UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2025

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File No. 001-40729

DATCHAT, INC.

(Exact name of registrant as specified in its charter)

Nevada		47-2502264
(State or Other Jurisdiction		IRS Employer
of Organization)		Identification Number

204 Neilson Street,
New Brunswick, NJ		08901
(Address of principal executive offices)		(Zip code)

(732) 374-3529
(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	DATS	The Nasdaq Stock Market LLC
Series A Warrants, each warrant exercisable for one share of Common Stock at an exercise price of $4.98 per share	DATSW	The Nasdaq Stock Market LLC

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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 the 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	☐	Accelerated filer	☐
Non accelerated filer	☒	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. ☐

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 13, 2025, there were 4,209,329 shares of common stock, par value $0.0001 per share, outstanding.

DATCHAT, INC.

FORM 10-Q

March 31, 2025

INDEX

		Page
PART I. FINANCIAL INFORMATION		1

Item 1.	Financial Statements	1
	Consolidated Balance Sheets - As of March 31, 2025 (unaudited) and December 31, 2024	1
	Consolidated Statements of Operations and Comprehensive Loss - For the Three Months Ended March 31, 2025 and 2024 (unaudited)	2
	Consolidated Statements of Changes in Stockholders’ Equity – For the Three Ended March 31, 2025 and 2024 (unaudited)	3
	Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 2025 and 2024 (unaudited)	4
	Notes to Unaudited Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28

PART II. OTHER INFORMATION		30

Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	30
Signatures		31

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain 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 Exchange Act of 1934, as amended (the “Exchange Act”). Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan” and “would.” For example, statements concerning financial condition, possible or assumed future results of operations, growth opportunities, industry ranking, plans and objectives of management, markets for our common stock and future management and organizational structure are all forward-looking statements. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement.

Any forward-looking statements are qualified in their entirety by reference to the risk factors discussed throughout our Annual Report on Form 10-K as filed with the SEC on March 31, 2025. Some of the risks, uncertainties and assumptions that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, but are not limited to:

●

our business strategies;

●

the timing of regulatory submissions;

●

our ability to obtain and maintain regulatory approval of our existing product candidates and any other product candidates we may develop, and the labeling under any approval we may obtain;

●

risks related to market acceptance of products;

●

intellectual property risks;

●

risks associated to our reliance on third party organizations;

●

our competitive position;

●

our industry environment;

●

our anticipated financial and operating results, including anticipated sources of revenues;

●

assumptions regarding the size of the available market, benefits of our products, product pricing and timing of product launches;

●

management’s expectation with respect to future acquisitions;

●

statements regarding our goals, intentions, plans and expectations, including the introduction of new products and markets;

●

our cash needs and financing plans.

The foregoing list sets forth some, but not all, of the factors that could affect our ability to achieve results described in any forward-looking statements. You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed as exhibits our Annual Report on Form 10-K, completely and with the understanding that our actual future results may be materially different from what we expect. You should assume that the information appearing in this Quarterly Report on Form 10-Q is accurate as of the date hereof. Because the risk factors referred to in our Annual Report on Form 10-K, as filed with the SEC on March 31, 2025, could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all the information presented in this Quarterly Report on Form 10-Q, and particularly our forward-looking statements, by these cautionary statements.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DATCHAT, INC. AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2025			2024
	(Unaudited)
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	1,265,478		$	1,196,699
Short-term investments, at fair value		5,785,219			2,952,512
Accounts receivable		247			207
Prepaid expenses		154,563			138,604

Total Current Assets		7,205,507			4,288,022

NON-CURRENT ASSETS:
Deferred offering costs		152,500			-
Property and equipment, net		27,895			33,436
Capitalized internal-use software, net		1,122,625			1,050,000

Total Non-current Assets		1,303,020			1,083,436

Total Assets	$	8,508,527		$	5,371,458

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	699,315		$	630,223
Contract liabilities		121			88

Total Current Liabilities		699,436			630,311

Total Liabilities		699,436			630,311

Commitments and Contingencies (Note 9)

STOCKHOLDERS’ EQUITY:
Preferred stock ($0.0001 par value; 20,000,000 shares authorized) Series A Preferred stock ($0.0001 Par Value; 1 Share designated; none issued and outstanding on March 31, 2025 and December 31, 2024)		-			-
Series B Preferred stock ($0.0001 Par Value; 2,000,000 Share designated; 2,000,000 issued and outstanding on March 31, 2025 and December 31, 2024)		200			200
Common stock ($0.0001 par value; 180,000,000 shares authorized; 4,276,274 and 3,076,274 shares issued and 4,209,329 and 3,009,329 shares outstanding on March 31, 2025 and December 31, 2024, respectively)		428			308
Common stock to be issued (139 shares on March 31, 2025 and December 31, 2024)		-			-
Additional paid-in capital		64,525,389			59,649,645
Treasury stock, at cost (66,945 shares on March 31, 2025 and December 31, 2024)		(397,969	)		(397,969	)
Accumulated deficit		(53,846,444	)		(52,373,248	)
Total DatChat, Inc. Stockholders’ Equity		10,281,604			6,878,936
Noncontrolling interest		(2,472,513	)		(2,137,789	)

Total Stockholders’ Equity		7,809,091			4,741,147

Total Liabilities and Stockholders’ Equity	$	8,508,527		$	5,371,458

See accompanying notes to unaudited consolidated financial statements.

DATCHAT, INC. AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

	For the Three Months Ended
	March 31,
	2025			2024

NET REVENUES	$	83		$	131

OPERATING EXPENSES:
Compensation and related expenses		967,280			897,664
Marketing and advertising expenses		38,262			34,717
Professional and consulting expenses		455,484			253,625
Research and development expense		6,000			233,918
General and administrative expenses		193,503			243,626

Total operating expenses		1,660,529			1,663,550

LOSS FROM OPERATIONS		(1,660,446	)		(1,663,419	)

OTHER INCOME (EXPENSES):
Interest income, net		41,336			114,470
Gain on deconsolidation of variable interest entities		-			107
Foreign currency exchange loss		-			(12,965	)

Total other income, net		41,336			101,612

NET LOSS		(1,619,110	)		(1,561,807	)

Net loss of subsidiary attributable to noncontrolling interest		145,914			423,995

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(1,473,196	)	$	(1,137,812	)

COMPREHENSIVE LOSS:
Net loss	$	(1,619,110	)	$	(1,561,807	)

Other comprehensive gain:
Unrealized foreign currency translation gain		-			12,965

Comprehensive loss	$	(1,619,110	)	$	(1,548,842	)

NET LOSS PER COMMON SHARE:
Basic and diluted	$	(0.36	)	$	(0.41	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic and diluted		4,089,329			2,806,185

See accompanying notes to unaudited consolidated financial statements.

DATCHAT, INC. AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024

(Unaudited)

																				Accumulated
	Series B Preferred Stock				Common Stock				Common Stock to be Issued				Additional Paid-in		Treasury Stock					Other Comprehensive		Accumulated			Noncontrolling			Total Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Shares		Amount			Gain (Loss)		Deficit			Interest			Equity

Balance, December 31, 2024		2,000,000	$	200		3,076,274	$	308		139	$	-	$	59,649,645		66,945	$	(397,969	)	$	-	$	(52,373,248	)	$	(2,137,789	)		4,741,147

Accretion of stock based compensation in connection with stock option grants		-		-		-		-		-		-		155,054		-		-			-		-			-			155,054

Issuance of common stock for cash, net of allocated offering costs of $568,000		-		-		1,200,000		120		-		-		4,531,880		-		-			-		-			-			4,532,000

Initial recording on noncontrolling interest		-		-		-		-		-		-		188,810		-		-			-		-			(188,810	)		-

Net loss for the period		-		-		-		-		-		-		-		-		-			-		(1,473,196	)		(145,914	)		(1,619,110	)

Balance, March 31, 2025		2,000,000	$	200		4,276,274	$	428		139	$	-	$	64,525,389		66,945	$	(397,969	)	$	-	$	(53,846,444	)	$	(2,472,513	)	$	7,809,091

																					Accumulated
	Series B Preferred Stock				Common Stock				Common Stock to be Issued				Additional Paid-in			Treasury Stock					Other Comprehensive			Accumulated			Noncontrolling			Total Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares		Amount			Gain (Loss)			Deficit			Interest			Equity

Balance, December 31, 2023		2,000,000	$	200		2,103,321	$	210		139	$	-	$	54,597,083			66,945	$	(397,969	)	$	34,553		$	(48,134,088	)	$	-		$	6,099,989

Accretion of stock-based compensation in connection with stock option grants		-		-		-		-		-		-		6,695			-		-			-			-			-			6,695

Accretion of stock-based professional fees in connection with stock option grants		-		-		-		-		-		-		22,019			-		-			-			-			-			22,019

Issuance of common shares in subsidiary for services		-		-		-		-		-		-		22,500			-		-			-			-			-			22,500

Issuance of common stock for cash, net of allocated offering costs of $149,248		-		-		382,972		39		-		-		559,212			-		-			-			-			-			559,251

Sale of pre-funded warrants, net of allocated offering costs of $229,919		-		-		-		-		-		-		861,522			-		-			-			-			-			861,522

Cashless exercise of pre-funded warrants		-		-		589,981		59		-		-		(59	)		-		-			-			-			-			-

Initial recording on noncontrolling interest		-		-		-		-		-		-		442,361			-		-			-			-			(442,361	)		-

Accumulated other comprehensive loss		-		-		-		-		-		-		-			-		-			(34,553	)		-			-			(34,553	)

Net loss for the period		-		-		-		-		-		-		-			-		-			-			(1,137,812	)		(423,995	)		(1,561,807	)

Balance, March 31, 2024		2,000,000	$	200		3,076,274	$	308		139	$	-	$	56,511,333			66,945	$	(397,969	)	$	-		$	(49,271,900	)	$	(866,356	)	$	5,975,616

See accompanying notes to unaudited consolidated financial statements.

DATCHAT, INC. AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Three Months Ended
	March 31,
	2025			2024
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,619,110	)	$	(1,561,807	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		5,541			5,782
Amortization of right of use asset		-			17,123
Stock-based compensation		155,054			6,695
Stock-based professional fees		-			52,323
Gain on deconsolidation of variable interest entities		-			(107	)
Foreign currency exchange loss		-			12,965
Changes in operating assets and liabilities:
Accounts receivable		(40	)		(17	)
Prepaid expenses		(15,959	)		(52,659	)
Accounts payable and accrued expenses		69,092			61,794
Contract liabilities		33			44
Operating lease liability		-			(19,376	)

NET CASH USED IN OPERATING ACTIVITIES		(1,405,389	)		(1,477,240	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of short-term investments		1,481,603			2,688,668
Purchase of short-term investments, net		(4,314,310	)		(3,337,115	)
Increase in intangible assets - capitalization of internal-use software		(72,625	)		-

NET CASH USED IN INVESTING ACTIVITIES		(2,905,332	)		(648,447	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, net		4,532,000			559,251
Proceeds from sale of pre-funded warrants		-			861,522
Payment of deferred offering costs		(152,500	)		-

NET CASH PROVIDED BY FINANCING ACTIVITIES		4,379,500			1,420,773

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		68,779			(704,914	)

Effect of exchange rate changes on cash		-			1,535

CASH AND CASH EQUIVALENTS - beginning of period		1,196,699			953,362

CASH AND CASH EQUIVALENTS - end of period	$	1,265,478		$	249,983

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	2,831		$	-
Income taxes	$	-		$	-

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Initial recording on noncontrolling interest deficit	$	188,810		$	442,361

See accompanying notes to unaudited consolidated financial statements.

DATCHAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025 AND 2024

(Unaudited)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

DatChat, Inc. (the “Company”) was incorporated in the State of Nevada on December 4, 2014 under the name of YssUp, Inc. On March 4, 2015, the Company’s corporate name was changed to Dat Chat, Inc. In August 2016, the Board of Directors of the Company approved to change the name of the Company from Dat Chat, Inc. to DatChat, Inc. The Company established a fiscal year end of December 31. The Company is a cybersecurity and social media company that not only focuses on protecting privacy on personal devices but also protects user information after it is shared with others. The Company’s flagship product, DatChat Messenger & Private Social Network, is a privacy platform and mobile application that gives users the ability to communicate with the privacy and protection they deserve. Recently, the Company has expanded its business and product offerings to include the development of Myseum, a social network and multi-media storage platform for consumers and enterprises.

On June 16, 2022, the Company formed a majority owned subsidiary, RPM Interactive, Inc. under the name SmarterVerse, Inc., a company incorporated under the laws of the State of Nevada (“RPM Interactive”). On February 14, 2024, RPM Interactive filed a Certificate of Amendment with the State of Nevada to change its name from SmarterVerse, Inc. to Dragon Interactive Corporation. On August 7, 2024, RPM Interactive filed a Certificate of Amendment with the State of Nevada to change its name from Dragon Interactive Corporation to Dragon Interact, Inc. On November 21, 2024, RPM Interactive filed a Certificate of Amendment with the State of Nevada to change its name from Dragon Interact, Inc. to RPM Interactive, Inc.

On February 14, 2023, RPM Interactive entered into a subscription agreement with Metabizz, LLC. In connection with the subscription agreement, RPM Interactive sold Metabizz, LLC 8,000,000 shares of its common stock for $800, which was 40% of the issued and outstanding common shares of RPM Interactive. On October 2, 2023, pursuant to the Stock Purchase Agreement, RPM Interactive issued the Company an additional 12,000,000 shares of its common stock for $500,000.

On January 10, 2024, VR Interactive LLC (“VR Interactive”), a company 45% owned by Darin Myman, the Company’s CEO and 3.75% owned by Peter Shelus, the Company’s chief technology officer and director, purchased 8,000,000 shares of RPM Interactive from the Metabizz shareholders. Mr. Myman is a partner in VR Interactive. Therefore, VR Interactive, a related party, became a 25% non-controlling interest in RPM Interactive.

On February 14, 2023, based on the Company’s analysis, Metabizz, LLC and Metabizz SAS were determined to be variable interest entities (see below). Metabizz, LLC and Metabizz SAS were formed by a group of technology professionals to provide programming services only to RPM Interactive. One of the founders of Metabizz, LLC was the chief technology officer of RPM Interactive. On March 31, 2024, based on the Company’s analysis, the Company deconsolidated Metabizz, LLC and Metabizz SAS. During the three months ended March 31, 2024, the Company ceased doing business with Metabizz, LLC and Metabizz SAS and pays technology professionals directly.

On August 27, 2024, the Company entered into an Asset Purchase Agreement with Judaopta LLC, a Delaware limited liability company (the “Seller”), pursuant to which it acquired from Seller (i) certain software (the “RenAI Software”), which consists of an artificial intelligence (AI) tool designed used for media library organization with the ability to tag and rename images for PC and MAC devices using AI with integration to Gemini, OpenAI and Claude and (ii) certain domain names (the “Assets”) in consideration for the transfer by the Company of 8,000,000 restricted shares of common stock of RPM Interactive.

On October 29, 2024 (the “Closing Date” and measurement date), RPM Interactive, the Company’s subsidiary, entered into and closed on a Share Exchange Agreement (the “Share Exchange Agreement”) with (i) RPM Interactive, Inc., a private Florida corporation incorporated on August 23, 2024 (“RPM Florida”); and (ii) the shareholders of RPM Florida. Pursuant to the Share Exchange Agreement, RPM Interactive acquired 100% of the shares of RPM Florida in exchange for 3,500,000 shares of RPM Interactive’s common stock. RPM Florida is a web publishing company that leverages generative AI systems to offer consumers entertaining gaming apps and podcasting offerings in the sports, finance, entertainment, and politics categories (See Note 5).

DATCHAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025 AND 2024

(Unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

Management acknowledges its responsibility for the preparation of the accompanying unaudited condensed consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its financial position and the results of its operations for the periods presented. The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S. GAAP”) for interim financial information and with the instructions Article 8-03 of Regulation S-X. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole.

Certain information and note disclosure normally included in financial statements prepared in accordance with U.S. GAAP has been condensed or omitted from these statements pursuant to such accounting principles and, accordingly, they do not include all the information and notes necessary for comprehensive financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to the financial statements for the year ended December 31, 2024 of the Company which were included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 31, 2025.

The Company consolidates its subsidiaries that are wholly-owned and majority owned, and entities that are variable interest entities (“VIE”) where the Company is determined to be the primary beneficiary. The Company’s unaudited consolidated financial statements include the accounts of the parent entity. DatChat, Inc., its wholly-owned subsidiary, DatChat Patents II, LLC, and RPM Interactive, which was a majority-owned subsidiary through August 27, 2024 and became a VIE after August 27, 2024, and VIE entities, Metabizz, LLC and Metabizz SAS through March 31, 2024, at which date the Metabizz VIE entities were deconsolidated. All intercompany accounts and transactions have been eliminated in consolidation.

On March 31, 2024, based on the Company’s analysis, the Company deconsolidated Metabizz, LLC and Metabizz SAS. On or prior to March 31, 2024, the Company ceased doing business with Metabizz, LLC and Metabizz SAS and now pays technology professionals directly. In connection with the deconsolidation of Metabizz, LLC and Metabizz SAS, during the year ended December 31, 2024, the Company recorded a gain on deconsolidation of $107.

Noncontrolling interests

The Company follows ASC Topic 810, “Consolidation,” governing the accounting for and reporting of noncontrolling interests (“NCI”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCI be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated subsidiary be allocated to noncontrolling interests even when such allocation might result in a deficit balance. The net loss attributed to NCI was separately designated in the accompanying consolidated statements of operations and comprehensive loss. Losses attributable to NCI in a subsidiary may exceed a NCI’s interests in the subsidiary’s equity. The excess attributable to NCI is attributed to those interests. NCI shall continue to be attributed their share of losses even if that attribution results in a deficit NCI balance.

The Company allocates certain corporate common expenses to its subsidiaries based on the ratio of direct subsidiary expenses to total consolidated expenses. Management believes that this allocation method is reasonable.

The Company accounts for its noncontrolling interest in RPM Interactive in accordance with ASC Topic 810-10-45, which requires the Company to present noncontrolling interests as a separate component of total shareholders’ equity on the consolidated balance sheets and the consolidated net loss attributable to its noncontrolling interest be clearly identified and presented on the face of the consolidated statements of operations. Through January 10, 2024, the date that VR Interactive purchased 8,000,000 shares of RPM Interactive from Metabizz LLC, any noncontrolling interest eliminated in consolidation. Because this change in ownership moved from a consolidated entity (the VIE entities) to a nonconsolidated entity (VR Interactive), subsequent to January 10, 2024 the Company ceased eliminating the noncontrolling interest in consolidation and recorded an initial negative noncontrolling interest in total equity for the portion of equity ownership not attributable to DatChat based on the minority interest holders’ ownership interest in the carrying value of RPM Interactive’s equity. Due to the issuance of common shares by RPM Interactive, during the three months ended March 31, 2025, the Company recorded aggregate initial negative noncontrolling interest of $188,810 in total equity for the portion of additional equity ownership not attributable to the Company based on the minority interest holders’ ownership interest in the carrying value of RPM Interactive’s equity. The Company also allocated $145,914 of the net loss of the subsidiary to noncontrolling interest during the three months ended March 31, 2025. As a result of changes in RPM Interactive outstanding common stock and the Company’s share of losses of subsidiary since January 2024, aggregate noncontrolling interest deficit amounted to $2,472,513 as of March 31, 2025.

DATCHAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025 AND 2024

(Unaudited)

Variable interest entities

Pursuant to ASC 810-10-25-22, an entity is defined as a VIE if it either lacks sufficient equity to finance its activities without additional subordinated financial support, or it is structured such that the holders of the voting rights do not substantively participate in the gains and losses of the entity. When determining whether an entity that meets the definition of a business qualifies for a scope exception from applying VIE guidance, the Company considers whether: (i) it has participated significantly in the design of the entity, (ii) it has provided more than half of the total financial support to the entity, and (iii) substantially all of the activities of the VIE are conducted on its behalf. A VIE is consolidated by its primary beneficiary, the party that has the power to direct the activities that most significantly impact the VIE’s economic performance and has the right to receive benefits or the obligation to absorb losses of the entity that could be potentially significant to the VIE. The primary beneficiary assessment must be re-evaluated on an ongoing basis.

Based on the Company’s analysis, on February 14, 2023, Metabizz, LLC, a Florida corporation, and Metabizz SAS, a company incorporated under the laws of Columbia (collectively “Metabizz”), were determined to be VIE entities in accordance with ASC 810-10-25-22 because the equity owners in Metabizz did not have the characteristics of a controlling financial interest and the initial equity investments in these entities may be or are insufficient to meet or sustain its operations without additional subordinated financial support from DatChat. The equity owners of Metabizz had only a nominal equity investment at risk, and the Company absorbed or received a majority of the entity’s expected losses or benefits. The Company participated significantly in the design of Metabizz. The Company had provided working capital advances to Metabizz to allow Metabizz to fund its day-to-day obligations. Substantially all of the activities of Metabizz were conducted for the Company’s benefit, as evidenced by the fact that the operations of Metabizz consisted of development of software and technologies to be used by RPM Interactive and the Company provided working capital to Metabizz to pay employees and independent contractors to perform the development services on behalf of the Company. Repayment of the working capital advances is not guaranteed by the equity owner of Metabizz and creditors of Metabizz do not have recourse against the Company. Accordingly, the Company was required to consolidate the assets, liabilities, revenues and expenses of Metabizz using the fair value method. Additionally, the managing partner of Metabizz was also the Chief Innovation Officer of RPM Interactive. Since Metabizz, LLC and Metabizz SAS were considered VIE’s, any noncontrolling interest eliminated in consolidation. On March 31, 2024, based on the Company’s analysis, the Company deconsolidated Metabizz, LLC and Metabizz SAS. During the three months ended March 31, 2024, the Company ceased doing business with Metabizz, LLC and Metabizz SAS and will pay technology professionals directly. In connection with the deconsolidation of Metabizz, LLC and Metabizz SAS, during the three months ended March 31, 2024, the Company recorded a gain on deconsolidation of $107.

