ITEM 1. BUSINESS
Overview
Amesite’s smart, intuitive
learning environments help organizations thrive. Amesite is a high tech artificial intelligence software company offering a cloud-based
platform and content creation services for business and university-delivered education and upskilling. Amesite-offered courses and programs
are branded to our part. Amesite uses artificial intelligence technologies to provide customized environments for learners, easy-to-manage
interfaces for instructors, and greater accessibility for learners in the US education market and beyond. The Company leverages existing
institutional infrastructures, adding mass customization and cutting-edge technology to provide cost-effective, scalable and engaging
experiences for learners anywhere.
We are passionate about improving
the learner experience and learner outcomes in online learning products, and improving our Customers’ ability to create and deliver
both. We are focused on creating the best possible technology solutions and have been awarded an innovation award for our product. We
are committed to our team, and have been recognized with 10 workplace excellence awards, 4 of them national.
Amesite offers our white label
platform to our Customers: universities, museums, businesses and government agencies. Amesite’s Customers offer learning to their
users, who are students, professional learners and / or their own employees. Amesite derives revenue from the licensing of our platform,
and user fees associated with its use by our Customers for their users. Some of our Customers generate revenue using our systems, including
Universities and Museums.
Our Strategy
We
deliver Learning Community Environment®s (LCESMs) to businesses and educational institutions (EIs) that enable
them to offer branded learning products to their students, professional learners or employees with ease. Our business model offers flexibility
for our Customers. Our Customers license our platform and can also contract with to us to create and maintain customized learning products,
or easily launch their own learning products on the platform. We have entered into master service agreements with our Customers, including,
but not limited to, universities such as Wayne State University and enterprises such as The Henry Ford Museum. These agreements include
statements of work detailing the services to be rendered and programs or products to be delivered on the platform. We use the proprietary
data we collect on learner behavior and responses with their consent, to deliver to learners engaging, effective courses and programs.
Our Customers gain efficiency, flexibility and can generate high return on investment and revenue through partnership with us, because
of the speed, flexibility, effectiveness and scalability of the LCESMs we build for them.
Universities
need to be able to launch programs that upskill their alumni and other professionals, accessibly and at scale. Museums need to engage
their patrons and visitors with high quality digital learning opportunities. Businesses need learning systems that enable them to upskill
people quickly and efficiently. Retention and execution of strategic plans require that employees stay engaged, and learn effectively.
Government needs to be able to offer learning programs that allow job seekers to advance skills. Amesite’s cloud-based platform
addresses all of these key needs.
We
target Customers who already have large cohorts of users who can consume their delivered learning programs. Our revenues are derived from
license fees, but more importantly, by user fees, that we believe will enable us to scale revenue. Importantly, we aim to serve our Customers
by delivering learning programs at price points that are accessible and are highly targeted to their needs.
Our Proprietary Technology
We
believe that online learning products are essential for accessibility, engagement and scalability for businesses and EIs alike. We utilize
artificial intelligence to achieve improved engagement, and continuous integration of current, qualified information into our learning
products.
Our
technology utilizes a flexible and scalable full stack solution, with robust tools powering front-end technology. Our code architecture
offers outstanding accessibility and agility for engineers, using best-in-class languages for both client and server-side functions. We
also use tools employed by many high-end platforms. Our architecture enables us to achieve full integration of best-in-class third party
tools, and custom-built features, delivering on-demand and as-needed, such as leading calendar platform integrations, and high quality,
encrypted video calling.
Our
architecture enables us to utilize artificial intelligence algorithms to ultimately improve learning outcomes. Much as artificial
intelligence algorithms presently recognize and respond to natural language on commercial platforms, predict behaviors and deliver suggestions,
our algorithms have been developed to assist learners in accessing, utilizing and remaining engaged with platform content, their instructors
and their peers.
We
generate content for our Customers using the highest standards in business and higher education, and our business model enables us to
deliver content for our Customers efficiently and rapidly. Rapidly evolving technology has driven the need to continuously upskill
students and workforces, and we use the highest possible standards to deliver this content according to Customer needs. This substantially
reduces the time it takes for traditional program creation by businesses or EIs.
We
market to our Customers, and enable them to offer and monetize learning products, or to deliver learning products to their own employees
efficiently and cost effectively. Our Customers want the capability of delivery to their own Customers, and are best able to
market to them. We deliver the content and technology to enable this.
We
protect and utilize learner data solely to improve learning outcomes. Learner data is collected with learner permission, and
information about learner behavior, study preferences and preference for types of material delivered as part of learning products, will
be used to improve learning outcomes and learner experiences. We will validate algorithms using both offline and online testing. By correlating
learner behaviors with specific outcomes as identified by qualified instructors, we will train our algorithms specifically for important
learning outcomes, enabling it to be a useful tool for instructors. We believe that the combinations of information that will be collected
through our educational products, and outcomes measured using our online learning products will be unique, and constantly improving. We
will never sell or distribute our learner data to third parties without the explicit permission of learners. We will not deliver unwanted
content or advertising to learners or to Customer personnel. Our proprietary technology is developed solely for purposes of improving
learner experiences and outcomes, and improving the ability of our Customers to deliver outstanding educational products.
Our Research and Development
Programs
We
use advanced technologies to create effective and accessible learning environments. We seek to improve learning at many levels, including
college and professional. Our research and development programs will expand continuously based on learner preferences, outcomes and the
desires of our Customers. Some of these will include:
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Improvements in learner engagement with cloud-based platforms. We will continuously gather data on how learners engage with us and other online platforms, and conduct research and development to create and incorporate useful tools for learning on our platform. |
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Improvements in instructor experience using our platform. We will continuously develop tools designed to improve the ability of our Customers to deliver timely and relevant content, deliver assessments which are fair, correctly represent educational objectives and give repeatable outcomes when employed on our platform. |
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Integration of new technology in the delivery of learning products. A “technology stack” is a combination of software products and programming languages used to create our platform. We will continuously develop improvements to our technology stack, inventing and integrating best-in-class online engagement features. These will range from invention of novel user experience features, to integration of capabilities offered by other vendors and developers. |
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Qualification of information for use by learners in all sectors. We plan to provide both our Customers and our learners with the constantly improving ability to find and integrate qualified information into products on our platform, and maximize learner ability to utilize qualified information, designed to offer learners the most carefully curated, most relevant, timely and engaging materials in every discipline in which we offer products. |
Our Intellectual Property
Our
intellectual property rights include patent applications, trade secrets, trademark rights, and contractual agreements. Our patent applications
are directed to our proprietary technology, including an artificial intelligence platform for learning, and will seek patent protection
for our designs, development, and related alternatives by filing and prosecuting patent applications in the U.S. and other countries as
appropriate.
We’ve
received two U.S. patents and currently have five pending U.S. patent applications, including one to cover the artificial intelligence
platform, and others related to security, power consumption, blockchain, design and other technologies, including methods and systems.
Any patent issued from these applications are expected to expire in 2038, not including any applicable patent term adjustment or extension
or design patents.
