management (OPM) firms, Learning Management System (LMS) technology firms, and learning product aggregators[29] - Principal competitive factors are brand awareness, ability to deliver desired learner outcomes, robustness of technology, and breadth of service offering[30] Government Regulation and Product Approval - The education industry is heavily regulated by the U.S. Department of Education, accrediting agencies, and state licensing authorities[32] - Amesite is required to comply with certain education laws as a service provider to higher education institutions, including incentive compensation and accreditation rules[33][34] - The company's activities are also subject to federal and state laws regarding consumer marketing, unfair trade practices, and data protection/privacy requirements[34] Sales and Marketing - Amesite plans to grow its sales and marketing program by transitioning from a small direct sales force to a distribution network[35] - The company intends to develop a branding strategy, including presence at colleges, universities, and commercial institutions, and direct marketing methods[35] - Amesite plans to pursue selected business opportunities like joint developments, collaborations, and acquisitions to build sales more rapidly[35] Board of Advisors - Dennis Bernard serves as Chairman, bringing extensive experience in commercial mortgage banking[36] - Martha A. Darling is a member with a background in education policy consulting and senior management roles at The Boeing Company[37] - Theodore I. Spencer is a member and Senior Advisor on Admissions Outreach at the University of Michigan[39] Human Capital Management - As of August 17, 2022, Amesite has 14 full-time employees and 3 consultants, with no employees covered by a collective bargaining agreement[40] - The company's culture is driven by values such as 'Judgment beats rules,' 'Measurement beats conjecture,' and 'Passion beats indifference'[41] - Amesite is committed to diversity and inclusion, with its management team being 57% female and 29% racially diverse[42] Corporate Information - The Company was incorporated in November 2017 and provides AI-driven, customized, high-performance, and scalable online products for schools and businesses[43] - On September 18, 2020, Amesite Inc. consummated a reorganizational merger, with Amesite Operating Company becoming the surviving entity[43][44] - The company's corporate headquarters are located in Detroit, Michigan, and it maintains a website at www.amesite.com[47](index=47&type=chunk) Item 1A. Risk Factors This section outlines significant risks that could materially affect Amesite's business, financial condition, and operating results Risks Related to Our Business - Amesite has a short operating history and has not generated sustainable revenue, leading to substantial doubt about its ability to continue as a going concern[49][51] - The business model relies on successfully licensing its platform, with risks including failure to attract customers or negotiate sustainable revenue agreements[52] - Factors affecting enrollments include negative perceptions of online courses, ineffective marketing by customers, and reduced higher education funding[53][54][55] Risks Related to Our Financial Condition - Amesite has a history of losses, with net losses of $9.1 million and $11.6 million for the years ended June 30, 2022 and 2021, respectively[51] - The company will need substantial additional funding to continue operations, as operating expenses are expected to increase[63] - There is substantial doubt about the company's ability to continue as a going concern due to its early stage of customer base development[51][62] Risks Related to Managing Any Growth We May Experience - Future acquisitions could disrupt business, cause dilution to stockholders, and harm financial condition due to integration problems and increased expenses[65][66][92] - Security breaches or failures in the platform could result in unauthorized data disclosure, loss of customers, and reputational harm[68][69] - The company does not currently have cyber risk insurance, and any future insurance may not adequately cover losses from security incidents[69] Risks Related to Regulatory Requirements - Online education is subject to ongoing regulatory obligations, and noncompliance could lead to investigations, sanctions, and fines[70][71] - Unfavorable global economic, business, or political conditions, including health concerns like COVID-19, could adversely affect operations[72] - A severe or prolonged economic downturn could hinder the company's ability to raise additional capital on acceptable terms[72] Risks Related to Our Common Stock - Sales of common stock to Lincoln Park may cause substantial dilution to existing stockholders and could make future