What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2025-03-31 compared with 2024-03-29 · 1755 added, 1503 removed, 376 unchanged (90% of the section changed)

CONTROLS AND PROCEDURES

of Disclosure Controls

principal executive officer and principal financial officer, after evaluating the effectiveness of the Company’s “disclosure

controls and procedures” (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) as of December 31, 2023, the end of the period

covered by this Annual Report on Form 10-K, have concluded that our disclosure controls and procedures were not effective such that the

information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported

within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including

our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure.

and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed

and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can

provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Report on Internal Control Over Financial Reporting

management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined

in Exchange Act Rule 13a-15(f).

Internal control over financial reporting is a process designed under the supervision and with the participation

of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding

the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with

All internal control systems, no matter how well designed, have inherent limitations.

Therefore, even those systems determined

to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

of December 31, 2023, under the supervision and with the participation of our management, including our principal executive officer and

principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on

the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated

Framework - 2013 .

Based on this assessment, our management concluded that, as of December 31, 2023, our internal control over

financial reporting was not effective because it identified a material weakness.

A material weakness is a significant deficiency or a

combination of significant deficiencies in internal control over financial reporting such that there is a reasonable possibility that

a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Specifically,

management concluded that the ineffectiveness of our internal controls over financial reporting was due to the following material weaknesses:

We lack segregation of

duties within accounting functions duties as a result of our limited financial resources to support hiring of personnel.

The lack of multiples levels

of management review on complex business, accounting and financial reporting issues.

We have not implemented

adequate system and manual controls.

we used the services of a third-party accountant to provide accounting and financial reporting services to us, we lack both an adequate

number of personnel with requisite expertise in the key functional areas of finance and accounting and an adequate number of personnel

to properly implement internal control over financial reporting.

These factors represent material weaknesses in our internal control

over financial reporting.

Although we believe the possibility of errors in our financial statements is remote and expect to continue

to use a third-party accountant to address shortfalls in staffing and to assist us with accounting and financial reporting responsibilities

in an effort to mitigate the lack of segregation of duties, until such time as we expand our staff with qualified personnel, we expect

to continue to report material weaknesses in our internal control over financial reporting.

Report of our Registered Public Accounting Firm

Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control

Evaluation of Disclosure Controls

Our principal executive officer and principal

financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined

in Exchange Act Rule 13a-15(e) and 15d-15(e)) as of December 31, 2024, the end of the period covered by this Annual Report on Form 10-K,

have concluded that our disclosure controls and procedures were not effective such that the information required to be disclosed by us

in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the

SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal

financial officer, as appropriate to allow timely decisions regarding disclosure.

In designing and evaluating the disclosure controls

and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute

assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control

issues and instances of fraud, if any, within a company have been detected.

Management’s Report on Internal Control

Over Financial Reporting

As a smaller reporting company, our management’s report was not

subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s

report in this annual report .

in Internal Control Over Financial Reporting

have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially

affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our management is responsible for establishing

and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f).

Internal control

over financial reporting is a process designed under the supervision and with the participation of our management, including our principal

executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and

the preparation of consolidated financial statements for external purposes in accordance with GAAP.

All internal control systems, no

matter how well designed, have inherent limitations.

Therefore, even those systems determined to be effective can provide only reasonable

assurance with respect to financial statement preparation and presentation.

As of December 31, 2024, under the supervision

and with the participation of our management, including our principal executive officer and principal financial officer, we conducted

an evaluation of the effectiveness of our internal control over financial reporting based on the Committee of Sponsoring Organizations

of the Treadway Commission in Internal Control-Integrated Framework - 2013.

Based on this assessment, our management concluded that,

as of December 31, 2024, our internal control over financial reporting was not effective because it identified a material weakness.

material weakness is a significant deficiency or a combination of significant deficiencies in internal control over financial reporting

such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented

or detected on a timely basis.

Specifically, management concluded that the ineffectiveness

of our internal controls over financial reporting was due to the following material weaknesses:

We lack segregation of duties within accounting functions duties as

a result of our limited financial resources to support hiring of personnel.

The lack of multiples levels of management review on complex business,

accounting and financial reporting issues.

We have not implemented adequate system and manual controls.

While we used the services of a third-party accountant

to provide accounting and financial reporting services to us, we lack both an adequate number of personnel with requisite expertise in

the key functional areas of finance and accounting and an adequate number of personnel to properly implement internal control over financial

These factors represent material weaknesses in our internal control over financial reporting.

Although we believe the possibility

of errors in our financial statements is remote and expect to continue to use a third-party accountant to address shortfalls in staffing

and to assist us with accounting and financial reporting responsibilities in an effort to mitigate the lack of segregation of duties,

until such time as we expand our staff with qualified personnel, we expect to continue to report material weaknesses in our internal

control over financial reporting.

Attestation Report

of our Registered Public Accounting Firm

This Annual Report on Form 10-K does not include

an attestation report of our registered public accounting firm regarding internal control over financial reporting.

As a smaller reporting

company, our management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the

SEC that permit us to provide only management’s report in this annual report.

Changes in Internal Control Over Financial

There have been no changes in our internal control

over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially

affect, our internal control over financial reporting.

OTHER INFORMATION

our last fiscal quarter ended December 31, 2023, none of our directors or executive officers adopted , modified or terminated a “Rule

10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” as such terms are defined under Item 408 of

Regulation S K.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

following table sets forth the name, age and positions of our executive officers and directors.

Executive Officer and Chairman

Technology Officer and Director

Financial Officer

business background and certain other information about our directors and executive officers is set forth below.

Myman - Chief Executive Officer and Director

Myman has served as Chief Executive Officer and Chairman of the board of directors since January 2015.

During our last fiscal quarter ended December

31, 2024, none of our directors or executive officers adopted , modified or terminated a “Rule 10b5-1 trading arrangement”

or a “non-Rule 10b5-1 trading arrangement” as such terms are defined under Item 408 of Regulation S K.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS

THAT PREVENT INSPECTIONS

Not applicable.

DIRECTORS, EXECUTIVE OFFICERS AND

CORPORATE GOVERNANCE

The following table sets forth the name, age

and positions of our executive officers and directors.

Chief Executive Officer and Chairman

Chief Technology Officer and Director

Brett Blumberg

Chief Financial Officer

Wayne Linsley

Joseph Nelson

Carly Luogameno

The business background and certain other information

about our directors and executive officers is set forth below.

Darin Myman - Chief Executive Officer

Darin Myman has served as Chief Executive Officer

and Chairman of the board of directors since January 2015.

Previously, Mr.

Myman served as

co-founder and Chief Executive Officer of Wally World Media, Inc., (OTC:WLYW).

He also has served as the Chief Executive Officer and

a member of PeopleString’s board of directors since PeopleString’s inception.

Myman developed extensive Internet skills

through a variety of positions.

He has executive management and founder experience having served as a co-founder and Chief Executive

Officer of BigString Corporation, a publicly traded company, since October 2005.

He also has corporate governance and board experience

having served as a member of BigString’s board of directors since BigString’s inception.

Myman served as co-founder and Chief Executive Officer of

Wally World Media, Inc., (OTC:WLYW).

He also has served as the Chief Executive Officer and a member of PeopleString’s board of

directors since PeopleString’s inception.

Myman developed extensive Internet skills through a variety of positions.

executive management and founder experience having served as a co-founder and Chief Executive Officer of BigString Corporation, a publicly

traded company, since October 2005.

He also has corporate governance and board experience having served as a member of BigString’s

board of directors since BigString’s inception.

Prior to BigString, Mr.

a co-founder and Chief Executive Officer of LiveInsurance.com, the first online insurance broker that pioneered the electronic storefront

for large national insurance agencies.

Prior to co-founding LiveInsurance.com, he served as a Vice President of the online brokerage

services unit of Westminster Securities Corporation.

We believe that Mr.

Myman is qualified to serve as a member of our board of directors

because of his background in business and experience in senior leadership and as a board member of public companies.

Shelus - Chief Technology Officer and Director

Shelus is a co-founder of DatChat and has served as our Chief Technology Officer since January 2016 and a member of our board of directors

since December 2022.

Shelus has over 10 years of ephemeral messaging and mobile video development experience.

Shelus has been

at the forefront of the secure messaging industry, having served as a lead engineer for one of the first ephemeral messaging platforms,

“BigString,” where he helped develop the patented technology that became a cornerstone of self-destructing messaging.

Shelus holds Bachelor of Science degree in computer science from Rutgers University.

Myman was a co-founder and Chief Executive Officer of LiveInsurance.com,

the first online insurance broker that pioneered the electronic storefront for large national insurance agencies.

Prior to co-founding

LiveInsurance.com, he served as a Vice President of the online brokerage services unit of Westminster Securities Corporation.

Myman is qualified to serve as a member of our board of directors because of his background in business and experience in senior

leadership and as a board member of public companies.

Peter Shelus - Chief Technology Officer

Peter Shelus is a co-founder of DatChat and has

served as our Chief Technology Officer since January 2016 and a member of our board of directors since December 2022.

over 10 years of ephemeral messaging and mobile video development experience.

Shelus has been at the forefront of the secure messaging

industry, having served as a lead engineer for one of the first ephemeral messaging platforms, “BigString,” where he helped

develop the patented technology that became a cornerstone of self-destructing messaging.

Shelus holds Bachelor of Science degree

in computer science from Rutgers University.

We believe that Mr.

Shelus is qualified to serve

as a member of our board of directors because of his experience in the secure messaging industry and background in technology engineering

and development.

Blumberg – Chief Financial Officer

Blumberg has served as our Chief Financial Officer since February 2022.

Shelus is qualified to serve as a member of our board of directors because

of his experience in the secure messaging industry and background in technology engineering and development.

Brett Blumberg – Chief Financial

Brett Blumberg has served as our Chief Financial

Officer since February 2022.

Blumberg has extensive experience in finance and accounting.

He is a certified public accountant and has been a partner of the public accounting firm Jubran, Shorr & Company since 2015.

Blumberg was a senior accountant at CohnReznick, LLP from 2013 to 2014.

He is a certified public accountant and

has been a partner of the public accounting firm Jubran, Shorr & Company since 2015.

Blumberg was a senior accountant at

CohnReznick, LLP from 2013 to 2014.

Prior to obtaining his CPA license Mr.

Blumberg was a private

banker at Wells Fargo and owned and operated a Mortgage Brokerage/Banking Company, Canyon Financial Group, LLC from 2006 to 2012.

previously worked in recruitment and talent acquisition for accounting and finance firms from 2000 to 2006.

Blumberg holds a Bachelor

of Art degree in economics and psychology from SUNY Binghamton University.

Blumberg was a private banker at Wells Fargo and owned and

operated a Mortgage Brokerage/Banking Company, Canyon Financial Group, LLC from 2006 to 2012.

He previously worked in recruitment and

talent acquisition for accounting and finance firms from 2000 to 2006.

Blumberg holds a Bachelor of Art degree in economics and psychology

from SUNY Binghamton University.

Linsley – Director

Linsley has served as a member of the board of directors since August 2021.

Linsley has over 40 years of experience in business

Linsley has served as a member of the

board of directors since August 2021.

Linsley has over 40 years of experience in business management.

Since April 2020, Mr.

Linsley has served as a member of the board of directors of Hoth Therapeutics, Inc.

a clinical-stage biopharmaceutical company and since January 2020, he has served as a member of the board of directors of Silo Pharma,

SILO) a biopharmaceutical company focused on merging traditional therapeutics with psychedelic research.

From 2014 to September

Linsley served as the Vice President of Operations at CFO Oncall, Inc., a company that provides financial reporting and controller

services on an outsourced basis and previously, from 2012 to 2014, Mr.

has served as a member of the board of directors of Hoth Therapeutics, Inc.

HOTH), a clinical-stage biopharmaceutical company

and since January 2020, he has served as a member of the board of directors of Silo Pharma, Inc.

SILO) a biopharmaceutical company

focused on merging traditional therapeutics with psychedelic research.

From 2014 to September 2021, Mr.

Linsley served as the Vice President

of Operations at CFO Oncall, Inc., a company that provides financial reporting and controller services on an outsourced basis and previously,

from 2012 to 2014, Mr.

Linsley worked at CFO Oncall, Inc.

as an independent contractor.

Linsley holds Bachelor of Science degree in Business Administration from Siena College.

Nelson – Director

Linsley holds Bachelor of Science degree

in Business Administration from Siena College.

Joseph Nelson – Director

Joseph Nelson has served as a member of our board

1 unchanged sentence

Since April 2022, Mr.

Nelson has served as Chief Financial Officer of Delta Corp Holdings Limited, a global,

asset-light, fully integrated company engaged in transportation/logistic services, asset management and servicing the maritime industry

supply chain.

Nelson has served as Chief Financial Officer of Delta Corp Holdings Limited, a

global, asset-light, fully integrated company engaged in transportation/logistic services, asset management and servicing the maritime

industry supply chain.

From December 2017 to March 2022, Mr.

Nelson served as the Head of Investor Relations for GasLog Ltd., and GasLog Partners

LP, a leading international owner, operator and manager of liquefied natural gas carriers providing support to many of the world’s

largest energy companies.

Nelson served as the Head of Investor Relations for GasLog Ltd., and GasLog

Partners LP, a leading international owner, operator and manager of liquefied natural gas carriers providing support to many of

the world’s largest energy companies.

From November 2014 to November 2017, Mr.

Nelson served as an Equity Research Analyst at Credit Suisse.

holds a Master of Business Administration degree from New York University’s Stern School of Business;

a Bachelor of Science degree

in chemistry and a Bachelor of Art degree in philosophy from the Stevens Institute of Technology.

We believe that Mr.

Nelson is qualified

to serve as a member of our board of directors because of his experience in investor relations and background in business and finance.

Nelson served as an Equity Research Analyst at Credit

Nelson holds a Master of Business Administration degree from New York University’s Stern School of Business;

of Science degree in chemistry and a Bachelor of Art degree in philosophy from the Stevens Institute of Technology.

We believe that

Nelson is qualified to serve as a member of our board of directors because of his experience in investor relations and background

in business and finance.

Carly Luogameno – Director

17 unchanged sentences

Luogameno holds Bachelor of Art degree in arts, entertainment & media management from Columbia College Chicago.

Relationships

are no family relationships among any of our executive officers and directors.

between Officers and Directors

as set forth herein, to our knowledge, there is no arrangement or understanding between any of our officers or directors and any other

person pursuant to which the officer or director was selected to serve as an officer or director.

in Certain Legal Proceedings

are not aware of any of our directors or officers being involved in any legal proceedings in the past ten years relating to any matters

in bankruptcy, insolvency, criminal proceedings (other than traffic and other minor offenses), or being subject to any of the items set

forth under Item 401(f) of Regulation S-K.

of Our Board of Directors

board of directors directs the management of our business and affairs, as provided by Nevada law, and conducts its business through meetings

of the board of directors and its standing committees.