Immediately following the August 27, 2024 Asset Purchase Agreement with the Seller (See Note 1), the Company owned 46.7% of RPM Interactive. Based on the Company’s analysis, on August 27, 2024, the Company determined that RPM Interactive met the definition of a VIE under the VIE model, which provides for situations in which control may be demonstrated other than by the possession of voting rights in RPM Interactive. Based on Company’s analysis, the Company continues to have the power to direct the activities of RPM Interactive that most significantly impact RPM Interactive’s economic performance and the obligation to absorb losses of RPM Interactive that could potentially be significant to RPM Interactive or the right to receive benefits from RPM Interactive that could potentially be significant to RPM Interactive. As of March 31, 2025 and December 31, 2024, the Company retains approximately 34.0% and 39.7%

The Company’s consolidated balance sheets included the following assets and liabilities from its VIE:

	March 31,		December 31,
	2025		2024
Cash	$	214,810	$	429,714
Prepaid expenses		10,981		16,956
Deferred offering costs		102,500		-
Intangible assets, net		1,122,625		1,050,000
Total assets	$	1,450,916	$	1,496,670

Due to DatChat (eliminates in consolidation)	$	5,097,985	$	4,990,706
Accounts payable and accrued expenses		100,298		26,845
Total liabilities	$	5,198,283	$	5,017,551

DATCHAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025 AND 2024

(Unaudited)

Liquidity

The accompanying unaudited consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. As of March 31, 2025, we had cash and cash equivalents of $1,265,478, short-term investments of $5,785,219 and working capital of $6,506,071. Short-term investments include U.S. Treasury zero coupon bills that are all highly rated and have initial maturities between four and twelve months. Additionally, on January 8, 2025, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors pursuant to which the Company agreed to sell to such investors 1,200,000 shares of common stock of the Company at a purchase price of $4.25 per share of Common Stock (the “Offering”). The closing of the sales of these securities under the Purchase Agreement took place on January 9, 2025 and the Company received net proceeds of $4,532,000 (See Note 8). Net cash used in operations was $1,405,389 for the three months ended March 31, 2025. Until such time that the Company implements its growth strategy, it expects to continue to generate operating losses in the foreseeable future, mostly due to corporate overhead, research and development, and costs of being a public company. The Company believes that its existing working capital and cash on hand will provide sufficient cash to enable the Company to meet its operating needs and debt requirements for the next twelve months from the issuance date of this report.

Use of estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the consolidated financial statements and during the reporting period. Actual results could materially differ from these estimates. Significant estimates include assumptions used in assessing impairment of long-term assets, the valuation of intangible assets, the valuation of digital currencies and other digital assets, the valuation of lease liabilities and related right of use assets, the valuation of short-term investments, the valuation of deferred tax assets, the fair value of assets and liabilities of VIE’s on the initial VIE consolidation date, the allocation of corporate expenses to subsidiaries which impacts noncontrolling interest, and the fair value of non-cash equity transactions.

Cash and cash equivalents

The Company considers all highly liquid debt instruments and other short-term investments with maturities of three months or less, when purchased, to be cash equivalents. The Company maintains cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation (“FDIC”). The Company’s account at this institution is insured by the FDIC up to $250,000. On March 31, 2025 and December 31, 2024, the Company had cash in excess of FDIC limits of approximately $705,000 and $524,000, respectively. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits. Any material loss that the Company may experience in the future could have an adverse effect on its ability to pay its operational expenses or make other payments and may require the Company to move its cash to other high quality financial institutions.

Fair value measurements and fair value of financial instruments

The carrying value of certain financial instruments, including cash and cash equivalents, accounts payable and accrued expenses, and due to related party are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

The Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard Board’s (the “FASB”) accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The following table represents the Company’s fair value hierarchy of its financial assets and liabilities measured at fair value on a recurring basis As of March 31, 2025 and December 31, 2024.

	March 31, 2025						December 31, 2024
Description	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Short-term investments	$	5,785,219	$	-	$	-	$	2,952,512	$	-	$	-

DATCHAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025 AND 2024

(Unaudited)

The Company’s short-term investments are level 1 measurements and are based on redemption value at each date.

Short-term investments

The Company’s portfolio of short-term investments consists of marketable debt securities which are comprised solely of highly rated U.S. government securities with maturities of more than three months, but less than one year. The Company classifies these as available-for-sale at purchase date and will reevaluate such designation at each period end date. The Company may sell these marketable debt securities prior to their stated maturities depending upon changing liquidity requirements. These debt securities are classified as current assets in the consolidated balance sheet and recorded at fair value, with unrealized gains or losses included in accumulated other comprehensive gain (loss) and as a component of the consolidated statements of comprehensive loss. Gains and losses are recognized when realized. Gains and losses are determined using the specific identification method and are reported in other income (expense), net in the consolidated statements of operations. Short-term investments are carried at fair value, which is based on quoted market prices for such securities, if available, or is estimated on the basis of quoted market prices of financial instruments with similar characteristics.

An impairment loss may be recognized when the decline in fair value of the debt securities is determined to be other-than-temporary. The Company evaluates its investments for other-than-temporary declines in fair value below the cost-basis each quarter, or whenever events or changes in circumstances indicate that the cost basis of the short-term investments may not be recoverable. The evaluation is based on a number of factors, including the length of time and the extent to which the fair value has been below the cost basis, as well as adverse conditions related specifically to the security, such as any changes to the credit rating of the security and the intent to sell or whether the Company will more likely than not be required to sell the security before recovery of its amortized cost basis.

Accounts receivable

The Company recognizes an allowance for losses on accounts receivable and notes receivable in an amount equal to the estimated probable losses net of recoveries under the current expected credit loss method. The allowance is based on an analysis of historical bad debt experience, current receivables aging and expected future write-offs, as well as an assessment of specific identifiable customer accounts and notes receivable considered at risk or uncollectible. On January 1, 2023, the Company adopted ASC 326, “Financial Instruments - Credit Losses”. In accordance with ASC 326, an allowance is maintained for estimated forward-looking losses resulting from the possible inability of customers to make the required payments (current expected losses). The amount of the allowance is determined principally on the basis of past collection experience and known financial factors regarding specific customers. The expense associated with the allowance for doubtful accounts on accounts receivable is recognized in general and administrative expenses. As of March 31, 2025 and December 31, 2024, accounts receivable amounted to $247 and $207, respectively.

Property and equipment

Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives, which range from three to five years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal terms. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

Capitalized internal-use software costs

The Company capitalizes costs to develop or purchase internal-use software in accordance with ASC section 350-40, Intangibles — Goodwill and Other — Internal-Use Software. Costs incurred to develop internal-use software are expensed as incurred during the preliminary project stage. Internal-use software development costs are capitalized upon purchase and during the application development stage, which is after: (i) the preliminary project stage is completed; and (ii) management authorizes and commits to funding the project and it is probable the project will be completed and used to perform the intended function. Capitalization ceases at the point where the software project is substantially complete and ready for its intended use, and after all substantial testing is completed. Upgrades and enhancements are capitalized if it is probable that those expenditures will result in additional functionality. Amortization is provided for on a straight-line basis over the expected useful life of the internal-use software development costs and related upgrades and enhancements. When the existing software is replaced with new software, the unamortized costs of the old software are expensed when the new software is ready for its intended use.

DATCHAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025 AND 2024

(Unaudited)

Impairment of long-lived assets

In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

Deferred offering costs

The Company has capitalized certain offering costs related to its efforts to raise capital through the sale of its common stock pursuant to an Equity Sales Agreement of $50,000 (see Note 8) and related to the anticipated initial public offering of RPM Interactive shares of $102,500. Deferred offering costs will be deferred until the completion of the private offering, at which time they will be reclassified to additional paid-in capital as a reduction of the offering proceeds. As of March 31, 2025 and December 31, 2024, capitalized deferred offering costs amounted to $152,500 and $0, respectively, which is reflected on the accompanying unaudited consolidated balance sheets.

Revenue recognition

The Company recognizes revenue in accordance with ASC Topic 606 Revenue from Contracts with Customers, which requires revenue to be recognized in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration which the entity expects to be entitled in exchange for those goods or services.

In accordance with ASU Topic 606 - Revenue from Contracts with Customers, the Company recognizes revenue in accordance with that core principle by applying the following steps:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

The Company recognizes revenues from subscription fees from the Company’s messaging application in the month they are earned. Annual and lifetime subscription payments received that are related to future periods are recorded as deferred revenue to be recognized as revenues over the contract term or period. Lifetime subscriptions are being recognized to revenues over the estimated useful life of the subscription of 12 months. During the three months ending March 31, 2025 and 2024, all of the Company’s revenue was generated from subscription revenues.

Research and Development

Research and development costs incurred in the development of the Company’s products are expensed as incurred and include costs such as outside development costs, salaries and other allocated costs incurred. During the three months ending March 31, 2025 and 2024, research and development costs incurred in the development of the Company’s software products were $6,000 and $233,918, respectively. Research and development costs are included in research and development expense on the accompanying unaudited consolidated statements of operations.

DATCHAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025 AND 2024

(Unaudited)

Advertising Costs

The Company applies ASC 720 “Other Expenses” to account for advertising related costs. Pursuant to ASC 720-35-25-1, the Company expenses advertising costs as they are incurred. Advertising costs were $38,262 and $34,717 for the three months ending March 31, 2025 and 2024, respectively. Advertising costs are included in marketing and advertising expenses on the unaudited consolidated statements of operations.

Leases

The Company applied ASC Topic 842, Leases (Topic 842) to arrangements with lease terms of 12 months or more. Operating lease right of use assets (“ROU”) represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the statements of operations.

Income taxes

The Company accounts for income taxes pursuant to the provision of Accounting Standards Codification (“ASC”) 740-10, “Accounting for Income Taxes” (“ASC 740-10”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.

The Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

DATCHAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025 AND 2024

(Unaudited)

The Company has adopted ASC 740-10-25, “Definition of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed.

Stock-based compensation

Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation–Stock Compensation”, which requires recognition in the consolidated financial statements of the cost of employee, non-employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. The Company has elected to account for forfeitures as they occur.

Foreign currency translation

The reporting currency of the Company is the U.S. dollar. Except for Metabizz SAS, the functional currency of the Company is the U.S. dollar. The functional currency of the Company’s VIE, Metabizz SAS, is the Columbian Peso (“COP”). For Metabizz SAS, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive loss. The cumulative translation adjustment and effect of exchange rate changes on cash for the three months ended March 31, 2025 and 2024 was $0 and $1,535, respectively. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency included in the results of operations as incurred. On March 31, 2024, based on the Company’s analysis, the Company deconsolidated Metabizz SAS (See Note 1).

Basic and diluted net loss per share

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares during the period. Diluted net loss per share is computed using the weighted average number of common shares and potentially dilutive securities outstanding during the period. The following were excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact on the Company’s net loss.

