T Stamp Inc 10-K for FY2023
T Stamp Inc (IDAI)
10-K
2024-04-01
For: 2023-12-31
View Original
Added on
April 11, 2026
About this 10-K
T Stamp Inc filed this 10-K on April 1, 2024, covering the fiscal year ended December 31, 2023 (FY2023).
Headline figures
Fiscal year ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $4.56M
- down 15.3% from $5.39M a year earlier
- Net loss
- $7.64M
- compared with a net loss of $12.09M a year earlier
- Diluted EPS
- -$1.07
- compared with -$2.55 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For the fiscal year ended December 31 , 2023
ACT OF 1934
For the transition period from ______________ to _____________
Commission file number: 001-41252
(Exact name of registrant as specified in its charter)
| 7372 | ||||||||||||||
| (State or Other Jurisdiction of Incorporation or Organization) | (Primary Standard Industrial Classification Number) | (IRS Employer Identification Number) | ||||||||||||
(Address of registrant’s principal executive offices) (Zip code)
Registrant’s telephone number, including area code (404 ) 806-9906
Securities registered under Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the issuer (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | o | Accelerated filer | o | |||||||||||
| x | Smaller reporting company | |||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 USC. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The registrant’s Class A Common Stock began trading on the NASDAQ Stock Exchange on January 31, 2022. As of June 30, 2023, the aggregate market value held by non-affiliates of the registrant, computed by reference to the price at which the registrant’s Class A Common Stock was last sold on the NASDAQ Stock Exchange on such date was $9,543,000 (7,455,469 at a closing price per share of $1.28 on June 30, 2023). As of March 29, 2024, there were 10,101,279 shares of Class A Common Stock, par value $0.01 per share, of the registrant outstanding.
Documents Incorporated by Reference
None
| Auditor Name: | Auditor Location: | Auditor Firm ID: | ||||||||||||
T STAMP INC.
TABLE OF CONTENTS
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Statement Regarding Forward-Looking Statements
This Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially and adversely from those expressed or implied by such forward-looking statements. Forward-looking statements may include, but are not limited to, statements relating to our outlook or expectations for earnings, revenues, expenses, asset quality or other future financial or business performance, strategies, expectations or business prospects, or the impact of legal, regulatory or supervisory matters on our business, results of operations, or financial condition. Specifically, forward-looking statements may include statements relating to our future business prospects, revenue, income, and financial condition.
Forward-looking statements can be identified by the use of words such as “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target,” or similar expressions. Forward-looking statements reflect our judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
In addition to those factors discussed under Item 1A—“Risk Factors,” important factors could cause actual results to differ materially from our expectations. These factors include, but are not limited to:
•adverse economic conditions;
•general decreases in demand for our products and services;
•changes in timing of introducing new products into the market;
•intense competition (including entry of new competitors), including among competitors with substantially greater resources than us;
•inadequate capital;
•unexpected costs;
•revenues and net income lower than anticipated;
•litigation;
•becoming delisted from Nasdaq;
•the possible fluctuation and volatility of operating results and financial conditions;
•the impact of legal, regulatory, or supervisory matters on our business, results of operations, or financial condition;
•inability to carry out our marketing and sales plans; and
•the loss of key employees and executives.
All forward-looking statements included in this Form 10-K speak only as of the date of this Form 10-K and you are cautioned not to place undue reliance on any such forward-looking statements. Except as required by law, we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances that arise after the date of this Form 10-K or to reflect the occurrence of unanticipated events. The above list is not intended to be exhaustive and there may be other factors that could preclude us from realizing the predictions made in the forward-looking statements. We operate in a continually changing business environment and new factors emerge from time to time. We cannot predict such factors or assess the impact, if any, of such factors on our financial position or results of operations.
In this Annual Report on Form 10-K, unless the context indicates otherwise, the terms “Trust Stamp”, the “Company”, “we”, “us”, and “our” refer to T Stamp, Inc., a Delaware corporation.
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PART I.
Item 1. Our Business
Overview
Trust Stamp was incorporated under the laws of the State of Delaware on April 11, 2016 as “T Stamp Inc.” T Stamp Inc. and its subsidiaries (“Trust Stamp”, “we”, or the “Company”) develop and market identity authentication software for enterprise and government partners and peer-to-peer markets.
Trust Stamp develops proprietary artificial intelligence-powered identity and trust solutions at the intersection of biometrics, privacy, and cybersecurity, that enable organizations to protect themselves and their users while empowering individuals to retain ownership of their identity data and prevent fraudulent activity using their identity.
Trust Stamp tackles industry challenges including data protection, regulatory compliance, and financial accessibility, with cutting-edge technology including biometric science, cryptography, and machine learning. Our core technology irreversibly transforms identity information to create tokenized identifiers that enable accurate authentication while minimizing the need to store or share sensitive data. By retaining the usefulness of biometric-derived data while minimizing the risk, we allow businesses to adopt biometrics and other anti-fraud initiatives while protecting personal information from hacks and leaks.
Trust Stamp’s key sub-markets are identity authentication for the purpose of account opening, access, and fraud detection, the creation of tokenized digital identities to facilitate financial and societal inclusion, and in-community case management software for alternatives to detention and other governmental uses.
As biometric solutions proliferate, so does the need to protect biometric data. Stored biometric images and templates represent a growing and unquantified financial, security, and PR liability and are the subject of governmental, media, and public scrutiny since biometric data cannot be “changed” once they are hacked, as they are directly linked to the user’s physical features and/or behaviors. Privacy concerns around biometric technology have led to close attention from regulators, with multiple jurisdictions placing biometrics in a special or sensitive category of personal data and demanding much stronger safeguards around collection and safekeeping.
To address this unprecedented danger and increased cross-industry need to establish trust quickly and securely in virtual environments, Trust Stamp has developed its Irreversibly Transformed Identity Token, or IT2TM, solutions, which replace biometric templates with a cryptographic hash that can never be rebuilt into the original data and cannot be used to identify the subject outside the environment for which it is designed.
Trust Stamp’s data transformation and comparison technology is vendor and modality-agnostic, allowing organizations including other biometric services providers to benefit from the increased protection, efficiency, and utility of our proprietary tokenization process. With online and offline functionality, Trust Stamp technology is effective in even the most remote locations in the world.
Trust Stamp also offers end-to-end solutions for multi-factor biometric authentication for account access and recovery, KYC/AML compliance, customer onboarding, and more, which allow organizations to approve more genuine users, keep bad actors from accessing systems and services and retain existing users with a superior user experience.
Markets
Trust Stamp has evaluated the market potential for its services in part by reviewing the following reports, articles, and data sources, none of which were commissioned by the Company, and none of which are to be incorporated by reference:
Data Security and Fraud
•In 2022, 4,145 publicly disclosed breaches exposed over 22 billion records according to the “2021 Year End Report: Data Breach QuickView” published by Flashpoint.
•The cumulative merchant losses to online payment fraud between 2023 and 2027 will exceed $343 billion globally according to a 2022 report titled “Fighting Online Payment Fraud in 2022 & Beyond” published by Juniper Research.
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Trust Stamp addresses this market with biometric identity verification and biometric authentication solutions — which offer Trust Stamp’s proprietary irreversible identity token to perform biometric-based matching in a secure and tokenized domain, matching tokenized personally identifiable information while implementing liveness detection.
Biometric Authentication
•By 2027, the value of biometrically authenticated remote mobile payments will reach $1.2 trillion globally, according to a 2022 report titled “Mobile Payment Biometrics” published by Juniper Research.
•The global biometric system market size is valued at $41.1 billion per annum in 2023, with a forecast compound growth of 20.4% from 2023 to 2030 with a 2030 revenue forecast of $150.6 billion according to the 2023 report titled “Biometric Technology Market Size, Share & Trends Analysis Report By Component, By Offering, By Authentication Type, By Application, By End-use, By Region, And Segment Forecasts, 2023 — 2030” published by Grand View Research.
Trust Stamp addresses this market through its biometric authentication and liveness detection products — which offer Trust Stamp’s proprietary irreversible identity token to perform biometric matching in a secure and tokenized domain. This permits biometric authentication without the risk of storing pictures and biometric templates.
Financial and Societal Inclusion
•As of 2021, 1.4 billion people were unbanked according to the “Global Findex Database 2021” published by The World Bank.
•131 million small and medium-sized enterprises in emerging markets lack access to finance, limiting their ability to grow and thrive (UNSGSA Financial Inclusion Webpage, Accessed March 2023).
•The global market for Microfinance is estimated at $157 Billion in the year 2020, and is projected to reach $342 billion by 2026 according to the 2022 report titled “Microfinance - Global Market Trajectory & Analytics” published by Global Industry Analysts, Inc.
Trust Stamp’s biometric authentication, liveness detection, and information tokenization enable individuals to verify and establish their identities using data derived from biometrics. While individuals in this market lack traditional means of identity verification, Trust Stamp provides a means to authenticate identity that preserves an individual’s privacy and control over that identity.
Alternatives to Detention (“ATD”)
•The ATD market includes Federal, State, and Municipal agencies for both criminal justice and immigration purposes. Trust Stamp addresses the ATD market with applications built on Trust Stamp’s privacy-preserving solutions allowing individuals to comply with ATD requirements using ethical and humane technology methodologies. Trust Stamp has developed innovative patented technologies for use in the ATD market encompassing biometrics, geolocation, and tokenization as well as a proprietary, tamper-resistant, battery-free “Tap-In-Band” that can complement or replace biometric check-in requirements and provide a lower-cost and more humane alternative to traditional “ankle bracelet” technology.
In addition to its key sub-markets, the Company is developing products and working with partners and industry organizations in other sectors that offer significant market opportunities, in particular, the travel, healthcare, Metaverse platform and cryptographic key and account credential safekeeping sectors. For example, the Company has developed a “crypto key vault” solution that leverages proven facial biometric authentication and irreversible data transformation technology to protect private keys for digital assets while ensuring long-term data protection and access credential availability.
Principal Products and Services
Trust Stamp’s most important technology is the Irreversibly Transformed Identity TokenTM (also known as the IT2 TM, Evergreen HashTM, EgHashTM and MyHashTM) combined with a data architecture that can use one or multiple sources of biometric or other identifying data. Once a “hash translation” algorithm is created, like-modality hashes are comparable regardless of their origin. The IT2 protects against system and data redundancy, providing a lifelong “digital-DNA” that can store (or pivot to) any type of KYC or relationship data with fields individually hashed or (salted and) encrypted,
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facilitating selective data sharing. Products utilizing the IT2 are Trust Stamp’s primary products, accounting for the majority of its revenues during the year ended December 31, 2023.
We adhere to the best practices outlined in the National Institute of Standards and Technology (“NIST”) and International Organization for Standardization (“ISO”) frameworks, and our policies and procedures in managing personally identifiable information (“PII”) comply with General Data Protection Regulation (“GDPR”) requirements wherever such requirements are applicable.
IT2 Solutions
The IT2 replaces biometric templates and scans with meaningless numbers, letters, and symbols to remove sensitive data from the reach of criminals using a proprietary process by which a deep neural network irreversibly converts biometric and other identifying data, from any source, into the secure tokenized identity. This IT2 is unique to the user, is different every time it is generated from a live subject, and cannot be reverse-engineered and rebuilt into the user’s face or other original identity data.
Each token can be stored and compared to all other tokens from the same modality, allowing the Company’s AI-powered analytics to predict if a single subject has generated two or more tokens, even if the subject has passed conventional KYC with, e.g., falsified identity documents. Using this technology, an IT2 can be employed for re-authentication purposes, including account recovery, password-less login, new account creation, and more, across the organization or even within a consortium of organizations, all in a low-cost and low-friction delivery that is fast and secure.
Our technology is being used for enhanced due diligence, KYC/AML compliance, synthetic identity fraud reduction and “second chance” approval for customer onboarding and account access, together with the delivery of humanitarian and development services. The solution allows organizations to approve more users, keep bad actors from accessing systems and services, and retain existing users with a superior user experience.
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Our hashing and matching technology can maximize the effectiveness of all types of identity data while rendering it safer to use, store, and share. Whatever the source of identity data, it can be stored and compared as an IT2. See the chart below for examples.
Distribution
Through licensing we allow customers to utilize our technology in a wide variety of applications. Uses can include (e.g.):
•The provision of services and hashing to enterprises, NGOs, and government, to overlay on third-party biometric and identity data.
•Hash licensing, translation, and certification services for biometric vendors.
•Management of zero-knowledge-proof services, whether as a tributary between Identity Lakes or operating consortium lakes.
•Tokenized identity creation for large scale deployments, such as humanitarian and government identity programs.
Licensing Agreements
License agreements are typically a hosted offering, on-premise solution, or both pursuant to which the customer pays for the initial product development plus a license fee for the use of Trust Stamp’s technologies on a periodic and/or volume-based basis. In addition to consuming and paying for Trust Stamp’s services for their own use, some key customers also serve as channel partners by offering Trust Stamp products to their own customer base, whether as stand-alone products, or integrated into their own services as upgraded product offerings.
SaaS Agreements
Software-as-a-Service ("SaaS") agreements are typically serviced through the Company’s Orchestration Layer platform, which is being utilized in new global identity authentication system with Fidelity Information Services, LLC ("FIS"). The platform includes our proprietary tokenization technology and is designed to provide easy integration with and access to, Trust Stamp’s products, chargeable on a per-use basis. The Orchestration Layer facilitates no-code and low-code implementations, making adoption faster and even more cost-effective for a broader range of potential customers. It is expected to accelerate the Company’s evolution, from being exclusively a custom solutions provider, to also offering a modular and highly scalable SaaS model with low-code implementation.
Competition
We can potentially work with any identity data from any source, potentially breaking vendor and modality lock-in, but our primary market target is the biometric service industry, which is growing exponentially while being threatened by a consumer, media, and legislative backlash against storing biometric data. The IT2 can potentially be overlaid on any biometric or other identity data provider.
In general, we compete for customer budget with any company in the identity authentication industry. Major competitors in this space include companies such as NEXT Biometrics, IDEMIA, Synaptics, Cognitec, Innovatrics, Suprema, FaceTec, Rank One Computing, Acuant, Jumio, Onfido, Ping, and Mitek. However, we believe that, due to the uniqueness of our technology solution, the Company does not currently have any direct competitors for the core IT2 solutions upon which the growth in our business plan is focused.
The commercial advantage of our solution is our ability to work across providers and modalities and we continue to pursue a first-mover advantage including our global–scale partnership which is achieving a network effect in the global
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Humanitarian and Development market. We believe that this combination will make it unattractive for a potential competitor to replicate the six-years and multi-million dollars that we have already expended, to try and circumvent our multiple (and continuing) patent filings and/or offer a parallel product based upon a different technology.
We believe that given sufficient time and resources, we can augment any biometric modalities including face, hand, iris, voice, gait, and behavior, together with any other identifying data which places us in a unique position versus providers of biometric services.
We are unaware of any other provider being able to offer or support a proliferation of authentication modalities in this fashion, and therefore we believe there are no other companies that directly compete with us in this space. If our go-to-market strategy is successful, biometric service providers can be channel distributors, and not necessarily competitors.
Growth Strategy
Our strategy is to:
•Expand the scope and range of services that we provide to and through our existing clients.
•Continue to add significant new clients for our current and future services.
•Offer our services via channel partners with substantial distribution networks.
•Offer our technology on a “low code” basis, providing access via an orchestration layer and/or open-APIs to enable implementation by a broader range of clients.
•The addition of alternate authentication tools including non-facial-biometric options and non-biometric-knowledge and device-based tools facilitating two and multi-factor authentication.
•Offer our IT2 technology for use by other biometric and data services providers to protect and extend the usability of their data.
•Provide ready-to-use / customizable platforms that leverage our IT2 technology in specialized markets.
Human Capital
Given the geographic diversity of its team, and to facilitate cost-effective administration, Trust Stamp secures the services of its permanent team members through a variety of administrative structures that include wholly owned subsidiaries, professional employer organizations, and consulting contracts. As of December 31, 2023, the Company had 14 full-time and 1 part-time team member that works out of the United States, 26 full-time members and 1 part-time team member that work out of Malta, 10 full-time team members in Poland and Central Europe, 1 full-time and 4 part-time team members in the United Kingdom, 1 full-time team member in the Isle of Man, 14 full-time team members and 2 part-time team members working in the Philippines, 11 full-time team members working in Rwanda, 2 full-time team members in Denmark, and 1 full-time team member working remotely in India. Our permanent team is augmented as needed by contract development and other staff on both a long and short-term basis.
Outsourcing
We design and develop our own products. We use an outsourcing company, 10Clouds, for additional development staff as needed. 10Clouds is considered a related party. In addition, we also utilize SourceFit, a company in the Philippines, for PEO services, representing approximately 2% of our operating expenses during the year ended December 31, 2023. Amazon Web Services provides cloud hosting and processing services, representing approximately 3% of our operating expenses during the year ended December 31, 2023.
Key Customers
The Company’s initial business consisted of developing proprietary privacy-first identity solutions and then implementing them through custom applications built and maintained for a small number of key customers. In 2022, the Company added to its product offerings a modular and highly scalable SaaS model with low-code or no implementation (“the Orchestration Layer”). Although the Company remains open to significant opportunities to deliver custom solutions, sales of Orchestration Layer products are the primary focus of the Company’s sales and development initiatives. This strategic pivot in the Company’s go-to-market approach negatively impacted revenue in 2023 while we believe that it will substantially increase potential revenue in 2024 and thereafter.
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Historically, the Company generated most of its income through two long-term partnerships, comprising a relationship with an S&P 500 bank with services provided pursuant to a Master Software Agreement entered into in 2017, together with a relationship with Mastercard International (“Mastercard”) with services provided under the terms of a ten-year technology services agreement entered into in March 2019 (the "TSA”). Both of those relationships remain strong, and the Company anticipates future revenue growth from the two relationships.
Under the TSA, IT2 TM technology is being implemented by Mastercard for Humanitarian & Development purposes as a core element of its Community Pass and Inclusive Identity offerings. Use cases include not only financial services for individuals and businesses but also empowering people and communities to meet basic needs, such as nutritious food, clean water, housing, education, and healthcare. The Company is paid to develop and host software solutions utilizing the IT2 and to support Mastercard’s implementations. In addition, the Company is paid on a “per user per year” basis for all transactions utilizing its technology. In December of 2022, the Company entered into a modification of the agreed pricing schedule with Mastercard to move from a per-use to a per-user-year model to broaden the range of potential use cases. The TSA may be terminated by either party in the event of a material breach by the other party that remains uncured within thirty days after notice is received of such a breach. Either party may terminate the TSA if the other party becomes, including, but not limited to, insolvent, subject to bankruptcy, dissolved, or liquidated. Unless the TSA is terminated, the TSA will automatically renew for additional one year-periods in perpetuity unless either party provides ninety days written notice of intent not to renew. To date, the Company has received guaranteed minimum annual payments on account of usage. According to the October 2023 interview of Mastercard Executive Vice President and Founder of the Community Pass from the article titled “Mastercard’s Community Pass founder says digital ID platform improving lives, digital inclusion” published by Biometric Update. Mastercard’s Community Pass program currently serves approximately 3.5 million users and is targeting 30 million users by 2027. Based upon information provided to us by Mastercard we anticipate user-based revenue starting in 2024 and growing year-on-year thereafter.
In 2022, the Company expanded its key customer base to include a relationship with FIS, a relationship-focused upon the implementation of our Orchestration Layer and underlying technologies in FIS’ Global KYC product offering.
The Orchestration Layer is a low-code platform that is designed to be a one-stop shop for Trust Stamp services and provides easy integration to our products; chargeable on a per-use basis. The Orchestration Layer utilizes the Company’s next-generation identity package, offering rapid deployment across devices and platforms, with custom workflows that seamlessly orchestrate trust across the identity lifecycle for a consistent user experience in processes for onboarding and KYC/AML, multi-factor authentication, account recovery, fraud prevention, compliance, and more. The Orchestration Layer facilitates no-code and low-code implementations of the Company’s technology making adoption and updating faster and cost-effective for a broader range of potential customers.
In the third quarter of 2022, the Company acquired its first 2 new customers on the Orchestration Layer through its partnership with FIS, and in the fourth quarter of 2022, 4 additional FIS customers onboarded. As of December 31, 2023, a total of 40 financial institutions with over $327 billion in assets have been onboarded via FIS, bringing the total number of (FIS and non-FIS) customers either fully implemented or are currently implementing the Orchestration Layer to 43. The first (non-FIS) client onboarded to the Orchestration Layer in the third quarter of 2022 has generated $233 thousand of revenue for the Company to date including $182 thousand during the year ended December 31, 2023. Although each of the institutions onboarded via FIS pays a small onboarding fee, given the typical time taken by a financial institution to test, implement, and roll out any new technology, the Company does not anticipate significant revenue from the new FIS customers until 2024.
Reinforced by the product-market fit indicated by the FIS roll-out, the Company is building an internal direct sales force to offer the Orchestration Layer to non-FIS institutions. A key criterion for the account executives recruited is possessing significant experience and a successful track record in the identity solutions market. The Company anticipates significant banked revenue in 2024.
In Management's opinion, while the unanticipated loss of any one of our current customers, including our channel partnership with FIS, could have an adverse effect on the Company’s financial position, it would not prevent us from continuing our operations.
Regulation
Our business is not currently subject to any licensing requirements in any jurisdiction in which we operate, other than the requirement to hold a business license in the City of Atlanta (with which we are in compliance), and the requirement to
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hold a trading license in Rwanda (with which we are in compliance). Given the significant focus on the use of biometrics in many countries, we do anticipate additional regulation being introduced in one or more jurisdictions in which we operate, and such requirements could be burdensome and/or expensive or even impose requirements that we are unable to meet.
We are subject to substantial governmental regulation relating to our technology and will continue to be for the lifetime of our Company. By virtue of handling sensitive PII and biometric data, we are subject to numerous statutes related to data privacy, and additional legislation and given the current focus on the collection, storage, and use of biometrics, additional regulation should be anticipated in every jurisdiction in which we operate. Examples of American and European federal statutes we could be subject to are:
•Health Insurance Portability and Accountability Act (HIPAA)
•Health Information Technology for Economic and Clinical Health Act (HITECH)
•The General Data Protection Regulation 2016/679 (GDPR)
•ePrivacy Privacy Directive
•The California Privacy Rights Act (CPRA)
•The California Consumer Privacy Act (CCPA)
•Biometric Information Privacy Act (BIPA)
HIPAA and HITECH
Under the administrative simplification provisions of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act “HITECH”), the U.S. Department of Health and Human Services (“HHS”) issued regulations that establish uniform standards governing the conduct of certain electronic healthcare transactions and requirements for protecting the privacy and security of protected health information (“PHI”), used or disclosed by covered entities and business associates. Covered entities and business associates are subject to HIPAA and HITECH. Our subcontractors that create, receive, maintain, transmit, or otherwise process PHI on behalf of us are HIPAA “business associates” and must also comply with HIPAA as a business associate.
HIPAA and HITECH include privacy and security rules, breach notification requirements, and electronic transaction standards.
The privacy rules cover the use and disclosure of PHI by covered entities and business associates. The privacy rules generally prohibit the use or disclosure of PHI, except as permitted under certain limited circumstances. The privacy rules also set forth individual patient rights, such as the right to access or amend certain records containing his or her PHI, or to request restrictions on the use or disclosure of his or her PHI.
The security rules require covered entities and business associates to safeguard the confidentiality, integrity, and availability of electronically transmitted or stored PHI by implementing administrative, physical, and technical safeguards. Under HITECH’s Breach Notification Rule, a covered entity must notify individuals, the Secretary of the HHS, and in some circumstances, the media of breaches of unsecured PHI.
In addition, we may be subject to state health information privacy and data breach notification laws, which may govern the collection, use, disclosure, and protection of health-related and other personal information. State laws may be more stringent, broader in scope, or offer greater individual rights with respect to PHI than HIPAA, and state laws may differ from each other, which may complicate compliance efforts.
Entities that are found to be in violation of HIPAA as the result of a failure to secure PHI, a complaint about our privacy practices, or an audit by HHS, may be subject to significant civil and criminal fines and penalties and additional reporting and oversight obligations if such entities are required to enter into a resolution agreement and corrective action plan with HHS to settle allegations of HIPAA non-compliance.
GDPR
The European Union's General Data Protection Regulation ("GDPR") imposes onerous accountability obligations requiring data controllers and processors to maintain a record of their data processing and policies. It requires data controllers to implement more stringent operational requirements for processors and controllers of personal data, including, for example,
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transparent and expanded disclosure to data subjects (in a concise, intelligible, and easily accessible form) about how their personal information is being used, imposes limitations on retention of information, increases requirements pertaining to health data and pseudonymized (i.e., key-coded) data, introduces mandatory data breach notification requirements, and sets higher standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities. Fines for non-compliance with the GDPR will be significant—the greater of €20 million or 4% of global turnover. The GDPR provides that European Union member states may introduce further conditions, including limitations, to make their own further laws and regulations limiting the processing of genetic, biometric, or health data.
ePrivacy Directive
The ePrivacy directive sets out the rules relating to the processing of personal data across public communications networks. This directive requires businesses to ensure consent requests are made and that consent is received from the user before the use of cookies is made. Businesses must communicate the privacy rules with accurate and specific information regarding the data contained in the cookie. Information must be communicated before the consent requests are made, in plain language. Organizations must ensure that users are able to withdraw consent in the same simple manner as the initial consent request.
CPRA and CCPA
The California Privacy Rights Act ("CPRA") and the California Consumer Privacy Act ("CCPA") define and establish various rights that consumers residing in California have over the privacy of their data along with the responsibilities of businesses when collecting personal information. It requires businesses that control the collection of consumers’ personal information to inform them of the category, purpose, and duration the business intends to retain such information. It lists the consumers’ right to correct their data and have their data deleted. Customers may also exercise their right to limit the sale or sharing of their personal or sensitive personal information. Fines for non-compliance can range from $100 to $750 per consumer per incident. Additionally, in certain cases, the California Privacy Protection Agency may impose administrative fines ranging from $2,500 to $7,500 for each violation.
BIPA
The Biometric Information Privacy Act ("BIPA"), which was enacted in 2008, addresses the collection, use, and retention of biometric information by private entities. Under the law, a private entity must inform an individual, or their legally authorized individual, that the biometric information is being collected and stored, and the specific purpose and the length of time for the collection, storage, and use of the biometric information, before obtaining or possessing their biometric information for the purposes of capturing, storing or sharing it. In addition, prior to collecting any biometric information, the regulation required businesses to obtain a written release for the collection of the biometric information from the individual, or the individual’s legally authorized representative after notice has been given. BIPA provides statutory damages of up to $1,000 for each negligent violation, and up to $5,000 for each intentional or reckless violation.
