T Stamp Inc. Form 10-Q Summary
Business Context and Reporting Period
T Stamp Inc., doing business as Trust Stamp, develops AI-powered identity authentication, biometric privacy, fraud prevention, KYC/AML, digital identity, and government case-management solutions. This unaudited Form 10-Q covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods.
Key Financial Metrics
| Metric | Three Months 2022 | Three Months 2021 | Nine Months 2022 | Nine Months 2021 |
|---|---|---|---|---|
| Net revenue | $1.35 million | $0.33 million | $4.88 million | $1.58 million |
| Gross profit | $0.82 million | $0.08 million | $3.31 million | $0.73 million |
| Gross margin | 60.77% | 24.46% | 67.79% | 46.05% |
| Operating loss | $(3.44) million | $(2.94) million | $(8.02) million | $(6.92) million |
| Net loss attributable to T Stamp | $(3.44) million | $(3.04) million | $(8.05) million | $(7.03) million |
| Basic and diluted loss per share | $(0.15) | $(0.16) | $(0.35) | $(0.37) |
| Adjusted EBITDA loss | $(2.35) million | $(1.91) million | $(5.70) million | $(4.69) million |
- Revenue increased 308.5% in the quarter and 208.4% for the nine-month period. ICE revenue represented approximately 63% of quarterly revenue and 67% of nine-month revenue.
- Nine-month operating expenses were $12.90 million, including $1.57 million of cost of services, $1.77 million of research and development, $9.01 million of selling, general and administrative expense, and $0.55 million of depreciation and amortization.
- Stock-based compensation was $0.85 million for the quarter and $1.60 million for the nine-month period.
- Cash used in operating activities was $4.84 million for the nine months, compared with $5.27 million in 2021. Investing cash outflow was $0.74 million, primarily for capitalized software, patents, property and equipment, and digital assets.
- Financing activities provided $5.08 million, including proceeds from warrant and option exercises and equity issuances. Cash declined by $0.55 million to $2.93 million at September 30, 2022, from $3.48 million at December 31, 2021.
- Current assets were $4.77 million and current liabilities were $3.12 million, producing a current ratio of approximately 1.53, down from 2.40 at year-end 2021.
- Total liabilities were $4.32 million, including $0.80 million of non-convertible notes payable, $0.24 million of mobile-hardware financial liabilities, and $0.29 million of warrant liabilities.
- Accumulated deficit was $35.26 million and stockholders’ equity was $3.76 million at September 30, 2022.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue rose by $1.02 million, primarily from $0.84 million of ICE revenue, $0.20 million from Mastercard, and $0.24 million from an S&P 500 bank. Nine-month revenue included $3.29 million from ICE, $0.54 million from Mastercard, and $0.79 million from an S&P 500 bank.
- Gross margin improved substantially, but operating and net losses increased because selling, general and administrative expense, research and development, cost of services, and depreciation and amortization all increased.
- Quarterly SG&A increased 43.2% to $3.28 million; nine-month SG&A increased 47.7% to $9.01 million. Drivers included listing-related professional fees, sales commissions, mobile carrier costs, travel, and increased staffing.
- Research and development expense increased 56.7% for the nine-month period. The reported R&D workforce increased from 51 to 64 full-time equivalents.
- Deferred revenue increased to $1.61 million from $0.50 million, primarily because of a $1.50 million advance received under the IGS agreement. The advance was not recognized as revenue.
- Shares outstanding increased to 24.26 million from 20.48 million at December 31, 2021, largely due to warrant and option exercises and equity issuances.
Guidance, Outlook, Commentary, Risks and Unusual Items
- No formal financial guidance was provided. Management expects revenue from existing operations to cover projected human-resource costs of approximately $639,000 per month, but this expectation is subject to execution and customer demand.
- The ICE contract was terminated for convenience effective August 17, 2022, after 90-day and 60-day performance cessations related to required congressional notification. ICE paid for services performed before the cessation and agreed to reimburse approximately $720,000 of cancellation expenses; the reimbursement was recorded as revenue in the third quarter.
- On September 15, 2022, the Company entered into a 12-year renewable Master Services Agreement with Innovative Government Solutions. It received a $1.50 million non-refundable revenue advance, recorded as deferred revenue. Additional advances of $1.50 million and two $1.00 million payments are subject to the agreement’s terms, and IGS may terminate before later advances become due.
- Management stated that substantial doubt exists regarding the Company’s ability to continue as a going concern. The Company has recurring losses, operating cash outflows, and a $35.26 million accumulated deficit, and depends on increased revenue and/or additional financing.
- Customer concentration is significant: three customers represented approximately 95% of accounts receivable and approximately 95% of third-quarter revenue. The loss or reduction of major customer contracts could materially affect results.
- The Company recognized $25,000 of digital-asset impairment and an $88,000 favorable change in warrant-liability fair value during the nine months.
- The Company had $776,000 of contractual obligations, consisting primarily of operating leases and mobile-hardware financial liabilities.
- Management concluded that disclosure controls were effective at a reasonable assurance level. However, previously identified material weaknesses in corporate finance and accounting oversight, stock-based award calculations, and the financial-reporting close process remained relevant, with no material changes reported during the period.
- The filing reports no material pending litigation and states that risk-factor disclosure was not applicable in Part II.
Most Important Facts for Investors to Verify
- Whether the Company can replace the terminated ICE revenue and reduce its reliance on a small number of customers.
- The timing and collectability of the $720,000 ICE cancellation reimbursement and the extent of related costs incurred during the cessation period.
- Whether the IGS relationship generates recurring license and usage revenue, and the conditions under which future revenue advances may not be payable.
- Cash burn, monthly personnel costs, financing availability, and the Company’s ability to address the stated going-concern uncertainty.
- The conversion of $1.61 million of deferred revenue into recognized revenue and the related performance obligations.
- Potential dilution from approximately 7.33 million equity-classified warrants, 1.94 million stock options, outstanding restricted stock units, and other potentially dilutive securities.
- Progress in remediating the previously identified internal-control material weaknesses.