We will have a standing audit committee, compensation committee and nominating

and corporate governance committee.

In addition, from time to time, special committees may be established under the direction of the

board of directors when necessary to address specific issues.

The audit committee is appointed by the board to assist the board in its duty to oversee the Company’s accounting,

financial reporting and internal control functions and the audit of the Company’s financial statements.

The role of the audit committee

is to oversee management in the performance of its responsibility for the integrity of the Company’s accounting and financial reporting

and its systems of internal controls, the performance and qualifications of the Company’s independent auditor, including the independent

auditor’s independence, the performance of the Company’s internal audit function;

and the Company’s compliance with

legal and regulatory requirements.

Family Relationships

There are no family relationships among any of

our executive officers and directors.

Arrangements between Officers and Directors

Except as set forth herein, to our knowledge,

there is no arrangement or understanding between any of our officers or directors and any other person pursuant to which the officer

or director was selected to serve as an officer or director.

Involvement in Certain Legal Proceedings

We are not aware of any of our directors or officers

being involved in any legal proceedings in the past ten years relating to any matters in bankruptcy, insolvency, criminal proceedings

(other than traffic and other minor offenses), or being subject to any of the items set forth under Item 401(f) of Regulation S-K.

Committees of Our Board of Directors

Our board of directors directs the management

of our business and affairs, as provided by Nevada law, and conducts its business through meetings of the board of directors and its

standing committees.

We will have a standing audit committee, compensation committee and nominating and corporate governance committee.

In addition, from time to time, special committees may be established under the direction of the board of directors when necessary to

address specific issues.

Audit Committee .

The audit committee is

appointed by the board to assist the board in its duty to oversee the Company’s accounting, financial reporting and internal control

functions and the audit of the Company’s financial statements.

The role of the audit committee is to oversee management in the

performance of its responsibility for the integrity of the Company’s accounting and financial reporting and its systems of internal

controls, the performance and qualifications of the Company’s independent auditor, including the independent auditor’s independence,

the performance of the Company’s internal audit function;

and the Company’s compliance with legal and regulatory requirements.

Our audit committee consists of Wayne D.

10 unchanged sentences

is available on our principal corporate website at www.datchat.com .

The compensation committee is responsible for reviewing and recommending, among other things:

adequacy and form of compensation of the board;

compensation of Chief Executive Officer, including base salary, incentive bonus, stock option and other grant, award and benefits

upon hiring and on an annual basis;

compensation of other senior management upon hiring and on an annual basis;

Company’s incentive compensation and other equity-based plans and recommending changes to such plans to our board of directors,

when necessary.

Compensation Committee .

The compensation

committee is responsible for reviewing and recommending, among other things:

the adequacy and form of compensation of the

the compensation of Chief Executive Officer,

including base salary, incentive bonus, stock option and other grant, award and benefits upon hiring and on an annual basis;

the compensation of other senior management upon

hiring and on an annual basis;

the Company’s incentive compensation and

other equity-based plans and recommending changes to such plans to our board of directors, when necessary.

Our compensation committee will consists of Wayne

3 unchanged sentences

for the compensation committee, which is available on our principal corporate website at www.datchat.com .

and Corporate Governance Committee.

We do not have a designated nominating and corporate governance committee.

Our independent

directors, acting as a group, are responsible for:

nominating and corporate governance committee is responsible for, among other things:

criteria for membership on the board of directors and committees;

individuals qualified to become members of the board of directors;

persons to be nominated for election as directors and to each committee of the board of directors;

reviewing our corporate governance guidelines;

and evaluating the performance of the board of directors and leading the board in an annual self-assessment of its practices and

effectiveness.

Nominating and Corporate Governance Committee.

do not have a designated nominating and corporate governance committee.

Our independent directors, acting as a group, are responsible

Our nominating and corporate governance committee

is responsible for, among other things:

developing criteria for membership on the board

of directors and committees;

identifying individuals qualified to become members

of the board of directors;

recommending persons to be nominated for election

as directors and to each committee of the board of directors;

annually reviewing our corporate governance guidelines;

monitoring and evaluating the performance of

the board of directors and leading the board in an annual self-assessment of its practices and effectiveness.

Our nominating and corporate governance committee

consists of Wayne D.

3 unchanged sentences

a written charter for the nominating and corporate governance committee, which is available on our principal corporate website at www.datchat.com .

of Business Code and Ethics Conduct

have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal

executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.

Insider Trading Policy

We have adopted an insider trading policy governing the purchase, sale

and/or any other disposition of the Company’s securities and material non-public information that is reasonable designed to promote

compliance with insider trading laws, rules, regulations and applicable Nasdaq standards.

Our insider trading policy applies to the Company’s

directors, officers, employees of the Company and any other persons, such as consultants, contractors, temporary staff, family members,

and controlled entities who have access to material nonpublic information or are designated by the Company as subject to such policy.

A copy of the Company’s insider trading policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K.

Code of Business and Ethics Conduct

We have adopted a written code of business conduct

and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer,

principal accounting officer or controller, or persons performing similar functions.

A copy of the code posted on our website, www.datchat.com .

In addition, we intend to post on our website all disclosures

that are required by law or rules concerning any amendments to, or waivers from, any provision of the code.

do not currently have a policy prohibiting employees, officers, or directors from engaging in transactions that hedge or offset, or are

designed to hedge or offset, any decrease in the market value of the Company’s equity securities.

in Nominating Procedures

Diversity Matrix

nominating and corporate governance committee is committed to promoting diversity on our Board of Directors.

We have surveyed our current

directors and asked each director to self-identify their race, ethnicity, and gender using one or more of the below categories.

of this survey are included in the matrix below:

Diversity Matrix (As of March 28, 2024)

Total Number of Directors

Gender Identity

Disclose Gender

Demographic Background

African American or Black

Alaskan Native or Native America

Hispanic or Latinx

Native Hawaiian or Pacific Islander

Two or More Races or Ethnicities

Did Not Disclose Demographic Background

In addition, we intend to post on our website all disclosures that are required by law or rules concerning any amendments to, or waivers

from, any provision of the code.

We do not currently have a policy prohibiting

employees, officers, or directors from engaging in transactions that hedge or offset, or are designed to hedge or offset, any decrease

in the market value of the Company’s equity securities.

Changes in Nominating Procedures

EXECUTIVE COMPENSATION

Compensation Table

following table sets forth for the year ended December 31, 2023 and 2022, the compensation awarded to, paid to, or earned by, our

Chief Executive Officer and two other most highly compensated executive officers, whose total compensation during such years exceeded

We refer to these officers as our “named executive officers.”

Principal Position

Summary Compensation Table

The following table sets forth for the year ended

December 31, 2024 and 2023, the compensation awarded to, paid to, or earned by, our Chief Executive Officer and two other most highly

compensated executive officers, whose total compensation during such years exceeded $100,000.

We refer to these officers as our “named

executive officers.”

Name and Principal Position

Incentive Plan

Executive Officer

Financial Officer

Technology Officer

required by SEC rules, the amounts in this column reflect the grant date or modification

date fair value as required by FASB ASC Topic 718.

A discussion of the assumptions and methodologies

used to calculate these amounts is contained in the notes to our financial statements under

“Shareholders’ Deficit”.

In September 2023, Mr.

Blumberg received 5,000

stock options to purchase 5,000 shares of restricted stock at $15.00 per share.

Equity Awards at December 31, 2023

following table provides information regarding option awards held by each of our named executive officers that were outstanding as of

December 31, 2023.

Chief Executive Officer

Brett Blumberg

Chief Financial Officer

Chief Technology Officer

As required by SEC rules, the amounts in this column reflect the grant

date or modification date fair value as required by FASB ASC Topic 718.

A discussion of the assumptions and methodologies used to

calculate these amounts is contained in the notes to our financial statements under “Shareholders’ Deficit”.

Outstanding Equity

Awards at December 31, 2024

The following table provides information regarding

option awards held by each of our named executive officers that were outstanding as of December 31, 2024.

Incentive Plan

2 unchanged sentences

that have not

Non-Employee Director

following table presents the total compensation for each person who served as a non-employee member of our Board of Directors and

received compensation for such service during the fiscal year ended December 31, 2023.

Other than as set forth in the table and

described more fully below, we did not pay any compensation, make any equity awards or non-equity awards to, or pay any other compensation

to any of the non-employee members of our Board of Directors in 2023.

Brett Blumberg

Non-Employee Director Compensation

The following table presents the total compensation

for each person who served as a non-employee member of our Board of Directors and received compensation for such service during

the fiscal year ended December 31, 2024.

Other than as set forth in the table and described more fully below, we did not pay any

compensation, make any equity awards or non-equity awards to, or pay any other compensation to any of the non-employee members

of our Board of Directors in 2024.

Incentive Plan

compensation earnings

Other Compensation

required by SEC rules, the amounts in this column reflect the grant date or modification date fair value as required by FASB ASC Topic

A discussion of the assumptions and methodologies used to calculate these amounts is contained in the notes to our financial statements

under “Shareholders’ Deficit”.

In February 2023, each director received 2,500 stock options to purchase 2,500 shares

of restricted stock at $12.50 per share.

August 27, 2021, we entered into an agreement (the “Employment Agreement”) with Darin Myman effective as of August 15, 2021

pursuant to which Mr.

Myman’s (i) base salary will increase to $450,000 per year, and (ii) Mr.

Myman shall be entitled to receive

an annual bonus in an amount up to $350,000, which annual bonus may be increased by the Compensation Committee of the Board of Directors

of the Company (the “Compensation Committee”), in its sole discretion, upon the achievement of additional criteria established

by the Compensation Committee from time to time (the “Annual Bonus”).

The term of the Employment Agreement will continue

for a period of one year from the effective date and automatically renews for successive one year periods at the end of each term until

either party delivers written notice of their intent not to review at least six (6) months prior to the expiration of the applicable

In addition, pursuant to the Employment Agreement, upon termination of Mr.

Myman’s employment for death or Total Disability

(as defined in the Employment Agreement), in addition to any accrued but unpaid compensation and vacation pay through the date of his

termination and any other benefits accrued to him under any Benefit Plans (as defined in the Employment Agreement) outstanding at such

time and the reimbursement of documented, unreimbursed expenses incurred prior to such termination date (collectively, the “Payments”),

Myman shall be entitled to the following severance benefits:

All Other Compensation

Joseph Nelson

Carly Luogameno

Wayne Linsley

As required by SEC rules, the amounts in this column reflect the grant

date or modification date fair value as required by FASB ASC Topic 718.

A discussion of the assumptions and methodologies used to

calculate these amounts is contained in the notes to our financial statements under “Shareholders’ Deficit”.

Equity Award Grant Timing

We do not have a written policy in place regarding

the timing of the grant and issuance of stock options in relation to the release of material non-public information.

Historically, we

have granted stock option awards on an annual basis and as may otherwise be deemed appropriate by our Board or compensation committee

from time to time based on the facts and circumstances, as applicable.

We have not intentionally timed the grant of stock options in anticipation

of the release of material nonpublic information, nor have we intentionally timed the release of material nonpublic information based

on stock option grant dates.

During fiscal year 2024, we did not grant stock options (or similar awards) to any of our named executive

officers during the period beginning four business days before and ending one business day after the filing of any Company periodic report

on Form 10-Q or Form 10-K, or the filing or furnishing of any Company Form 8-K that disclosed any material non-public information.

Employment Agreements

On August 27, 2021, we entered into an agreement

(the “Employment Agreement”) with Darin Myman effective as of August 15, 2021 pursuant to which Mr.

Myman’s (i) base

salary will increase to $450,000 per year, and (ii) Mr.

Myman shall be entitled to receive an annual bonus in an amount up to $350,000,

which annual bonus may be increased by the Compensation Committee of the Board of Directors of the Company (the “Compensation Committee”),

in its sole discretion, upon the achievement of additional criteria established by the Compensation Committee from time to time (the

“Annual Bonus”).

The term of the Employment Agreement will continue for a period of one year from the effective date and

automatically renews for successive one year periods at the end of each term until either party delivers written notice of their intent

not to review at least six (6) months prior to the expiration of the applicable term.

In addition, pursuant to the Employment Agreement,

upon termination of Mr.

Myman’s employment for death or Total Disability (as defined in the Employment Agreement), in addition

to any accrued but unpaid compensation and vacation pay through the date of his termination and any other benefits accrued to him under

any Benefit Plans (as defined in the Employment Agreement) outstanding at such time and the reimbursement of documented, unreimbursed

expenses incurred prior to such termination date (collectively, the “Payments”), Mr.

Myman shall be entitled to the following

severance benefits:

(i) 24 months of his then base salary;

Myman elects continuation

coverage for group health coverage pursuant to COBRA Rights (as defined in the Employment Agreement), then for a period of 24 months

following Mr.

Myman’s termination he will be obligated to pay only the portion of the full COBRA Rights cost of the coverage equal

to an active employee’s share of premiums (if any) for coverage for the respective plan year;

and (iii) payment on a pro-rated

basis of any Annual Bonus or other payments earned in connection with any bonus plan to which Mr.

Myman was a participant as of the date

of his termination (together with the Payments, the “Severance”).

Furthermore, pursuant to the Employment Agreement, upon

Myman’s termination (i) at his option (A) upon 90 days prior written notice to the Company or (B) for Good Reason (as defined

in the Employment Agreement), (ii) termination by the Company without Cause (as defined in the Employment Agreement) or (iii) termination

Myman’s employment within 40 days of the consummation of a Change in Control Transaction (as defined in the Employment Agreement),

Myman elects continuation coverage for group health coverage pursuant

to COBRA Rights (as defined in the Employment Agreement), then for a period of 24 months following Mr.

Myman’s termination he will

be obligated to pay only the portion of the full COBRA Rights cost of the coverage equal to an active employee’s share of premiums

(if any) for coverage for the respective plan year;

and (iii) payment on a pro-rated basis of any Annual Bonus or other payments earned

in connection with any bonus plan to which Mr.

Myman was a participant as of the date of his termination (together with the Payments,

the “Severance”).

Furthermore, pursuant to the Employment Agreement, upon Mr.

Myman’s termination (i) at his option

(A) upon 90 days prior written notice to the Company or (B) for Good Reason (as defined in the Employment Agreement), (ii) termination

by the Company without Cause (as defined in the Employment Agreement) or (iii) termination of Mr.

Myman’s employment within 40

days of the consummation of a Change in Control Transaction (as defined in the Employment Agreement), Mr.