	March 31,
	2025		2024
Common stock equivalents:
Common stock warrants		67,385		67,385
Common stock options		374,570		141,170
Total		441,955		208,555

Segment reporting

The Company operates as a single operating segment as a technology-based company that is developing social media applications and technologies. In accordance with ASC 280 – “Segment Reporting”, the Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similarities in economic characteristics such as nature of services; and procurement processes. All revenues and expenses as reflected in the accompanying unaudited consolidated statements of operations and comprehensive loss are allocated to the one segment.

Recent accounting pronouncements

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires entities to provide more detailed disaggregation of expenses in the income statement, focusing on the nature of the expenses rather than their function. The new disclosures will require entities to separately present expenses for significant line items, including but not limited to, depreciation, amortization, and employee compensation. Entities will also be required to provide a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, disclose the total amount of selling expenses and, in annual reporting periods, provide a definition of what constitutes selling expenses. This pronouncement is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company does not expect the adoption of this new guidance to have a material impact on its consolidated financial statements.

DATCHAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025 AND 2024

(Unaudited)

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on its consolidated financial statements.

NOTE 3 – SHORT-TERM INVESTMENTS

On March 31, 2025 and December 31, 2024, the Company’s short-term investments consisted of the following:

	March 31, 2025						December 31, 2024
	Cost		Unrealized Gain		Fair Value		Cost		Unrealized Gain		Fair Value
US Treasury zero coupon bills	$	5,785,219	$	-	$	5,785,219	$	2,952,512	$	-	$	2,952,512
Total short-term investments	$	5,785,219	$	-	$	5,785,219	$	2,952,512	$	-	$	2,952,512

As of March 31, 2025, short-term investments mature between Apil 2025 to January 2026.

NOTE 4 – PROPERTY AND EQUIPMENT

On March 31, 2025 and December 31, 2024, property and equipment consisted of the following:

	Useful life	March 31, 2025			December 31, 2024
Furniture and fixture	5 years	$	56,575		$	56,575
Computer equipment	3 – 5 years		39,590			39,590
Leasehold improvements	3 years		4,350			4,350
			100,515			100,515
Less: accumulated depreciation			(72,620	)		(67,079	)
		$	27,895		$	33,436

For the three months ended March 31, 2025 and 2024, depreciation of property and equipment amounted to $5,541 and $5,782, respectively.

NOTE 5 – INTERNAL-USE SOFTWARE

As of March 31, 2025 and December 31, 2024, internal-use software, net consists of the following:

	Useful Life (Years)	March 31, 2025		December 31, 2024
Internal-use software	3 Years	$	1,122,625	$	1,050,000
Less accumulated amortization			-		-
Internal-use software, net		$	1,122,625	$	1,050,000

On October 29, 2024 (the “Closing Date” and measurement date), RPM Interactive entered into and closed on a Share Exchange Agreement (the “Share Exchange Agreement”) with (i) RPM Florida and (ii) the shareholders of RPM Florida (See Note 1). Pursuant to the Share Exchange Agreement, RPM Interactive acquired 100% of the shares of RPM Florida in exchange for 3,500,000 shares of RPM Interactive’s common stock. RPM Florida is a web publishing company that leverages generative AI systems to offer consumers entertaining gaming apps and podcasting offerings in the sports, finance, entertainment and politics categories. These shares were valued at $1,050,000, or $0.30 per share, on the measurement date based on recent sales of shares of RPM Interactive’s common stock. Pursuant to ASU 2017-01 and ASC 805, RPM Interactive analyzed the Exchange Agreement and the business of RPM Florida to determine if RPM Interactive acquired a business or acquired assets. Other than owning certain in-development internal-use software, RPM Florida had no operations or no employees and was not considered a business. Based on this analysis, it was determined that RPM Interactive acquired an asset. No goodwill was recorded since the Exchange Agreement was accounted for as an asset purchase. In accordance with ASC 805, the fair value of the assets acquired is based on either the fair value of the consideration given or the fair value of the assets acquired, whichever is more clearly evident, and thus, more reliably measurable. RPM Interactive used the market price of the 3,500,000 common shares issued of $1,050,000 as the fair value of the assets acquired since this value was more clearly evident, and thus, more reliable measurable than the fair value of the assets. This acquisition was treated as an asset acquisition under ASC 805 “Business Combinations” since RPM Interactive did not meet the definition of a business under ASC 805. ASC 805 requires the use of the relative fair value method for asset acquisitions to allocate the purchase price, however, since only a single internal-use software asset was acquired, the entire purchase price shall be allocated to this asset.

During the three months ending March 31, 2025, the Company capitalized certain software development costs incurred amounting to $72,625 since the Company’s software development projects were in the application development stage.

For the three months ended March 31, 2025 and 2024, amortization of intangible assets amounted to $0. The internal-use software has not yet been placed in service as of March 31, 2025.

DATCHAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025 AND 2024

(Unaudited)

NOTE 6 – OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES

In January 2019, the Company renewed and extended the term of its lease facility for another three-year period from January 2019 to December 2021 starting with a monthly base rent of $2,567 plus a pro rata share of operating expenses beginning January 2019. The base rent was subject to annual increases beginning the 2^nd and 3^rd lease year as defined in the lease agreement. In addition to the monthly base rent, the Company is charged separately for common area maintenance which is considered a non-lease component. These non-lease component payments are expensed as incurred and are not included in operating lease assets or liabilities. On August 27, 2021, the Company entered into an amendment agreement with the same landlord to modify the facility lease to relocate and increase the square footage of the lease premises. The term of the lease commenced on October 1, 2021 and expired on December 31, 2024 with a new monthly base rent of $7,156 plus a pro rata share of operating expenses beginning January 2022. The base rent was subject to 3% annual increases beginning in the 2^nd and 3^rd lease year as defined in the amended lease agreement. For the three months ended March 31, 2025 and 2024, rent expense amounted to $25,677 and $22,738, respectively, and were included in general and administrative expenses. As of the date of this report, the Company has not renewed the lease and is leasing on a month-to-month basis. The Company does not record ROU assets or lease liabilities for short-term leases that have a term of twelve months or less at lease commencement, The Company can vacate the premises without any disruption and find alternative space, if needed.

NOTE 7 – RELATED PARTY TRANSACTIONS

See Note 9 for the Employment Agreement with the Company’s chief executive officer, Darin Myman.

During the three months ended March 31, 2025 and 2024, the wife of the Company’s chief executive officer was employed as an executive secretary and earned $18,000 and $18,000, respectively.

On January 10, 2024, VR Interactive LLC (“VR Interactive”), a company 45% owned by Darin Myman, the Company’s CEO and 3.75% owned by Peter Shelus, the Company’s chief technology officer and director, purchased 8,000,000 shares of RPM Interactive from the Metabizz shareholders for cash amounting to $120,000. Mr. Myman is a partner in VR Interactive. Therefore, VR Interactive, a related party, became a 25% non-controlling interest in RPM Interactive.

NOTE 8 – STOCKHOLDERS’ EQUITY

Shares Authorized

The authorized capital stock consists of 200,000,000 shares, of which 180,000,000 are shares of common stock and 20,000,000 are shares of preferred stock.

2021 Omnibus Equity Incentive Plan

On July 26, 2021, the Company adopted the 2021 Omnibus Equity Incentive Plan (the “2021 Equity Plan”) and authorized the reservation of 200,000 shares of common stock for future issuances under the 2021 Equity Plan. The 2021 Equity Plan provides that the Company may grant options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards or any combination of the foregoing. On December 19, 2022, the Company held its 2022 annual meeting of stockholders, and the shareholders approved to amend the 2021 Equity Plan to increase the number of shares reserved for issuances thereunder to 300,000 shares from 200,000. On November 10, 2023, the board of directors of the Company approved the adoption of the Amended and Restated 2021 Equity Plan, the sole purpose of which was to remove any inadvertent references to the Company being a Delaware corporation or the 2021 Equity Plan being governed under Delaware law and to properly state that the Company is a Nevada corporation and that the 2021 Equity Plan is governed by Nevada law. On December 13, 2024, the Company held its 2024 annual meeting of stockholders, and the shareholders approved to amend the 2021 Equity Plan to increase the number of shares reserved for issuances thereunder to 600,000 shares from 300,000.

Preferred Stock

Series A Preferred Stock

In August 2016, the Company designated one share of Series A Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), which has a stated value equal to $1.00 as may be adjusted for any stock dividends, combinations or splits. Each one (1) share of the Series A Preferred Stock shall have voting rights equal to (x) the total issued and outstanding Common Stock eligible to vote at the time of the respective vote divided by (y) forty-nine one hundredths (0.49) minus (z) the total issued and outstanding Common Stock eligible to vote at the time of the respective vote. The Series A Preferred Stock does not convert into securities of the Company. The Series A Preferred Stock does not contain any redemption provision. In the event of liquidation of the Company, the holder of Series A Preferred shall not have any priority or preferences with respect to any distribution of any assets of the Company and shall be entitled to receive equally with the holders of the Company’s common stock. As of March 31, 2025 and December 31, 204, there were no Series A Preferred Stock outstanding.

DATCHAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025 AND 2024

(Unaudited)

Series B Preferred Stock

On August 4, 2023, the Board filed the Certificate of Designation of Preferences (“COD”), Rights and Limitations of Series B Preferred Stock (the “Series B COD”) with the Secretary of State of the State of Nevada designating 2,000,000 shares of preferred stock as Series B (the “Series B Preferred”). The outstanding shares of Series B Preferred Stock shall have 10 votes per share and shall vote together with the outstanding shares of the Company’s common stock as a single class exclusively with respect to the Authorized Stock Increase (as defined in the Series B COD) and shall not be entitled to vote on any other matter. The shares of Series B Preferred Stock shall be voted, without action by the holder, on the Authorized Stock Increase in the same proportion as shares of Common Stock are voted (excluding any shares of Common Stock that are not voted) on the Authorized Stock Increase. The Series B Preferred shall not have the right to vote and/or consent on any matter other than an Authorized Stock Increase Proposal. The Series B Preferred Stock shall not be entitled to participate in any distribution of assets or rights upon any liquidation, dissolution or winding up of the Company, shall not be convertible into Common Stock or any other security of the Company, and shall not be entitled to any dividends or distributions.

The outstanding shares of Series B preferred shall be redeemed in whole, but not in part (i) if such redemption is ordered by the board of directors, or (ii) automatically and effective immediately after the effectiveness of an anticipated Authorized Stock increase. The aggregate consideration payable for the outstanding Series B Preferred redeemed in the redemption shall be $10 in cash (the “Redemption Price”).

From and after the time at which the shares of Series B Preferred Stock is called for Redemption (whether automatically or otherwise) in accordance with Series B COD, such shares of Series B Preferred Stock shall cease to be outstanding, and the only right of the former holder of such shares of Series B Preferred Stock, as such, will be to receive the applicable Redemption Price. The shares of Series B Preferred Stock redeemed by the Company pursuant to the Series B COD shall be automatically retired and restored to the status of an authorized but unissued share of Preferred Stock, effective immediately after such Redemption.