Intellectual Property
Patents
A summary of the Company’s issued patents and pending patent applications on April 1, 2024 is provided in the table below.
| Matter No. | Application/ Patent No. | Filing/ Issue Date | Title | Priority Information | Status | ||||||||||||
32742-162494 | 63/652,521 | 03/07/2024 | LOSSLESS FUZZY EXTRACTORS | - | PENDING 03/24/2025 Non-Provisional Conversion Deadline | ||||||||||||
32742-160139 | 63/611,799 | 12/19/2023 | LOSSLESS FUZZY EXTRACTORS | - | PENDING 12/19/2024 Non-Provisional Conversion Deadline | ||||||||||||
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| Matter No. | Application/ Patent No. | Filing/ Issue Date | Title | Priority Information | Status | ||||||||||||
32742-161077 | 18/524,536 | 11/30/2023 | SYSTEMS AND PROCESSES FOR LOSSY BIOMETRIC REPRESENTATIONS | 16/841,269 | PENDING Awaiting Examination | ||||||||||||
32742-159767 | 63/581,409 | 09/08/2023 | MULTI-FACTOR AUTHENTICATION USING TAMPER-PROOF BAND AND BIOMETRIC DATA | - | PENDING 09/08/2024 Non-Provisional Conversion Deadline | ||||||||||||
32742-158589 | 63/520,388 | 08/18/2023 | SEMI-SUPERVISED OR UNSUPERVISED BIOMETRIC PERSON RECOGNITION | - | PENDING 08/18/2024: Non-Provisional Conversion Deadline | ||||||||||||
| 32742-154085 | 18/164,090 | 02/03/2023 | METAPRESENCE SYSTEMS AND PROCESSES FOR USING SAME | 63/306,210 63/327,821 | PENDING Awaiting Examination | ||||||||||||
| 32742-145300 | 18/145,470 | 12/22/2022 | SYSTEMS AND PROCESSES FOR MULTIFACTOR AUTHENTICATION AND IDENTIFICATION | 17/230,684 (Continuation-in-Part) | PENDING Awaiting Examination | ||||||||||||
| 32742-153794 | 18/063,372 | 12/08/2022 | SHAPE OVERLAY FOR PROOF OF LIVENESS | 63/287,276 | PENDING Awaiting Examination | ||||||||||||
| 32742-148653 | 17/725,978 | 04/21/2022 | INTEROPERABLE BIOMETRIC REPRESENATION | 63/177,494 | PENDING Awaiting Examination | ||||||||||||
| 32742-151107 | 17/849,196 | 06/24/2022 | SYSTEMS AND METHODS FOR PASSIVE-SUBJECT LIVENESS VERIFICATION IN DIGITAL MEDIA | 16/855,606 | PENDING Awaiting Examination | ||||||||||||
| 32742-149248 | 17/745,270 | 05/16/2022 | SECURE REPRESENTATIONS OF AUTHENTICITY AND PROCESSES FOR USING SAME | 63/188,491 | PENDING Awaiting Examination | ||||||||||||
| 32742-147982 | 17/719,975 | 04/13/2022 | PERSONALLY IDENTIFIABLE INFORMATION ENCODER | 63/174,405 | PENDING Awaiting Examination | ||||||||||||
| 32742-147631 | 17/706,132 | 03/28/2022 | SYSTEMS AND METHODS FOR LIVENESS-VERIFIED IDENTITY AUTHENTICATION | 16/403,093 | PENDING 04/15/2024 Response to Final Office Acton Due (extendible 2 months) | ||||||||||||
| 32742-145019 | 17/401,504 | 08/13/2021 | SYSTEMS AND METHODS FOR LIVENESS-VERIFIED, BIOMETRIC-BASED ENCRYPTION | 62/667,133 | PENDING 04/12/2024 Issue Fee Due | ||||||||||||
| 32742-142186 | 17/230,684 | 04/14/2021 | SYSTEMS AND PROCESSES FOR MULTIMODAL BIOMETRICS | 63/009,809 63/011,447 | ABANDONED | ||||||||||||
| 32742-141508 | 17/205,713 | 03/18/2021 | SYSTEMS AND PROCESSES FOR TRACKING HUMAN LOCATION AND TRAVEL VIA BIOMETRIC HASHING | 62/991,352 | ABANDONED | ||||||||||||
| 32742-142411 | 17/324,544 | 05/19/2021 | FACE COVER-COMPATIBLE BIOMETRICS AND PROCESSES FOR GENERATING AND USING SAME | 63/027,072 | ALLOWED 05/22/2024 Issue Fee Payment Due | ||||||||||||
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| Matter No. | Application/ Patent No. | Filing/ Issue Date | Title | Priority Information | Status | ||||||||||||
| 32742-149163 | 17/702,355 11,886,618 | 03/23/2022 01/30/2024 | SYSTEMS AND PROCESSES FOR LOSSY BIOMETRIC REPRESENTATIONS | 16/841,269 | ISSUED 06/30/2028: First Maintenance Fee Due | ||||||||||||
| 32742-145020 | 17/401,508 11,729,263 | 08/13/2021 08/15/2023 | SYSTEMS AND METHODS FOR IDENTITY VERIFICATION VIA THIRD PARTY ACCOUNTS | 62/486,210 | ISSUED 02/15/2027: First Maintenance Fee Due | ||||||||||||
| 32742-149165 | 17/702,366 11,741,263 | 03/23/2022 08/29/2023 | SYSTEMS AND PROCESSES FOR LOSSY BIOMETRIC REPRESENTATIONS | 16/841,269 | ISSUED 02/28/2027: First Maintenance Fee Due | ||||||||||||
| 32742-130397 | 16/406,978 11,496,315 | 05/08/2019 11/28/2022 | SYSTEMS AND METHODS FOR ENHANCED HASH TRANSFORMS | 62/668,610 | ISSUED 05/08/2026: First Maintenance Fee Due | ||||||||||||
| 32742-130398 | 16/403,093 11,288,530 | 05/03/2019 03/29/2022 | SYSTEMS AND METHODS FOR LIVENESS-VERIFIED IDENTITY AUTHENTICATION | 62/667,130 | ISSUED 09/29/2025: First Maintenance Fee Due | ||||||||||||
| 32742-118398 | 15/342,994 10,924,473 | 11/03/2016 02/16/2021 | TRUST STAMP | 62/253,538 | ISSUED 08/16/2024: First Maintenance Fee Due | ||||||||||||
| 32742-123473 | 15/955,270 11,095,631 | 04/17/2018 08/17/2021 | SYSTEMS AND METHODS FOR IDENTITY VERIFICATION VIA THIRD PARTY ACCOUNTS | 62/486,210 | ISSUED 02/17/2025: First Maintenance Fee Due | ||||||||||||
| 32742-136046 | 16/855,576 11,263,439 | 04/22/2020 03/01/2022 | SYSTEMS AND METHODS FOR PASSIVE-SUBJECT LIVENESS VERIFICATION IN DIGITAL MEDIA | 15/782,940 | ISSUED 09/01/2025 First Maintenance Fee Due | ||||||||||||
| 32742-136047 | 16/855,580 11,244,152 | 04/22/2020 02/08/2022 | SYSTEMS AND METHODS FOR PASSIVE-SUBJECT LIVENESS VERIFICATION IN DIGITAL MEDIA | 15/782,940 | ISSUED 08/08/2025 First Maintenance Fee Due | ||||||||||||
| 32742-136048 | 16/855,588 11,263,440 | 04/22/2020 03/01/2022 | SYSTEMS AND METHODS FOR PASSIVE-SUBJECT LIVENESS VERIFICATION IN DIGITAL MEDIA | 15/782,940 | ISSUED 09/01/2025: First Maintenance Fee Due | ||||||||||||
| 32742-136049 | 16/855,594 11,263,441 | 04/22/2020 03/01/2022 | SYSTEMS AND METHODS FOR PASSIVE-SUBJECT LIVENESS VERIFICATION IN DIGITAL MEDIA | 15/782,940 | ISSUED 09/01/2025: First Maintenance Fee Due | ||||||||||||
| 32742-136050 | 16/855,598 11,263,442 | 04/22/2020 03/01/2022 | SYSTEMS AND METHODS FOR PASSIVE-SUBJECT LIVENESS VERIFICATION IN DIGITAL MEDIA | 15/782,940 | ISSUED 09/01/2025: First Maintenance Fee Due | ||||||||||||
| 32742-136051 | 16/855,606 11,373,449 | 04/22/2020 06/28/2022 | SYSTEMS AND METHODS FOR PASSIVE-SUBJECT LIVENESS VERIFICATION IN DIGITAL MEDIA | 15/782,940 | ISSUED 12/28/2025 First Maintenance Fee Due | ||||||||||||
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| Matter No. | Application/ Patent No. | Filing/ Issue Date | Title | Priority Information | Status | ||||||||||||
| 32742-130399 | 16/403,106 11,093,771 | 05/03/2019 08/17/2021 | SYSTEMS AND METHODS FOR LIVENESS-VERIFIED, BIOMETRIC-BASED ENCRYPTION | 62/667,133 | ISSUED 02/17/2025: First Maintenance Fee Due | ||||||||||||
| 32742-135668 | 16/841,269 11,301,586 | 04/06/2020 04/12/2022 | SYSTEMS AND PROCESSES FOR LOSSY BIOMETRIC REPRESENTATIONS | 62/829,825 | ISSUED 10/12/2025 First Maintenance Fee Due | ||||||||||||
| 32742-118149 | 15/782,940 10,635,894 | 10/13/2017 04/28/2020 | SYSTEMS AND METHODS FOR PASSIVE-SUBJECT LIVENESS VERIFICATION IN DIGITAL MEDIA | 62/407,717 62/407,852 62/407,693 | ISSUED 10/28/2027: Second Maintenance Fee Due | ||||||||||||
| 32742-152907 | 17/966,355 11,681,787 | 10/14/2022 06/20/2023 | OWNERSHIP VALIDATION FOR CRYPTOGRAPHIC ASSET CONTRACTS USING IRREVERSIBLY TRANSFORMED IDENTITY TOKENS | 63/256,347 | ISSUED 12/20/2026: First Maintenance Fee Due | ||||||||||||
| 32742-139681 | 17/109,693 11,711,216 | 12/02/2020 07/25/2023 | SYSTEMS AND METHODS FOR PRIVACY-SECURED BIOMETRIC IDENTIFICATION AND VERIFICATION | 62/942,311 | ISSUED 01/25/2027: First Maintenance Fee Due | ||||||||||||
| 32742-149164 | 17/702,361 11,861,043 | 03/23/2022 01/02/2024 | SYSTEMS AND PROCESSES FOR LOSSY BIOMETRIC REPRESENTATIONS | 16/841,269 | ISSUED 07/02/2027 First Maintenance Fee Due | ||||||||||||
| 32742-153065 | 17/956,190 11,936,790 | 09/29/2022 03/19/2024 | SYSTEMS AND METHODS FOR ENHANCED HASH TRANSFORMS | 16/406,978 | ISSUED 09/20/2027: First Maintenance Fee Due | ||||||||||||
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Trademarks
The following is a summary of Trust Stamp’s issued and pending Trademarks as of April 1, 2024.
| Serial / Registration Number | Filing Date | Trademark | Country | Status | ||||||||||
98/379,747 N/A | 1/29/2024 | THE PRIVACY FIRST IDENTITY COMPANY | US | PENDING APPLICATION | ||||||||||
97/892,087 N/A | 04/17/2023 N/A | TRUSTED CHAT | US | PENDING APPLICATION Statement of Use or Request for Extension Due: 04/17/2024 | ||||||||||
97/894,011 N/A | 04/18/2023 N/A |  | US | PENDING Statement of use or Request for Extension Due: 04/17/2024 | ||||||||||
| 97/613,025 N/A | 06/29/2022 N/A | ALTERNATIVES TO DETENTION | US | PENDING APPLICATION Statement of use or Request for Extension Due: 04/17/2024 | ||||||||||
| 97/276,185 N/A | 02/21/2022 N/A | PRIVTECH | US | PENDING APPLICATION Statement of Use Due: 05/08/2024 | ||||||||||
| 97/276,205 N/A | 02/21/2022 N/A | PRIVTECH CERTIFIED | US | PENDING APPLICATION Statement of Use Due: 06/13/2024 | ||||||||||
| 97/276,214 N/A | 02/21/2022 N/A | THE PRIVACY-FIRST IDENTITY COMPANY | US | PENDING APPLICATION Statement of Use Due: 07/17/2024 | ||||||||||
| 87/411,586 5,329,048 | 04/14/2017 11/07/2017 | TRUST STAMP | US | REGISTERED Section 8 & 15 Renewal Filed: 10/24/2023 | ||||||||||
| 87/852,642 5,932,877 | 03/27/2018 12/10/2019 | TRUSTED MAIL | US | REGISTERED Section 8 & 15 Renewal Due: 12/10/2025 | ||||||||||
| 88/256,534 6,103,860 | 01/10/2019 07/14/2020 | IDENTITY LAKE | US | REGISTERED Section 8 & 15 Renewal Due: 07/14/2026 | ||||||||||
| 88/708,795 6,252,645 | 11/27/2019 01/19/2021 | MYHASH | US | REGISTERED Section 8&15 Renewal Due: 01/19/2027 | ||||||||||
| 88/709,274 6,252,649 | 11/27/2019 01/19/2021 | TRUSTED PRESENCE | US | REGISTERED Section 8&15 Renewal Due: 01/19/2027 | ||||||||||
| 90/041,950 6,494,610 | 07/08/2020 09/21/2021 | TRUSTED PAYMENTS | US | REGISTERED Section 8 & 15 Renewal Due: 09/21/2027 | ||||||||||
| 88/674,108 6,775,329 | 10/30/2019 06/28/2022 | TRUSTCARD | US | REGISTERED Section 8 & 15 Renewal Due: 06/28/2028 | ||||||||||
| 97/101,273 6,965,728 | 10/31/2021 01/24/2023 | METAPRESENCE | US | REGISTERED Renewal Due: 01/24/2029 | ||||||||||
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Subsidiaries and Affiliates
Given the geographic diversity of our team and to facilitate cost-effective administration, Trust Stamp conducts various aspects of its operations through subsidiaries. All subsidiaries share resources across the entire Trust Stamp organization. The officers and directors of Trust Stamp have influence over the operations of all subsidiaries and employees across jurisdictions. Only one of our subsidiaries, Biometric Innovations Limited, has its own management team.
T Stamp Inc. Corporate Structure Chart
Operational Subsidiaries
Tstamp Incentive Holdings. On April 9, 2019, management created a new entity, Tstamp Incentive Holdings (“TSIH”) to which the Company issued 320,513 shares of Class A Common Stock that the Board of Directors of TSIH could use for employee stock awards in the future. The purpose of the entity was to provide an analogous structure to a traditional stock incentive plan. As of December 31, 2023, 54,734 shares of Class A Common Stock are still held by TSIH – however, all of these shares of Class A Common Stock have been allocated for issuance pursuant to employee Restricted Stock Units that vested on January 2, 2024. As of the date of this report, no shares of Class A Common Stock are held by TSIH as all shares have been issued pursuant to employee Restricted Stock Units. The Company has no plans to issue additional equity securities to TSIH and as such, it is expected this entity will become dormant going forward.
Biometric Innovations Limited (formerly “Trust Stamp Fintech Limited”). Biometric Innovations Limited is our Company’s United Kingdom ("UK") operating subsidiary. It was established to act as the contracting entity for development contractors in the UK, and it has its own board and management team. The purpose of this entity was to establish beachhead operations in the country to service a contract entered by the Company with the National Association of Realtors and Property Mark. This entity serves as a sales and marketing function for the product “NAEA” which was developed for the contract between the listed parties. On June 11, 2020, the Company entered into a stock exchange transaction with Biometric Innovations Limited, becoming a 100% owner of the entity. The stock exchange transaction was not pursuant to any formal written agreement.
Trust Stamp Malta Limited. Trust Stamp Malta Limited is a wholly owned subsidiary of T Stamp Inc. It operates an R&D Campus in the Republic of Malta, for which it has entered into a lease with a local commercial landlord in Malta, Vassallo Group Realty Ltd. The goal of Trust Stamp Malta Limited is to advance our biometric authentication technology. As part of the creation of this entity, we entered into an agreement with the government of Republic of Malta for a repayable advance of up to €800,000 to cover 75% of the first 24 months of payroll costs for any employee who begins 36 months from the execution of the agreement on July 8, 2020.
Trust Stamp Rwanda Limited. The Company opened an office in Rwanda, Africa in April 2021. The Company has established an R&D center in Rwanda together with a back-office facility for the purpose of our expansion into Africa.
Metapresence Limited. Trust Stamp established Metapresence Limited on November 23, 2021 as a wholly owned crypto-asset subsidiary in the Isle of Man. Metapresence Limited participates in The Digital Isle of Man Accelerator Program, which provides access to a range of government services including regulatory acceleration support and guided access into
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the regulatory sandbox, where flexible licensing conditions enable digital asset businesses to explore opportunities and adapt as the technology evolves. Metapresence Limited is intended to market the group’s Metaverse related products for use cases outside the European Union. As of the date of this report, the entity has no operations.
Trust Stamp Denmark ApS. Trust Stamp established Trust Stamp Denmark ApS on June 6, 2021 as a wholly owned subsidiary in Copenhagen, Denmark. Trust Stamp Denmark ApS focuses on developing and marketing GDPR compliant products in Denmark and throughout the European Union from a strategic Danish base that can passport authorized products throughout the European Union. In furtherance of that goal, Trust Stamp Denmark ApS has obtained D-Seal Certification and is working with a prominent Danish law firm to publish opinions on the status of Trust Stamp’s products under GDPR.
Trust Stamp Nigeria Limited — Trust Stamp established Trust Stamp Nigeria Limited on January 31, 2024 as a wholly-owned subsidiary in Lagos, Nigeria. The establishment of the entity is aimed at exploring business opportunities and conducting operations in Nigeria.
Quantum Foundation — Trust Stamp Malta Limited established Quantum Foundation on October 13, 2022 as a wholly-owned subsidiary in the Republic of Malta. The establishment of the entity is to support the development of early-stage leading edge technology companies in the Republic of Malta. Quantum Foundation collaborated with Malta Enterprise and Plug and Play Switzerland to establish a Malta Acceleration Program to foster the start-up community in the country. The Program's intention is to drive innovation in the Republic of Malta, and ensure that everyone is able to enjoy the benefits of the latest technologies.
Non-Operational Subsidiaries
AIID Payments Limited. The Company established AIID Payments Limited to provide payments services to NGO’s and other non-profit and social-welfare entities and activities. As of the date of this report, the entity has no operations, and is essentially dormant.
T Avatar LLC. Trust Stamp established T Avatar LLC to provide anonymized age-verification tools for minors participating in online activities. The Company has completed the process of administratively dissolving T Avatar LLC and the dissolution was effective February 28, 2023.
Finnovation LLC. The Company established Finnovation LLC to provide an innovative FinTech, Blockchain and Digital Identity innovation incubator. As of the date of this report, this entity has no operations, and is essentially dormant.
T Stamp LLC. As described above, the Company was originally founded as “T Stamp LLC”, formed on November 9, 2015 as a Georgia limited liability company. In 2016, the Company effected a “hive down” business reorganization whereby the business of the Company was transferred into to a newly formed, wholly owned subsidiary, which was T Stamp Inc. (i.e. the Company). As of the date of this report, the Company is no longer a subsidiary of T Stamp LLC, and T Stamp LLC is no longer a majority owner of the Company. On January 6, 2022 all shares held by T Stamp LLC were distributed to its members on a pro rata basis according to their respective membership interests. On September 19, 2023, the Company received the Certificate of Termination from the state of Georgia, which represents the completion of dissolving T Stamp LLC.
Sunflower Artificial Intelligence Technologies. Based out of Poland, Trust Stamp established Sunflower Artificial Intelligence Technologies as the contracting entity for development contractors in Poland and Central Europe As of the date of this report, the contractors have entered into direct contracts with T Stamp Inc. On May 10, 2023, the Company received the Termination Resolution from the Polish Department of the National Court Register, which represents the completion of dissolving Sunflower Artificial Intelligence Technologies.
Trusted Mail Inc. The Company established Trusted Mail Inc. for development of an encrypted e-mail product (Trusted Mail ®) using our Company’s facial recognition technology. Trusted Mail technology is held by Trusted Mail, Inc., which is a majority-owned subsidiary of Trust Stamp Inc.. The remainder of Trust Mail Inc. is owned by FSH Capital, LLC and Second Century Ventures, which are related parties of the Company. As of the date of this report, this entity has no operations, and is essentially dormant.
TSI GovTech Corporation. Trust Stamp established TSI GovTech Corporation to contract for data management and server operations in Canada. This entity has had no operations since its inception.
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Global Server Management Inc. The Company established Global Server Management Inc. to contract for data management and server operations in Canada. This entity has had no operations since its inception.
Available Information
Our website is www.truststamp.ai. As soon as reasonably practicable after such material is electronically filed or furnished to the Securities and Exchange Commission ("SEC"), our annual reports, quarterly reports, and current reports on form 8-K and all amendments to those reports are available on this website, free of charge.
Alternatively, you may access these reports at the SEC’s website at www.sec.gov.
Item 1A. Risk Factors
The SEC requires the Company to identify risks that are specific to its business and its financial condition. The Company is still subject to all the same risks as companies in its business, and all companies in the economy. These include risks relating to economic downturns, political and economic events, and technological developments (such as cyber-attacks and the ability to prevent such attacks). Additionally, early-stage companies are inherently riskier than more developed companies, and the risk of business failure and complete loss of your investment capital is present. You should consider general risks as well as specific risks when deciding whether to invest.
Below is a summary of material risks, uncertainties and other factors that could have a material effect on the Company and its operations:
•We are a comparatively early-stage company that has incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.
•Our technology continues to be developed, and there is no guarantee that we will ever successfully develop the technology that is essential to our business to a point at which no further development is needed.
•We may be subject to numerous data protection requirements and regulations.
•We operate in a highly competitive industry that is dominated by a number of exceptionally large, well-capitalized market leaders and the size and resources of some of our competitors may allow them to compete more effectively than we can.
•We rely on third parties to provide services essential to the success of our business.
•We currently have three customers that account for substantially all of our revenues.
•We expect to raise additional capital through equity and/or debt offerings to support our working capital requirements and operating losses.
•Our auditor has included an “Emphasis of Matter Regarding Liquidity” note in its report on our consolidated financial statements for the year ended December 31, 2023. Our consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.
•As the vast majority of our revenue is US Dollar denominated and a significant percentage of our expenses are incurred in other currencies, we are subject to risks relating to foreign currency fluctuations.
Risks Related to Our Company
We have a limited operating history upon which you can evaluate our performance and have not yet generated profits. Accordingly, our prospects must be considered in light of the risks that any new company encounters. Our Company was incorporated under the laws of the State of Delaware on April 11, 2016, and we have not yet generated profits. The likelihood of our creation of a viable business must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with the growth of a business, operation in a competitive industry, and the continued development of our technology and products. We anticipate that our operating expenses will increase for the near future, and there is no assurance that we will be profitable in the near future. You should consider our business, operations, and prospects in light of the risks, expenses and challenges faced as an emerging growth company.
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We have historically operated at a loss, which has resulted in an accumulated deficit. For the fiscal year ended December 31, 2023, we incurred a net loss of $7.64 million, compared to a net loss of $12.09 million for the fiscal year ended December 31, 2022. There can be no assurance that we will ever achieve profitability. Even if we do, there can be no assurance that we will be able to maintain or increase profitability on a quarterly or annual basis. Failure to do so would continue to have a material adverse effect on our accumulated deficit, would affect our cash flows, would affect our efforts to raise capital and is likely to result in a decline in our Class A Common Stock price.
Our consolidated financial statements for the fiscal years ended December 31, 2023 and 2022 have been prepared on a going concern basis. We have not yet generated profits and have an accumulated deficit of $50.85 million as of December 31, 2023. We may not have enough funds to sustain the business until it becomes profitable. Even if we raise additional funding through future financing efforts, we may not accurately anticipate how quickly we may use such funds and whether such funds would be sufficient to bring the business to profitability. The Company’s ability to continue as a going concern in the next twelve months following the date of the consolidated financial statements is dependent upon its ability to produce revenues and/or obtain financing sufficient to meet current and future obligations and deploy such to produce profitable operating results.
Our cash could be adversely affected if the financial institutions in which we hold our cash fail. The Company maintains domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks. The domestic bank deposit balances may exceed the FDIC insurance limits. In addition, given the foreign markets we serve, we maintain cash deposits in foreign banks, some of which are not insured or partially insured by the FDIC or other similar agency. These balances could be impacted if one or more of the financial institutions in which we deposit monies fails or is subject to other adverse conditions in the financial or credit markets.
Our technology continues to be developed, and it is unlikely that we will ever develop our technology to a point at which no further development is required. Trust Stamp is developing complex technology that requires significant technical and regulatory expertise to develop, commercialize and update to meet evolving market and regulatory requirements. While we constantly monitor and adapt our products and technology as criminal methods of breaching cybersecurity advance, there is no guarantee we will consistently be able to develop technology that can effectively counteract such criminal efforts. If we are unable to successfully develop and commercialize our technology and products, it will significantly affect our viability as a company.
If our security measures are breached or unauthorized access to individually identifiable biometric or other personally identifiable information is otherwise obtained, our reputation may be harmed, and we may incur significant liabilities. In the ordinary course of our business, we may collect and store sensitive data, including protected health information (“PHI”), personally identifiable information (“PII”), owned or controlled by ourselves or our customers, and other parties. We communicate sensitive data, including patient data, electronically, and through relationships with multiple third-party vendors and their subcontractors. These applications and data encompass a wide variety of business-critical information, including research and development information, patient data, commercial information, and business and financial information. We face a number of risks relative to protecting this critical information, including loss of access risk, inappropriate use or disclosure, inappropriate modification, and the risk of our being unable to adequately monitor, audit, and modify our controls over our critical information. This risk extends to the third-party vendors and subcontractors we use to manage this sensitive data. As a custodian of this data, Trust Stamp therefore inherits responsibilities related to this data, exposing itself to potential threats. Data breaches occur at all levels of corporate sophistication (including at companies with significantly greater resources and security measures than our own) and the resulting fallout stemming from these breaches can be costly, time-consuming, and damaging to a company’s reputation. Further, data breaches need not occur from malicious attack or phishing only. Often, employee carelessness can result in sharing PII with a much wider audience than intended. Consequences of such data breaches could result in fines, litigation expenses, costs of implementing better systems, and the damage of negative publicity, all of which could have a material adverse effect on our business operations and financial condition.
We are subject to substantial governmental regulation relating to our technology and will continue to be for the lifetime of our Company. By virtue of handling sensitive PII and biometric data, we are subject to numerous statutes related to data privacy and additional legislation and regulation should be anticipated in every jurisdiction in which we operate. Examples of federal (US) and European statutes we could be subject to are:
•Health Insurance Portability and Accountability Act (HIPAA)
•Health Information Technology for Economic and Clinical Health Act (HITECH)
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Any such access, breach, or other loss of information could result in legal claims or proceedings, liability under federal or state laws that protect the privacy of personal information under HIPAA and/or “HITECH”. Notice of breaches must be made to affected individuals, the Secretary of the Department of Health and Human Services (“HHS”), and for extensive breaches, notice may need to be made to the media or state attorneys general. Penalties for violations of these laws vary. For instance, penalties for failure to comply with a requirement of HIPAA and HITECH vary significantly, and include significant civil monetary penalties and, in certain circumstances, criminal penalties with fines up to $250,000 per violation and/or imprisonment. A person who knowingly obtains or discloses individually identifiable health information in violation of HIPAA may face a criminal penalty of up to $50,000 and up to one-year imprisonment. The criminal penalties increase if the wrongful conduct involves false pretenses or the intent to sell, transfer or use identifiable health information for commercial advantage, personal gain, or malicious harm.
Further, various states, such as California, have implemented similar privacy laws and regulations, such as the California Confidentiality of Medical Information Act, that impose restrictive requirements regulating the use and disclosure of health information and other personally identifiable information. Where state laws are more protective, we have to comply with the stricter provisions. In addition to fines and penalties imposed upon violators, some of these state laws also afford private rights of action to individuals who believe their personal information has been misused. California’s patient privacy laws, for example, provide for penalties of up to $250,000 and permit injured parties to sue for damages. The interplay of federal and state laws may be subject to varying interpretations by courts and government agencies, creating complex compliance issues for us and data we receive, use and share, potentially exposing us to additional expense, adverse publicity, and liability. Further, as regulatory focus on privacy issues continues to increase and laws and regulations concerning the protection of personal information expand and become more complex, these potential risks to our business could intensify. Changes in laws or regulations associated with the enhanced protection of certain types of sensitive data, such as PII or PHI, along with increased customer demands for enhanced data security infrastructure, could greatly increase our cost of providing our services, decrease demand for our services, reduce our revenues and/or subject us to additional liabilities.
Compliance with U.S. and international data protection laws and regulations could cause us to incur substantial costs or require us to change our business practices and compliance procedures in a manner adverse to our business. Moreover, complying with these various laws could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. We rely on our customers to obtain valid and appropriate consents from data subjects whose biometric samples and data we process on such customers’ behalf. Given that we do not obtain direct consent from such data subjects and we do not audit our customers to ensure that they have obtained the necessary consents required by law, the failure of our customers to obtain consents that are in compliance with applicable law could result in our own non-compliance with privacy laws. Such failure to comply with U.S. and international data protection laws and regulations could result in government enforcement actions (which could include civil or criminal penalties), private litigation and/or adverse publicity and could negatively affect our operating results and business. Claims that we have violated individuals’ privacy rights, failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time consuming to defend, could result in adverse publicity and could have a material adverse effect on our business, financial condition and results of operations.
We anticipate sustaining operating losses for the foreseeable future. It is anticipated that we will sustain operating losses into 2024 as we continue with research and development, and strive to gain new customers for our technology and market share in our industry. Our ability to become profitable depends on our ability to expand our customer base, consisting of companies willing to license our technology. There can be no assurance that this will occur. Unanticipated problems and expenses are often encountered in offering new products which may impact whether the Company is successful. Furthermore, we may encounter substantial delays and unexpected expenses related to development, technological changes, marketing, regulatory requirements and changes to such requirements or other unforeseen difficulties. There can be no assurance that we will ever become profitable. If the Company sustains losses over an extended period of time, it may be unable to continue in business.
If our products do not achieve broad acceptance both domestically and internationally, we will not be able to achieve our anticipated level of growth. Our revenues are derived from licensing our identity authentication solutions. We cannot accurately predict the future growth rate or the size of the market for our technology. The expansion of the market for our solutions depends on a number of factors, such as
•the cost, performance and reliability of our solutions and the products and services offered by our competitors;
•customers’ perceptions regarding the benefits of biometrics and other authentication solutions;
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•public perceptions regarding the intrusiveness of these solutions and the manner in which organizations use biometric and other identity information collected;
•public perceptions regarding the confidentiality of private information;
•proposed or enacted legislation related to privacy of information
•customers’ satisfaction with biometrics solutions; and
•marketing efforts and publicity regarding biometrics solutions.
Even if our technology gains wide market acceptance, our solutions may not adequately address market requirements and may not continue to gain market acceptance. If authentication solutions generally or our solutions specifically do not gain wide market acceptance, we may not be able to achieve our anticipated level of growth and our revenues and results of operations would suffer.
We operate in a highly competitive industry that is dominated by multiple very large, well-capitalized market leaders and is constantly evolving. New entrants to the market, existing competitor actions, or other changes in market dynamics could adversely impact us. The level of competition in the identity authentication industry is high, with multiple exceptionally large, well-capitalized competitors holding a majority share of the market. Currently, we are not aware of any direct competitors of the Company able to offer our main technological offering. Nonetheless, many of the companies in the identity authentication market have longer operating histories, larger customer bases, significantly greater financial, technological, sales, marketing, and other resources than we do. At any point, these companies may decide to devote their resources to creating a competing technology solution which will impact our ability to maintain or gain market share in this industry. Further, such companies will be able to respond more quickly than we can to new or changing opportunities, technologies, standards, or client requirements, more quickly develop new products or devote greater resources to the promotion and sale of their products and services than we can. Likewise, their greater capabilities in these areas may enable them to better withstand periodic downturns in the identity management solutions industry and compete more effectively on the basis of price and production. In addition, new companies may enter the markets in which we compete, further increasing competition in the identity management solutions industry.
We believe that our ability to compete successfully depends on a number of factors, including the type and quality of our products and the strength of our brand names, as well as many factors beyond our control. We may not be able to compete successfully against current or future competitors, and increased competition may result in price reductions, reduced profit margins, loss of market share and an inability to generate cash flows that are sufficient to maintain or expand the development and marketing of new products, any of which would adversely impact our results of operations and financial condition.
We face competition from companies with greater financial, technical, sales, marketing, and other resources, and, if we are unable to compete effectively with these competitors, our market share may decline, and our business could be harmed. We face competition from well established companies. Many of our competitors have longer operating histories, larger customer bases, significantly greater financial, technological, sales, marketing, and other resources than we do. As a result, our competitors may be able to respond more quickly than we can to new or changing opportunities, technologies, standards, or client requirements, more quickly develop new products or devote greater resources to the promotion and sale of their products and services than we can. Likewise, their greater capabilities in these areas may enable them to better withstand periodic downturns in the identity management solutions industry and compete more effectively on the basis of price and production. In addition, new companies may enter the markets in which we compete, further increasing competition in the identity management solutions industry.
We believe that our ability to compete successfully depends on a number of factors, including the type and quality of our products and the strength of our brand names, as well as many factors beyond our control. We may not be able to compete successfully against current or future competitors, and increased competition may result in price reductions, reduced profit margins, loss of market share and an inability to generate cash flows that are sufficient to maintain or expand the development and marketing of new products, any of which would adversely impact our results of operations and financial condition.
The Company may be unable to effectively protect its intellectual property. The Company has many issued patents related to its products and technology, and many pending patent applications as of the date of this report. There is no guarantee that the Company will ever be issued patents on the applications it has submitted. In addition, in order to control costs, we have filed patent applications only in the United States. This may result in our having limited or no protection in other
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jurisdictions. Our success depends to a significant degree upon the protection of our products and technology. If we are unable to secure patents for our products and technology, or are otherwise unsuccessful at protecting our technology, other companies with greater resources may copy our technology and/or products, or improve upon them, putting us at a disadvantage to our competitors.
