What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-31 compared with 2024-03-29 · 402 added, 410 removed, 17 unchanged (98% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

should read the following discussion and analysis of our financial condition and results of operations together with our consolidated

financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K.

In addition to historical information,

this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.

Our actual results

may differ materially from those discussed below.

Factors that could cause or contribute to such differences include, but are not limited

to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report

on Form 10-K.

All amounts in this report are in U.S.

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

You should read the following discussion and

analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes

appearing elsewhere in this Annual Report on Form 10-K.

In addition to historical information, this discussion and analysis contains

forward-looking statements that involve risks, uncertainties and assumptions.

Our actual results may differ materially from those discussed

Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those

discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on Form 10-K.

All amounts in this

report are in U.S.

dollars, unless otherwise noted.

are a blockchain, cybersecurity, and social media company that not only focuses on protecting privacy on personal devices, but also protects

user information after it is shared with others.

We believe that one’s right to privacy should not end the moment they click “send”,

and that we all deserve the same right to privacy online that we enjoy in our own living rooms.

Our flagship product, DatChat Messenger

& Private Social Network, is a privacy platform and mobile application that gives users the ability to communicate with the privacy

and protection they deserve.

Recently, we have expanded our business and product offerings to include the co-development of a mobile-based

social and gaming metaverse, known as “Habytat”, as well as the development of Museum, an a social network and multi-media

storage platform for consumers and enterprises.

Messenger & Private Social Network

platform allows users to exercise control over their messages and posts, even after they are sent.

Through our application, users can

delete messages that they have sent, on their own device and the recipient’s device as well.

There is no set time limit within

which they must exercise this choice.

A user can elect at any time to delete a message that they previously sent to a recipient’s

application also enables users to hide secret and encrypted messages behind a cover, which messages can only be unlocked by the recipient

and which are automatically destroyed after a fixed number of views or fixed amount of time.

Users can decide how long their messages

last on the recipient’s device.

The application also includes a screen shot protection system, which makes it virtually impossible

for the recipient to screenshot a message or picture before it gets destroyed.

In addition, users can delete entire conversations at

any time, making it like the conversation never even happened.

addition to the foregoing, the application also provides users with the ability to connect via an encrypted live video chat that also

is designed to prevent screenshots or screen grabs.

The application integrates with iMessage, making private messages potentially available

to hundreds of millions of users.

June 2022, we formed a wholly owned subsidiary, Dragon Interactive, Inc.

(formerly, SmarterVerse, Inc.) (“Dragon Interactive”).

In July 2022, Dragon Interactive entered into a development agreement with MetaBizz, LLC, an infrastructure firm that creates and develops

4D experiences in the metaverse (“MetaBizz”).

In August 2022, we launched the “Habytat”, a virtual space that

blends real world and virtual realities into one, in real time, using emerging technology like virtual and augmented reality, to create

a highly immersive 3D environment.

Habytat is supported by proprietary artificial intelligence (“AI”) and utilizes a machine

learning engine to develop more realistic looking content, daily rewards, games, and new utilities that are designed to further enhance

the user experience in an engaging way.

Our goal is to leverage our patents and develop new technology that leads to more people joining

and seeing the value in the metaverse.

Currently, the development agreement is not active.

Habytat user is granted user rights to use a designated piece of virtual property in Geniuz City, the first world within Habytat, through

the minting and issuance of a unique NFT.

Geniuz City is designed to be a near photo-realistic world based on Miami’s Wynwood arts

district and its surrounding areas.

Geniuz City enables users to visit art galleries, explore the town, interact with other users, take

selfies with famous landmarks, customize their properties and enjoy the culture of Geniuz City.

will be able to customize their virtual property to represent their personal style and taste.

Users will then be able to accumulate reward

points when they visit and interact with such virtual property or invite others to join Habytat, and such rewards can be used to enhance,

expand, and improve their virtual property.

The official in-world currency of Habytat is the “Nirad,” which can be earned

through participation on the DatChat Social Network+ or Habytat and used to upgrade properties and experiences in Habytat.

of March 28, 2024, we had over 140,000 Habytat users.

May 2023, we launched the open mobile metaverse, Habytat 1.0, as part of our mission to democratize access to the metaverse.

that by making Habytat available via mobile devices and offering free ownership of virtual land and homes, that Habytat will break down

obstacles that previously limited participation, such as the necessity for expensive virtual reality (“VR”) gear or metaverse

We have assembled a team of over twenty game developers, graphic artists and back-end developers to create Habytat 1.0.

August 2023, we launched a series of novel AI-powered pets called “HabyPets.” HabyPets provides an interactive experience

within the Habytat world, creating a more immersive and personal experience for users.

Supported by Habytat’s proprietary AI and

machine learning engine, HabyPets grow over time from playful companions to mature adult pets.

Similar to real-life pets, these AI pets

can be trained by users via a range of behavioral commands, replicating the natural progression of real pets over time.

These include,

but are not limited to, catching frisbees, playing with toys, engaging in tug of war, and even participating in thrilling races with

other pets at the park.

By actively engaging with their pets, users can establish a connection and provide proper care for their virtual

companions, fostering a realistic experience within the Habytat metaverse.

are currently developing “Myseum,” a platform that will allow users to create a personal museum designed to easily share

pictures, videos and documents utilizing planned features, such as creating instant sharing spaces at family gatherings, time released

video messages, multi-tiered social media, and secure family document storage and sharing.

Currently, Myseum is scheduled to launch in

the second quarter of 2024 and will encompass features and social networking technology designed to unlock and share digital media.

and Name Change

In January 2024, we announced plans to spin-off the

Habytat platform business into a new standalone public company pursuant to a distribution as further discussed below.

As of the date of

this Annual Report, we currently own approximately 71.5% of Dragon Interactive, the entity that owns and operates the Habytat platform

This marked a significant step forward in our corporate strategy to reposition the Company as a pureplay social media ecosystem

centered around our Myseum assets.

In February 2024, Darin Myman was appointed as President

of SmarterVerse.

In February 2024, SmarterVerse changed its name to

Dragon Interactive Corporation.

