Filing identity and reporting period
The supplied filing is DatChat, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2023, filed November 13, 2023. This does not match the request metadata naming Myseum.AI, Inc.; verify that this is the intended filing.
DatChat describes itself as a privacy-focused messaging, blockchain and cybersecurity company. Its offerings include DatChat Messenger and the developing social metaverse The Habytat. The company says it is no longer developing its VenVuu NFT platform and does not expect future NFT revenue.
Financial results and position
| Metric | Three months ended September 30, 2023 | Three months ended September 30, 2022 | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 |
|---|---|---|---|---|
| Revenue | $175 | $3,540 | $501 | $42,296 |
| Operating expenses | $2,542,326 | $2,685,450 | $7,355,729 | $8,671,451 |
| Loss from operations | $2,542,151 | $2,681,910 | $7,355,228 | $8,629,155 |
| Net loss | $2,364,580 | $2,656,705 | $7,051,024 | $8,604,263 |
| Basic and diluted loss per share | $1.13 | $1.29 | $3.40 | $4.32 |
| Net cash used in operating activities | Not provided for quarter | Not provided for quarter | $5,159,510 | $5,727,584 |
At September 30, 2023, cash and cash equivalents were $672,086 and short-term investments, consisting of U.S. Treasury bills, were $6,826,759. Working capital was $7,307,166; total assets were $7,975,661, total liabilities $492,600, and accumulated deficit $46,780,142. The company reported no conventional borrowings in the presented balance sheet; lease liabilities totaled $102,205. Cash and investments together were about $7.5 million, but the company used $5.2 million of operating cash in the first nine months.
Revenue was negligible relative to operating costs, so operating margins are not meaningfully indicative of a scaled business. No gross margin is separately reported. The filing states the company believes cash and short-term investments are sufficient to meet obligations for at least 12 months from the filing date.
Changes versus the prior comparable period
- Nine-month revenue fell to $501 from $42,296; 2022 included $36,394 of NFT revenue, while 2023 revenue was subscription-only.
- Nine-month operating expenses declined 14.7%, and net loss narrowed 18.0%. Compensation and professional/consulting costs decreased, while research and development rose to $1,064,049 from $258,957, largely for The Habytat development.
- Cash used in operations improved to $5,159,510 from $5,727,584. Cash and short-term investments declined from $12.7 million at December 31, 2022 to $7.5 million at September 30, 2023.
- Other income for the 2023 nine-month period included a $239,382 realized gain on short-term investments and a $106,538 gain on initial consolidation of Metabizz VIEs; these are not recurring operating revenue.
Outlook, risks and unusual items
- No specific revenue, earnings or operating guidance is provided. Management identifies potential increases in working-capital needs, research and development, staffing and public-company costs.
- Metabizz, LLC and Metabizz SAS became variable interest entities consolidated by DatChat in February 2023. DatChat funds working capital and says the entities’ development work benefits its subsidiary SmarterVerse. At quarter-end, the consolidated VIEs reported $58,685 of assets and $859,561 due to DatChat, which is eliminated in consolidation.
- The company recorded a $23,381 impairment of digital assets during the first nine months. Its patents acquired in 2022 had been fully impaired in 2022, with no carrying value at the period end.
- DatChat completed a 1-for-10 reverse stock split effective September 19, 2023; share and per-share figures are retroactively adjusted in the filing. It repurchased 66,944 shares for $397,969 during the first nine months under a program authorizing up to $2 million; no repurchases occurred in the third quarter.
- Nasdaq notified the company on October 4, 2023 that it had regained compliance with the minimum bid-price requirement. Series B preferred stock issued for $1,000 carries 10 votes per share solely on an authorized-stock-increase proposal and is redeemable under stated conditions.
- Management found disclosure controls and internal control over financial reporting ineffective, citing a material weakness involving segregation of accounting duties, custody and accounting controls for digital assets, insufficient management review, and inadequate system and manual controls. Remediation was planned but not yet complete.
- The filing reports no known legal proceeding expected to have a material adverse effect. It notes cash deposits exceeded FDIC insurance limits by approximately $402,283 at September 30, 2023 and says it was reviewing banking relationships.
Important facts for investors to verify
- Confirm the issuer: the supplied document is DatChat, Inc., not Myseum.AI, Inc.
- Assess the company’s ability to convert its product development into meaningful recurring revenue; reported nine-month revenue was only $501.
- Review cash burn, investment maturities and management’s 12-month liquidity assessment, particularly as cash and investments declined materially during the period.
- Evaluate the costs, obligations and governance implications of consolidating Metabizz, including the reported $859,561 due to DatChat.
- Track remediation and testing of the disclosed material weaknesses in financial reporting controls.
- Reconcile the reported 2,094,285 common shares outstanding at September 30 with 2,103,321 shares reported as issued and outstanding on November 9, 2023, and review the post-quarter share changes.