Successful infringement claims against us could result in significant monetary liability or prevent us from selling some of our products. We believe our products and technology may be highly disruptive to a very large and growing market. Our competitors are well capitalized with significant intellectual property protection and resources and they (and/or patent trolls) may initiate infringement lawsuits against our Company. Such litigation could be expensive and could also prevent us from selling our products, which would significantly harm our ability to grow our business as planned.
Our failure to attract and retain highly qualified personnel in the future could harm our business. As the Company grows, it will be required to hire and attract additional qualified professionals, additional staff for research and development, regulatory professionals, sales and marketing professionals, accounting, legal, and finance experts. The Company may not be able to locate or attract qualified individuals for such positions, which will affect the Company’s ability to grow and expand its business.
We rely on third party service providers. Our third-party partners provide a variety of essential business functions, including hosting, contract labor, and others. It is possible that some of these third parties will fail to perform their services or will perform them in an unacceptable manner. If we encounter problems with one or more of these parties and they fail to perform to expectations, it could have a material adverse impact on the Company.
We currently have three customers that account for substantially all of our current revenues. During the Company’s technology stack development, we have focused on strong relationships with a number of significant partners and customers to guide the customer and product discovery process. As such, our historical financial results identify that for a number of years we generated substantially all of our revenue from those three customers.
In the opinion of our management, we would be able to continue operations without our current customers. However, the unanticipated loss of the Company’s current customers could have an adverse effect on the company’s financial position.
We face risks related to distributing our products and services through channel partnerships, such as our partnership with FIS. When selling our products and services through indirect sales channels, such as through FIS, we are reliant on the efforts of those channel partners to successfully market and sell our products to end-customers. To the extent that FIS is unsuccessful at selling our products and services, our results of operations may suffer. Further, as of the date of this report, our only channel partnership is with FIS, which may increase the risk of harm to our Company if FIS is unsuccessful in selling our products and services. While we may seek to attract and retain additional indirect channel partners that will be able to market our products effectively and provide timely and cost-effective customer support and services, we may not succeed in doing so, and this could limit our ability to grow revenues and achieve profitability. Selling through channel partnerships is also a relatively new endeavor for us. Historically, we have generated a majority of sales through direct sales. Managing indirect sales channels may require more management attention than managing our direct sales force. If the indirect sales channels grow, management attention may be diverted, impairing our ability to execute other parts of our strategy.
We face risks related to our target customers. The majority of the customers that we are targeting are large organizations with complex and expansive operations. These kinds of companies often have long and often unpredictable enterprise sales cycles, which can result in significant time and effort to close a deal with those companies (and there is no guarantee that a deal will occur). This can make sales forecasting difficult for our Company, which can lead to operational challenges. For example, we often need to hire staff ahead of closing on a new client contract to be ready to perform if and when the contract closes. If we are unable to effectively forecast sales, we may incur unnecessary or avoidable expenses, or exhaust our cash reserves, which could have a material negative impact on our Company’s financial condition and results of operations.
Our future success is dependent on the continued service of our small management team. Seven directors and four executive officers provide leadership to Trust Stamp. Three of the directors are also executive officers. Our success is dependent on their ability to manage all aspects of our business effectively. Because we are relying on our small management team, we lack certain business development resources that may hurt our ability to grow our business. Any loss of key members of our executive team could have a negative impact on our ability to manage and grow our business
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effectively. We do not maintain a key person life insurance policy on any of the members of our senior management team. As a result, we would have no way to cover the financial loss if we were to lose the services of our directors or officers.
We expect to raise additional capital through equity and/or debt offerings to support our working capital requirements and operating losses. In order to fund future growth and development, the Company will likely need to raise additional funds in the future by offering shares of its Common or Preferred Stock and/or other classes of equity, or debt that convert into shares of common or Preferred Stock, any of which offerings would dilute the ownership percentage of investors in this offering. In order to issue sufficient shares in this regard, we may be required to amend our certificate of incorporation to increase our authorized capital stock, which would require us to obtain consent of a majority of our shareholders. Furthermore, if the Company raises capital through debt, the holders of our debt would have priority over holders of common and Preferred Stock and the Company may be required to accept terms that restrict its ability to incur more debt. We cannot assure you that the necessary funds will be available on a timely basis, on favorable terms, or at all, or that such funds if raised, would be sufficient. The level and timing of future expenditure will depend on a number of factors, many of which are outside our control. If we are not able to obtain additional capital on acceptable terms, or at all, we may be forced to curtail or abandon our growth plans, which could adversely impact the Company, its business, development, financial condition, operating results, or prospects.
We are subject to risks related to foreign currency exchange rates. We operate on a global basis. We have operations (through our subsidiaries and/or directly) in many foreign countries and territories, including, but not limited to, United Kingdom, Poland, Rwanda, Denmark, and the Republic of Malta. The translation from any currencies to United States Dollars for financial statement presentation resulted in a foreign currency loss of $0 for the year ended December 31, 2023, and $105 thousand loss for the year ended December 31, 2022. As of June 30, 2022, the Company determined that there was currently no intention to settle intercompany accounts in the foreseeable future; therefore, beginning in June 30, 2022, future fluctuations in foreign currencies between the Company and its subsidiaries are recorded to Accumulated other comprehensive income on the balance sheet instead of Other expense. The translation from any currencies to United States Dollars for financial statement presentation resulted in Accumulated other comprehensive income of $140 thousand as of December 31, 2023, and $237 thousand as of December 31, 2022. Foreign currency translation losses, coupled with varying inflation rates across the countries we operate in, could have a material adverse effect on our business.
We are an emerging growth company, and the reduced reporting requirements applicable to emerging growth companies could make our Class A Common Stock less attractive to investors. We are an emerging growth company, as defined in the Jumpstart Our Business Startups (JOBS) Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding non-binding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved, and an exemption from compliance with the requirement of the PCAOB regarding the communication of critical audit matters in the auditor’s report on the consolidated financial statements. We could be an emerging growth company for up to five years following the year in which we completed our IPO, although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of the closing of our IPO, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which requires the market value of our common stock that are held by non-affiliates to exceed $700.00 million as of the prior June 30th, and (2) the date on which we have issued more than $1.00 billion in non-convertible debt during the prior three-year period.
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We cannot predict if investors will find our Class A Common Stock less attractive because we may rely on the reporting exemptions and the extended transition period for complying with new or revised accounting standards. If some investors
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find our Class A Common Stock less attractive as a result, there may be a less active trading market for our Class A Common Stock and our share price may be more volatile.
Our internal controls over financial reporting and our disclosure controls and procedures may not prevent all possible errors that could occur. Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Failure on our part to have effective internal financial and accounting controls would cause our financial reporting to be unreliable, could have a material adverse effect on our business, operating results, and financial condition, and could cause the trading price of our common stock to fall dramatically.
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be satisfied. Internal control over financial reporting and disclosure controls and procedures are designed to give a reasonable assurance that they are effective to achieve their objectives. We cannot provide absolute assurance that all of our possible future control issues will be detected. These inherent limitations include the possibility that judgments in our decision making can be faulty, and that isolated breakdowns can occur because of simple human error or mistake. The design of our system of controls is based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed absolutely in achieving our stated goals under all potential future or unforeseeable conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error could occur and not be detected. This and any future failures could cause investors to lose confidence in our reported financial information, which could have a negative impact on our financial condition and stock price.
In future periods, if the process required by Section 404 of the Sarbanes-Oxley Act reveals any material weaknesses or significant deficiencies, the correction of any such material weaknesses or significant deficiencies could require remedial measures which could be costly and time-consuming. In addition, in such a case, we may be unable to produce accurate financial statements on a timely basis. Any associated accounting restatement could create a significant strain on our internal resources and cause delays in our release of quarterly or annual financial results and the filing of related reports, increase our costs and cause management distraction. Any of the foregoing could cause investors to lose confidence in the reliability of our financial statements, which could cause the market price of our common stock to decline and make it more difficult for us to finance our operations and growth.
Management identified certain material weaknesses relating to corporate finance and accounting, resulting in the Company not maintaining effective internal controls over financial reporting as of the year ended December 31, 2022. Management identified certain material weaknesses relating to corporate finance and accounting, resulting in the Company not maintaining effective internal controls over financial reporting as of the year ended December 31, 2022. As a result, the Company has not maintained effective internal controls over financial reporting as required for a public company. The resulting material weaknesses relate to insufficient management review and approval of each journal entry prior to its posting for preparation of the financial statements and disclosures. Additionally, it was concluded that we had inadequate controls over the management information systems related to program changes, segregation of duties, and access controls. As a result, it would be possible that the Company’s business process controls that depend on the accuracy and completeness of data or financial reports generated by these information technology systems could be adversely affected due to the lack of operating effectiveness of information technology controls. The failure to establish effective internal controls could result in improperly accounting for transactions accurately, reliability in compiling financial information, and could significantly impair our ability to prevent error and detect fraud. Based on our evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2023.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Risk Management and Strategy
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We review cybersecurity risk as part of our overall enterprise risk management program. This ensures that cybersecurity risk management remains a top priority in our business strategy and operations.
Our risk management strategy includes, among other elements:
•Identification: We aim to proactively identify sources of risk, areas of impact, and relevant events that could give rise to cybersecurity risks, such as changes to our infrastructure, service providers, or personnel.
•Assessment: We conduct periodic risk assessments to identify cybersecurity threats. We also conduct likelihood and impact assessments with the goal of identifying reasonably foreseeable internal and external risks, the likelihood and potential damage that could result from such risks, and the sufficiency of existing policies, procedures, systems, and safeguards in place to manage such risks.
•Management: Following our risk assessments, we design and implement reasonable safeguards to address any identified gaps in our existing processes and procedures.
We engage third parties, including consultants and auditors, to evaluate the effectiveness of our risk management program, control environment, and cybersecurity practices through security audits, penetration testing, and other engagements.
The Company's cybersecurity policies and procedures are fully integrated into its broader risk management framework, reflecting a holistic approach to cybersecurity risk management. Regular cybersecurity risk assessments are conducted to identify potential threats and vulnerabilities, with detailed mitigation strategies developed and implemented accordingly.
Trust Stamp has adopted an Information Security Incident Response Plan that establishes policy and protocol to follow in response to an information security incident or event impacting Trust Stamp. This policy applies to all Trust Stamp employees holding management responsibilities. Incidents are reported by users via various methods including verbally, email, or other methods. The Development Operations team via the Chief Technology Officer or Executive Vice President is the main point of contact for technical support issues. It is to be expected that potential security incidents will be raised through this channel.
The Company engages third-party cybersecurity assessments to ensure an objective evaluation of its cybersecurity stance, including the effectiveness of its risk management strategies. Oversight of cybersecurity risks posed by third-party service providers is systematically managed, ensuring that all external risks are identified and mitigated.
The Company did not have any material cybersecurity breaches during the year ended December 31, 2023.
Board of Director Governance
The Board of Directors (the "Board") includes members with substantial cybersecurity expertise, ensuring informed oversight of cybersecurity risks. Documentation of the Board's involvement in cybersecurity oversight is maintained, highlighting the frequency and topics of discussions related to cybersecurity risks and incident response. The Board is regularly updated on cybersecurity risks and incidents through established reporting mechanisms, ensuring they are well-informed to make strategic decisions regarding the Company's cybersecurity posture.
Management's Governance
Management's roles and responsibilities in cybersecurity oversight are clearly defined, with specific committees or positions designated for managing cybersecurity risks. The day-to-day management of cybersecurity is the responsibility of the Chief Technology Officer who oversees our technology team. These include procedures for incident response and regular reporting of cybersecurity information to the Board of Directors (the "Board"), ensuring effective communication and oversight. Cybersecurity risk management is seamlessly integrated into the Company's overall business strategy and decision-making processes, demonstrating a proactive approach to managing cybersecurity risks.
The Company has established clear criteria for determining the materiality of cybersecurity incidents, which include assessing potential or actual financial impacts, reputational damage, and operational disruptions. Documented incidents are meticulously recorded, detailing their nature, scope, and financial implications, ensuring transparency and accountability. The timeliness of Form 8-K filings following material cybersecurity incidents is strictly adhered to, with a thorough process in place for documenting any reasons for delayed disclosures. This ensures compliance with SEC requirements and maintains stakeholder confidence in the Company's cybersecurity posture.
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Item 2. Properties
The Company contracts for use of office space at 3017 Bolling Way NE, Floors 1 and 2, Atlanta, Georgia, 30305, United States of America, which serves as its corporate headquarters and primary operational hub. The Company also leases office space (through a subsidiary) in Malta, which primarily serves as a research and development space. The Company contracts for coworking arrangements in other office spaces (either directly or through its subsidiaries) in New York, North Carolina, Denmark, Poland, and Rwanda to support its dispersed workforce. Minimum lease commitments related to these agreements are described in Note 12 to the consolidated financial statements provided under Item 8 of this report. We believe our existing properties are in good condition and are sufficient and suitable for the conduct of our business.
Item 3. Legal Proceedings
From time to time, the Company may be involved in a variety of legal matters that arise in the normal course of business. The Company is not currently involved in any litigation, and its management is not aware of any pending or threatened legal actions relating to its intellectual property, conduct of its business activities, or otherwise. See “Risk Factors” for a summary of risks our Company may face in relation to litigation against our Company.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common Stock
As of December 31, 2023 and 2022, our Class A Common Stock is traded on the Nasdaq Capital Market under the symbol “IDAI”. Trust Stamp received approval from Nasdaq to have our Class A Common Stock listed on the Nasdaq Capital Market under the symbol “IDAI” with trading commencing on January 31, 2022.
During the year ended December 31, 2022, our Class A Common Stock was traded on the OTC Markets Group Inc.’s OTCQX quotation platform under the trading symbol “IDAI” and on the Euronext Growth market in Dublin under “AIID”. On September 12, 2022, the Company notified Euronext regarding the cancellation of our admission to Euronext with a final trading date of October 13, 2022. As a result of our Nasdaq approval, our Class A Common Stock is no longer listed on the OTCQX market as of January 31, 2022.
Holders
As of March 29, 2024, there were approximately 2,758 registered holders of record of our Class A Common Stock and the last reported sale price of our Class A Common Stock on the Nasdaq was $0.92 per share on March 29, 2024.
The number of shares of our Class A Common Stock that are freely tradable as of March 29, 2024 was 7,296,485.
Performance Graph
We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Dividend Policy
To date, we have not paid any dividends on our Class A Common Stock and do not anticipate paying any dividends in the foreseeable future. The declaration and payment of dividends on the Class A Common Stock is at the discretion of our Board of Directors and will depend on, among other things, our operating results, financial condition, capital requirements, contractual restrictions, or such other factors as our Board of Directors may deem relevant. We currently expect to use all available funds to finance the future development and expansion of our business.
Securities Authorized for Issuance Under Equity Compensation Plans
On April 9, 2019, management created a new entity, TStamp Incentive Holdings (“TSIH”) to which the Company issued 320,513 shares of Class A Common Stock that the Board of Directors of TSIH could use for employee stock awards in the future. As of December 31, 2023, 54,734 shares of Class A Common Stock are still held by TSIH – however, all of these shares of Class A Common Stock have been allocated for issuance pursuant to employee Restricted Stock Units that vested on January 2, 2024. As of the date of this report, no shares of Class A Common Stock are held by TSIH as all shares have been issued pursuant to employee Restricted Stock Units. The Company has no plans to issue additional equity securities to TSIH and as such, it is expected this entity will become dormant going forward.
Executive Compensation Philosophy
Our Board of Directors determines the compensation given to our executive officers in their sole discretion. Our Board of Directors reserves the right to pay our executives or any future executives a salary, and/or issue them shares of Class A Common Stock issued in consideration for services rendered and/or to award incentive bonuses which are linked to our performance, as well as to the individual executive officer’s performance. This package may also include long-term stock-based compensation to certain executives, which is intended to align the performance of our executives with our long-term business strategies. Additionally, the Board of Directors has granted and reserves the right to grant performance-based equity awards in the future, if the Board of Directors in its sole determination believes such grants would be in our best interests.
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Incentive Bonus
The Board of Directors may grant incentive bonuses to our executive officers and/or future executive officers in its sole discretion, if the Board of Directors believes such bonuses are in our best interest, after analyzing our current business objectives and growth, if any, and the amount of revenue we are able to generate each month, which revenue is a direct result of the actions and ability of such executives.
Long-Term, Stock Based Compensation
In order to attract, retain and motivate executive talent necessary to support our long-term business strategy we may award our executives and any future executives with long-term, stock-based compensation in the future, at the sole discretion of our Board of Directors.
Recent Sales of Unregistered Securities:
| Offering Type | Intermediary | Date Commenced | Number of shares issued (1) | Class of Securities | Proceeds Raised | Use of Proceeds | Date Closed (if Open, N/A) | |||||||||||||||||||||||||||||||||||||
| 2021 Reg D | n/a | 3/12/2021 | 260,245 | Class A Common Stock | $4.0 million | Product development, marketing, and working capital | 6/4/2021 | |||||||||||||||||||||||||||||||||||||
| 2021 Reg CF | Dalmore Group LLC | 8/25/2021 | 227,595 | Units of Class A Common Stock and Warrants to acquire Class A Common Stock | $4.6 million | Product development, marketing, and working capital | 2/18/2022 | |||||||||||||||||||||||||||||||||||||
| 2021 Reg D | n/a | 8/25/2021 | 48,198 | Units of Class A Common Stock and Warrants to acquire Class A Common Stock | $1.0 million | Product development, marketing, and working capital | 2/1/2022 | |||||||||||||||||||||||||||||||||||||
| 2021 Reg S | n/a | 8/25/2021 | 11,221 | Units of Class A Common Stock and Warrants to acquire Class A Common Stock | $0.2 million | Product development, marketing, and working capital | 1/7/2022 | |||||||||||||||||||||||||||||||||||||
| 2022 Reg A | n/a | 1/26/2022 | 2,850 | Shares issuable pursuant to exercise of Warrants | $57 thousand | Product development, marketing, and working capital | n/a | |||||||||||||||||||||||||||||||||||||
| 2022 Reg D | Maxim Group LLC | 9/14/2022 | 195,000 | 195,000 shares of Class A Common Stock and 390,000 Common Stock Purchase Warrants to purchase Class A Common Stock | $1.5 million | Working Capital | 9/14/2022 | |||||||||||||||||||||||||||||||||||||
Private Placement (Section 4(a)(2) and/or Regulation D) | Maxim Group LLC | 4/14/2023 | 563,380 | 563,380 shares of Class A Common Stock and 2,583,280 Warrants to purchase Class A Common Stock (2) | $5.2 million | Working Capital | 4/14/2023 | |||||||||||||||||||||||||||||||||||||
Private Placement (Section 4(a)(2) and/or Regulation D) | Maxim Group LLC | 6/5/2023 | 736,400 | 736,400 shares of Class A Common Stock and 1,823,000 Warrants to purchase Class A Common Stock (3) | $2.9 million | Working Capital | 6/5/2023 | |||||||||||||||||||||||||||||||||||||
Private Placement (Section 4(a)(2) and/or Regulation D) | Maxim Group LLC | 12/21/2023 | — | Warrants to Purchase Class A Common Stock | $2.4 million | Working Capital | 12/21/2023 | |||||||||||||||||||||||||||||||||||||
(1) The share numbers in the table above reflect the shares issued after giving effect to the Reverse Split, described in Note 1 to the consolidated financial statements provided under Item 8 of this report.
(2) The 2,583,280 Warrants consisted of pre-funded warrants to purchase up to 1,009,950 shares of Class A Common Stock, at an exercise price of $0.001 per share of Class A Common Stock and (ii) common stock purchase warrants exercisable for an aggregate of up to 1,573,330 shares of Class A Common Stock, at an exercise price of $3.30 per share of
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Class A Common Stock. The common stock purchase warrants were repriced on December 21, 2023 to $1.34 per share of Class A Common Stock.
(3) The 1,823,000 Warrants consisted of pre-funded warrants to purchase up to 543,300 shares of Class A Common Stock, at an exercise price of $0.001 per share of Class A Common Stock and (ii) common stock purchase warrants exercisable for an aggregate of up to 1,279,700 shares of Class A Common Stock, at an exercise price of $2.30 per share of Class A Common Stock. The common stock purchase warrants were repriced on December 21, 2023, to $1.34 per share of Class A Common Stock.
Item 6. Reserved
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations, and beliefs, involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. You should review the section titled “Statement Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Overview
Trust Stamp was incorporated under the laws of the State of Delaware on April 11, 2016 as “T Stamp Inc.” T Stamp Inc. and its subsidiaries (“Trust Stamp”, “we”, or the “Company”) develop and market identity authentication software for enterprise and government partners and peer-to-peer markets.
Trust Stamp develops proprietary artificial intelligence-powered identity and trust solutions at the intersection of biometrics, privacy, and cybersecurity, that enable organizations to protect themselves and their users while empowering individuals to retain ownership of their identity data and prevent fraudulent activity using their identity.
Trust Stamp tackles industry challenges including data protection, regulatory compliance, and financial accessibility, with cutting-edge technology including biometric science, cryptography, and machine learning. Our core technology irreversibly transforms identity information to create tokenized identifiers that enable accurate authentication without the need to store or share sensitive data. By retaining the usefulness of biometric-derived data while minimizing the risk, we allow businesses to adopt biometrics and other anti-fraud initiatives while protecting personal information from hacks and leaks.
Trust Stamp’s key sub-markets are identity authentication for the purpose of account opening, access, and fraud detection, the creation of tokenized digital identities to facilitate financial and societal inclusion, and in-community case management software for alternatives to detention and other governmental uses.
As biometric solutions proliferate, so does the need to protect biometric data. Stored biometric images and templates represent a growing and unquantified financial, security, and PR liability and are the subject of governmental, media, and public scrutiny since biometric data cannot be “changed” once they are hacked, as they are directly linked to the user’s physical features and/or behaviors. Privacy concerns around biometric technology have led to close attention from regulators, with multiple jurisdictions placing biometrics in a special or sensitive category of personal data and demanding much stronger safeguards around collection and safekeeping.
To address this unprecedented danger and increased cross-industry need to establish trust quickly and securely in virtual environments, Trust Stamp has developed its Irreversibly Transformed Identity Token, or IT2TM, solutions, which replace biometric templates with a cryptographic hash that can never be rebuilt into the original data and cannot be used to identify the subject outside the environment for which it is designed.
Trust Stamp’s data transformation and comparison technology is vendor and modality-agnostic, allowing organizations including other biometric services providers to benefit from the increased protection, efficiency, and utility of our proprietary tokenization process. With online and offline functionality, Trust Stamp technology is effective in even the most remote locations in the world.
Trust Stamp also offers end-to-end solutions for multi-factor biometric authentication for account access and recovery, KYC/AML compliance, customer onboarding, and more, which allow organizations to approve more genuine users, keep bad actors from accessing systems and services and retain existing users with a superior user experience.
Recent Developments
Private Placement, Entry Into Warrant Exchange Agreement, and Issuance of the Warrants
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On December 21, 2023, the Company entered into a warrant exercise agreement (the “WEA”) with a certain institutional investor, pursuant to which the investor agreed to exercise (the “Exercise”) (i) a portion (106,670) of the warrants issued to the investor on June 5, 2023, which are exercisable for 1,279,700 shares of the Company’s Class A Common Stock, par value $0.01 per share (“Class A Common Stock”) with a current exercise price of $2.30 per share (the “June 2023 Warrants”), (ii) all of the warrants issued to the investor on September 14, 2022, as amended on June 5, 2023, which are exercisable for 120,000 shares of Class A Common Stock, with a current exercise price of $2.30 per share (the “September 2022 Warrants”), and (iii) all of the warrants issued to the investor on April 18, 2023, which are exercisable for 1,573,330 shares of Class A Common Stock, with a current exercise price of $3.30 per share (the “April 2023 Warrants” and collectively with all of the June 2023 Warrants and the September 2022 Warrants, the “Existing Warrants”). In consideration for the immediate exercise of 1,800,000 of the Existing Warrants for cash, the Company agreed to reduce the exercise price of all of the Existing Warrants, including any unexercised portion thereof, to $1.34 per share, which is equal to the most recent closing price of the Company’s Class A Common Stock on The Nasdaq Stock Market prior to the execution of the WEA.
As of December 31, 2023, the institutional investor had submitted an Exercise Notice for 918,000 Existing Warrants and the shares of Class A Common Stock were issued to the warrant holders. The remaining 882,000 Existing Warrants from this exercise are held in abeyance until the Company receives notice from the holders that the remaining shares may be issued in compliance with the beneficial ownership limitation. In addition, in consideration for such Exercise, the investor received new unregistered warrants to purchase up to an aggregate of 3,600,000 shares of Class A Common Stock, equal to 200% of the shares of Class A Common Stock issued in connection with the Exercise, with an exercise price of $1.34 per share (the “New Warrants”) in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933 (the “Securities Act”). The New Warrants have substantially the same terms as the June 2023 Warrants. As of the date of this report, the institutional investor had submitted an Exercise Notice for the remaining 882,000 Existing Warrants that were held in abeyance and the shares of Class A Common Stock were issued to the warrant holders.
The Company agreed to file a resale registration statement on Form S-3 with respect to the New Warrants and the shares of Class A Common Stock issuable upon exercise of the New Warrants, which the Company filed on February 16, 2024. The registration statement has not yet been declared effective by the SEC.
The gross proceeds to the Company from the Exercise were $2.41 million, prior to deducting warrant inducement agent fees and estimated offering expenses. The Company intends to use the remainder of the net proceeds for business growth, working capital, and general corporate purposes.
As of the date of this report, the investor has not exercised the New Warrants. All 3,600,000 of the New Warrants remain outstanding as of the date of this report.
Reverse Spit
On February 15, 2023 our Board of Directors approved and, as of February 20, 2023, the holders of a majority of our voting capital stock approved an amendment (the “Certificate of Amendment”) to the Company’s Amended and Restated Certificate of Incorporation and approved to effect a reverse split of our issued and outstanding shares of Class A Common Stock at a ratio of one share for every five shares currently held, rounded up to the nearest whole share – whereby every five (5) outstanding shares of Class A Common Stock was combined and became one (1) share of Class A Common Stock, rounding up to the nearest whole number of shares (the “Reverse Split”). All share and per share amounts have been updated to reflect the Reverse Split in these consolidated financial statements. The Reverse Split was effective for trading on the market opening of Nasdaq on March 23, 2023. The Reverse Stock Split effective March 23, 2023, was ratified by the Company’s stockholders by written consent pursuant to a definitive proxy statement filed with the Securities and Exchange Commission on April 13, 2023. Written consent from the majority of stockholders was received as of May 13, 2023.
Statement of Operations Improvement
Trust Stamp experienced significant improvements, reflecting its commitment to enhancing operational efficiency and driving sustainable growth, in its Basic and diluted net loss per share attributable to T Stamp Inc. with the result of $1.07 for year ended December 31, 2023 compared to $2.55 for year ended December 31, 2022. Despite investing in our sales force, one key driver in the operating loss improvements were reductions in Selling, general, and administrative expenses by $4.05 million, or 32.53%, for the year ended December 31, 2023, when compared to the year ended December 31, 2022. Selling, general and administrative expenses decreased due to cost savings in certain areas within the Company such as
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reductions in salaries, bonus and stock-based compensation, payroll costs, and sales commissions totaling $2.14 million for the year ended December 31, 2023, compared to the year ended December 31, 2022. Other notable reductions in Selling, general and administrative expenses for the year ended December 31, 2023 included a $2.20 million net reduction between corporate travel, management consulting and training, office rent, and costs related to carrying mobile hardware assets as direct result of the Company's recent non-personnel cost cutting initiative. In addition, the Company also saw improvements from an $871 thousand or 48.79% reduction in our Cost of sales when comparing the year ended December 31, 2023 and the year ended December 31, 2022. The result of these reductions were a decrease in Operating Loss to $7.89 million from $12.08 million for year ended December 31, 2022 and Net loss attributable to T Stamp Inc. also decreased by $4.45 million or 36.83% when comparing the year ended December 31, 2023 and the year ended December 31, 2022.
Key Business Measures
In addition to the measures presented in our consolidated financial statements, we use the following key non-GAAP business measures to help us evaluate our business, identify trends affecting our business, formulate business plans and financial projections, and make strategic decisions.
Adjusted EBITDA
This discussion includes information about Adjusted EBITDA that is not prepared in accordance with U.S. GAAP. Adjusted EBITDA is not based on any standardized methodology prescribed by U.S. GAAP and is not necessarily comparable to similar measures presented by other companies. A reconciliation of this non-GAAP measure is included below.
Adjusted EBITDA is a non-GAAP financial measure that represents U.S. GAAP net income (loss) adjusted to exclude (1) other expense, (2) other income, (3) gain on sale of mobile hardware, (4) interest expense, (5) interest income, (6) stock-based compensation, (7) change in fair value of warrant liabilities (8) impairment of assets, (9) non-cash expenses for in-kind services, (10) depreciation, and (11) certain other items management believes affect the comparability of operating results.
Management believes that Adjusted EBITDA, when viewed with our results under U.S. GAAP and the accompanying reconciliations, provides useful information about our period-over-period results. Adjusted EBITDA is presented because management believes it provides additional information with respect to the performance of our fundamental business activities and is also frequently used by securities analysts, investors and other interested parties in the evaluation of comparable companies. We also rely on Adjusted EBITDA as a primary measure to review and assess the operating performance of our Company and our management, and it will be a focus as we invest in and grow the business.
Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, analysis of our results as reported under GAAP. Some of these limitations are:
•Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments.
•Adjusted EBITDA does not reflect changes in, or cash requirements for our working capital needs.
•Although Depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.
•Adjusted EBITDA does not include the impact of certain charges or gains resulting from matters we consider not to be indicative of our ongoing operations.
Due to these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only as a supplement to our U.S. GAAP results.
