T Stamp Inc. (IDAI) - Q2 2023 10-Q Summary
Business Context and Reporting Period
T Stamp Inc. (d/b/a Trust Stamp) is an emerging growth company and smaller reporting company developing AI-powered identity authentication and biometric security solutions. The filing covers the quarterly period ended June 30, 2023. The company is transitioning from a custom solutions provider to a Software-as-a-Service (SaaS) model via its "Orchestration Layer" platform. A 1-for-5 reverse stock split was effective March 23, 2023, and all share data has been retroactively restated.
Key Financial Metrics
| Metric | Q2 2023 (3 Months) | YTD 2023 (6 Months) | YTD 2022 (6 Months) |
|---|---|---|---|
| Net Revenue | $460,804 | $919,438 | $3,529,333 |
| Net Loss | $(2,170,368) | $(4,717,818) | $(4,614,348) |
| Operating Loss | $(2,382,409) | $(4,961,842) | $(4,579,040) |
| Cash and Equivalents (End of Period) | $5,035,414 | $5,035,414 | $2,827,563 |
| Working Capital | $1,467,147 | $1,467,147 | N/A |
| Accumulated Deficit | $(44,017,544) | $(44,017,544) | $(39,299,726) |
| Operating Cash Flow | N/A | $(3,581,369) | $(3,858,860) |
| Financing Cash Flow | N/A | $7,415,347 | $3,686,706 |
Material Changes vs. Prior Period
- Revenue Decline: Net revenue decreased 34.9% in Q2 and 74.0% YTD compared to 2022. This is primarily due to the termination of a significant contract with U.S. Immigration and Customs Enforcement (ICE) in 2022, which generated $2.44 million in revenue during the prior YTD period.
- Expense Reduction: Operating expenses decreased significantly due to headcount reductions (global headcount down 23% to 80 FTE) and cost-cutting initiatives. Selling, General, and Administrative (SG&A) expenses dropped 25.9% in Q2 and 32.5% YTD.
- Liquidity Improvement: Cash and cash equivalents increased from $1.25 million (Dec 31, 2022) to $5.04 million (June 30, 2023). This was driven by $7.42 million in net financing proceeds from two registered direct offerings in April and June 2023.
- Non-Operating Income: Other income increased significantly due to a $213,000 gain on the sale of mobile hardware assets.
Outlook, Risks, and Management Commentary
- Going Concern: The company has raised substantial doubt about its ability to continue as a going concern. It has an accumulated deficit of $44.0 million and negative operating cash flows. Continued operations depend on generating revenue and securing additional financing.
- Strategic Pivot: Management is pivoting to the "Orchestration Layer" SaaS model. While this transition negatively impacted revenue in 2023, management anticipates significant revenue growth in 2024 as new customers onboard. 33 financial institutions have been onboarded to the platform to date.
- Capital Raising: The company successfully raised approximately $7.47 million in net proceeds during the first half of 2023 through the sale of common stock and pre-funded warrants to an institutional investor.
- Customer Concentration: Revenue remains highly concentrated. In Q2 2023, three customers accounted for 90.7% of net revenue (an S&P 500 Bank, Mastercard, and Triton).
- Internal Controls: Management identified a material weakness in internal controls over financial reporting related to journal entry reviews and IT general controls. A remediation plan is in progress.
Investor Verification Checklist
- Cash Runway: Verify the sufficiency of the $5.04 million cash balance against the current burn rate of ~$3.6 million per six months to assess the timeline for the next capital raise.
- Revenue Sustainability: Confirm the status of the ICE contract termination and the specific timeline for revenue recognition from the new SaaS "Orchestration Layer" customers.
- Customer Concentration Risk: Evaluate the risk associated with three customers representing over 90% of revenue and the potential impact of losing any single major client.
- Warrant Liability: Review the fair value adjustments of warrant liabilities, which can create volatility in non-operating income/expense.
- Internal Control Remediation: Monitor the progress of remediation for the material weakness in internal controls over financial reporting.