Myman shall receive the Severance;

1 unchanged sentence

Myman shall be entitled to a pro-rated Annual Bonus of at least $200,000.

In addition, any equity grants issued to Mr.

In addition, any equity grants issued

Myman shall immediately vest upon termination of Mr.

Myman’s employment by him for

Good Reason or by the Company at its option upon 90 days prior written notice to Mr.

Myman’s employment by him for Good Reason or by the Company at its

option upon 90 days prior written notice to Mr.

Myman, without Cause.

Blumberg Employment Agreement

February 15, 2022, we entered into an employment agreement with Brett Blumberg effective as of February 15, 2022 pursuant to which Mr.

Blumberg will serve as Chief Financial Officer of the Company (the “Blumberg Employment Agreement”).

The term of the Blumberg

Employment Agreement will continue for a period of one year from the Effective Date and automatically renews for successive one year

periods at the end of each term until either party delivers written notice of their intent not to review at least 30 days prior to the

applicable renewal date.

Pursuant to the terms of the Blumberg Employment Agreement, Mr.

Blumberg (i) shall receive an annual base salary

of $60,000 (effective as of February 15, 2022), (ii) shall be entitled to earn a bonus, subject to the sole discretion of the Company’s

Board and (iii) shall be eligible to receive awards pursuant to the Company’s equity incentive plans, subject to the sole discretion

of the Company’s compensation committee.

Blumberg is also entitled to participate in any and all Employee Benefit Plans (as

defined in the Blumberg Employment Agreement), from time to time, that are then in effect along with vacation, sick and holiday pay in

accordance with the Company’s policies established and in effect from time to time.

The Blumberg Employment Agreement may be terminated

by either the Company or Mr.

Blumberg at any time and for any reason upon 10 days prior written notice.

Upon termination of the Blumberg

Employment Agreement, Mr.

Blumberg shall be entitled to (i) any equity award that has vested prior to the termination date, (ii) reimbursement

of expenses incurred on or prior to such termination date and (iii) such employee benefits to which Mr.

Blumberg may be entitled as of

the termination date (collectively, the “Accrued Amounts”).

Brett Blumberg Employment Agreement

On February 15, 2022, we entered into an employment

agreement with Brett Blumberg effective as of February 15, 2022 pursuant to which Mr.

Blumberg will serve as Chief Financial Officer

of the Company (the “Blumberg Employment Agreement”).

The term of the Blumberg Employment Agreement will continue for a period

of one year from the Effective Date and automatically renews for successive one year periods at the end of each term until either party

delivers written notice of their intent not to review at least 30 days prior to the applicable renewal date.

Pursuant to the terms of

the Blumberg Employment Agreement, Mr.

Blumberg (i) shall receive an annual base salary of $60,000 (effective as of February 15, 2022),

(ii) shall be entitled to earn a bonus, subject to the sole discretion of the Company’s Board and (iii) shall be eligible to receive

awards pursuant to the Company’s equity incentive plans, subject to the sole discretion of the Company’s compensation committee.

Blumberg is also entitled to participate in any and all Employee Benefit Plans (as defined in the Blumberg Employment Agreement),

from time to time, that are then in effect along with vacation, sick and holiday pay in accordance with the Company’s policies

established and in effect from time to time.

The Blumberg Employment Agreement may be terminated by either the Company or Mr.

at any time and for any reason upon 10 days prior written notice.

Upon termination of the Blumberg Employment Agreement, Mr.

shall be entitled to (i) any equity award that has vested prior to the termination date, (ii) reimbursement of expenses incurred on or

prior to such termination date and (iii) such employee benefits to which Mr.

Blumberg may be entitled as of the termination date (collectively,

the “Accrued Amounts”).

The Blumberg Employment Agreement shall also terminate upon Mr.

Blumberg’s death or the Company may terminate Mr.

Blumberg’s employment upon his Disability (as defined in the Blumberg Employment

Upon the termination of Mr.

Blumberg’s death or the Company

may terminate Mr.

Blumberg’s employment upon his Disability (as defined in the Blumberg Employment Agreement).

Upon the termination

Blumberg’s employment for death or Disability, Mr.

Blumberg shall be entitled to receive

the Accrued Amounts.

The Blumberg Employment Agreement also contains covenants prohibiting Mr.

Blumberg from disclosing confidential

information with respect to the Company.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information

regarding beneficial ownership of shares of our common stock as of March 28, 2024 by (i) each person known to beneficially own more than

5% of our outstanding common stock, (ii) each of our directors, (iii) each of our named executive officers and (iv) all of our directors

and named executive officers as a group.

Except as otherwise indicated, the persons named in the table below have sole voting and investment

power with respect to all shares beneficially owned, subject to community property laws, where applicable.

Blumberg shall be entitled to receive the Accrued Amounts.

Employment Agreement also contains covenants prohibiting Mr.

Blumberg from disclosing confidential information with respect to the Company.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL

OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding beneficial

ownership of shares of our common stock as of March 26, 2025 by (i) each person known to beneficially own more than 5% of our outstanding

common stock, (ii) each of our directors, (iii) each of our named executive officers and (iv) all of our directors and named executive

officers as a group.

Except as otherwise indicated, the persons named in the table below have sole voting and investment power with respect

to all shares beneficially owned, subject to community property laws, where applicable.

Percentage (2)

Directors, Director Nominees, Named Executive Officers and Named Executive Officer Nominees (1)

Darin Myman (3)

3 unchanged sentences

All Director, Director Nominees, Named Executive Officers and Named Executive Officer Nominees as a group (6 persons)

beneficial ownership of less than 1%.

address of each holder listed below, except as otherwise indicated, is 204 Neilson Street, New Brunswick, New Jersey 08901.

Represents beneficial ownership of less than

The address of each holder listed below, except

as otherwise indicated, is 204 Neilson Street, New Brunswick, New Jersey 08901.

The calculation in this column is based upon 4,276,274 shares of common

6 unchanged sentences

ownership of any other person.

25,000 vested stock options.

7,500 of vested stock options.

5,000 of vested stock options.

Authorized for Issuance Under Equity Compensation Plans

following table summarizes information about our equity compensation plans as of December 31, 2023.

Includes 25,000 vested stock options.

Includes 5,000 vested stock options.

Includes 7,500 vested stock options.

Securities Authorized for Issuance Under Equity

Compensation Plans

The following table summarizes information about

our equity compensation plans as of December 31, 2024.

Plan Category

securities to

outstanding options, warrants

Weighted average

outstanding options, warrants

securities remaining available for future

securities remaining

available for future

issuance under

equity compensation plans

(excluding securities reflected

compensation plans approved by security holder

compensation plans not approved by security holder

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

following includes a summary of transactions during our fiscal years ended December 31, 2023 and 2022 to which we have been a party,

including transactions in which the amount involved in the transaction exceeds the lesser of $120,000 or 1% of the average of our total

assets at year-end for the last two completed fiscal years, and in which any of our directors, executive officers or, to our knowledge,

beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will

have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements,

which are described elsewhere in this Annual Report on Form 10-K.

We are not otherwise a party to a current related party transaction,

and no transaction is currently proposed, in which the amount of the transaction exceeds the lesser of $120,000 or 1% of the average

of our total assets at year-end for the last two completed fiscal years and in which a related person had or will have a direct or indirect

material interest.

with Related Persons

as described below and except for employment arrangements which are described under “executive compensation,” since January

1, 2019, there has not been, nor is there currently proposed, any transaction in which we are or were a participant, the amount involved

exceeds the lesser of $120,000 or 1% of the average of the total assets at December 31, 2023 and 2022, and any of our directors, executive

officers, holders of more than 5% of our common stock or any immediate family member of any of the foregoing had or will have a direct

or indirect material interest.

Chief Executive Officer, Mr.

Darin Myman, from time to time, provides advances to the Company for working capital purposes.

31, 2023 and 2022, the Company had a payable to Mr.

Myman of $0 and $1,315, respectively, which is presented as due to related party

on the balance sheets.

These advances are short-term in nature and non-interest bearing.

During the year ended December 31, 2023, the

Company repaid $1,315.

Persons Transaction Policy

have adopted a formal policy regarding approval of transactions with related parties.

For purposes of our policy only, a related person

transaction is a transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which

we and any related person are, were or will be participants in which the amount involved exceeds the lesser of $120,000 or one percent

of our total assets at year-end for our last two completed fiscal years.

Transactions involving compensation for services provided to

us as an employee or director are not covered by this policy.

A related person is any executive officer, director or beneficial owner

of more than 5% of any class of our voting securities, including any of their immediate family members and any entity owned or controlled

by such persons.

the policy, if a transaction has been identified as a related person transaction, including any transaction that was not a related person

transaction when originally consummated or any transaction that was not initially identified as a related person transaction prior to

consummation, our management must present information regarding the related person transaction to our audit committee, or, if audit committee

approval would be inappropriate, to another independent body of our board of directors, for review, consideration and approval or ratification.

The presentation must include a description of, among other things, the material facts, the interests, direct and indirect, of the related

persons, the benefits to us of the transaction and whether the transaction is on terms that are comparable to the terms available to

or from, as the case may be, an unrelated third party or to or from employees generally.

Under the policy, we will collect information

that we deem reasonably necessary from each director, executive officer and, to the extent feasible, significant shareholder to enable

us to identify any existing or potential related-person transactions and to effectuate the terms of the policy.

In addition, under our

code of business conduct and ethics, our employees and directors will have an affirmative responsibility to disclose any transaction

or relationship that reasonably could be expected to give rise to a conflict of interest.

In considering related person transactions,

our audit committee, or other independent body of our board of directors, will take into account the relevant available facts and circumstances

including, but not limited to:

risks, costs and benefits to us;

impact on a director’s independence in the event that the related person is a director, immediate family member of a director

or an entity with which a director is affiliated;

availability of other sources for comparable services or products;

terms available to or from, as the case may be, unrelated third parties or to or from employees generally.

policy requires that, in determining whether to approve, ratify or reject a related person transaction, our audit committee, or other

independent body of our board of directors, must consider, in light of known circumstances, whether the transaction is in, or is not

inconsistent with, our best interests and those of our shareholders, as our audit committee, or other independent body of our board of

directors, determines in the good faith exercise of its discretion.

of the Board of Directors

Our board of directors undertook a review of the

independence of our directors and considered whether any director has a relationship with us that could compromise that director’s

(excluding securities reflected in

Equity compensation plans approved by security holder

Equity compensation plans not approved by security holder

CERTAIN RELATIONSHIPS AND RELATED

TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The following includes a summary of transactions

during our fiscal years ended December 31, 2024 and 2023 to which we have been a party, including transactions in which the amount involved

in the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal

years, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock

or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other

than equity and other compensation, termination, change in control and other arrangements, which are described elsewhere in this Annual

Report on Form 10-K.

We are not otherwise a party to a current related party transaction, and no transaction is currently proposed, in

which the amount of the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last

two completed fiscal years and in which a related person had or will have a direct or indirect material interest.

Transactions with Related Persons

Except as described below and except for employment

arrangements which are described under “executive compensation,” since January 1, 2019, there has not been, nor is there

currently proposed, any transaction in which we are or were a participant, the amount involved exceeds the lesser of $120,000 or 1% of

the average of the total assets at December 31, 2024 and 2023, and any of our directors, executive officers, holders of more than 5%

of our common stock or any immediate family member of any of the foregoing had or will have a direct or indirect material interest.

On January 10, 2024, VR Interactive LLC (“VR

Interactive”), a company 45% owned by Darin Myman, the Company’s CEO and 3.75% owned by Peter Shelus, the Company’s

chief technology officer and director, purchased 8,000,000 shares of RPM Interactive from the Metabizz shareholders for cash amounting

Myman is a partner in VR Interactive.

Upon purchase of the shares, VR Interactive, a related party, became a 25% non-controlling

interest in RPM Interactive.].

Related Persons Transaction Policy

We have adopted a formal policy regarding approval

of transactions with related parties.

For purposes of our policy only, a related person transaction is a transaction, arrangement or

relationship, or any series of similar transactions, arrangements or relationships, in which we and any related person are, were or will

be participants in which the amount involved exceeds the lesser of $120,000 or one percent of our total assets at year-end for our last

two completed fiscal years.

Transactions involving compensation for services provided to us as an employee or director are not covered

by this policy.

A related person is any executive officer, director or beneficial owner of more than 5% of any class of our voting securities,

including any of their immediate family members and any entity owned or controlled by such persons.

Under the policy, if a transaction has been identified

as a related person transaction, including any transaction that was not a related person transaction when originally consummated or any

transaction that was not initially identified as a related person transaction prior to consummation, our management must present information

regarding the related person transaction to our audit committee, or, if audit committee approval would be inappropriate, to another independent

body of our board of directors, for review, consideration and approval or ratification.

The presentation must include a description of,

among other things, the material facts, the interests, direct and indirect, of the related persons, the benefits to us of the transaction

and whether the transaction is on terms that are comparable to the terms available to or from, as the case may be, an unrelated third

party or to or from employees generally.

Under the policy, we will collect information that we deem reasonably necessary from each director,

executive officer and, to the extent feasible, significant shareholder to enable us to identify any existing or potential related-person

transactions and to effectuate the terms of the policy.

In addition, under our code of business conduct and ethics, our employees and

directors will have an affirmative responsibility to disclose any transaction or relationship that reasonably could be expected to give

rise to a conflict of interest.

In considering related person transactions, our audit committee, or other independent body of our board

of directors, will take into account the relevant available facts and circumstances including, but not limited to:

the risks, costs and benefits to us;

the impact on a director’s independence

in the event that the related person is a director, immediate family member of a director or an entity with which a director is affiliated;

the availability of other sources for comparable

services or products;

the terms available to or from, as the case may

be, unrelated third parties or to or from employees generally.

The policy requires that, in determining whether

to approve, ratify or reject a related person transaction, our audit committee, or other independent body of our board of directors,

must consider, in light of known circumstances, whether the transaction is in, or is not inconsistent with, our best interests and those

of our shareholders, as our audit committee, or other independent body of our board of directors, determines in the good faith exercise

of its discretion.

Independence of the Board of Directors

Our board of directors undertook a review of

the independence of our directors and considered whether any director has a relationship with us that could compromise that director’s

ability to exercise independent judgment in carrying out that director’s responsibilities.

1 unchanged sentence

determined that Wayne D.