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Reconciliation of Net Loss to Adjusted EBITDA
| For the year ended December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Net loss before taxes | $ | (7,651,127) | $ | (12,070,464) | ||||||||||
| Add: Other expense | 2,981 | 118,196 | ||||||||||||
| Less: Other income | (309,896) | (50,354) | ||||||||||||
| Less: Gain on sale of mobile hardware | (216,189) | — | ||||||||||||
| Add: Interest expense, net | 73,273 | 8,890 | ||||||||||||
| Add: Stock-based compensation | 763,288 | 2,399,063 | ||||||||||||
| Add: Change in fair value of warrant liability | (5,033) | (113,125) | ||||||||||||
| Add: Impairment loss of assets | 31,474 | 27,934 | ||||||||||||
| Add: Non-cash expenses for in-kind services | 18,547 | 111,720 | ||||||||||||
| Add: Depreciation and amortization | 789,586 | 760,497 | ||||||||||||
Adjusted EBITDA loss (non-GAAP) | $ | (6,503,096) | $ | (8,807,643) | ||||||||||
Adjusted EBITDA loss (non-GAAP) for the year ended December 31, 2023, decreased by 26.17%, to $6.50 million from $8.81 million for the year ended December 31, 2022. The overall decrease in Adjusted EBITDA loss (non-GAAP) was driven primarily by reductions in Selling, general, and administrative expenses (as a result of various operating cost reductions initiated in 2022) including the $1.64 million reduction of stock-based compensation for the year ended December 31, 2023 when compared to the year ended December 31, 2022. In addition, the IGS Contract resulted in $2.51 million in Net revenue for the provision of software during the year ended December 31, 2023, and the release from future contractual obligations for maintenance and upgrades as a result of the termination of the IGS Contract discussed in Liquidity and Capital Resources subsection below. See “Results of Operations” below for further discussion on the drivers behind the decrease in stock-based compensation during the year ended December 31, 2023.
Components of Results of Operations
Net revenue
We derive our revenue primarily from professional services though our business model is transitioning to focus on recurring Software-as-a-Service (SaaS) revenue.
In addition to revenue from Mastercard and our S&P 500 bank customer, $2.51 million was derived from a contract with IGS during the year ended December 31, 2023. The Company also continued to expand the Orchestration Layer platform, which is being utilized by several customers including FIS’ new global identity authentication system, which is a SaaS platform that includes the Company’s proprietary tokenization technology, and facilitates no-code and low-code implementations, making adoption faster and even more cost-effective for a broader range of potential customers. The Company expects this platform to accelerate its evolution, from being exclusively a custom solutions provider, to also offering a modular and highly scalable SaaS model with low-code implementation.
Cost of services provided
Cost of services provided generally consists of the cost of hosting fees and cost of labor associated with professional services rendered. Depreciation and amortization expense is not included in cost of services provided.
Further, several projects that were originally in the research and development stage became feasible projects, shifting the allocation of cost from research and development, into cost of services provided in the current year as client specific products were implemented using the technologies. This increase of expense allocation is a result of our prior decision to invest more money in research and development in prior periods and our goal of accelerating our product roadmap coming to fruition.
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We expect that cost of services provided will continue to decrease in absolute dollars until the transition to primarily SaaS revenue is complete. After the transition is complete, we expect cost of services to increase in absolute dollars as the volume of usage revenue increases, but the margin will continue to improve until they stabilize over time.
Research and development
Research and development expenses (“R&D”) consist primarily of personnel costs, including salaries and benefits. Personnel costs are allocated to R&D for time spent working on the preliminary project stage and post-implementation maintenance as well as time spent on bug fixes associated with internal-use software activities, front-end application development in which technological feasibility has not been established, and services rendered to customers under funded software-development arrangements.
We plan to continue to invest in personnel to support our research and development efforts. As a result, we expect that research and development expenses will increase in absolute dollars for the foreseeable future as we continue to invest to support these activities.
Selling, general, and administrative
Selling, general, and administrative (“SG&A”) expenses were generally composed of payroll, legal, and professional fees.
We expect that the sales and marketing expenses within the SG&A expenses will increase in absolute dollars as we continue to invest in our potential and current customers, in growing our business, and enhancing our brand awareness.
Depreciation and amortization
The increase in depreciation and amortization is primarily due to a continued investment in internally developed software and patent registrations which will be used for future productization.
Interest income (expense)
Interest income (expense) consists primarily of interest expense accrued on a promissory note payable. Additionally, the Company earned interest income in the form of interest on employee stock loans.
Other income
Other income is mainly driven by miscellaneous income earned that is unrelated to the main focus of the Company’s business including the gain or loss on sale of assets.
Other expense
Other expense is mainly driven by miscellaneous expenses unrelated to the main focus of the Company’s business. Prior to 2023, Other expense was mainly driven by certain exchange rate gains and losses associated with converting the foreign currency activity to the Company’s reporting currency, United States dollars ("USD"). After management concluded there is no intention to settle intercompany accounts in the foreseeable future, beginning June 30, 2022, future fluctuations in foreign currencies between the Company and its subsidiaries are recorded to Accumulated other comprehensive income on the balance sheet instead of Other expense.
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Results of Operations
The following table summarizes our consolidated statements of operations for the years ended December 31, 2023 and 2022:
| For the years ended December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Net revenue | $ | 4,560,275 | $ | 5,385,077 | ||||||||||
| Operating Expenses: | ||||||||||||||
| Cost of services (exclusive of depreciation and amortization shown separately below) | 914,176 | 1,785,167 | ||||||||||||
| Research and development | 2,350,677 | 2,474,327 | ||||||||||||
| Selling, general, and administrative | 8,395,638 | 12,444,009 | ||||||||||||
| Depreciation and amortization | 789,586 | 760,497 | ||||||||||||
| Total Operating Expenses | 12,450,077 | 17,464,000 | ||||||||||||
| Operating Loss | (7,889,802) | (12,078,923) | ||||||||||||
| Non-Operating Income (Expense): | ||||||||||||||
| Interest expense, net | (73,273) | (8,890) | ||||||||||||
| Change in fair value of warrant liability | 5,033 | 113,125 | ||||||||||||
| Impairment of digital assets | — | (27,934) | ||||||||||||
| Other income | 309,896 | 50,354 | ||||||||||||
| Other expense | (2,981) | (118,196) | ||||||||||||
| Total Other Income (Expense), Net | 238,675 | 8,459 | ||||||||||||
| Net Loss before Taxes | (7,651,127) | (12,070,464) | ||||||||||||
| Income tax benefit (expense) | 13,485 | (21,076) | ||||||||||||
| Net loss before non-controlling interest | (7,637,642) | (12,091,540) | ||||||||||||
| Net loss attributable to non-controlling interest | — | — | ||||||||||||
| Net loss attributable to T Stamp Inc. | $ | (7,637,642) | $ | (12,091,540) | ||||||||||
| Basic and diluted net loss per share attributable to T Stamp Inc. | $ | (1.07) | $ | (2.55) | ||||||||||
| Weighted-average shares used to compute basic and diluted net loss per share | 7,127,560 | 4,732,774 | ||||||||||||
Comparison of the Years Ended December 31, 2023 and 2022
Net revenue
| For the years ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Net revenue | $ | 4,560,275 | $ | 5,385,077 | $ | (824,802) | (15.32) | % | |||||||||||||||
During the year ended December 31, 2023, Net revenue decreased to $4.56 million, or 15.32% from Net revenue of $5.39 million for the year ended December 31, 2022. During the year ended December 31, 2023, the $4.56 million in Net revenue consisted of $2.51 million from IGS, $810 thousand from a S&P 500 bank, $772 thousand from Mastercard, and various other customers for the remaining $468 thousand. The majority of the decrease in the comparative periods relates to the September 23, 2021 U.S. Immigration and Customs Enforcement contract (“ICE Contract”) which produced $3.29 million in Net revenue during the year ended December 31, 2022 and was subsequently terminated during fiscal year 2022.
The decrease from the ICE contract termination is offset by the increase in the Net revenue from the IGS Contract which resulted in $2.51 million in Net revenue for the provision of software during the year ended December 31, 2023, and the release from future contractual obligations for maintenance and upgrades as a result of the termination of the IGS Contract discussed in Liquidity and Capital Resources subsection below. Despite this termination, the Company is optimistic about
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future opportunities in the government sector, has entered into a teaming agreement to provide future services, and retains the capability to provide future services for maintenance, upgrades, and deployments of the product for additional fees.
During the year ended December 31, 2023, the Company generated $310 thousand total revenue from customers using the Orchestration Layer including implementing the Orchestration Layer platform for 34 new enterprise customers through FIS on the Software-as-a-Service (SaaS) platform. In comparison, during the year ended December 31, 2022, the Company generated $104 thousand total revenue from Orchestration Layer customers. Since its launch in the third quarter of 2022, there have been 43 enterprise customers on the Orchestration Layer platform, including 40 financial institutions, as of December 31, 2023. Additionally, revenue from the Orchestration Layer's flagship enterprise customer grew 197% between the comparative periods as a result of transitioning and launching the customer on the Orchestration Layer platform. Orchestration Layer's flagship enterprise customer is already in full production and generating monthly recurring revenue with gross margins in excess of 83.12%. Finally, the Company's S&P 500 bank customer began its transition to an augmented version of the SaaS platform during the year ended December 31, 2023.
The Orchestration Layer is designed to be a one-stop-shop for Trust Stamp services and provides for easy integration to our products; chargeable on a per-use basis and is accelerating the Company’s evolution from being exclusively a custom solutions provider to also offering a modular and highly scalable SaaS model with low-code implementation.
Cost of services
| For the years ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Cost of services | $ | 914,176 | $ | 1,785,167 | $ | (870,991) | (48.79) | % | |||||||||||||||
Cost of services (“COS”) decreased by $871 thousand or 48.79% for the year ended December 31, 2023, compared to the year ended December 31, 2022. The decrease during this period was primarily driven by the costs related to servicing requirements from the ICE Contract. ICE Contract-related COS for the year ended December 31, 2022, were $802 thousand, including vendor and other miscellaneous costs as well as direct labor costs, versus no ICE Contract-related COS during the year ended December 31, 2023 (as a result of the ICE Contract being terminated in 2022).
After adjusting the comparative periods’ COS for ICE Contract related costs, COS reduced by $69 thousand despite onboarding 34 new enterprise customers during the year ended December 31, 2023, and is a result of the the low marginal costs that are inherent in SaaS platforms such as the Orchestration Layer.
Research and development
| For the years ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Research and development | $ | 2,350,677 | $ | 2,474,327 | $ | (123,650) | (5.00) | % | |||||||||||||||
Research and development (“R&D”) expenses decreased by $124 thousand, or 5.00% for the year ended December 31, 2023, compared to the year ended December 31, 2022. The decrease in R&D expense during the year ended December 31, 2023 was primarily driven by a decrease in outsourced software development during the year ended December 31, 2023 as the Company continued to transition this work internally. Other cost savings during the year ended December 31, 2023 were also realized due to the termination of employees hired for the ICE contract, closure of the United Kingdom office, as well as, a decrease in stock-based compensation expense.
Additionally, the Company recognized an impairment loss on Capitalized internal-use software of $19 thousand during the year ended December 31, 2023 that offset the increase in R&D. There was no impairment loss on Capitalized internal-use software for the year ended December 31, 2022. Capitalized internal-use software are considered long-lived assets under applicable accounting guidance. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds these estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the assets exceeds the fair value of the asset or asset group. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
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Selling, general, and administrative
| For the years ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Selling, general, and administrative | $ | 8,395,638 | $ | 12,444,009 | $ | (4,048,371) | (32.53) | % | |||||||||||||||
Selling, general, and administrative expense (“SG&A”) decreased by $4.05 million, or 32.53%, for the year ended December 31, 2023, compared to the year ended December 31, 2022. The decrease in SG&A expense was driven mostly by the reductions in personnel overhead related expense due to the 2022 cost cutting initiatives executed by the Company. While personnel overhead decreased during the year ended December 31, 2023, the headcount increased due to reinvestment of cost cutting savings into bolstering our sales resources and bringing in-house technical positions that were previously outsourced. Headcount increased by 3.53%, from 85 FTE for the year ended December 31, 2022, compared to 88 FTE for the year ended December 31, 2023. In effect, salaries, bonus and stock-based compensation, payroll costs, and sales commissions reduced by $2.14 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.
Other notable reductions in SG&A for the year ended December 31, 2023 included a $2.20 million net reduction between corporate travel, management consulting and training, office rent, and costs related to carrying mobile hardware assets as direct result of the Company's recent non-personnel cost cutting initiative.
Depreciation and amortization
| For the years ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Depreciation and amortization | $ | 789,586 | $ | 760,497 | $ | 29,089 | 3.82 | % | |||||||||||||||
Depreciation and amortization (“D&A”) increased by $29 thousand, or 3.82% for the year ended December 31, 2023, compared to the year ended December 31, 2022. The primary increase in D&A expense related to the $48 thousand increase in amortization of patents between the comparative periods. This increase is the result of new pending patent applications and issued patents with the United States Patent and Trademark Office. During the year ended December 31, 2023, the Company added 4 issued patents, 5 new patent applications, 1 trademark registration, and 2 new trademark applications including the patent application for Tap-In BandTM. The Tap-In Band™ is a wrist-worn, tamper resistant, hypoallergenic near-field communication band that facilitates discrete check-in by, and communication with, participants in community based supervision programs. This technology and associated biometric processes utilize Trust Stamp’s patented IT2 identity tokenization processes that allow users to biometrically authenticate without the need to store biometric images or templates.
Additionally, Capitalized internal-use software amortization increased by $40 thousand between the comparative periods. While the amounts of Capitalized internal-use software vary from period to period, we continue to see a trend of increasing software amortization which is driven by the growth in software capitalization over the prior periods. Overall, this is a further result of newly issued patents continuing to produce new internal-use software, or microservices, that have reached technical feasibility at which point the Company begins to capitalize the related costs.
These increases were partially offset by a $60 thousand decrease in D&A expense related to the depreciation of mobile hardware assets that were sold during the year ended December 31, 2023.
Operating loss
| For the years ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Operating loss | $ | (7,889,802) | $ | (12,078,923) | $ | 4,189,121 | (34.68) | % | |||||||||||||||
The Company’s Operating loss decreased by $4.19 million or 34.68% for the year ended December 31, 2023, compared to the year ended December 31, 2022. The decrease in Operating loss was mostly related to the decrease of $5.01 million or 28.71% reduction in operating expenses as a result of various cost cutting measures initiated in fiscal years 2022 and 2023 that outpaced the reduction in Net revenue, thereby producing desirable margin growth and greater company efficiency.
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Interest expense, net
| For the years ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Interest expense, net | $ | (73,273) | $ | (8,890) | $ | (64,383) | 724.22 | % | |||||||||||||||
Interest expense, net increased by $64 thousand, or 724.22% for the year ended December 31, 2023, compared to the year ended December 31, 2022. Interest earned decreased by $7 thousand to $623 for the year ended December 31, 2023 from $8 thousand for the year ended December 31, 2022. Interest expense increased by $57 thousand to $74 thousand for the year ended December 31, 2023 from $17 thousand for the year ended December 31, 2022. The increase in interest expense is primarily due to an increase of $39 thousand in the Malta loan interest rate from 2.5% for the year ended December 31, 2022 to 4.5% for the year ended December 31, 2023. Additionally, the Company recorded $34 thousand in interest expense during the year ended December 31, 2023 for interest accrued on Malta's tax obligations.
Change in fair value of warrant liability
| For the years ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Change in fair value of warrant liability | $ | 5,033 | $ | 113,125 | $ | (108,092) | (95.55) | % | |||||||||||||||
The Company recognized a gain in Change in fair value of warrant liability during the year ended December 31, 2023 of $5 thousand compared to a gain of $113 thousand during the year ended December 31, 2022. This change is based on the fair value assessment and adjustment for one warrant liability as described in Note 3 to the financial statements provided under Item 1 of this report.
Impairment of digital assets
| For the years ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
Impairment of digital assets | $ | — | $ | (27,934) | $ | 27,934 | (100.00) | % | |||||||||||||||
The Company recognized an impairment on digital assets during the year ended December 31, 2022, of $28 thousand. Digital assets are considered indefinite-lived Intangible assets, net under applicable accounting rules. Accordingly, any decrease in their fair values below our carrying values for such assets at any time subsequent to their acquisition requires recognition of impairment.
Other income
| For the years ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Other income | $ | 309,896 | $ | 50,354 | $ | 259,542 | 515.43 | % | |||||||||||||||
Other income increased by $260 thousand for the year ended December 31, 2023, compared to the year ended December 31, 2022. The increase was primarily due to a $213 thousand gain on the sale of the mobile hardware assets. Additionally, during the year ended December 31, 2023 there was an increase of $25 thousand related to services received from participants in a startup accelerator program conducted by the Company in Malta with the objective of strengthening the innovation platform and startup ecosystem in Malta.
Other expense
| For the years ended December 31, | |||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Other expense | $ | (2,981) | $ | (118,196) | $ | 115,215 | (97.48) | % | |||||||||||||||
38
Other expense decreased by $115 thousand for the year ended December 31, 2023, compared to the year ended December 31, 2022. The Company incurred $95 thousand in unrealized loss on foreign currency translation expense for the year ended December 31, 2022, for intercompany transactions between the parent company, T Stamp Inc., and its subsidiaries, Trust Stamp Malta Limited, Biometric Innovations Limited, and Trust Stamp Rwanda Limited with currencies denominated in United States Dollars, European Union Euros, British Pound Sterling, and Rwandan Franc, respectively. After management concluded there is no intention to settle intercompany accounts in the foreseeable future, beginning in June 30, 2022, future fluctuations in foreign currencies between the Company and its subsidiaries are recorded to Accumulated other comprehensive income on the balance sheet instead of Other expense.
Liquidity and Capital Resources
As of December 31, 2023, the Company had approximately $3.14 million cash in its banking accounts.
The increase of $1.89 million in Cash and cash equivalents from December 31, 2022 to December 31, 2023 was a result of the net cash inflow which consisted of $7.85 million net operating cash outflows, $402 thousand net investing cash outflows, and $10.21 million net financing cash inflows. Additionally, there was an $73 thousand cash outflow for a foreign currency transaction adjustment. See the “Cash Flows” subsection below for more details on cash activities during the year ended December 31, 2023.
Total Current Assets for the comparative periods increased by 63.44% or $1.82 million from $2.87 million as of December 31, 2022, to $4.70 million as of December 31, 2023. The increase in current assets was primarily driven by the increase in Cash and cash equivalents of $1.89 million (discussed above). Prepaid expenses and other current assets increased by $247 thousand predominantly due to the timing of invoice billing to participants of the startup accelerator program conducted by the Company in the Republic of Malta. Additionally, there was a $322 thousand decrease in Accounts receivable that offset the increase, mostly due to decreased billing and a slight delay in the collection of invoice receipts by several enterprise customers billed as of December 31, 2022.
Total Current Liabilities decreased by 38.97% or $1.73 million from $4.45 million as of December 31, 2022 compared to $2.71 million as of December 31, 2023. This decrease is primarily attributed to the $1.80 million decrease in Deferred revenue. Deferred revenue decreased primarily due to the recognition of $2.51 million in non-refundable revenue advances for software provisioned by the Company for IGS of which $1.76 million was in Deferred revenue as of December 31, 2022. Upon termination of the MSA, IGS waived their option to make additional payments in exchange for future maintenance and upgrades. As a result of the termination, Trust Stamp has no further performance obligations or contingencies related to the MSA. Additionally, there were decreases in Other current liabilities, including $191 thousand Related party payables due to the timing of payables and $97 thousand in Short-term operating lease liabilities due to the termination of two Malta office leases in 2023. The decreases in Total Current Liabilities were offset by the increases of $287 thousand in Accounts payable and $44 thousand in Accrued expenses due to timing of payables as well as $43 thousand in Short-term financial liabilities due to the sale of mobile hardware assets which triggered the total financial liability balance becoming current.
In effect, the Company’s current ratio (i.e., the ratio of the Company’s Total Current Assets as a multiple of Total Current Liabilities or the Company’s ability to service its near-term liabilities with its near-to-cash assets) increased from 0.65 as of December 31, 2022 to 1.73 representing a 166.15% increase during the year ended December 31, 2023. This is, in part, a result of the net cash inflow from financing activities, offset by the cash outflows from investing, and operating activities, discussed in further detail below.
Effective September 3, 2019, the Company entered into a software license agreement with a customer pursuant to which the Company received total fees of $150 thousand in 2020, $200 thousand in 2021, and $250 thousand in 2022. On December 31, 2022, the software license agreement was amended. The Company received fees of $300 thousand in 2023 which will continue to rise by 15% in each subsequent year after 2023 with the annual minimum fee capped at $1.00 million. The cap in the annual minimum fee does not restrict the Company from earning additional fees for transactions that exceed the annual minimum transaction volume.
On September 15, 2022, the Company entered into a Master Services Agreement (“the MSA”) with Innovative Government Solutions (“IGS”) under which the Company and IGS agreed to jointly offer services and IGS was granted a 12-year (renewable) license (“the license”) to resell the Company’s technology subject to payment by IGS of agreed revenue advances and end user license fees. On execution of the MSA, IGS agreed to pay $1.50 million to the Company as a non-refundable revenue advance, an additional $1.50 million non-refundable revenue advance on the first anniversary of
39
the MSA, and $1.00 million on each of the next two anniversaries of the MSA as additional non-refundable revenue advances. IGS had the right to terminate the MSA for convenience before the additional non-refundable revenue advances become due in which case the unpaid additional non-refundable revenue advances will not be payable and the license will terminate. On September 14, 2023, Trust Stamp received notification from IGS that it was terminating the MSA effective September 15, 2023. IGS paid Trust Stamp a total of $2.51 million in non-refundable revenue advances for software provisioned prior to the termination. Upon terminating the MSA, IGS waived their option to make additional payments in exchange for future maintenance and upgrades. Trust Stamp has no remaining performance obligations or contingencies related to the MSA. During the year ended December 31, 2023, Trust Stamp recognized the $2.51 million in IGS non-refundable revenue advances that were previously recorded to Deferred revenue.
During the year ended December 31, 2023, the Company received a provisional patent for the Tap-In Band™ patent application, which is a wrist-worn, tamper resistant, hypoallergenic near-field communication band that facilitates discrete check-in by, and communication with, participants in community based supervision programs. This technology and associated biometric processes utilize Trust Stamp’s patented IT2 identity tokenization processes that allow users to biometrically authenticate without the need to store biometric images or templates. The Company is optimistic about the tremendous market opportunity for the Tap-In BandTM technology, specifically in the government sector.
Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is a business that has not yet generated profits, with a Net loss in the year ended December 31, 2023 of $7.64 million, Net operating cash outflows of $7.85 million for the same period, and an Accumulated deficit of $50.85 million as of December 31, 2023.
The Company’s ability to continue as a going concern in the next twelve months, following the date the consolidated financial statements were available to be issued, is dependent upon its ability to produce revenues and/or obtain financing sufficient to meet current and future obligations and deploy such to produce profitable operating results. Management has evaluated these conditions and plans to generate revenue and raise capital as needed to satisfy its capital needs. While the negotiation of significant additional revenue is well advanced, it has not reached a stage that allows it to be factored into a going concern evaluation. In addition, although the Company has previously been successful in raising capital as needed and has already made plans to do so as well as restructuring expenses to meet the Company’s cash needs, no assurance can be given that the Company will be successful in its capital raising efforts. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period.
Cash Flows
The following table summarizes our cash flows for the years ended December 31, 2023 and 2022:
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Net cash flows from operating activities | $ | (7,852,546) | $ | (6,337,386) | |||||||
| Net cash flows from investing activities | $ | (401,680) | $ | (998,190) | |||||||
| Net cash flows from financing activities | $ | 10,213,410 | $ | 5,101,194 | |||||||
Operating Activities
Net cash flows from operating activities increased by 23.91% from $6.34 million during the year ended December 31, 2022, compared to $7.85 million during the year ended December 31, 2023. Of the $7.64 million net loss for the year ended December 31, 2023, there were various cash and non-cash adjustments that were added back to the Net loss to arrive at $7.85 million cash used for operating activities for the year ended December 31, 2023.
Those adjustments included the $1.80 million reduction in Deferred revenue mainly due to the recognition of $2.51 million in non-refundable revenue advances for software provisioned by the Company for IGS, this was partially offset by cash received and recorded to Deferred revenue from various customers. Cash and noncash reductions also included $216 thousand for the Gain on the sale of property and equipment resulting from the sale of mobile hardware assets, $244 thousand increase in Prepaid expenses and other current assets mainly due to the invoice billing to participants of the
40
startup accelerator program conducted by the Company in the Republic of Malta, and $191 thousand for the decrease in Related party payables as a result of the reduction in reliance on outsourced software development.
The reductions were offset by adding back certain cash and noncash adjustments including $790 thousand for non-cash Depreciation and amortization, $763 thousand related to stock-based compensation, $281 thousand from the timing of accruals, and $322 thousand for cash received on Accounts receivable.
Investing Activities
Net cash used in investing activities during the year ended December 31, 2023 was $402 thousand, compared to net cash of $998 thousand used in the year ended December 31, 2022. Cash used in investing activities during the year ended December 31, 2023 related primarily to new and continued investments in technologies that we intend to capitalize and monetize over time. In addition, the Company continued to prioritize intellectual property, which produced five (5) new pending patent applications and four (4) issued patents with the United States Patent and Trademark Office during the year ended December 31, 2023. The cash used during the year ended December 31, 2023 was offset by the $377 thousand decrease in Property and equipment, net related to the sale of the mobile hardware assets.
Financing Activities
During the year ended December 31, 2023, Net cash flows from financing activities was $10.21 million, compared to Net cash flows from financing activities of $5.10 million for the year ended December 31, 2022. The Company raised $4.78 million and $2.69 million in net proceeds, during the year ended December 31, 2023, from two separate securities purchase agreements ("SPA") with an institutional investor for the issuance of Class A Common Stock, pre-funded warrants, and common stock warrants. The same institutional investor exercised 270,000 warrants to purchase shares of Class A Common Stock of the Company for total proceeds of $621,000. Additionally, the institutional investor exercised 1,800,000 common stock warrants from previous raises for the price of $1.34 per warrant resulting in $2.23 million in net proceeds from the exercise. See Note 3 to the financial statements provided under Item 1 of this report for more details. In addition, during the year ended December 31, 2023, there was a $79 thousand tax withholding adjustment for net issuances on employee equity compensation and $30 thousand for payments on financial liabilities.
During the year ended December 31, 2022, net cash provided by financing activities was $5.10 million. The Company received $3.33 million from a warrant exercise by SCV and REach® Ventures (a related party) in December 2021, $95 thousand from the exercise of options, $1.42 million from the sale of Class A Common Stock and warrants exercisable into Class A Common Stock in a private investment in public equity agreement with Armistice Capital Master Fund Ltd., and $246 thousand in units sold and warrants exercised, net of raise costs, in connection to the Company’s 2021 raises under Regulation CF, Regulation D, and Regulation S in preparation for our Nasdaq listing. The receipts were offset by $90 thousand for principal payments made for the financial liability.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, as well as related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. The critical accounting estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are described below.
Capitalized Internal-Use Software, Net
Capitalized Internal-Use Software, Net is a combination of costs that are related to software developed, modified, or acquired solely to meet Trust Stamp's internal requirements if there are no substantive plans to market such software at the time of development or acquisition. Costs related to the development of software-as-a-service ("SaaS") based solutions are also capitalized. The Company capitalizes eligible costs for the development of Capitalized Internal-Use Software and SaaS solutions that are incurred after the preliminary project stage and throughout the development stage. These costs consist of personnel costs (salaries, related benefits, and stock-based compensation) and certain third-party costs incurred during the application development stage. Furthermore, costs incurred to upgrade and enhance software that results in
41
additional functionality are also capitalized. However, costs incurred during the preliminary project stage, the post-implementation operational stage, and routine maintenance are expensed as incurred.
The estimated useful life of capitalized costs is evaluated for each specific project as actual economic lives may differ from estimated useful lives. Trust Stamp periodically reviews the estimated useful life of its Capitalized Internal-Use Software, Net. Such evaluations may result in an adjustment to its estimated useful life which could impact amortization expense in future periods. Additionally, the Company assesses Capitalized Internal-Use Software, Net to determine if the capitalized costs are no longer recoverable or obsolete. If the Company determines that capitalized amounts are no longer in service or are no longer recoverable, it records an expense to dispose of the impaired balances.
Changes in the estimated useful life could result in an acceleration or deceleration of amortization expense, which may have a significant impact on our financial condition and operating results. Furthermore, if certain capitalized costs are determined to be unrecoverable or obsolete, it could lead to impairments that would require us to recognize non-cash expenses in our consolidated statements of operations. Such impairments may have a material effect on our financial condition and operating results.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this item.
42
Item 8. Financial Statements and Supplementary Data
T STAMP INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of T Stamp Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of T Stamp Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2022.
Marlton, New Jersey
April 1, 2024
F-2
T STAMP INC.
