Business context and reporting period
This is DatChat, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2021; the filing does not identify Myseum.AI, Inc. as the issuer. DatChat develops a privacy-focused messaging application and reported no revenue. The company completed an IPO in August 2021 and effected a 1-for-2 reverse stock split in July.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $1.85 million | $316,000 | $3.49 million | $708,000 |
| Net loss | $1.85 million | $330,000 | $3.49 million | $743,000 |
| Loss per share, basic and diluted | $0.12 | $0.02 | $0.25 | $0.06 |
| Cash used in operating activities | Not presented quarterly | $2.52 million | $772,000 |
At September 30, 2021, cash was $25.82 million, working capital was $25.76 million, total assets were $26.05 million, and total liabilities were $280,000. Debt included a $6,042 PPP loan, due in May 2022 if not forgiven; the $7,500 related-party note was repaid in February 2021. No profit or gross margin was reported because there was no revenue or cost of goods sold.
Material changes versus the prior comparable period
Quarterly and year-to-date losses increased substantially, alongside higher compensation, marketing, professional and consulting, and general and administrative expenses. Year-to-date professional and consulting expense rose to $1.44 million from $162,000; compensation rose to $1.14 million from $331,000. The company attributed increases to staffing and executive compensation, stock-based awards, marketing and promotion, public-company costs, and legal and accounting services.
Cash increased from $690,000 at December 31, 2020, primarily due to financing. The company reported approximately $12.1 million of net IPO proceeds and $14.0 million of gross proceeds from Series A warrant exercises during the nine months. Common shares outstanding increased to 19.57 million from 12.73 million at year-end.
Outlook, risks, contingencies, and unusual items
- Management said it did not anticipate revenue for the foreseeable future; monetization depends on reaching a critical mass of users and introducing paid features. It stated that available proceeds were expected to fund obligations for at least 12 months from the filing date.
- Management disclosed an accumulated deficit of $20.25 million and continued operating cash use. Financing mitigated conditions that had raised substantial doubt about going concern, but the business remains pre-revenue.
- Subsequent events included approximately $142,000 of additional warrant-exercise proceeds and collection of a $235,000 subscription receivable in October 2021. The company also disclosed a marketing campaign costing about $1 million for October–December 2021 and a separate campaign costing about $3 million for October 2021–February 2022.
- A new office lease began October 1, 2021, through December 2024, with monthly base rent of $7,156 beginning January 2022, plus operating expenses and applicable increases. The CEO’s employment agreement provided for a $450,000 annual base salary, a potential annual bonus of up to $350,000, and specified severance provisions.
- Stock-based compensation was $1.03 million for the first nine months. The filing reported $7.26 million of unrecognized compensation cost for unvested options, expected to be recognized over a weighted-average 1.52 years.
- Cash held at one financial institution exceeded FDIC insurance limits by approximately $25.5 million at quarter-end. The company reported ineffective disclosure controls and a material weakness involving limited segregation of duties, insufficient management review, and inadequate system and manual controls; it expected the weaknesses to continue until staffing and controls improve.
- The company reported no material pending legal proceedings and no material changes to previously disclosed risk factors. It reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm issuer identity: this filing is for DatChat, Inc., not Myseum.AI, Inc.
- Track user adoption, product launches, and whether the company begins generating revenue before cash resources are depleted.
- Assess cash burn against the cash balance, including the impact of the disclosed marketing commitments, new lease, executive compensation, and future stock-based compensation.
- Review warrant and option terms, future exercises, potential dilution, and the October collection of the subscription receivable.
- Monitor remediation of the disclosed material weaknesses in internal controls and the company’s reliance on a single bank for substantial cash balances.