Linsley, Carly Luogameno and Joseph Nelson are each an “independent director,” as defined under Nasdaq

Linsley, Carly Luogameno and Joseph Nelson are each an “independent director,” as defined under

Nasdaq rules.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

following table sets forth the aggregate fees billed by Salberg & Company, P.A.

for the year ended December 31, 2023, and D.

and Associates CPAs, P.A.

for the year ended December 31, 2022 as described below:

The following table sets forth the aggregate

fees billed by Salberg & Company, P.A.

for the year ended December 31, 2024, and 2023:

Audit Related Fees

All Other Fees

Audit fees consist of fees billed for the professional services rendered to us for the audit of our annual consolidated

financial statements for the years ended December 31, 2023 and 2022, reviews of the quarterly financial statements during the periods,

the issuance of consent and comfort letters in connection with registration statement filings, and all other services that are normally

provided by the accounting firm in connection with statutory and regulatory filings and engagements.

2023 audit fees include

approximately $78,600 in Salberg & Company, P.A.

fees in connection with the audits and quarterly reviews for the year ended December

31, 2023 and approximately $68,238 in D.

Brooks and Associates fees in connection with the quarterly reviews, audit consents and registration

statement consents for the year ended December 31, 2022.

Audit-Related

Fees not included in audit fees that are billed by the auditor for assurance and related services that are reasonably

related to the performance of the audit of the financial statements.

Fees for professional services rendered for tax compliance, tax advice, and tax planning.

All other fees billed by the auditor for products and services not included in the foregoing categories.

Policies and Procedures

accordance with Sarbanes-Oxley, our audit committee charter requires the audit committee to pre-approve all audit and permitted non-audit

services provided by our independent registered public accounting firm, including the review and approval in advance of our independent

registered public accounting firm’s annual engagement letter and the proposed fees contained therein.

The audit committee has the

ability to delegate the authority to pre-approve non-audit services to one or more designated members of the audit committee.

authority is delegated, such delegated members of the audit committee must report to the full audit committee at the next audit committee

meeting all items pre-approved by such delegated members.

In the fiscal years ended December 31, 2023 and 2022 all of the services performed

by our independent registered public accounting firm were pre-approved by the audit committee.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

following documents are filed as part of this report:

Report of Independent Registered Public Accounting Firm (PCAOB Firm ID:

fees consist of fees billed for the professional services rendered to us for the audit of our annual consolidated financial statements

for the years ended December 31, 2024 and 2023, reviews of the quarterly financial statements during the periods, the issuance of consent

and comfort letters in connection with registration statement filings, and all other services that are normally provided by the accounting

firm in connection with statutory and regulatory filings and engagements.

2024 and 2023 audit fees

include approximately $91,200 and $78,600, respectively, in Salberg & Company, P.A.

fees in connection with the audits and quarterly

reviews for the year ended December 31, 2023.

Audit-Related Fees:

not included in audit fees that are billed by the auditor for assurance and related services that are reasonably related to the performance

of the audit of the financial statements.

for professional services rendered for tax compliance, tax advice, and tax planning.

All Other Fees:

All other fees billed

by the auditor for products and services not included in the foregoing categories.

Pre-Approval Policies and Procedures

In accordance with Sarbanes-Oxley, our audit committee

charter requires the audit committee to pre-approve all audit and permitted non-audit services provided by our independent registered

public accounting firm, including the review and approval in advance of our independent registered public accounting firm’s annual

engagement letter and the proposed fees contained therein.

The audit committee has the ability to delegate the authority to pre-approve

non-audit services to one or more designated members of the audit committee.

If such authority is delegated, such delegated members of

the audit committee must report to the full audit committee at the next audit committee meeting all items pre-approved by such delegated

In the fiscal years ended December 31, 2024 and 2023 all of the services performed by our independent registered public accounting

firm were pre-approved by the audit committee.

EXHIBITS AND FINANCIAL STATEMENT

The following documents are filed as part

of this report:

Financial Statements:

Report of Independent Registered Public Accounting Firm (PCAOB Firm ID:

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Consolidated Balance Sheets – For the Years Ended December 31, 2024 and 2023

Consolidated Statements of Operations and Comprehensive Loss – For the Years Ended December 31, 2024 and 2023

Consolidated Statements of Changes in Stockholders’ Equity– For the Years Ended December 31, 2024 and 2023

Consolidated Statements of Cash Flows– For the Years Ended December 31, 2024 and 2023

Notes to Consolidated Financial Statements

consolidated financial statements required by this Item are included beginning at page F-1.

Statement Schedules:

financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in

the consolidated financial statements or the notes thereto.

following documents are included as exhibits to this report.

Exhibit Number

Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company’s Form S-1 filed on July 2, 2021)

Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2 to the Company’s Form S-1/A filed on August 9, 2021)

Amendment No.1 to Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on October 26, 2022)

Certificate of Designation of Series A Preferred Stock (Incorporated by reference to Exhibit 3.3 to the Company’s Form S-1/A filed on August 9, 2021)

Certificate of Designation of Series B Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on August 7, 2023)

Certificate of Amendment to Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.4 to the Company’s Form S-1/A filed on August 9, 2021)

Certificate of Change to Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.5 to the Company’s Form S-1/A filed on August 9 2021)

Certificate of Change to Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 19, 2023)

Certificate of Correction to Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q filed on November 13, 2023)

Certificate of Change to Amended and Restated Articles of Incorporation (Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 28, 2023)

Form of Series A Warrant Agent Agreement including Form of Series A Warrant (Incorporated by reference to Exhibit 4.1 to the Company’s Form S-1/A filed on August 9, 2021)

Form of Representative’s Warrant (Incorporated by reference to Exhibit 4.2 to the Company’s Form S-1/A filed on August 9, 2021)

Form of Stock Certificate (Incorporated by reference to Exhibit 4.3 to the Company’s Form S-1/A filed on August 9, 2021)

2021 Equity Incentive Plan and forms of award agreements thereunder (Incorporated by reference to Exhibit 10.2 to the Company’s Form S-1/A filed on August 9, 2021)

Amended and Restated 2021 Omnibus Equity Incentive Plan (Incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q filed on November 13, 2023)

Underwriting Agreement dated January 16, 2024 between DatChat, Inc.

and EF Hutton LLC (Incorporated by reference to Exhibit 1.1 to the Company’s Form 8-K filed on January 19, 2024)

The consolidated financial statements required

by this Item are included beginning at page F-1.

Financial Statement Schedules:

All financial statement schedules have been omitted

because they are not applicable, not required or the information required is shown in the consolidated financial statements or the notes

The following documents are included as exhibits

to this report.

and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company’s Form S-1 filed on July 2,

and Restated Bylaws (Incorporated by reference to Exhibit 3.2 to the Company’s Form S-1/A filed on August 9, 2021)

No.1 to Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on October 26,

of Designation of Series A Preferred Stock (Incorporated by reference to Exhibit 3.3 to the Company’s Form S-1/A filed on August

of Designation of Series B Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form

8-K filed on August 7, 2023)

of Amendment to Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.4 to the Company’s Form

S-1/A filed on August 9, 2021)

of Change to Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.5 to the Company’s Form

S-1/A filed on August 9 2021)

of Change to Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company’s Current

Report on Form 8-K filed on September 19, 2023)

of Correction to Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 of the Company’s

Quarterly Report on Form 10-Q filed on November 13, 2023)

of Change to Amended and Restated Articles of Incorporation (Incorporated by reference to the Company’s Current Report on Form

8-K filed on December 28, 2023)

of Series A Warrant Agent Agreement including Form of Series A Warrant (Incorporated by reference to Exhibit 4.1 to the Company’s

Form S-1/A filed on August 9, 2021)

of Representative’s Warrant (Incorporated by reference to Exhibit 4.2 to the Company’s Form S-1/A filed on August 9,

of Stock Certificate (Incorporated by reference to Exhibit 4.3 to the Company’s Form S-1/A filed on August 9, 2021)

Equity Incentive Plan and forms of award agreements thereunder (Incorporated by reference to Exhibit 10.2 to the Company’s

Form S-1/A filed on August 9, 2021)

and Restated 2021 Omnibus Equity Incentive Plan (Incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report

on Form 10-Q filed on November 13, 2023)

Agreement dated January 16, 2024 between DatChat, Inc.

and EF Hutton LLC (Incorporated by reference to Exhibit 1.1 to the Company’s

Form 8-K filed on January 19, 2024)

Form of Pre-Funded Warrant (included as Exhibit A to Exhibit 1.1) (Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on January 19, 2024)

Description of Registrant’s Securities

Employment Agreement between the Company and Brett Blumberg (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on February 16, 2022)

Form of Subscription and Investment Representation Agreement (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on August 7, 2023)

Agreement between the Company and Brett Blumberg (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed

on February 16, 2022)

of Subscription and Investment Representation Agreement (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K

filed on August 7, 2023)

Insider Trading Policy

Subsidiaries (Incorporated by reference to Exhibit 21.1 to the Company’s Form 10-K filed on March 29, 2024)

Consent of Salberg & Company, P.A.

Consent of D.

Brooks CPAs, P.A.

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

3 unchanged sentences

DatChat, Inc.

Clawback Policy

Clawback Policy (Incorporated by reference to Exhibit 97.1 to the Company’s Form 10-K filed on March 29, 2024)

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension

Schema Document

Inline XBRL Taxonomy Extension

Calculation Linkbase Document

Inline XBRL Taxonomy Extension

Label Linkbase Document

Inline XBRL Taxonomy Extension

Presentation Linkbase Document

Inline XBRL Taxonomy Extension

Definition Linkbase Document

Cover Page Interactive

Data File - the cover page of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2023 is formatted

in Inline XBRL

a management contract or any compensatory plan, contract or arrangement.

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Cover Page Interactive Data File - the cover page of the Registrant’s

Annual Report on Form 10-K for the year ended December 31, 2024 is formatted in Inline XBRL

Filed herewith.

Indicates a management contract or any compensatory

plan, contract or arrangement.

FORM 10-K SUMMARY

to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report

on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this 29th day of March, 2024.

Executive Officer and Director

Executive Officer)

Not applicable.

Pursuant to the requirements

of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be

signed on its behalf by the undersigned, thereunto duly authorized on this 28th day of March, 2025.

DATCHAT, INC.

/s/ Darin Myman

Chief Executive Officer and Director

(Principal Executive Officer)

/s/ Brett Blumberg

Brett Blumberg

Financial Officer

Financial and Accounting Officer)

Chief Financial Officer

(Principal Financial and Accounting Officer)

POWER OF ATTORNEY

1 unchanged sentence

PRESENTS, that each person whose signature appears below hereby constitutes and appoints, Darin Myman, as his or her attorney-in-fact,

with full power of substitution and resubstitution, for him or her in any and all capacities, to sign any and all amendments to this Annual

Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and

Exchange Commission, granting unto said attorney-in-fact full power and authority to do and perform each and every act and thing requisite

and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying

and confirming all that said attorney-in-fact, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

to the requirements of the Securities Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on

behalf of the registrant and in the capacities and on the dates indicated.

/s/ Darin Myman

Chief Executive Officer and Director

with full power of substitution and resubstitution, for him or her in any and all capacities, to sign any and all amendments to this

Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities

and Exchange Commission, granting unto said attorney-in-fact full power and authority to do and perform each and every act and thing

requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby

ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may lawfully do or cause to be done by virtue

Pursuant to the requirements

of the Securities Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant

and in the capacities and on the dates indicated.

Chief Executive Officer

March 28, 2025

(Principal Executive Officer)

/s/ Brett Blumberg

Brett Blumberg

Chief Financial Officer

2 unchanged sentences

(Principal Financial and Accounting Officer)

/s/ Peter Shelus

Chief Technology Officer and Director

Chief Technology Officer

March 28, 2025

/s/ Joseph Nelson

Joseph Nelson

March 28, 2025

Joseph Nelson

/s/ Carly Luogameno

Carly Luogameno

March 28, 2025

Carly Luogameno

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2023 and 2022

Report of Independent Registered Public Accounting Firm (PCAOB Firm ID:

DATCHAT, INC.

AND SUBSIDIARIES AND CONSOLIDATED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024 and 2023

Report of Independent Registered Public Accounting Firm (PCAOB Firm ID:

Consolidated Balance Sheets F-5

Consolidated Statements of Operations F-6

Consolidated Statements of Changes in Stockholders’ Equity F-7

Consolidated Statements of Cash Flows F-8

Consolidated Balance Sheets – For the Years Ended December 31, 2024 and 2023 F-4

Consolidated Statements of Operations and Comprehensive Loss – For the Years Ended December 31, 2024 and 2023 F-5

Consolidated Statements of Changes in Stockholders’ Equity– For the Years Ended December 31, 2024 and 2023 F-6

Consolidated Statements of Cash Flows– For the Years Ended December 31, 2024 and 2023 F-7

Notes to Consolidated Financial Statements F-8

5 unchanged sentences

balance sheet of DatChat, Inc.

and subsidiaries and consolidated entities (the “Company”) as of December 31, 2023, the related

consolidated statements of operations, changes in stockholders’ equity and cash flows for the year then ended, and the related notes

(collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements

present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023, and the consolidated

results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the

United States of America.

Going Concern

The accompanying consolidated financial statements

have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements,

the Company has suffered operating losses since inception and in fiscal 2023 has a net loss of $8,404,970 and cash used in operations

of $6,529,277.

The Company also had an accumulated deficit as of December 31, 2023 of $48,134,088.

These matters raise substantial doubt

about the Company’s ability to continue as a going concern.

Management’s Plans in regards to these matters are also described

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

and subsidiaries and consolidated entities (the “Company”) as of December 31, 2024 and 2023,

the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the

period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of

the Company as of December 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for each of the two years

in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

2 unchanged sentences

Our responsibility is to express an opinion on the Company’s consolidated financial

statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)

(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws

and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the

statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United

States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities

laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement, whether due to error or fraud.

1 unchanged sentence

engaged to perform, an audit of internal control over financial reporting.

As part of our audit, we are required to obtain an understanding

As part of our audits, we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s

1 unchanged sentence

Accordingly, we express no such opinion.

2295 NW Corporate Blvd., Suite 240 • Boca

Raton, FL 33431-7326

(561) 995-8270 • Toll Free:

(866) CPA-8500

(561) 995-1920

www.salbergco.com • info@salbergco.com

Member National Association of Certified Valuation

Analysts • Registered with the PCAOB

Member CPAConnect with Affiliated Offices Worldwide

• Member AICPA Center for Audit Quality

Our audit included performing procedures to assess

Our audits included performing procedures to assess

the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures

2 unchanged sentences

consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by

Our audits also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides

We believe that our audits provide

a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below

are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to

the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2)

involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any

way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters

below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accounting Treatment of Certain Entities

As described in footnote 1 “Variable Interest

Entities” to the consolidated financial statements, the Company consolidated the two Metabizz entities as variable interest entities

(VIE) starting in February 2023.