CONSOLIDATED BALANCE SHEETS
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net (includes unbilled receivables of $ | |||||||||||
| Related party receivables | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total Current Assets | |||||||||||
| Capitalized internal-use software, net | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Other assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Related party payables | |||||||||||
| Accrued expenses | |||||||||||
| Deferred revenue | |||||||||||
| Income tax payable | |||||||||||
| Short-term operating lease liabilities | |||||||||||
| Short-term financial liabilities | |||||||||||
| Total Current Liabilities | |||||||||||
| Warrant liabilities | |||||||||||
Notes payable, plus accrued interest of $ | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Long-term financial liabilities | |||||||||||
| Total Liabilities | |||||||||||
| Commitments, Note 11 | |||||||||||
| Stockholders’ Equity: | |||||||||||
Common stock $ | |||||||||||
Treasury stock, at cost: | |||||||||||
| Additional paid-in capital | |||||||||||
| Stockholders’ notes receivable | ( | ||||||||||
| Accumulated other comprehensive income | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total T Stamp Inc. Stockholders’ Equity | |||||||||||
| Non-controlling interest | |||||||||||
| Total Stockholders’ Equity | |||||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | |||||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-3
T STAMP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the years ended December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Net revenue | $ | $ | ||||||||||||
| Operating Expenses: | ||||||||||||||
| Cost of services (exclusive of depreciation and amortization shown separately below) | ||||||||||||||
| Research and development | ||||||||||||||
| Selling, general, and administrative | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Total Operating Expenses | ||||||||||||||
| Operating Loss | ( | ( | ||||||||||||
| Non-Operating Income (Expense): | ||||||||||||||
| Interest expense, net | ( | ( | ||||||||||||
| Change in fair value of warrant liability | ||||||||||||||
| Impairment of digital assets | ( | |||||||||||||
| Other income | ||||||||||||||
| Other expense | ( | ( | ||||||||||||
| Total Other Income (Expense), Net | ||||||||||||||
| Net Loss before Taxes | ( | ( | ||||||||||||
| Income tax benefit (expense) | ( | |||||||||||||
| Net loss before non-controlling interest | ( | ( | ||||||||||||
| Net loss attributable to non-controlling interest | ||||||||||||||
| Net loss attributable to T Stamp Inc. | $ | ( | $ | ( | ||||||||||
| Basic and diluted net loss per share attributable to T Stamp Inc. | $ | ( | $ | ( | ||||||||||
| Weighted-average shares used to compute basic and diluted net loss per share | ||||||||||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-4
T STAMP INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
| For the years ended December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Net loss including non-controlling interest | $ | ( | $ | ( | ||||||||||
| Other Comprehensive Income (Loss): | ||||||||||||||
| Foreign currency translation adjustments | ( | |||||||||||||
| Total Other Comprehensive Income (Loss) | ( | |||||||||||||
| Comprehensive loss | ( | ( | ||||||||||||
| Comprehensive loss attributable to non-controlling interest | ||||||||||||||
| Comprehensive loss attributable to T Stamp Inc. | $ | ( | $ | ( | ||||||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-5
T STAMP INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Common Stock | Additional Paid-In Capital | Treasury Stock | Stockholders’ Notes Receivable | Accumulated Other Comprehensive Income | Accumulated Deficit | Non-controlling Interest | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants to common stock | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of options to common stock | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock warrants | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in relation to vested restricted stock units, net of shares forfeited to satisfy taxes | ( | — | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Repayment of shareholders loan through in-kind services | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to T Stamp Inc. | — | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants to common stock | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of options to common stock | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | ( | ( | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock warrants | — | — | — | — | — | — | ( | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, prefunded warrants, and common stock warrants, net of fees | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in relation to vested restricted stock units, to wholly owned subsidiary | ( | ( | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Reverse stock split rounding | ( | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repayment of shareholders loan through in-kind services | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment | — | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to T Stamp Inc. | — | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
F-6
T STAMP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss attributable to T Stamp Inc. | $ | ( | $ | ( | |||||||
| Net loss attributable to non-controlling interest | |||||||||||
| Adjustments to reconcile net loss to cash flows used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation | |||||||||||
| Change in fair value of warrant liability | ( | ( | |||||||||
| Repayment of shareholder loan through in-kind services | |||||||||||
| Impairment of assets | |||||||||||
| Gain on sale of property and equipment | ( | ||||||||||
| Non-cash interest | |||||||||||
| Non-cash lease expense | |||||||||||
| Non-cash write off of mobile hardware | ( | ||||||||||
| Loss on retirement of equipment | |||||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Related party receivables | ( | ( | |||||||||
| Prepaid expenses and other current assets | ( | ||||||||||
| Other assets | ( | ||||||||||
| Accounts payable | |||||||||||
| Accrued expense | |||||||||||
| Related party payables | ( | ||||||||||
| Deferred revenue | ( | ||||||||||
| Income tax payable | ( | ||||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Customer deposit liabilities | ( | ||||||||||
| Net cash flows from operating activities | ( | ( | |||||||||
| Cash flows from investing activities: | |||||||||||
| Proceeds from sale of property and equipment | |||||||||||
| Capitalized internally developed software costs | ( | ( | |||||||||
| Patent application costs | ( | ( | |||||||||
| Acquisition of Pixelpin intangible asset | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Purchase of digital assets | ( | ||||||||||
| Net cash flows from investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from common stock, prefunded warrants, and common stock warrants, net of fees | |||||||||||
| Proceeds from exercise of warrants to common stock | |||||||||||
| Proceeds from exercise of options to common stock | |||||||||||
| Forfeited common stock shares to satisfy taxes | ( | ||||||||||
| Proceeds from issuance of common stock warrants | |||||||||||
| Proceeds from loan from Maltese government | |||||||||||
| Principal payments on financial liabilities | ( | ( | |||||||||
| Net cash flows from financing activities | $ | $ | |||||||||
| Effect of foreign currency translation on cash | ( | ||||||||||
| Net change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents, beginning of year | |||||||||||
| Cash and cash equivalents, end of year | $ | $ | |||||||||
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T STAMP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid during the period for interest | $ | $ | |||||||||
| Supplemental disclosure of non-cash activities: | |||||||||||
| Adjustment to operating lease right-of-use assets related to renewed leases | $ | $ | |||||||||
| Adjustment to operating lease operating lease liabilities related to renewed leases | $ | $ | |||||||||
| Adjustment to operating lease right-of-use assets related to terminated leases | $ | $ | |||||||||
| Adjustment to operating lease liabilities related to terminated leases | $ | $ | |||||||||
| Prepaid rent expense reclassified upon termination of leases | $ | $ | |||||||||
| Adjustment to operating lease liabilities related to new lease commencement | $ | $ | |||||||||
| Adjustment to operating lease right-of-use assets for new lease commencement | $ | $ | |||||||||
| Adjustment to prepaid rent upon commencement of new lease | $ | $ | |||||||||
| Property and equipment acquired under financial liability | $ | $ | |||||||||
| Operating lease right-of-use assets established upon adoption of ASC 842 | $ | $ | |||||||||
| Operating lease liabilities established upon adoption of ASC 842 | $ | $ | |||||||||
| Prepaid rent expense reclassified upon adoption of ASC 842 | $ | $ | |||||||||
The accompanying notes to the consolidated financial statements are an integral part of these statements.
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T STAMP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Summary of Significant Accounting Policies And Going Concern
Description of Business — T Stamp Inc. was incorporated on April 11, 2016 in the State of Delaware. T Stamp Inc. and its subsidiaries (“Trust Stamp”, “we”, “us”, “our” or the “Company”) develops and markets identity authentication software solutions for enterprise and government partners and peer-to-peer markets.
Trust Stamp develops proprietary artificial intelligence-powered solutions, researching and leveraging machine learning, artificial intelligence, biometric science, cryptography, and data mining, to deliver insightful identity and trust predictions that identify and defend against fraudulent identity attacks, protect sensitive user information, and extend the reach of digital services through global accessibility. We utilize the power and agility of technologies such as GPU processing, edge-computing, neural networks, and large language models to process and protect data faster and more effectively than has ever previously been possible in order to deliver results at a disruptively low cost for usage across multiple industries, including:
•Banking/FinTech
•KYC/AML Compliance
•Humanitarian and Development Services
•Government and Law Enforcement, including Alternative to Detention programs
•Cryptocurrency and Digital Assets
•Biometrically Secured Email and Digital Communications
•P2P Transactions, Social Media, and Sharing Economy
•Real Estate, Travel, and Healthcare
Reverse Split — On February 15, 2023 our Board of Directors approved and, as of February 20, 2023, the holders of a majority of our voting capital stock approved an amendment (the “Certificate of Amendment”) to the Company’s Amended and Restated Certificate of Incorporation and approved to effect a reverse split of our issued and outstanding shares of Class A Common Stock at a ratio of one share for every five shares currently held, rounded up to the nearest whole share – whereby every five (5) outstanding shares of Class A Common Stock was combined and became one (1) share of Class A Common Stock, rounding up to the nearest whole number of shares (the “Reverse Split”). All share and per share amounts have been updated to reflect the Reverse Split in these consolidated financial statements. The Reverse Split was effective for trading on the market opening of Nasdaq on March 23, 2023. The Reverse Stock Split effective March 23, 2023, was ratified by the Company’s stockholders by written consent pursuant to a definitive proxy statement filed with the Securities and Exchange Commission on April 13, 2023. Written consent from the majority of stockholders was received as of May 13, 2023.
Going Concern — The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is a business that has not yet generated profits, with a Net loss in the year ended December 31, 2023 of $7.64 million, negative Net operating cash outflows of $7.85 million for the same period, working capital of $1.98 million and an Accumulated deficit of $50.85 million as of December 31, 2023.
The Company’s ability to continue as a going concern in the next twelve months following the date the consolidated financial statements were available to be issued is dependent upon its ability to produce revenues and/or obtain financing sufficient to meet current and future obligations and deploy such to produce profitable operating results. Management has
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evaluated these conditions and plans to generate revenue and raise capital as needed to satisfy the Company’s capital needs. While the negotiation of significant additional revenue is well advanced, it has not reached a stage that allows it to be factored into a going concern evaluation. In addition, although the Company has previously been successful in raising capital as needed and has already made plans to do so as well as restructuring expenses to meet the Company’s cash needs, no assurance can be given that the Company will be successful in its capital raising efforts. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period.
Basis of Presentation — The accompanying consolidated financial statements have been prepared in conformity with US Generally Accepted Accounting Principles (“US GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). The accompanying consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
Basis of Consolidation — The accompanying consolidated financial statements reflect the activity of the Company and its subsidiaries, Trusted Mail Inc. (“Trusted Mail”), Finnovation LLC (“Finnovation”), Trust Stamp Malta Limited (“Trust Stamp Malta”), AIID Payments Limited, Biometric Innovations Limited (“Biometrics”), Trust Stamp Rwanda Limited, Metapresence Limited, and Trust Stamp Denmark ApS. All significant intercompany transactions and accounts have been eliminated.
On February 28, 2023, the Company received the Certificate of Termination from the State of Georgia, which represents the completion of administratively dissolving T Avatar LLC. As there were no operations established under the entity, there is a limited impact to Trust Stamp. The dissolution of T Avatar LLC was effective February 28, 2023.
On June 2, 2023, the Company received the termination resolution from the Polish National Court Register, which represents the completion of administratively dissolving Sunflower AI Technologies (“SAIT”). As there were no operations established under the entity, there is a limited impact to Trust Stamp. The dissolution of SAIT was effective May 10, 2023.
Further, we continue to consolidate Tstamp Incentive Holdings (“TSIH”) which we consider to be a variable interest entity.
Variable Interest Entity — On April 9, 2019, management created a new entity, TSIH. Furthermore, on April 25, 2019, the Company issued 320,513 shares of Class A Common Stock to TSIH, for the purpose of providing a pool of shares of Class A Common Stock of the Company that the Company’s Board of Directors (the “Board”) could use for employee stock awards and were recorded initially as Treasury stock. Since establishing TSIH, 264,000 shares were transferred to various employees as a stock award that were earned and outstanding. On February 15, 2023, Trust Stamp issued 206,033 shares of Class A Common Stock to TSIH to be used to satisfy vested employee stock awards. As of December 31, 2023, TSIH held 54,734 Treasury stock earmarked for future employee Restricted Stock Unit ("RSU") bonuses. As of the date of this report, no shares of Class A Common Stock are held by TSIH as all shares have been issued pursuant to employee Restricted Stock Units.
The Company does not own any of the shares of Class A Common Stock of the Company held by TSIH. The Company considers this entity to be a variable interest entity (“VIE”) because it is thinly capitalized and holds no cash. Because the Company does not own shares in TSIH, management believes that this gives the Company a variable interest. Further, management of the Company also acts as management of TSIH and is the decision-maker as management grants shares held by TSIH to employees of the Company. As this VIE owns only shares in the Company and no other liabilities or assets, the Company is the primary beneficiary of TSIH and will consolidate the VIE.
Use of Estimates — The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, the Company evaluates their estimates that include, but are not limited to, measuring satisfaction of a performance obligation over time, related to revenue contracts that are not fully complete at the end of a fiscal year, capitalization and estimated useful life of internal-use software, the allowance for doubtful accounts, the fair value of financial assets and liabilities, the recoverability of Goodwill, stock-based compensation, impairment of long-lived assets, the valuation of deferred tax assets and uncertain tax positions, and warrant liabilities. We base our estimates on assumptions, both historical and forward-looking trends, and various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
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Segment Information — The Company has a single operating and reportable segment. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance, and allocating resources.
Risks and Uncertainties — The Company is dependent upon additional capital resources for its planned full-scale operations, and is subject to significant risks and uncertainties, including failing to secure funding to continue to operationalize the Company’s plans or failing to profitably operate the business.
Major Customers and Concentration of Risks — Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of Cash and cash equivalents, and Accounts receivable. We maintain our Cash and cash equivalents with high-quality financial institutions, mainly in the United States; the composition of which are regularly monitored by us. The Federal Deposit Insurance Corporation covers $250 thousand for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. As of December 31, 2023 and 2022, the Company had $2.62 million and $71 thousand in U.S. bank accounts, respectively, which exceeded these insured amounts. Management believes minimal credit risk exists with respect to these financial institutions and the Company has not experienced any losses on such amounts.
For Accounts receivable, we are exposed to credit risk in the event of nonpayment by customers to the extent the amounts are recorded in the consolidated balance sheets. We extend different levels of credit and maintain reserves for potential credit losses based upon the expected collectability of Accounts receivable. We manage credit risk related to our customers by performing periodic evaluations of credit worthiness and applying other credit risk monitoring procedures.
Three customers represented 91.11 % or 53.55 %, 30.43 %, and 7.13 % of the balance of total Accounts receivable as of December 31, 2023 and three customers represented 95.37 % or 36.90 %, 32.69 %, and 25.78 % of the balance of total Accounts receivable as of December 31, 2022. The Company seeks to mitigate its credit risk with respect to Accounts receivable by contracting with large commercial customers and government agencies, and regularly monitoring the aging of Accounts receivable balances. As of December 31, 2023 and 2022, the Company had not experienced any significant losses on its Accounts receivable.
During the year ended December 31, 2023, the Company sold to primarily three customers which made up approximately 89.75 % of total Net revenue, and consisted of 55.04 %, 17.77 %, and 16.94 % from IGS, an S&P 500 Bank, and Mastercard, respectively.
Additionally, during the year ended December 31, 2022, the Company sold to primarily three customers which made up approximately 93.60 % of total Net revenue, and consisted of 61.01 %, 18.36 %, and 14.23 % from ICE, an S&P 500 Bank, and Mastercard.
Foreign Currencies — The functional currencies of the Company’s foreign subsidiaries are the local currencies. For those subsidiaries, the assets and liabilities are translated into U.S. dollars at the exchange rate method at the consolidated balance sheet date. The Company’s other comprehensive (loss) is comprised of foreign currency translation adjustments related to the Company’s foreign subsidiaries. Income and expenses are translated at the average exchange rates for the period. Foreign currency transaction gains and losses are included in Other income or Other expense in the consolidated statements of operations.
Cash and Cash Equivalents — Cash and cash equivalents consist of cash in banks and bank deposits. The Company considers all highly liquid instruments purchased with an original maturity of three months or less when purchased as cash equivalents.
Accounts Receivable and Allowance for Credit Losses — Accounts receivable are recorded at the invoiced amount, net of an allowance for credit losses, if any. The Company’s trade receivables primarily arise from the sale of our products to customers through contracts for software licenses and subscriptions, software usage, web hosting fees, and software development with payment terms of 60 days. The Company evaluates the credit risk of a customer when extending credit based on a combination of various financial and qualitative factors that may affect the customers’ ability to pay. These factors include the customers’ financial condition and past payment experience.
The Company maintains an allowance for credit losses, which represents an estimate of expected losses over the remaining contractual life of its receivables considering current market conditions and estimates for supportable forecasts when appropriate. The Company measures expected credit losses on its trade receivables on a customer basis. The estimate of
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expected credit losses considers any historical losses, delinquency trends, collection experience, and/or economic risk where appropriate. Additionally, management develops a specific allowance for trade receivables known to have a high risk of expected future credit loss.
The Company has historically experienced immaterial write-offs given the nature of the customers and contracts. As of December 31, 2023, the Company had gross receivables (including unbilled receivables) of $694 thousand and an allowance for credit losses of $8 thousand. As of December 31, 2022, the Company had gross receivables of $1.01 million and no allowance for credit losses.
As of December 31, 2023 and 2022, Accounts receivable includes unbilled receivables of $143 thousand and $109 thousand, respectively.
Property and Equipment, Net — Property and equipment, net is stated at cost less accumulated depreciation. Depreciation is recognized using the straight-line method over the estimated useful lives of the respective assets. Maintenance and repairs that do not improve or extend the useful lives of the assets are expensed when incurred, whereas additions and major improvements are capitalized. Upon sale or retirement of assets, the cost and related accumulated depreciation are derecognized from the consolidated balance sheet and any resulting gain or loss is recorded in the consolidated statements of operations in the period realized.
Capitalized Internal-Use Software, Net — Capitalized Internal-Use Software, Net is a combination of costs related to software developed, modified, or acquired solely to meet Trust Stamp's internal requirements, with no substantive plans to market such software at the time of development or acquisition are capitalized, and costs related to the development of software-as-a-service ("SaaS") based solutions. The Company capitalizes eligible costs to develop Capitalized Internal-Use Software and SaaS solutions that are incurred subsequent to the preliminary project stage throughout the development stage. These costs consist of personnel costs (including salaries, related benefits, and stock-based compensation) and certain third-party costs that are incurred during the application development stage. We also capitalize the costs incurred to upgrade and enhance that result in additional functionality. Costs incurred during the preliminary project stage, the post-implementation operational stage, and for maintenance are expensed as incurred. Maintenance costs are expensed as incurred. The estimated useful life of costs capitalized is evaluated for each specific project that is generally five years. Actual economic lives may differ from estimated useful lives. Periodic reviews could result in a change in estimated useful lives and therefore changes in amortization expense in future periods.
Accounting for Impairment of Long-Lived Assets — Long-lived assets with finite lives include Property and equipment, net, Capitalized internal-use software, Operating lease right-of-use assets, and Intangible assets, net subject to amortization. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets held and used is measured by comparison of the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds these estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the assets exceeds the fair value of the asset or asset group. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
As of December 31, 2023, the Company determined that $19 thousand of Capitalized internal-use software and $12 thousand of Intangible assets was impaired. The impaired Capitalized internal-use software was expensed to during the year ended December 31, 2023.. As of December 31, 2022, the Company determined that no long-lived assets with finite lives were impaired.
Goodwill — Goodwill is accounted for in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 350, Intangibles—Goodwill and Other. The Company allocates the cost of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase consideration transferred over the fair value of the net assets acquired, including other Intangible assets, net, is recorded as Goodwill. Goodwill is tested for impairment at the reporting unit level at least quarterly or more frequently when events or circumstances occur that indicate that it is more likely than not that an impairment has occurred. In assessing Goodwill for impairment, the Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. In the qualitative assessment, the Company considers factors including economic conditions, industry and market conditions and developments, overall financial performance and other relevant entity-specific events in determining whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount. Should the Company conclude that it is more likely than not that the recorded Goodwill amounts have been impaired, the Company would perform the impairment test. Goodwill impairment exists when a reporting unit’s
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carrying value exceeds its fair value. Significant judgment is applied when Goodwill is assessed for impairment. There were no impairment charges to Goodwill during the years ended December 31, 2023 and 2022.
Fair Value of Assets and Liabilities — The Company follows the relevant U.S. GAAP guidance regarding the determination and measurement of the fair value of assets/liabilities; in which fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction valuation hierarchy which requires an entity to maximize the use of observable inputs when measuring fair value. The guidance describes the following three levels of inputs that may be used in the methodology to measure fair value:
Level 1 – Quoted prices available in active markets for identical investments as of the reporting date;
Level 2 – Inputs other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date; and
Level 3 – Unobservable inputs, which are to be used in situations where there is little or no market activity for the asset or liability and wherein the reporting entity makes estimates and assumptions related to the pricing of the asset or liability including assumptions regarding risk.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The estimated fair values of Cash and cash equivalents, Accounts receivable, Related party receivables, Prepaid expenses and other current assets, Other assets, Accounts payable, Related party payables, Accrued expenses, Deferred revenue, Customer deposit liabilities, and Notes payable approximate their carrying values. The fair values of warrant liabilities issued in connection with equity or debt issuance are determined using the Black-Scholes valuation model, a “Level 3” fair value measurement, based on the estimated fair value of the underlying common stock, volatility based on the historical volatility data of similar companies, considering the industry, products and market capitalization of such other entities, the expected life based on the remaining contractual term of the conversion option and warrant liabilities and the risk free interest rate based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the warrant liability’s contractual life. The Company accounts for its financial assets and liabilities at fair value regularly. The Company evaluates the fair value of its non-financial assets and liabilities on a nonrecurring basis.
Revenue Recognition — The Company derives its revenue primarily from professional services. Revenue is recognized upon transfer of control of promised products and services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. If the consideration promised in a contract includes a variable amount, the Company includes an estimate of the amount it expects to receive or the total transaction price if it is probable that a significant reversal of cumulative revenue recognized will not occur. The Company determines the amount of revenue to be recognized through the application of the following steps:
•Identification of the contract, or contracts with a customer;
•Identification of the performance obligations in the contract;
•Determination of the transaction price;
•Allocation of the transaction price to the performance obligations in the contract; and
•Recognition of revenue when or as the Company satisfies the performance obligations.
At contract inception, the Company will assess the services agreed upon within each contract and assess whether each service is distinct and determine those that are performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. In general, each contract with a customer consists of a single performance obligation to perform services in which revenue is recognized when the service has been delivered.
Remaining Performance Obligations — The Company’s arrangements with its customers often have terms that span over multiple years. However, the Company generally allows its customers to terminate contracts for convenience prior to the end of the stated term with less than twelve months’ notice. Revenue allocated to remaining performance obligations represents non-cancelable contracted revenue that has not yet been recognized, which includes deferred revenue and, in
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certain instances, amounts that will be invoiced. The Company has elected the practical expedient allowing the Company to not disclose remaining performance obligations for contracts with original terms of twelve months or less. Cancellable contracted revenue, which includes customer deposit liabilities, is not considered a remaining performance obligation. As of December 31, 2023 and 2022, the Company did not have any related performance obligations for contracts with terms exceeding twelve months.
Disaggregation of Revenue
| For the years ended December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Professional services (over time) | $ | $ | ||||||||||||
| Termination expense reimbursement (one time) | ||||||||||||||
| License fees (over time) | ||||||||||||||
| Total Revenue | $ | $ | ||||||||||||
Contract Balances — The timing of customer billing and payment relative to the start of the service period varies from contract to contract; however, the Company bills many of its customers in advance of the provision of services under its contracts, resulting in liabilities consisting of either deferred revenue (a “contract liability”) or customer deposit liabilities. Deferred revenue represents billings under non-cancelable contracts before the related product or service is transferred to the customer. Such amounts are recognized by the Company over the life of the contract upon meeting the revenue recognition criteria, but generally within one year. Customer deposit liabilities consist of billings or payments received in advance of the start of the contractual term or for anticipated revenue-generating activities for the portion of a contract term that is subject to cancellation for convenience. Certain of the Company’s arrangements generally include terms that allow the customer to terminate the contract for convenience and receive a refund of the amount of the customer deposit for the percentage of the work not performed prior to the notice of termination. In these arrangements, the Company concluded there are no enforceable rights and obligations after such notice period and therefore, the consideration received or due from the customer that is subject to termination for convenience is recorded as customer deposit liabilities.
The payment terms and conditions vary by contract; however, the Company’s terms generally require payment within 30 to 60 days from the invoice date. In instances where the timing of revenue recognition differs from the timing of payment, the Company elected to apply the practical expedient in accordance with ASC 606 to not adjust contract consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when promised goods and services are transferred to the customer and when the customer pays for those goods and services will be one year or less. As such, the Company determined its contracts do not generally contain a significant financing component.
Costs to Obtain and Fulfill Contracts — Incremental costs of obtaining a contract include only those costs that are directly related to the acquisition of contracts, including sales commissions, and that would not have been incurred if the contract had not been obtained. In alignment with ASC 340, Other Assets and Deferred Costs ("ASC 340"), the Company recognizes an asset for the incremental costs of obtaining a contract with a customer if we expect to recover the costs. The Company elected to apply the practical expedient in accordance with ASC 340 which allows the Company to expense commissions as incurred when the contract term is twelve months or less in total. Costs to obtain contracts and costs to fulfill contracts were not material in the periods presented.
Warrants — The Company accounts for stock warrants as either equity instruments, derivative liabilities, or liabilities in accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”), depending on the specific terms of the warrant agreement.
Cost of Services Provided — Cost of services generally consists of the cost of hosting fees, materials, and cost of labor associated with professional services rendered. Depreciation and amortization expense is not included in Cost of services.
Research and Development — Research and development costs are expensed as incurred and consist primarily of personnel costs such as salaries and benefits and relate primarily to time spent during the preliminary project stage, post implementation maintenance, bug fixes associated with Capitalized internal-use software activities, and front-end application development in which technological feasibility has not been established. Depreciation and amortization expense is not included in Research and development.
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Advertising — Advertising costs are expensed as incurred. Advertising and marketing expense totaled and $224 thousand and $217 thousand for the years ended December 31, 2023 and 2022, respectively.
Income Taxes — The Company records income tax provisions for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, the Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts for financial reporting purposes and the tax bases of assets and liabilities, as well as for loss and tax credit carryforwards. The deferred assets and liabilities are measured using the statutorily enacted tax rates anticipated to be in effect when those tax assets and liabilities are expected to be realized or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date.
A valuation allowance is established if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company considers all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income in assessing the need for a valuation allowance.
The Company’s tax positions are subject to income tax audits by multiple tax jurisdictions. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not the position will be sustainable upon examination by the taxing authority, including resolution of any related appeals or litigation processes. This evaluation is based on all available evidence and assumes that the tax authorities have full knowledge of all relevant information concerning the tax position. The tax benefit recognized is measured as the largest amount of benefit which is more likely than not (greater than 50% likely) to be realized upon ultimate settlement with the taxing authority. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in Income tax benefit (expense). The Company adjusts these reserves in accordance with the income tax guidance when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences may affect the provision for income taxes in the period in which such determination is made and could have a material impact on the Company’s financial condition and operating results.
The Company computes its tax provision for interim periods by applying the estimated annual effective tax rate to year-to-date pre-tax income from recurring operations and adjusting for discrete tax items arising in that quarter. There were no discrete items that impacted the effective tax rate for the years ended December 31, 2023 and 2022, respectively. The rate remained consistent over the period due to the full valuation allowance recorded in the period.
The Company had an effective tax rate of 0
Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. In making this determination, management considers all available positive and negative evidence affecting specific deferred tax assets, including the Company’s past and anticipated future performance, the reversal of deferred tax liabilities, the length of carry-back and carry-forward periods, and the implementation of tax planning strategies.
The Company had no
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It is the Company’s policy to recognize interest and penalties related to income tax matters in Income tax benefit (expense). The Company has not accrued any penalties related to uncertain tax positions due to offsetting tax attributes as of December 31, 2023 and 2022.
The Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitation. The only material jurisdiction where the Company is subject to potential examination by tax authorities is the U.S. (federal and state) for tax years 2020 through 2022.
Leases — The Company determines if a contract is a lease or contains a lease at the inception of the contract in accordance with Accounting Standards Update No. 2021-05, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments ("ASC 842"). All leases are assessed for classification as an operating lease or a finance lease. The lease term begins on the commencement date, the date the Company takes possession of the property, and the commencement date is used to calculate straight-line expense for operating leases. The lease may include options to extend or terminate the lease. When it is reasonably certain that the option will be exercised, the Company reassess our conclusions to account for the modified contract.
Operating lease right-of-use assets represent the Company’s right to use an underlying asset during a lease term and are included in non-current assets on our consolidated balance sheet. Operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease liabilities are divided into two classifications on our consolidated balance sheet as a current liability, Short-term operating lease liabilities, and a non-current liability, Long-term operating lease liabilities. The Company does not have any finance lease right-of-use assets or finance lease liabilities.
The Company’s operating lease liabilities are recognized at the applicable lease commencement date based on the present value of the lease payments required to be paid over the lease term. The interest rate implicit in the lease is not readily determinable, therefore, the Company uses an estimated incremental borrowing rate to discount the lease payments to present value. The estimated incremental borrowing rate is derived from information available at the lease commencement date. The Company’s Operating lease right-of-use assets are also recognized at the applicable lease commencement date. The Operating lease right-of-use asset equals the carrying amount of the related operating lease liability, adjusted for any lease payments made prior to lease commencement and lease incentives provided by the lessor. Variable lease payments are expensed as incurred and do not factor into the measurement of the applicable Operating lease right-of-use asset or operating lease liability.
The term of our leases equals the non-cancellable period of the lease, including any rent-free periods provided by the lessor, and also include options to renew or extend the lease (including by not terminating the lease) that we are reasonably certain to exercise. We establish the term of each lease at lease commencement and reassess that term in subsequent periods if a triggering event occurs. Operating lease cost for lease payments is recognized on a straight-line basis over the lease term.
Some lease contracts include lease and non-lease components. Trust Stamp elected the practical expedient offered by ASC 842 to not separate the lease components from non-lease components. As a result, the Company accounts for leases as a single lease component.
In addition, the Company elected not to recognize right-of-use assets and lease liabilities for leases term of twelve months or less. The short-term lease expenses are recognized on a straight-line basis over the lease term.
Commitments and Contingencies — Liabilities for loss contingencies arising from claims, disputes, legal proceedings, fines and penalties, and other sources are recorded when it is probable that a liability has been or will be incurred and the amount of the liability can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Recoveries of such legal costs from insurance policies are recorded as an offset to legal expenses in the period they are received.
Treasury Stock — Repurchased treasury stock is recorded at cost. When treasury stock is resold at a price different than its historical acquisition cost, the difference is recorded as a component of Additional paid-in capital in the consolidated balance sheets.
Net Loss per Share Attributable to Common Stockholders — Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed by giving effect to all potentially dilutive Class A Common Stock equivalents for the period. For the purposes of this calculation,
F-16
stock-based awards, warrants, and the conversion option of convertible notes are considered to be potential common shares outstanding. Since the Company incurred net losses for each of the periods presented, diluted net loss per share is the same as basic net loss per share. The Company’s potential common shares outstanding were not included in the calculation of diluted net loss per share as the effect would be anti-dilutive.
Recent Accounting Pronouncements Not Yet Adopted — In December 2023, the FASB issued ASU 2023-09, Income Taxes – Improvements to Income Tax Disclosures. ASU 2023-09 requires enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024 on a prospective basis and retrospective application is permitted. The Company is currently evaluating the impacts of the new standard but does not expect a material impact to its consolidated financial statements or related disclosures.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments in this ASU clarify that an entity should measure the fair value of an equity security subject to contractual sale restriction the same way it measures an identical equity security that is not subject to such a restriction. The FASB said the contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, should not affect its fair value. The ASU is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect this guidance to have a material impact to its consolidated financial statements or related disclosures.