On August 4, 2023, the Company issued 2,000,000 of Series B preferred for aggregate cash of $1,000.

Common Stock

Sale of Common Stock and Warrants

2024

On January 16, 2024, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with EF Hutton LLC (the “Representative”), as the representative of the underwriters named therein (the “Underwriters”), relating to an underwritten public offering (the “Offering”) of 382,972 shares of the Company’s common stock (the “Shares”) and pre-funded warrants to purchase up to 590,000 shares of Common Stock (the “Pre-Funded Warrants”). The public offering price for each share of Common Stock was $1.85 for aggregate gross proceeds of $708,498, and public offering price for the Pre-Funded Warrants was $1.8499 for each Pre-Funded Warrant for aggregate gross proceeds of $1,091,441. In connection with this Offering, the Company raised aggregate gross proceeds of $1,799,939 and received net proceeds of $1,420,773, net of Underwriters discounts and offering costs of $279,166 and legal fees of $100,000.

The per share exercise price for the Pre-Funded Warrants was $0.0001 and the Pre-Funded Warrants were exercisable immediately. The Underwriters immediately exercised the 590,000 Pre-Funded Warrants and the Underwriters received 589,981 shares of Common Stock since the exercise was cashless. The Pre-Funded Warrants are not and will not be listed for trading on any national securities exchange or other nationally recognized trading system.

The Company is using the net proceeds from the Offering for general corporate purposes, for sales and marketing and for research and development.

The Underwriting Agreement contained customary representations, warranties and covenants made by the Company. It also provided for customary indemnification by each of the Company and the Underwriters, severally and not jointly, for losses or damages arising out of or in connection with the Offering, including for liabilities under the Securities Act of 1933, as amended, other obligations of the parties and termination provisions. In addition, pursuant to the terms of the Underwriting Agreement, each of the Company’s directors and executive officers entered into “lock-up” agreements with the Representative that generally prohibit, without the prior written consent of the Representative and subject to certain exceptions, the sale, transfer or other disposition of securities of the Company until July 17, 2024. Further, pursuant to the terms of the Underwriting Agreement, the Company agreed for a period of 180-days from the closing date, subject to certain exceptions, not to issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of capital stock of the Company or any securities convertible or exercisable or exchangeable for shares of capital stock of the Company; (ii) file any registration statement; (iii) complete any offering of debt securities of the Company, other than entering into a line of credit with a traditional bank, or (iv) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company.

DATCHAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025 AND 2024

(Unaudited)

2025

Common Stock Sold for Cash

On January 8, 2025, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors, pursuant to which the Company agreed to sell to such investors 1,200,000 shares (the “Shares”) of common stock of the Company (the “Common Stock”), at a purchase price of $4.25 per share of Common Stock (the “Offering”), for gross proceeds from the offering were $5.1 million, prior to deducting placement agent’s fees and other offering expenses payable by the Company. The shares of Common Stock were offered by the Company pursuant to its shelf registration statement on Form S-3 (File No. 333-268058), which was declared effective by the Securities and Exchange Commission on December 6, 2022, a base prospectus dated December 6, 2022 and a prospectus supplement dated January 8, 2025. The closing of the sales of these securities under the Purchase Agreement took place on January 9, 2025 and the Company received net proceeds of $4,532,000 after deducting placement fees and expenses of $568,000. The Company intends to use the net proceeds from the offering for working capital and other general corporate purposes.

On January 7, 2025, the Company entered into an engagement agreement with The Benchmark Company, LLC, as exclusive placement agent (“Benchmark” or the “Placement Agent”), pursuant to which the Placement Agent agreed to act as placement agent on a reasonable “best efforts” basis in connection with the Offering. The Company agreed to pay the Placement Agent an aggregate cash fee equal to 7.0% of the gross proceeds from the sale of securities in the Offering and a non-accountable expense allowance equal to 1.0% of the gross proceeds raised in the Offering. The Company also agreed to issue the Placement Agent (or its designees) a warrant (the “Placement Agent Warrant”) to purchase up to 5% of the aggregate number of shares of Common Stock sold in the offering, or warrants to purchase up to 60,000 shares of Common Stock, at an exercise price equal to 100.0% of the offering price per share of Common Stock, or $4.25 per share. The Placement Agent Warrant is exercisable during the four-and-a-half year period commencing six months after the date of the closing of this Offering. In addition, the Company agreed to pay the Placement Agent $80,000 for legal expenses and other out-of-pocket expenses.

Equity Sales Agreement

On February 10, 2025, the Company entered into a Sales Agreement (the “Sales Agreement”) with The Benchmark Company, LLC (“Benchmark”) to sell shares of the Company’s common shares (the “Shares”) having an aggregate sales price of up to $6,000,000, from time to time, through an “at the market offering” program under which Benchmark will act as sales agent. The sales, if any, of the Shares made under the Sales Agreement will be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended.

The Company will pay Benchmark a commission rate equal to 4.0% of the aggregate gross proceeds from each sale of Shares; provided however, that in the event that the amount of Shares sold under the Sales Agreement increases to $1 million or more, then the commission rate will be reduced to 3%. In addition, the Company agreed to provide Benchmark with customary indemnification and contribution rights. The Company will also reimburse Benchmark for certain specified expenses in connection with entering into the Sales Agreement. The Sales Agreement contains customary representations and warranties and conditions to the sale of the Shares pursuant thereto. The Company is not obligated to sell any of the Shares under the Sales Agreement and may at any time suspend solicitation and offers thereunder. The offering of Shares pursuant to the Sales Agreement will terminate on the earlier of (1) the sale, pursuant to the Sales Agreement, of Shares having an aggregate offering price of $6,000,000 and (2) the termination of the Sales Agreement by either us or Benchmark, as permitted therein. The Shares will be issued pursuant to our shelf registration statement on Form S-3 (File No. 333-268058) filed by the Company with the SEC on October 28, 2022 and declared effective by the SEC on December 6, 2022. On March 27, 2025, the Company issued 750,000 shares of its common stock to Benchmark to be held and issued to future investors pursuant to the Sales Agreement. As of March 31, 2025, no proceeds from the sale of these shares have been received.. These shares are not considered issued and outstanding for accounting purposes, Upon the receipt of proceeds from the sale of the common shares, the Company shall record the net proceeds from the sale of such shares to additional paid-in capital. As of March 31, 2025, the Company paid $50,000 of offering costs related to the Sales Agreement, which has been reflected as part of deferred offering costs on the accompanying unaudited consolidated balance sheet as of March 31, 2025 (See Note 2 – Deferred Offering Costs).

2023 Stock Repurchase Plan

On January 6, 2023, the Board of Directors of the Company approved a stock repurchase program authorizing the purchase of up to $2 million of the Company’s common stock (the “2023 Stock Repurchase Program”). In connection with the 2023 Stock Repurchase Program, during the year ended December 31, 2023, the Company purchased 66,945 shares of its common stock for $397,969, or at an average price of $5.94 per share, which has been reflected as treasury stock on the accompanying consolidated balance sheet on March 31, 2025 and December 31, 2024. During the three months ended March 31, 2025 and 2024, the Company did not purchase any treasury shares.

DATCHAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025 AND 2024

(Unaudited)

Common Stock Issued for Professional Services

On July 25, 2023, the Company issued 19,802 of its common shares pursuant to a one-year consulting agreement. These shares were valued at $100,000, or a per share price of $5.05, based on the quoted closing price of the Company’s common stock on the measurement date. In connection with these shares, during the three months ended March 31, 2025 and 2024, the Company recorded stock-based professional fees of $0 and $25,000, respectively.

On January 25, 2024, RPM Interactive entered into a 9-month consulting agreement with an individual for business development, financial and market due diligence services to be rendered over the term of the agreement. In connection with this consulting agreement, RPM Interactive issued 1,500,000 of its shares for services to be rendered. The RPM Interactive shares were valued at $22,500, or $0.015 per shares, based on the sale of the RPM Interactive shares in a private transaction. In the connection with the issuance of these shares, during the three months ended March 31, 2025 and 2024, the Company recorded stock-based compensation of $0 and $5,304, respectively.

RPM Interactive Shares Issued for Asset Purchase

On October 29, 2024, in connection with a Share Exchange Agreement, RPM Interactive issued 3,500,000 shares of its common stock for an asset acquisition valued at $1,050,000, or $0.30 per share, on the measurement date based on recent sales of shares of RPM Interactive’s common stock (See Note 5).

Cancellation of RPM Interactive Shares

On January 14, 2025, the Company agreed to cancel 3,500,000 shares of RPM Common Stock for no consideration.

Stock Options

2025

On January 14, 2025, the Company granted an aggregate of 30,000 options to purchase the Company’s common stock to the Company’s board of directors. The options each have a term of 10 years from the date of grant and are exercisable at an exercise price of $5.50 per share. The options vest in equal 25% installments every 6 months beginning on the 6-month anniversary of the date of grant. The stock options were valued at the grant date using a Black-Scholes option pricing model which will be recognized as stock-based compensation expense over the vesting period.

On January 14, 2025, the Company granted an aggregate of 230,000 options to purchase the Company’s common stock to an officer and employees of the Company. The options each have a term of 10 years from the date of grant and are exercisable at an exercise price of $5.50 per share. The options vest in equal 25% installments every 6 months beginning on the 6-month anniversary of the date of grant. The stock options were valued at the grant date using a Black-Scholes option pricing model which will be recognized as stock-based compensation expense over the vesting period.

During the three months ended March 31, 2024, certain employees were terminated and accordingly, 17,500 unvested options were forfeited and $27,031 of previously recognized stock-based compensation was reversed.

During the three months ended March 31, 2025, accretion of stock-based expense related to stock options amounted to $155,054 which was recorded in compensation and related expenses as reflected in the unaudited consolidated statements of operations. During the three months ended March 31, 2024, the Company recognized total stock-based expenses related to stock options of $28,714 of which $6,695 was recorded in compensation and related expenses and $22,019 was recorded in professional and consulting expenses as reflected in the unaudited consolidated statements of operations. As of March 31, 2025, a balance of $1,085,264 remains to be expensed over future vesting periods related to unvested stock options issued for services to be expensed over a weighted average period of 1.79 years.

During the three months ended March 31, 2025, the stock options were valued at the grant date using a Black-Scholes option pricing model with the following assumptions. The simplified method was used for the expected option term and expected volatility was based on historical volatility:

	2025
Dividend rate		—	%
Term (in years)		6 years
Volatility		182.9	%
Risk—free interest rate		4.59	%

DATCHAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025 AND 2024

(Unaudited)

The following is a summary of the Company’s stock option activity for the three months ended March 31, 2025 as presented below:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Balance on December 31, 2024		114,570	$	126.92		2.08
Granted		260,000		5.50		-
Balance on March 31, 2025		374,570	$	42.64		7.36
Options exercisable on March 31, 2025		114,570	$	126.92		1.83
Weighted average fair value of options granted during the 2025 period			$	4.77

On March 31, 2025, the aggregate intrinsic value of options outstanding was $0.