If the distribution proceeds, our shareholders will

maintain their current shares in the Company and receive a pro-rata distribution of a portion of our shares of Dragon Interactive.

proposed distribution remains subject to approval by our board of directors as well as other customary conditions, including the filing

and effectiveness of either a Form S-1 or Form 10 registration statement with the U.S.

Securities and Exchange Commission and obtaining

of any other required regulatory approvals.

Upon consummation of the proposed distribution, Dragon Interactive would become a standalone

public company with plans seek a listing on a national stock exchange.

No assurance can be given that the spin-off and/or the distribution

will occur as anticipated or at all.

January 16, 2024, we entered into an underwriting agreement with EF Hutton LLC, as the representative of the underwriters named therein,

relating to an underwritten public offering of 382,972 shares of our common stock and pre-funded warrants to purchase up 590,000 shares

of our common stock for gross proceeds of approximately $1.8 million, before deducting underwriting discounts and commissions and estimated

offering expenses payable by the Company.

and Uncertainties

In February 2022, the Russian Federation and Belarus commenced a military

action with the country of Ukraine.

As a result of this action, various nations, including the United States, have instituted economic

sanctions against the Russian Federation and Belarus.

Further, the impact of this action and related sanctions on the world economy is

not determinable as of the date of these consolidated financial statements, and the specific impact on the Company’s financial condition,

results of operations, and cash flows is also not determinable as of the date of these financial statements.

August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law.

The IR Act provides for,

among other things, a new U.S.

federal 1% excise tax on certain repurchases of stock by publicly traded U.S.

domestic corporations and

domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023.

The excise tax is imposed

on the repurchasing corporation itself, not its shareholders from which shares are repurchased.

The amount of the excise tax is generally

1% of the fair market value of the shares repurchased at the time of the repurchase.

However, for purposes of calculating the excise

tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value

of stock repurchases during the same taxable year.

In addition, certain exceptions apply to the excise tax.

Department of the

Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the

abuse or avoidance of the excise tax.

continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that

the virus could have a negative effect on the Company’s financial position and results of its operations, the specific impact is

not readily determinable as of the date of these financial statements.

These financial statements do not include any adjustments that

might result from the outcome of this uncertainty.

of Presentation

financial statements contained herein have been prepared in accordance with accounting principles generally accepted in the United States

of America (the “U.S.

GAAP”) and the requirements of the Securities and Exchange Commission.

We are a private messaging, cybersecurity, and

social media company that not only focuses on protecting privacy on personal devices, but also protects user information after it is shared

We believe that one’s right to privacy should not end the moment they click “send”, and that we all deserve

the same right to privacy online that we enjoy in our own living rooms.

Our flagship product, DatChat Messenger & Private Social Network,

is a privacy platform and mobile application that gives users the ability to communicate with the privacy and protection they deserve.

Recently, we have expanded our business and product offerings to include the development of our Myseum platform, a secure digital content

management and storage solution for families, groups and individuals.

In addition, as a result of our acquisition of RPM Interactive,

in October 2024, we have repositioned our majority-owned subsidiary, Dragon Interact, Inc.

(recently renamed RPM Interactive, Inc.)

away from the development of the Habytat platform to focus on becoming an AI generated publishing company of trivia mobile game apps and

vodcasts/podcasts designed to publish content across hundreds of evergreen topics every day and be distributed to all major streaming

See “Business – RPM Interactive, Inc.” and “Business – The Habytat.”

DatChat Messenger & Private Social Network

Our platform allows users to exercise control

over their messages and posts, even after they are sent.

Through our application, users can delete messages that they have sent, on their

own device and the recipient’s device as well.

There is no set time limit within which they must exercise this choice.

elect at any time to delete a message that they previously sent to a recipient’s device.

The application also enables users to hide secret

and encrypted messages behind a cover, which messages can only be unlocked by the recipient and which are automatically destroyed after

a fixed number of views or fixed amount of time.

Users can decide how long their messages last on the recipient’s device.

The application

also includes a screen shot protection system, which makes it virtually impossible for the recipient to screenshot a message or picture

before it gets destroyed.

In addition, users can delete entire conversations at any time, making it like the conversation never even happened.

In addition to the foregoing, the application

also provides users with the ability to connect via an encrypted live video chat that also is designed to prevent screenshots or screen

The application integrates with iMessage, making private messages potentially available to hundreds of millions of users.

Myseum Social Media Platform

We recently launched our Myseum social media platform,

an innovative social media platform that brings a fresh approach to digital media and content management,

allowing users to create a digital legacy that can be easily shared today and with future generations.

Backed by AI technology and proprietary

software, the multi-tiered social media ecosystem enables individuals, families, and other groups to store and share digital content such

as messages, photos, videos, and documents within a highly secure and private family library.

Myseum allows users to create amazing

albums and galleries for everyone to see, create special private and secure galleries with limited access, personalize a user’s

newsfeed with updates from other Myseums and leave time released video messages for both now and future generations.

RPM Interactive, Inc.

In October 2024, our majority owned subsidiary,

Dragon Interact, Inc.

(“Dragon”), e ntered into a Share Exchange Agreement with RPM Interactive,

Inc., a Florida corporation (“RPM”), pursuant to which Dragon acquired 100% of the equity interests of RPM, including all

assets of RPM in consideration for the issuance of 3,500,000 restricted shares of Dragon’s common stock.

RPM’s assets included

an artificial intelligence (“AI”) tool used for publishing AI-generated consumer gaming and podcasting/vodcasting applications

and certain intellectual property.

As part of the acquisition, Dragon has changed its corporate name to RPM Interactive, Inc.

Interactive”) and shifted its focus to developing AI-driven podcast and gaming technologies.

the acquisition, i n January 2025, we returned 3,500,000 shares of the RPM Interactive common stock held by us to RPM Interactive,

which shares were cancelled and are no longer outstanding on RPM Interactive’s stock ledger.

Following these transactions, we hold

9,000,000 shares of the RPM Interactive’s common stock, or approximately 34% of its outstanding shares.

Prior ot the acquisition of RPM, we had developed

and launched, in November 2022, the Habytat, a virtual space that blends real world and virtual realities into one, in real time, using

emerging technology like virtual and augmented reality, to create a highly immersive 3D environment.

