T Stamp Inc. (d/b/a Trust Stamp) — Q2 2022 Form 10-Q Summary
Business context and reporting period
Trust Stamp develops AI-powered identity authentication, biometric privacy, cybersecurity, digital identity, financial inclusion, and government case-management software. The filing covers the unaudited three and six months ended June 30, 2022, compared with the corresponding 2021 periods. The company is a smaller reporting company and emerging growth company.
Key financial metrics
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Net revenue | $708,288 | $719,409 | $3,529,333 | $1,251,692 |
| Gross profit | $360,122 | $372,815 | $2,487,189 | $647,679 |
| Gross margin | 50.84% | 51.82% | 70.47% | 51.74% |
| Operating loss | $(2,937,920) | $(2,048,982) | $(4,579,040) | $(3,984,647) |
| Net loss attributable to T Stamp | $(2,922,286) | $(1,966,025) | $(4,614,348) | $(3,997,918) |
| Net loss per share | $(0.13) | $(0.10) | $(0.20) | $(0.22) |
| Adjusted EBITDA loss | $(2,223,169) | $(1,156,322) | $(3,354,057) | $(2,773,758) |
Six-month revenue included approximately $2.44 million from the ICE contract, $550,000 from an S&P 500 bank, $329,000 from Mastercard, and $114,000 from FIS. Four customers represented approximately 98% of six-month revenue, and three customers represented 96% of accounts receivable at June 30, 2022.
Cash and cash equivalents were $2.83 million at June 30, 2022, down from $3.48 million at December 31, 2021. Net cash used in operating activities was $3.86 million; investing cash outflow was $524,252; and financing cash inflow was $3.69 million. Capitalized internal-use software was $1.31 million, and total assets were $7.62 million.
Total liabilities were $2.67 million, including $857,939 of non-convertible notes payable, $297,634 of warrant liabilities, and $267,142 of short- and long-term financial liabilities. The company reported an accumulated deficit of $31.82 million and stockholders’ equity of $4.95 million.
Material changes versus the prior comparable period
- Six-month revenue increased 182.0%, primarily because no ICE revenue was recorded in the 2021 comparable period and approximately $2.44 million was recognized from ICE in 2022.
- Six-month gross margin improved to 70.47% from 51.74%, but operating loss increased 14.9% because selling, general and administrative expense rose 47.1% and research and development expense rose 111.4%.
- Second-quarter revenue declined 1.5%, while second-quarter operating loss increased 43.4%.
- Adjusted EBITDA loss increased 20.9% for the six months and 92.3% for the quarter, reflecting higher personnel, professional services, sales commission, research, and development costs.
- Shares outstanding increased to 23,285,733 from 20,475,143 at year-end 2021, primarily through warrant, option, and other equity issuances.
- Financing included approximately $3.39 million from warrant exercises, $71,592 from option exercises, and additional proceeds from Regulation CF, D, and S offerings.
Guidance, outlook, risks, contingencies, and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. Continued operations depend on increased revenue and/or additional financing. Management’s anticipated additional revenue had not reached a stage allowing it to be included in the going-concern assessment.
- ICE contract termination: The ICE contract was increased from $3.92 million to $7.18 million in March 2022, but performance was subsequently paused for up to 90 days and then an additional 60 days. ICE terminated the contract for convenience effective August 17, 2022. ICE indicated that cancellation compensation would be paid on terms to be agreed, but the filing does not provide a clear amount or timing.
- Liquidity pressure: Management projected human-resource costs of approximately $639,000 per month over the next twelve months, compared with $2.83 million of cash at quarter-end and ongoing operating cash outflows.
- Customer concentration: Revenue and receivables are highly concentrated. The loss or reduction of major customer statements of work could materially affect results.
- Contractual commitments: Future operating lease obligations totaled $729,681 and purchase obligations totaled $267,142 as of June 30, 2022.
- Unusual items: The company recorded $23,885 of digital-asset impairment and a $77,060 gain from the change in fair value of warrant liabilities during the six months. Stock-based compensation was $747,432.
- Internal controls: Management concluded disclosure controls were effective at a reasonable assurance level, but the filing reports previously identified material weaknesses involving stock-based award calculations and the financial-reporting close process.
- Legal matters: The company reported no material pending or threatened litigation known to management.
Most important facts for investors to verify
- Amount and collectability of any cancellation compensation from ICE following the August 17, 2022 termination.
- Post-termination revenue outlook and the extent to which ICE revenue can be replaced by Mastercard, FIS, bank, and other customer contracts.
- Cash-burn rate, planned expense reductions, financing availability, and the company’s ability to address the stated going-concern uncertainty.
- Customer concentration, renewal terms, and remaining enforceable performance obligations.
- Progress in remediating the material weaknesses in internal control over financial reporting.
- Potential dilution from approximately 9.98 million anti-dilutive options, restricted stock units, grants, and warrants excluded from diluted loss-per-share calculations.