Common Stock Warrants

On January 16, 2024, in connection with the Underwriting Agreement, the Company sold pre-funded warrants to purchase up to 590,000 shares of Common Stock (the “Pre-Funded Warrants”). The public offering price was $1.8499 for each Pre-Funded Warrant for aggregate gross proceeds of $1,091,441. The per share exercise price for the Pre-Funded Warrants was $0.0001 and the Pre-Funded Warrants were exercisable immediately. The Underwriters immediately exercised the 590,000 Pre-Funded Warrants and the Underwriters received 589,981 shares of Common Stock since the exercise was cashless.

A summary of the Company’s outstanding stock warrants, including 44,252 Series A public warrants, is presented below:

	Number of Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Balance on December 31, 2024		67,385	$	49.80		1.65
Exercised		-		-		-
Balance on March 31, 2025		67,385		49.80		1.40
Warrants exercisable on March 31, 2025		67,385	$	49.80		1.40

On March 31, 2025, the aggregate intrinsic value of warrants outstanding was $0.

DATCHAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025 AND 2024

(Unaudited)

NOTE 9 – COMMITMENTS AND CONTINGENCIES

Operating Lease Agreement

See Note 6 for disclosure on the Company’s operating lease for its offices.

Employment Agreement

On August 27, 2021 (the “Effective Date”), the Company entered into an agreement (the “Employment Agreement”) with Darin Myman effective as of August 15, 2021 pursuant to which Mr. Myman’s (i) base salary will increase to $450,000 per year, and (ii) Mr. Myman may be entitled to receive an annual bonus in an amount up to $350,000, which annual bonus may be increased by the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”), in its sole discretion, upon the achievement of additional criteria established by the Compensation Committee from time to time (the “Annual Bonus”). The Employment Agreement provides for a term of one (1) year (the “Initial Term”) from the date of the Effective Date and shall automatically be extended for additional terms of one (1) year each (each a “Renewal Term”) unless either party gives prior written notice of non-renewal to the other party no later than six (6) months prior to the expiration of the Initial Term, or the then current Renewal Term, as the case may be. In addition, pursuant to the Employment Agreement, upon termination of Mr. Myman’s employment for death or Total Disability (as defined in the Employment Agreement), in addition to any accrued but unpaid compensation and vacation pay through the date of his termination and any other benefits accrued to him under any Benefit Plans (as defined in the Employment Agreement) outstanding at such time and the reimbursement of documented, unreimbursed expenses incurred prior to such termination date (collectively, the “Payments”), Mr. Myman shall be entitled to the following severance benefits: (i) 24 months of his then base salary; (ii) if Mr. Myman elects continuation coverage for group health coverage pursuant to COBRA Rights (as defined in the Employment Agreement), then for a period of 24 months following Mr. Myman’s termination he will be obligated to pay only the portion of the full COBRA Rights cost of the coverage equal to an active employee’s share of premiums (if any) for coverage for the respective plan year; and (iii) payment on a pro-rated basis of any Annual Bonus or other payments earned in connection with any bonus plan to which Mr. Myman was a participant as of the date of his termination (together with the Payments, the “Severance”). Furthermore, pursuant to the Employment Agreement, upon Mr. Myman’s termination (i) at his option (A) upon 90 days prior written notice to the Company or (B) for Good Reason (as defined in the Employment Agreement), (ii) termination by the Company without Cause (as defined in the Employment Agreement) or (iii) termination of Mr. Myman’s employment within 40 days of the consummation of a Change in Control Transaction (as defined in the Employment Agreement), Mr. Myman shall receive the Severance; provided, however, Mr. Myman shall be entitled to a pro-rated Annual Bonus of at least $200,000. In addition, any equity grants issued to Mr. Myman shall immediately vest upon termination of Mr. Myman’s employment by him for Good Reason or by the Company at its option upon 90 days prior written notice to Mr. Myman, without Cause.

During the three months ended March 31, 2025 and 2024, the compensation committee of the board of directors of the Company approved and the Company recorded a bonus to the Company’s chief executive officer in the amount of $350,000 and $300,000, respectively.

Ambassador Settlement

Prior to the Company’s IPO, the Company initiated a proposed “Ambassador Program” as a means to reward early investors for being Company brand ambassadors, helping the Company create value by using and letting others know about the Company and its products. However, the program never came to full fruition. In connection with a recent review and evaluation of this initiative, management made a determination regarding the value of what the eligible investors would have received. As a result, the Company made outreach to these investors to provide them with an opportunity to claim their reward payments, and distributions began in January 2025. The maximum estimated total potential distribution under this program is expected to be approximately $86,246. However, the actual distribution amount may be lower if less than all contacted shareholders claim their reward payments. The claim of reward payments has no expiration date. Such claim shall be recorded as settlement expense which is included in general and administrative expenses on the accompanying unaudited statement of operation and comprehensive loss. During the three months ended March 31, 2025, the Company recorded settlement expense of $9,817 and paid settlement expenses of $19,257. As of March 31, 2025 and December 31, 2024, the Company’s accrued balance of such claim was $66,988 and $76,428, respectively, which is included in accounts payable and accrued expenses on the accompanying unaudited consolidated balance sheets.

NOTE 10 – SUBSEQUENT EVENTS

Chief Executive Officer of RPM Interactive

On April 8, 2025, RPM Interactive entered into an employment agreement (the “Matthews Employment Agreement”) with Michael Mathews to serve as the Chief Executive Officer of RPM Interactive, effective upon the closing of RPM Interactive’s initial public offering. Pursuant to the Matthews Employment Agreement, Mr. Mathews shall receive an annual base salary of $300,000 and a New York housing allowance of $7,000 per month. Mr. Matthews may be eligible for an annual discretionary bonus in an amount to be determined by the Board of Directors of RPM Interactive (the “RPM Board”), based on criteria established from time to time by the RPM Board or the Compensation Committee, including the achievement of financial and operational targets, including EBITDA thresholds and other criteria. The Matthews Employment Agreement provides for a one-year initial term and shall automatically renew for additional one-year periods unless either party provides at least thirty (30) days’ written notice of non-renewal prior to the expiration of the then-current term.

In the event Mr. Mathews’ employment is terminated by RPM Interactive without Cause (as defined in the Employment Agreement), by Mr. Mathews for Good Reason (as defined therein), or due to death or Total Disability, he shall be entitled to receive: (i) any accrued but unpaid compensation and vacation pay; (ii) any unreimbursed business expenses; and (iii) six months of base salary continuation. If Mr. Mathews elects continuation of health coverage under COBRA, RPM Interactive will continue to pay its portion of such premiums during the salary continuation period. In addition, any equity awards held by Mr. Mathews shall become fully vested upon a Change in Control or upon a termination by RPM Interactive without Cause or by Mr. Mathews for Good Reason.

DATCHAT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025 AND 2024

(Unaudited)

Chief Financial Officer of RPM Interactive

On April 8, 2025, RPM Interactive entered into an employment agreement (the “Linsley Employment Agreement”) with W. David Linsley, pursuant to which Mr. Linsley was appointed as Chief Financial Officer of RPM Interactive, effective upon the closing of RPM Interactive’s initial public offering. Under the Linsley Employment Agreement, Mr. Linsley will receive an annual base salary of $60,000 and may be eligible to receive a discretionary annual bonus, the amount and terms of which shall be determined by the RPM Board in its sole discretion, including financial performance, reporting timeliness, and operational effectiveness. The term of the Lindsley Employment Agreement is for one (1) year from the Effective Date and shall automatically renew for additional one-year terms unless either party provides at least thirty (30) days’ prior written notice of non-renewal.

In the event of termination by RPM Interactive without Cause, by Mr. Linsley for Good Reason, or due to death or Total Disability (as each term is defined in the Employment Agreement), Mr. Linsley is entitled to receive: (i) any accrued but unpaid salary and vacation; (ii) any unreimbursed business expenses; (iii) six months of continued base salary; and (iv) if elected, COBRA premium subsidies for the same period. In addition, in the event of a Change in Control or a qualifying termination, any equity awards previously granted to Mr. Linsley shall become fully vested.

Chief Technology Officer of RPM Interactive

On April 8, 2025 (the “Effective Date”), RPM Interactive entered into an employment agreement (the “Warren Employment Agreement”) with Daniel Warren, pursuant to which Mr. Warren was appointed as Chief Technology Officer of RPM Interactive, effective upon the closing of RPM Interactive’s initial public offering. Under the Warren Employment Agreement, Mr. Warren will receive an annual base salary of $250,000 and is eligible to receive a discretionary annual bonus based on individual and Company performance as determined by the Board of Directors (the “Board”) such as development milestones, technology integration, and platform scalability. The Employment Agreement has an initial term of one (1) year and renews automatically for successive one-year periods unless either party provides at least thirty (30) days’ written notice prior to the expiration of the then-current term.

In the event Mr. Warren’s employment is terminated by RPM Interactive without Cause, by Mr. Warren for Good Reason, or as a result of death or Total Disability, he shall be entitled to: (i) accrued compensation and unused vacation; (ii) reimbursement of unreimbursed expenses; (iii) six months of base salary continuation; and (iv) subsidized COBRA coverage for the salary continuation period. In addition, all unvested equity awards shall become fully vested upon a Change in Control or termination by RPM Interactive without Cause or by Mr. Warren for Good Reason.

Lease

On April 24, 2025, the Company entered into a fourth amendment to its lease that expired on December 31, 2024, whereby the Company relocated to new premises effective on May 1, 2025. Pursuant to the amended lease, the lease term commenced on May 1, 2025 and shall expire on May 31, 2029. Effective May 1, 2025, the Company shall pay a monthly base rent of $6,417. The base rent was subject to 3% annual increases as defined in the lease agreement. In addition to the monthly base rent, the Company is charged separately for common area maintenance which is considered a non-lease component. These non-lease component payments are expensed as incurred and are not included in operating lease assets or liabilities.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes for the year ended December 31, 2024 included in our Annual Report on Form 10-K filed with the Securities Exchange Commission, or SEC. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q. All amounts in this report are in U.S. dollars, unless otherwise noted.

Overview

We are a private messaging, cybersecurity, and social media company that not only focuses on protecting privacy on personal devices, but also protects user information after it is shared with others. We believe that one’s right to privacy should not end the moment they click “send”, and that we all deserve the same right to privacy online that we enjoy in our own living rooms. Our flagship product, DatChat Messenger & Private Social Network, is a privacy platform and mobile application that gives users the ability to communicate with the privacy and protection they deserve. Recently, we have expanded our business and product offerings to include the development of our Myseum platform, a secure digital content management and storage solution for families, groups and individuals. In addition, as a result of our acquisition of RPM Interactive, Inc. in October 2024, we have repositioned our majority-owned subsidiary, Dragon Interact, Inc. (recently renamed RPM Interactive, Inc.) away from the development of the Habytat platform to focus on becoming an AI generated publishing company of trivia mobile game apps and vodcasts/podcasts designed to publish content across hundreds of evergreen topics every day and be distributed to all major streaming platforms. See “Business – RPM Interactive, Inc.” and “Business – The Habytat.”

