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 June 30, 2024

☐ 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 August 14, 2024, there were 3,009,329 shares of common stock, par value $0.0001 per share, outstanding.

DATCHAT, INC.

FORM 10-Q

June 30, 2024

INDEX

		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Consolidated Balance Sheets - As of June 30, 2024 (unaudited) and December 31, 2023	1
	Consolidated Statements of Operations and Comprehensive Loss - For the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)	2
	Consolidated Statements of Changes in Stockholders’ Equity – For the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)	3
	Consolidated Statements of Cash Flows - For the Six Months Ended June 30, 2024 and 2023 (unaudited)	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29
Signatures		30

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 29, 2024. 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 29, 2024, 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

CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2024			2023
	(Unaudited)
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	587,518		$	953,362
Short-term investments, at fair value		4,661,494			5,236,781
Accounts receivable		192			183
Prepaid expenses		105,352			185,675

Total Current Assets		5,354,556			6,376,001

N0N-CURRENT ASSETS:
Property and equipment, net		45,000			56,565
Operating lease right-of-use asset, net		38,846			73,977

Total Non-current Assets		83,846			130,542

Total Assets	$	5,438,402		$	6,506,543

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	361,348		$	322,762
Operating lease liability		44,037			83,674
Contract liabilities		143			118

Total Current Liabilities		405,528			406,554

Total Liabilities		405,528			406,554

Commitments and Contingencies (Note 6)

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 June 30, 2024 and December 31, 2023)		-			-
Series B Preferred stock ($0.0001 Par Value; 2,000,000 Share designated; 2,000,000 issued and outstanding on June 30, 2024 and December 31, 2023)		200			200
Common stock ($0.0001 par value; 180,000,000 shares authorized; 3,076,274 and 2,103,321 shares issued and 3,009,329 and 2,036,376 shares outstanding on June 30, 2024 and December 31, 2023, respectively)		308			210
Common stock to be issued (139 shares on June 30, 2024 and December 31, 2023)		-			-
Additional paid-in capital		56,772,699			54,597,083
Treasury stock, at cost (66,945 shares on June 30, 2024 and December 31, 2023)		(397,969	)		(397,969	)
Accumulated other comprehensive gain		-			34,553
Accumulated deficit		(50,255,147	)		(48,134,088	)
Total DatChat, Inc. Stockholders’ Equity		6,120,091			6,099,989
Noncontrolling interest		(1,087,217	)		-

Total Stockholders’ Equity		5,032,874			6,099,989

Total Liabilities and Stockholders’ Equity	$	5,438,402		$	6,506,543

See accompanying notes to unaudited consolidated financial statements.

DATCHAT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023

NET REVENUES	$	151		$	172		$	282		$	326

OPERATING EXPENSES:
Compensation and related expenses		522,596			1,380,038			1,420,260			2,929,730
Marketing and advertising expenses		32,883			46,599			67,600			160,402
Professional and consulting expenses		250,274			321,157			503,899			577,077
Research and development expense		226,058			337,458			459,976			620,231
General and administrative expenses		235,443			241,679			479,069			438,781
Impairment loss on digital currencies and other digital assets		-			-			-			23,381

Total operating expenses		1,267,254			2,326,931			2,930,804			4,749,602

LOSS FROM OPERATIONS		(1,267,103	)		(2,326,759	)		(2,930,522	)		(4,749,276	)

OTHER INCOME (EXPENSES):
Interest income, net		62,995			39,595			177,465			67,833
Gain on initial consolidation of variable interest entities		-			-			-			42,737
Gain on deconsolidation of variable interest entities		-			-			107			-
Foreign currency exchange loss		-			(66	)		(12,965	)		(66	)
Realized loss on short-term investments		-			-			-			(47,672	)

Total other income (expenses), net		62,995			39,529			164,607			62,832

NET LOSS		(1,204,108	)		(2,287,230	)		(2,765,915	)		(4,686,444	)

Net loss of subsidiary attributable to noncontrolling interest		220,861			-			644,856			-

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(983,247	)	$	(2,287,230	)	$	(2,121,059	)	$	(4,686,444	)

COMPREHENSIVE LOSS:
Net loss	$	(1,204,108	)	$	(2,287,230	)	$	(2,765,915	)	$	(4,686,444	)

Other comprehensive (loss) gain:
Unrealized gain on short-term investments		-			112,535			-			197,570
Unrealized foreign currency translation gain		-			582			12,965			758

Comprehensive loss	$	(1,204,108	)	$	(2,174,113	)	$	(2,752,950	)	$	(4,488,116	)

NET LOSS PER COMMON SHARE:
Basic and diluted	$	(0.33	)	$	(1.10	)	$	(0.73	)	$	(2.27	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic and diluted		3,009,329			2,074,042			2,907,757			2,068,907

See accompanying notes to unaudited consolidated financial statements.

DATCHAT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(Unaudited)

	Series B								Common Stock				Additional								Accumulated Other									Total
	Preferred Stock				Common Stock				to be Issued				Paid-in			Treasury Stock					Comprehensive			Accumulated			Noncontrolling			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

Accretion of stock based compensation in connection with stock option grants		-		-		-		-		-		-		3,349			-		-			-			-			-			3,349

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

Issuance of common shares in subsidiary for cash		-		-		-		-		-		-		235,998			-		-			-			-			-			235,998

SEC Form 10-Q filed by DatChat Inc.