We have protected our source
codes, methodologies, algorithms, and techniques directed to other aspects of our artificial intelligence learning platform using our
trade secret rights. We have received service marks for AMESITESM, KEEP LEARNINGSM and LCESM from
the United States Patent and Trademark Office. We have registered a service mark for LEARNING COMMUNITY ENVIRONMENT® with
the United States Patent and Trademark Office. We have also secured domain names, including amesite.com, amesite.co, amesite.net,
and others.
We
ensure that we own intellectual property created for us by signing agreements with employees, independent contractors, consultants, companies,
and any other third party that creates intellectual property for us or that assign any intellectual property rights to us. Portions of
our platform may rely upon third-party licensed intellectual property.
We
have established business procedures designed to maintain the confidentiality of our proprietary information, including the use of confidentiality
agreements with employees, independent contractors, consultants and entities with which we conduct business.
Competition
The
online and software industries for higher education are characterized by rapid evolution of technologies, fierce competition, government
regulation, and strong defense of intellectual property. The overall market for technology solutions that enable providers to deliver
education online is highly fragmented, rapidly evolving and subject to changing technology, shifting needs of learners and educators and
frequent introductions of new methods of delivering education online. While we believe that our platform, programs, technology, knowledge,
experience, and resources provide us with competitive advantages, we face competition from major online companies, academic institutions,
governmental agencies, and public and private research institutions, among others.
Any
learning product that we successfully develop and commercialize will compete with current learning products. Key product features that
would affect our ability to effectively compete with other course offerings include efficiency, security and convenience, and availability.
Our competitors fall primarily into the following groups:
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Online Program Management (OPM) firms, who create and launch educational products for EIs and businesses, using either their own or others’ Learning Management Systems (LMSs). |
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Learning Management System (LMS) technology firms, who offer technology platforms suitable for offering online educational or training products |
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Learning product aggregators, who offer multiple ‘institutions or businesses’ learning products on online platforms for direct purchase by learners, or through licenses by institutions. |
Many
of the companies, colleges, or universities against which we may compete have significantly greater financial resources and expertise
in education, software design and development, and have already obtained approvals and marketing approved products. Smaller or early-stage
companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
These competitors also compete with us in recruiting and retaining qualified engineers, scientists, and management personnel, as well
as in acquiring technologies complementary to, or necessary for, our programs.
We
expect that the competitive landscape will continue to expand as the market for online programs at nonprofit institutions matures. We
believe the principal competitive factors in our market include the following:
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brand awareness and reputation; |
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ability of online programs to deliver desired learner outcomes; |
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robustness and evolution of technology offering; and |
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breadth and depth of service offering. |
We
believe we compete favorably on the basis of these factors. Our ability to remain competitive will depend, to a great extent, on our ability
to consistently deliver high-quality offerings; meet client needs for content development; attract, support and retain learners; and deliver
desired outcomes for our Customers and their learners.
Government Regulation
and Product Approval
The
education industry is heavily regulated. Institutions of higher education that award degrees and certificates to signify the successful
completion of an academic program are subject to regulation from three primary entities, namely, the U.S. Department of Education (the
“DOE”), accrediting agencies, and state licensing authorities. Each of these entities promulgates and enforces its own laws,
regulations and standards, which we refer to collectively as education laws.
We
contract with higher education institutions that are subject to education laws. In addition, we are required to comply with certain education
laws as a result of our role as a service provider to institutions of higher education, either directly or indirectly through our contractual
arrangements with Customers. Our failure, or that of our Customers, to comply with education laws could adversely impact our operations.
As a result, we work closely with our Customers to maintain compliance with education laws.
We
will abide by education laws, including incentive compensation rules, misrepresentation rules, accreditation rules and standards, among
state and federal regulations. We also closely monitor state law developments and we will work closely with our Customers to assist them
with obtaining any required approvals.
Our
activities on behalf of our Customers are also subject to other federal and state laws. These regulations include, but are not limited
to, consumer marketing and unfair trade practices laws and regulations, including those promulgated and enforced by the Federal Trade
Commission, as well as federal and state data protection and privacy requirements.
Sales and Marketing
We
plan to grow our sales and marketing program as we build our Customer base, advancing from our small, direct sales force to a distribution
network that has existing relationships with colleges, universities, non-profit organizations and businesses.
We
also intend to develop a branding strategy to introduce and support our platform. The strategy may include our presence at colleges, universities,
and other commercial institutions on a national, state, and regional basis to engage and educate users of our products, as well as engaging
in a variety of other direct marketing methods to educational institutions and businesses. We plan to pursue selected business opportunities,
including joint developments, collaborations and acquisitions that have the potential to build sales more rapidly. We aim to develop and
pursue such opportunities on a consistent basis to grow the Company.
Board of Advisors
Dennis Bernard, Chairman of the Board of Advisors
Mr. Bernard is the founder and President of Bernard
Financial Group and Bernard Financial Servicing Group (“BFG”). BFG is the largest commercial mortgage banking firm in Michigan,
financing, on average, over $1.0 billion annually. Mr. Bernard has been involved with over 1,200 commercial real estate financial transactions
totaling over $18.6 billion. Mr. Bernard specializes in both debt and equity placement with commercial lenders and institutional joint
venture participants.
Martha A. Darling, Member
Over the past 22 years, Ms. Darling has held volunteer
leadership roles nationally and in Michigan and has consulted on education policy issues for the National Academy of Sciences and other
non-profit organizations. Prior to moving to Ann Arbor, Ms. Darling was a Senior Program Manager at The Boeing Company in Seattle, from
which she retired in 1998. She joined Boeing in 1987, with assignments in 747 Program Management, Government Affairs and Boeing’s
Corporate Offices, where she supported the chief executive officer and other executives. Previously, she was Vice President for Strategic
Planning at Seattle-First National Bank and then, on loan from Seattle-First, she served as Executive Director of the Washington Business
Roundtable’s Education Study. From 1977 to 1982 she served in Washington, D.C. as White House Fellow and Executive Assistant to
Secretary of the Treasury W. Michael Blumenthal and then as Senior Legislative Aide to U.S. Senator Bill Bradley. She has also served
as Special Assistant to the Governor of Washington, Research Social Scientist at the Battelle Seattle Research Center, and was a free-lance
consultant to the Organization for Economic Cooperation and Development and other international organizations for four years in Paris.
Theodore l. Spencer, Member
Mr. Spencer is Senior Advisor on Admissions Outreach
at the University of Michigan. Prior to September 2014, he was Associate Vice Provost and Executive Director of Undergraduate Admissions.
Before joining Michigan in 1989, he was an Associate Director of Admissions at the United States Air Force Academy. He is a graduate of
the Military Air War College and was one of thirty-five Air Force recruiting commanders in the United States. He is a retired Lieutenant
Colonel in the United States Air Force. Early in his career, he was a salesman for the IBM Corporation in the City of Detroit. Ted has
presented at numerous professional conferences state-wide, nationally and internationally, and has written and published articles on the
college admissions process. He has received numerous awards, and was recognized as the Point Man on Diversity Defense for affirmative
action in college admissions. He has previously served as a Trustee for the College Board and on the faculty for the Harvard Summer Institute
on College Admissions. Ted holds a M.S. degree in sociology from Pepperdine University and a B.S. in political science from Tennessee
State University.
