T Stamp (IDAI) - 2021 Q4 - Annual Report

PART I Business Trust Stamp develops proprietary AI-powered identity solutions for biometric authentication, document verification, fraud detection, and tokenized identity creation - Trust Stamp is an AI company developing proprietary identity solutions for authentication, fraud detection, and tokenized identity creation to protect user privacy[11][17][24] - The core product, Irreversible Tokenized Identity (IT2), converts biometric data into non-reverse-engineerable tokens, ensuring data security and privacy[11][25][27] - The company operates on a technology licensing model, generating annual recurring revenue (ARR) through pay-per-use services, with key clients including Mastercard, FIS, and U.S. Immigration and Customs Enforcement (ICE)[14][16][43][44] - Services span multiple sectors including banking/fintech, humanitarian and development services, biometric secure mail, KYC/AML compliance, government enforcement, P2P transactions, social media, and real estate[15][18] - Growth strategies include expanding services to existing clients, acquiring new clients, distributing through channel partners, offering low-code/open API access, and licensing IT2 technology to other biometric and data service providers[40] - The company maintains a diverse global workforce with R&D centers and offices in Malta, Rwanda, Poland, and the UK[41][67][68][70][72] - The company navigates stringent data privacy regulations like HIPAA, HITECH, and GDPR, continuously investing in intellectual property protection with multiple granted and pending patents and trademarks[45][46][54][56][57][61][62] Risk Factors The company faces significant risks including sustained losses as an early-stage company, technology development uncertainties, intense market competition, reliance on a few key customers, future financing needs, and strict data protection regulations - The company is in an early development stage, has sustained losses, anticipates future losses, and cannot guarantee achieving or maintaining profitability[81][83][84][85] - The company's technology is still under development, with no guarantee of successful development and commercialization to meet market and regulatory requirements[81][86] - Operating in a highly competitive industry, the company faces challenges from larger, well-funded competitors, potentially impacting market share and profitability[87][96][98] - The company's revenue is highly concentrated among a few clients, with four clients accounting for most of the 2021 revenue, and client attrition could adversely affect financial condition[87][105] - The company anticipates raising additional capital through equity or debt offerings to support working capital and cover operating losses, potentially leading to existing investor equity dilution[87][107] - Handling sensitive Personally Identifiable Information (PII) and biometric data, the company is subject to strict federal and European data privacy regulations like HIPAA and HITECH, where data breaches could result in reputational damage and substantial fines[81][88][89][90][92] - The COVID-19 pandemic may unpredictably impact consumer behavior and the global economy, negatively affecting the company's operations and financial performance[87][108][109][110] - Operating globally, the company faces foreign exchange fluctuation risks, incurring a $159,270 loss from foreign currency translation in 2021[87][112] Unresolved Staff Comments This report does not contain any unresolved staff comments - This report does not contain any unresolved staff comments[116] Properties The company's headquarters are in Atlanta, Georgia, USA, with a leased R&D office in Malta and co-working spaces in New York, North Carolina, Cheltenham, UK, and Rwanda supporting its distributed workforce - The company's headquarters are in Atlanta, Georgia, USA, with a leased office in Malta serving as an R&D center[118] - Co-working spaces are also maintained in New York, North Carolina, Cheltenham, UK, and Rwanda to support the distributed workforce[118] Legal Proceedings The company is not currently involved in any legal proceedings, and management is unaware of any pending or threatened legal actions related to its intellectual property, business activities, or other matters - The company is not currently involved in any legal proceedings, and management is unaware of any pending or threatened legal actions[119] Mine Safety Disclosures This item is not applicable - This item is not applicable[120] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Trust Stamp's Class A common stock began trading on Nasdaq Capital Market on January 31, 2022, following listings on OTCQX and Euronext Growth Dublin; the company has not paid dividends and plans to reinvest all available funds into business development and expansion - The company's Class A common stock began trading on the Nasdaq Capital Market under the ticker “IDAI” on January 31, 2022, previously listed on OTCQX and Euronext Growth Dublin[123] OTCQX Class A Common Stock Prices for Fiscal Year 2021 | Period Fiscal Year 2021 | High (USD) | Low (USD) | | :---------------------- | :--------- | :-------- | | First Quarter | $5.00 | $2.00 | | Second Quarter | $4.40 | $2.50 | | Third Quarter | $4.94 | $1.01 | | Fourth Quarter | $9.00 | $3.35 | Euronext Growth Dublin Class A Common Stock Prices for Fiscal Year 2021 | Period Fiscal Year 2021 | High (USD) | Low (USD) | | :---------------------- | :--------- | :-------- | | First Quarter | $1.56 | $1.56 | | Second Quarter | $3.80 | $1.56 | | Third Quarter | $3.80 | $3.80 | | Fourth Quarter | $3.80 | $3.80 | - The company has not paid any dividends to date and does not anticipate doing so in the foreseeable future, planning to allocate all available funds to future business development and expansion[133] - The company raised capital through the issuance of Class A common stock and warrants via Regulation A, Regulation D, Regulation CF, and Regulation S offerings, funding product development, marketing, and working capital[140][212][213][214][215][216][239] - The company established TStamp Incentive Holdings (TSIH) as a similar structure for employee equity incentive plans, issuing Class A common stock for future employee stock awards[134][66] Selected Consolidated Financial Data As a smaller reporting company, Trust Stamp is not required to provide the selected consolidated financial data requested in this item - As a smaller reporting company, Trust Stamp is not required to provide selected consolidated financial data[141] Management's Discussion and Analysis of Financial Condition and Results of Operations Trust Stamp achieved significant net sales growth in fiscal year 2021 through a diversified client network and new market expansion, driven by contracts with ICE, an SP500 bank, and Mastercard, while continuing to invest in R&D and internal development to reduce service costs and improve margins - In fiscal year 2021, Trust Stamp achieved significant net sales growth through a diversified client network and new market expansion, with key clients including ICE, an SP500 bank, and Mastercard[145][148][151] Adjusted EBITDA (Non-GAAP) for 2021 and 2020 | | For the years ended December 31 (USD) | | :----------------------------- | :------------- | :------------- | | | 2021 | 2020 | | Adjusted EBITDA loss (non-GAAP) | $(5,361,748) | $(5,379,305) | - Adjusted EBITDA loss decreased by 0.33% year-over-year in 2021, primarily due to a $1.4 million increase in gross profit, partially offset by a $1.94 million rise in selling, general, and administrative expenses[161] Gross Sales (Non-GAAP) for 2021 and 2020 | | For the year ended December 31 (USD) | | :-------------------------- | :------------- | :------------- | | | 2021 | 2020 | | Gross sales (non-GAAP) | $4,026,538 | $2,872,342 | - Gross sales increased by 40% to $4.0 million in 2021, primarily driven by $1.7 million in new sales from the ICE contract[164] Net Sales and Operating Expenses for 2021 and 2020 | | For the years ended December 31 (USD) | | :--------------------------------------------------------------------------------- | :------------- | :------------- | | | 2021 | 2020 | | Net sales | $3,677,896 | $2,648,322 | | Cost of services provided (exclusive of depreciation and amortization shown separately below) | 1,151,057 | 1,520,297 | | Research and development | 2,529,501 | 2,742,349 | | Selling, general, and administrative | 8,314,575 | 6,375,637 | | Depreciation and amortization | 573,755 | 406,240 | | Total Operating Expenses | 12,568,888 | 11,044,523 | | Operating Loss | (8,890,992) | (8,396,201) | - Net sales increased by 38.9% to $3.68 million in 2021, driven by new contracts, including $1.68 million from ICE, and increased revenue from existing contracts[188] - Cost of services decreased by 24.3% to $1.15 million in 2021, primarily due to the completion of the Emergent contract, partially offset by increased implementation costs for new and existing clients, with gross margin improving from 42.6% in 2020 to 68.7% in 2021[191][192][193] - Research and development expenses decreased by 7.8% to $2.53 million in 2021, primarily due to a one-time peak in equity compensation in 2020, while the company continued to invest in R&D by increasing technical staff in Malta, Rwanda, and the U.S.[194] - Selling, general, and administrative expenses increased by 30.4% to $8.31 million in 2021, primarily due to an increase in team members and higher equity incentive expenses[195] - In 2021, the company's cash and cash equivalents increased to $3.48 million, and total current assets rose to $5.76 million, primarily due to successful financing activities[208] - The company raised approximately $5.5 million through Regulation CF, Regulation D, and Regulation S financing activities in 2021 to support its Nasdaq listing[208][213][214][215][216] - Management believes that existing client revenue and current financing efforts will provide sufficient short-term and long-term cash flow to cover operating needs, particularly human resource costs[219][220] Quantitative and Qualitative Disclosures About Market Price As a smaller reporting company, Trust Stamp is not required to provide quantitative and qualitative disclosures about market price - As a smaller reporting company, Trust Stamp is not required to provide quantitative and qualitative disclosures about market price[271] Financial Statements and Supplementary Data This section includes Trust Stamp Inc. and its subsidiaries' consolidated financial statements, comprising balance sheets, statements of operations, comprehensive loss, stockholders' equity (deficit), and cash flows, along with related notes, all receiving an unqualified opinion from independent registered public accountants, despite concerns about going concern liquidity - Independent registered public accountants issued an unqualified opinion on the company's consolidated financial statements as of December 31, 2021, and 2020[274] - The audit report highlighted liquidity issues related to the company's going concern ability, noting a $9.1 million loss in 2021, $6.7 million in cash outflows from operations, and an accumulated deficit of $27.2 million as of December 31, 2021[278] Report of Independent