equity sales more difficult[75][76] - The company may require additional financing to sustain operations, and the terms could adversely impact stockholders through dilution[84][86] - Amesite received a notice from Nasdaq regarding its failure to maintain a minimum bid price of $1 per share, which could lead to delisting[88][89][90] Risks Related to Our Certificate of Incorporation and Delaware Law - The certificate of incorporation designates the Delaware Court of Chancery as the sole and exclusive forum for most stockholder disputes[112][113] - This exclusive forum provision does not apply to claims under the Securities Act or Exchange Act[113][114] - Certain provisions of the certificate of incorporation and Delaware law may make it more difficult to obtain control of the company[115][116] Item 1B. Unresolved Staff Comments This item is not applicable to the company Item 2. Properties Amesite's corporate headquarters are in Detroit, Michigan, and the company now operates remotely after terminating its Ann Arbor office lease - Amesite's corporate headquarters are located at 607 Shelby Street, Suite 700 PMB 214, Detroit, Michigan 48226[118] - The company terminated its Ann Arbor, Michigan office and laboratory lease in May 2020 and now operates remotely with no further lease obligations[118] - Management believes the existing remote environment is adequate for current needs[118] Item 3. Legal Proceedings The company is not currently a party to any legal proceedings expected to have a material adverse effect on its business - The company is not currently a party to or aware of any legal proceedings that are believed to have a material adverse effect on its business[119] - Management assesses claims and makes provisions for loss if it is probable that a liability has been incurred and the amount can be reasonably estimated[119] Item 4. Mine Safety Disclosures This item is not applicable to the company PART II Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Amesite's common stock trades on the Nasdaq Capital Market under 'AMST,' and the company does not anticipate paying cash dividends Market Information - Amesite's common stock is trading on the Nasdaq Capital Market under the symbol 'AMST'[122] Shareholders - As of September 20, 2022, there were approximately 40 stockholders of record of Amesite's common stock[122] - The closing price of the common stock on September 20, 2022, was $0.32[122] Dividends - Amesite has never paid or declared any cash dividends on its common stock and does not anticipate paying any in the foreseeable future[123] - The company intends to retain all available funds and future earnings to fund the development and expansion of its business[123] Recent Sales of Unregistered Securities - During the year ended June 30, 2022, 129,024 options to purchase common stock were issued to employees under the 2018 Equity Incentive Plan[124] - The company issued a total of 263,901 shares to consultants for services during fiscal year 2022[124] - These issuances were exempt from registration under Section 4(a)(2) of the Securities Act[125] Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Amesite's financial condition, results of operations, and ongoing need for financing MD&A Overview - Amesite is not currently profitable and incurred a net loss of $9.1 million for the twelve months ended June 30, 2022[129] - Management believes it has sufficient cash for the next twelve months, but uncertainty raises substantial doubt about the company's ability to continue as a going concern[130] - Plans to generate cash through financing transactions are subject to market conditions and cannot be deemed probable[131] Basis of Presentation - The financial statements are prepared in accordance with United States generally accepted accounting principles (GAAP) and SEC requirements[128][132] Critical Accounting Policies and Significant Judgments and Estimates - The preparation of financial statements requires management to make estimates and assumptions, particularly concerning capitalized software and stock-based compensation[133] - Costs related to internal-use software are capitalized during the application development stage and amortized over an estimated useful life of three years[135] - Stock-based awards are measured at fair value using the Black-Scholes option pricing model, and revenue is recognized ratably over the contract term[136][137] Revenue (Results of Operations) Revenue Comparison (FY2022 vs FY2021) | Metric | FY2022 | FY2021 | Change | | :--- | :--- | :--- | :--- | | Net Revenue | $697,001 | $674,580 | +$22,421 | - Revenue growth was primarily driven by an increase in annual license fees and associated implementation and customization services[144] General and Administrative (Results of Operations) General