We had further contemplated spinning-off

our Habytat platform business into a new standalone public company pursuant to a distribution of the shares of the our shareholders.

discussed above, following our acquisition of RPM in October 2024, we ceased our development of the Habytat platform and are evaluating

ways to utilize the technology that had been developed by our subsidiary.

Recent Events

Return of Subsidiary Shares

In January 2025, we returned 3,500,000 shares

of the Subsidiary’s.

common stock held by us to the Subsidiary, which shares were cancelled and are no longer outstanding on the

Subsidiary’s stock ledger.

Following this transaction, we held 12.5 million shares of the Subsidiary’s common stock, or approximately

34% of its outstanding shares.

January 2025 Offering

On January 8, 2025, we entered into a securities purchase agreement

with certain institutional investors, pursuant to which we sold 1,200,000 shares of our common stock at a purchase price of $4.25 per

share of Common Stock.

Proceeds from the offering were approximately $5.1 million, prior to deducting placement agent’s fees and

other offering expenses payable by the Company.

The shares of Common Stock were offered by the Company pursuant to its shelf registration

statement on Form S-3 (File No.

333-268058), which was declared effective by the Securities and Exchange Commission on December 6, 2022,

a base prospectus dated December 6, 2022, and a prospectus supplement dated January 8, 2025.

The closing of the offering took place on

January 9, 2025.

In addition, pursuant to the terms of the offering, the Company issued to The Benchmark Company, LLC, the exclusive placement

agent for the offering, warrants to purchase up to 60,000 shares of the Company’s common stock, at an exercise price equal

to 100.0% of the offering price per share of Common Stock, or $4.25 per share.

The Placement Agent Warrant is exercisable during the four-and-a-half

year period commencing six months after the date of the closing of this Offering.

Basis of Presentation

The financial statements contained herein have

been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S.

and the requirements of the Securities and Exchange Commission.

Critical Estimates

management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which

have been prepared in accordance with U.S.

The preparation of these consolidated financial statements requires us to make estimates

and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date

of the consolidated financial statements, and the reported amounts of revenue and expenses during the reported period.

In accordance

GAAP, we base our estimates on historical experience and on various other assumptions we believe to be reasonable under the

circumstances.

Actual results may differ from these estimates if conditions differ from our assumptions.

While our significant accounting

policies and significant estimates are more fully described in Note 1 in the “Notes to Financial Statements”, we believe

the following estimates are critical to the process of making significant judgments and estimates in preparation of our consolidated

financial statements.

for digital currencies and other digital assets

Company purchases Ethereum cryptocurrency (“Ethereum”) and other digital assets and accepts Ethereum as a form of payment

for non-fungible tokens sales (NFTs).

The Company accounts for these digital assets held as the result of the purchase or receipt of

Ethereum and other digital assets, as indefinite-lived intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other

The Company has ownership of and control over its digital currencies and digital assets and the Company may

use third-party custodial services to secure them.

The digital currencies and digital assets are initially recorded at cost and are subsequently

remeasured, net of any impairment losses incurred since acquisition.

The Company believes that digital currencies and other digital assets

meet the definition of indefinite-lived intangible assets and accounts for them at historical cost less impairment, applying the guidance

The Company monitors any standard-setting, regulatory or technological developments that may affect the Company’s accounting

for digital currencies or its controls and processes related to digital currencies.

Digital currencies are included in long-term assets

in the consolidated balance sheet.

Company determines the fair value of its digital currencies and other digital assets on a nonrecurring basis in accordance with ASC 820,

Fair Value Measurement, based on quoted prices on the active exchange(s) that it has determined is the principal market for Ethereum

(Level 1 inputs) and other digital assets.

The Company performs an analysis each quarter to identify whether events or changes in circumstances,

principally decreases in the quoted prices on active exchanges, indicate that it is more likely than not that its digital assets are

In determining if an impairment has occurred, the Company considers the lowest market price quoted on an active exchange since

acquiring the respective digital asset.

If the then current carrying value of a digital asset exceeds the fair value, an impairment loss

has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the fair value.

The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted

upward for any subsequent increase in fair value.

Gains are not recorded until realized upon sale, at which point they are presented

net of any impairment losses for the same digital assets held.

In determining the gain or loss to be recognized upon sale, the Company

calculates the difference between the sales price and carrying value of the digital assets sold immediately prior to sale.

losses and gains or losses on sales are recognized within operating expenses in the consolidated statements of operations.

year ended December 31, 2022, the Company recorded an impairment loss of $119,276.

internal-use software costs

incurred to develop internal-use software including Metaverse software development, are expensed as incurred during the preliminary project

Internal-use software development costs are capitalized during the application development stage, which is after:

(i) the preliminary

project stage is completed;

and (ii) management authorizes and commits to funding the project and it is probable the project will be

completed and used to perform the function intended.

Capitalization ceases at the point the software project is substantially complete

and ready for its intended use, and after all substantial testing is completed.

Upgrades and enhancements are capitalized if it is probable

that those expenditures will result in additional functionality.

Amortization is provided for on a straight-line basis over the expected

useful life of the internal-use software development costs and related upgrades and enhancements.

When existing software is replaced

with new software, the unamortized costs of the old software are expensed when the new software is ready for its intended use.

development costs incurred during the year ended December 31, 2023 and 2022 were expensed since the Metaverse software development project

is in the preliminary project stage.

Such costs are included in research and development costs on the accompanying consolidated statement

of operations.

This management’s discussion and analysis

of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported

amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements,

and the reported amounts of revenue and expenses during the reported period.

In accordance with U.S.

GAAP, we base our estimates on historical

experience and on various other assumptions we believe to be reasonable under the circumstances.

Actual results may differ from these

estimates if conditions differ from our assumptions.

While our significant accounting policies and significant estimates are more fully

described in Note 2 in the “Notes to Financial Statements”, we believe the following estimates are critical to the process

of making significant judgments and estimates in preparation of our consolidated financial statements.

Capitalized internal-use software costs

We capitalize costs to develop or purchase internal-use software in

accordance with ASC section 350-40, Intangibles — Goodwill and Other — Internal-Use Software .