Registered Public Accounting Firm Cherry Bekaert LLP issued an unqualified opinion on T Stamp Inc.'s consolidated financial statements for 2021 and 2020, while emphasizing liquidity concerns related to the company's ability to continue as a going concern - Cherry Bekaert LLP issued an unqualified opinion on T Stamp Inc. and its subsidiaries' consolidated financial statements as of December 31, 2021, and 2020[274] - The auditors emphasized liquidity issues related to the company's going concern ability, noting a $9.1 million loss in 2021, $6.7 million in cash outflows from operations, and an accumulated deficit of $27.2 million as of December 31, 2021[278] Consolidated Balance Sheets as of December 31, 2021 and 2020 As of December 31, 2021, the company's cash and cash equivalents increased to $3.48 million, total assets to $8.66 million, and stockholders' equity to $5.03 million, despite an expanded accumulated deficit of $27.21 million Consolidated Balance Sheet Key Data | ASSETS (USD) | 2021 | 2020 | | :---------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $3,475,695 | $1,469,952 | | Total Current Assets | $5,764,231 | $2,084,305 | | Total Assets | $8,664,654 | $4,812,766 | | Total Current Liabilities | $2,399,986 | $2,451,357 | | Total Liabilities | $3,630,938 | $2,739,107 | | Total Stockholders' Equity | $5,033,716 | $2,073,659 | | Accumulated deficit | $(27,208,186)| $(18,151,023)| - As of December 31, 2021, the company's cash and cash equivalents increased to $3.48 million, total assets to $8.66 million, and stockholders' equity to $5.03 million, while the accumulated deficit expanded to $27.21 million[281] Consolidated Statements of Operations for the Years Ended December 31, 2021 and 2020 In 2021, net sales increased to $3.68 million, a 38.9% year-over-year growth, with operating loss expanding to $8.89 million, but net loss before taxes narrowed to $9.06 million, resulting in basic and diluted net loss per share of $0.48 Consolidated Statements of Operations Key Data | (USD) | 2021 | 2020 | | :--------------------------------------------------------------------------------- | :----------- | :----------- | | Net sales | $3,677,896 | $2,648,322 | | Total Operating Expenses | $12,568,888 | $11,044,523 | | Operating Loss | $(8,890,992) | $(8,396,201) | | Net Loss before Taxes | $(9,058,906) | $(10,683,624) | | Net loss attributable to T Stamp Inc. | $(9,057,163) | $(10,683,561) | | Basic and diluted net loss per share attributable to T Stamp Inc. | $(0.48) | $(0.90) | - In 2021, net sales increased to $3.68 million, a 38.9% year-over-year growth, with operating loss expanding to $8.89 million, but net loss before taxes narrowed to $9.06 million, resulting in basic and diluted net loss per share of $0.48[284] Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2021 and 2020 The comprehensive loss for 2021 narrowed to $8.92 million from $10.64 million in 2020, primarily due to a reduction in net loss and a positive impact from foreign currency translation adjustments Consolidated Statements of Comprehensive Loss Key Data | (USD) | 2021 | 2020 | | :---------------------------------------- | :------------- | :------------- | | Net loss including noncontrolling interest | $(9,058,906) | $(10,683,624) | | Foreign currency translation adjustments | $138,800 | $45,133 | | Total Other Comprehensive Income | $138,800 | $45,133 | | Comprehensive loss | $(8,920,106) | $(10,638,491) | | Comprehensive loss attributable to T Stamp Inc. | $(8,918,363) | $(10,638,428) | - Comprehensive loss for 2021 was $8.92 million, a reduction from $10.64 million in 2020, primarily due to decreased net loss and positive foreign currency translation adjustments[287] Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 2021 and 2020 As of December 31, 2021, total stockholders' equity increased to $5.03 million, driven by additional paid-in capital from common stock and warrant issuances, despite a continued expansion of the accumulated deficit Consolidated Statements of Stockholders' Equity (Deficit) Key Data | (USD) | Balance, January 1, 2020 | Balance, December 31, 2020 | Balance, December 31, 2021 | | :-------------------------------- | :----------------------- | :------------------------- | :------------------------- | | Common Stock Amount | $96,250 | $176,965 | $204,751 | | Additional Paid-In Capital | $6,074,054 | $20,306,496 | $31,822,079 | | Accumulated Deficit | $(7,467,462) | $(18,151,023) | $(27,208,186) | | Total Stockholders' Equity | $91,054 | $2,073,659 | $5,033,716 | - As of December 31, 2021, total stockholders' equity increased to $5.03 million, primarily due to additional paid-in capital from common stock and warrant issuances, despite a continued expansion of the accumulated deficit[290] Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 In 2021, operating activities resulted in a $6.71 million cash outflow and investing activities a $768,353 outflow, but financing activities generated a $9.35 million inflow, leading to a net increase of $2.01 million in cash and cash equivalents, ending the year at $3.48 million Consolidated Statements of Cash Flows Key Data | (USD) | 2021 | 2020 | | :-------------------------------- | :------------- | :------------- | | Net cash flows from operating activities | $(6,714,474) | $(4,482,670) | | Net cash flows from investing activities | $(768,353) | $(512,165) | | Net cash flows from financing activities | $9,349,770 | $6,087,893 | | Net change in cash and cash equivalents | $2,005,743 | $1,138,191 | | Cash and cash equivalents, end of year | $3,475,695 | $1,469,952 | - In 2021, operating activities resulted