Business context and reporting period
Registrant mismatch: The supplied filing is DatChat, Inc.’s Form 10-K, not a filing identified as Myseum.AI, Inc. It covers the fiscal year ended December 31, 2022, with 2021 comparative results; it does not provide standalone fourth-quarter results.
DatChat develops a privacy-focused messaging application and expanded into metaverse and NFT-related offerings. The Habytat launched in November 2022; VenVuu, an advertising and NFT monetization platform, was under development. The filing was signed March 31, 2023.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $46,214 | $4,445 |
| Operating loss | $12,226,725 | $10,838,550 |
| Net loss | $12,138,572 | $10,829,034 |
| Net loss per share, basic and diluted | $(0.60) | $(0.71) |
| Cash used in operating activities | $7,258,765 | $8,454,504 |
Revenue remained minimal: 2022 included $9,820 from subscriptions and $36,394 from NFT sales, versus subscription revenue only in 2021. Management said it did not expect NFT-sale revenue in the near future. Gross profit and gross margin are not separately presented.
Operating expenses totaled $12,272,939, up from $10,842,995. Compensation and related expenses rose 121.1% to $6,551,776, including $3,173,401 of stock-based compensation. Marketing and advertising fell 83.7% to $828,736. The company recorded a $981,000 impairment of acquired patents and a $119,276 impairment of digital currencies and other digital assets.
At year-end, cash and cash equivalents were $1,732,956 and short-term investments were $11,007,997, versus $20,199,735 of cash and no short-term investments in 2021. Current assets were $12,876,089; working capital was $12,402,650. Total assets were $13,113,690 and stockholders’ equity was $12,556,576. Total liabilities were $557,114, principally lease liabilities; the filing reports no material borrowing balance. Operating lease liabilities totaled approximately $151,013, including $67,338 current.
Cash declined by $18,466,779 during the year. Investing activities used $11,209,126, largely reflecting purchases of $20,842,149 of short-term investments, partly offset by $9,910,000 in investment-sale proceeds. Financing activities provided $1,112; the large 2021 financing inflows from the IPO and warrant exercises did not recur.
Material changes and unusual items
- Net loss increased 12.1% year over year, while operating cash use decreased from $8,454,504 to $7,258,765.
- The company issued 1,000,000 shares valued at $1,090,000 to acquire Avila Security Corporation’s patent assets. The patents were fully impaired by year-end; the filing says there were no projected future revenues or cash flows from them and no current plans to exploit them.
- Metabizz LLC, whose managing partner was also SmarterVerse’s Chief Innovation Officer, received $514,957 for software development services in 2022.
- Short-term investments generated $28,176 of realized gains and $47,672 of unrealized gains. Digital asset impairment was $119,276.
Outlook, risks, and contingencies
The filing gives no numerical revenue, earnings, or cash-flow guidance. Management stated that 2021 financing proceeds and year-end liquidity were expected to fund obligations for at least 12 months from the filing date, and said the liquidity position mitigated conditions that had historically raised substantial doubt about the company’s ability to continue as a going concern. The company nevertheless reported minimal revenue, recurring losses, an accumulated deficit of $39,729,118, and continuing operating cash use.
Key risks include difficulty monetizing the messaging and metaverse products; intense competition; reliance on Apple’s App Store and Amazon Web Services; cybersecurity, privacy, and regulatory exposure; uncertain NFT and digital-asset regulation; and the need for additional financing. Nasdaq notified the company in October 2022 of a minimum-bid-price deficiency, with an initial compliance deadline of April 12, 2023.
Management’s internal-control disclosures are inconsistent: it states that disclosure controls were effective, but later concludes they were not effective due to material weaknesses, including insufficient segregation of accounting duties, inadequate controls over digital assets, limited management review, and inadequate system and manual controls. The filing says the weaknesses were expected to continue until staffing and controls improved. The independent auditor gave an unmodified opinion on the financial statements and reported no critical audit matters; it did not opine on internal-control effectiveness.
Subsequent events include a board-authorized repurchase program of up to $2 million. The filing’s figures are inconsistent: the MD&A says 480,025 shares were purchased at an average $0.648 per share and describes $480,025, while the financial-statement note reports 480,025 shares purchased for $311,174 at that average price. The filing also reports a February 2023 sale of a 40% interest in SmarterVerse to Metabizz for $800.
Important facts for investors to verify
- Confirm that DatChat, Inc.—rather than Myseum.AI, Inc.—is the intended issuer and that the annual reporting period meets the request.
- Review the cash runway, investment maturities, ongoing operating cash burn, and the basis for management’s liquidity outlook.
- Reconcile the repurchase-program disclosures, including the reported shares, total consideration, and average price.
- Assess the status and commercialization prospects of The Habytat, VenVuu, and the messaging application, given minimal revenue and management’s expectation of no near-term NFT-sale revenue.
- Review remediation of the disclosed material weaknesses, particularly oversight and custody controls for digital assets.
- Check the outcome of the Nasdaq bid-price deficiency and any subsequent financing, dilution, or listing developments.