The determination of whether an entity is a variable interest entity, whether the Company is the primary

beneficiary, when to start consolidation into the Company and the initial consolidation accounting including any fair value valuations

of the initial assets and liabilities to be consolidated on the initial consolidation date, can be a complex analysis that involves significant

quantitative and qualitative judgments.

We identified the above determinations as a critical

audit matter.

Auditing management’s analysis and judgments regarding the above determinations was especially challenging.

The primary procedures we performed to address

this critical audit matter included (a) reviewed authoritative and interpretive literature about variable interest entities, (b) audited

management’s analysis as to whether the Metabizz entities were variable interest entities and whether the Company is the primary

beneficiary, (c) audited management’s analysis of when to begin consolidation, (d) audited management’s valuation of the fair

value of assets and liabilities to be consolidated on the initial consolidation date and (e) audited management’s analysis as to

the initial consolidation accounting.

We agreed with management’s conclusions.

/s/ Salberg &

Company, P.A.

SALBERG & COMPANY,

We have served as the

Company’s auditor since 2023 .

Boca Raton, Florida

March 29, 2024

The critical audit matters communicated

below are matters arising from the current period audit of the financial statements that were communicated or required to be

communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial

statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit

matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by

communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or

disclosures to which they relate.

2295 NW Corporate Blvd., Suite 240 ● Boca

8 unchanged sentences

● Member AICPA Center for Audit Quality

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Board of Directors and

Stockholders of DatChat, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated

balance sheets of DatChat, Inc.

(the Company) as of December 31, 2022 and the related consolidated statements of operations, stockholders’

equity, and cash flows for the years ended December 31, 2022 and related notes (collectively referred to as the consolidated financial

In our opinion, the consolidated financial statements

present fairly, in all material respects, the financial position of the Company as of December 31, 2022 the results of its operations

and its cash flows for the years ended December 31, 2022 in conformity with accounting principles generally accepted in the United States

Basis for Opinion

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are

required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and

regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial

statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged

to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding

of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Brooks and Associates CPAs, P.A.

Accounting Treatment of Non-Controlling Interests

As described in footnote 2 to the consolidated financial statements,

the Company entered into several transactions in 2024 that involved the equity of its subsidiary RPM Interactive, Inc.

(the “subsidiary”)

which created interests in the subsidiary to be accounted for as non-controlling interests.

Additionally, to properly allocate the net

loss of the subsidiary to non-controlling interests, management had to allocate certain shared expenses from the parent entity to the

The determination of the date to initially start accounting for non-controlling interests and the dates and method to record

additional initial non-controlling interests, and the method and accuracy of the allocation of shared expenses involved management’s

analysis, judgments and estimates which were complex and subjective.

We identified the above determinations as a critical audit matter.

Auditing management’s analysis, judgments and estimates regarding the above determinations was especially challenging.

The primary procedures we performed to address this critical audit

matter included (a) reviewed authoritative and interpretive literature about non-controlling interests, (b) audited management’s

analysis as to when to start, when to update, and how to record initial non-controlling interests, (c) assessed the reasonableness of

the shared expenses allocation method selected by management and (d) audited the mathematical accuracy of the allocation of the shared

We agreed with management’s conclusions.

/s/ Salberg & Company, P.A.

SALBERG & COMPANY, P.A.

We have served as the Company’s auditor

Palm Beach Gardens, Florida

March 31, 2023, except for the evaluation of the

retroactive effect of the reverse stock split described in Note 1, which is as of March 29, 2024

Boca Raton, Florida

March 28, 2025

DATCHAT, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE

AND SUBSIDIARIES AND CONSOLIDATED

CONSOLIDATED BALANCE SHEETS

CURRENT ASSETS:

4 unchanged sentences

Total Current Assets

OTHER ASSETS:

N0N-CURRENT ASSETS:

Property and equipment, net

Digital currencies and other digital assets

Internal-use software

Operating lease right-of-use asset, net

Total Other Assets

Total Non-current Assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

1 unchanged sentence

Accounts payable and accrued expenses

Operating lease liability, current portion

Operating lease liability

Contract liabilities

Due to related party

Total Current Liabilities

LONG-TERM LIABILITIES:

Operating lease liability, less current portion

Total Long-Term Liabilities

Total Liabilities

8 unchanged sentences

2,000,000 Share designated;

2,000,000 and none issued and outstanding on December 31, 2023 and 2022, respectively)

2,000,000 issued and outstanding on December 31, 2024 and 2023)

Common stock ($ 0.0001 par value;

3 unchanged sentences

Additional paid-in capital

Treasury stock, at cost ( 66,945 and 0 shares on December 31, 2023 and 2022, respectively)

Treasury stock, at cost ( 66,945 shares on December 31, 2024 and 2023)

Accumulated other comprehensive gain

2 unchanged sentences

( 48,134,088 )

Total DatChat, Inc.

Stockholders’ Equity

Noncontrolling interest

( 2,137,789 )

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial

DATCHAT, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS

OF OPERATIONS AND COMPREHENSIVE LOSS

AND SUBSIDIARIES AND CONSOLIDATED

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE

For the Year Ended

5 unchanged sentences

General and administrative expenses

Impairment loss on property and equipment and intangible asset

Impairment loss on property and equipment

Impairment loss on digital currencies and other digital assets

6 unchanged sentences

Gain on initial consolidation of variable interest entities

Foreign currency loss

Realized gain on short-term investments

Unrealized gain (loss) on short-term investments

Gain on deconsolidation of variable interest entities

Foreign currency exchange loss

Realized loss on short-term investments

Total other income (expenses), net

1 unchanged sentence

( 8,404,970 )

Net loss of subsidiary attributable to noncontrolling interest

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS

$ ( 4,239,160 )

$ ( 8,404,970 )

COMPREHENSIVE LOSS:

2 unchanged sentences

Other comprehensive (loss) gain:

Unrealized (loss) gain on short-term investments

Unrealized foreign currency translation loss

Unrealized gain on short-term investments

Unrealized foreign currency translation gain (loss)

Comprehensive loss

1 unchanged sentence

$ ( 8,370,417 )

NET LOSS PER COMMON SHARE:

NET LOSS PER COMMON SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS:

Basic and diluted

1 unchanged sentence

Basic and diluted

See accompanying notes to consolidated financial statements.

DATCHAT, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS

OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER

31, 2023 AND 2022

See accompanying notes to consolidated financial

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Preferred Stock

Treasury Stock

Accumulated other

Comprehensive

Noncontrolling

Stockholders’

Balance, December 31, 2021

December 31, 2022

$ ( 39,729,118 )

Accretion of stock based compensation in connection with stock option grants

Accretion of stock-based

professional fees in connection with stock option grants and shares

Shares issued for asset acquisition

Net loss for the year

of stock based compensation in connection with stock option grants

of stock-based professional fees in connection with stock option grants and shares

of common stock for professional services

of treasury stock

other comprehensive gain

of Series B preferred stock

for reverse split

loss for the period

( 8,404,970 )

Balance, December 31, 2022

December 31, 2023

( 48,134,088 )

Accretion of stock based compensation in connection with stock option grants

Accretion of stock-based

professional fees in connection with stock option grants and shares

Issuance of common stock for

prepaid professional services

Sale of Series B preferred stock

Purchase of treasury stock

Accumulated other comprehensive gain

Rounding for reverse split

Net loss for the year

of stock based compensation in connection with stock option grants

of stock-based professional fees in connection with stock option grants

of common shares in subsidiary for services

of common shares in subsidiary for cash

Issuance of common stock for cash, net of allocated offering costs of $ 149,248

Sale of pre-funded warrants, net of allocated offering costs of $ 229,918

exercise of pre-funded warrants

of subsidiary common stock for asset acquisition

Initial recording

and changes in noncontrolling interest from RPM Interactive ownership changes

( 1,351,942 )

other comprehensive loss

loss for the period

( 4,239,160 )

Balance, December 31, 2023

( 5,025,007 )

December 31, 2024

$ ( 397,969 )

See accompanying notes to consolidated financial statements.

$ ( 52,373,248 )

$ ( 2,137,789 )

See accompanying notes to

consolidated financial statements.

DATCHAT, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS

OF CASH FLOWS

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Year Ended

2 unchanged sentences

$ ( 8,404,970 )

Adjustments to reconcile net loss to net cash used in operating activities:

Adjustments to reconcile net loss to net cash

used in operating activities:

Depreciation and amortization

2 unchanged sentences

Stock-based professional fees

Gain from initial consolidation of variable interest entities

Impairment loss on property and equipment and intangible asset

Impairment loss on digital currencies and other digital assets

Non-cash digital currency and other digital assets fees

Non-cash revenue from sale of Venvuu NFT digital asset

Realized gain on short-term investments

Stock-based professional fees - Dragon Interactive

Gain from initial consolidation of variable interest

Gain on deconsolidation of variable interest entities

Foreign currency exchange loss

Non-cash research and development expense

Impairment loss on property and equipment

Impairment loss on digital currencies and other

digital assets

Accrued interest included in short-term investments

Unrealized loss on short-term investments

1 unchanged sentence

Accounts receivable

Accounts receivable - related party

Prepaid expenses

10 unchanged sentences

( 8,599,121 )

Purchases of property and equipment

Increase in cash from consolidation of variable interest entities

Proceeds from sale of digital currencies and other digital assets

Purchases of digital currencies and other digital assets

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

( 11,209,126 )

Purchase of property and equipment

Increase in cash from consolidation of variable

interest entities

NET CASH PROVIDED BY INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from related party advances

Repayment of related party advances

Proceeds from sale of Series B preferred stock

Proceeds from sale of common stock, net

Proceeds from sale of subsidiary common stock

Proceeds from sale of pre-funded warrants

Purchase of treasury stock

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

NET DECREASE IN CASH AND CASH EQUIVALENTS

( 18,466,779 )

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Effect of exchange rate changes on cash

CASH AND CASH EQUIVALENTS -

beginning of year

CASH AND CASH EQUIVALENTS - end of

CASH AND CASH EQUIVALENTS - beginning of year

CASH AND CASH EQUIVALENTS - end of year

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

1 unchanged sentence

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Digital currencies used to pay accounts payable

Common stock issued for future services

Issuance of common shares for intangible assets

Increase in short-term investments and accumulated other comprehensive

See accompanying notes to

consolidated financial statements.

Initial recording and changes in noncontrolling

interest deficit

Common stock issued for future

Acquisition of intangible

assets for common stock of subsidiary

See accompanying notes to consolidated financial

DATCHAT, INC.

AND SUBSIDIARIES

AND CONSOLIDATED ENTITIES

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 and 2023

1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(the “Company”) was incorporated in the State of Nevada on December 4, 2014 under the name of YssUp, Inc.

2015, the Company’s corporate name was changed to Dat Chat, Inc.

In August 2016, the Board of Directors of the Company approved

to change the name of the Company from Dat Chat, Inc.

NOTE 1 – ORGANIZATION

DatChat, Inc.

(the “Company”) was

incorporated in the State of Nevada on December 4, 2014 under the name of YssUp, Inc.

On March 4, 2015, the Company’s corporate

name was changed to Dat Chat, Inc.

In August 2016, the Board of Directors of the Company approved to change the name of the Company from

Dat Chat, Inc.

to DatChat, Inc.

The Company established a fiscal year end of December 31.

Company is a secure messaging, metaverse, 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.

The Company believes that one’s right to privacy should not end

the moment they click “send.” The Company’s flagship product, DatChat Messenger & Private Social Network, is a

mobile application that gives users the ability to communicate with privacy and protection.

June 16, 2022, the Company formed a wholly-owned subsidiary, SmarterVerse, Inc.

(“SmarterVerse”), a company incorporated

under the laws of the State of Nevada.

On February 14, 2023, SmarterVerse entered into a subscription agreement with Metabizz, LLC.

connection with the subscription agreement, SmarterVerse sold Metabizz, LLC 8,000,000 shares of its common stock for $ 800 , which was

40 % of the issued and outstanding common shares of SmarterVerse.

On October 2, 2023, pursuant to the Stock Purchase Agreement, SmarterVerse

issued DatChat an additional 12,000,000 shares of its common stock for $ 500,000 in SmarterVerse expenses paid to MetaBizz on behalf of

SmarterVerse Inc.

by DatChat, Inc.

Accordingly, as of December 31, 2023, Dat Chat, Inc.

owns 75 % of SmarterVerse.

Based on the Company’s

analysis, on February 14, 2023, Metabizz, LLC was determined to be a variable interest entity (see below).

Metabizz, LLC was formed by a group of technology professionals to provide programming services only to SmarterVerse.

One of the founders was the chief technology officer of SmarterVerse.

On June 29, 2022, the Company, DatChat Patents I, Inc., a Nevada corporation

and wholly-owned subsidiary of DatChat that was formed on June 23, 2022 (“Merger Sub I”), DatChat Patents II, LLC, a Nevada

limited liability company and wholly-owned subsidiary of DatChat that was formed on June 23, 2022 (“Merger Sub II”), and Avila

Security Corporation, a Delaware corporation (“Avila”), entered into an agreement and plan of merger (the “Merger Agreement”).

Pursuant to the Merger Agreement, the Company acquired all the issued and outstanding shares of Avila in consideration for the issuance

of 100,000 shares (the “Acquisition Shares”) of the Company’s restricted stock.

The acquisition included intellectual

property rights in blockchain based digital rights management and object sharing technology, including encrypted WebRTC real-time video

and audio streaming communications.

Immediately following the merger, Merger Sub I was merged into Avila and Merger Sub I was dissolved

and Avila was merged into Merger Sub II.

(See Note 3).

Other than owning certain patents, Avila had no operations or no employees and

was not considered a business.

September 19, 2023, the Company filed a Certificate of Change (the “Certificate of Change”) with the Secretary of State of

the State of Nevada to effectuate a 1-for-10 reverse stock split (the “Reverse Stock Split”) of the Company’s issued

and outstanding and authorized shares of common stock, par value $ 0.0001 per share (“Common Stock”).

The Reverse Stock Split

became effective on September 19, 2023.

Proportional adjustments for the Reverse Stock Split were made to the Company’s outstanding

stock options, warrants and equity incentive plans, and authorized shares.

On December 27, 2023, the Company filed a Certificate of Change

(the “Certificate of Change”) with the Secretary of State of the State of Nevada to increase the number of authorized common

stock from 18,000,000 shares to 180,000,000 shares.

All share and per-share data and amounts have been retroactively adjusted as of the

earliest period presented in the consolidated financial statements to reflect the Reverse Stock Split.

of presentation

Company consolidates its subsidiaries that are wholly-owned and majority owned, and entities that are variable interest entities (“VIE”)

where the Company is determined to be the primary beneficiary.