Human Capital Management
General Information About Our Human Capital Resources
As of August 17, 2022, we have 14 full-time employees
and 3 consultants. We intend to engage consultants in general administration on an as-needed basis. We also intend to engage experts in
operations, finance and general business to a dvise us in various capacities. None of our employees are covered by a collective bargaining
agreement, and we believe our relationship with our employees is good to excellent.
Our Culture
Amesite’s mission is to improve the way the world
learns. We are passionate about understanding the needs of our learners, and we work hard to build products that deliver—for each
and every one. We also believe that supporting our team with a wonderful environment supports and powers us to accomplish our goals. Our
values are summarized in our beats—the guideposts for our culture.
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Judgment beats rules |
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Measurement beats conjecture |
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Humility beats arrogance |
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Honesty beats politeness |
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Growth beats comfort |
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Transparency beats manipulation |
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Passion beats indifference |
Diversity and Inclusion
To truly change how the world learns and improve
the learning process and environment for learners across the world, we need to work with a diversity of Partners as well as have a diverse
workforce. We also must operate with a high degree of awareness of evolving social conditions, social justice – and create
policy accordingly. We acknowledge that these measures evolve over time and commit to improving our policies as awareness of social inequities
or injustice arise. We believe an equitable and inclusive environment with diverse teams produces more creative solutions and results
in better outcomes for our Customers, Partners, employees, and stakeholders. We strive to attract, retain, and promote diverse talent
at all levels of the organization. Our management team is 57% female, 29% racially diverse, and 71% female or racially diverse. The entire
Amesite team is 50% female, 43% racially diverse, and 71% female or racially diverse. Additional information regarding Amesite’s
social impact can be found in our 2021 ESG Report available at www.amesite.com.
Corporate Information
The Company was incorporated in November 2017.
The Company is an artificial intelligence driven platform and course designer, that provides customized, high performance and scalable
online products for schools and businesses. The Company uses machine learning to provide a novel, mass customized experience to learners.
The Company’s Customers are businesses, universities and colleges, and K-12 schools. The Company’s activities are subject
to significant risks and uncertainties. The Company’s operations are in one segment.
On September 18, 2020, we consummated a reorganizational
merger (the “Reorganization”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated July
14, 2020, whereby Amesite Inc. (“Amesite Parent”), our former parent corporation, merged with and into us, with our Company
resulting as the surviving entity. In connection with the same, we filed a Certificate of Ownership and Merger with the Secretary of State
of the State of Delaware, and changed our name from “Amesite Operating Company” to “Amesite Inc.” The stockholders
of Amesite Parent approved the Merger Agreement on August 4, 2020. The directors and officers of Amesite Parent became our directors and
officers.
Pursuant to the Merger Agreement, on the Effective
Date, each share of Amesite Parent’s common stock, $0.0001 par value per share, issued and outstanding immediately before the Effective
Date, was converted, on a one-for-one basis, into shares of our common stock. Additionally, each option or warrant to acquire shares of
Amesite Parent outstanding immediately before the Effective Date was converted into and became an equivalent option to acquire shares
of our common stock, upon the same terms and conditions.
Our corporate headquarters are located at 607
Shelby Street, Suite 700 PMB 214, Detroit, Michigan 48226, and our telephone number is (734) 876-8130. We maintain a website at www.amesite.com.
The contents of, or information accessible through, our website are not part of this Annual Report on Form 10-K, and our website address
is included in this document as an inactive textual reference only. We make our filings with the SEC, including our Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, available free of charge on
our website as soon as reasonably practicable after we file such reports with, or furnish such reports to, the SEC. The public may read
and copy the materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The
public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Additionally, the
SEC maintains an internet site that contains reports, proxy and information statements and other information. The address of the SEC’s
website is www.sec.gov. The information contained in the SEC’s website is not intended to be a part of this filing.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described
below, as well as general economic and business risks and the other information in this Annual Report on Form 10-K. The occurrence
of any of the events or circumstances described below or other adverse events could have a material adverse effect on our business, results
of operations and financial condition and could cause the trading price of our common stock to decline. Additional risks or uncertainties
not presently known to us or that we currently deem immaterial may also harm our business.
Risks Related to Our Business
We have a short operating history in online
programs and may fail to grow our Customer base.
We were incorporated in November 2017 and have
no operating history in offering online courses. Historically, we have had no significant tangible assets other than cash. If our assumptions
about market needs are incorrect, we may fail to launch courses and gain initial Customers. Even if we launch courses in a timely manner,
our assumptions regarding recovery of upfront costs and growth of revenue may differ substantially from reality, in which case we will
fail to achieve our revenue goals.
We have not developed a strong Customer
base and we have not generated sustainable revenue since inception. There can be no assurance that we will be able to do so in the future.
We will incur significant losses in launching products and we may not realize sufficient subscriptions or profits in order to sustain
our business.
We have not yet developed a strong Customer base
and we have not generated sustainable revenue since inception. We are subject to the substantial risk of failure facing businesses seeking
to develop and commercialize new products and technologies. Maintaining and improving our platform will require significant capital. We
also incur substantial accounting, legal and other overhead costs as a public company. If our offerings to Customers are unsuccessful,
result in insufficient revenue or result in us not being able to sustain revenue, we will be forced to reduce expenses, which may result
in an inability to gain new Customers.
There is substantial doubt about our ability
to continue as a going concern.
We are in the early stages of developing our Customer
base and have not completed our efforts to establish a stabilized source of revenue sufficient to cover our costs over an extended period
of time. For the years ended June 30, 2022 and 2021, we had net losses of $9,059,923 and $11,586,292, respectively. On February 16, 2022,
the Company sold 3,750,000 shares of common stock for net proceeds of $2,509,550 after deducting the underwriting commission and
expenses. On September 1, 2022, the Company sold 4,181,821 shares of common stock for approximately $1.85 million, net of financing fees
and expenses. The assessment of the Company’s ability to meet its future obligations is inherently judgmental, subjective and susceptible
to change. Based on their current forecast, management believes that it will have sufficient cash and cash equivalents to maintain the
Company’s planned operations for the next twelve months following the issuance of these financial statements; however, there is
uncertainty in the forecast and therefore the Company cannot assert that it is probable. Further uncertainty remains regarding our ability
to implement our business plan and to grow our business without additional financing. Our long-term future growth and success is dependent
upon our ability to raise additional capital and implement our business plan. There is no assurance that we will be successful in implementing
our business plan or that we will be able to generate sufficient cash from operations, sell securities or borrow funds on favorable terms
or at all. Our inability to generate significant revenue or obtain additional financing could have a material adverse effect on our ability
to fully implement our business plan and grow our business to a greater extent than we can with our existing financial resources. The
Company has considered both quantitative and qualitative factors that are known or reasonably knowable as of the date of these financial
statements are issued and concluded that there are conditions present in the aggregate that raise substantial doubt about the Company’s
ability to continue as a going concern.