in a $6.71 million cash outflow, investing activities a $768,353 outflow, but financing activities generated a $9.35 million inflow, leading to a net increase of $2.01 million in cash and cash equivalents, with an ending balance of $3.48 million[293] Notes to the Consolidated Financial Statements for the Years Ended December 31, 2021 and 2020 1. Description of Business and Summary of Significant Accounting Policies Trust Stamp develops and sells identity verification software solutions using AI, biometrics, cryptography, and data mining to provide identity and trust predictions, while safeguarding user privacy and preventing fraud - Trust Stamp develops and sells identity verification software solutions, leveraging AI, biometric science, cryptography, and data mining to provide identity and trust predictions while protecting user privacy and defending against fraud[296][297] - The company serves the financial, real estate, healthcare, insurance, and P2P markets, addressing KYC/AML compliance and security concerns[296][301] - On August 18, 2021, the company effected a 1-for-5 reverse stock split of its common stock, with all share and per-share amounts retroactively adjusted[297] - In 2021, the company issued Class A common stock and warrants through Regulation D, Regulation CF, and Regulation S offerings, generating $5.43 million in gross proceeds and incurring $621,000 in offering costs[303][304][305] - The company faces going concern risks, with a $9.06 million loss and $6.71 million cash outflow from operations in 2021, and an accumulated deficit of $27.21 million, but management believes capital raises provide sufficient liquidity for the next 12 months[306][307] - The company consolidates Tstamp Incentive Holdings (TSIH) as a Variable Interest Entity (VIE) due to its thinly capitalized nature and control by company management[310][313][314] - The company's revenue primarily derives from professional services, recognized using the five-step approach under ASC 606, with transaction prices allocated based on standalone selling prices for contracts containing multiple performance obligations, such as the ICE contract[343][344][346][347] - The company maintains a full valuation allowance against all deferred tax assets, resulting in an effective tax rate of 0% for 2021 and 2020[360] 2. Pixelpin Acquisition and Patent Approvals In February 2021, Trust Stamp Malta acquired Pixelpin for $91,000 in cash, enhancing its software IP portfolio, while the company also secured three new patents and filed eleven new patent applications, investing $161,000 in total - On February 23, 2021, Trust Stamp Malta acquired Pixelpin, an image-based “Pin-on-Glass” account access solution designed to enhance authentication security, for $91,000 in cash[371] - This acquisition expanded the company's software intellectual property portfolio, with three new patents granted and eleven new patent applications filed in 2021, representing a total investment of $161,000[371] 3. Borrowings As of December 31, 2021 and 2020, the company had no outstanding convertible promissory notes, having converted $818,000 in 2020 to common stock, and in 2021, it secured $844,006 in non-convertible promissory notes from the Maltese government for R&D, while fully repaying a $350,000 note to Second Century Ventures - As of December 31, 2021, and 2020, the company had no outstanding convertible promissory notes[374] - In 2020, the company converted $818,000 in convertible notes into Series A Preferred Stock, which subsequently converted to common stock on December 8, 2020[386] Non-Convertible Promissory Notes Balance | Date Issued | As of December 31, 2021 (USD) | As of December 31, 2020 (USD) | | :---------- | :---------------------------- | :---------------------------- | | August 10, 2021 | $322,190 | — | | February 9, 2021 | $521,816 | — | | April 22, 2020 | — | $350,000 | | Total principal outstanding | $844,006 | $350,000 | | Plus accrued interest | $12,252 | $19,730 | | Total non-convertible promissory notes payable | $856,258 | $344,219 | - In 2021, the company secured $844,006 in non-convertible promissory notes from the Maltese government for R&D center construction, with an annual interest rate of ECB base rate plus 2%[390][391] - On April 22, 2020, the company entered into a $350,000 promissory note with Second Century Ventures (SCV), which was fully repaid on April 22, 2021[392] 4. Warrants As of December 31, 2021, the liability-classified warrants balance increased to $374,694, primarily due to a fair value adjustment for a variable share count warrant, while equity-classified warrants saw new issuances in 2021 with a $4.00 strike price Liability-Classified Warrants Balance | | Warrants (USD) | | :-------------------------- | :----------- | | Balance as of January 1, 2020 | $287,750 | | Balance as of December 31, 2020 | $287,750 | | Change in fair value | $86,944 | | Balance as of December 31, 2021 | $374,694 | - As of December 31, 2021, the liability-classified warrants balance was $374,694, an $86,944 increase from 2020, primarily due to a fair value adjustment for a warrant with a variable share count and potentially unauthorized share class[404][406] Equity-Classified Warrants Outstanding | Warrant Issuance Date | Strike Price (USD) | 2021 | 2020 | | :-------------------- | :----------------- | :----------- | :----------- | | September 30, 2016 | $0.170 | 400,641 | 400,641 | | November 9, 2016 | $0.620 | 400,640 | 400,640 | | January 23, 2020 | $1.600 | 932,210 | 932,210 | | January 23, 2020 | $1.600 | 4,660,555 | 4,660,555 | | April 22, 2020 | $0.002 | — | 75,000 | | August – December 2021 | $4.000 | 1,357,963 | — | | Total warrants outstanding | | 7,752,009 | 6,469,046 | - In January 2020, the company issued two equity-classified warrants with a total fair value of $2.14 million, exceeding the $725,000 consideration received, with the difference recognized as an expense in the statement of operations[414] - On August 25, 2021, the company issued 1,357,963 warrants through Regulation CF, Regulation D, and Regulation S offerings, with an exercise price of $4.00 per share, becoming exercisable on January 26, 2022[416][418][419] 5. SAFE Liabilities As of December 31, 2021 and 2020, the company had no outstanding SAFE liabilities, having fully settled Emergent's SAFE liabilities in 2020 through a tripartite agreement involving services, promissory notes, and common stock SAFE Liabilities Balance | December 31 (USD) | December 31 (USD) | | :-------------------------- | :----------- | :----------- | | Balance, beginning of year | $— | $2,236,953 | | Balance, end of year | $— | $— | - As of December 31, 2021, and 2020, the company had no outstanding SAFE liabilities[421] - In 2020, the company entered into a tripartite agreement with Emergent and 10Clouds, fully settling Emergent's SAFE liabilities through the provision of services, issuance of promissory notes, and common stock[426][427] 6. Balance Sheet Components This section details the components of the balance sheet, including prepaid expenses and other current assets, capitalized internal-use software net, and accrued expenses, providing a breakdown of these financial items for 2021 and 2020 Prepaid Expenses and Other Current Assets | | As of December 31 (USD) | | :-------------------------- | :----------- | :----------- | | | 2021 | 2020 | | Prepaid operating expenses | $319,996 | $118,245 | | Rent deposit | $100,425 | $71,096 | | VAT receivable associated with SAIT | $68,798 | $39,752 | | Prepaid sponsorship | $100,000 | $100,000 | | Tax credit receivable | $75,106 | — | | Miscellaneous receivable | $332,277 | $129,902 | | Prepaid expenses and other current assets | $996,602 | $458,995 | Capitalized Internal-Use Software, Net | | As of December 31 (USD) | | :-------------------------- | :----------- | :----------- | | | 2021 | 2020 | | Internally developed software | $2,538,395 | $2,056,176 | | Less accumulated depreciation | $(1,378,351) | $(924,692) | | Capitalized internal-use software, net | $1,160,044 | $1,131,484 | Accrued Expenses | | As of December 31 (USD) | | :-------------------------- | :----------- | :----------- | | | 2021 | 2020 | | Compensation payable | $597,849 | $651,053 | | Accrued employee taxes | $349,256 | $85,665 | | Other accrued expenses | $112,427 | $72,485 | | Accrued expenses | $1,059,532 | $809,203 | 7. Goodwill and Intangible Assets The carrying value of goodwill remained unchanged in 2021 and 2020, while net intangible assets increased to $201,807 in 2021, primarily due to higher patent application costs and trademarks, with amortization expenses rising to $70,000 - The carrying value of goodwill remained unchanged in 2021 and 2020[439] Intangible Assets, Net | | As of December 31 (USD) | | :-------------------------- | :----------- | :----------- | | | 2021 | 2020 | | Patent application costs | $207,630 | $46,333 | | Trade name and trademarks | $86,999 | — | | Intangible assets, gross | $294,629 | $46,333 | | Less: Accumulated amortization | $(92,822) | $(23,951) | | Intangible assets, net | $201,807 | $22,382 | - Net intangible assets increased to $201,807 in 2021, primarily due to higher patent application costs and trademarks, with amortization expenses of $70,000 in 2021 compared to $9,000 in 2020[440] 8. Revenue Recognition The company's revenue primarily stems from professional services, with billing typically occurring in advance, leading to deferred revenue or customer deposits, and contracts are generally cancellable with less than 12 months' notice, thus not considered remaining performance obligations - The company's revenue primarily derives from professional services, with billing typically occurring in advance according to contract terms, resulting in deferred revenue or customer deposit liabilities[444] - The company generally allows customers to terminate contracts with less than 12 months' notice, thus cancellable contract revenue is not considered a remaining performance obligation[445] Revenue Type Breakdown | Revenue Type | For the years ended December 31 (USD) | | :------------- | :------------------------------- | :------------------------------- | | | 2021 | 2020 | | Professional services (over time) | $3,477,896 | $2,498,322 | | License fees (over time) | $200,000 | $150,000 | | Total Revenue | $3,677,896 | $2,648,322 | 9. Income Taxes The company reported zero income tax expense and an effective tax rate of 0% for both 2021 and 2020, maintaining a full valuation allowance against its net deferred tax assets, which include federal, state, and foreign net operating loss carryforwards Net Loss Before Taxes Breakdown | | For the years ended December 31 (USD) | | :---------- | :------------- | :------------- | | | 2021 | 2020 | | U.S. | $(4,808,983) | $(9,389,930) | | Non U.S. | $(4,249,923) | $(1,293,694) | | Net loss before taxes | $(9,058,906) | $(10,683,624) | - The company reported zero income tax expense and an effective tax rate of 0% for both 2021 and 2020[450] Deferred Tax Assets | | As of December 31 (USD) | | :-------------------------- | :----------- | :----------- | | | 2021 | 2020 | | Net operating losses | $4,975,559 | $3,487,171 | | Tax credits | $176,975 | $176,975 | | Equity compensation | $1,193,450 | $539,274 | | Other - accruals | $104,807 | — | | Other | $11,528 | $130,217 | | Total Deferred Tax Assets | $6,462,319 | $4,333,637 | | Total Deferred Tax Liabilities | $(245,453) | $(212,912) | | Net Deferred Tax Assets | $6,216,866 | $4,120,725 | | Valuation allowance | $(6,216,866) | $(4,120,725) | | Deferred Tax Assets, Net | $— | $— | - As of December 31, 2021, the company had $14.22 million in federal net operating loss carryforwards, $3.26 million in state net operating loss carryforwards, and $5.54 million in foreign net operating loss carryforforwards[454] 10. Stock Awards and Stock-based Compensation The company grants stock awards, including common stock, restricted stock units (RSUs), and stock options, to advisory board members, external consultants, and employees, with total stock-based compensation expense increasing to $2.78 million in 2021 - The company grants stock awards, including common stock grants, Restricted Stock Units (RSUs), and stock options, to advisory board members, external consultants, and employees[458][459][462] Summary of Stock Option Activity | | Options Outstanding | Weighted Average Exercise Price Per Share (USD) | | :-------------------------- | :------------------ | :-------------------------------------- | | Balance as of January 1, 2020 | 53,555 | $0.93 | | Options granted | 1,719,364 | $1.26 | | Balance as of December 31, 2020 | 1,734,029 | $1.26 | | Options granted | 261,736 | $1.51 | | Balance as of December 31, 2021 | 1,975,010 | $1.28 | - As of December 31, 2021, the company had 1,975,010 earned, unexercised, and exercisable stock options, all of which were fully vested[465] Stock-Based Compensation Expense | | For the years ended December 31 (USD) | | :-------------------------- | :------------- | :------------- | | | 2021 | 2020 | | Cost of services provided | $160,504 | $126,675 | | Research and development expense | $493,336 | $1,071,984 | | Selling, general, and administrative | $2,126,799 | $1,318,896 | | Total stock-based compensation expense | $2,780,639 | $2,517,555 | - Total stock-based compensation expense for 2021 was $2.78 million, an increase from $2.52 million in 2020[470] 11. Stockholders' Equity The company is authorized to issue 39.5 million shares, comprising 37.5 million common shares (Class A with one vote per share, Class B non-voting except as required by law) and 2 million preferred shares, with all Series A preferred shares converted to Class A common stock in September 2020 - The company is authorized to issue 39,500,000 shares, including 37,500,000 common shares and 2,000,000 preferred shares, with common stock divided into Class A (one vote per share) and Class B (non-voting except as legally required)[471][472] - Series A Preferred Stock holds liquidation preference and is convertible to common stock at the holder's option or mandatorily under specific conditions; all Series A Preferred Stock converted to Class A common stock on September 8, 2020[473][477][478] - The company did not declare dividends in either 2021 or 2020[479] 12. Net Loss per Share Attributable to Common Stockholders Net loss per share attributable to common stockholders was $0.48 in 2021 and $0.90 in 2020, with diluted net loss per share being identical to basic net loss per share due to the company's net loss position Net Loss Per Share Attributable to Common Stockholders Calculation | | For the years ended December 31 (USD) | | :---------------------------------------------------------------- | :------------- | :------------- | | | 2021 | 2020 | | Net loss attributable to common stockholders | $(9,057,163) | $(10,683,561) | | Weighted average shares used to compute basic and diluted net loss per share | 18,837,358 | 11,817,775 | | Net loss per share attributable to common stockholders | $(0.48) | $(0.90) | - Net loss per share attributable to common stockholders was $0.48 in 2021 and $0.90 in 2020, with diluted net loss per share identical to basic net loss per share due to the company's net loss position[480] Dilutive Securities | | For the years ended December 31 | | :-------------------------- | :------------- | :------------- | | | 2021 | 2020 | | Options, RSUs, and grants | 2,777,904 | 1,757,019 | | Warrants | 8,645,463 | 7,440,332 | | Total | 11,423,367 | 9,197,351 | 13. Related Party Transactions As of December 31, 2021, related party payables totaled $253,000, primarily linked to software development contractor 10Clouds and management expense reimbursements, while the company also had secured loan agreements with three executives and directors for Class A common stock options, with two loans subsequently waived as bonuses - As of December 31, 2021, related party payables totaled $253,000, primarily associated with software development contractor 10Clouds and management expense reimbursements[482] - Total costs related to 10Clouds were $1.08 million in 2021 and $1.91 million in 2020[482] - The company entered into secured loan agreements totaling $225,000 with Alex Valdes, Andrew Scott Francis, and David Story; David Story has repaid his loan, while the loans for Alex Valdes and Andrew Scott Francis were waived by the company[485] 14. Commitments and Contingencies As of December 31, 2021, the company's total future minimum lease obligations amounted to $577,471, with $370,493 due in 2022, and it is not currently involved in any legal proceedings or aware of any pending or threatened litigation Future Minimum Lease Obligations | Years Ending December 31 | Amount (USD) | | :------------------------ | :----------- | | 2022 | $370,493 | | 2023 | $76,725 | | 2024 | $66,427 | | 2025 | $59,157 | | 2026 | $4,669 | | Total | $577,471 | - As of December 31, 2021, the company's total future minimum lease obligations amounted to $577,471, with $370,493 due in 2022[487] - The company is not currently involved in any legal proceedings and is unaware of any pending or threatened litigation against it or its officers and directors[488] 15. Malta Grant In July 2020, the company secured an agreement with the Maltese government for a grant of up to 200,000 Euro to reimburse Trust Stamp Malta's operating expenses for its first 12 months, with all funds received by December 31, 2021 - In July 2020, the company entered an agreement with the Maltese government for a grant of up to 200,000 Euro to reimburse Trust Stamp Malta's operating expenses for its first 12 months post-establishment[491] - The company recognized $62,000 and $190,000 in grant income for 2021 and 2020, respectively, with all funds under the grant received as of December 31, 2021[492] 16. Investment in Related Party In July 2019, the company acquired 9.62 Class A units of Emergent from a shareholder for 2,235,575 Class A common shares valued at $962,000, which was fully written off in April 2021 due to Emergent ceasing operations in December 2020 - In July 2019, the company acquired 9.62 Class A units of Emergent from a shareholder for 2,235,575 Class A common shares, valued at $962,000[494] - In April 2021, the company learned Emergent ceased operations in December 2020, leading to a full write-off of the $962,000 investment, recognized under non-operating income (expense) in the 2020 statement of operations[495] 17. Subsequent Events As of January 10, 2022, the company issued 1,400,334 units through Regulation CF, D, and S offerings, generating $5.74 million in gross proceeds, and received $3.33 million from warrant exercises, while also securing an additional 100,000 Euro grant from the Maltese government and modifying its ICE contract to $7.18 million - As of January 10, 2022, the company issued 1,400,334 units through Regulation CF, Regulation D, and Regulation S financing activities, generating $5.74 million in gross proceeds[497][498][501] - On January 10, 2022, SCV and REach® exercised warrants, providing the company with $3.33 million in cash proceeds[502] - On January 25, 2022, the company signed an additional agreement with the Maltese government for a grant of up to 100,000 Euro to support new employee wage costs for COVID-19 related product projects[503] - On January 31, 2022, Trust Stamp's Class A common stock was approved for listing on the Nasdaq Capital Market under the ticker “IDAI”[504] - On March 27, 2022, the company's contract with ICE was modified, increasing the total contract value from $3.92 million to $7.18 million, with the delivery period extended to September 26, 2022[506] Changes in and Disagreements with Accountants on Accounting and Financial Disclosures This report does not mention any changes in accountants or disagreements with accountants on accounting and financial disclosures - This report does not mention any changes in accountants or disagreements with accountants on accounting and financial disclosures[508] Controls and Procedures While management assessed disclosure controls and procedures as effective, independent auditors identified significant deficiencies in internal controls over financial reporting for fiscal year 2021, primarily concerning stock award calculations and financial reporting close process oversight - Company management assessed the effectiveness of disclosure controls and procedures, deeming them effective[510] - Independent auditors identified significant deficiencies in internal controls over financial reporting during the 2021 fiscal year audit, primarily related to stock award calculations and oversight functions in the financial reporting close process[512] Other Information This report does not contain any other information - This report does not contain any other information[513] PART III Directors, Executive Officers and Corporate Governance Trust Stamp's board comprises eight members, including four independent directors meeting Nasdaq listing requirements, supported by audit, compensation, and nominating and corporate governance committees, with the company adopting a code of business conduct and ethics and providing maximum indemnification for directors and officers Executive Officers and Directors | Name | Position | Age | | :--------------- | :---------------------------- | :-- | | Gareth Genner | Chief Executive Officer, Director | 62 | | Andrew Gowasack | President, Director | 30 | | Alex Valdes | Chief Financial Officer, & Board Secretary | 32 | | Andrew Scott Francis | Chief Technology Officer | 48 | | Mark Birschbach | Independent Director | 45 | | David Story | Chairman of the Board | 63 | | Joshua Allen | EVP, Director | 44 | | William McClintock | Independent Director | 79 | | Kristin Stafford | Independent Director | 51 | | Berta Pappenheim | Independent Director | 41 | - The company's board of directors consists of eight members, with Mark Birschbach, William McClintock, Kristin Stafford, and Berta Pappenheim identified as independent directors, meeting Nasdaq listing requirements[537] - The company maintains an Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee to assist the board in fulfilling responsibilities such as risk oversight, compensation determination, and director nominations[543][545][546][547] - The company has adopted a Code of Business Conduct and Ethics applicable to all employees, officers, and directors[552] - The company's bylaws provide for indemnification of directors and