Costs incurred to develop internal-use software are expensed as incurred during the preliminary project stage.

Internal-use software development

costs are capitalized upon purchase and during the application development stage, which is after:

(i) the preliminary project stage is

and (ii) management authorizes and commits to funding the project and it is probable the project will be completed and used

to perform the intended function.

Capitalization ceases at the point where the software project is substantially complete and ready for

its intended use, and after all substantial testing is completed.

Upgrades and enhancements are capitalized if it is probable that those

expenditures will result in additional functionality.

Amortization is provided for on a straight-line basis over the expected useful life

of the internal-use software development costs and related upgrades and enhancements.

When existing software is replaced with new software,

the unamortized costs of the old software are expensed when the new software is ready for its intended use.

Software development costs

incurred during the year ended December 31, 2024 and 2023 were expensed since the Metaverse software development project is in the preliminary

project stage.

Such costs are included in research and development costs on the accompanying consolidated statement of operations.

Variable interest entities

6 unchanged sentences

of the total financial support to the entity, and (iii) substantially all of the activities of the VIE are conducted on its behalf.

VIE is consolidated by its primary beneficiary, the party that has the power to direct the activities that most significantly impact the

VIE’s economic performance and has the right to receive benefits or the obligation to absorb losses of the entity that could be

potentially significant to the VIE.

VIE is consolidated by its primary beneficiary, the party that has the power to direct the activities that most significantly impact

the VIE’s economic performance and has the right to receive benefits or the obligation to absorb losses of the entity that could

be potentially significant to the VIE.

The primary beneficiary assessment must be re-evaluated on an ongoing basis.

1 unchanged sentence

14, 2023, Metabizz, LLC, a Florida corporation, and Metabizz SAS, a company incorporated under the laws of Columbia (collectively “Metabizz”),

were determined to be VIE entities in accordance with ASC 810-10-25-22 because the equity owners in Metabizz do not have the characteristics

of a controlling financial interest and the initial equity investments in these entities may be or are insufficient to meet or sustain

its operations without additional subordinated financial support from DatChat.

The equity owners of Metabizz have only a nominal equity

investment at risk, and the Company absorbs or receives a majority of the entity’s expected losses or benefits.

The Company participates

significantly in the design of Metabizz.

The Company has provided working capital advances to Metabizz to allow Metabizz to fund its day

to day obligations.

Substantially all of the activities of Metabizz are conducted for the Company’s benefit, as evidenced by the

fact that the operations of Metabizz consists of development of software and technologies to be used by SmarterVerse and the Company provides

work capital to Metabizz to pay employees and independent contractors to perform the development services on behalf of the Company.

of the working capital advances is not guaranteed by the equity owner of Metabizz and creditors of Metabizz do not have recourse against

Accordingly, the Company is required to consolidate the assets, liabilities, revenues and expenses of Metabizz using the

fair value method.

Additionally, the managing partner of Metabizz is also the Chief Innovation Officer of SmarterVerse.

Since Metabizz,

LLC and Metabizz SAS are considered VIE’s, any noncontrolling interest eliminates in consolidation.

In connection with the initial consolidation of

Metabizz, on February 14, 2023 (the initial consolidation date), the Company recorded a gain on initial consolidation of variable interest

entities of $42,737.

compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718, “Compensation — Stock

Compensation” (“ASC 718”), which requires recognition in the financial statements of the cost of employee, non-employee

and director services received in exchange for an award of equity instruments over the period the employee, non-employee or director

is required to perform the services in exchange for the award (presumptively, the vesting period).

ASC 718 also requires measurement

of the cost of employee, non-employee, and director services received in exchange for an award based on the grant-date fair value of

applied ASC Topic 842, Leases (Topic 842) to arrangements with lease terms of 12 months or more.

Operating lease right of use assets

(“ROU”) represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based

on the present value of the future minimum lease payments over the lease term at commencement date.

As most leases do not provide an

implicit rate, we use an incremental borrowing rate based on the information available at the adoption date in determining the present

value of future payments.

Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included

in general and administrative expenses in the statements of operations.

Issued Accounting Pronouncements

to the notes to the audited financial statements.

of Operations

the years ended December 31, 2023 and 2022, we generated revenues of $672 and $46,214, respectively.

For the year ended December 31,

2022, revenues consisted of subscription revenues of $9,820 and revenues from the sale of NFT’s of $36,394, as compared to $672

of revenues from subscriptions for the year ended December 31, 2023.

We do not expect to generate any revenues from the sale of NFT’s

in the near future.

the year ended December 31, 2023, operating expenses amounted to $8,784,703 as compared to $12,272,939 for the year ended December 31

2022, a decrease of $3,488,236, or 28.4%.

For the years ended December 31 2023 and 2022, operating expenses consisted of the following:

Ended December 31,

and related expenses

and advertising expenses

and consulting expenses

and development

and administrative expenses

loss on property and equipment and intangible assets

loss on digital currencies and other digital assets

and related expenses

and related expenses include salaries, stock-based compensation, health insurance and other benefits.

the year ended December 31, 2023 and 2022, compensation and related expenses amounted to $4,760,180 and $6,551,776, respectively, a decrease

of $1,791,596, or 27.3%.

The decrease was attributable to a decrease in stock-based compensation of $1,170,624 and a decrease in other

compensation and other related expenses of $620,972.

and advertising expenses

the years ended December 31, 2023 and 2022, marketing and advertising expenses amounted to $388,444 and $828,736, respectively, a decrease

of $440,292, or 53.1%, primarily due to an overall decrease in promotions, branding and digital marketing strategies and social media

and consulting expenses

the years ended December 31, 2023 and 2022, we reported professional and consulting expenses of $1,324,640 and $2,285,312, respectively,

a decrease of $960,672, or 42.0%.