Our business model relies on us successfully
licensing our platform and providing services to colleges, universities, and businesses for creation and online delivery of their learning
products. If we fail to attract Customers, or to negotiate agreements with them that provide us with sustainable revenue, it will impair
our ability to operate and grow our business.
We may not be able to convince educational institutions
and businesses that our methods will produce better outcomes than their current approaches to online learning products, in a cost-effective
manner. We may also not be able to convince them to dedicate significant resources to moving courses onto our platform and gain their
trust in operating them collaboratively. If our learning products are not better, or only modestly better than the incumbent versions,
we will be unable to grow and gain more Customers, which will materially harm our business.
We will be relying on our college, university
and museum Customers to drive enrollment and revenue and continue to license our platform and pay for our services.
Factors within and outside of our control will
affect enrollments and include the following:
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Negative perceptions about online courses. Students may reject the opportunity to take courses online, when residential courses are offered as an option, due to negative perceptions of online education. |
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Ineffective marketing efforts. Our Customers’ marketing efforts are required to drive enrollment of our online courses. If our Customers fail to successfully execute our marketing strategies, they may not continue to license our platform. |
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Damage to Customer reputation. Our Customers’ rankings, reputation and marketing efforts strongly affect enrollments, none of which we control. If we fail to gain Customers with strong, stable reputations and rankings, they will fail to achieve stable enrollments. |
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Lack of subscription to our courses. We do not control the courses required for a degree by our Customers, and if the courses we offer do not build to a degree, enrollments could suffer. |
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Reduced enrollment in higher education due to lack of funding. Significant reductions in student funding, through grants or loans, would reduce enrollments in courses on our platform and could adversely affect our business model. |
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General economic conditions. Any contraction in the economy could be expected to reduce enrollment in higher education, whether by reducing funding, reducing corporate allowances for continuing education, general reductions in employment or savings or other factors. Any of these could substantially reduce licensing of our platform. |
We will be relying on our enterprise Customers
to prioritize providing online learning programs to train or upskill their workforces.
Factors within and outside of our control will
affect enrollments and include the following:
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General economic conditions. Any contraction in the economy could be expected to cause business leaders to deprioritize workforce training. |
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Negative perceptions about online courses. Workers may reject the opportunity to take courses online through their employers. |
We will face intense competition, which
may cause pricing pressures, decreased gross margins and loss of market share, and may materially and adversely affect our business, financial
condition and results of operations.
We will compete with other online education services
companies, and colleges and universities themselves. We expect competition in our markets to intensify as new competitors enter the online
education market, existing competitors merge or form alliances and new technologies emerge. Our competitors may introduce new solutions
and technologies that are superior to our platform. Certain of our competitors may be able to adapt more quickly than we can to new or
emerging technologies and changes in Customer requirements or may be able to devote greater resources to the development, promotion and
sale of their products than we can.
Increased competition could also result in pricing
pressures, declining average selling prices for our service model, decreased gross margins and loss of market share. We will need to make
substantial investments to develop these enhancements and technologies to our platform, and we cannot assure investors that we will have
funds available for these investments or that these enhancements and technologies will be successful. If a competing technology emerges
that is, or is perceived to be, superior to our existing technology and we are unable to adapt and compete effectively, our market share
and financial condition could be materially and adversely affected, and our business, revenue, and results of operations could be harmed.
We are dependent on the services of certain
key management personnel, employees, advisors, and consultants. If we are unable to retain or motivate such individuals or hire
qualified personnel, we may not be able to grow effectively.
We depend on the services of a number of key management
personnel, employees, advisors and consultants and our future performance will largely depend on the talents and efforts of such individuals.
We do not currently maintain “key person” life insurance on any of our employees, except for our Chief Executive Officer.
The loss of one or more of such key individuals, or failure to find a suitable successor, could hamper our efforts to successfully operate
our business and achieve our business objectives. Our future success will also depend on our ability to identify, hire, develop, motivate
and retain highly skilled personnel. Competition in our industry for qualified employees is intense, and our compensation arrangements
may not always be successful in attracting new employees and/or retaining and motivating our existing employees. Future acquisitions by
us may also cause uncertainty among our current employees and employees of the acquired entity, which could lead to the departure of key
individuals. Such departures could have an adverse impact on the anticipated benefits of an acquisition.
We have risk factors within and outside
of our control that may inhibit our ability to deliver products on our platform.
Our Customers will rely on us to deliver a stable
platform, with correct measures of performance in a manner that instructors, lecturers, graduate student assistants and professors can
easily use.
Even if we are successful in delivering a stable
platform, our operating results may fluctuate as a result of a number of factors, many of which are outside of our control. The following
factors may affect our operating results:
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our ability to compete effectively; |
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our ability to continue to attract users to our platform; |
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our ability to attract new Customers to our platform; |
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our ability to attract colleges and universities to our platform; |
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the mix in our net revenues generated from Customers and colleges and universities; |
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the amount and timing of operating costs and capital expenditures related to the maintenance and expansion of our business, operations and infrastructure; |
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our focus on long term goals over short-term results; |
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the results of our investments in risky projects; |
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general economic conditions and those economic conditions specific to our online courses; |
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our ability to keep our platform operational at a reasonable cost and without service interruptions; |
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the success of our geographical and product expansion; |
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our ability to attract, motivate and retain top-quality employees; |
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foreign, federal, state or local government regulation that could impede our ability to operate our platform; |
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our ability to upgrade and develop our systems, infrastructure and products; |
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new technologies or services that block our platform and user adoption of these technologies; |
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the costs and results of litigation that we may face; |
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our ability to protect our intellectual property rights; |
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our ability to forecast revenue; |
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our ability to manage fraud and other activities that violate our terms of services; |
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our ability to successfully integrate and manage our colleges and universities; and |
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geopolitical events such as war, threat of war, or terrorist actions. |
We may have risks related to our financial
condition.
We have a history of losses, will need substantial
additional funding to continue our operations and may not achieve or sustain profitability in the future.
Our operations have consumed substantial amounts
of cash since inception. We do not expect more than nominal revenues until at least some point during the fiscal year ending June 30,
2023. If our expectations prove incorrect, our business, operating results and financial condition will be materially and adversely affected.
We anticipate that our operating expenses will increase in the foreseeable future as we continue to pursue the development of our platform,
invest in marketing, sales and distribution of our platform to grow our business, acquire Customers, and commercialize our technology.
These efforts may prove more expensive than we currently anticipate, and we may not succeed in generating sufficient revenues to offset
these increased expenses. In addition, we expect to incur significant expenses related to regulatory requirements, and our ability to
obtain, protect, and defend our intellectual property rights.
We may also encounter unforeseen expenses, difficulties,
complications, delays, and other unknown factors that may increase our capital needs and/or cause us to spend our cash resources faster
than we expect. Accordingly, we may need to obtain substantial additional funding to continue our operations. We cannot assure you that
such additional funding will be available on favorable terms, or at all.
We may have risks related to managing
any growth we may experience.
We may engage in future acquisitions that could
disrupt our business, cause dilution to our stockholders and harm our financial condition and operating results.