and Administrative Expenses (FY2022 vs FY2021) | Metric | FY2022 | FY2021 | Change | | :--- | :--- | :--- | :--- | | G&A Expenses | $5,183,863 | $4,620,431 | +$563,432 | - The increase was primarily due to stock-based compensation related to stock awards and options issued to employees and board members in fiscal year 2022[145] Technology and Content Development (Results of Operations) Technology and Content Development Expenses (FY2022 vs FY2021) | Metric | FY2022 | FY2021 | Change | | :--- | :--- | :--- | :--- | | Tech & Content Dev. Expenses | $3,059,962 | $2,276,555 | +$783,407 | - The increase was primarily due to a $229,076 settlement obligation to a vendor for early termination, increased amortization, and an increase in payroll[147] Sales and Marketing (Results of Operations) Sales and Marketing Expenses (FY2022 vs FY2021) | Metric | FY2022 | FY2021 | Change | | :--- | :--- | :--- | :--- | | Sales & Marketing Expenses | $1,509,694 | $1,751,606 | -$241,912 | - The decrease was due to significantly increased expenditures in fiscal year 2021 focused on digital presence and lead generation[148] Interest Income (Results of Operations) Interest Income (FY2022 vs FY2021) | Metric | FY2022 | FY2021 | Change | | :--- | :--- | :--- | :--- | | Interest Income | $9,230 | $1,593 | +$7,637 | Interest Expense (Results of Operations) Interest Expense (FY2022 vs FY2021) | Metric | FY2022 | FY2021 | Change | | :--- | :--- | :--- | :--- | | Interest Expense | $12,635 | $3,613,873 | -$3,601,238 | - The substantial decrease was a result of interest expense incurred in connection with the company's offering in the prior fiscal year[150] Net Loss (Results of Operations) Net Loss (FY2022 vs FY2021) | Metric | FY2022 | FY2021 | Change | | :--- | :--- | :--- | :--- | | Net Loss | $(9,059,923) | $(11,586,292) | +$2,526,369 | - The loss was substantially lower in FY2022 compared to FY2021 primarily due to interest expense incurred in connection with the offering in the prior fiscal year[150] Capital Expenditures Capital Expenditures (FY2022 vs FY2021) | Category | FY2022 | FY2021 | | :--- | :--- | :--- | | Capital Asset Additions | $616,235 | $842,326 | | Capitalized Technology & Content Development | $599,660 | $768,899 | | Property & Equipment | $16,575 | $73,427 | - The company will continue to capitalize significant software development costs, primarily internal payroll and contractor costs[151] Financial Position, Liquidity, and Capital Resources Overview - Amesite is not profitable and has a history of net losses and negative cash flows from operating activities since inception[154] Cash Balance | Date | Cash Balance | | :--- | :--- | | June 30, 2022 | $7,155,367 | - The company has received a Nasdaq notice for failing to maintain a minimum bid price of $1 per share, which could negatively impact financing[155] Off-Balance Sheet Arrangements - Amesite did not have, nor does it currently have, any off-balance sheet arrangements as defined under applicable SEC rules[158] Item 7A. Quantitative and Qualitative Disclosures about Market Risk The company is not required to provide information for this item as it qualifies as a 'smaller reporting company' - The company is not required to provide the information for this item as it is a 'smaller reporting company'[159] Item 8. Financial Statements and Supplementary Data This section presents Amesite's audited financial statements for the fiscal years ended June 30, 2022 and 2021 Report of Independent Registered Public Accounting Firm - Deloitte & Touche LLP issued an unqualified opinion on Amesite's financial statements for June 30, 2022 and 2021[162] - The auditors noted substantial doubt about the company's ability to continue as a going concern due to a history of net losses and negative operating cash flows[163] - The audit was conducted in accordance with PCAOB standards, but an audit of internal control over financial reporting was not performed[165] Balance Sheets Balance Sheet Summary | Item | June 30, 2022 | June 30, 2021 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $7,155,367 | $10,713,091 | $(3,557,724) | | Total current assets | $7,729,996 | $11,063,600 | $(3,333,604) | | Total noncurrent assets | $1,153,864 | $1,413,233 | $(259,369) | | Total assets | $8,883,860 | $12,476,833 | $(3,592,973) | | Total current liabilities | $748,108 | $741,743 | +$6,365 | | Total stockholders' equity | $8,135,752 | $11,735,090 | $(3,599,338) | Statements of Operations Statements of Operations Summary | Item | FY2022 | FY2021 | Change | | :--- | :--- | :--- | :--- | | Net Revenue | $697,001 | $674,580 | +$22,421 | | Total Operating Expenses | $9,753,519 | $8,648,592 | +$1,104,927 | | Interest Income | $9,230 | $1,593 | +$7,637 | | Interest Expense | $(12,635) | $(3,613,873) | +$3,601,238 | | Net