The decrease is attributable to a decrease in consulting fees of $154,396 which includes a decrease

in stock-based consulting fees of $96,431, a decrease in investor relations fees of $295,850, a decrease in legal fees of $224,180, and

a decrease in recruiting fees of $322,000, offset be an increase in other professional fees of $35,754.

and development costs

the years ended December 31, 2023 and 2022, we incurred $1,351,415 and $514,957 in research and development costs, an increase of $836,458,

Research and development costs were incurred in connection with our Metaverse software development project, including the

development of Habytat which is in the preliminary stage.

and administrative expenses

the years ended December 31, 2023 and 2022, general and administrative expenses amounted to $892,972 and $991,882, a decrease of $98,910,

The decreases are primarily attributable to a decrease in conference fees and a decrease in other general and administrative

expenses, offset by an increase in travel expense.

loss on property and equipment and intangible assets

the year ended December 31, 2023, we wrote off the balance of property and equipment held by MetaBizz since the property and equipment

was abandoned and no longer being used by the Company as of December 31, 2023.

Accordingly, we recognized an impairment loss on property

and equipment of $43,671.

the year ended December 31, 2022, we concluded that the undiscounted cash flows did not support the carrying values of its intangible

assets as of December 31, 2022.

We determined the value of the patents acquired were fully impaired as of December 31, 2022 and recognized

an impairment loss on its long-lived intangible assets of $981,000.

loss on digital currencies and other digital assets

the years ended December 31, 2023 and 2022, operating expenses included an impairment charge related to the write down of digital assets

of $23,381 and $119,276, respectively.

from Operations

the year ended December 31, 2023, loss from operation amounted to $8,784,031 as compared to $12,226,725 during the year ended December

31, 2022, a decrease of $3,442,694, or 28.2%.

Income (Expense)

income (expenses) primarily consisted of interest income, gain on initial consolidation of variable interest entities, and realized gain

on short-term investments and unrealized gains or losses on short-term investments.

were determined to be VIE entities in accordance with ASC 810-10-25-22 because the equity owners in Metabizz did not have the

characteristics of a controlling financial interest and the initial equity investments in these entities may be or were insufficient

to meet or sustain its operations without additional subordinated financial support from DatChat.

The equity owners of Metabizz had only

a nominal equity investment at risk, and the Company absorbed or received a majority of the entity’s expected losses or benefits.

The Company participated significantly in the design of Metabizz.

The Company provided working capital advances to Metabizz to allow

Metabizz to fund its day-to-day obligations.

Substantially all of the activities of Metabizz were conducted for the Company’s benefit,

as evidenced by the fact that the operations of Metabizz consisted of development of software and technologies to be used by RPM Interactive

and the Company provided working capital to Metabizz to pay employees and independent contractors to perform the development services

on behalf of the Company.

Repayment of the working capital advances is not guaranteed by the equity owner of Metabizz and creditors of

Metabizz do not have recourse against the Company.

Accordingly, the Company was required to consolidate the assets, liabilities, revenues

and expenses of Metabizz using the fair value method.

Additionally, the managing partner of Metabizz was also the Chief Innovation Officer

of RPM Interactive.

Since Metabizz, LLC and Metabizz SAS were considered VIE’s, any noncontrolling interest eliminated in consolidation.

In connection with the initial consolidation of Metabizz, on February 14, 2023 (the initial consolidation date), the Company recorded

a gain on initial consolidation of variable interest entities of $42,737.

On March 31, 2024, based on the Company’s

analysis, the Company deconsolidated Metabizz, LLC and Metabizz SAS.

During the three months ended March 31, 2024, the Company ceased

doing business with Metabizz, LLC and Metabizz SAS and will pay technology professionals directly.

In connection with the deconsolidation

of Metabizz, LLC and Metabizz SAS, during the nine months ended September 30, 2024, the Company recorded a gain on deconsolidation of

On August 27, 2024, the Company entered into

an Asset Purchase Agreement with the Seller, pursuant to which it acquired from Seller the Assets (See Note 1) in consideration for the

transfer by the Company of 8,000,000 restricted shares of common stock of RPM Interactive.

Accordingly, as of September 30, 2024, the

Company owned 45.5% of RPM Interactive.

On August 27, 2024, based on the Company’s analysis, the Company determined that RPM Interactive

met the definition of a VIE under the VIE model, which provides for situations in which control may be demonstrated other than by the

possession of voting rights in RPM Interactive.

Based on Company’s analysis, the Company continues to have the power to direct

the activities of RPM Interactive that most significantly impact RPM Interactive’s economic performance and the obligation to absorb

losses of RPM Interactive that could potentially be significant to RPM Interactive or the right to receive benefits from RPM Interactive

that could potentially be significant to RPM Interactive.

Stock-based compensation

Stock-based compensation is accounted for based

on the requirements of the Share-Based Payment Topic of ASC 718, “Compensation — Stock Compensation” (“ASC 718”),

which requires recognition in the financial statements of the cost of employee, non-employee and director services received in exchange

for an award of equity instruments over the period the employee, non-employee or director is required to perform the services in exchange

for the award (presumptively, the vesting period).

ASC 718 also requires measurement of the cost of employee, non-employee, and director

services received in exchange for an award based on the grant-date fair value of the award.

The fair value of each option granted is

estimated as of the date of grant using the Black-Scholes-Merton option-pricing model, net of actual forfeitures.

The fair value is amortized

as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period.

The Black-Scholes-Merton option-pricing model includes various assumptions, including the fair market value of our common stock, the

expected life of stock options, the expected volatility, and the expected risk-free interest rate, among others.

These assumptions reflect

our best estimates, but they involve inherent uncertainties based on market conditions generally outside of our control.

if other assumptions had been used, stock-based compensation expense, as determined in accordance with authoritative guidance, could

have been materially impacted.

Furthermore, if we use different assumptions on future grants, stock-based compensation expense could

be materially affected in future periods.

Noncontrolling interests

The Company follows ASC Topic 810, “Consolidation,”

governing the accounting for and reporting of noncontrolling interests (“NCI”) in partially owned consolidated subsidiaries

and the loss of control of subsidiaries.

Certain provisions of this standard indicate, among other things, that NCI be treated as a separate

component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact

be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated

subsidiary be allocated to noncontrolling interests even when such allocation might result in a deficit balance.

The net loss attributed

to NCI was separately designated in the accompanying consolidated statements of operations and comprehensive loss.

Losses attributable

to NCI in a subsidiary may exceed a NCI’s interests in the subsidiary’s equity.