While there are currently no specific plans to
acquire any other businesses, we may, in the future, make acquisitions of, or investments in, companies that we believe have products
or capabilities that are a strategic or commercial fit with our current business or otherwise offer opportunities. In connection with
these acquisitions or investments, we may:
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issue shares of our common stock or other forms of equity that would dilute our existing stockholders’ percentage of ownership; |
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incur amortization expenses related to intangible assets or incur large and immediate write-offs. |
We may not be able to complete acquisitions on
favorable terms, if at all. If we do complete an acquisition, we cannot assure you that such acquisition will ultimately strengthen our
competitive position or that such acquisition will be viewed positively by Customers, financial markets, or investors. Furthermore, future
acquisitions could pose numerous additional risks to our expected operations, including:
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problems integrating the purchased business, products, or technologies; |
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challenges in achieving strategic objectives, cost savings and other anticipated benefits; |
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increases to our expenses; |
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the assumption of significant liabilities that exceed the limitations of any applicable indemnification provisions or the financial resources of any indemnifying party; |
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inability to maintain relationships with prospective key Customers, vendors, and other business Partners of the acquired businesses; |
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diversion of management’s attention from their day-to-day responsibilities; |
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difficulty in maintaining controls, procedures and policies during the transition and integration; |
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entrance into marketplaces where we have limited or no prior experience and where competitors have stronger marketplace positions; |
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potential loss of key employees, particularly those of the acquired entity; |
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that historical financial information may not be representative or indicative of results as a combined entity; and |
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that our business and operations would suffer in the event of system failures, and our operations are vulnerable to interruption by natural disasters, terrorist activity, power loss and other events beyond our control, the occurrence of which could materially harm our business. |
If our security measures or those of our
future business Partners are breached or fail and result in unauthorized disclosure of data, we could lose Customers and/or fail to attract
new Customers. Such breach or failure could also harm our reputation and expose us to protracted and costly lawsuits.
Our platform and computer systems store and transmit
proprietary and confidential information that is subject to stringent legal and regulatory obligations. Due to the nature of our product,
we face an increasing number of threats to our platform and computer systems including unauthorized activity and access, system viruses,
worms, malicious code, denial of service attacks, and organized cyberattacks, any of which could breach our security and disrupt our platform.
The techniques used by computer hackers and cyber criminals to obtain unauthorized access to data or to sabotage computer systems change
frequently and generally are not detected until after an incident has occurred. Our cybersecurity measures or those of our future business
Partners may be unable to anticipate, detect or prevent all attempts to compromise our systems or that of our future business Partners.
Our internal computer systems and those of our future business Partners are or may also be vulnerable to telecommunication and electrical
failures, the occurrence of which could result in material disruptions of our services. If our security measures are breached or fail
because of third-party action, employee error, malfeasance or otherwise, we could be subject to liability or our business could be interrupted,
potentially over an extended period of time. Any or all of these issues could harm our reputation, adversely affect our ability to attract
new Customers, cause existing Customers to scale back their offerings or elect not to renew their agreements, cause prospective students
not to enroll or students to not stay enrolled in our offerings, or subject us to third-party lawsuits, regulatory fines or other action
or liability. Such issues could also cause a delay in the further development of our new technology for online education. Any reputational
damage resulting from breach of our systems or disruption of our services could create distrust of our company by prospective Customers.
We do not currently have cyber risk insurance. If we obtain one, such insurance may not be adequate to cover losses associated with such
events, and in any case, such insurance may not cover all of the types of costs, expenses and losses we could incur to respond to and
remediate a security breach. As a result, we may be required to expend significant additional resources to protect against the threat
of these disruptions and security breaches or to alleviate problems caused by such disruptions or breaches.
We may have risks related to regulatory
requirements.
Online education is subject to ongoing regulatory
obligations and review. Maintaining compliance with these requirements may result in significant additional expense to us and any failure
to maintain such compliance could cause our business to suffer.
Noncompliance with applicable regulations or requirements
could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages,
civil and criminal penalties, or injunctions. An adverse outcome in any such litigation could require us to pay contractual damages, compensatory
damages, punitive damages, attorneys’ fees and other costs. These enforcement actions could harm our business, financial condition,
and results of operations. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation,
our business, financial condition, and results of operations could be materially adversely affected. In addition, responding to any action
will likely result in a significant diversion of our management’s attention and resources and an increase in professional fees.
Unfavorable global economic, business, or
political conditions could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected
by general conditions in the global economy and in the global financial markets, including conditions that are outside of our control
and the impact of health and safety concerns, such as those relating to the current coronavirus pandemic (“COVID-19”). The
recent global financial crisis in connection with COVID-19 has caused extreme volatility and disruptions in the capital and credit markets.
A severe or prolonged economic downturn could result in a variety of risks to our business, including our ability to raise additional
capital when needed on acceptable terms, if at all. Any of the foregoing could harm our business and we cannot anticipate all the ways
in which the current economic climate and financial market conditions could adversely impact our business.
Risks Related to Our Common Stock
The sale or issuance of our common stock
to Lincoln Park may cause dilution and the sale of the shares of common stock acquired by Lincoln Park, or the perception that such sales
may occur, could cause the price of our common stock to fall.
On August 2, 2021, we entered into the Lincoln
Park Purchase Agreement and, on that date, we sold 759,109 shares of our common stock to Lincoln Park in an initial purchase under the
Lincoln Park Purchase Agreement for a total purchase price of $1,500,000. We also issued 152,715 shares of our common stock to Lincoln
Park as consideration for its irrevocable commitment to purchase our common stock under the Lincoln Park Purchase Agreement. In addition,
at any time following the twentieth business day after the after the satisfaction of certain conditions set forth in the Lincoln Park
Purchase Agreement, including that the SEC has declared effective the registration statement and that such registration statement remains
effective, which we refer to as the “Commencement Date,” we have the option to direct Lincoln Park to purchase up to an additional
$1,000,000 of shares of common stock, subject to conditions and limitations set forth in the Lincoln Park Purchase Agreement. The remaining
shares of our common stock that may be issued under the Lincoln Park Purchase Agreement may be sold by us to Lincoln Park at our discretion
from time to time over a 24-month period beginning on the Commencement Date. The purchase price for the shares that we may sell to Lincoln
Park under the Lincoln Park Purchase Agreement will fluctuate based on the price of our common stock. Depending on market liquidity at
the time, sales of such shares may cause the trading price of our common stock to fall.
Subject to the terms of the Lincoln Park Purchase
Agreement, such as the requirement that the purchase price be at least $0.50 per share (the “Floor Price”), we generally have
the right to control the timing and amount of any future sales of our shares to Lincoln Park. Additional sales of our common stock, if
any, to Lincoln Park will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to
Lincoln Park all, some, or none of the additional shares of our common stock that may be available for us to sell pursuant to the Lincoln
Park Purchase Agreement. If and when we do sell shares to Lincoln Park, after Lincoln Park has acquired the shares, Lincoln Park may resell
all or some of those shares at any time or from time to time in its discretion. Therefore, sales to Lincoln Park by us could result in
substantial dilution to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of
our common stock to Lincoln Park, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related
securities in the future at a time and at a price that we might otherwise wish to effect sales.