Loss | $(9,059,923) | $(11,586,292) | +$2,526,369 | | Basic and Diluted Loss per Share | $(0.39) | $(0.59) | +$0.20 | | Weighted Average Shares Outstanding | 23,269,590 | 19,500,251 | +3,769,339 | Statements of Changes in Stockholders' Equity Changes in Stockholders' Equity | Item | FY2022 | FY2021 | | :--- | :--- | :--- | | Balance - June 30, 2021 | $11,735,090 | $2,999,896 (July 1, 2020) | | Net loss | $(9,059,923) | $(11,586,292) | | Issuance of common stock - net | $4,018,498 | $13,805,830 | | Stock-based compensation expense | $1,442,087 | $876,295 | | Conversion of notes payable | - | $5,639,361 | | Cashless exercise of warrants | - | - | | Balance - June 30, 2022 | $8,135,752 | $11,735,090 | Statements of Cash Flows Statements of Cash Flows Summary | Item | FY2022 | FY2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6,715,652) | $(5,334,686) | | Net cash used in investing activities | $(711,622) | $(842,326) | | Net cash provided by financing activity | $3,869,550 | $12,796,229 | | Net (Decrease) Increase in Cash and Cash Equivalents | $(3,557,724) | $6,619,217 | | Cash and Cash Equivalents - End of period | $7,155,367 | $10,713,091 | Note 1 - Nature of Business and Liquidity - Amesite Inc., incorporated in November 2017, is an AI-driven platform and course designer for schools and businesses[176] - The company has a history of net losses and negative operating cash flows, leading to substantial doubt about its ability to continue as a going concern[179][181] - Management's plans to generate cash through financing are subject to market conditions and cannot be deemed probable[180][182] Note 2 - Significant Accounting Policies - Financial statements are prepared in accordance with GAAP, requiring management estimates and assumptions[184][185] - The company capitalizes costs for internal-use software during the application development stage, amortizing them over three years[195] - Revenue is primarily from annual licensing arrangements with businesses and educational institutions, recognized ratably over the contract term[197][198] Revenue by Customer Type (FY2022 vs FY2021) | Customer Type | 2022 | 2021 | | :--- | :--- | :--- | | Enterprise | $579,664 | $553,703 | | University | $97,337 | $52,982 | | K-12 | $20,000 | $67,895 | | Total | $697,001 | $674,580 | - A full valuation allowance has been recorded against deferred tax assets due to uncertainty regarding the realization of net operating loss carryforwards[243] Note 3 - Property and Equipment Property and Equipment, Net | Item | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Total cost | $154,054 | $137,479 | | Less accumulated depreciation | $(66,864) | $(36,889) | | Closing balance | $87,190 | $100,590 | - Depreciation expense for the year ended June 30, 2022, was $29,975[216] Note 4 - Common Stock - On September 25, 2020, Amesite completed an IPO, selling 3,000,000 shares at $5.00 per share, generating approximately $12.8 million net proceeds[217] - In connection with the IPO, outstanding convertible notes (totaling $2,255,815) were converted into 1,127,872 shares of common stock[218][246] - On August 2, 2021, Amesite entered a purchase agreement with Lincoln Park Capital Fund for up to $16.5 million in common stock[220][222] - On February 16, 2022, the company closed an offering of 3,750,000 shares, receiving approximately $2.51 million net proceeds[225] Note 5 - Warrants Warrants Outstanding | Date | Number of Warrants | | :--- | :--- | | June 30, 2022 | 1,421,739 | | June 30, 2021 | 1,234,239 | - The company issued 187,500 warrants in FY2022 and 150,000 in FY2021 to placement agents, with a 5-year term[228] - The fair value of warrants is measured using the Black-Scholes Model, with volatilities of 80.1% (2022) and 45-46% (2021)[229][230] Note 6 - Stock-Based Compensation - Amesite's Equity Incentive Plan allows for grants of stock options, restricted stock, and restricted stock units to align interests with stockholders[231] - Options generally vest over two years with ten-year terms, and fair value is estimated using the Black-Scholes Model[231][232] Stock-Based Compensation Expense | Metric | FY2022 | FY2021 | | :--- | :--- | :--- | | Stock-based compensation expense | $1,442,087 | $876,295 | Note 7 - Income Taxes - Amesite has not generated taxable income and has recorded a full valuation allowance against its deferred tax assets, including $23.3 million in NOL carryforwards[239][243] - No current or deferred income tax expense or benefit was recognized for the years ended June 30, 2022 and 2021[239] Note 8 - Convertible Notes Payable - In April and May 2020, Amesite issued unsecured, convertible notes payable with an aggregate principal amount of $2,182,500, bearing 8% interest[244][245] - The notes, totaling $2,255,815, were converted into 