Recently Adopted Accounting Pronouncement — In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” (“ASU 2016-13”). ASU 2016-13 revises the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. In November 2019, FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).” This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted this standard as of January 1, 2023, and the guidance did not have a material impact on its consolidated financial statements or related disclosures.
2. Borrowings
Promissory Notes Payable
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Malta loan receipt 3 – June 3, 2022 | $ | $ | |||||||||
| Malta loan receipt 2 – August 10, 2021 | |||||||||||
| Malta loan receipt 1 – February 9, 2021 | |||||||||||
| Interest added to principal | |||||||||||
| Total principal outstanding | |||||||||||
| Plus: accrued interest | |||||||||||
| Total promissory notes payable | $ | $ | |||||||||
In May 2020, the Company formed a subsidiary in the Republic of Malta, Trust Stamp Malta Limited, with the intent to establish a research and development center with the assistance of potential grants and loans from the Maltese government. As part of the creation of this entity, we entered into an agreement with the government of Malta for a potentially repayable advance of up to €800 thousand or $858 thousand to assist in covering the costs of 75 % of the first 24 months of payroll costs for any employee who begins 36 months from the execution of the agreement on July 8, 2020. On February 9, 2021, the Company began receiving funds and as of December 31, 2023, the balance received was $884 thousand which includes changes in foreign currency rates.
The Company will pay an annual interest rate of 2 % over the European Central Banks (ECB) base rate as set on the beginning of the year in review. If the ECB rate is below negative 1 %, the interest rate shall be fixed at 1 %. The Company will repay a minimum of 10 % of Trust Stamp Malta Limited’s pre-tax profits per annum capped at 15 % of the amount due to the Corporation until the disbursed funds are repaid. At this time, Trust Stamp Malta Limited does not have any revenue-
F-17
generating contracts and therefore, we do not believe any amounts shall be classified as current.The Malta loan interest rate increased from 2.5 % for the year ended December 31, 2022 to 4.5 % for the year ended December 31, 2023.
3. Warrants
Liability Classified Warrants
The following table presents the change in the liability balance associated with the liability classified warrants, which are classified in Level 3 of the fair value hierarchy from January 1, 2022 to December 31, 2023:
| Warrants ($) | |||||
| Balance as of January 1, 2022 | $ | ||||
| Additional warrants issued | |||||
| Change in fair value | ( | ||||
| Balance as of December 31, 2022 | $ | ||||
| Additional warrants issued | |||||
| Change in fair value | ( | ||||
| Balance as of December 31, 2023 | $ | ||||
As of December 31, 2023, the Company has issued a customer a warrant to purchase up to $1.00 million of capital stock in a future round of financing at a 20 % discount of the lowest price paid by another investor. The warrant was issued on November 9, 2016. There is no vesting period, and the warrant expires on November 30, 2026. The Company evaluated the provisions of ASC 480, Distinguishing Liabilities from Equity, noting the warrant should be classified as a liability due to its settlement being for a variable number of shares and potentially for a class of shares not yet authorized. The warrant was determined to have a fair value of $250 thousand which was recorded as a Deferred contract acquisition asset and to a Warrant liability during the year ended December 31, 2016 and was amortized as a revenue discount prior to the current periods presented. The fair value of the warrant was estimated on the date of grant by estimating the warrant’s intrinsic value on issuance using the estimated fair value of the Company as a whole and has a balance of $250 thousand as of December 31, 2023.
On December 16, 2016, the Company issued an investor warrant to purchase $50 thousand worth of shares of our Class A Common Stock. The warrants have no vesting period and expires on December 16, 2026. The warrant agreement states that the investor is entitled to the “number of shares of Common Stock with a Fair Market Value as of the Determination Date of $50,000 ”. The determination date is defined as the “date that is the earlier of (A) the conversion of the investor’s Note into the equity interests of the Company or (B) the maturity date of the Note.” The investor converted the referenced Note on June 30, 2020, therefore, defining the determination date. The number of shares to be purchased is settled as 6,418 shares as of June 30, 2020. The exercise price of the warrants is variable until the exercise date.
The Company used a Black-Scholes-Merton pricing model to determine the fair value of the warrants and uses this model to assess the fair value of the warrant liability. As of December 31, 2023, the warrant liability is recorded at $7 thousand which is a $5 thousand decrease, recorded to Change in fair value of warrant liability, from the balance of $12 thousand as of December 31, 2022.
| Fair Value of Warrants | $ | ||||
| Exercise price | $ | ||||
| Risk free interest rate | |||||
| Expected dividend yield | % | ||||
| Expected volatility | |||||
| Expected term | |||||
F-18
Equity Classified Warrants
| As of December 31, | ||||||||||||||||||||
| Warrant Issuance Date | Strike Price | 2023 | 2022 | |||||||||||||||||
| November 9, 2016 | $ | |||||||||||||||||||
| January 23, 2020 | $ | |||||||||||||||||||
| January 23, 2020 | $ | |||||||||||||||||||
| August – December 2021 | $ | |||||||||||||||||||
| January – February 2022 | $ | |||||||||||||||||||
| September 14, 2022 | $ | |||||||||||||||||||
| April 18, 2023 | $ | (1) | ||||||||||||||||||
| June 5, 2023 | $ | (1) | ||||||||||||||||||
| December 21, 2023 | $ | |||||||||||||||||||
| Total warrants outstanding | ||||||||||||||||||||
November 9, 2016
The Company has issued a customer a warrant to purchase 80,128 shares of Class A Common Stock with an exercise price of $3.12 per share. The warrant was issued on November 9, 2016. There is no vesting period, and the warrant expires on November 30, 2026.
January 23, 2020
In January 2020, the Company issued REach®, a related party, a warrant to purchase 186,442 shares of the Company’s Class A Common Stock at an exercise of $8.00 per share in exchange for the cancellation of a $100 thousand SAFE issued on August 18, 2017 by the Company’s affiliate Trusted Mail Inc. with a value of $125 thousand. The warrants were issued on January 23, 2020. There is no vesting period, and the warrants expire on December 20, 2024.
January 23, 2020
In January 2020, the Company issued SCV, a related party, a warrant to purchase 932,111 shares of the Company’s Class A Common Stock at a strike price of $8.00 per share in exchange for $300 thousand in cash and “Premium” sponsorship status with a credited value of $100 thousand per year for 3 years totaling $300 thousand. This “premium” sponsorship status provides the Company with certain benefits in marketing and networking, such as the Company being listed on the investor’s website, as well as providing the Company certain other promotional opportunities organized by the investor. The warrants were issued on January 23, 2020. There is no vesting period, and the warrants expire on December 20, 2024.
On December 21, 2021, SCV executed a Notice of Exercise for certain of its warrants to purchase 407,512 shares of Class A Common Stock at an exercise price of $8.00 per share for a total purchase price of $3.26 million. The closing occurred on January 10, 2022 and resulted in total cash proceeds of $3.26 million to the Company for the warrant exercise.
The warrants to purchase the remaining 524,599 shares of the Company’s Class A Common Stock remain outstanding as of December 31, 2023.
August – December 2021 and January – February 2022
The Company issued 271,593 warrants from August 2021 to December 2021 and 15,421 warrants from January 2022 to February 2022 related to the Regulation CF, D, and S common stock and warrant offerings. These warrants became exercisable on January 26, 2022 when the Company received SEC qualification of its offering statement on Form 1-A. These warrants expire as of the earlier of: (a) January 26, 2023, (b) the acquisition of the Company by another entity, or (c) immediately prior to the closing of a firm commitment underwritten public offering. On August 25, 2022, we refunded
F-19
$5,000 in units (comprised of common stock and warrants) sold in the Company's Regulation CF offering to two investors resulting in the cancellation of 250 warrants.
During the quarter ended December 31, 2022, investors exercised 2,850 warrants at an exercise price of $20.00 per share, resulting in total cash proceeds of $57 thousand to the Company for the warrant exercises.
The warrants to purchase the remaining 283,914 shares of the Company’s Class A Common Stock expired on January 26, 2023 and are no longer outstanding as of December 31, 2023.
September 14, 2022
On September 11, 2022, the Company entered into a Securities Purchase Agreement (the “SPA”) with Armistice Capital Master Fund Ltd. Pursuant to the terms of the SPA, the Company agreed, at the closing of the SPA, to sell and issue to the Armistice Capital Master Fund Ltd. in a private placement 195,000 shares of Class A Common Stock of the Company and warrants to purchase 390,000 shares of Class A Common Stock of the Company at an exercise price of $8.85 for a total purchase price of $1,511,250 . The Company incurred offering costs of $90,675 from this transaction that were recorded as a reduction of the gross proceeds. The 390,000 warrants may be exercised at any time by Armistice Capital Master Fund Ltd. starting on the issuance date, September 14, 2022, until the five year and six-month anniversary thereafter.
The warrants also allow for a “cashless exercise” if, at any time after the six (6 ) month anniversary of the issue date of the warrants there is no effective registration statement registering the resale of the Class A Common Stock issuable pursuant to the warrants. In such a case, then warrants may also be exercised, in whole or in part, by means of a cashless exercise in which Armistice Capital Master Fund Ltd. will be entitled to receive a number of shares of Class A Common Stock as described in the warrants. Trust Stamp filed the registration statement on September 30, 2022 and received the notice of effectiveness on January 26, 2023.
On June 5, 2023, the Company entered into an Amendment to Existing Warrants agreement with Armistice Capital Master Fund Ltd. Pursuant to the terms of the Amendment to Existing Warrants, the exercise price for the warrants to purchase 390,000 shares of Class A Common Stock of the Company is reduced to $2.30 for a total purchase price of $897,000 . In addition, the expiration date for the 390,000 warrants is amended allowing the exercise of the warrant at any time by Armistice Capital Master Fund Ltd. starting on the closing of the offering, June 5, 2023, until the five year anniversary thereafter.
On August 18, 2023, the institutional investor exercised 270,000 warrants to purchase shares of Class A Common Stock of the Company at a price of $2.30 per warrant, resulting in an issuance by the Company of 270,000 shares of Class A Common Stock for total proceeds of $621,000 .
On December 21, 2023, the Company entered into an Inducement Agreement with Armistice Capital Master Fund Ltd. Pursuant to the terms of the Inducement Agreement, the exercise price for the warrants to purchase the remaining 120,000 shares of Class A Common Stock of the Company was reduced to $1.34 for a total purchase price of $160,800 .
On December 21, 2023, the remaining 120,000 common stock purchase warrants to purchase shares of Class A Common Stock of the Company at a price of $1.34 per warrant, resulting in an issuance by the Company of 120,000 shares of Class A Common Stock for total proceeds of $160,800 .
All warrants related to this investment have been exercised and are no longer outstanding as of December 31, 2023.
April 18, 2023
On April 14, 2023, the Company entered into a securities purchase agreement (“SPA”) with Armistice Capital Master Fund Ltd. Pursuant to which the Company agreed to issue and sell to the investor (i) in a registered direct offering, 563,380 shares of Class A Common Stock, par value $0.01 per share of the Company at a price of $3.30 per share, and pre-funded warrants to purchase up to 1,009,950 shares of Class A Common Stock, at a price of $3.299 per prefunded warrant, at an exercise price of $0.001 per share of Class A Common Stock, and (ii) in a concurrent private placement, common stock purchase warrants, exercisable for an aggregate of up to 1,573,330 shares of Class A Common Stock, at an exercise price of $3.30 per share. On April 18, 2023, the Company sold 563,380 shares of Class A Common Stock to the institutional investor at a price of $3.30 per share for total proceeds $1,859,154 . Additionally, on same date, the institutional investor purchased and exercised the 1,009,950 pre-funded warrants, for total proceeds to the Company of $3,332,835 , resulting in
F-20
an aggregate issuance by the Company of 1,573,330 shares of Class A Common Stock for net proceeds of $4,778,550 from the registered direct offering after deducting placement fee and legal expense of $363,439 and $50,000 , respectively.
On December 21, 2023, the Company entered into an Inducement Agreement with Armistice Capital Master Fund Ltd. Pursuant to the terms of the Inducement Agreement, the exercise price for the warrants to purchase the remaining 1,573,330 shares of Class A Common Stock of the Company was reduced to $1.34 for a total purchase price of $2,108,262 .
On December 21, 2023, the remaining 1,573,330 common stock purchase warrants to purchase shares of Class A Common Stock of the Company at a price of $1.34 per warrant were exercised for total proceeds of $2,108,262 .
As of December 31, 2023, the Company had received Notice to Exercise for 798,000 common stock purchase warrants resulting in an issuance by the Company of 798,000 shares of Class A Common Stock. Due to the beneficial ownership limitation provisions in the Inducement Agreement, as of December 31, 2023 the remaining 775,330 common stock purchase warrants exercised on December 21, 2023 were unissued and held in abeyance for benefit of the institutional investor until notice from the institutional investor that the shares may be issued in compliance with the beneficial ownership limitation. On February 7, 2023 and February 27, 2023, the Company issued 320,000 and 455,330 shares, respectively.
June 5, 2023
On June 1, 2023, the Company entered into a securities purchase agreement (“SPA”) with an Armistice Capital Master Fund Ltd. Pursuant to which the Company agreed to issue and sell to the investor (i) in a registered direct offering, 736,400 shares of Class A Common Stock, par value $0.01 per share of the Company at a price of $2.30 per share, and pre-funded warrants to purchase up to 543,300 shares of Class A Common Stock, at a price of $2.299 per prefunded warrant, at an exercise price of $0.001 per share of Class A Common Stock, and (ii) in a concurrent private placement, common stock purchase warrants, exercisable for an aggregate of up to 1,279,700 shares of Class A Common Stock, at an exercise price of $2.30 per share. On June 5, 2023, the Company sold 736,400 shares of Class A Common Stock to the institutional investor at a price of $2.30 per share for total proceeds of $1,693,720 . Additionally, on same date, the institutional investor purchased the 543,300 pre-funded warrants at a price of $2.299 per prefunded warrant, for total proceeds to the Company of $1,249,047 , resulting in an issuance by the Company of 736,400 shares of Class A Common Stock for net proceeds of $2,686,773 from the registered direct offering after deducting placement fee and legal expense of $205,994 and $50,000 , respectively.
On June 12, 2023, the institutional investor exercised 322,300 pre-funded warrants at a price of $0.001 per prefunded warrant, resulting in an issuance by the Company of 322,300 shares of Class A Common Stock for total proceeds of $322 . Additionally, on June 23, 2023, the institutional investor exercised 221,000 pre-funded warrants at a price of $0.001 per prefunded warrant, resulting in an issuance by the Company of 221,000 shares of Class A Common Stock for total proceeds of $221 .
On December 21, 2023, the Company entered into an Inducement Agreement with Armistice Capital Master Fund Ltd. Pursuant to the terms of the Inducement Agreement, the exercise price for the common stock purchase warrants to purchase the remaining 1,279,700 shares of Class A Common Stock of the Company was reduced to $1.34 for a total purchase price of $1,714,798 .
On December 21, 2023, the institutional investor exercised 106,670 warrants to purchase shares of Class A Common Stock of the Company at a price of $1.34 per warrant for total proceeds of $142,938 .
As of December 31, 2023, due to the beneficial ownership limitation provisions in the Inducement Agreement, the 106,670 warrants were unissued and held in abeyance for benefit of the institutional investor until notice from the institutional investor that the shares may be issued in compliance with the beneficial ownership limitation. These shares were subsequently issued on February 27, 2023.
The common stock purchase warrants to purchase 1,279,700 shares of the Company’s Class A Common Stock remain outstanding as of December 31, 2023.
December 21, 2023
F-21
On December 21, 2023, the Company entered into a warrant exercise agreement (the “WEA”) with a certain existing institutional investor, pursuant to which the institutional investor agreed to exercise (the “Exercise”) (i) a portion (106,670 ) of the warrants issued to the institutional investor on June 5, 2023, which are exercisable for 1,279,700 shares of the Company’s Class A Common Stock, par value $0.01 per share (“Class A Common Stock”) with a current exercise price of $2.30 per share (the “June 2023 Warrants”), (ii) all of the warrants issued to the institutional investor on September 14, 2022, as amended on June 5, 2023, which are exercisable for 120,000 shares of Class A Common Stock, with a current exercise price of $2.30 per share (the “September 2022 Warrants”), and (iii) all of the warrants issued to the institutional investor on April 18, 2023, which are exercisable for 1,573,330 shares of Class A Common Stock, with a current exercise price of $3.30 per share (the “April 2023 Warrants” and collectively with all of the June 2023 Warrants and the September 2022 Warrants, the “Existing Warrants”). In consideration for the immediate exercise of 1,800,000 of the Existing Warrants for cash, the Company agreed to reduce the exercise price of all of the Existing Warrants, including any unexercised portion thereof, to $1.34 per share, which is equal to the most recent closing price of the Company’s Class A Common Stock on The Nasdaq Stock Market prior to the execution of the WEA. As of December 31, 2023, Armistice had submitted an Exercise Notice for 918,000 Existing Warrants and the shares of Class A Common Stock were issued to the warrant holders. The remaining 882,000 Existing Warrants from this exercise are held in abeyance until the Company receives notice from the holders that the remaining shares may be issued in compliance with the beneficial ownership limitation. As of the date of this report, the remaining 882,000 Existing Warrants have been issued.
In addition, in consideration for such Exercise, the Selling Stockholder received new unregistered warrants to purchase up to an aggregate of 3,600,000 shares of Class A Common Stock, equal to 200 % of the shares of Class A Common Stock issued in connection with the Exercise, with an exercise price of $1.34 per share (the “New Warrants”) in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933 (the “Securities Act”).
All 3,600,000 of the New Warrants remain outstanding as of December 31, 2023.
4. Balance Sheet Components
Prepaid expenses and other current assets
Prepaid expenses and other current assets as of December 31, 2023 and 2022 consisted of the following:
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Prepaid operating expenses | $ | $ | |||||||||
| Rent deposit | |||||||||||
| Value added tax receivable | |||||||||||
| Tax credit receivable (short-term) | |||||||||||
| Miscellaneous receivable | |||||||||||
| Prepaid expenses and other current assets | $ | $ | |||||||||
Capitalized internal-use software, net
Capitalized internal-use software, net as of December 31, 2023 and 2022 consisted of the following:
| As of December 31, | |||||||||||||||||
| Useful Lives | 2023 | 2022 | |||||||||||||||
| Internally developed software | $ | $ | |||||||||||||||
| Less: Accumulated depreciation | ( | ( | |||||||||||||||
| Capitalized internal-use software, net | $ | $ | |||||||||||||||
Amortization expense is recognized on a straight-line basis and for the years ended December 31, 2023 and 2022 totaled $557 thousand and $517 thousand, respectively.
F-22
The Company determined that as of December 31, 2023, $19 thousand of Capitalized internal-use software was impaired. The impaired Capitalized internal-use software was expensed to Research and development during the year ended December 31, 2023.
Property and equipment, net
Property and equipment, net as of December 31, 2023 and 2022 consisted of the following:
| As of December 31, | |||||||||||||||||
| Useful Lives | 2023 | 2022 | |||||||||||||||
| Computer equipment | $ | $ | |||||||||||||||
| Furniture and fixtures | |||||||||||||||||
| Mobile hardware | |||||||||||||||||
| Property and equipment, gross | |||||||||||||||||
| Less: Accumulated depreciation | ( | ( | |||||||||||||||
| Property and equipment, net | $ | $ | |||||||||||||||
Depreciation expense is recognized on a straight-line basis and for the years ended December 31, 2023 and 2022 totaled $72 thousand and $136 thousand, respectively.
On April 26, 2023, the Company sold a portion of the mobile hardware for a gross sales price of $180 thousand and a gain of $108 thousand. On May 26, 2023, the Company sold another portion of the mobile hardware for a gross sales price of $197 thousand and a gain of $108 thousand.
Accrued expenses
Accrued expenses as of December 31, 2023 and 2022 consisted of the following:
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Compensation payable | $ | $ | |||||||||
| Commission liability | |||||||||||
| Accrued employee taxes | |||||||||||
| Accrued mobile expenses | |||||||||||
| Other accrued liabilities | |||||||||||
| Accrued expenses | $ | $ | |||||||||
5. Goodwill and Intangible Assets, Net
There were no changes in the carrying amount of Goodwill for the years ended December 31, 2023 and 2022.
Intangible assets, net as of December 31, 2023 and 2022 consisted of the following:
| As of December 31, | |||||||||||||||||
| Useful Lives | 2023 | 2022 | |||||||||||||||
| Patent application costs | $ | $ | |||||||||||||||
| Trade name and trademarks | |||||||||||||||||
| Intangible assets, gross | |||||||||||||||||
| Less: Accumulated amortization | ( | ( | |||||||||||||||
| Intangible assets, net | $ | $ | |||||||||||||||
F-23
The Company determined that as of December 31, 2023, $12 thousand of Patent application costs were impaired. The impaired Patent application costs were expensed to Selling, general, and administrative expense during the year ended December 31, 2023.
The Company added 4 patents and 1 trademark during the year ended December 31, 2023. The patents issued during the year ended December 31, 2023 increased our total number of patents to 17 and include:
•On August 29, 2023, the Company received Notice of Issuance together with a Notice of Allowance on August 17, 2023 both entitled “Systems and Processes for Lossy Biometric Representation.” These patents further expand our intellectual property portfolio related to the tokenization of biometric data and broaden our patent coverage by removing the necessity to use a neural network in our irreversible transformation process.
•On August 15, 2023, the Company received Notice of Issuance for a patent entitled “Systems and Methods for Identity Authentication via Third Party Accounts.” This technology, while leveraging our core privacy-first technologies, provides an optional interlock between different types of user accounts benefiting from the strengths that each can offer in terms of user authentication to produce a more resilient user-centric ecosystem.
•On July 25, 2023, the Company received Notice of Issuance for a patent entitled “Systems and Methods for Privacy-Secured Biometric Identification and Verification.” For the last six years we have invested heavily in research and development which has created a solid foundation for our current and future generations of cutting edge, privacy-first identity products and this patent reflects our systems and methods for matching an encrypted biometric input record with stored encrypted biometric record without data decryption of the input and at least one stored record.
•On June 20, 2023, the Company received Notice of Issuance for a patent entitled “Ownership Validation for Cryptographic Asset Contracts Using Irreversibly Transformed Identity Tokens.” This technology expands the range of use cases for the IT2 into NFT’s and the Metaverse by verifying the ownership of cryptographic asset contracts using embedded IT2 technology. Cryptographic assets are typically associated with a particular digital address ("digital wallet") which are vulnerable to fraud, pilferage, and user errors. The new patent addresses the long-felt but unresolved need for improved systems and processes for validating ownership of cryptographic assets.
Intangible asset amortization expense is recognized on a straight-line basis and for the years ended December 31, 2023 and 2022 totaled $160 thousand and $107 thousand, respectively.
Estimated future amortization expense of Intangible assets, net is as follows:
| Years Ending December 31, | Amount | |||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| $ | ||||||||
6. Income Taxes
Net loss before taxes consisted of the following:
| For the years ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||
| U.S. | $ | ( | $ | ( | ||||||||||||||||
| Non-U.S. | ( | ( | ||||||||||||||||||
| Net loss before taxes | $ | ( | $ | ( | ||||||||||||||||
The components of income tax benefit (expense) are as follows:
F-24
| For the years ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||
| Current: | ||||||||||||||||||||
| U.S. Federal | $ | $ | ||||||||||||||||||
| U.S. State | ||||||||||||||||||||
| Non-U.S. | ( | |||||||||||||||||||
| $ | ( | $ | ||||||||||||||||||
| Deferred: | ||||||||||||||||||||
| U.S. Federal | $ | $ | ||||||||||||||||||
| U.S. State | ||||||||||||||||||||
| Non-U.S. | ||||||||||||||||||||
| $ | $ | |||||||||||||||||||
| Total income tax benefit (expense) | $ | ( | $ | |||||||||||||||||
A reconciliation of the expected tax provision (benefit) at the statutory federal income tax rate to the Company’s recorded tax provision (benefit) consisted of the following:
| For the years ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||
| Expected tax provision (benefit) at U.S. federal statutory rate | $ | ( | $ | ( | ||||||||||||||||
| State income taxes, net of federal benefit | ||||||||||||||||||||
| Foreign tax rate differential | ( | ( | ||||||||||||||||||
| Change in valuation allowance | ||||||||||||||||||||
| Stock compensation | ||||||||||||||||||||
| Credits | ( | ( | ||||||||||||||||||
| Prior year deferred tax adjustments | ( | |||||||||||||||||||
| Other | ||||||||||||||||||||
| Total provision (benefit) for income taxes | $ | ( | $ | |||||||||||||||||
Temporary differences that give rise to significant portions of the deferred tax assets are as follows:
| As of December 31, | ||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||
| Deferred Tax Assets: | ||||||||||||||||||||
| Net operating losses | $ | $ | ||||||||||||||||||
| Section 174 | ||||||||||||||||||||
| Tax credits | ||||||||||||||||||||
| Equity compensation | ||||||||||||||||||||
| Lease liability | ||||||||||||||||||||
| Other - accruals | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total Deferred Tax Assets | ||||||||||||||||||||
| Deferred Tax Liabilities: | ||||||||||||||||||||
| Capitalized internal-use software, net | ( | ( | ||||||||||||||||||
| Right-of-use asset | ( | ( | ||||||||||||||||||
| Total Deferred Tax Liabilities | ( | ( | ||||||||||||||||||
| Net Deferred Tax Assets | ||||||||||||||||||||
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| Valuation allowance | ( | ( | ||||||||||||||||||
| Deferred Tax Assets, Net | $ | $ | ||||||||||||||||||
Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. In making this determination, management considers all available positive and negative evidence affecting specific deferred tax assets, including the Company’s past and anticipated future performance, the reversal of deferred tax liabilities, the length of carry-back and carry-forward periods, and the implementation of tax planning strategies.
Objective positive evidence is necessary to support a conclusion that a valuation allowance is not needed for all or a portion of deferred tax assets when significant negative evidence exists. The Company’s cumulative losses in recent years are the most compelling form of negative evidence considered by management in making this determination. For the years ended December 31, 2023 and 2022, the net increase in the total valuation allowance was $1,901,622 and $3,146,272 , respectively, and management has determined that based on all available evidence, a valuation allowance of $11,232,951 and 9,363,348 is appropriate at December 31, 2023 and 2022, respectively.
At December 31, 2023, the Company had Federal net operating loss carrying forwards of $19,127,170 . Net operating losses generated for years ending December 31, 2017 and prior total $574,051 and will expire in 2037. Net operating losses generated beginning in 2018 total $18,553,119 and have an indefinite life. At December 31, 2023, the Company had state net operating loss carry forwards of $3,743,893 . State net operating losses generated for years ending December 31, 2017 and prior total $574,051 and will expire in 2037. Net operating losses generated beginning in 2018 total $3,169,842 and have an indefinite life. At December 31, 2023, the Company had foreign net operating loss carry forwards of $11,859,008 with an indefinite carry forward period. Foreign net operating losses of $975,242 will begin to expire in 2026.
Included in the balance of unrecognized tax benefit as of December 31, 2023 and December 31, 2022, are $129,082 and $83,765 , respectively, of tax benefits that, if recognized, would affect the effective tax rate.
The Company recognizes accrued interest related to unrecognized tax expenses and penalties as income tax expense. Related to the unrecognized tax benefits noted above, the Company accrued $0 of interest during 2023, and $0 of penalty, and in total, as of December 31, 2023 has recognized $0 of interest and penalty.
7. Net Loss per Share Attributable to Common Stockholders
The following table presents the calculation of basic and diluted net loss per share:
| For the years ended December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Numerator: | ||||||||||||||
| Net loss attributable to common stockholders | $ | ( | $ | ( | ||||||||||
| Denominator: | ||||||||||||||
| Weighted average shares used in computing net loss per share attributable to common stockholders | ||||||||||||||
| Net loss per share attributable to common stockholders | $ | ( | $ | ( | ||||||||||
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The following potentially dilutive securities were excluded from the computation of diluted net loss per share calculations for the periods presented because the impact of including them would have been anti-dilutive:
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Options, RSUs, and grants | |||||||||||
| Warrants | |||||||||||
| Total | |||||||||||
8. Stock Awards and Stock-Based Compensation
From time to time, the Company may issue stock awards in the form of Class A Common Stock grants, Restricted Stock Units (RSUs), or Class A Common Stock options with vesting/service terms. Stock awards are valued on the grant date using the Company’s common stock share price quoted on an active market. Stock options are valued using the Black-Scholes-Merton pricing model to determine the fair value of the options. We generally issue our awards in terms of a fixed monthly value, resulting in a variable number of shares being issued, or in terms of a fixed monthly share number.
During the years ended December 31, 2023 and 2022, the Company entered into agreements with advisory board members and other external advisors to issue cash payments and stock awards in exchange for services rendered to the Company monthly. The total granted stock-based awards to advisory board members and other external advisors during the years ended December 31, 2023 and 2022 included grants totaling, $6 thousand and $49 thousand, respectively, options totaling $0 36 thousand and $190 thousand, respectively.
In addition to issuing stock awards to advisory board members and other external advisors, during the years ended December 31, 2023 and 2022, the Company granted stock-based awards to multiple employees. The total granted stock-based awards to employees during the years ended December 31, 2023 and 2022 included grants totaling, $82 thousand and $307 thousand, respectively, options totaling $12 thousand and $57 thousand, respectively, and RSUs totaling $627 thousand and $1.80 million, respectively.
The following table summarizes stock option activity for the years ended December 31, 2023 and 2022:
| Options Outstanding | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | |||||||||||||||||||||
| Options granted | |||||||||||||||||||||||
| Options exercised | ( | ||||||||||||||||||||||
| Options canceled and forfeited | ( | ||||||||||||||||||||||
| Balance as of December 31, 2023 | |||||||||||||||||||||||
| Options vested and exercisable as of December 31, 2023 | $ | ||||||||||||||||||||||
The aggregate intrinsic value of options outstanding, exercisable, and vested is calculated as the difference between the exercise price of the underlying options and the fair value of the Company’s common stock. The aggregate intrinsic value of options exercised during the years ended December 31, 2023 and 2022 was $0 .
The weighted average grant-date fair value of options granted during the years ended December 31, 2023 and 2022 was $1.08 and $7.65 per share, respectively. The total grant-date fair value of options that vested during the years ended December 31, 2023 and 2022 was $12 thousand and $57 thousand, respectively.