The Company’s consolidated financial statements include the accounts

of its wholly-owned subsidiaries, DatChat, Inc., DatChat Patents II, LLC, its majority owned subsidiary, SmarterVerse, and VIE entities,

Metabizz, LLC and Metabizz SAS (collectively the “Company”).

All intercompany accounts and transactions have been eliminated

in consolidation.

Company accounts for it noncontrolling interest in SmarterVerse 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.

However, since Metabizz, LLC and Metabizz SAS are consolidated as VIE’s, any noncontrolling interest

eliminates in consolidation.

interest entities

to ASC 810-10-25-22 , an entity is defined as a VIE if it either lacks sufficient equity to finance its activities without additional

subordinated financial support, or it is structured such that the holders of the voting rights do not substantively participate in the

gains and losses of the entity.

When determining whether an entity that meets the definition of a business qualifies for a scope exception

from applying VIE guidance, the Company considers whether:

(i) it has participated significantly in the design of the entity, (ii) it

has provided more than half of the total financial support to the entity, and (iii) substantially all of the activities of the VIE are

conducted on its behalf.

A 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

The Company is a 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.

The Company’s 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, the Company has expanded its business and

product offerings to include the development of Myseum, a social network and multi-media storage platform for consumers and enterprises.

On June 16, 2022, the Company formed a majority

owned subsidiary, RPM Interactive, Inc.

under the name SmarterVerse, Inc., a company incorporated under the laws of the State of Nevada

(“RPM Interactive”).

On February 14, 2024, RPM Interactive filed a Certificate of Amendment with the State of Nevada to change

its name from SmarterVerse, Inc.

to Dragon Interactive Corporation.

On August 7, 2024, RPM Interactive filed a Certificate of Amendment

with the State of Nevada to change its name from Dragon Interactive Corporation to Dragon Interact, Inc.

On November 21, 2024, RPM Interactive

filed a Certificate of Amendment with the State of Nevada to change its name from Dragon Interact, Inc.

to RPM Interactive, Inc.

On February 14, 2023, RPM Interactive entered

into a subscription agreement with Metabizz, LLC.

In connection with the subscription agreement, RPM Interactive sold Metabizz, LLC 8,000,000

shares of its common stock for $ 800 , which was 40 % of the issued and outstanding common shares of RPM Interactive.

On October 2, 2023,

pursuant to the Stock Purchase Agreement, RPM Interactive issued the Company an additional 12,000,000 shares of its common stock for $ 500,000 .

On January 10, 2024, VR Interactive LLC (“VR

Interactive”), a company 45 % owned by Darin Myman, the Company’s CEO and 3.75 % owned by Peter Shelus, the Company’s

chief technology officer and director, purchased 8,000,000 shares of RPM Interactive from the Metabizz shareholders.

Myman is a partner

in VR Interactive.

Therefore, VR Interactive, a related party, became a 25 % non-controlling interest in RPM Interactive.

On February 14, 2023, based on the Company’s

analysis, Metabizz, LLC and Metabizz SAS were determined to be variable interest entities (see below).

Metabizz, LLC and Metabizz SAS

were formed by a group of technology professionals to provide programming services only to RPM Interactive.

One of the founders of Metabizz,

LLC was the chief technology officer of RPM Interactive.

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 pays technology professionals directly.

On August 27, 2024, the Company entered into an

Asset Purchase Agreement with Judaopta LLC, a Delaware limited liability company (the “Seller”), pursuant to which it acquired

from Seller (i) certain software (the “RenAI Software”), which consists of an artificial intelligence (AI) tool designed used

for media library organization with the ability to tag and rename images for PC and MAC devices using AI with integration to Gemini, OpenAI

and Claude and (ii) certain domain names (the “Assets”) in consideration for the transfer by the Company of 8,000,000 restricted

shares of common stock of RPM Interactive.

On October 29, 2024 (the “Closing Date”

and measurement date), RPM Interactive, the Company’s subsidiary, entered into and closed on a Share Exchange Agreement (the “Share

Exchange Agreement”) with (i) RPM Interactive, Inc., a private Florida corporation incorporated on August 23, 2024 (“RPM Florida”);

and (ii) the shareholders of RPM Florida.

Pursuant to the Share Exchange Agreement, RPM Interactive acquired 100 % of the shares of RPM

Florida in exchange for 3,500,000 shares of RPM Interactive’s common stock.

RPM Florida is a web publishing company that leverages

generative AI systems to offer consumers entertaining gaming apps and podcasting offerings in the sports, finance, entertainment and politics

categories (See Note 5).

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING

Basis of presentation

On September 19, 2023, the Company filed a Certificate

of Change (the “Certificate of Change”) with the Secretary of State of the State of Nevada to effectuate a 1-for-10 reverse

stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding and authorized shares of common stock,

par value $ 0.0001 per share (“Common Stock”).

The Reverse Stock Split became effective on September 19, 2023.

adjustments for the Reverse Stock Split were made to the Company’s outstanding stock options, warrants and equity incentive plans,

and authorized shares.

On December 27, 2023, the Company filed a Certificate of Change (the “Certificate of Change”) with

the Secretary of State of the State of Nevada to increase the number of authorized common stock from 18,000,000 shares to 180,000,000

All share and per-share data and amounts have been retroactively adjusted as of the earliest period presented in the consolidated

financial statements to reflect the Reverse Stock Split.

The Company consolidates its subsidiaries that

are wholly-owned and majority owned, and entities that are variable interest entities (“VIE”) where the Company is determined

to be the primary beneficiary.

The Company’s consolidated financial statements include the accounts of the parent entity.

Inc., its wholly-owned subsidiary, DatChat Patents II, LLC, and RPM Interactive, which was a majority-owned subsidiary through August

27, 2024 and became a VIE after August 27, 2024, and VIE entities, Metabizz, LLC and Metabizz SAS through March 31, 2024, at which date

the Metabizz VIE entities were deconsolidated.

All intercompany accounts and transactions have been eliminated in consolidation.

DATCHAT, INC.

AND SUBSIDIARIES

AND CONSOLIDATED ENTITIES

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 and 2023

on the Company’s analysis, on February 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.

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.

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 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.

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 .

Company’s consolidated balance sheets included the following assets and liabilities from its VIEs:

Due to DatChat and SmarterVerse (eliminates in consolidation)

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

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

On or prior to March 31, 2024, the Company ceased doing business

with Metabizz, LLC and Metabizz SAS and now pays technology professionals directly.

In connection with the deconsolidation of Metabizz,

LLC and Metabizz SAS, during the year ended December 31, 2024, the Company recorded a gain on deconsolidation of $ 107 .

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 its 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 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.

Due to the issuance of common shares by RPM Interactive, during

the year ended December 31, 2024, the Company recorded aggregate initial negative noncontrolling interest of $ 1,351,942 in total equity

for the portion of additional equity ownership not attributable to the Company based on the 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.

Variable interest entities

Pursuant to ASC 810-10-25-22 , an entity

is defined as a VIE if it either lacks sufficient equity to finance its activities without additional subordinated financial support,

or it is structured such that the holders of the voting rights do not substantively participate in the gains and losses of the entity.

When determining whether an entity that meets the definition of a business qualifies for a scope exception from applying VIE guidance,

the Company considers whether:

(i) it has participated significantly in the design of the entity, (ii) it has provided more than half

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.

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

Based on the Company’s analysis, on February

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 did 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 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 has provided working capital advances to Metabizz to allow Metabizz to fund its day-to-day

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.

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 year ended December 31, 2024, the Company recorded a gain on deconsolidation of $ 107 .

DATCHAT, INC.

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 and 2023

Immediately following the August 27, 2024 Asset

Purchase Agreement with the Seller (See Note 1), the Company owned 46.7 % of RPM Interactive.

Based on the Company’s analysis, on

August 27, 2024, 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.

As of December 31, 2024,

the Company retains approximately 39.7 % ownership of RPM Interactive.

The Company’s consolidated balance sheets

included the following assets and liabilities from its VIEs:

Prepaid expenses

Intangible assets, net

Due to DatChat (eliminates in consolidation)

Accounts payable and accrued expenses

Total liabilities

Going concern

As reflected in the accompanying consolidated

financial statements, the Company had a net loss of $ 8,404,970 for the year ended December 31, 2023.

Net cash used in operations

was $ 6,529,277 for the year ended December 31, 2023.

Additionally, as of December 31, 2023, the Company had an accumulated deficit of

$ 48,134,088 and has generated minimal revenues since inception.

As of December 31, 2023, the Company had working capital of $ 5,969,447 ,

including cash of $ 953,362 and short-term investments of $ 5,236,781 .

Additionally, on January 16, 2024, the Company entered into an 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, and pre-funded

warrants to purchase up to 590,000 shares of the Company’s common stock.

In connection with this Offering, the Company received

net proceeds of $ 1,437,940 (See Note 10).

These factors raise substantial doubt about the Company’s ability to continue as a going

concern for a period of twelve months from the issuance date of this report.

Management cannot provide assurance that the Company will

ultimately achieve profitable operations or become cash flow positive or raise additional debt and/or equity capital.

The Company is seeking

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

Although the Company has historically

raised capital from sales of common shares, there is no assurance that it will be able to continue to do so.

If the Company is 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 the Company be unable to continue as a going

preparation of the financial statements in conformity with accounting principles generally accepted in the U.S.

requires management to

make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures

at the date of the consolidated financial statements and during the reporting period.

Actual results could materially differ from these

Significant estimates include assumptions used in assessing impairment of long-term assets, the valuation of intangible assets,

the valuation of digital currencies and other digital assets, the valuation of lease liabilities and related right of use assets, the

valuation of short-term investments, the valuation of deferred tax assets, the fair value of assets and liabilities of VIE’s on

the initial VIE consolidation date, and the fair value of non-cash equity transactions.

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 the Company received net proceeds of $ 4,537,000

(See Note 10).

Net cash 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.

The Company believes that its existing working capital of $ 3,657,711 plus

cash raised in 2025 of $ 4,537,000 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.

Use of estimates

The preparation of the financial statements in

conformity with accounting principles generally accepted in the U.S.

requires management to make estimates and assumptions that affect

the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the consolidated financial

statements and during the reporting period.

Actual results could materially differ from these estimates.

Significant estimates include

assumptions used in assessing impairment of long-term assets, the valuation of intangible assets, the valuation of digital currencies

and other digital assets, the valuation of lease liabilities and related right of use assets, the valuation of short-term investments,

the valuation of deferred tax assets, the fair value of assets and liabilities of VIE’s on the initial VIE consolidation date, the

allocation of corporate expenses to subsidiaries which impacts noncontrolling interest, and the fair value of non-cash equity transactions.

Cash and cash equivalents

The Company considers all highly liquid debt instruments

and other short-term investments with maturities of three months or less, when purchased, to be cash equivalents.

The Company maintains

cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance Corporation (“FDIC”).

The Company’s account at this institution is insured by the FDIC up to $ 250,000 .

On December 31, 2024 and 2023, the Company had

cash in excess of FDIC limits of approximately $ 524,000 and $ 446,000 , respectively.

To reduce its risk associated with the failure of

such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits.

Any material loss that the Company may experience in the future could have an adverse effect on its ability to pay its operational expenses

or make other payments and may require the Company to move its cash to other high quality financial institutions.

Fair value measurements and fair value of

financial instruments

The carrying value of certain financial instruments,

including cash and cash equivalents, accounts payable and accrued expenses, and due to related party are carried at historical cost basis,

which approximates their fair values because of the short-term nature of these instruments.

The Company analyzes all financial instruments

with features of both liabilities and equity under the Financial Accounting Standard Board’s (the “FASB”) accounting

standard for such instruments.

Under this standard, financial assets and liabilities are classified in their entirety based on the lowest

level of input that is significant to the fair value measurement.

DATCHAT, INC.

AND SUBSIDIARIES

AND CONSOLIDATED ENTITIES

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 and 2023

and cash equivalents

Company considers all highly liquid debt instruments and other short-term investments with maturities of three months or less, when purchased,

to be cash equivalents.

The Company maintains cash and cash equivalent balances at one financial institution that is insured by

the Federal Deposit Insurance Corporation (“FDIC”).

The Company’s account at this institution is insured by the FDIC

up to $ 250,000 .

On December 31, 2023 and 2022, the Company had cash in excess of FDIC limits of approximately $ 446,379 and $ 1,406,033 ,

respectively.

To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the

rating of the financial institution in which it holds deposits.

Any material loss that the Company may experience in the future could

have an adverse effect on its ability to pay its operational expenses or make other payments and may require the Company to move its

cash to other high quality financial institutions.

Currently, the Company is reviewing its bank relationships in order to

mitigate its risk to ensure that its exposure is limited or reduced to the FDIC protection limits.

value measurements and fair value of financial instruments

carrying value of certain financial instruments, including cash and cash equivalents, accounts payable and accrued expenses, and due

to related party are carried at historical cost basis, which approximates their fair values because of the short-term nature of these

Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard Board’s

(the “FASB”) accounting standard for such instruments.

Under this standard, financial assets and liabilities are classified

in their entirety based on the lowest level of input that is significant to the fair value measurement.

following table represents the Company’s fair value hierarchy of its financial assets and liabilities measured at fair value on

a recurring basis as of December 31, 2023 and 2022.

The following table represents the Company’s

fair value hierarchy of its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2024 and 2023.

December 31, 2024

1 unchanged sentence

Short-term investments

Company’s short-term investments are level 1 measurements and are based on redemption value at each date.

Company’s portfolio of short-term investments consists of marketable debt securities which are comprised solely of highly rated

government securities with maturities of more than three months, but less than one year.

The Company classifies these as available-for-sale

at purchase date and will reevaluate such designation at each period end date.

The Company may sell these marketable debt securities

prior to their stated maturities depending upon changing liquidity requirements.

These debt securities are classified as current assets

in the consolidated balance sheet and recorded at fair value, with unrealized gains or losses included in accumulated other comprehensive

gain (loss) and as a component of the consolidated statements of comprehensive loss.

The Company’s short-term investments are

level 1 measurements and are based on redemption value at each date.

Short-term investments

The Company’s portfolio of short-term investments

consists of marketable debt securities which are comprised solely of highly rated U.S.

government securities with maturities of more than

three months, but less than one year.

The Company classifies these as available-for-sale at purchase date and will reevaluate such designation

at each period end date.

The Company may sell these marketable debt securities prior to their stated maturities depending upon changing

liquidity requirements.

These debt securities are classified as current assets in the consolidated balance sheet and recorded at fair

value, with unrealized gains or losses included in accumulated other comprehensive gain (loss) and as a component of the consolidated

statements of comprehensive loss.

Gains and losses are recognized when realized.

and losses are determined using the specific identification method and are reported in other income (expense), net in the consolidated

statements of operations.