It is not possible to predict the actual
number of shares we will sell under the Lincoln Park Purchase Agreement, or the actual gross proceeds resulting from those sales.
On August 2, 2021, we entered the Lincoln Park
Purchase Agreement, pursuant to which Lincoln Park has committed to purchase up to $16.5 million in shares of our common stock, subject
to certain limitations and conditions set forth in the Lincoln Park Purchase Agreement. The shares of our common stock that may be issued
under the Lincoln Park Purchase Agreement may be sold by us to Lincoln Park at our discretion from time to time over an approximately
24-month period commencing on the Commencement Date.
With exception to the Floor Price requirement,
we generally have the right to control the timing and amount of any sales of our shares of common stock under the Lincoln Park Purchase
Agreement. Sales of our common stock, if any, under the Lincoln Park Purchase Agreement will depend upon market conditions and other factors
to be determined by us. We may ultimately decide to sell to Lincoln Park all, some or none of the shares of our common stock that may
be available for us to sell pursuant to the Lincoln Park Purchase Agreement.
Because the purchase price per share to be paid
by Lincoln Park for the shares of common stock that we may elect to sell under the Lincoln Park Purchase Agreement, if any, will fluctuate
based on the market prices of our common stock at the time we elect to sell pursuant to the Lincoln Park Purchase Agreement, if any, it
is not possible for us to predict, as of the date hereof and prior to any such sales, the number of shares of common stock that we will
sell under the Lincoln Park Purchase Agreement, the purchase price per share that Lincoln Park will pay for shares (other than the Initial
Purchase Shares) purchased from us under the Lincoln Park Purchase Agreement, or the aggregate gross proceeds that we will receive from
those purchases under the Lincoln Park Purchase Agreement.
Moreover, although the Lincoln Park Purchase Agreement
provides that we may sell up to an aggregate of $16.5 million of our common stock to Lincoln Park, we have only registered 4,200,000 shares
of our common stock for resale by Lincoln Park, consisting of (i) the 759,109 Initial Purchase Shares that we issued to Lincoln Park in
the initial purchase upon our execution of the Lincoln Park Purchase Agreement on August 2, 2021, (ii) the 152,715 Commitment Shares that
we previously issued to Lincoln Park upon execution of the Lincoln Park Purchase Agreement as consideration for its commitment to purchase
our common stock under the Lincoln Park Purchase Agreement and (ii) up to 3,288,176 shares of common stock that we may elect to sell to
Lincoln Park, in our sole discretion, from time to time from and after the Commencement Date under the Lincoln Park Purchase Agreement.
If after the Commencement Date we elect to sell to Lincoln Park all of the 3,288,176 shares of common stock that are available for sale
by us to Lincoln Park in Regular Purchases under the Lincoln Park Purchase Agreement, depending on the market prices of our common stock
during the applicable Regular Purchase valuation period for each Regular Purchase made pursuant to the Lincoln Park Purchase Agreement,
the actual gross proceeds from the sale of all such shares may be substantially less than the $16.5 million total purchase commitment
available to us under the Lincoln Park Purchase Agreement, which could materially adversely affect our liquidity.
If it becomes necessary for us to issue and sell
to Lincoln Park under the Lincoln Park Purchase Agreement more than the 4,200,000 shares in order to receive aggregate gross proceeds
equal to the Total Commitment of $16.5 million under the Lincoln Park Purchase Agreement, we must first (i) obtain stockholder approval
to issue shares of common stock in excess of the Exchange Cap under the Lincoln Park Purchase Agreement in accordance with applicable
Nasdaq rules, unless the average per share purchase price paid by Lincoln Park for all shares of common stock sold under the Lincoln Park
Purchase Agreement equals or exceeds $2.1080, in which case, under applicable Nasdaq rules, the Exchange Cap limitation will not apply
to issuances and sales of common stock under the Lincoln Park Purchase Agreement, and (ii) file with the SEC one or more additional registration
statements to register under the Securities Act the resale by Lincoln Park of any such additional shares of our Common Stock we wish to
sell from time to time under the Lincoln Park Purchase Agreement, which the SEC must declare effective, in each case before we may elect
to sell any additional shares of our Common Stock to Lincoln Park under the Lincoln Park Purchase Agreement. Any issuance and sale by
us under the Lincoln Park Purchase Agreement of a substantial amount of shares of common stock in addition to the 4,200,000 shares of
common stock by Lincoln Park could cause additional substantial dilution to our stockholders. The number of shares of our common stock
ultimately offered for sale by Lincoln Park is dependent upon the number of shares of common stock we ultimately sell to Lincoln Park
under the Lincoln Park Purchase Agreement.
Investors who buy shares at different times
will likely pay different prices.
Pursuant to the Lincoln Park Purchase Agreement,
we will have discretion, subject to market demand, to vary the timing, prices, and numbers of shares sold to Lincoln Park. If and when
we do elect to sell shares of our Common Stock to Lincoln Park pursuant to the Lincoln Park Purchase Agreement, after Lincoln Park has
acquired such shares, Lincoln Park may resell all, some or none of such shares at any time or from time to time in its discretion and
at different prices. As a result, investors who purchase shares from Lincoln Park in the open market at different times will likely pay
different prices for those shares, and so may experience different levels of dilution and in some cases substantial dilution and different
outcomes in their investment results. Investors may experience a decline in the value of the shares they purchase from Lincoln Park in
the open market as a result of future sales made by us to Lincoln Park at prices lower than the prices such investors paid for their shares
in this offering.
We may require additional financing to sustain
our operations, without which we may not be able to continue operations, and the terms of subsequent financings may adversely impact our
stockholders.
We may direct Lincoln Park to purchase up to $16.5
million worth of shares of our common stock under our agreement over a 24-month period generally in amounts up to 50,000 shares of our
common stock (such purchases, “Regular Purchases”), which may be increased to up to 150,000 shares of our common stock depending
on the market price of our common stock at the time of sale, and, Lincoln Park’s committed obligation under any Regular Purchase
shall not exceed $1,000,000.
The extent we rely on Lincoln Park as a source
of funding will depend on a number of factors including the prevailing market price of our common stock and the extent to which we are
able to secure working capital from other sources. If obtaining sufficient funding from Lincoln Park were to prove unavailable or prohibitively
dilutive, we will need to secure another source of funding in order to satisfy our working capital needs. Even if we sell all $16.5 million
under the Lincoln Park Purchase Agreement to Lincoln Park, we may still need additional capital to finance our future production plans
and working capital needs, and we may have to raise funds through the issuance of equity or debt securities. Depending on the type and
the terms of any financing we pursue, stockholders’ rights and the value of their investment in our common stock could be reduced.
A financing could involve one or more types of securities including common stock, convertible debt or warrants to acquire common stock.