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The following assumptions were used to calculate the fair value of options granted during the year ended December 31, 2023:
| Fair value of Class A Common Stock | $ | ||||
| Exercise price | $ | ||||
| Risk free interest rate | |||||
| Expected dividend yield | % | ||||
| Expected volatility | |||||
| Expected term | |||||
As of December 31, 2023, the Company had 393,583 stock options outstanding of which all are fully vested options.
As of December 31, 2023, the Company has 71,407 common stock grants outstanding of which 60,168 were vested but not issued and 11,239 were not yet vested. All granted and outstanding common stock grants will fully vest by December 31, 2024. The Company had unrecognized stock-based compensation related to common stock grants of $9 thousand as of December 31, 2023.
As of December 31, 2023, the Company had 446,102 RSUs outstanding of which 47,813 were vested but not issued and 398,289 were not yet vested. All granted and outstanding RSUs will fully vest by August 1, 2024. The Company had unrecognized stock-based compensation related to RSUs of $25 thousand as of December 31, 2023.
A summary of outstanding RSU activity as of December 31, 2023 is as follows:
| RSU Outstanding Number of Shares | |||||
| Balance as of January 1, 2022 | |||||
| Granted | |||||
| Vested (issued) | ( | ||||
| Forfeited | |||||
| Balance as of December 31, 2022 | |||||
| Granted | |||||
| Vested (issued) | ( | ||||
| Forfeited | ( | ||||
| Balance as of December 31, 2023 | |||||
Stock-based compensation expense
Our consolidated statements of operations include stock-based compensation expense as follows:
| For the years ended December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Cost of services | $ | $ | ||||||||||||
| Research and development | ||||||||||||||
| Selling, general, and administrative | ||||||||||||||
| Total stock-based compensation expense | $ | $ | ||||||||||||
9. Stockholders’ Equity
Common Stock — As of December 31, 2023, the Company was authorized to issue 50,000,000 Common Stock. Pursuant to the Company’s Third Amended & Restated Certificate of Incorporation, the Board of Directors of the Company has the right to designate shares of the Company’s Common Stock as either Class A or Class B Common Stock. As of December
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31, 2023 and 2022, all shares of Common Stock of the Company have been designated as Class A Common Stock, and there is no issued (or designated) Class B Common Stock.
The Class A Shares and Class B Shares are identical in all respects except as stated below. The holders of Class A Shares are entitled to one vote for each Class A Share held at all meetings of stockholders. Except as required by applicable law, the holders of Class B Shares shall have no voting rights with respect to such shares; provided, that the holders of Class B shares shall be entitled to vote (one vote for each Class B Share held) to the same extent that the holders of Class A Shares would be entitled to vote on matters as to which non-voting equity interests are permitted to vote.
Preferred Stock — On July 6, 2023, the Company received confirmation of the acceptance of its Third Amended and Restated Certificate of Incorporation (the "A&R Certificate of Incorporation") from the Secretary of State of Delaware. The A&R Certificate of Incorporation was approved by the Company’s stockholders by written consent pursuant to a definitive proxy statement filed with the Securities and Exchange Commission on April 13, 2023. Written consent from the majority of stockholders was received as of May 13, 2023. The A&R Certificate of Incorporation maintained the 50,000,000 authorized shares of Common Stock and eliminated the authorized Preferred Stock.
Liquidation Rights — In the event of a voluntary or involuntary liquidation, dissolution, or winding up of the Company, the holders of Class A Common Stock are entitled to share ratably in the net assets legally available for distribution to shareholders after the payment of all debts and other liabilities of the Company.
Voting Rights — Holders of shares of Class A Common Stock are entitled to one vote for each on all matters submitted to a vote of the shareholders, including the election of directors. Holders of shares of Class B Common Stock have no voting rights with respect to such shares; provided that the holders of Class B Common Stock shall be entitled to vote (one vote for each Class B share held) to the same extent that the holders of Shares of Class A Common Stock would be entitled to vote on matters as to which non-voting equity interests are permitted to vote pursuant to 12 C.F.R. § 225.2(q)(2) (or a successor provision thereto).
Dividends — Holders of each class of Common Stock are entitled to receive dividends, as may be declared from time to time by the Board of Directors out of legally available funds as detailed in our A&R Certificate of Incorporation. The Company has never declared or paid cash dividends on any of its capital stock and currently does not anticipate paying any cash dividends after this offering or in the foreseeable future.
10. Related Party Transactions
Related party payables of $82 thousand and $273 thousand as of December 31, 2023 and 2022, respectively, primarily relate to amounts owed to 10Clouds, the Company’s contractor for software development and investor in the Company, and smaller amounts payable to members of management as expense reimbursements. Total costs incurred in relation to 10Clouds for the years ended December 31, 2023 and 2022, totaled approximately $816 thousand and $935 thousand, respectively.
Legal Services
A member of management provides legal services to the Company from a law firm privately owned and separate from the Company. Certain services are provided to the Company through this law firm. Total expenses incurred by the Company in relation to these services totaled $0 and $138 thousand during the years ended December 31, 2023 and 2022, respectively. Amounts payable as of December 31, 2023 and 2022 were $0
Options Agreement
The Company has agreed, with effect from November 13, 2020, to grant a three-year loan in the amount of $335 thousand with an abated interest rate of 0.25 % per annum to an advisory contractor to purchase 281,648 options. The options provide for the right to acquire shares of Class A Common Stock at a strike price of $6.00 per share. The options have no vesting period and will expire in November 2023. The loan was repaid with in-kind services from the contractor at a rate of $9 thousand per month for 36 months with the first payment receipt in April 2020 and the final payment received in February 2023. As of December 31, 2023 and 2022, the shareholder loan balances were $0 and $19 thousand, respectively.
F-29
Mutual Channel Agreement
On November 15, 2020, the Company entered into a Mutual Channel Agreement with Vital4Data, Inc., a company at which one of our Directors serves as Chief Executive Officer. Pursuant to the agreement, the Company engaged Vita4Data, Inc. as a non-exclusive sales representative for the Company’s products and services. Vital4Data, Inc. is entitled to compensation in the form of commissions, receiving a 20 % of commission-eligible on net revenue from sales generated by Vital4Data, Inc. in the first year of the contract term, which is reduced to 10 % in the second year, and 5 % in the third year. The Company has not earned or expensed any commissions pursuant to the Vital4Data, Inc. agreement to date. As of December 31, 2023 and 2022, the Vital4Data, Inc. commission due was $0
11. Malta Grant
During July 2020 the Company entered into an agreement with the Republic of Malta that would provide for a grant of up to €200 thousand or $251 thousand as reimbursement for operating expenses over the first twelve months following Trust Stamp Malta’s incorporation in the Republic of Malta. The Company must provide an initial capital amount of €50 thousand or $62 thousand, which is matched with a €50 thousand or $62 thousand grant. The remaining €150 thousand or $190 thousand are provided as reimbursement of operating expenses twelve months following incorporation.
U.S. GAAP does not provide authoritative guidance regarding the receipt of economic benefits from government entities in return for compliance with certain conditions. Therefore, based on ASC 105-10-05-2, non-authoritative accounting guidance from other sources was considered by analogy in determining the appropriate accounting treatment, the Company elected to apply International Accounting Standards 20 – Accounting for Government Grants and Disclosure of Government Assistance and recognizes the expected reimbursements from the Republic of Malta as deferred income. As reimbursable operating expenses are incurred, a receivable is recognized (reflected within “Prepaid expenses and other current assets” in the consolidated balance sheets) and income is recognized in a similar systematic basis over the same periods in the consolidated statements of operations. During the years ended December 31, 2023 and 2022, the Company incurred $0
12. Leases and Commitments
Operating Leases — The Company leases office space in Atlanta, Georgia, which serves as its corporate headquarters, office space in Malta, which serves as its research and development facility, and vehicles in Malta that are considered operating lease arrangements under ASC 842 guidance. In addition. the Company contracts for month-to-month coworking arrangements in other office spaces in North Carolina, Denmark, Poland, and Rwanda to support its dispersed workforce. As of December 31, 2023, there were no minimum lease commitments related to month-to-month lease arrangements.
Initial lease terms are determined at commencement date, the date the Company takes possession of the property, and the commencement date is used to calculate straight-line expense for operating leases. Certain leases contain renewal options for varying periods, which are at the Company’s sole discretion. For leases where the Company is reasonably certain to exercise a renewal option, such option periods have been included in the determination of the Company’s Operating lease right-of-use assets and Operating lease liabilities. The Company’s leases have remaining terms of 1 to 5 years. As the
F-30
Company’s leases do not provide an implicit rate, the present value of future lease payments is determined using the Company’s incremental borrowing rate based on information available at the commencement date.
| Lease term and discount rate | December 31, 2023 | |||||||
| Weighted average remaining lease term | ||||||||
| Weighted average discount rate | % | |||||||
During the year ended December 31, 2023, the Company terminated four leases including two offices in Malta and two vehicles in Malta. The terminated leases were operating leases. As a result of the terminations, the Company incurred $11 thousand in lease termination fees and recorded a loss of $669 related to this lease termination for the year ended December 31, 2023.
| December 31, 2023 | |||||
| Leases terminated | |||||
| Lease termination fees | $ | ||||
| Operating lease right-of-use assets derecognized upon lease termination | $ | ||||
| Lease liabilities derecognized upon lease termination | $ | ||||
| Loss recognized upon lease termination | $ | ||||
On April 28, 2023, the Company extended the Malta office lease agreement, which would have ended on July 28, 2023, for a term of additional year. The lease extension increased the Operating lease right-of-use asset by $82 thousand and the operating lease liability by $83 thousand. The Company classified the amended lease as an operating lease under ASC 842.
On November 25, 2023, the Company entered into a new motor vehicle lease in Malta, which has term of 60 months. The new lease increased the Operating lease right-of-use asset by $47 thousand and the operating lease liability by $41 thousand. The Company classified the new lease as an operating lease under ASC 842.
Balance sheet information related to leases as of December 31, 2023 and 2022 was as follows:
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating lease right-of-use assets | |||||||||||
| Operating lease right-of-use assets | $ | $ | |||||||||
| Operating lease liabilities | |||||||||||
| Short-term operating lease liabilities | $ | $ | |||||||||
| Long-term operating lease liabilities | |||||||||||
| Total operating lease liabilities | $ | $ | |||||||||
Future maturities of ASC 842 lease liabilities as of December 31, 2023 are as follows:
| Principal Payments | Imputed Interest Payments | Total Payments | |||||||||||||||
| 2024 | $ | $ | $ | ||||||||||||||
| 2025 | |||||||||||||||||
| 2026 | |||||||||||||||||
| 2027 | |||||||||||||||||
| 2028 | |||||||||||||||||
| Total future maturities | $ | $ | $ | ||||||||||||||
F-31
Total lease expense, under ASC 842, was included in Selling, general, and administrative expenses in our consolidated statement of operations for the years ended December 31, 2023 and 2022 as follows:
| For the years ended December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Operating lease expense – fixed payments | $ | $ | ||||||||||||
| Short term lease expense | ||||||||||||||
| Total lease expense | $ | $ | ||||||||||||
Supplemental cash flows information related to leases was as follow:
| As of December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||
| Operating cash flows from operating leases | $ | ( | $ | ( | ||||||||||
During the year ended December 31, 2023, the Company did not incur variable lease expense.
Financial Liability Obligation — As of December 31, 2023, the Company’s financial liability totaled $162 thousand for an executed agreement with a telecommunications company for acquiring mobile hardware. On March 3, 2023, the Company provided a 30 -day termination notice to the telecommunications company which terminates the mobile hardware data service. Under the contract terms with the telecommunications company, upon termination of the data service the Company must pay the remaining financial liability during the final data service billing period. The remaining financial liability is expected to be paid within the year ended December 31, 2024.
Litigation — The Company is not currently involved with and does not know of any pending or threatening litigation against the Company or any of its officers or directors in connection with its business.
F-32
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There have been no changes in or disagreements with accountants on accounting and financial disclosure.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding our control objectives.
As of December 31, 2023, we carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer along with the Chief Financial Officer, of the effectiveness, design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon the foregoing, the Chief Executive Officer along with the Chief Financial Officer concluded that our disclosure controls and procedures were effective. In addition, based on such evaluation we have identified no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Controls Over Financial Reporting
As a publicly traded company, we are required to comply with the SEC’s rules implementing Section 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting.
Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in the Exchange Act Rule 13a-15(f). Management conducted an assessment of our internal control over financial reporting based on the framework established in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.
Based on our evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2023.
Previously Reported Material Weakness in Internal Control Over Financial Reporting
In our Annual Report for the year ended December 31, 2022, filed with the SEC on March 30, 2023, management concluded that our internal controls over financial reporting were not effective. Management identified certain material weaknesses relating to insufficient management review and approval of each journal entry prior to its posting for preparation of the financial statements and disclosures as well as inadequate controls over the management information systems related to program changes, segregation of duties, and access controls.
Remediation Plan for Previous Existing Material Weaknesses
Management is committed to the remediation of the material weakness described above. As such, controls have been added to ensure precision of management’s review and approval of each journal entry prior to its posting for preparation of the financial statements and disclosures and controls were added to ensure adequate controls over management information systems related to program changes, segregation of duties, and access controls.
Management's remediation plan has resulted in an improved internal control environment with enhanced internal controls being implemented for a sufficient length of time for management to conclude, through testing the design and operating effectiveness of these controls, that we have fully remediated the material weakness.
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Change in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the year ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections.
Not applicable.
44
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
| Name | Position | Age | Date Appointed to Current Position | Approximate hours per week for part- time employees | ||||||||||||||||||||||
| Executive Officers | ||||||||||||||||||||||||||
| Gareth Genner | Chief Executive Officer, Director | 64 | January 01, 2016 | N/A (Full-Time) | ||||||||||||||||||||||
| Andrew Gowasack | President | 32 | January 01, 2016 | N/A (Full-Time) | ||||||||||||||||||||||
| Alex Valdes | Chief Financial Officer, Board Secretary | 34 | August 29, 2016 | N/A (Full-Time) | ||||||||||||||||||||||
| Andrew Scott Francis | Chief Technology Officer | 50 | August 28, 2016 | N/A (Full-Time) | ||||||||||||||||||||||
| Directors | ||||||||||||||||||||||||||
| Gareth Genner | Chief Executive Officer, Director | 64 | January 01, 2016 | N/A (Full-Time) | ||||||||||||||||||||||
| Andrew Gowasack | President | 32 | January 01, 2016 | N/A (Full-Time) | ||||||||||||||||||||||
| Joshua Allen (1) | EVP | 46 | January 08, 2021 | N/A (Full-Time) | ||||||||||||||||||||||
| William McClintock* | 81 | January 01, 2021 | ||||||||||||||||||||||||
| Kristin Stafford* | 53 | December 01, 2021 | ||||||||||||||||||||||||
| Berta Pappenheim* | 44 | December 01, 2021 | ||||||||||||||||||||||||
| Charles Potts | 63 | November 01, 2023 | ||||||||||||||||||||||||
| Significant Employees | ||||||||||||||||||||||||||
| John Wesley Bridge | EVP | 57 | May 01, 2019 | N/A (Full-Time) | ||||||||||||||||||||||
| Kinny Chan | Chief Commercial Officer | 44 | March 12, 2020 | N/A (Full-Time) | ||||||||||||||||||||||
| Norman Hoon Thian Poh | Chief Science Officer | 48 | September 01, 2019 | N/A (Full-Time) | ||||||||||||||||||||||
_____________________________________
*Independent Director
(1)Pursuant to an oral agreement entered into with FSH Capital as a pre-condition to their investment (and subsequently confirmed by resolution of the Board of Directors of the Company), FSH Capital has the right to nominate one (1) director of the Company. Joshua Allen has been nominated by FSH Capital.
Directors
Our Board of Directors (the "Board", the "Directors") currently consists of seven directors, and is a classified Board, divided into three classes. Class I will hold office for a term expiring at the 2026 Annual Meeting of Stockholders ("Annual Meeting"); Class II will hold office for a term expiring at the 2024 Annual Meeting; and Class III will hold office for a term expiring at the 2025 Annual Meeting. At each Annual Meeting, the successors to the class of directors whose terms expire at that meeting are to be elected for a term of office to expire at the third succeeding Annual Meeting after their election and until their successors have been duly elected and qualified or until such director’s earlier death, resignation, or removal.
The Directors of the Company have been divided into classes as presented in the table below:
45
Class I Directors | Term Expiration | ||||||||||
| Gareth Genner | 2026 Annual Meeting | ||||||||||
William McClintock | 2026 Annual Meeting | ||||||||||
| Charles Potts | 2026 Annual Meeting | ||||||||||
Class II Directors | |||||||||||
Kristin Stafford | 2024 Annual Meeting | ||||||||||
| Andrew Gowasack | 2024 Annual Meeting | ||||||||||
Class III Directors | |||||||||||
Joshua Allen | 2025 Annual Meeting | ||||||||||
| Berta Pappenheim* | 2025 Annual Meeting | ||||||||||
Gareth Genner, Chief Executive Officer, Director
With over 20 years’ experience in founding, operational, and advisory capacities, Gareth provides Trust Stamp with technical, managerial, and visionary skills, as well as legal expertise. Gareth has successfully conceptualized, implemented, scaled, and exited multiple businesses including a cloud storage enterprise which was sold and an online educational platform which was acquired by a non-profit educational entity. Immediately prior to T Stamp Inc. Gareth served as full-time CEO of Edevate LLC, President of Pontifex University, as well as part-time Chancellor of Holy Spirit College. Gareth now serves as unpaid President of Pontifex University and Holy Spirit College which are merged and managed by a professional team. A British lawyer by training, Gareth holds a U.S. LLM in International Taxation & Financial Service Regulation.
Andrew Gowasack, President, Director
An economist by education, Andrew began his career in financial services sales and marketing. Although Trust Stamp is Andrew’s first start-up, he has immersed himself in the lean-start-up environment by completing multiple incubator programs, each of which provided a unique perspective and honed a distinct set of startup skills. Andrew is actively committed to ongoing learning, studying at world-class institutions. He completed Harvard Business School’s HBX CORe program and, through MIT Sloan School of Management, he has completed courses in design thinking and business innovation and application of blockchain technologies. Prior to joining Trust Stamp, Andrew worked at Ashford Advisers, a financial services company, where he worked as a Marketing Coordinator. As President, Andrew oversees business development and operations, and acts as Chief Product Evangelist.
Alex Valdes, Chief Financial Officer, Executive Vice President, Board Secretary
Before graduating college, Alex founded and operated four separate companies to pay his way through college. Before graduating, Alex spent 15 months studying abroad in Mexico where he launched an innovative microfinance lending system in partnership with the Yucatan State Department of Economic Development. From 2007 to 2012, Alex successfully exited each of the businesses and completed his degree in accounting at The University of Georgia. Alex qualified as both a CMA and CPA and worked in public accounting from 2014 to 2016 as a strategy consultant. In January of 2016, Alex became an Advisor for Trust Stamp. After 9 months as an Advisor, Alex joined the Company full-time and now serves as the Chief Financial Officer, EVP, & Board Secretary.
Andrew Scott Francis, Chief Technology Officer
Prior to joining Trust Stamp as CTO, Scott served for 9 years in the Program Management Office with Google. This role was very entrepreneurial in nature as he was tasked with helping oversee the creation and development of a global PMO team spread across multiple data centers across the US and Europe, essentially acting as a startup intrapreneur. Prior to Google, Scott served for 10 years in a number of startup companies in Atlanta, Austin, and Silicon Valley in software programming, management, and configuration management roles. As CTO, Scott oversees the Company’s software development team and programs, has responsibility for the Company’s hardware and software assets and plays a key role in working with the Company’s clients on all technical aspects of the relationship.
46
William McClintock, Chairman of the Board
Bill McClintock is a well-respected figure within the United Kingdom property market, having been involved in real estate for over fifty years. During that time, he had also been Managing Director of Royal Life Estates South with a chain of two hundred and fifty offices. He successfully exited Cornerstone Estate Agencies (three hundred and forty-seven offices), when it was purchased from Abbey National plc., and subsequently joined Hamptons as International Development Director with specific responsibility for business generated in the markets of Hong Kong, Singapore, and Malaysia. In 2003 he became the Chief Operating Officer of The Ombudsman for Estate Agents for the UK and in 2007 became Chairman, a post he held until the end of 2015.
Joshua Allen, EVP, Director
Josh acts as Trust Stamp’s EVP of Mergers and Acquisitions in addition to serving as a director, having spent over 20 years in private equity, venture capital, and non-profit management. He serves on the Board of Directors of several charitable and educational organizations. Josh has applied entrepreneurial models of operation to several US domestic and international non-profit organizations, transforming them into effective leaders in their respective spaces. Josh’s M&A transactional expertise is centered around financial services and technology.
Kristin Stafford, Independent Director
Kristin Stafford is a successful serial entrepreneur specializing in SaaS and enterprise platforms supporting global compliance and background screening. Kristin is the co-founder and CEO of Vital4, a global enterprise, cloud-based platform, which provides instant data screening to support compliance, background screening, due diligence and more, on a global scale. Kristin has served as CEO of Vital4 from its inception in February 2016, and still serves as its CEO as of the date of this report.
Kristin is the co-founder and former managing partner of one of the first independent wholesale international background screening firms in the US – International Screening Solutions, Inc. Kristin managed and developed the company from 2009 and 2015, helping to lead the company from the ground-up into a multi-million-dollar business that recently sold the platform she designed to Dun and Bradstreet in 2021.
Kristin has more than 20 years of experience in operations management, process architecture, and software development. She has organized and managed teams of over 100 employees and consultants and brings to the table a vast array of experience in facilitating the requirements of corporate clients in the development and implementation of operations systems management and software development. Before entering the international background screening space, she managed the financial operations of a large Atlanta-based financial services corporation, served as a senior consultant for Delta Technology and Northern Trust Bank, and held a management role within a start-up division of GE Capital.
In her off time, Kristin is usually found surrounded by family and friends or traveling with her three children, husband Scott, and her three fur babies Chubbs, Mable, and Dipper.
Berta Pappenheim, Independent Director
Berta Pappenheim is the CEO and co-founder of The CyberFish Company, an organizational psychology and industry-leading cybersecurity company that assesses and improves the cybersecurity incident response capabilities of its clients. Prior to co-founding The CyberFish in January 2018, Berta worked as an occupational psychologist, delivering competency-based assessment programs in the financial and professional services, natural resources, and manufacturing industries. From July 2012 to January 2017, Berta was the Managing Director of a cyber threat intelligence consulting firm, Tempest Security Intelligence, where she established and cultivated the firm’s first international office in the UK.
Berta holds a Masters in Social Sciences from the University of Linköping in Sweden and currently studies towards an MSc in Neuroscience at King’s College London.
Charles Potts, Director
Charles Potts is a prominent figure in the financial technology sector, bringing over 35 years of practical experience in nurturing and leading various organizations. Mr. Potts currently serves as the executive vice president and chief innovation
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officer for the Independent Community Bankers of America® (ICBA) where he drives ICBA’s innovation initiatives, and financial technology strategies.
Throughout his distinguished career, Mr. Potts played instrumental roles in the establishment and growth of fintech startups specializing in digital banking, mobile engagement, financial management, and payments. Many of these endeavors achieved notable success through IPOs or strategic acquisitions. His expertise extends to mergers and acquisitions, corporate strategy, business development, and product management, particularly in the domain of digital and mobile channels and their operational efficiencies.
Mr. Potts began his career in operational roles at numerous banking organizations including Citizens & Southern National Bank (now Bank of America) and HomeBanc. His financial acumen and leadership skills were further demonstrated during his executive roles at established companies, including Fiserv, Goldleaf and First Performance, where he spearheaded business development activities in his role as executive managing director from 2015 to 2019. He continues to be involved in several associations like The National Fintech Organization (NFO), The Association for Financial Technology Providers (AFT) and The Technology Association of Georgia (TAG). In his role as a General Partner in BankTech Ventures, LLC, he holds an advisory role in multiple startups, further reflecting his commitment to the fintech sector.
Mr. Potts received his education from the Georgia Institute of Technology and pursued graduate studies at Georgia State University in Atlanta. He further enhanced his banking expertise by attending the Graduate School of Banking at LSU.
Family Relationships
There are no family relationships among any of our executive officers and directors.
Corporate Governance
Director Independence
We have listed our shares of Class A Common Stock on the Nasdaq Capital Market. Under the rules of Nasdaq, “independent” directors must make up a majority of a listed company’s Board of Directors. In addition, applicable Nasdaq rules require that, subject to specified exceptions, each member of a listed company’s audit and compensation committees be independent within the meaning of the applicable Nasdaq rules. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934 (the “Exchange Act”).
Our Board of Directors currently consists of seven (7) members. Our Board of Directors has determined that Charles Potts, William McClintock, Kristin Stafford, and Berta Pappenheim qualify as independent directors in accordance with the Nasdaq Capital Market, or Nasdaq listing requirements. Messrs. Genner, Gowasack, and Allen are not considered independent. Nasdaq’s independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three (3) years, one of our employees and that neither the director nor any of his or her family members has engaged in various types of business dealings with us. In addition, as required by Nasdaq rules, our Board of Directors has made a subjective determination as to each independent director that no relationships exist that, in the opinion of our Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our Board of Directors reviewed and discussed information provided by the directors and us with regard to each director’s business, personal activities, and relationships as they may relate to us and our management. There are no family relationships among any of our directors or executive officers.
As required under Nasdaq rules and regulations and in expectation of listing on Nasdaq, our independent directors meet in regularly scheduled executive sessions at which only independent directors are present.
Board Leadership Structure and Board’s Role in Risk Oversight
William McClintock is the Chairman of the Board. The Chairman has authority, among other things, to preside over Board meetings and set the agenda for Board meetings. Accordingly, the Chairman has substantial ability to shape the work of our Board of Directors. We currently believe that separation of the roles of Chairman and Chief Executive Officer ensures appropriate oversight by the Board of our business and affairs. However, no single leadership model is right for all companies and at all times. The Board of Directors recognizes that depending on the circumstances, other leadership models, such as the appointment of a lead independent director, might be appropriate. Accordingly, the Board may
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periodically review its leadership structure. In addition, the Board will hold executive sessions in which only independent directors are present.
Our Board is generally responsible for the oversight of corporate risk in its review and deliberations relating to our activities. Risk is inherent in every business. As is the case in virtually all businesses, we face a number of risks, including operational, economic, financial, legal, regulatory, and competitive risks. Our management is responsible for the day-to-day management of the risks we face. Our Board of Directors, as a whole, through its committees has responsibility for the oversight of risk management.
In its oversight role, our Board of Directors’ involvement in our business strategy and strategic plans plays a key role in its oversight of risk management, its assessment of management’s risk appetite, and its determination of the appropriate level of enterprise risk. Our Board of Directors receives updates at least quarterly from senior management and periodically from outside advisors regarding the various risks we face, including operational, economic, financial, legal, regulatory, and competitive risks. Our Board of Directors also reviews the various risks we identify in our filings with the SEC and risks relating to various specific developments, such as acquisitions, debt and equity placements, and new service offerings.
Our Board committees assist our Board of Directors in fulfilling its oversight role in certain areas of risk. Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including those described under “Item 1A. Risk Factors” of this annual report on Form 10-K. Our Board is actively involved in oversight of risks that could affect us. This oversight is conducted primarily by our full Board, which has responsibility for general oversight of risks.
Committees of the Board of Directors
The Board of Directors has established an Audit Committee (the “Audit Committee”), a Compensation Committee (the “Compensation Committee”) and a Nominating and Corporate Governance Committee (the “The Nominating and Corporate Governance Committee”). The composition and function of each committee are described below.
Audit Committee
The Audit Committee has three members, including Mr. Potts, Mr. McClintock, and Ms. Stafford. Mr. Potts serves as the chairman of the Audit Committee and satisfies the definition of “audit committee financial expert”. Mark Birschbach was a member of the Audit Committee until his resignation from the Company's Board of Directors on October 31, 2023, at which point he was replaced by Mr. Potts.
Our Audit Committee is authorized to:
•approve and retain the independent auditors to conduct the annual audit of our financial statements;
•review the proposed scope and results of the audit;
•review and pre-approve audit and non-audit fees and services;
•review accounting and financial controls with the independent auditors and our financial and accounting staff;
•review and approve transactions between us and our directors, officers and affiliates;
•recognize and prevent prohibited non-audit services; and
•establish procedures for complaints received by us regarding accounting matters; oversee internal audit functions, if any.
Compensation Committee
The Compensation Committee has three members, including Mr. McClintock, Mr. Potts, and Ms. Pappenheim. Mr. McClintock serves as the chairman of the Compensation Committee. Mark Birschbach was a member of the Compensation Committee until his resignation from the Company's Board of Directors on October 31, 2023, at which point he was replaced by Mr. Potts.
Our Compensation Committee is authorized to:
•review and determine the compensation arrangements for management;
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•establish and review general compensation policies with the objective to attract and retain superior talent, to reward individual performance and to achieve our financial goals;
•administer our stock incentive and purchase plans; and
•review the independence of any compensation advisers.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee has three members, including Ms. Stafford, Mr. McClintock, and Mr. Potts. Mr. McClintock serves as the chairman of the Nominating and Corporate Governance Committee. Mark Birschbach was a member of the Nominating and Corporate Governance Committee until his resignation from the Company's Board of Directors on October 31, 2023, at which point he was replaced by Mr. Potts.
The functions of our Nominating and Corporate Governance Committee, among other things, include:
•identifying individuals qualified to become Board members and recommending directors to be elected;
•nominees and Board members for committee membership;
•developing and recommending to our Board corporate governance guidelines;
•review and determine the compensation arrangements for directors; and
•overseeing the evaluation of our Board of Directors and its committees and management.
Our goal is to assemble a Board that brings together a variety of skills derived from high quality business and professional experience.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee is or has been an officer or employee of our Company, nor will they be. None of our executive officers has served as a member of the board of directors, or as a member of the Compensation Committee or similar committee, of any entity that has one or more executive officers who served on our board of directors or compensation committee during the years ended December 31, 2023 and 2022. For a description of transactions between us and members of our Compensation Committee and affiliates of such members (if any), please see “Certain Relationships and Related Party Transactions”.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics that applies to all our employees, officers and directors, including those officers responsible for financial reporting.