The excess attributable to NCI is attributed

to those interests.

NCI shall continue to be attributed their share of losses even if that attribution results in a deficit NCI balance.

The Company allocates certain corporate common

expenses to its subsidiaries based on the ratio of direct subsidiary expenses to total consolidated expenses.

Management believes that

this allocation method is reasonable.

The Company accounts for it noncontrolling interest in RPM Interactive

in accordance with ASC Topic 810-10-45, which requires the Company to present noncontrolling interests as a separate component of total

shareholders’ equity on the consolidated balance sheets and the consolidated net loss attributable to its noncontrolling interest

be clearly identified and presented on the face of the consolidated statements of operations.

Through January 10, 2024, the date that

VR Interactive purchased 8,000,000 shares of RPM Interactive from Metabizz LLC, any noncontrolling interest eliminated in consolidation.

Because this change in ownership moved from a consolidated entity (the VIE entities) to a nonconsolidated entity (VR Interactive), subsequent

to January 10, 2024 the Company ceased eliminating the noncontrolling interest in consolidation and recorded an initial negative noncontrolling

interest of $442,361 in total equity for the portion of equity ownership not attributable to DatChat based on the minority interest holders’

ownership interest in the carrying value of RPM Interactive’s equity.

Additionally, during the year ended December 31, 2024, the

Company recorded additional initial negative noncontrolling interest of $909,581 in total equity for the portion of additional equity

ownership not attributable to the Company based on this minority interest holders’ ownership interest in the carrying value of RPM

Interactive’s equity.

The Company also allocated $785,847 of the net loss of the subsidiary to noncontrolling interest resulting

in a total noncontrolling interest deficit of $2,137,789 as of December 31, 2024.

Recently Issued Accounting Pronouncements

Refer to the notes to the audited financial statements.

Results of Operations

During the years ended December 31, 2024 and

we reported other income, net of $379,061 and $88,153, respectively.

During the year ended December 31, 2023, other income, net primarily

consisted of interest income of $9,281, gain on initial consolidation of variable interest entities of $42,737, and a realized gain on

short-term investments of $327,145.

During the year ended December 31, 2022, other income primarily consisted of interest income of $12,305,

a realized gain on short-term investments of $28,176, and an unrealized gain on short-term investments of $47,672.

to the foregoing reasons, during the years ended December 31, 2023 and 2022, our net loss was $8,404,970, or $(4.14) per common share

(basic and diluted) and $12,138,572, or ($6.04) per common share (basic and diluted), respectively, a decrease of $3,733,602, or 30.8%.

Capital Resources and Plan of Operations

of December 31, 2023, we had cash and cash equivalents of $953,362 and short-term investments of $5,236,781.

Short-term investments include

Treasury bills that are all highly rated and have initial maturities between four and twelve months.

The consolidated financial statements have been

prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the

normal course of business.

As reflected in the accompanying consolidated financial statements, we had a net loss of $8,404,970 for the

2023, we generated revenues of $436 and $672, respectively, which consisted of subscription revenues.

Operating expenses

For the year ended December 31, 2024, operating expenses amounted to

$5,281,339 as compared to $8,784,703 for the year ended December 31 2023, a decrease of $3,503,364, or 39.9%.

For the years ended December

31 2024 and 2023, operating expenses consisted of the following:

Year Ended December 31,

Net cash used in operations was $6,529,277 for the year ended December 31, 2023.

Additionally, as of

December 31, 2023, we had an accumulated deficit of $48,134,088 and have generated minimal revenues since inception.

As of December 31,

2023, we had working capital of $5,969,447, including cash of $953,362 and short-term investments of $5,236,781.

These factors raise substantial

doubt about our ability to continue as a going concern for a period of twelve months from the issuance date of this report.

cannot provide assurance that we will ultimately achieve profitable operations or become cash flow positive or raise additional debt and/or

equity capital.

We are seeking to raise capital through additional debt and/or equity financings to fund our operations in the future.

Although we have historically raised capital from sales of common shares, there is no assurance that it will be able to continue to do

If we are unable to raise additional capital or secure additional lending in the near future, management expects that the Company

will need to curtail its operations.

These consolidated financial statements do not include any adjustments related to the recoverability

and classification of assets or the amounts and classification of liabilities that might be necessary should we be unable to continue

as a going concern.

On January 16, 2024, we entered into an underwriting

agreement (the “Underwriting Agreement”) with EF Hutton LLC (the “Representative”), as the representative of the

underwriters named therein (the “Underwriters”), relating to an underwritten public offering (the “Offering”)

of 382,972 shares of the Company’s common stock (the “Shares”) and pre-funded warrants to purchase up to 590,000 shares

of Common Stock (the “Pre-Funded Warrants”).

The public offering price for each share of Common Stock was $1.85 for aggregate

gross proceeds of $708,498, and public offering price for the Pre-Funded Warrants was $1.8499 for each Pre-Funded Warrant for aggregate

gross proceeds of $1,091,441.

In connection with this Offering, we raised aggregate gross proceeds of $1,799,939 and received net proceeds

of $1,437,940, net of Underwriters discounts and offering costs of $261,999 and legal fees of $100,000.

primary uses of cash have been for compensation and related expenses, fees paid to third parties for professional services, marketing

and advertising expenses, and general and administrative expenses.

All funds received have been expended in the furtherance of growing

the business.

We received funds from the sale of our common stock and the exercise of warrants.

The following trends are reasonably likely

to result in changes in our liquidity over the near to long term:

An increase in working

capital requirements to finance our current business,

Compensation and related expenses

Marketing and advertising expenses

Professional and consulting expenses

Research and development

General and administrative expenses

Impairment loss on property and equipment and intangible assets

Impairment loss on digital currencies and other digital assets

Compensation and related expenses

Compensation and related expenses include salaries,

stock-based compensation, health insurance and other benefits.

During the year ended December 31, 2024 and 2023,

compensation and related expenses amounted to $2,320,127 and $4,760,180, respectively, a decrease of $2,440,053, or 51.3%.

was attributable to a decrease in stock-based compensation of $1,985,961 and a decrease in other compensation and other related expenses

of $454,092 related to a reduction in staff.