These securities could be issued at or below the then prevailing market price for our common stock. In addition, if we issue secured debt
securities, the holders of the debt would have a claim to our assets that would be prior to the rights of stockholders until the debt
is paid. Interest on these debt securities would increase costs and negatively impact operating results. If the issuance of new securities
results in diminished rights to holders of our common stock, the market price of our common stock could be negatively impacted.
Should the financing we require to sustain our
working capital needs be unavailable or prohibitively expensive when we require it, the consequences could be a material adverse effect
on our business, operating results, financial condition, and prospects.
An active trading market for our common
stock may not be sustained.
Although our common stock is listed on the Nasdaq
Capital Market, the market for our shares has demonstrated varying levels of trading activity. Furthermore, the current level of trading
may not be sustained in the future. The lack of an active market for our common stock may impair investors’ ability to sell their
shares at the time they wish to sell them or at a price that they consider reasonable, may reduce the fair market value of their shares
and may impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire additional
intellectual property assets by using our shares as consideration.
We received a written
notice from Nasdaq that we have failed to comply with certain listing requirements of the Nasdaq Stock Market, which could result in our
common stock being delisted from the Nasdaq Stock Market.
On March 8, 2022, we
received a notification from Nasdaq related to our failure to maintain a minimum bid price of $1 per share. Based on the closing
bid price of the Company’s common stock between January 24, 2022 and March 7, 2022, the Company no longer meets the minimum bid
price requirement. However, the Nasdaq Listing Rules also provide us a compliance period of 180 calendar days in which to regain
compliance. On September 6, 2022, Nasdaq granted the Company a second 180 calendar day period to regain compliance by March 6, 2023. If
we do not regain compliance with the minimum bid price requirement by the end of the second compliance period, our common stock will become
subject to delisting. If we are delisted from Nasdaq, our common stock may be eligible for trading on an over-the-counter market. If we
are not able to obtain a listing on another stock exchange or quotation service for our common stock, it may be extremely difficult or
impossible for stockholders to sell their shares. We intend to monitor the closing bid price of our common stock and may be required to
seek approval from our stockholders to affect a reverse stock split of the issued and outstanding shares of our common stock. However,
there can be no assurance that the reverse stock split would be approved by our stockholders. Further, there can be no assurance that
the market price per new share of our common stock after the reverse stock split will remain unchanged or increase in proportion to the
reduction in the number of old shares of our common stock outstanding before the reverse stock split. Even if the reverse stock split
is approved by our stockholders, there can be no assurance that we will be able to regain compliance with the minimum bid price requirement
or will otherwise be in compliance with other Nasdaq listing rules.
If we are delisted from
Nasdaq, but obtain a substitute listing for our common stock, it will likely be on a market with less liquidity, and therefore experience
potentially more price volatility than experienced on Nasdaq. Stockholders may not be able to sell their shares of common stock on any
such substitute market in the quantities, at the times, or at the prices that could potentially be available on a more liquid trading
market. As a result of these factors, if our common stock is delisted from Nasdaq, the value and liquidity of our common stock, warrants
and pre-funded warrants would likely be significantly adversely affected. A delisting of our common stock from Nasdaq could also adversely
affect our ability to obtain financing for our operations and/or result in a loss of confidence by investors, employees and/or business
partners.
We may acquire other companies or technologies,
which could divert our management’s attention, result in dilution to our stockholders and otherwise disrupt our operations and adversely
affect our operating results.
We may in the future seek to acquire or invest
in businesses, applications and services or technologies that we believe could complement or expand our services, enhance our technical
capabilities, or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and
cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated.
In addition, we do not have any experience in
acquiring other businesses. If we acquire additional businesses, we may not be able to integrate the acquired personnel, operations and
technologies successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated
benefits from the acquired business due to several factors, including:
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inability to integrate or benefit from acquired technologies or services in a profitable manner; |
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unanticipated costs or liabilities associated with the acquisition; |
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difficulty integrating the accounting systems, operations and personnel of the acquired business; |
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difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business; |
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difficulty converting the Customers of the acquired business onto our platform and contract terms, including disparities in the revenue, licensing, support or professional services model of the acquired company; |
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diversion of management’s attention from other business concerns; |
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adverse effects to our existing business relationships with business Partners and Customers because of the acquisition; |
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the potential loss of key employees; |
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use of resources that are needed in other parts of our business; and |
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use of substantial portions of our available cash to consummate the acquisition. |
In addition, a significant portion of the purchase
price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment
at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating
results based on this impairment assessment process, which could adversely affect our results of operations.
Acquisitions could also result in dilutive issuances
of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business
fails to meet our expectations, our operating results, business and financial position may suffer.
Market and economic conditions may negatively
impact our business, financial condition and share price.
Concerns over inflation, energy costs, geopolitical
issues, the U.S. mortgage market and a declining real estate market, unstable global credit markets and financial conditions, and volatile
oil prices have led to periods of significant economic instability, diminished liquidity and credit availability, declines in consumer
confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic growth
going forward, increased unemployment rates, and increased credit defaults in recent years. Our general business strategy may be adversely
affected by any such economic downturns, volatile business environments and continued unstable or unpredictable economic and market conditions.
If these conditions continue to deteriorate or do not improve, it may make any necessary debt or equity financing more difficult to complete,
more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material
adverse effect on our growth strategy, financial performance, and share price and could require us to delay or abandon development or
commercialization plans.
Future sales and issuances of our securities
could result in additional dilution of the percentage ownership of our shareholders and could cause our share price to fall.
We expect that significant additional capital
will be needed in the future to continue our planned operations, including research and development, increased marketing, hiring new personnel,
commercializing our products, and continuing activities as an operating public company. To the extent we raise additional capital by issuing
equity securities, our shareholders may experience substantial dilution. We may sell common stock, convertible securities or other equity
securities in one or more transactions at prices and in a manner, we determine from time to time. If we sell common stock, convertible
securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales
may also result in material dilution to our existing shareholders, and new investors could gain rights superior to our existing shareholders.
We do not intend to pay cash dividends on
our shares of common stock so any returns will be limited to the value of our shares.
We currently anticipate that we will retain future
earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for
the foreseeable future. Any return to shareholders will therefore be limited to the increase, if any, of our share price.
We are an “emerging growth company”
and can avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock
less attractive to investors.
We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we have elected to take advantage of certain
exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”
including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously
approved. In addition, pursuant to Section 107 of the JOBS Act, as an “emerging growth company” we have elected to take
advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised
accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards
until those standards would otherwise apply to private companies. As such, our financial statements may not be comparable to companies
that comply with public company effective dates.
We may be at risk of securities class action
litigation.
We may be at risk of securities class action litigation.
In the past, small-cap issuers have experienced significant stock price volatility, particularly when associated with regulatory requirements
by governmental authorities, which our industry now increasingly faces. If we face such litigation, it could result in substantial costs
and a diversion of management’s attention and resources, which could harm our business and results in a decline in the market price
of our common stock.
The Nasdaq Capital Market may delist our
securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject
us to additional trading restrictions.
Although we expect to meet the Nasdaq Capital
Market’s continued listing standards, we cannot assure you that our securities will be, or will continue to be, listed on the Nasdaq
Capital Market in the future. In order to continue to have our securities listed on the Nasdaq Capital Market, we must maintain and comply
with certain standards including, but not limited to, standards relating to corporate governance, stockholders’ equity and market
value of listed securities. If we are unable to comply with the continued listing requirements of the Nasdaq Capital Market our securities
may be delisted from the Nasdaq Capital Market. If our securities are delisted from the Nasdaq Capital Market, we could face significant
adverse consequences including, but not limited to:
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a limited availability of market quotations for our securities; |
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a limited amount of news and analyst coverage for our Company; and |
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Financial reporting obligations of being
a public company in the United States are expensive and time-consuming, and our management will be required to devote substantial time
to compliance matters.
As a publicly traded company, we incur significant
additional legal, accounting, and other expenses that we did not incur as a private company. The obligations of being a public company
in the United States require significant expenditures and will place significant demands on our management and other personnel, including
costs resulting from public company reporting obligations under the Exchange Act and the rules and regulations regarding corporate governance
practices, including those under the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) the Dodd-Frank Wall Street Reform and Consumer
Protection Act, and the listing requirements of the stock exchange on which our securities are listed. These rules require the establishment
and maintenance of effective disclosure and financial controls and procedures, internal control over financial reporting and changes in
corporate governance practices, among many other complex rules that are often difficult to implement, monitor and maintain compliance
with. Moreover, despite recent reforms made possible by the JOBS Act, the reporting requirements, rules, and regulations will make some
activities more time-consuming and costly, particularly after we are no longer an “emerging growth company.” Our management
and other personnel devote a substantial amount of time to ensure that we comply with all of these requirements and to keep pace with
new regulations, otherwise we may fall out of compliance and risk becoming subject to litigation or being delisted, among other potential
problems.
We have identified material weaknesses in
our internal control over financial reporting. Failure to maintain effective internal controls could cause our investors to lose confidence
in us and adversely affect the market price of our common stock. If our internal controls are not effective, we may not be able to accurately
report our financial results or prevent fraud.
Effective internal control over financial reporting
is necessary for us to provide reliable financial reports in a timely manner. In connection with the audit of our financial statements
as of and for the year ended June 30, 2022, we identified material weaknesses in our internal control over financial reporting. A material
weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Specifically, we have determined that we have material weaknesses relating risk assessment, control activities and monitoring control
activities.
The above material weaknesses could result in
a misstatement of our account balances or disclosures that would result in a material misstatement of our annual or interim financial
statements that would not be prevented or detected. To address the material weaknesses, we intend to (i) formalize our risk assessment
process with assistance from a current finance and accounting third-party service provider, (ii) remediate the control activities material
weakness through the documentation of processes and controls for transactions that occur in the course of business, and in the financial
statement close, reporting and disclosure processes, and (iii) formalize our process and documentation for monitoring internal control
over financial reporting.
We may not be successful in implementing these
changes or in developing other internal controls, which may undermine our ability to provide accurate, timely and reliable reports on
our financial and operating results. Further, we will not be able to fully assess whether the steps we are taking will remediate the material
weakness in our internal control over financial reporting until we have completed our implementation efforts and sufficient time passes
in order to evaluate their effectiveness. In addition, until we remediate these weaknesses, or if we identify additional material weaknesses
in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially
misstated. Moreover, in the future we may engage in business transactions, such as acquisitions, reorganizations or implementation of
new information systems that could negatively affect our internal control over financial reporting and result in material weaknesses.
If we identify new material weaknesses in our internal control over
financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or
if we are unable to assert that our internal control over financial reporting is effective, we may be late with the filing of our periodic
reports, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock
could be negatively affected. As a result of such failures, we could also become subject to investigations by the stock exchange on which
our securities are listed, the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders,
which could harm our reputation, financial condition or divert financial and management resources from our core business.
Our principal stockholders and management
own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
Our directors, executive officers and each of
our stockholders who owned greater than 5% of our outstanding Common Stock beneficially, as of August 17, 2022, own approximately 91%
of our common stock. Accordingly, these stockholders have and will continue to have significant influence over the outcome of corporate
actions requiring stockholder approval, including the election of directors, a merger, the consolidation, or sale of all or substantially
all of our assets or any other significant corporate transaction. The interests of these stockholders may not be the same as or may even
conflict with our other investors’ interests. For example, these stockholders could delay or prevent a change in control of us,
even if such a change in control would benefit our other stockholders, which could deprive our stockholders of an opportunity to receive
a premium for their Common Stock as part of a sale of the Company or our assets. The significant concentration of stock ownership may
negatively impact the value of our Common Stock due to potential investors’ perception that conflicts of interest may exist or arise.
Our certificate of incorporation provides
that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between the
Company and its stockholders, which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with the
Company or its directors, officers, or employees.
Our certificate of incorporation provides that
unless the Company consents in writing to the selection of an alternative forum, the State of Delaware is the sole and exclusive
forum for: (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a
fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s stockholders, (iii)
any action asserting a claim against the Company, its directors, officers or employees arising pursuant to any provision of the Delaware
General Corporation Law (the “DGCL”) or our certificate of incorporation or our bylaws, or (iv) any action asserting
a claim against the Company, its directors, officers, employees or agents governed by the internal affairs doctrine, except for, as to
each of (i) through (iv) above, any claim as to which the Court of Chancery determines that there is an indispensable party not subject
to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of
Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the
Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction. This exclusive forum provision would
not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or any other claim for which
the federal courts have exclusive jurisdiction. To the extent that any such claims may be based upon federal law claims, Section 27 of
the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange
Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal
and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
Section 22 of the Securities Act creates concurrent
jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the
rules and regulations thereunder. However, our certificate of incorporation contains a federal forum provision which provides that unless
the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States of America
will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Any person
or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation are deemed to have notice of and
consented to this provision. The Supreme Court of Delaware has held that this type of exclusive federal forum provision is enforceable.
There may be uncertainty, however, as to whether courts of other jurisdictions would enforce such provision, if applicable.
These choice of forum provisions may limit a stockholder’s
ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers or other
employees, which may discourage such lawsuits against the Company and its directors, officers and other employees. Alternatively, if a
court were to find our choice of forum provisions contained in either our certificate of incorporation or bylaws to be inapplicable or
unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions, which
could harm its business, results of operations, and financial condition.
Certain provisions of our certificate of
incorporation and Delaware law make it more difficult for a third party to acquire us and make a takeover more difficult to complete,
even if such a transaction were in stockholders’ interest.
Our certificate of incorporation and the Delaware
General Corporation Law contain certain provisions that may have the effect of making it more difficult or delaying attempts by others
to obtain control of our Company, even when these attempts may be in the best interests of our stockholders. We also are subject to the
anti-takeover provisions of the Delaware General Corporation Law, which prohibits us from engaging in a “business combination”
with an “interested stockholder” unless the business combination is approved in a prescribed manner and prohibits the voting
of shares held by persons acquiring certain numbers of shares without obtaining requisite approval. The statutes and our certificate of
incorporation have the effect of making it more difficult to effect a change in control of our Company.