DatChat Messenger & Private Social Network

Our platform allows users to exercise control over their messages and posts, even after they are sent. Through our application, users can delete messages that they have sent, on their own device and the recipient’s device as well. There is no set time limit within which they must exercise this choice. A user can elect at any time to delete a message that they previously sent to a recipient’s device.

The application also enables users to hide secret and encrypted messages behind a cover, which messages can only be unlocked by the recipient and which are automatically destroyed after a fixed number of views or fixed amount of time. Users can decide how long their messages last on the recipient’s device. The application also includes a screen shot protection system, which makes it virtually impossible for the recipient to screenshot a message or picture before it gets destroyed. In addition, users can delete entire conversations at any time, making it like the conversation never even happened.

In addition to the foregoing, the application also provides users with the ability to connect via an encrypted live video chat that also is designed to prevent screenshots or screen grabs. The application integrates with iMessage, making private messages potentially available to hundreds of millions of users.

Myseum Social Media Platform

We recently launched our Myseum social media platform, an innovative social media platform that brings a fresh approach to digital media and content management, allowing users to create a digital legacy that can be easily shared today and with future generations. Backed by AI technology and proprietary software, the multi-tiered social media ecosystem enables individuals, families, and other groups to store and share digital content such as messages, photos, videos, and documents within a highly secure and private family library. Myseum allows users to create amazing albums and galleries for everyone to see, create special private and secure galleries with limited access, personalize a user’s newsfeed with updates from other Myseums and leave time released video messages for both now and future generations.

RPM Interactive, Inc.

In October 2024, our majority owned subsidiary, Dragon Interact, Inc. (“Dragon”), entered into a Share Exchange Agreement with RPM Interactive, Inc., a Florida corporation (“RPM”), pursuant to which Dragon acquired 100% of the equity interests of RPM, including all assets of RPM in consideration for the issuance of 3,500,000 restricted shares of Dragon’s common stock. RPM’s assets included an artificial intelligence (“AI”) tool used for publishing AI-generated consumer gaming and podcasting/vodcasting applications and certain intellectual property. As part of the acquisition, Dragon has changed its corporate name to RPM Interactive, Inc. (“RPM Interactive”) and shifted its focus to developing AI-driven podcast and gaming technologies.

Following the acquisition, in January 2025, we returned 3,500,000 shares of the RPM Interactive common stock held by us to RPM Interactive, which shares were cancelled and are no longer outstanding on RPM Interactive’s stock ledger. Following these transactions, we hold 9,000,000 shares of the RPM Interactive’s common stock, or approximately 34% of its outstanding shares.

The Habytat

Prior to the acquisition of RPM, we developed and launched, in November 2022, the Habytat, a virtual space that blends real world and virtual realities into one, in real time, using emerging technology like virtual and augmented reality, to create a highly immersive 3D environment. We had further contemplated spinning-off our Habytat platform business into a new standalone public company pursuant to a distribution of the shares. As discussed above, following our acquisition of RPM in October 2024, we ceased our development of the Habytat platform and are evaluating ways to utilize the technology that had been developed by our subsidiary.

Recent Events

Return of Subsidiary Shares

In January 2025, we returned 3,500,000 shares of the Subsidiary’s. common stock held by us to the Subsidiary, which shares were cancelled and are no longer outstanding on the Subsidiary’s stock ledger. Following this transaction, we held 12.5 million shares of the Subsidiary’s common stock, or approximately 34% of its outstanding shares.

January 2025 Offering

On January 8, 2025, we entered into a securities purchase agreement with certain institutional investors, pursuant to which we sold 1,200,000 shares of our common stock at a purchase price of $4.25 per share of Common Stock. Proceeds from the offering were approximately $5.1 million, prior to deducting placement agent’s fees and other offering expenses payable by the Company. The shares of Common Stock were offered by the Company pursuant to its shelf registration statement on Form S-3 (File No. 333-268058), which was declared effective by the Securities and Exchange Commission on December 6, 2022, a base prospectus dated December 6, 2022, and a prospectus supplement dated January 8, 2025. The closing of the offering took place on January 9, 2025. In addition, pursuant to the terms of the offering, the Company issued to The Benchmark Company, LLC, the exclusive placement agent for the offering, warrants to purchase up to 60,000 shares of the Company’s common stock, at an exercise price equal to 100.0% of the offering price per share of Common Stock, or $4.25 per share. The Placement Agent Warrant is exercisable during the four-and-a-half year period commencing six months after the date of the closing of this Offering.

Basis of Presentation

The financial statements contained herein have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S. GAAP”) and the requirements of the Securities and Exchange Commission.

Critical Estimates

This management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reported period. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Actual results may differ from these estimates if conditions differ from our assumptions. While our significant accounting policies and significant estimates are more fully described in Note 2 in the “Notes to Financial Statements”, we believe the following estimates are critical to the process of making significant judgments and estimates in preparation of our consolidated financial statements.

Capitalized internal-use software costs

We capitalize costs to develop or purchase internal-use software in accordance with ASC section 350-40, Intangibles — Goodwill and Other — Internal-Use Software. Costs incurred to develop internal-use software are expensed as incurred during the preliminary project stage. Internal-use software development costs are capitalized upon purchase and during the application development stage, which is after: (i) the preliminary project stage is completed; and (ii) management authorizes and commits to funding the project and it is probable the project will be completed and used to perform the intended function. Capitalization ceases at the point where the software project is substantially complete and ready for its intended use, and after all substantial testing is completed. Upgrades and enhancements are capitalized if it is probable that those expenditures will result in additional functionality. Amortization is provided for on a straight-line basis over the expected useful life of the internal-use software development costs and related upgrades and enhancements. When the existing software is replaced with new software, the unamortized costs of the old software are expensed when the new software is ready for its intended use. During the three months ending March 31, 2025, we capitalized certain software development costs incurred amounting to $72,625 since the Company’s software development projects were in the application development stage. During the three months ending March 31, 2024, software development costs incurred internally, other than purchased software, were expensed since the Company’s software development projects were in the preliminary project stage. Such costs were included in research and development costs on the accompanying unaudited consolidated statement of operations and comprehensive loss.

Noncontrolling interests

The Company accounts for its noncontrolling interest in RPM Interactive in accordance with ASC Topic 810-10-45, which requires the Company to present noncontrolling interests as a separate component of total shareholders’ equity on the consolidated balance sheets and the consolidated net loss attributable to its noncontrolling interest be clearly identified and presented on the face of the consolidated statements of operations. Through January 10, 2024, the date that VR Interactive purchased 8,000,000 shares of RPM Interactive from Metabizz LLC, any noncontrolling interest eliminated in consolidation. Because this change in ownership moved from a consolidated entity (the VIE entities) to a nonconsolidated entity (VR Interactive), subsequent to January 10, 2024 the Company ceased eliminating the noncontrolling interest in consolidation and recorded an initial negative noncontrolling interest in total equity for the portion of equity ownership not attributable to DatChat based on the minority interest holders’ ownership interest in the carrying value of RPM Interactive’s equity. Due to the issuance of common shares by RPM Interactive, during the three months ended March 31, 2025, the Company recorded aggregate initial negative noncontrolling interest of $188,810 in total equity for the portion of additional equity ownership not attributable to the Company based on the minority interest holders’ ownership interest in the carrying value of RPM Interactive’s equity. The Company allocated $145,914 of the net loss of the subsidiary to noncontrolling interest during the three months ended March 31, 2025. As a result of changes in RPM Interactive outstanding common stock and the Company’s share of losses of subsidiary since January 2024, aggregate noncontrolling interest deficit amounted to $2,472,513 as of March 31, 2025.

Variable interest entities

Based on the Company’s analysis, on February 14, 2023, Metabizz, LLC, a Florida corporation, and Metabizz SAS, a company incorporated under the laws of Columbia (collectively “Metabizz”), were determined to be VIE entities in accordance with ASC 810-10-25-22 because the equity owners in Metabizz did not have the characteristics of a controlling financial interest and the initial equity investments in these entities may be or were insufficient to meet or sustain its operations without additional subordinated financial support from DatChat. The equity owners of Metabizz had only a nominal equity investment at risk, and the Company absorbed or received a majority of the entity’s expected losses or benefits. The Company participated significantly in the design of Metabizz. The Company provided working capital advances to Metabizz to allow Metabizz to fund its day-to-day obligations. Substantially all of the activities of Metabizz were conducted for the Company’s benefit, as evidenced by the fact that the operations of Metabizz consisted of development of software and technologies to be used by RPM Interactive and the Company provided working capital to Metabizz to pay employees and independent contractors to perform the development services on behalf of the Company. Repayment of the working capital advances is not guaranteed by the equity owner of Metabizz and creditors of Metabizz do not have recourse against the Company. Accordingly, the Company was required to consolidate the assets, liabilities, revenues and expenses of Metabizz using the fair value method. Additionally, the managing partner of Metabizz was also the Chief Innovation Officer of RPM Interactive. Since Metabizz, LLC and Metabizz SAS were considered VIE’s, any noncontrolling interest eliminated in consolidation. In connection with the initial consolidation of Metabizz, on February 14, 2023 (the initial consolidation date), the Company recorded a gain on initial consolidation of variable interest entities of $42,737.

On March 31, 2024, based on the Company’s analysis, the Company deconsolidated Metabizz, LLC and Metabizz SAS. During the three months ended March 31, 2024, the Company ceased doing business with Metabizz, LLC and Metabizz SAS and will pay technology professionals directly. In connection with the deconsolidation of Metabizz, LLC and Metabizz SAS, during the three months ended March 31, 2024, the Company recorded a gain on deconsolidation of $107.

On August 27, 2024, the Company entered into an Asset Purchase Agreement with the Seller, pursuant to which it acquired from Seller the Assets (See Note 1) in consideration for the transfer by the Company of 8,000,000 restricted shares of common stock of RPM Interactive. Accordingly, as of September 30, 2024, the Company owned 45.5% of RPM Interactive. On August 27, 2024, based on the Company’s analysis, the Company determined that RPM Interactive met the definition of a VIE under the VIE model, which provides for situations in which control may be demonstrated other than by the possession of voting rights in RPM Interactive. Based on Company’s analysis, the Company continues to have the power to direct the activities of RPM Interactive that most significantly impact RPM Interactive’s economic performance and the obligation to absorb losses of RPM Interactive that could potentially be significant to RPM Interactive or the right to receive benefits from RPM Interactive that could potentially be significant to RPM Interactive. As of March 31, 2025 and December 31, 2024, the Company retained approximately 34.0% and 39.7%

Stock-based compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718, “Compensation — Stock Compensation” (“ASC 718”), which requires recognition in the financial statements of the cost of employee, non-employee and director services received in exchange for an award of equity instruments over the period the employee, non-employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee, non-employee, and director services received in exchange for an award based on the grant-date fair value of the award. The fair value of each option granted is estimated as of the date of grant using the Black-Scholes-Merton option-pricing model, net of actual forfeitures. The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. The Black-Scholes-Merton option-pricing model includes various assumptions, including the fair market value of our common stock, expected life of stock options, the expected volatility, and the expected risk-free interest rate, among others. These assumptions reflect our best estimates, but they involve inherent uncertainties based on market conditions generally outside of our control. As a result, if other assumptions had been used, stock-based compensation expense, as determined in accordance with authoritative guidance, could have been materially impacted. Furthermore, if we use different assumptions on future grants, stock-based compensation expense could be materially affected in future periods.

