DatChat(DATS) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Unaudited Q1 2025 consolidated financial statements show total assets increased to $8.5 million, net loss widened to $1.62 million, and financing activities provided $4.38 million Consolidated Balance Sheets As of March 31, 2025, total assets increased to $8.51 million, driven by cash and short-term investments, with stockholders' equity growing to $7.81 million Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2025 ($) | December 31, 2024 ($) | | :--- | :--- | :--- | | Total Current Assets | $7,205,507 | $4,288,022 | | Cash and cash equivalents | $1,265,478 | $1,196,699 | | Short-term investments | $5,785,219 | $2,952,512 | | Total Assets | $8,508,527 | $5,371,458 | | Total Liabilities | $699,436 | $630,311 | | Total Stockholders' Equity | $7,809,091 | $4,741,147 | Consolidated Statements of Operations and Comprehensive Loss Q1 2025 saw minimal revenue of $83, stable operating expenses at $1.66 million, and a widened net loss of $1.62 million, though net loss per share improved Q1 2025 vs Q1 2024 Operating Results (Unaudited) | Metric | Q1 2025 ($) | Q1 2024 ($) | | :--- | :--- | :--- | | Net Revenues | $83 | $131 | | Total Operating Expenses | $1,660,529 | $1,663,550 | | Loss from Operations | ($1,660,446) | ($1,663,419) | | Net Loss | ($1,619,110) | ($1,561,807) | | Net Loss Attributable to Common Shareholders | ($1,473,196) | ($1,137,812) | | Net Loss Per Common Share (Basic and Diluted) | ($0.36) | ($0.41) | | Weighted Average Shares Outstanding | 4,089,329 | 2,806,185 | Consolidated Statements of Cash Flows Q1 2025 cash flows show $1.41 million used in operations, $2.91 million in investing, and a significant $4.38 million inflow from financing, resulting in a net cash increase Cash Flow Summary for the Three Months Ended March 31 (Unaudited) | Cash Flow Activity | 2025 ($) | 2024 ($) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($1,405,389) | ($1,477,240) | | Net Cash Used in Investing Activities | ($2,905,332) | ($648,447) | | Net Cash Provided by Financing Activities | $4,379,500 | $1,420,773 | | Net Increase (Decrease) in Cash | $68,779 | ($704,914) | - The primary source of cash in Q1 2025 was $4.53 million in net proceeds from the sale of common stock[20] Notes to Unaudited Consolidated Financial Statements Notes detail RPM Interactive's shift to AI-driven media, deconsolidation of Metabizz VIEs, a $4.53 million stock offering in January 2025, and a new 'at the market' offering program - The company deconsolidated its Variable Interest Entities (VIEs), Metabizz LLC and Metabizz SAS, on March 31, 2024, as it ceased doing business with them[26][34][40] - In January 2025, the company sold 1,200,000 shares of common stock at $4.25 per share, receiving net proceeds of $4,532,000[43][102] - In February 2025, the company entered into an 'at the market offering' agreement to sell up to $6,000,000 of its common stock[104][105] - Subsequent to the quarter, in April 2025, subsidiary RPM Interactive appointed a new CEO, CFO, and CTO, and the company entered into a new four-year lease for its office premises[127][130][134] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strategic shifts including RPM Interactive's focus on AI-generated content, Q1 2025 stable operating expenses with R&D decreases offset by compensation and professional fees, and sufficient liquidity for the next twelve months - The company has repositioned its majority-owned subsidiary, RPM Interactive, Inc., to focus on becoming an AI-generated publishing company for mobile game apps and podcasts, ceasing development of the Habytat platform[137][144] - Management believes that existing working capital and cash on hand, including proceeds from the January 2025 offering, are sufficient to meet operating needs for the next twelve months[43][173] Results of Operations Q1 2025 operating expenses remained flat at $1.66 million, with a 97.4% decrease in R&D offset by increases in compensation and professional fees, leading to a 3.7% higher net loss Operating Expenses Breakdown (Three Months Ended March 31) | Expense Category | 2025 ($) | 2024 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Compensation and related expenses | $967,280 | $897,664 | 7.8% | | Marketing and advertising expenses | $38,262 | $34,717 | 10.2% | | Professional and consulting expenses | $455,484 | $253,625 | 79.6% | | Research and development | $6,000 | $233,918 | -97.4% | | General and administrative expenses | $193,503 | $243,626 | -20.6% | | Total Operating Expenses | $1,660,529 | $1,663,550 | -0.2% | - The increase in compensation expenses was mainly due to a $350,000 executive bonus and increased stock-based compensation, partially offset by a reduction in staff[162] - The sharp decrease in R&D expenses is attributed to the cessation of development on the Metaverse software project[165] Liquidity, Capital Resources and Plan of Operations As of March 31, 2025, the company held $1.27 million cash and $5.79 million short-term investments, with $6.51 million working capital, bolstered by a $4.53 million stock offering Liquidity Position as of March 31, 2025 | Item | Amount ($) | | :--- | :--- | | Cash and cash equivalents | $1,265,478 | | Short-term investments | $5,785,219 | | Working capital | $6,506,071 | - Net cash used in operating activities decreased to $1.41 million in Q1 2025 from $1.48 million in Q1 2024[175] - Net cash provided by financing activities was $4.38 million in Q1 2025, primarily from the sale of common stock, compared to $1.42 million in Q1 2024[180] Quantitative and Qualitative Disclosures About Market Risk As a 'smaller reporting company,' the company is exempt from providing quantitative and qualitative disclosures about market risk - As a 'smaller reporting company' as defined in Rule 12b-2 of the Exchange Act, the company is exempt from providing quantitative and qualitative disclosures about market risk[186] Controls and Procedures Management concluded disclosure controls and procedures were ineffective as of March 31, 2025, due to material weaknesses including lack of segregation of duties and inadequate controls, with remediation plans outlined - Management concluded that disclosure controls and procedures were not effective as of March 31, 2025[187] - The ineffectiveness was due to identified material weaknesses, including: - Lack of segregation of duties within accounting functions - Lack of multiple levels of management review on complex issues - Inadequate system and manual controls[189][192] - Remediation plans include the possible hiring of additional accounting and finance personnel and establishing better review and approval processes[189] PART II. OTHER INFORMATION Legal Proceedings The company reports no current material legal proceedings or claims that would adversely affect its business or financial condition - The company reports no current material legal proceedings[194] Risk Factors No material changes in risk factors are reported since the last Annual Report on Form 10-K - No material changes in risk factors are reported since the last Annual Report[195] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or common stock repurchases during the quarter ended March 31, 2025 - There were no unregistered sales of equity securities in the quarter[196] - The company did not repurchase any of its equity securities during the quarter[197] Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading plans or other trading arrangements during the quarter - No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during the quarter[200]