officers to the fullest extent permitted by Delaware law[553] Executive Compensation This section details the compensation for Trust Stamp's named executive officers in 2021 and 2020, including base salaries, bonuses, and stock awards, with the board determining compensation based on responsibilities, expertise, and market competitiveness, potentially granting performance-linked incentive bonuses and long-term equity incentives Summary Compensation Table for Executive Officers | Name | Year | Salary (USD) | Bonus (USD) | Stock Award (USD) | Option Awards (USD) | Total (USD) | | :--------------- | :--- | :----------- | :---------- | :---------------- | :------------------ | :---------- | | Gareth Genner | 2021 | $250,470 | $— | $— | $— | $250,470 | | | 2020 | $242,000 | $121,000 | $134,430 | $— | $497,430 | | Andrew Gowasack | 2021 | $250,470 | $— | $— | $— | $250,470 | | | 2020 | $242,000 | $— | $268,877 | $— | $510,877 | | Andrew Scott Francis | 2021 | $204,247 | $— | $— | $— | $186,300 | | | 2020 | $180,000 | $— | $139,992 | $— | $319,992 | - In 2021, Gareth Genner and Andrew Gowasack each received a base salary of $250,470, while Andrew Scott Francis received $204,247[557] - The company's board of directors determines executive compensation based on factors such as responsibilities, expertise, past performance, and market competitiveness[559][561] - Executive officers are eligible for year-end bonuses, ranging from 50% to 100% of their base salary, payable in cash or stock awards[563] - The company granted 159,700 and 0 Restricted Stock Units (RSUs) to named executive officers in 2021 and 2020, respectively, with these RSUs fully vesting on January 2, 2023[564] - As of the report date, the company has not established a formal equity incentive plan[565] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section discloses the beneficial ownership of the company's executive officers, directors, and other beneficial owners holding more than 5% of voting securities as of April 6, 2022, including the number of acquirable Class A common shares Security Ownership of Executive Officers, Directors, and 5% Shareholders (as of April 6, 2022) | Name and Address of Beneficial Owner | Amount and nature of beneficial ownership | Amount and nature of acquirable (1) | Percent of class (2) | | :----------------------------------- | :---------------------------------------- | :---------------------------------- | :------------------- | | Gareth Genner | 797,023 | 39,515 | 3.39 % | | Andrew Gowasack | 1,191,138 | 79,035 | 5.06 % | | Alexander Valdes | 403,578 | 48,165 | 1.72 % | | All executive officers and directors as a group (10 persons) | 2,978,389 | 300,365 | 12.66 % | | REach Ventures 2017 LP | 2,622,995 | 3,601,365 | 11.15 % | | FSH Capital, LLC | 2,824,653 | 0 | 12.00 % | - As of April 6, 2022, the company's executive officers and directors as a group beneficially owned 12.66% of Class A common stock, with Andrew Gowasack holding 5.06%[570] - REach Ventures 2017 LP and FSH Capital, LLC are shareholders holding over 5% of the company's shares, with 11.15% and 12.00%, respectively[570] Certain Relationships and Related Transactions, and Director Independence This section discloses related party transactions, including a settlement agreement with Emergent Technology Holdings LP, a promissory note and warrant agreement with Second Century Ventures, secured loan agreements with executive officers and directors, and a reciprocal channel agreement with Vital4Data, Inc., whose CEO is also a company director - The company entered into a settlement agreement with Emergent Technology Holdings LP, fully satisfying Emergent's SAFE liabilities through the provision of services, issuance of promissory notes, and common stock[572][574] - The company entered into a $350,000 promissory note and warrant agreement with Second Century Ventures (SCV), whose director Mark Birschbach also serves on the company's board; the note was fully repaid on April 22, 2021, and the warrants have been exercised[576][578] - The company entered into secured loan agreements totaling $225,000 with Alex Valdes, Andrew Scott Francis, and David Story; David Story has repaid his loan, while the loans for Alex Valdes and Andrew Scott Francis were waived by the company[581] - The company entered into a reciprocal channel agreement with Vital4Data, Inc., whose CEO Kristin Stafford also serves as a company director; Vital4Data, Inc. is entitled to sales commissions as a non-exclusive sales representative[583] Principal Accounting Fees and Services This section summarizes the audit fees, audit-related fees, tax fees, and all other fees paid by the company to Cherry Bekaert, LLP Summary of Accounting Fees for Cherry Bekaert, LLP | For the years ended | December 31, 2021 (USD) | December 31, 2020 (USD) | | :------------------ | :---------------------- | :---------------------- | | Audit Fees | $107,556 | $55,704 | | Audit-Related Fees | $50,000 | $70,000 | | Tax Fees | $— | $— | | All Other Fees | $— | $— | | Total Fees | $157,556 | $125,704 | - In 2021, the company paid $157,556 in total fees to Cherry Bekaert, LLP, comprising $107,556 for audit fees and $50,000 for audit-related fees[586] PART IV Exhibits, Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits required by Item 601 of Regulation S-K included in the company's 10-K annual report - This section lists the financial statements, financial statement schedules, and exhibits required by Item 601 of Regulation S-K included in the company's 10-K annual report[589][590][591] Form 10-K Summary This item is not applicable - This item is not applicable[592]