1,127,872 shares of common stock during the September 2020 IPO[246] - A $3,383,546 expense, representing the discount provided to note holders, was recognized and recorded within interest expense[246] Note 9 - Subsequent Events - On August 26, 2022, Amesite entered a three-year master services agreement with NAFEO, contingent on NAFEO raising $30 million in funding[247][248] - On September 1, 2022, the company sold 4,181,821 shares of common stock for approximately $1.85 million net of fees[249] - In connection with the September 2022 offering, Amesite issued five-year warrants to purchase 209,091 shares of common stock[249] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure Item 9A. Controls and Procedures Management concluded that Amesite's disclosure controls and procedures were not effective as of June 30, 2022, due to material weaknesses Evaluation of Disclosure Controls and Procedures - As of June 30, 2022, Amesite's CEO and CFO concluded that disclosure controls and procedures were not effective due to material weaknesses[252] Management's Annual Report on Internal Control over Financial Reporting - Management identified material weaknesses in internal control over financial reporting as of June 30, 2022[255] - Material weaknesses were identified in risk assessment, control activities, and monitoring activities[255][256][257] Remediation Efforts to Address the Material Weaknesses - The company plans to formalize its risk assessment process with assistance from a third-party service provider[257] - Remediation efforts include documenting processes and controls for business transactions and financial statement close[258] - The company will formalize its process and documentation for monitoring internal control over financial reporting[258] Changes in Internal Control over Financial Reporting - Except for the identified material weaknesses, there were no other changes in internal control over financial reporting during the quarter ended June 30, 2022[260] Item 9B. Other Information This item reports no other information Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company PART III Item 10. Directors, Executive Officers and Corporate Governance The information required for this item will be incorporated by reference from the company's definitive Proxy Statement - Information for this item is incorporated by reference from the company's definitive Proxy Statement for the 2022 Annual Meeting of Stockholders[262] Item 11. Executive Compensation The information required for this item will be incorporated by reference from the company's definitive Proxy Statement - Information for this item is incorporated by reference from the company's definitive Proxy Statement[263] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required for this item will be incorporated by reference from the company's definitive Proxy Statement - Information for this item is incorporated by reference from the company's definitive Proxy Statement[263] Item 13. Certain Relationships and Related Transactions, and Director Independence The information required for this item will be incorporated by reference from the company's definitive Proxy Statement - Information for this item is incorporated by reference from the company's definitive Proxy Statement[263] Item 14. Principal Accountant Fees and Services The information required for this item will be incorporated by reference from the company's definitive Proxy Statement - Information for this item is incorporated by reference from the company's definitive Proxy Statement[263] PART IV Item 15. Exhibit and Financial Statement Schedules This section lists the financial statements filed as part of the report and provides a comprehensive table of exhibits Financial Statements - The report includes the Report of Independent Registered Public Accounting Firm, Balance Sheets, Statements of Operations, and Notes to Financial Statements[265] Financial Statement Schedules - All financial statement schedules have been omitted because they are not applicable, not required, or the information is shown in the financial statements[265] Exhibits - The exhibits include various agreements such as the Agreement and Plan of Merger, Purchase Agreement, and Registration Rights Agreement[267][268] - Corporate documents like the Certificate of Merger, Amended and Restated Certificate of Incorporation, and Bylaws are also listed[267] - Certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included[268] Item 16. Form 10-K Summary This item is not applicable to the company Signatures - The report is signed by Ann Marie Sastry, Ph.D., Chief Executive Officer, President, and Chairman of the Board[272][273] - Mark Corrao, Chief Financial Officer, also signed the report[273] - The report was signed on September 28, 2022[272]