T Stamp Inc annual report, FY2022

T Stamp Inc. 2022 Form 10-K Summary

Business Context and Reporting Period

T Stamp Inc. develops artificial-intelligence-powered identity authentication, biometric, privacy, cybersecurity, tokenization and case-management software for enterprise, financial-services, government and humanitarian customers. Its principal technology is the Irreversibly Transformed Identity Token, or IT2, which converts biometric and other identifying information into tokenized identifiers intended to reduce exposure of sensitive data.

This Form 10-K covers the fiscal year ended December 31, 2022, with comparisons to the year ended December 31, 2021. The company began trading on Nasdaq under the symbol IDAI on January 31, 2022. The filing was signed March 30, 2023. A one-for-five reverse stock split became effective March 23, 2023, and historical share and per-share amounts were retrospectively adjusted.

Financial Results and Key Metrics

Metric	2022	2021	Change
Revenue	$5.385 million	$3.678 million	Up 46.4%
Operating expenses	$17.464 million	$12.569 million	Up 38.9%
Operating loss	$12.079 million	$8.891 million	Loss increased 35.9%
Net loss attributable to T Stamp	$12.092 million	$9.057 million	Loss increased 33.5%
Basic and diluted loss per share	$2.55 loss	$2.40 loss	Higher loss per share
Adjusted EBITDA loss	$8.695 million	$5.362 million	Loss increased 62.2%
Net cash used in operating activities	$6.337 million	$6.702 million	Outflow decreased 5.4%

Revenue consisted primarily of professional services of $4.416 million, termination expense reimbursement of $720 thousand and license fees of $250 thousand.
Approximately 93.6% of revenue came from three customers: ICE contributed 61.0%, an S&P 500 bank 18.4% and Mastercard 14.2%.
The company reported an approximate gross margin of 66.8%, based on revenue less cost of services provided. Operating margin was approximately negative 224.4% and net margin was approximately negative 224.6%.
Selling, general and administrative expense increased 49.7% to $12.444 million, including $1.81 million of legal, professional and other costs related to the Nasdaq listing and $2.09 million of stock-based compensation.
Research and development expense declined 2.2% to $2.474 million, while depreciation and amortization increased 32.6% to $760 thousand.
Cash and cash equivalents declined to $1.254 million at December 31, 2022 from $3.476 million at December 31, 2021.
Investing cash outflows were $998 thousand, principally for capitalized internally developed software, patent applications and equipment. Financing cash inflows were $5.101 million.
Total assets were $6.412 million and total liabilities were $5.787 million at year-end. Total stockholders’ equity declined to $625 thousand from $5.034 million.
Current liabilities of $4.448 million exceeded current assets of $2.874 million, resulting in a current ratio of approximately 0.65 versus 2.40 in the prior year.
Debt and debt-like obligations included $886 thousand of non-convertible notes payable, $208 thousand of financial liabilities for mobile hardware, $262 thousand of warrant liabilities and $280 thousand of operating lease liabilities.

Material Changes Versus the Prior Comparable Period

Revenue increased $1.707 million, but the revenue increase was more than offset by higher operating expenses and the company’s operating loss expanded by $3.188 million.
ICE-related revenue increased to $3.29 million from $1.68 million, but ICE terminated the contract for convenience on August 17, 2022. The company recognized $720 thousand of cancellation expense reimbursement.
The company launched its Orchestration Layer low-code platform and had six FIS-related customers onboarded by year-end. By February 2023, 23 financial institutions with more than $50 billion in assets were using or onboarding to the platform.
The company entered into a 12-year master services and resale agreement with Innovative Government Solutions. It received a $1.5 million non-refundable revenue advance, recorded as deferred revenue, and recognized no IGS revenue in 2022.
Deferred revenue increased to $1.812 million from $503 thousand, principally because of the IGS advance. This increased current liabilities but did not represent 2022 revenue.
The company raised approximately $1.42 million net from the September 2022 Armistice private placement of common stock and warrants, and received additional proceeds from warrant and option exercises.
Capitalized internally developed software increased to $1.419 million from $1.160 million, while the accumulated deficit increased to $39.300 million from $27.208 million.
The company adopted ASC 842 lease accounting, recognizing $316 thousand of operating lease right-of-use assets and $280 thousand of operating lease liabilities at December 31, 2022.

Outlook, Risks, Contingencies and Unusual Items

Management expects continued operating losses into 2023 while it invests in research and development, sales and marketing, the Orchestration Layer and customer expansion. The filing does not provide quantitative revenue or earnings guidance.
The auditor included a going-concern explanatory paragraph. Management stated that the company needs additional revenue and/or financing to meet obligations and sustain operations; the filing says these conditions raise substantial doubt about continuation as a going concern.
The company expects to raise additional capital through equity and/or debt offerings. Future financing could dilute existing shareholders, and the filing provides no assurance that financing will be available on acceptable terms.
Customer concentration is material. The loss of ICE, FIS-related business, Mastercard, the S&P 500 bank or other major customers could materially affect revenue and liquidity.
The company depends on FIS as its only identified channel partnership and on third parties for hosting, contract labor and other essential services.
Material risks include continued losses, technology development and commercialization risk, intense competition, cybersecurity and data breaches, privacy and biometric regulations, foreign-currency exposure, long enterprise sales cycles and the ability to retain key personnel.
Applicable privacy and biometric regimes include GDPR, HIPAA, HITECH, CCPA, CPRA and BIPA. Potential consequences include substantial fines, litigation, remediation costs and restrictions on data processing.
Management determined that internal controls over financial reporting were not effective at year-end 2022 because of weaknesses in journal-entry review and approval, information-technology change controls, segregation of duties and access controls. The company reported that prior weaknesses related to stock-based compensation had been remediated.
The company recorded a $28 thousand impairment of digital assets and a $113 thousand gain from a decrease in the fair value of warrant liabilities.
Silicon Valley Bank was closed in March 2023. The company reported approximately $286 thousand of deposits at the bank and stated that it had access to all funds by March 14, 2023.
The company was not involved in known pending or threatened litigation as of the filing date.

Most Important Facts for Investors to Verify

Whether the company can secure sufficient financing or generate positive operating cash flow before its cash resources are exhausted.
The actual conversion of FIS-related Orchestration Layer customers into recurring, per-use SaaS revenue and the timing of use-based Mastercard revenue.
The remaining economic impact of the terminated ICE contract and whether replacement government or enterprise contracts materialize.
The sustainability of the $1.5 million IGS advance, the timing of additional advances and IGS’s right to terminate before later advances become due.
The company’s customer concentration, deferred revenue composition and accounts receivable collectability.
Progress in remediating the reported material weaknesses in internal control over financial reporting.
Potential dilution from future equity offerings, outstanding warrants, options and restricted stock units, including the 390,000 Armistice warrants exercisable at $8.85 per share before the reverse-split adjustment.
Compliance costs and liability exposure under evolving privacy, biometric, cybersecurity and government-contracting regulations.