Filing summary
Registrant discrepancy: The supplied filing is DatChat, Inc.’s Form 10-Q for the quarter ended September 30, 2022, not a filing identified as Myseum.AI, Inc. Confirm that this is the intended filing.
Business context and reporting period
DatChat describes itself as a blockchain, cybersecurity, and social-media company. Its flagship product is DatChat Messenger & Private Social Network; it is also developing The Habytat social metaverse and the VenVuu metaverse advertising platform. The financial statements are unaudited and cover the three and nine months ended September 30, 2022, with comparisons to 2021.
Financial performance and position
| Metric | Q3 2022 | Nine months 2022 |
|---|---|---|
| Revenue | $3,540 | $42,296 |
| Operating expenses | $2,685,450 | $8,671,451 |
| Operating loss | $(2,681,910) | $(8,629,155) |
| Net loss | $(2,656,705) | $(8,604,263) |
| Basic and diluted loss per share | $(0.13) | $(0.43) |
| Net cash used in operations | Not separately presented | $(5,727,584) |
Gross profit and operating margin are not separately reported; with minimal revenue and operating losses, conventional margins are not meaningful. Revenue was zero in the comparable 2021 periods. The nine-month 2022 revenue comprised $5,902 in subscriptions and $36,394 from NFT sales.
At September 30, 2022, cash and cash equivalents were $6.23 million and short-term investments were $7.98 million. Current assets were $14.47 million versus current liabilities of $448,684, yielding reported working capital of $14.02 million. Total liabilities were $550,888, mainly lease liabilities; the filing reports no material conventional borrowings. Stockholders’ equity was $15.24 million. Common shares outstanding were 20,597,419 at September 30 and November 11, 2022.
Cash and cash equivalents decreased from $20.20 million at December 31, 2021. Investing activities used $8.24 million, principally reflecting purchases of short-term investments, digital assets, and equipment; financing activities used $203. The company reported $91,204 of digital-asset impairment for the nine-month period.
Changes versus prior comparable periods
- Nine-month operating expenses rose 148.2% to $8.67 million, and net loss increased 146.3% to $8.60 million. For Q3, operating expenses rose 45.5% and net loss increased 43.6% year over year.
- Compensation and related expenses increased substantially, primarily due to more employees and stock-based compensation. Nine-month stock-based compensation was approximately $2.38 million in compensation expense, with additional stock-based professional fees reported separately.
- Nine-month operating cash use increased from $2.52 million in 2021 to $5.73 million in 2022. The company raised substantial capital through its 2021 offering and warrant exercises; it reported no comparable financing proceeds in the first nine months of 2022.
- The company issued 1,000,000 shares valued at $1.09 million to acquire Avila Security’s patents and related intellectual property. The acquisition was accounted for as an asset purchase, not a business combination.
Outlook, commentary, and risks
- Management said available cash was expected to cover requirements for at least 12 months from the filing date, based on current plans and assumptions, while noting additional funding may be needed if operations do not generate positive cash flow.
- Management planned to launch Geniuz City, the first world within The Habytat, in the first quarter of 2023. The Habytat and VenVuu remained under development, and the filing provides no quantified revenue or earnings guidance.
- Nasdaq notified the company on October 14, 2022 that its share price had been below the $1.00 minimum bid for 30 consecutive business days. The stated initial compliance deadline was April 12, 2023; failure to regain compliance could threaten listing and access to capital markets.
- Management concluded disclosure controls and procedures were not effective because of material weaknesses, including inadequate segregation of accounting duties, controls over digital-asset custody and accounting, management review, and system and manual controls. The company expected these weaknesses to continue to be reported.
- Risks include uncertain market acceptance and execution of the metaverse and advertising platforms, evolving digital-asset regulation, competition, and potential diversion of resources. Digital assets are carried at cost less impairment, with no subsequent write-up for recoveries under the stated accounting policy.
- The company reported no legal proceedings known to have a material adverse effect. It also disclosed a software-development agreement with Metabizz LLC, whose managing partner was SmarterVerse’s Chief Innovation Officer; $258,957 was paid and expensed in the nine-month period.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for DatChat, Inc., despite the Myseum.AI metadata.
- Reconcile the revenue disclosures: the statements and revenue table show Q3 revenue of $3,540 and nine-month NFT revenue of $36,394, but the MD&A states that Q3 included $36,394 of NFT revenue. The filing text is internally inconsistent on the timing of NFT revenue.
- Assess whether cash, short-term investments, and management’s spending assumptions support the stated 12-month liquidity outlook, given rising losses and operating cash use.
- Monitor remediation of the disclosed internal-control material weaknesses, particularly controls over digital assets and related-party transactions.
- Track Nasdaq bid-price compliance and the status, timing, funding, and commercial prospects of The Habytat and VenVuu plans.