Marketing and advertising expenses

During the years ended December 31, 2024 and 2023, marketing and advertising

expenses amounted to $128,656 and $388,444, respectively, a decrease of $259,788, or 67.0%, primarily due to an overall decrease in promotions,

branding and digital marketing strategies and social media ads.

Professional and consulting expenses

During the years ended December 31, 2024 and 2023, we reported professional

and consulting expenses of $1,031,898 and $1,324,640, respectively, a decrease of $292,742, or 22.1%.

The decrease is attributable to

a decrease in consulting fees of $96,202, which includes a decrease in stock-based consulting fees of $144,818, offset by an increase

in other consulting fees of $48,616, a decrease in investor relations fees of $224,026, a decrease in legal fees of $27,195, and a decrease

in other professional fees of $43,970, offset by an increase in accounting fees of $98,651.

Research and development costs

During the years ended December 31, 2024 and

2023, we incurred $857,668 and $1,351,415 in research and development costs, a decrease of $493,747, or 36.5%.

Research and development

costs were incurred in connection with our Metaverse software development project, including the development of Habytat which is in the

preliminary stage.

During the year ended December 31, 2024, we ceased development of our Metaverse software.

General and administrative expenses

During the years ended December 31, 2024 and 2023, general and administrative

expenses amounted to $942,990 and $892,972, an increase of $50,018, or 5.6%.

The increases are primarily attributable to an increase in

computer and internet expenses of approximately $54,000.

Impairment loss on property and equipment

and intangible assets

During the year ended December 31, 2023, we wrote

off the balance of property and equipment held by MetaBizz since the property and equipment was abandoned and no longer being used by

the Company as of December 31, 2023.

Accordingly, we recognized an impairment loss on property and equipment of $43,671.

We did not recognize

any impairment loss on property and equipment during the year ended December 31, 2024.

Impairment loss on digital currencies and

other digital assets

During the year ended December 31, 2024 and 2023,

operating expenses included an impairment charge related to the write down of digital assets of $0 and $23,381, respectively.

Loss from Operations

During the year ended December 31, 2024, loss from operation amounted

to $5,280,903 as compared to $8,784,031 during the year ended December 31, 2023, a decrease of $3,503,128, or 39.9%.

Other Income (Expense)

Other income (expenses) primarily consisted of interest income, gain

on initial consolidation of variable interest entities, a forerign curreny exchange loss, a gain on deconsolidation of variable interest

entities, and realized gains on short-term investments.

During the years ended December 31, 2024 and 2023, we reported other income, net

of $255,896 and $379,061, respectively.

During the year ended December 31, 2024, other

income, net primarily consisted of interest income of $268,754, a gain on deconsolidation of variable interest entities of $107, and

a foreign currency exchange loss of $12,965.

During the year ended December 31, 2023, other income, net primarily consisted of interest

income of $384,098, a gain on initial consolidation of variable interest entities of $42,737, a foreign currency exchange loss of $102,

and a realized loss on short-term investments of $47,672.

Net Loss and Net Loss Attributable Common

Due to the foregoing reasons, during the years ended December 31, 2024

and 2023, our net loss was $5,025,007 and $8,404,970, respectively, a decrease of $3,379,963, or 40.2%.

During the year ended December

31, 2024 and 2023, we adjusted net loss for the net loss of subsidiary attributable to noncontrolling interest by $785,847 and $0, respectively

Accordingly, during the years ended December 31, 2024 and 2023, our net loss attributable to common shareholders was $4,239,160, or $(1.43)

per common share (basic and diluted) and $8,404,970, or $(4.14) per common share (basic and diluted), respectively, a decrease of $4,165,810,

Liquidity, Capital Resources and Plan of Operations

As of December 31, 2024, we had cash and cash

equivalents of $1,196,699 and short-term investments of $2,952,512.

Short-term investments include U.S.

Treasury bills that are all highly

rated and have initial maturities between four and twelve months.

The accompanying consolidated financial statements have been prepared

on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course

As of December 31, 2024, we had cash and cash equivalents of $1,196,699, short-term investments of $2,952,512, and working

capital of $3,657,711.

Short-term investments include U.S.

Treasury zero coupon bills that are all highly rated and have initial maturities

between four and twelve months.

Additionally, on January 8, 2025, the Company entered into a securities purchase agreement (the “Purchase

Agreement”) with certain institutional investors pursuant to which the Company agreed to sell to such investors 1,200,000 shares

of common stock of the Company at a purchase price of $4.25 per share of Common Stock (the “Offering”).

The closing of the

sales of these securities under the Purchase Agreement took place on January 9, 2025 and we received net proceeds of $4,537,000.

used in operations was $4,388,385 for the year ended December 31, 2024.

Until such time that the Company implements its growth strategy,

it expects to continue to generate operating losses in the foreseeable future, mostly due to corporate overhead, research and development,

and costs of being a public company.

We believe that our existing working capital and cash on hand will provide sufficient cash to enable

the Company to meet its operating needs and debt requirements for the next twelve months from the issuance date of this report.

Our primary uses of cash have been for research

and development, compensation and related expenses, fees paid to third parties for professional services, marketing and advertising expenses,

and general and administrative expenses.

All funds received have been expended in the furtherance of growing the business.

funds from the sale of our common stock, sale of common stock in our subsidiary, RPM Interactive, and the exercise of warrants.

The following

trends are reasonably likely to result in changes in our liquidity over the near to long term:

An increase in working capital requirements to finance our current

Cost of research and development,

Addition of administrative,

technical and sales personnel as the business grows, and

The cost of being a public

Flow Activities for the Years ended December 31, 2023 and 2022

Flows from Operating Activities

Net cash used in operating activities totaled $6,529,277 and $7,258,765

for the years ended December 31, 2023, and 2022, respectively, a decrease of $729,488.

cash flow used in operating activities for the year ended December 31, 2023 primarily reflected a net loss of $8,404,970 adjusted for

the add-back (reduction) of non-cash items consisting of depreciation and amortization of $28,943, amortization of right of use assets

of $60,549, accretion of stock-based stock option and common stock expense of $2,254,079, a non-cash gain from initial consolidation

of variable interest entities of $(42,737), impairment loss on digital assets of $23,381, impairment of property and equipment of $43,671,

and net realized gain on short-term investments of $327,145, offset by changes in operating assets and liabilities primarily consisting

of a decrease in prepaid expenses of $5,797, a decrease in accounts payable and accrued expenses of $103,639, and a decrease in operating

Addition of administrative, technical and sales personnel as the business

The cost of being a public company.

