T Stamp Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021, with fourth-quarter information where disclosed. The filing was signed April 6, 2022. Trust Stamp develops AI-powered identity authentication, biometric liveness, tokenization, KYC/AML, fraud detection, and related software solutions. Its Class A common stock began trading on Nasdaq under “IDAI” on January 31, 2022.
Financial performance and position
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $3.68 million | $2.65 million | +38.9% |
| Gross profit | $2.53 million | $1.13 million | +124.0% |
| Gross margin | 68.7% | 42.6% | +26.1 percentage points |
| Operating loss | $(8.89) million | $(8.40) million | Higher loss |
| Net loss attributable to T Stamp | $(9.06) million | $(10.68) million | Loss decreased |
| Net loss per diluted share | $(0.48) | $(0.90) | Improved |
| Adjusted EBITDA loss | $(5.36) million | $(5.38) million | Broadly unchanged |
| Net cash used in operating activities | $(6.71) million | $(4.48) million | Higher outflow |
| Cash and cash equivalents | $3.48 million | $1.47 million | Higher cash balance |
Fourth-quarter net sales were $2.10 million, or approximately 57% of full-year sales, including approximately $1.68 million from the ICE contract. Fourth-quarter net loss was $2.02 million and adjusted EBITDA loss was $613 thousand. Management attributed the improved quarterly margins primarily to the high-margin ICE contract.
Operating expenses were $12.57 million, compared with $11.04 million in 2020. Selling, general and administrative expense increased 30.4% to $8.31 million, while research and development expense declined 7.8% to $2.53 million, partly because 2020 included a one-time equity compensation charge. Stock-based compensation was $2.78 million in 2021.
At December 31, 2021, total assets were $8.66 million, total liabilities were $3.63 million, and stockholders’ equity was $5.03 million. Current assets were $5.76 million versus current liabilities of $2.40 million, producing positive working capital of approximately $3.36 million.
Cash flow, debt, and financing
- Investing cash outflows were $768 thousand, including $482 thousand for internally developed software, $161 thousand for patent applications, $91 thousand for the Pixelpin asset acquisition, and $34 thousand for property and equipment.
- Financing cash inflows were $9.35 million, primarily from common-stock issuances, warrant proceeds, and $856 thousand of Maltese government financing.
- The $350 thousand Second Century Ventures promissory note was repaid in April 2021. At year-end, nonconvertible notes totaled $856 thousand, primarily amounts due under the Maltese government repayable advance.
- Warrant liabilities were $375 thousand at year-end. Equity-classified warrants outstanding totaled approximately 7.75 million shares, creating potential dilution.
- The Company had no outstanding SAFEs or convertible promissory notes at December 31, 2021.
- Non-cancellable operating lease obligations totaled $577 thousand, including $370 thousand due within one year.
Material changes versus 2020
- Revenue growth was driven by new and expanded customer contracts, particularly the ICE engagement, as well as additional work for an S&P 500 bank, Mastercard, and FIS.
- Customer concentration remained high: ICE, the S&P 500 bank, and Mastercard represented approximately 91% of 2021 revenue, compared with approximately 63% from two customers in 2020.
- Gross margin improved substantially as the Company shifted from highly customized development work toward semi-customized solutions using existing technology.
- SG&A increased by $1.94 million because of a 64.9% increase in team-member headcount, additional operating infrastructure, and higher stock-based compensation.
- Accounts receivable increased to $1.28 million from $141 thousand. One customer represented 51% of year-end accounts receivable, while two other customers represented 41%.
- The Company raised approximately $5.43 million gross through concurrent Regulation CF, Regulation D, and Regulation S offerings through year-end, issuing 1.36 million units consisting of common shares and warrants.
- The Company acquired Pixelpin for approximately $91 thousand and expanded research and development operations in Malta and Rwanda.
Guidance, outlook, risks, and unusual items
Management expects operating losses to continue into 2022 as it expands personnel, research and development, sales, and customer activity. Management stated that cash on hand and revenue from existing operations should support planned operations for at least 12 months from issuance of the financial statements, but the auditor included an “Emphasis of Matter Regarding Liquidity” because the Company has not generated profits, had $6.71 million of operating cash outflows, and had a $27.21 million accumulated deficit.
The original ICE contract was valued at $3.92 million and generated $1.7 million of 2021 revenue. After year-end, the contract was modified effective March 27, 2022, increasing the award to $7.18 million and extending delivery through September 26, 2022, subject to ICE’s early-termination right. Management also cited Mastercard Community Pass as a potential source of additional pay-per-use revenue, but the filing does not provide a quantified forecast.
Management expects approximately $750 thousand per month of human-resources costs during the next 12 months. The filing identifies continued capital needs and states that additional equity or debt financing may be required, which could dilute shareholders or impose restrictive terms.
- Key risks include continued losses, dependence on additional financing, customer and accounts-receivable concentration, contract termination, technology-development uncertainty, intense competition, cybersecurity and biometric-data breaches, privacy regulation, foreign-currency exposure, and reliance on third-party service providers.
- The Company reported material weaknesses in internal control over financial reporting related to stock-based award calculations and the financial reporting close process, although management concluded that disclosure controls and procedures were effective.
- Foreign-currency translation produced a $159 thousand loss in 2021 versus an $81 thousand gain in 2020.
- There were no pending or threatened legal proceedings reported at filing.
- The Company recorded $2.78 million of stock-based compensation and had approximately 11.42 million potentially dilutive securities excluded from diluted loss per share because they were anti-dilutive.
Important facts for investors to verify
- Whether the expanded ICE contract is completed on schedule, how much revenue and cash it ultimately produces, and the effect of additional performance obligations on margins.
- Whether customer concentration declines and whether Mastercard, the S&P 500 bank, FIS, and newer customers generate recurring or largely project-based revenue.
- The Company’s cash-burn rate, monthly personnel commitments, financing plans, and ability to remain a going concern without repeated capital raises.
- The economic impact of approximately 7.75 million equity-classified warrants, 1.98 million options, RSUs, and other potential dilution.
- Progress in remediating the reported material weaknesses in internal controls.
- Compliance costs and potential liabilities under biometric privacy, GDPR, HIPAA, state privacy, and data-breach laws.
- Whether the reported 68.7% annual gross margin is sustainable after the unusually high-margin ICE revenue recognized in the fourth quarter and before completion of remaining ICE obligations.