Indemnification of Directors and Officers
Our Amended and Restated Certificate of Incorporation, as amended, contains provisions limiting the liability of directors to the fullest extent permitted by Delaware law and provide that we will indemnify each of our directors and officers to the fullest extent permitted under Delaware law. Our Amended Certificate of Incorporation, as amended and Bylaws also provide our Board of Directors with discretion to indemnify our employees and other agents when determined appropriate by the Board. In addition, each employment agreement entered into between the Company and its officers and/or directors contains certain indemnification provisions, which requires us to indemnify them in certain circumstances.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling our Company pursuant to the foregoing provision, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Section 16(a) Reports
Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, persons who beneficially own more than 10% of a registered class of the Company’s equity securities, and certain other persons to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC, and to furnish the Company with copies of the forms.
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Messrs. Gareth Genner, Alexander Valdes, Andrew Carl Gowasack, Joshua Allen, and William McClintock previously failed to timely file required Form 4s related to certain RSUs acquired in 2023.
Based solely on its review of the forms it received, or written representations from reporting persons, except as set forth above, the Company believes that all of its directors, executive officers, and greater than 10% beneficial owners complied with all such filing requirements during 2023.
Item 11. Executive Compensation
The following Summary Compensation Table sets forth all compensation earned in all capacities during the fiscal years ended December 31, 2023 and 2022 by (i) our principal executive officer and (ii) our two most highly compensated executive officers, other than our principal executive officer, who were serving as executive officers as of December 31, 2023 and whose total compensation for the 2023 fiscal year, as determined by Regulation S-K, Item 402, exceeded $100,000 (collectively referred to as the “Named Executive Officers”):
Summary Compensation Table
| Year | Salary | Cash Bonus | Stock Award | Option Awards | Non-Equity Incentive Plan Compensation | Non-Qualified Deferred Compensation Earnings | All Other Compensation | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Gareth Genner, | 2022 | $ | 325,000 | $ | — | $ | 162,500 | (4) | $ | — | $ | — | $ | — | $ | — | $ | 487,500 | |||||||||||||||||||||||||||||||||||
| Chief Executive Officer (1) | 2023 | $ | 325,000 | $ | — | $ | 325,000 | $ | — | $ | — | $ | — | $ | — | $ | 650,000 | ||||||||||||||||||||||||||||||||||||
| Andrew Gowasack, | 2022 | $ | 262,994 | $ | — | $ | 131,497 | (4) | $ | — | $ | — | $ | — | $ | — | $ | 394,491 | |||||||||||||||||||||||||||||||||||
| President (2) | 2023 | $ | 262,994 | $ | — | $ | 262,994 | $ | — | $ | — | $ | — | $ | — | $ | 525,988 | ||||||||||||||||||||||||||||||||||||
| Andrew Scott Francis, | 2022 | $ | 195,615 | $ | — | $ | 97,808 | (4) | $ | — | $ | — | $ | — | $ | — | $ | 293,423 | |||||||||||||||||||||||||||||||||||
| Chief Technical Officer (3) | 2023 | $ | 195,615 | $ | — | $ | 195,615 | $ | — | $ | — | $ | — | $ | — | $ | 391,230 | ||||||||||||||||||||||||||||||||||||
Alex Valdes, | 2022 | $ | 195,615 | $ | — | $ | 97,808 | (4) | $ | — | $ | — | $ | — | $ | — | $ | 293,423 | |||||||||||||||||||||||||||||||||||
Chief Financial Officer (3) | 2023 | $ | 195,615 | $ | — | $ | 195,615 | $ | — | $ | — | $ | — | $ | — | $ | 391,230 | ||||||||||||||||||||||||||||||||||||
_____________________________________
(1)Mr. Genner earned the compensation shown in the table above pursuant to the terms of his employment agreement, filed as Exhibit 10.2 to this report. Pursuant to Mr. Genner’s employment agreement, he is entitled to an annual bonus (as described under “Elements of Compensation – Bonus” further below). The stock bonus earned in 2022 was awarded to Mr. Genner in 2023 and the stock bonus earned in 2023 was awarded in 2024. See “Elements of Compensation” below for information on how the amount of bonuses are determined by the Company.
(2)Mr. Gowasack earned the compensation shown in the table above pursuant to the terms of his employment agreement. Pursuant to Mr. Gowasack’s employment agreement, he is entitled to an annual bonus (as described under “Elements of Compensation – Bonus” further below). The stock bonus earned in 2022 was awarded to Mr. Gowasack in 2023 and the stock bonus earned in 2023 was awarded in 2024. See “Elements of Compensation” below for information on how the amount of bonuses are determined by the Company.
(3)Mr. Francis and Mr. Valdes earned the compensation shown in the table above pursuant to the terms of their employment agreement. Pursuant to Mr. Francis's and Valdes's employment agreement, they are entitled to an annual bonus (as described under “Elements of Compensation – Bonus” further below). The stock bonus earned in 2022 was awarded to Mr. Francis and Mr. Valdes in 2023 and the stock bonus earned in 2023 was awarded in 2024. See “Elements of Compensation” below for information on how the amount of bonuses are determined by the Company.
(4)Represents the value of RSUs for Class A Common Stock that were granted in 2023 as compensation for 2022 services rendered. These RSUs will become fully vested on January 2, 2024.
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Director Compensation
For the year ended December 31, 2023 the Company paid our directors as a group $180 thousand for their services as directors. There are seven directors as of December 31, 2023.
Elements of Compensation
Base Salary
For the year ended December 31, 2023, Messrs. Genner, Gowasack, Francis and Valdes received a fixed base salary in an amount determined in accordance with their employment agreements with the Company. Factors influencing the salary of each of these individuals include:
•The nature, responsibilities and duties of the officer’s position;
•The officer’s expertise, demonstrated leadership ability and prior performance;
•The officer’s salary history and total compensation, including annual cash bonuses and long-term incentive compensation; and
•The competitiveness of the market for the officer’s services.
Bonus
Each executive officer that has an employment agreement with the Company is entitled to receive an annual bonus of not less than 50% nor more than 100% of such officer’s Base Salary (the “Bonus”) in accordance with and based on achievement of criteria established from year to year by the Board of Directors of the Company, provided that such officer is employed as of the date the Bonus is paid. The Bonus may be in the form of cash or stock awards (i.e. a number of shares of the Company’s capital stock with a cash value equal to 50% to 100% of the officer’s Base Salary). Bonuses for services in a particular fiscal year are generally determined and issued during the following fiscal year.
Stock Awards
For the year ended December 31, 2023, we awarded 207,463 Restricted Stock Units to our named executive officers with vesting on January 2, 2024. For the year ended December 31, 2022, we awarded 119,743 Restricted Stock Units to our named executive officers with 109,724 vesting on January 2, 2023 and 10,019 vesting on January 2, 2024.
Equity Incentive Plans
As of the date of this report, the Company does not have a formal equity incentive plan pursuant to which it can issue awards.
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Outstanding Equity Awards at Fiscal Year End
The following table summarizes the number of shares of Class A Common Stock underlying outstanding equity awards for each named executive officer and director as of December 31, 2023.
| Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Name | Number of securities underlying unexercised options (#) exercisable | Number of securities underlying unexercised options (#) unexercisable | Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) | Option exercise price ($) | Option expiration date | Number of shares or units of stock that have not vested (#) | Market value of shares of units of stock that have not vested ($) | Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) | Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) | ||||||||||||||||||||||||||||||||||||||||||||
| Gareth Genner | — | — | — | — | — | 72,196 | $ | 98,909 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Andrew Gowasack | — | — | — | — | — | 62,398 | $ | 85,485 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Joshua Allen | — | — | — | — | — | 4,805 | $ | 6,583 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| William McClintock | — | — | — | — | — | 9,252 | $ | 12,675 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Andrew Scott Francis | — | — | — | — | — | 46,412 | $ | 63,584 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Alexander Valdes | — | — | — | — | — | 46,412 | $ | 63,584 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Kristin Stafford | — | — | — | — | — | — | $ | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Berta Pappenheim | — | — | — | — | — | — | $ | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Charles Potts | — | — | — | — | — | — | $ | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The following table sets out, as of December 31, 2023 the voting securities of the Company that are owned by executive officers and directors, and other persons holding more than 5% of any class of the Company’s voting securities or having the right to acquire those securities.
| Name and Address of Beneficial Owner | Amount and nature of beneficial ownership | Amount and nature of beneficial acquirable | Percent of class (1) | |||||||||||||||||
| Named Officers and Directors | ||||||||||||||||||||
| Gareth Genner, Chief Executive Officer, 3017 Bolling Way NE, Floor 2, Atlanta, Georgia, 30305 | 168,962 | (7) | 72,196 | (2) | 1.39 | % | ||||||||||||||
| Andrew Gowasack, President, 3017 Bolling Way NE, Floor 2, Atlanta, Georgia, 30305 | 254,475 | 62,398 | (2) | 1.82 | % | |||||||||||||||
| Alexander Valdes, Chief Financial Officer, 3017 Bolling Way NE, Floor 2, Atlanta, Georgia, 30305 | 75,136 | (8) | 46,412 | (2) | 0.70 | % | ||||||||||||||
| Joshua Allen, EVP, Director, 3017 Bolling Way NE, Floor 2, Atlanta, Georgia, 30305 | 7,952 | 14,453 | (4) | 0.13 | % | |||||||||||||||
| Tracy Ming, Financial Controller, 3017 Bolling Way NE, Floor 2, Atlanta, Georgia, 30305 | 13,330 | 5,239 | (2) | 0.11 | % | |||||||||||||||
| William McClintock, Independent Non-Executive Director, Hub 8, Unit 2 The Brewery Quarter, High St, Cheltenham GL50 3FF, United Kingdom | 13,716 | 27,756 | (5) | 0.24 | % | |||||||||||||||
| Kristin Stafford, Independent Non-Executive Director, 3017 Bolling Way NE, Floor 2, Atlanta, Georgia, 30305 | 234 | — | 0.00 | % | ||||||||||||||||
| Berta Pappenheim, Independent Non-Executive Director, 3017 Bolling Way NE, Floor 2, Atlanta, Georgia, 30305 | — | — | 0.00 | % | ||||||||||||||||
| Charles Potts, Independent Non-Executive Director, 3017 Bolling Way NE, Floor 2, Atlanta, Georgia, 30305 | — | 4,215 | (10) | 0.02 | % | |||||||||||||||
All executive officers and directors as a group (9 persons) | 533,805 | 232,669 | 4.41 | % | ||||||||||||||||
| Other 5% Holders | ||||||||||||||||||||
| Second Century Ventures, LLC, 430 North Michigan Ave, Ninth Floor, Chicago, IL 60611 | 601,924 | (6) | 737,255 | (3) | 7.70 | % | ||||||||||||||
| Armistice Capital Master Fund Ltd. c/o Armistice Capital, LLC, 510 Madison Avenue, 7th Floor, New York, NY 10022. | — | 5,655,030 | (9) | 32.51 | % | |||||||||||||||
_____________________________________
(1)Based on 9,143,355 shares of Class A Common Stock outstanding as of December 31, 2023, plus 8,251,955 shares of Class A Common Stock acquirable within 60 days of December 31, 2023.
(2)Represents shares of Class A Common Stock issuable pursuant to RSUs that vest on January 2, 2024.
(3)Represents shares of Class A Common Stock issuable to Second Century Ventures, LLC (524,599), REach Ventures 2017 LP (186,442) upon the exercise of warrants any time at the option of the holder, shares of Class A Common Stock issuable to Second Century Ventures, LLC (18,504) at any time upon request pursuant to RSUs, and shares of Class A Common Stock issuable to Second Century Ventures, LLC (7,710) pursuant to RSUs that vest on January 2, 2024.
(4)Represents shares of Class A Common Stock issuable at any time upon request pursuant to grants (9,648) and shares of Class A Common Stock issuable (4,805) pursuant to RSUs that vest on January 2, 2024.
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(5)Represents shares of Class A Common Stock issuable at any time upon request pursuant to RSUs (18,504) and shares of Class A Common Stock issuable (9,252) pursuant to RSUs that vest on January 2, 2024.
(6)Represents shares of Class A Common Stock held by Second Century Ventures, LLC (521,795) and REach Ventures, LLC (80,129).
(7)Represents shares of Class A Common Stock held by Gareth Genner’s spouse, Barbara Genner (159,405) and shares of Class A Common Stock held by Gareth Genner (9,557).
(8)Represents shares of Class A Common Stock held by Alexander Valdes’ spouse, Victoria Valdes (250), New Direction Trust Company as Custodian FBO Alexander J. Valdes ROTH IRA (500) and shares of Class A Common Stock held by Alexander Valdes (74,386). Alexander J. Valdes ROTH IRA is wholly owned by Alexander Valdes.
(9)Comprised of 3,600,000 shares of Class A Common Stock underlying the Warrants, 775,330 shares of Class A Common Stock underlying certain other Warrants, and 1,279,700 shares of Class A Common Stock underlying certain other Warrants held by Armistice Capital Master Fund Ltd. (the “Selling Stockholder”), a Cayman Islands exempted company. These warrants may be deemed to be indirectly beneficially owned by Armistice Capital, LLC (“Armistice”), as the investment manager of the Selling Stockholder; and (ii) Steven Boyd, as the Managing Member of Armistice Capital. Armistice and Steven Boyd disclaim beneficial ownership of the reported securities except to the extent of their respective pecuniary interest therein. The Warrants (and the other warrants held by the Selling Stockholder) are subject to a 4.99% beneficial ownership limitation, which limitations prohibit the Selling Stockholder from exercising any portion of the Warrants if, following such exercise, the Selling Stockholder’s ownership of our Class A Common Stock would exceed the applicable ownership limitation. This beneficial ownership limitation may be increased up to 9.99% at the option of the Selling Stockholder. The address of the Selling Stockholder is c/o Armistice Capital, LLC, 510 Madison Avenue, 7th Floor, New York, NY 10022.
(10)Represents shares of Class A Common Stock issuable at any time upon request pursuant to grants.
Reverse Split
On February 15, 2023 our Board of Directors approved and, as of February 20, 2023, the holders of a majority of our voting capital stock approved an amendment (the “Certificate of Amendment”) to the Company’s Amended and Restated Certificate of Incorporation and approved to effect a reverse split of our issued and outstanding shares of Class A Common Stock at a ratio of one share for every five shares currently held, rounded up to the nearest whole share – whereby every five (5) outstanding shares of Class A Common Stock was combined and became one (1) share of Class A Common Stock, rounding up to the nearest whole number of shares (the “Reverse Split”). All share and per share amounts in these unaudited condensed consolidated financial statements have been retroactively restated to reflect the Reverse Split. The Reverse Split was effective for trading on the market opening of Nasdaq on March 23, 2023. The Reverse Stock Split effective March 23, 2023, was ratified by the Company’s stockholders by written consent pursuant to a definitive proxy statement filed with the Securities and Exchange Commission on April 13, 2023. Written consent from the majority of stockholders was received as of May 13, 2023.
Item 13. Certain Relationships and Related Transactions
Mutual Channel Agreement
On November 15, 2020, the Company entered into a Mutual Channel Agreement with Vital4Data, Inc., a company at which one of our Directors serves as Chief Executive Officer. Pursuant to the agreement, the Company engaged Vita4Data, Inc. as a non-exclusive sales representative for the Company’s products and services. Vital4Data, Inc. is entitled to compensation in the form of commissions, receiving a 20% of commission-eligible on net revenue from sales generated by Vital4Data, Inc. in the first year of the contract term, which is reduced to 10% in the second year, and 5% in the third year. The Company has not earned or expensed any commissions pursuant to the Vital4Data, Inc. agreement to date.
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Item 14. Principal Accounting Fees and Services
The following is a summary of fees paid to Marcum, LLP, for services rendered.
| For the years ended December 31, | |||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
Audit Fees (1) | $ | 355,950 | $ | 210,000 | |||||||||||||
| Total Fees | $ | 355,950 | $ | 210,000 | |||||||||||||
(1)Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements, reviews of our quarterly financial statements and services that are normally provided by our independent registered public accounting firm in connection with statutory and regulatory filings.
The following is a summary of fees paid to Cherry Bekaert, LLP, for services rendered.
| For the years ended December 31, | |||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
Audit Fees (1) | $ | — | $ | 157,324 | |||||||||||||
Audit-Related Fees (2) | — | — | |||||||||||||||
Tax Fees (3) | — | — | |||||||||||||||
All Other Fees (4) | — | 5,000 | |||||||||||||||
Total Fees | $ | — | $ | 162,324 | |||||||||||||
(1) Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements, reviews of our quarterly financial statements and services that are normally provided by our independent registered public accounting firm in connection with statutory and regulatory filings.
(2) Audit-related fees consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our year-end financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultation concerning financial accounting and reporting
(3) Tax fees consist of fees billed for professional services relating to tax compliance, tax planning, and tax advice.
(4) All other fees consist of fees billed for all other professional services.
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PART IV
Item 15. Exhibits, Financial Statement Schedules.
1.Financial Statements
The financial statements and Report of Independent Registered Public Accounting Firm are listed in the “Index to Financial Statements and Schedules” on page F-1 and included on pages F-2 to F-34 of this annual report on Form 10-K.
2.Financial Statement Schedules
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission (the “Commission”) are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the financial statements included herein.
3.Exhibits (including those incorporated by reference).
Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.
| Exhibit No. | Exhibit Description | ||||||||||
| 3.1 | |||||||||||
| 3.2 | |||||||||||
| 4.1 | |||||||||||
| 4.2 | |||||||||||
| 4.3 | |||||||||||
| 4.4 | |||||||||||
| 4.5 | |||||||||||
| 4.6 | |||||||||||
| 4.7 | |||||||||||
| 4.8 | |||||||||||
| 4.9 | Form of Private Placement Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 5, 2023). | ||||||||||
| 4.10 | Form of New Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 21, 2023). | ||||||||||
| 10.1 | |||||||||||
| 10.2 | |||||||||||
| 10.3 | |||||||||||
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| 10.4 | |||||||||||
| 10.5 | |||||||||||
| 10.6 | |||||||||||
| 10.7 | |||||||||||
| 10.8 | |||||||||||
| 10.9 | |||||||||||
| 10.10 | |||||||||||
| 10.11 | |||||||||||
| 10.12 | |||||||||||
| 10.13 | |||||||||||
| 10.14 | |||||||||||
| 10.15 | |||||||||||
| 10.16 | |||||||||||
| 10.17 | |||||||||||
| 10.18 | |||||||||||
| 10.19 | |||||||||||
10.20 | Form of Securities Purchase Agreement by and between the Company and a certain institutional investor dated June 1, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 5, 2023). | ||||||||||
10.21 | Warrant Amendment by and between the Company and a certain institutional investor dated June 1, 2023 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 5, 2023). | ||||||||||
10.22 | Form of Warrant Exercise Agreement, dated December 21, 2023 by and between T Stamp Inc. and the Institutional Investor (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 21, 2023). | ||||||||||
23.1 | |||||||||||
58
| 31.1* | |||||||||||
| 31.2* | |||||||||||
| 32.1* | |||||||||||
97.1* | |||||||||||
| 101.INS* | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema | ||||||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase | ||||||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase | ||||||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase | ||||||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase | ||||||||||
| 104 | Cover Page Interactive Data File—the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||||||||
_________________________
* Filed herewith.
Item 16. Form 10-K Summary
Not applicable.
59
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| T STAMP INC. | |||||
| /s/ Gareth Genner | |||||
| Gareth Genner, Chief Executive Officer | |||||
| Trust Stamp | |||||
The following persons in the capacities and on the dates indicated have signed this report.
| /s/ Gareth Genner | |||||
| Gareth Genner, Principal Executive Officer, Chief Executive Officer, Director | |||||
Date: April 1, 2024 | |||||
| /s/ Alex Valdes | |||||
| Alex Valdes, Principal Financial Officer, Principal Accounting Officer | |||||
Date: April 1, 2024 | |||||
| /s/ Andrew Gowasack | |||||
| Andrew Gowasack, President, Director | |||||
Date: April 1, 2024 | |||||
| /s/ William McClintock | |||||
| William McClintock, Director | |||||
Date: April 1, 2024 | |||||
/s/ Charles Potts | |||||
Charles Potts, Director | |||||
Date: April 1, 2024 | |||||
| /s/ Joshua Allen | |||||
| Joshua Allen, Director | |||||
Date: April 1, 2024 | |||||
| /s/ Kristin Stafford | |||||
| Kristin Stafford, Director | |||||
Date: April 1, 2024 | |||||
| /s/ Berta Pappenheim | |||||
| Berta Pappenheim, Director | |||||
Date: April 1, 2024 | |||||
60
Exhibit 23.1
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We consent to the incorporation by reference in the Registration Statement of T Stamp Inc. on Form S-1 (File No. 333-274160 and 333-272343) and Form S-3 (File No. 333-271091 and 333-277151) of our report dated April 1, 2024, which includes an explanatory paragraph as to the Company’s ability to continue as a going concern, with respect to our audits of the consolidated financial statements of T Stamp Inc. as of December 31, 2023 and 2022 and for the years ended December 31, 2023 and 2022, which report is included in this Annual Report on Form 10-K of T Stamp Inc. for the year ended December 31, 2023.
/s/ Marcum LLP
Marcum LLP
Marlton, New Jersey
April 1, 2024
Exhibit 31.1
CERTIFICATIONS
I, Gareth Genner, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2023 of T Stamp Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 1, 2024
| /s/ Gareth Genner | |||||
| Gareth Genner | |||||
| Chief Executive Officer (Principal Executive Officer) | |||||
Exhibit 31.2
CERTIFICATIONS
I, Alex Valdes, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2023 of T Stamp Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 1, 2024
| /s/ Alex Valdes | |||||
| Alex Valdes | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of T Stamp Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2023 as filed with the Securities and Exchange Commission (the “Report”), I, Gareth Genner, Chief Executive Officer of the Company, and I, Alex Valdes, Chief Financial Officer of the Company, certify that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: April 1, 2024
| /s/ Gareth Genner | |||||
| Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
| /s/ Alex Valdes | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
Exhibit 97.1
T STAMP INC.
CLAWBACK POLICY
A.OVERVIEW.
In accordance with the applicable rules of The Nasdaq Stock Market (the “Nasdaq Rules”), and Section 10D and Rule 10D-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (“Rule 10D-1”), the Board of Directors (the “Board”) of T Stamp Inc. (the “Company”) has adopted this Policy (the “Policy”) to provide for the recovery of erroneously awarded Incentive-based Compensation from Executive Officers. All capitalized terms used and not otherwise defined herein shall have the meanings set forth in Section H, below.
B.RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION.
1.In the event of an Accounting Restatement, the Company will reasonably promptly recover the Erroneously Awarded Compensation Received in accordance with the Nasdaq Rules and Rule 10D-1 as follows:
•After an Accounting Restatement, the Compensation Committee (if composed entirely of independent directors, or in the absence of such a committee, a majority of independent directors serving on the Board) (the “Committee”) shall determine the amount of any Erroneously Awarded Compensation Received by each Executive Officer and shall promptly notify each Executive Officer with a written notice containing the amount of any Erroneously Awarded Compensation and a demand for repayment or return of such compensation, as applicable.
•For Incentive-based Compensation based on (or derived from) the Company’s stock price or total shareholder return, where the amount of Erroneously Awarded Compensation is not subject to mathematical recalculation directly from the information in the applicable Accounting Restatement:
•The amount to be repaid or returned shall be determined by the Committee based on a reasonable estimate of the effect of the Accounting Restatement on the Company’s stock price or total shareholder return upon which the Incentive-based Compensation was Received; and
•The Company shall maintain documentation of the determination of the reasonable estimate and provide the relevant documentation as required by the rules of Nasdaq.
•The Committee shall have discretion to determine the appropriate means of recovering Erroneously Awarded Compensation based on the particular facts and circumstances. Notwithstanding the foregoing, except as set forth in Section B(2) below, in no event may the Company accept an amount that is less than the amount of Erroneously Awarded Compensation in satisfaction of an Executive Officer’s obligations hereunder.
•To the extent that the Executive Officer has already reimbursed the Company for any Erroneously Awarded Compensation Received under any duplicative recovery obligations established by the Company or applicable law, it shall be appropriate for any such reimbursed amount to be credited to the amount of Erroneously Awarded Compensation that is subject to recovery under this Policy.
•To the extent that an Executive Officer fails to repay all Erroneously Awarded Compensation to the Company when due, the Company shall take all actions reasonable and appropriate to recover Erroneously Awarded Compensation from the applicable Executive Officer. The applicable Executive Officer shall be required to reimburse the Company for any and all expenses reasonably incurred (including legal fees) by the Company in recovering such Erroneously Awarded Compensation in accordance with the immediately preceding sentence.
2.Notwithstanding anything herein to the contrary, the Company shall not be required to take the actions contemplated by Section B(1) above if the Committee (which, as specified above, is composed entirely of independent directors or in the absence of such a committee, a majority of the independent directors serving on the Board) determines that recovery would be impracticable and any of the following three conditions are met:
•The Committee has determined that the direct expenses paid to a third party to assist in enforcing the Policy would exceed the amount to be recovered. Before making this determination, the Company must make a reasonable attempt to recover the Erroneously Awarded Compensation, documented such attempt(s) and provided such documentation to Nasdaq;
•Recovery would violate local country law where that law was adopted prior to November 28, 2022, provided that, before determining that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on violation of local country law, the Company has obtained an opinion of home country counsel, acceptable to Nasdaq, that recovery would result in such a violation and a copy of the opinion is provided to Nasdaq; or
•Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of Section 401(a)(13) or Section 411(a) of the Internal Revenue Code of 1986, as amended, and regulations thereunder.
C.DISCLOSURE REQUIREMENTS.
The Company shall file all disclosures with respect to this Policy required by applicable U.S. Securities and Exchange Commission (“SEC”) filings and rules.
D.PROHIBITION OF INDEMNIFICATION.
The Company shall not be permitted to insure or indemnify any Executive Officer against (i) the loss of any Erroneously Awarded Compensation that is repaid, returned or recovered pursuant to the terms of this Policy, or (ii) any claims relating to the Company’s enforcement of its rights under this Policy. Further, the Company shall not enter into any agreement that exempts any Incentive-based Compensation that is granted, paid or awarded to an Executive Officer from the application of this Policy or that waives the Company’s right to recovery of any Erroneously Awarded Compensation, and this Policy shall supersede any such agreement (whether entered into before, on or after the Effective Date of this Policy).
E.ADMINISTRATION AND INTERPRETATION.
This Policy shall be administered by the Committee, and any determinations made by the Committee shall be final and binding on all affected individuals. The Committee is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the administration of this Policy and for the
Company’s compliance with Nasdaq Rules and Section 10D, Rule 10D-1 and any other applicable law, regulation, rule or interpretation of the SEC or Nasdaq promulgated or issued in connection therewith.
F.AMENDMENT; TERMINATION.
The Committee may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary. Notwithstanding anything in this Section F to the contrary, no amendment or termination of this Policy shall be effective if such amendment or termination would (after taking into account any actions taken by the Company contemporaneously with such amendment or termination) cause the Company to violate any federal securities laws, SEC rule or Nasdaq rule.
G.OTHER RECOVERY RIGHTS.
This Policy shall be binding and enforceable against all Executive Officers and, to the extent required by applicable law or guidance from the SEC or Nasdaq, their beneficiaries, heirs, executors, administrators or other legal representatives. The Committee intends that this Policy will be applied to the fullest extent required by applicable law. Any employment agreement, equity award agreement, compensatory plan or any other agreement or arrangement with an Executive Officer shall be deemed to include, as a condition to the grant of any benefit thereunder, an agreement by the Executive Officer to abide by the terms of this Policy. Any right of recovery under this Policy is in addition to, and not in lieu of, any other remedies or rights of recovery that may be available to the Company under applicable law, regulation or rule or pursuant to the terms of any policy of the Company or any provision in any employment agreement, equity award agreement, compensatory plan, agreement or other arrangement.
H.DEFINITIONS.
For purposes of this Policy, the following capitalized terms shall have the meanings set forth below.
1.“Accounting Restatement” means an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements (a “Big R” restatement), or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (a “little r” restatement).
2.“Clawback Eligible Incentive Compensation” means all Incentive-based Compensation Received by an Executive Officer (i) on or after the effective date of the applicable Nasdaq rules, (ii) after beginning service as an Executive Officer, (iii) who served as an Executive Officer at any time during the applicable performance period relating to any Incentive-based Compensation (whether or not such Executive Officer is serving at the time the Erroneously Awarded Compensation is required to be repaid to the Company), (iv) while the Company has a class of securities listed on a national securities exchange or a national securities association, and (v) during the applicable Clawback Period (as defined below).
3.“Clawback Period” means, with respect to any Accounting Restatement, the three completed fiscal years of the Company immediately preceding the Restatement Date (as defined below), and if the Company changes its fiscal year, any transition period of less than nine months within or immediately following those three completed fiscal years.
4.“Erroneously Awarded Compensation” means, with respect to each Executive Officer in connection with an Accounting Restatement, the amount of Clawback Eligible Incentive Compensation that exceeds the amount of Incentive-based Compensation that otherwise would have been received had it been determined based on the restated amounts, computed without regard to any taxes paid.
5.“Executive Officer” means each individual who is currently or was previously designated as an “officer” of the Company as defined in Rule 16a-1(f) under the Exchange Act. For the avoidance of doubt, the identification of an executive officer for purposes of this Policy shall include each executive officer who is or was identified pursuant to Item 401(b) of Regulation S-K or Item 6.A of Form 20-F, as applicable, as well as the principal financial officer and principal accounting officer (or, if there is no principal accounting officer, the controller).
6.“Financial Reporting Measures” means measures that are determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and all other measures that are derived wholly or in part from such measures. Stock price and total shareholder return (and any measures that are derived wholly or in part from stock price or total shareholder return) shall, for purposes of this Policy, be considered Financial Reporting Measures. For the avoidance of doubt, a Financial Reporting Measure need not be presented in the Company’s financial statements or included in a filing with the SEC.
7.“Incentive-based Compensation” means any compensation that is granted, earned or vested based wholly or in part upon the attainment of a Financial Reporting Measure.
8.“Nasdaq” means The Nasdaq Stock Market.
9.“Received” means, with respect to any Incentive-based Compensation, actual or deemed receipt, and Incentive-based Compensation shall be deemed received in the Company’s fiscal period during which the Financial Reporting Measure specified in the Incentive-based Compensation award is attained, even if the payment or grant of the Incentive-based Compensation to the Executive Officer occurs after the end of that period.
10.“Restatement Date” means the earlier to occur of (i) the date the Board, a committee of the Board or the officers of the Company authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare an Accounting Restatement, or (ii) the date a court, regulator or other legally authorized body directs the Company to prepare an Accounting Restatement.