Cash Flows from Operating Activities

Net cash used in operating activities totaled

$4,388,385 and $6,529,277 for the years ended December 31, 2024 and 2023, respectively, a decrease of $2,140,892.

Net cash flow used in operating activities for the year ended December

31, 2024 primarily reflected a net loss of $5,025,007, adjusted for the add-back (reduction) of non-cash items consisting of depreciation

and amortization of $23,129, amortization of right of use assets of $73,977, accretion of stock-based stock option and common stock expense

of $123,300, a non-cash gain from deconsolidation of variable interest entities of $(107), foreign currency exchange loss of $12,965,

and non-cash research and development expense of $166,667, offset by changes in operating assets and liabilities primarily consisting

of an increase in prepaid expenses of $9,649, an increase in accounts payable and accrued expenses of $307,568, and a decrease in operating

lease liabilities of $83,674.

cash flow used in operating activities for the years ended December 31, 2022 primarily reflected a net loss of $12,138,572, adjusted

s was adjusted for the add-back (reduction) of non-cash items consisting of stock-based compensation of $3,173,401, stock-based professional

fees of $347,733, amortization or right of use assets of $49,783, depreciation and amortization of $127,501, impairment loss of intangible

assets of $981,000, and impairment loss on digital currencies and other digital assets of $119,276, offset by realized and unrealized

gains on short-term investments of $75,848, and non-cash revenues from the sale of NFT’s of $36,394, and operating asset and liability

changes of $179,616, primarily due to a decrease in prepaid expenses of $242,221 and accounts payable and accrued expenses of $61.

Flows from Investing Activities

cash provided by (used in) investing activities amounted to $6,160,932 and $(11,209,126) for the years ended December 31, 2023 and 2022,

respectively.

the years ended December 31, 2023, we purchased short-term investments of $8,599,121 and received gross proceeds from the sale of short-term

investments of $14,745,000.

Additionally, we received $64,538 in cash upon initial consolidation of variable interest entities and purchased

property and equipment amounting to $49,485.

the year ended December 31, 2022, we purchased property and equipment of $44,475, purchased digital currencies and other digital assets

of $233,245, and we purchased short-term investments of $20,842,149, and received gross proceeds from the sale of short-term investments

of $9,910,000.

Flows from Financing Activities

cash (used in) provided by financing activities totaled approximately $(398,284) and $1,112 for the years ended December 31, 2023 and

2022, respectively.

the year ended December 31, 2023, we repaid related party advances of $1,315, we used cash of $397,969 to purchase 66,945 treasury stock

at an average price of $5.94 per share, and we received $1,000 from the sale of Series B preferred stock.

the year ended December 31, 2022, financing activities was primarily attributable to proceeds from related party advances of $20,294

offset by the repayment of related party advances of $19,182.

Sheet Arrangements

have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties.

We have not entered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity or that

are not reflected in our financial statements.

Furthermore, we do not have any retained or contingent interest in assets transferred

to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.

We do not have any variable interest

in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or

research and development services with us.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

a smaller reporting company, we are not required to provide the information required by this item.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

financial statements are contained in pages F-1 through F-22, which appear at the end of this Annual Report on Form 10-K.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Net cash flow used in operating activities for the year ended December

31, 2023 primarily reflected a net loss of $8,404,970 adjusted for the add-back (reduction) of non-cash items consisting of depreciation

and amortization of $28,943, amortization of right of use assets of $60,549, accretion of stock-based stock option and common stock expense

of $2,254,079, a non-cash gain from initial consolidation of variable interest entities of $(42,737), impairment loss on digital assets

of $23,381, impairment of property and equipment of $43,671, and net realized gain on short-term investments of $327,145, offset by changes

in operating assets and liabilities primarily consisting of a decrease in prepaid expenses of $5,797, a decrease in accounts payable and

accrued expenses of $103,741, and a decrease in operating lease liabilities of $67,339.

Cash Flows from Investing Activities

Net cash provided by investing activities amounted

to $2,236,751 and $6,160,932 for the years ended December 31, 2024 and 2023, respectively, a decrease of $3,924,181.

During the years ended December 31, 2024, we

purchased short-term investments of $10,767,288 and received gross proceeds from the sale of short-term investments of $13,004,039.

During the years ended December 31, 2023, we

purchased short-term investments of $8,599,121 and received gross proceeds from the sale of short-term investments of $14,745,000.

Additionally,

we received $64,538 in cash upon initial consolidation of variable interest entities and purchased property and equipment amounting to

Cash Flows from Financing Activities

Net cash provided by (used in) financing activities

totaled $2,394,971 and $(398,284) for the years ended December 31, 2024 and 2023, respectively.

During the year ended December 31, 2024, we received

$559,251 from the sale of common stock, net, received $974,198 from the sale of subsidiary common stock, net, and received $861,522 from

the sale of pre-funded warrants.

During the year ended December 31, 2023, we repaid

related party advances of $1,315, we used cash of $397,969 to purchase 66,945 treasury stock at an average price of $5.94 per share,

and we received $1,000 from the sale of Series B preferred stock.

Off-Balance Sheet Arrangements

We have not entered into any other financial

guarantees or other commitments to guarantee the payment obligations of any third parties.

We have not entered into any derivative contracts

that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our financial statements.

we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity

or market risk support to such entity.

We do not have any variable interest in any unconsolidated entity that provides financing, liquidity,

market risk or credit support to us or engages in leasing, hedging or research and development services with us.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

As a smaller reporting company, we are not required

to provide the information required by this item.

FINANCIAL STATEMENTS AND SUPPLEMENTARY

Our financial statements are contained in pages

F-1 through F-22, which appear at the end of this Annual Report on Form 10-K.

CHANGES IN AND DISAGREEMENTS WITH

ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis