Amesite(AMST) - 2023 Q2 - Quarterly Report

FORM 10-Q Cover Page This quarterly report for December 31, 2022, identifies Amesite Inc. as a non-accelerated, smaller reporting, and emerging growth company - Filing is a Quarterly Report on Form 10-Q for the period ended December 31, 2022[3] - Amesite Inc. is classified as a non-accelerated filer, smaller reporting company, and emerging growth company[4] - As of February 17, 2023, there were 30,400,305 shares of common stock issued and outstanding[5] Cautionary Statement Regarding Forward-Looking Statements This section warns that the report contains forward-looking statements subject to risks, including going concern issues, and actual results may differ - The report contains forward-looking statements identified by terms like "may," "should," "expects," and "intends," which are subject to substantial risks and uncertainties[8] - Key risks include the AI platform's capabilities, the company's ability to continue as a going concern, intellectual property protection, reliance on third parties, attracting and retaining personnel, financial performance, and government regulation[8] - The company does not undertake to update or revise forward-looking statements unless required by law, and actual results may differ materially[9] PART I – FINANCIAL INFORMATION This part presents the company's unaudited financial statements and management's analysis of its financial condition and operations Item 1. Financial Statements This section provides the unaudited condensed financial statements of Amesite Inc. as of December 31, 2022, and for the three and six months then ended, including balance sheets, statements of operations, stockholders' equity, cash flows, and accompanying notes detailing significant accounting policies, business nature, and specific financial items Condensed Balance Sheets (unaudited) The condensed balance sheets show a decrease in total assets from $8.88 million at June 30, 2022, to $8.33 million at December 31, 2022, primarily driven by a reduction in cash and capitalized software. Total liabilities also decreased, while stockholders' equity saw a slight decline | Metric | Dec 31, 2022 | Jun 30, 2022 | Change | | :---------------------------------- | :----------- | :----------- | :----- | | Cash and cash equivalents | $6,991,236 | $7,155,367 | $(164,131) | | Accounts receivable | $104,985 | $14,545 | $90,440 | | Prepaid expenses and other current assets | $261,223 | $560,084 | $(298,861) | | Total current assets | $7,357,444 | $7,729,996 | $(372,552) | | Property and Equipment - net | $77,377 | $87,190 | $(9,813) | | Capitalized software - net | $892,217 | $1,066,674 | $(174,457) | | Total noncurrent assets | $969,594 | $1,153,864 | $(184,270) | | Total assets | $8,327,038 | $8,883,860 | $(556,822) | | Accounts payable | $112,863 | $122,285 | $(9,422) | | Accrued compensation | $36,200 | $174,056 | $(137,856) | | Deferred revenue | $276,740 | $342,672 | $(65,932) | | Other accrued liabilities | $21,985 | $109,095 | $(87,110) | | Total current liabilities | $447,788 | $748,108 | $(300,320) | | Total stockholders' equity | $7,879,250 | $8,135,752 | $(256,502) | | Total liabilities and stockholders' equity | $8,327,038 | $8,883,860 | $(556,822) | Condensed Statements of Operations (unaudited) For the three months ended December 31, 2022, Amesite Inc. reported a net loss of $699,484, a significant improvement from the $2,322,239 net loss in the prior year period, driven by increased net revenue and substantial reductions in operating expenses | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :---------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net Revenue | $237,139 | $189,174 | $517,421 | $329,865 | | General and administrative expenses | $316,348 | $1,451,979 | $1,292,668 | $2,687,748 | | Technology and content development | $431,087 | $681,018 | $912,274 | $1,477,126 | | Sales and marketing | $201,696 | $384,027 | $606,728 | $871,260 | | Total operating expenses | $949,131 | $2,517,024 | $2,811,670 | $5,036,134 | | Loss from Operations | $(711,992) | $(2,327,850) | $(2,294,249) | $(4,706,269) | | Interest Income | $12,508 | $7,273 | $17,959 | $7,535 | | Net Loss | $(699,484) | $(2,322,239) | $(2,276,821) | $(4,700,396) | | Basic loss per share | $(0.02) | $(0.11) | $(0.08) | $(0.22) | | Weighted average shares outstanding | 30,305,566 | 21,984,947 | 28,862,964 | 21,743,986 | - Net loss significantly decreased for both the three and six months ended December 31, 2022, compared to the prior year, primarily due to deliberate cost reductions in general and administrative, technology and content development, and sales and marketing expenses[15][104] Condensed Statements of Stockholders' Equity (unaudited) Stockholders' equity decreased from $8,135,752 at July 1, 2022, to $7,879,250 at December 31, 2022, primarily due to a net loss of $699,484, partially offset by common stock issuance and stock-based compensation expense | Metric | July 1, 2022 | Dec 31, 2022 | Change | | :---------------------------------- | :----------- | :----------- | :----- | | Common Shares | 25,993,484 | 30,344,305 | 4,350,821 | | Common Stock Amount | $2,559 | $3,304 | $745 | | Additional Paid-In Capital | $37,410,209 | $39,430,054 | $2,019,845 | | Accumulated Deficit | $(29,277,016) | $(31,553,838) | $(2,276,822) | | Total Stockholders' Equity | $8,135,752 | $7,879,250 | $(256,502) | - The decrease in total stockholders' equity was mainly due to the net loss, partially offset by common stock issuances for financing and services, and stock-based compensation[16] Condensed Statements of Cash Flows (unaudited) For the six months ended December 31, 2022, net cash used in operating activities was $1,836,562, a significant reduction from $3,812,919 in the prior year, with financing activities providing $1,850,501 primarily from common stock issuance | Cash Flow Activity | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :-------------------------------------------------- | :---------------------------- | :---------------------------- | | Net cash and cash equivalents used in operating activities | $(1,836,562) | $(3,812,919) | | Net cash and cash equivalents used in investing activities | $(178,070) | $(509,428) | | Net cash and cash equivalents provided by financing activity | $1,850,501 | $1,360,000 | | Net (Decrease) Increase in Cash and Cash Equivalents | $(164,131) | $(2,962,347) | | Cash and Cash Equivalents - End of period | $6,991,236 | $7,750,744 | - Net cash used in operating activities decreased significantly due to lower net loss and changes in working capital[19] - Financing activities provided cash primarily through the issuance of common stock[19] Notes to Condensed Financial Statements This section provides detailed disclosures on the company's business, significant accounting policies, stock-based compensation, warrants, income taxes, convertible notes, and subsequent events, offering crucial context to the condensed financial statements Note 1 - Nature of Business and Liquidity Amesite Inc. is an AI-driven platform and course designer with a history of net losses and negative operating cash flows, raising substantial doubt about its ability to continue as a going concern, and faces a potential Nasdaq delisting - Amesite Inc. is an artificial intelligence-driven platform and course designer offering customized online products for businesses, universities, colleges, and K-12 schools[21] - The company has a history of net losses and negative cash flows from operating activities, leading to substantial doubt about its ability to continue as a going concern[24][26] - Amesite Inc. received a Nasdaq notice for failing to maintain a minimum bid price of $1 per share and faces potential delisting if compliance is not regained by March 6, 2023[25] Note 2 - Significant Accounting Policies This note outlines the significant accounting policies used in preparing the condensed financial statements, including the basis of presentation, use of estimates, fair value measurements, cash and cash equivalents, income taxes, technology and content development, property and equipment, capitalized software costs, and revenue recognition - Financial statements are prepared in accordance with GAAP and SEC requirements, with a fiscal year ending June 30[29] - Revenue is primarily generated from contractual arrangements with businesses and educational institutions to provide a comprehensive platform of integrated technology and technology-enabled services, recognized ratably over the contract term[41][42] - The company capitalizes costs incurred in the development of software for internal use, amortizing them over a period of three years, and recognized amortization expense of approximately $350,000 for the six months ended December 31, 2022[40] Note 3 - Stock-Based Compensation The company grants stock options, restricted stock units, and stock warrants under its Equity Incentive Plan, measured at fair value using the Black-Scholes model, with $191,379 in expense for the six months ended December 31, 2022, and $1,464,000 of unrecognized compensation cost remaining - Stock-based awards (options, restricted stock units, warrants) are granted under the Equity Incentive Plan and valued using the Black-Scholes model[59][60] | Metric | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :---------------------------------- | :---------------------------- | :---------------------------- | | Stock-based compensation expense | $191,379 | $811,611 | - As of December 31, 2022, approximately $1,464,000 of total unrecognized compensation cost related to nonvested options is expected to be recognized through December 2026[68] Note 4 - Warrants As of December 31, 2022, there were 1,590,739 warrants outstanding, an increase from 1,421,739 at June 30, 2022, with 169,000 common stock warrants issued during the period for fundraising | Metric | Dec 31, 2022 | Jun 30, 2022 | | :---------------------------------- | :----------- | :----------- | | Warrants outstanding | 1,590,739 | 1,421,739 | - During the six months ended December 31, 2022, 169,000 common stock warrants were issued, primarily to a placement agent for fundraising, with a fair value of approximately $63,489[69][70] Note 5 - Income Taxes Amesite Inc. has not generated taxable income or tax liabilities since inception and has approximately $31,500,000 in net operating loss carryforwards, with a full valuation allowance recorded against deferred tax assets - The company has not generated taxable income or tax liabilities since inception[73] - Amesite Inc. has approximately $31,500,000 of net operating loss carryforwards, with a full valuation allowance recorded against deferred tax assets due to realization uncertainty[73] Note 6 - Convertible Notes Payable In April and May 2020, the company issued unsecured, convertible notes totaling $2,182,500, bearing 8% interest and maturing in one year, subject to automatic conversion into common stock upon a qualified equity financing or change of control - In April and May 2020, the company issued $2,182,500 in unsecured, convertible notes with an 8% interest rate and a one-year maturity[74] - The notes were subject to automatic conversion into common stock upon a qualified equity financing or change of control, at a conversion price based on a specified formula[74] Note 7 - Subsequent Events On February 15, 2023, stockholders approved proposals to grant discretionary authority to the board for a reverse stock split (1-for-5 to 1-for-50) and to amend the 2018 Equity Incentive Plan to increase shares available for issuance by 3,000,000 - Stockholders approved granting the board discretionary authority for a reverse stock split (1-for-5 to 1-for-50) within one year[76] - Stockholders also approved an amendment to the 2018 Equity Incentive Plan to increase shares available for issuance by 3,000,000[76] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Amesite Inc.'s financial performance and condition for the three and six months ended December 31, 2022, highlighting the company's continued net losses, ongoing going concern issues, and strategies to manage liquidity, alongside a detailed analysis of revenue and expense trends Overview This overview reiterates Amesite Inc.'s current unprofitability and history of net losses, emphasizing the substantial doubt about its ability to continue as a going concern, with management's plans to generate cash through financing transactions noted - Amesite Inc. is not currently profitable, with a net loss of $699,000 for the three months ended December 31, 2022, and $23.8 million since incorporation[80] - Substantial doubt exists regarding the company's ability to continue as a going concern, with management planning financing transactions, including common stock offerings, which are subject to market conditions[81][82] Basis of Presentation The financial statements are prepared in accordance with U.S. GAAP and SEC requirements, forming the basis for the management's discussion and analysis - The financial statements contained herein have been prepared in accordance with GAAP and the requirements of the SEC[84] Critical Accounting Policies and Significant Judgments and Estimates This section details the critical accounting policies and estimates that require significant management judgment, including those related to internally-developed capitalized software, stock-based compensation, and revenue recognition, which significantly affect the reported financial amounts - The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amounts of revenue and expenses[85] Internally-Developed Capitalized Software The company capitalizes certain costs for internal-use software development, primarily direct labor and third-party vendor costs, during the application development stage, amortizing them over an estimated useful life of three years once the software is in service - Costs related to internal-use software development, primarily direct labor and third-party vendor costs, are capitalized during the application development stage[86] - Capitalized software costs are amortized on the straight-line method over an estimated useful life of three years[86] Stock-Based Compensation Stock-based awards, including options, restricted stock units, and warrants, are measured at fair value using the Black-Scholes model, with stock options typically vesting over two years with ten-year contractual terms - Stock-based awards (stock options, restricted stock units, and stock warrants) are measured at fair value using the Black-Scholes option pricing model[87] - Stock options generally vest over two years with ten-year contractual terms, restricted stock units have a 12-month term, and stock warrants have a five-year term[87] Revenue Recognition This policy outlines how Amesite Inc. recognizes revenue, primarily from annual licensing arrangements with educational and business customers for its technology platform and services, generally recognized ratably over the contract term - Substantially all revenue comes from contractual arrangements with businesses, colleges and universities and K-12 schools to provide a comprehensive platform of tightly integrated technology and technology enabled services related to product offerings[88] - Revenue related to licensing arrangements is generally recognized ratably over the contract term commencing upon platform delivery[88] Performance Obligations and Timing of Recognition The company's contracts typically have a single performance obligation to set up and provide a hosted platform, satisfied ratably over the two-year contract term, with professional services evaluated for distinctness and transaction prices allocated based on standalone selling prices - Contracts generally have two-year terms and a single performance obligation to provide a hosted platform, satisfied ratably over the contract term[90] - Professional services are evaluated for distinctness, and transaction prices are allocated based on relative standalone selling prices, or a cost-plus margin approach if not observable[91] - Fixed fees, such as annual license and maintenance charges, are recognized ratably over the service period[92] Accounts Receivable, Contract Assets and Liabilities Accounts receivable are stated at net realizable value, with no allowance for doubtful accounts as of December 31, 2022, and contract liabilities, primarily deferred revenue from upfront payments, are expected to be recognized over the next 12 months - Accounts receivable are stated at net realizable value, with no allowance for doubtful accounts as of December 31, 2022, or June 30, 2022[93] - Contract liabilities, primarily deferred revenue, represent amounts billed or received in excess of recognized revenue, generally from upfront payments for annual license fees[94][95] - The deferred revenue balance as of December 31, 2022, is expected to be recognized over the next 12 months[53] Results of Operations This section analyzes the company's financial performance for the three and six months ended December 31, 2022, highlighting revenue growth and significant reductions in operating expenses, which led to a substantially lower net loss compared to the prior year Revenue Revenue increased to $237,000 for the three months ended December 31, 2022 (from $189,174 in 2021) and to $517,421 for the six months ended December 31, 2022 (from $329,865 in 2021), primarily driven by contract renewals | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :---------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Revenue | $237,000 | $189,174 | $517,421 | $329,865 | - Revenue growth compared to prior year for the three and six months ended December 31, 2022 was primarily driven by contract renewals[96] General and Administrative General and administrative expenses significantly decreased to $316,348 for the three months ended December 31, 2022 (from $1,451,978 in 2021) and to $1,292,219 for the six months ended December 31, 2022 (from $2,687,748 in 2021), due to deliberate cost-cutting measures | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :---------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | General and administrative expenses | $316,348 | $1,451,978 | $1,292,219 | $2,687,748 | - The decrease in general and administrative expenses was primarily due to deliberate cost reductions, including reductions in headcount and associated administrative costs, made possible by completion of certain features and platform capabilities[98] Technology and Content Development Technology and content development expenses decreased to $431,087 for the three months ended December 31, 2022 (from $681,018 in 2021) and to $911,274 for the six months ended December 31, 2022 (from $1,477,126 in 2021), mainly due to decreased headcount and completion of learning programs | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :---------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Technology and content development | $431,087 | $681,018 | $911,274 | $1,477,126 | - The decrease in technology and content development expenses was principally related to reductions in headcount and associated administrative costs, and the completion of certain learning programs[100] Sales and Marketing Sales and marketing expenses decreased to $201,656 for the three months ended December 31, 2022 (from $384,027 in 2021) and to $607,100 for the six months ended December 31, 2022 (from $871,260 in 2021), reflecting a refinement of sales and marketing processes | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :---------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Sales and marketing expenses | $201,656 | $384,027 | $607,100 | $871,260 | - The decrease in sales and marketing expenses was principally related to refinement of sales and marketing processes to those that focus messaging directly to key markets and offer improved lead generation[101] Interest Income Interest income increased to $12,508 for the three months ended December 31, 2022 (from $7,273 in 2021) and to $17,958 for the six months ended December 31, 2022 (from $7,535 in 2021) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :---------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Interest Income | $12,508 | $7,273 | $17,958 | $7,535 | Net Loss The net loss significantly decreased to $699,444 for the three months ended December 31, 2022 (from $2,322,239 in 2021) and to $2,276,747 for the six months ended December 31, 2022 (from $4,700,396 in 2021), attributed to deliberate cost savings measures | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :---------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net Loss | $(699,444) | $(2,322,239) | $(2,276,747) | $(4,700,396) | - The loss was substantially lower during the six months ended December 31, 2022 compared to 2021 as a result of deliberate cost savings measures, including reduced staffing and improved sales and marketing efficiency[104] Capital Expenditures Capital asset additions for the three months ended December 31, 2022, were $65,672 (down from $212,091 in 2021), and for the six months ended December 31, 2022, were $175,209 (down from $500,624 in 2021), primarily consisting of capitalized technology and content development costs | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :---------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Capital asset additions | $65,672 | $212,091 | $175,209 | $500,624 | - Capital asset additions were comprised primarily of capitalized technology and content development, and the company will continue to capitalize significant software development costs[105] Financial Position, Liquidity, and Capital Resources Amesite Inc. is not profitable and faces substantial doubt about its ability to continue as a going concern, with a cash balance of $6,991,236 as of December 31, 2022, while exploring further financing and facing a potential Nasdaq delisting - The company is not profitable and has a history of net losses and negative operating cash flows, leading to substantial doubt about its ability to continue as a going concern[106][110][112] - As of December 31, 2022, the cash balance totaled $6,991,236[110] - The company raised approximately $1.85 million in net cash proceeds from a public offering in September 2022 and has access to a purchase agreement with Lincoln Park Capital Fund for up to $16.5 million in common stock sales[108][107] - Amesite Inc. received a Nasdaq notice for failing to maintain a minimum bid price and faces potential delisting, which could negatively impact its ability to obtain financing and trade its stock[111] Item 3. Quantitative and Qualitative Disclosures About Market Risk Amesite Inc. is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a "smaller reporting company" - The Company is not required to provide the information required by this Item as it is a "smaller reporting company"[113] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of December 31, 2022, and concluded they were effective, having also addressed previously identified material weaknesses in internal controls Evaluation of Disclosure Controls and Procedures As of December 31, 2022, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective - Management concluded that disclosure controls and procedures were effective as of December 31, 2022[114] Changes in Internal Controls Over Financial Reporting The company addressed previously identified material weaknesses in internal controls by conducting a full risk assessment using the COSO framework, enhancing control activities, and implementing monitoring processes, with no other material changes during the quarter - The Company has undertaken a full risk assessment of its controls utilizing the COSO five-part framework, has enhanced its control activities, and has implemented monitoring processes to address previously identified material weaknesses[114] - Except as noted, there were no changes in internal control over financial reporting that materially affected or are reasonably likely to materially affect internal control over financial reporting during the quarter ended December 31, 2022[115] PART II – OTHER INFORMATION This part covers legal proceedings, updated risk factors, equity sales, defaults, and other required disclosures Item 1. Legal Proceedings Amesite Inc. reported no legal proceedings during the period - No legal proceedings were reported[117] Item 1A. Risk Factors This section updates the risk factors, emphasizing the substantial doubt about the company's ability to continue as a going concern due to ongoing net losses and its dependence on raising additional capital, also highlighting the risk of delisting from Nasdaq due to non-compliance with the minimum bid price requirement - Substantial doubt exists about the company's ability to continue as a going concern due to a history of net losses and reliance on additional capital[118] - The company received a Nasdaq notice for failing to maintain a minimum bid price of $1 per share and faces potential delisting by March 6, 2023, which could adversely affect stock value, liquidity, and financing[119][120][121] - Stockholders approved a reverse stock split proposal to address the minimum bid price requirement, but there can be no assurance that it would be approved or would resolve the compliance issue[120] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Amesite Inc. reported no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities and use of proceeds were reported[122] Item 3. Defaults Upon Senior Securities Amesite Inc. reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[123] Item 4. Mine Safety Disclosures This item is not applicable to Amesite Inc. - This item is not applicable to the company[123] Item 5. Other Information Amesite Inc. reported no other information required by this item - No other information was reported[123] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications from the CEO and CFO (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act) and Inline XBRL documents - The exhibits include certifications of the Chief Executive Officer and Chief Financial Officer filed pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) and 18 U.S.C. Section 1350[124] - Inline XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, and Presentation Linkbase Documents are filed[124] Signatures This section confirms the report's official signing by the Chief Executive Officer and Chief Financial Officer - The report was signed on behalf of Amesite Inc. by Ann Marie Sastry, Ph.D., Chief Executive Officer, and Sherlyn W. Farrell, Chief Financial Officer, on February 17, 2023[126]