Recently Issued Accounting Pronouncements

Refer to the notes to the unaudited consolidated financial statements.

Results of Operations

Revenue

During the three months ended March 31, 2025 and 2024, we generated minimal revenues of $83 and $131, respectively, which consisted of subscription revenues.

Operating expenses

For the three months ended March 31, 2025, operating expenses amounted to $1,660,529 as compared to $1,663,550 for the three months ended March 31, 2024, a decrease of $3,021, or 0.2%. For the three months ended March 31, 2025 and 2024, operating expenses consisted of the following:

	Three Months Ended March 31,
	2025		2024
Compensation and related expenses	$	967,280	$	897,664
Marketing and advertising expenses		38,262		34,717
Professional and consulting expenses		455,484		253,625
Research and development		6,000		233,918
General and administrative expenses		193,503		243,626
Total	$	1,660,529	$	1,663,550

Compensation and related expenses

Compensation and related expenses include salaries, stock-based compensation, health insurance and other benefits.

During the three months ended March 31, 2025 and 2024, compensation and related expenses amounted to $967,280 and $897,664, respectively, an increase of $69,616, or 7.8%. The increase was attributable to an increase in executive bonus of $350,000, and an increase in stock-based compensation of $148,359 due to the issuance of new stock options, offset by an overall decrease in compensation and other related expenses of $428,743 due to a reduction in staff.

Marketing and advertising expenses

During the three months ended March 31, 2025 and 2024, marketing and advertising expenses amounted to $38,262 and $34,717, respectively, an increase of $3,545, or 10.2%. The increase was primarily due to an increase in promotions, branding and digital marketing strategies and social media ads.

Professional and consulting expenses

During the three months ended March 31, 2025 and 2024, we reported professional and consulting expenses of $455,484 and $253,625, respectively, an increase of $201,859, or 79.6%. The increase was primarily attributable to an increase in investor relations of $77,500, an increase in legal fees of $73,410, an increase in accounting fees of $40,137, an increase in consulting fees – related party of $18,000, and an increase of other professional fees of $1,485, offset by a decrease in aggregate consulting fees of $8,673, which includes a decrease in stock-based consulting fees of $52,323 and an increase in other consulting fees of $43,650.

Research and development expenses

During the three months ended March 31, 2025 and 2024, we incurred $6,000 and $233,918 in research and development expenses, a decrease of $227,918, or 97.4%. Research and development costs were incurred in connection with our Metaverse software development project, including the development of Habytat which is in the preliminary stage. As of March 31, 2025, we ceased development of our Metaverse software.

General and administrative expenses

During the three months ended March 31, 2025 and 2024, general and administrative expenses amounted to $193,503 and $243,626, a decrease of $50,123, or 20.6%. The decrease was primarily attributable to a decrease in computer and internet expenses of $26,517, a decrease in proxy meeting expenses of $19,288, and a decrease in other general and administrative expenses of $4,318.

Loss from Operations

During the three months ended March 31, 2025, loss from operations amounted to $1,660,446 as compared to $1,663,419 during the three months ended March 31, 2024, a decrease of $2,973, or 0.2%.

Other Income (Expense)

Other income (expenses) primarily consisted of interest income, gain on deconsolidation of variable interest entities, and foreign currency exchange loss. During the three months ended March 31, 2025 and 2024, we reported other income, net of $41,336 and $101,612, respectively.

During the three months ended March 31, 2025, other income, net solely consisted of interest income of $41,336. During the three months ended March 31, 2024, other income, net primarily consisted of interest income of $114,470, gain on deconsolidation of variable interest entities of $107, and a foreign currency exchange loss of $12,965.

Net Loss and Net Loss Attributable to Common Shareholders

Due to the foregoing reasons, during the three months ended March 31, 2025 and 2024, our net loss was $1,619,110 and $1,561,807, respectively, an increase of $57,303, or 3.7%. During the three months ended March 31, 2025 and 2024, after adjusting net loss for the net loss of subsidiary attributable to noncontrolling interest of $145,914 and $423,995, respectively, net loss attributable to common shareholders of was $1,473,196, or ($0.36) per common share (basic and diluted) and $1,137,812, or ($0.41) per common share (basic and diluted), respectively, an increase of $335,384, or 29.5%.

Liquidity, Capital Resources and Plan of Operations

As of March 31, 2025, we had cash and cash equivalents of $1,265,478 and short-term investments of $5,785,219. Short-term investments include U.S. Treasury zero coupon bills that are all highly rated and have initial maturities between four and twelve months.

The accompanying unaudited consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. As of March 31, 2025, we had cash and cash equivalents of $1,265,478, short-term investments of $5,785,219, and working capital of $6,506,071. Short-term investments include U.S. Treasury zero coupon bills that are all highly rated and have initial maturities between four and twelve months. On January 8, 2025, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional investors pursuant to which the Company agreed to sell to such investors 1,200,000 shares of common stock of the Company at a purchase price of $4.25 per share of Common Stock (the “Offering”). The closing of the sales of these securities under the Purchase Agreement took place on January 9, 2025 and we received net proceeds of $4,532,000. Net cash used in operations was $1,405,389 for the three months ended March 31, 2025. Until such time that the Company implements its growth strategy, it expects to continue to generate operating losses in the foreseeable future, mostly due to corporate overhead, research and development, and costs of being a public company. We believe that our existing working capital and cash on hand will provide sufficient cash to enable the Company to meet its operating needs and debt requirements for the next twelve months from the issuance date of this report.

Our primary uses of cash have been for research and development, compensation and related expenses, fees paid to third parties for professional services, marketing and advertising expenses, and general and administrative expenses. All funds received have been expended in the furtherance of growing the business. We received funds from the sale of our common stock, sale of common stock in our subsidiary, RPM Interactive, and the exercise of warrants. The following trends are reasonably likely to result in changes in our liquidity over the near to long term:

●

An increase in working capital requirements to finance our current business,

●

Cost of research and development,

●

Addition of administrative, technical and sales personnel as the business grows, and

●

The cost of being a public company.

Cash Flow Activities for the Three Months ended March 31, 2025 and 2024

Cash Flows from Operating Activities

Net cash used in operating activities totaled $1,405,389 and $1,477,240 for the three months ended March 31, 2025 and 2024, respectively, a decrease of $71,851.

Net cash flow used in operating activities for the three months ended March 31, 2025 primarily reflected a net loss of $1,619,110 adjusted for the add-back of non-cash items consisting of depreciation and amortization of $5,541, and accretion of stock-based stock option and common stock expense of $155,054, offset by changes in operating assets and liabilities primarily consisting of an increase in prepaid expenses of $15,959, and an increase in accounts payable and accrued expenses of $69,092.

Net cash flow used in operating activities for the three months ended March 31, 2024 primarily reflected a net loss of $1,561,807 adjusted for the add-back (reduction) of non-cash items consisting of depreciation and amortization of $5,782, amortization of right of use assets of $17,123, accretion of stock-based stock option and common stock expense of $59,018, a non-cash gain from deconsolidation of variable interest entities of $(107), and foreign currency exchange loss of $12,965, offset by changes in operating assets and liabilities primarily consisting of an increase in prepaid expenses of $52,659, an increase in accounts payable and accrued expenses of $61,794, and a decrease in operating lease liabilities of $19,376.

Cash Flows from Investing Activities

Net cash used by investing activities amounted to $2,905,332 and $648,447 for the three months ended March 31, 2025 and 2024, respectively.

During the three months ended March 31, 2025, we purchased short-term investments of $4,314,310 and received gross proceeds from the sale of short-term investments of $1,481,603. Additionally, we capitalized internal-use software of $72,625.

During the three months ended March 31, 2024, we purchased short-term investments of $3,337,115 and received gross proceeds from the sale of short-term investments of $2,688,668.

Cash Flows from Financing Activities

Net cash provided by financing activities totaled $4,379,500 and $1,420,773 for the three months ended March 31, 2025 and 2024, respectively.

During the three months ended March 31, 2025, we received $4,532,000 from the sale of common stock, net, and paid deferred offering costs of $152,500.

During the three months ended March 31, 2024, we received $559,251 from the sale of common stock, net, and received $861,522 from the sale of pre-funded warrants.

Off-Balance Sheet Arrangements

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

JOBS Act

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.

Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including, without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our initial public offering, which would be December 31, 2024; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act, as of the end of the period covered by this report. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were not effective As of March 31, 2025.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal control over financial reporting:

●

We lack segregation of duties within accounting functions duties as a result of our limited financial resources to support hiring of personnel.

●

The lack of multiples levels of management review on complex business, accounting and financial reporting issues.

●

We have not implemented adequate system and manual controls.

Remediation Plans

Management is committed to the remediation of the material weaknesses described above, as well as the improvement of the Company’s overall internal control over financial reporting. Management plans on implementing actions to remediate the underlying causes of the control deficiencies that gave rise to the material weaknesses. Remediation efforts include the possible hiring of additional accounting and finance personnel with appropriate expertise to strengthen overall controls and the establishment of disbursement review and approval processes. The material weaknesses will not be considered remediated until management designs and implements effective controls that operate for a sufficient period of time and management has concluded, through testing, that these controls are effective. Our management will monitor the effectiveness of our remediation plan and will make changes management determines to be appropriate. Until the remediation efforts (including any additional measures management identifies as necessary) are completed, the material weaknesses described above will continue to exist.

Changes in Internal Control over Financial Reporting.

There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

ITEM 1A. RISK FACTORS.

Risk factors that affect our business and financial results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the SEC on March 31, 2025 (“Annual Report”). Except as set forth below, there have been no material changes in our risk factors from those previously disclosed in our Annual Report. You should carefully consider the risks described in our Annual Report, which could materially affect our business, financial condition or future results. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(a)

Recent Sales of Unregistered Securities.

None.

(b)

Issuer Purchases of Equity Securities

We did not have any common stock repurchases during the quarterly period ended March 31, 2025.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

Rule 10b5-1 Trading Plans

During the fiscal quarter ended March 31, 2025, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” as such terms are defined under Item 408 of Regulation S-K of the Exchange Act.

ITEM 6. EXHIBITS.

Exhibit No.		Description of Exhibits
31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification of Principal Financial and Accounting Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**		Certification of Principal Financial and Accounting Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*		Inline XBRL Instance Document
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE *		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*		Cover Page Interactive Data File - the cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, is formatted in Inline XBRL

*	Filed herewith.
**	Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	DATCHAT, INC.

Dated: May 15, 2025	/s/ Darin Myman
	Darin Myman
	Chief Executive Officer and Director
	(Principal Executive Officer)

Dated: May 15, 2025	/s/ Brett Blumberg
	Brett Blumberg
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

SEC Form 10-Q filed by DatChat Inc.