Short-term investments are carried at fair value, which is based on quoted market prices for such securities,

if available, or is estimated on the basis of quoted market prices of financial instruments with similar characteristics.

impairment loss may be recognized when the decline in fair value of the debt securities is determined to be other-than-temporary.

Company evaluates its investments for other-than-temporary declines in fair value below the cost basis each quarter, or whenever events

or changes in circumstances indicate that the cost basis of the short-term investments may not be recoverable.

The evaluation is based

on a number of factors, including the length of time and the extent to which the fair value has been below the cost basis, as well as

adverse conditions related specifically to the security, such as any changes to the credit rating of the security and the intent to sell

or whether the Company will more likely than not be required to sell the security before recovery of its amortized cost basis.

the year ended December 31, 2023, the Company recorded an unrealized gain of $ 34,553 , which is included in accumulated other comprehensive

gain on the accompanying consolidated balance sheet and as a component of the consolidated statements of comprehensive loss.

year ended December 31, 2023 and 2022, the Company recorded an unrealized gain on short-term investments of $ 0 and $ 47,672 , which was

reflected on the accompanying consolidated statements of operation and comprehensive loss.

Company recognizes an allowance for losses on accounts receivable and notes receivable in an amount equal to the estimated probable losses

net of recoveries under the current expected credit loss method.

The allowance is based on an analysis of historical bad debt experience,

current receivables aging and expected future write-offs, as well as an assessment of specific identifiable customer accounts and notes

receivable considered at risk or uncollectible.

On January 1, 2023, the Company adopted ASC 326, “Financial Instruments - Credit

In accordance with ASC 326, an allowance is maintained for estimated forward-looking losses resulting from the possible

inability of customers to make required payments (current expected losses).

The amount of the allowance is determined principally on

the basis of past collection experience and known financial factors regarding specific customers.

The expense associated with the allowance

for doubtful accounts on accounts receivable is recognized in general and administrative expenses.

As of December 31, 2023 and 2022,

accounts receivable amounted to $ 183 and $ 384 , respectively, and for the years ended December 31, 2023 and 2022, the Company did not

recognize any bad debt expense.

Gains and losses are determined using the specific identification

method and are reported in other income (expense), net in the consolidated statements of operations.

Short-term investments are carried

at fair value, which is based on quoted market prices for such securities, if available, or is estimated on the basis of quoted market

prices of financial instruments with similar characteristics.

An impairment loss may be recognized when the

decline in fair value of the debt securities is determined to be other-than-temporary.

The Company evaluates its investments for other-than-temporary

declines in fair value below the cost-basis each quarter, or whenever events or changes in circumstances indicate that the cost basis

of the short-term investments may not be recoverable.

The evaluation is based on a number of factors, including the length of time and

the extent to which the fair value has been below the cost basis, as well as adverse conditions related specifically to the security,

such as any changes to the credit rating of the security and the intent to sell or whether the Company will more likely than not be required

to sell the security before recovery of its amortized cost basis.

Accounts receivable

The Company recognizes an allowance for losses

on accounts receivable and notes receivable in an amount equal to the estimated probable losses net of recoveries under the current expected

credit loss method.

The allowance is based on an analysis of historical bad debt experience, current receivables aging and expected future

write-offs, as well as an assessment of specific identifiable customer accounts and notes receivable considered at risk or uncollectible.

On January 1, 2023, the Company adopted ASC 326, “Financial Instruments - Credit Losses”.

In accordance with ASC 326, an allowance

is maintained for estimated forward-looking losses resulting from the possible inability of customers to make the required payments (current

expected losses).

The amount of the allowance is determined principally on the basis of past collection experience and known financial

factors regarding specific customers.

The expense associated with the allowance for doubtful accounts on accounts receivable is recognized

in general and administrative expenses.

As of December 31, 2024 and 2023, accounts receivable amounted to $ 207 and $ 183 , respectively,

and for the years ended December 31, 2024 and 2023, the Company did not recognize any bad debt expense.

Accounting for digital currencies and other

digital assets

The Company accounts for digital currencies and

other digital assets held 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.

DATCHAT, INC.

AND SUBSIDIARIES

AND CONSOLIDATED ENTITIES

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 and 2023

for digital currencies and other digital assets

Company purchased Ethereum cryptocurrency (“Ethereum”) and other digital assets and accepted 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 (“ASC 350”).

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 in ASC 350.

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.

years ended December 31, 2023 and 2022, the Company recorded an impairment loss of $ 23,381 and $ 119,276 , respectively, which consists

of the impairment of virtual real estate and digital currencies.

Based on the Company’s impairment analysis, the decrease in value

of the virtual real estate and digital currencies, which was based on the lowest market price quoted on an active exchange, was deemed

to be other than temporary.

Additionally, the Company determined that it will not utilize its virtual real estate.

and equipment

and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives, which range from

three to five years.

Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal

Maintenance and repairs are charged to expense as incurred.

When assets are retired or disposed of, the cost and accumulated depreciation

are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.

The Company examines

the possibility of decreases in the value of these assets when events or changes in circumstances reflect the fact that their recorded

value may not be recoverable.

internal-use software costs

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

project stage.

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

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

Software development costs incurred during the years 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 and were incurred with Metabizz (see Note 6).

assets, consisting of patents, are carried at cost less accumulated amortization, computed using the straight-line method over the estimated

useful life, less any impairment charges.

Based on the Company’s impairment analysis, management determined that an intangible

impairment charge was required for the year ended December 31, 2022 and accordingly, the Company recorded an impairment loss of

(See Note 5 for additional information regarding intangible assets).

The 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 impaired.

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

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.

Impairment losses and gains or losses on sales are recognized

within operating expenses in the consolidated statements of operations.

During the years ended December 31, 2024 and 2023, the Company

recorded an impairment loss of $0 and $ 23,381 , respectively, which consists of the impairment of virtual real estate and digital currencies.

Based on the Company’s impairment analysis, the decrease in value of the virtual real estate and digital currencies, which was based

on the lowest market price quoted on an active exchange, was deemed to be other than temporary.

Additionally, the Company determined that

it will not utilize its virtual real estate.

Property and equipment

Property and equipment are stated at cost and

are depreciated using the straight-line method over their estimated useful lives, which range from three to five years.

Leasehold improvements

are depreciated over the shorter of the useful life or lease term including scheduled renewal terms.

Maintenance and repairs are charged

to expense as incurred.

When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and

any resulting gains or losses are included in income in the year of disposition.

The Company examines the possibility of decreases in

the value of these assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

Capitalized internal-use software costs

The Company capitalizes 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 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.

During the years ended December 31, 2024 and

2023, software development costs incurred internally, other than purchased software, were expensed since the Company’s

software development projects were in the preliminary project stage.

Such costs were included in research and development costs on

the accompanying consolidated statement of operations.

DATCHAT, INC.

AND SUBSIDIARIES

AND CONSOLIDATED ENTITIES

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 and 2023

of long-lived assets

accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate

that the carrying amount of the assets may not be fully recoverable, or at least annually.

The Company recognizes an impairment loss

when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset.

The amount of impairment is measured

as the difference between the asset’s estimated fair value and its book value.

Company recognizes revenue in accordance with ASC Topic 606 Revenue from Contracts with Customers, which requires revenue to be recognized

in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration to which the entity

expects to be entitled in exchange for those goods or services.

accordance with ASU Topic 606 - Revenue from Contracts with Customers , the Company recognizes revenue in accordance with that

core principle by applying the following steps:

Identify the contract(s) with a customer.

Identify the performance obligations in the contract.

Determine the transaction price.

Allocate the transaction price to the performance obligations in the contract.

Recognize revenue when (or as) the entity satisfies a performance obligation.

Company recognizes revenues from subscription fees on the Company’s messaging application in the month they are earned.

and lifetime subscription payments received that are related to future periods are recorded as deferred revenue to be recognized as revenues

over the contract term or period.

Lifetime subscriptions are being recognized to revenues over the estimated useful life of the subscription

of 12 months.

Company’s NFT revenues were generated from the sale of NFTs.

The Company accepted Ethereum as a form of payment for NFT sales.

The Company’s NFTs existed on the Ethereum Blockchain under the Company’s VenVuu brand.

VenVuu is a Metaverse advertising

platform that allows advertisers and Metaverse landowners to connect using the Company’s proprietary Metaverse ad network and dynamic

NFT technology.

The Company used the NFT exchange, OpenSea, to facilitate its sales of NFTs.

The Company, through OpenSea, has custody

and control of the NFT prior to the delivery to the customer and records revenue at a point in time when the NFT is delivered to the

customer and the customer pays.

The Company has no obligations for returns, refunds or warranty after the NFT sale.

The value of the

sale was determined based on the value of the Ethereum crypto currency received as consideration.

Each NFT generated produces a unique

identifying code.

The Company does not expect to generate revenues from the sale of NFT’s in the future.

Company tracks its revenue by product.

The following table summarizes revenue by product for the years ended December 31, 2023 and 2022:

For the Year Ended

Subscription revenues

and Development

and development costs incurred in the development of the Company’s products are expensed as incurred and include costs such as

outside development costs, salaries and other allocated costs incurred.

During the years ended December 31, 2023 and 2022, research and

development costs incurred in the development of the Company’s software products were $ 1,351,415 and $ 514,957 , respectively.

and development costs are included in research and development expense on the accompanying consolidated statements of operations.

Company applies ASC 720 “Other Expenses” to account for advertising related costs.

Pursuant to ASC 720-35-25-1, the Company

expenses the advertising costs as they are incurred.

Advertising costs were $ 388,444 and $ 828,736 for the years ended December 31, 2023

and 2022, respectively, and are included in marketing and advertising expenses on the consolidated statements of operations.

Impairment of long-lived assets

In accordance with ASC Topic 360, the Company

reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may

not be fully recoverable, or at least annually.

The Company recognizes an impairment loss when the sum of expected undiscounted future

cash flows is less than the carrying amount of the asset.

The amount of impairment is measured as the difference between the asset’s

estimated fair value and its book value.

Revenue recognition

The Company recognizes revenue in accordance with

ASC Topic 606 Revenue from Contracts with Customers, which requires revenue to be recognized in a manner that depicts the transfer of

goods or services to customers in amounts that reflect the consideration to which the entity expects to be entitled in exchange for those

goods or services.

In accordance with ASU Topic 606 - Revenue

from Contracts with Customers , the Company recognizes revenue in accordance with that core principle by applying the following steps:

Identify the contract(s) with

Identify the performance obligations

in the contract.

Determine the transaction

Allocate the transaction price

to the performance obligations in the contract.

Recognize revenue when (or

as) the entity satisfies a performance obligation.

The Company recognizes revenues from subscription

fees on the Company’s messaging application in the month they are earned.

Annual and lifetime subscription payments received that

are related to future periods are recorded as deferred revenue to be recognized as revenues over the contract term or period.

subscriptions are being recognized to revenues over the estimated useful life of the subscription of 12 months.

During the years ended

December 31 2024 and 2023, all of the Company’s revenue was generated from subscription revenues.

Research and development

Research and development costs incurred in the

development of the Company’s products are expensed as incurred and include costs such as outside development costs, salaries and

other allocated costs incurred.

During the years ended December 31, 2024 and 2023, research and development costs incurred in the development

of the Company’s software products were $ 857,668 and $ 1,351,415 , respectively.

Research and development costs are included in research

and development expense on the accompanying consolidated statements of operations.

On August 27, 2024, the Company entered into an

Asset Purchase Agreement with Judaopta LLC, a Delaware limited liability company (the “Seller”), pursuant to which it acquired

from Seller (i) certain software (the “RenAI Software”), which consists of an artificial intelligence (AI) tool designed used

for media library organization with the ability to tag and rename images for PC and MAC devices using AI with integration to Gemini, OpenAI

and Claude and (ii) certain domain names (the “Assets”) in consideration for the transfer by the Company of 8,000,000 restricted

shares of common stock of RPM Interactive.

In connection with this asset acquisition, the Company recorded research and development expense

of $ 166,667 since the Company is still in the development stage and spends most of its time and efforts planning, raising capital, and

performing research and development and accordingly, the recoverability of the cost was not certain.

Research and development expense

was calculated as follows:

Fair value of 8,000,000 shares RPM Interactive shares transferred based on recent sales of RPM Interactive shares at $ 0.30 per share

gain recognized as difference between fair value of 8,000,000 shares calculated above and allocated costs of investment in RPM Interactive and included in research and development

( 2,233,333 )

Research and development expense recorded, net

DATCHAT, INC.

AND SUBSIDIARIES

AND CONSOLIDATED ENTITIES

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 and 2023

Company 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, the Company 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.

Company accounts for income taxes pursuant to the provision of Accounting Standards Codification (“ASC”) 740-10, “Accounting

for Income Taxes” (“ASC 740-10”), which requires, among other things, an asset and liability approach to calculating

deferred income taxes.

The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected

future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.

allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred

asset will not be realized.

Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions.

When tax returns are filed, there

may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained.

In accordance

with the guidance of ASC 740-10, the benefit of a tax position is recognized in the consolidated financial statements in the period during

which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination,

including the resolution of appeals or litigation processes, if any.

Advertising costs

The Company applies ASC 720 “Other Expenses”

to account for advertising related costs.

Pursuant to ASC 720-35-25-1, the Company expenses advertising costs as they are incurred.

costs were $ 128,656 and $ 388,444 for the years ended December 31, 2024 and 2023, respectively, and are included in marketing and advertising

expenses on the consolidated statements of operations.

The Company 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, the Company 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.

The Company accounts for income taxes pursuant

to the provision of Accounting Standards Codification (“ASC”) 740-10, “Accounting for Income Taxes” (“ASC

740-10”), which requires, among other things, an asset and liability approach to calculating deferred income taxes.

The asset and

liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary

differences between the carrying amounts and the tax bases of assets and liabilities.

A valuation allowance is provided to offset any

net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.

The Company follows the provision of ASC 740-10

related to Accounting for Uncertain Income Tax Positions.

When tax returns are filed, there may be uncertainty about the merits of positions

taken or the amount of the position that would be ultimately sustained.

In accordance with the guidance of ASC 740-10, the benefit of

a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management

believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation

processes, if any.

Tax positions taken are not offset or aggregated with other positions.

Tax positions that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more

than 50 percent likely of being realized upon settlement with the applicable taxing authority.

The portion of the benefit associated

with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits

in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon

The Company believes its tax positions are all more likely than not to be upheld upon examination.

As such, the Company

has not recorded a liability for uncertain tax benefits.

Company has adopted ASC 740-10-25, “Definition of Settlement”, which provides guidance on how an entity should determine

whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a

tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished.

For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position

is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations

remains open.

The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities,

generally for three years after they are filed.

compensation is accounted for based on the requirements of ASC 718 – “Compensation–Stock Compensation ”,

which requires recognition in the consolidated 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 or director is required to perform the services in exchange

for the award (presumptively, the vesting period).

The ASC also requires measurement of the cost of employee and director services received

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

The Company has elected to account for forfeitures as

currency translation

reporting currency of the Company is the U.S.

Except for Metabizz SAS, the functional currency of the Company is the U.S.

The functional currency of the Company’s VIE, Metabizz SAS, is the Columbian Peso (“COP”).

For Metabizz SAS, results

of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the

unified exchange rate at the end of the period, and equity is translated at historical exchange rates.

As a result, amounts relating

to assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding balances

on the balance sheets.

Translation adjustments resulting from the process of translating the local currency financial statements into

dollars are included in determining comprehensive loss.

The cumulative translation adjustment and effect of exchange rate changes

on cash for the year ended December 31, 2023 was $ 12,965 .

Transactions denominated in foreign currencies are translated into the functional

currency at the exchange rates prevailing on the transaction dates.

Assets and liabilities denominated in foreign currencies are translated

into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise

from exchange rate fluctuations on transactions denominated in a currency other than the functional currency included in the results

of operations as incurred.

Metabizz SAS, which is located in Columbia, asset and liability accounts on December 31, 2023 were translated at 0.0002582 COP to $1.00,

which was the exchange rate on the balance sheet date, and results of operations and cash flows are translated at the average exchange

rates during the period of 0.00023415 COP to $1.00.

Tax positions that meet the more likely than

not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon

settlement with the applicable taxing authority.

The portion of the benefit associated with tax positions taken that exceed the amount

measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with

any associated interest and penalties that would be payable to the taxing authorities upon examination.

The Company believes its tax positions

are all more likely than not to be upheld upon examination.

As such, the Company has not recorded a liability for uncertain tax benefits.

The Company has adopted ASC 740-10-25, “Definition

of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively settled for the

purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion

and examination by a taxing authority without being legally extinguished.

For tax positions considered effectively settled, an entity

would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based

solely on the basis of its technical merits and the statute of limitations remains open.

The federal and state income tax returns

of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed.

Stock-based compensation

Stock-based compensation is accounted for based

on the requirements of ASC 718 – “Compensation–Stock Compensation ”, which requires recognition in the consolidated

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

The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date

fair value of the award.

The Company has elected to account for forfeitures as they occur.

DATCHAT, INC.

AND SUBSIDIARIES

AND CONSOLIDATED ENTITIES

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 and 2023

and diluted net loss per share

net loss per share is computed by dividing the net loss by the weighted average number of common shares during the period.

loss per share is computed using the weighted average number of common shares and potentially dilutive securities outstanding during

following were excluded from the computation of diluted shares outstanding as they would have had an anti-dilutive impact on the Company’s

Foreign currency translation

The reporting currency of the Company is the U.S.

Except for Metabizz SAS, the functional currency of the Company is the U.S.

The functional currency of the Company’s

VIE, Metabizz SAS, is the Columbian Peso (“COP”).

For Metabizz SAS, results of operations and cash flows are translated at

average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period,

and equity is translated at historical exchange rates.

As a result, amounts relating to assets and liabilities reported on the statements

of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets.

Translation adjustments

resulting from the process of translating the local currency financial statements into U.S.

dollars are included in determining comprehensive

The cumulative translation adjustment and effect of exchange rate changes on cash for the years ended December 31, 2024 and 2023

was $0 and $ 12,965 , respectively.

Transactions denominated in foreign currencies are translated into the functional currency at the exchange

rates prevailing on the transaction dates.

Assets and liabilities denominated in foreign currencies are translated into the functional

currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate

fluctuations on transactions denominated in a currency other than the functional currency included in the results of operations as incurred.

On March 31, 2024, based on the Company’s analysis, the Company deconsolidated Metabizz SAS (See Note 1).

For Metabizz SAS, which is located in Columbia,

asset and liability accounts on December 31, 2023 were translated at 0.0002582 COP to $ 1.00 , which was the exchange rate on the balance

sheet date, and results of operations and cash flows are translated at the average exchange rates during the period of 0.00023415 COP

Basic and diluted net loss per share

Basic net loss per share is computed by dividing

the net loss by the weighted average number of common shares during the period.

Diluted net loss per share is computed using the

weighted average number of common shares and potentially dilutive securities outstanding during the period.

The following were excluded

from the computation of diluted shares outstanding as they would have had an anti-dilutive impact on the Company’s net loss.

Common stock equivalents:

1 unchanged sentence

Common stock options

accounting pronouncements

does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect

on its financial statements.

2 – SHORT-TERM INVESTMENTS

December 31, 2023 and 2022, the Company’s short-term investments consisted of the following:

Segment reporting

The Company operates as a single operating segment as a technology-based

company that is developing social media applications and technologies.

In accordance with ASC 280 – “ Segment Reporting ”,

the Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews operating results to

make decisions about allocating resources and assessing performance for the entire Company.

Existing guidance, which is based on a management

approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide

disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue.

All material operating units qualify for aggregation under “Segment Reporting” due to their similarities in economic characteristics

such as nature of services;

and procurement processes.

All revenues and expenses as reflected in the accompanying consolidated statements

of operations and comprehensive loss are allocated to the one segment.

Reclassification

Certain line items on the consolidated statements

of operations and comprehensive loss and statements of cash flows for the year ended December 31, 2023 have been reclassified to conform

to the current period presentation.

For the year ended December 31, 2023, on the consolidated statement of operations and comprehensive

loss, realized gain on short-term investments of $ 374,817 was reclassified to interest income.

Additionally, for the year ended December

31, 2023, on the consolidated statement of cash flows, realized gain on short-term investments of $ 374,817 was reclassified to accrued

interest included in short-term investments.

These reclassifications did not change the Company’s reported net loss or comprehensive

loss or net cash used in operating activities on the consolidated statement of cash flows for the ended December 31, 2023.

DATCHAT, INC.

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 and 2023

Recent accounting pronouncements

In November 2024, the FASB issued ASU 2024-03,

Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires entities

to provide more detailed disaggregation of expenses in the income statement, focusing on the nature of the expenses rather than their

The new disclosures will require entities to separately present expenses for significant line items, including but not limited

to, depreciation, amortization, and employee compensation.

Entities will also be required to provide a qualitative description of the

amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, disclose the total amount of selling

expenses and, in annual reporting periods, provide a definition of what constitutes selling expenses.

This pronouncement is effective

for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early

adoption permitted.

The Company does not expect the adoption of this new guidance to have a material impact on the consolidated financial

Management does not believe that any other recently

issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on its consolidated financial statements.

NOTE 3 – SHORT-TERM INVESTMENTS

On December 31, 2024 and 2023, the Company’s

short-term investments consisted of the following:

December 31, 2024

December 31, 2023

US Treasury bills

Certificates of deposit

US Treasury zero coupon bills

Total short-term investments

of December 31, 2023, short-term investments mature between January 2024 and May 2024.

3 – ACQUISITION

June 29, 2022, the Company, DatChat Patents I, Inc., a Nevada corporation and wholly-owned subsidiary of DatChat that was formed on June

23, 2022 (“ Merger Sub I ”), DatChat Patents II, LLC, a Nevada limited liability company and wholly-owned subsidiary

of DatChat that was formed on June 23, 2022 (“ Merger Sub II ”), and Avila Security Corporation, a Delaware corporation

(“ Avila ”), entered into an agreement and plan of merger (the “ Merger Agreement ”).

Pursuant to the

Merger Agreement, the Company acquired all the issued and outstanding shares of Avila in consideration of the issuance of an aggregate

of 100,000 shares (the “ Acquisition Shares ”) of the Company’s common stock.

These shares were valued at $ 1,090,000 ,

or $ 10.90 per share, based on the quoted closing price of the Company’s common stock on the measurement date.

The acquisition included

intellectual property rights in blockchain based digital rights management and object sharing technology, including encrypted WebRTC

real-time video and audio streaming communications.

Immediately following the merger, Merger Sub I was merged into Avila and Merger

Sub I was dissolved and Avila was merged into Merger Sub II.

Other than owning certain patents, Avila had no operations or no

employees and was not considered a business.

to ASU 2017-01 and ASC 805, the Company analyzed the Merger Agreement and the business of Avila to determine if the Company acquired

a business or acquired assets.

Based on this analysis, it was determined that the Company acquired assets.

No goodwill was recorded since

the Merger Agreement was accounted for as an asset purchase.

In accordance with ASC 805, the fair value of the assets acquired is based

on either the fair value of the consideration given or the fair value of the assets acquired, whichever is more clearly evident, and

thus, more reliably measurable.

The Company used the market price of the 100,000 common shares issued of $ 1,090,000 as the fair value

of the assets acquired since this value was more clearly evident, and thus, a more reliable measurable than the fair value of the patents

As of December 31, 2024, short-term investments

mature between January 2025 and November 2025.

NOTE 4 – PROPERTY AND EQUIPMENT

On December 31, 2024 and 2023, property and

equipment consisted of the following:

Furniture and fixture

Computer equipment

Leasehold improvements

accumulated depreciation

For the year ended December 31, 2024 and 2023,

depreciation of property and equipment amounted to $ 23,129 and $ 28,943 , respectively.

NOTE 5 – INTERNAL-USE SOFTWARE

As of December 31, 2024 and 2023, internal-use softwares, net consists

of the following:

2024 December 31,

Internal-use software 3 Years $ 1,050,000 $ -

Less accumulated amortization -

Internal-use software, net $ 1,050,000 $ -

DATCHAT, INC.

AND SUBSIDIARIES

AND CONSOLIDATED ENTITIES

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 and 2023

4 – OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES

January 2019, the Company renewed and extended the term of its lease facility for another three-year period from January 2019 to December

2021 starting with a monthly base rent of $ 2,567 plus a pro rata share of operating expenses beginning January 2019.

The base rent was

subject to annual increases beginning the 2 nd and 3 rd lease year as defined in the lease agreement.

to the monthly base rent, the Company is charged separately for common area maintenance which is considered a non-lease component.

non-lease component payments are expensed as incurred and are not included in operating lease assets or liabilities.

On August 27,

2021, the Company entered into an amendment agreement with the same landlord to modify the facility lease to relocate and increase the

square footage of the lease premises.

The term of the lease commenced on October 1, 2021 and will expire on December 31, 2024 with a

new monthly base rent of $ 7,156 plus a pro rata share of operating expenses beginning January 2022.

The base rent will be subject to

3 % annual increases beginning in the 2 nd and 3 rd lease year as defined in the amended lease agreement.

years ended December 31, 2023 and 2022, rent expense amounted to $ 95,310 and $ 94,924 , respectively, and were included in general and

administrative expenses.

On August 27, 2021, upon the execution of the amendment agreement,

the Company recorded right-of-use assets and operating lease liabilities of $ 198,898 .

The remaining lease term for the operating lease

is 12 months as of December 31, 2023 and the incremental borrowing rate is 18.0 % (based on historical borrowing rates).

use assets are summarized below:

On October 29, 2024 (the “Closing Date” and measurement

date), RPM Interactive entered into and closed on a Share Exchange Agreement (the “Share Exchange Agreement”) with (i) RPM

Florida and (ii) the shareholders of RPM Florida (See Note 1).

Pursuant to the Share Exchange Agreement, RPM Interactive acquired 100 %

of the shares of RPM Florida in exchange for 3,500,000 shares of RPM Interactive’s common stock.

RPM Florida is a web publishing

company that leverages generative AI systems to offer consumers entertaining gaming apps and podcasting offerings in the sports, finance,

entertainment and politics categories.

These shares were valued at $ 1,050,000 , or $ 0.30 per share, on the measurement date based on recent

sales of shares of RPM Interactive’s common stock.

Pursuant to ASU 2017-01 and ASC 805, RPM Interactive analyzed the Exchange Agreement

and the business of RPM Florida to determine if RPM Interactive acquired a business or acquired assets.

Other than owning certain in-development

internal-use software, RPM Florida had no operations or no employees and was not considered a business.

Based on this analysis, it was

determined that RPM Interactive acquired an asset.

No goodwill was recorded since the Exchange Agreement was accounted for as an asset

In accordance with ASC 805, the fair value of the assets acquired is based on either the fair value of the consideration given

or the fair value of the assets acquired, whichever is more clearly evident, and thus, more reliably measurable.

RPM Interactive used

the market price of the 3,500,000 common shares issued of $ 1,050,000 as the fair value of the assets acquired since this value was more

clearly evident, and thus, more reliable measurable than the fair value of the assets.

This acquisition was treated as an asset acquisition

under ASC 805 “ Business Combinations” since RPM Interactive did not meet the definition of a business under ASC 805.

ASC 805 requires the use of the relative fair value method for asset acquisitions to allocate the purchase price, however, since only

a single internal-use software asset was acquired, the entire purchase price shall be allocated to this asset.

For the years ended December 31, 2024 and 2023,

amortization of intangible assets amounted to $0 .

The internal-use software has not yet been placed in service as of December 31, 2024.

NOTE 6 – OPERATING LEASE RIGHT-OF-USE

ASSETS AND OPERATING LEASE LIABILITIES

In January 2019, the Company renewed and extended the term of its lease

facility for a three-year period from January 2019 to December 2021 starting with a monthly base rent of $ 2,567 plus a pro rata share

of operating expenses beginning January 2019.

The base rent was subject to annual increases beginning the 2 nd and 3 rd

lease year as defined in the lease agreement.

In addition to the monthly base rent, the Company is charged separately for common area

maintenance which is considered a non-lease component.

These non-lease component payments are expensed as incurred and are not included

in operating lease assets or liabilities.

On August 27, 2021, the Company entered into an amendment agreement with the same landlord

to modify the facility lease to relocate and increase the square footage of the lease premises.

The lease term commenced on October 1,

2021 with a new monthly base rent of $ 7,156 plus a pro rata share of operating expenses beginning January 2022 and the lease expired on

December 31, 2024 .

The base rent was subject to a 3 % annual increase beginning in the 2 nd and 3 rd lease year as

defined in the amended lease agreement.

For the years ended December 31, 2024 and 2023, rent expense amounted to $ 90,955 and $ 95,310 ,

respectively, and were included in general and administrative expenses.

As of the date of this report, the Company has not renewed the

lease and is leasing on a month-to-month basis.

The Company does not record ROU assets or lease liabilities for short-term leases that

have a term of twelve months or less at lease commencement, The Company can vacate the premises without any disruption and find alternative

space, if needed.

On August 27, 2021, upon the execution of the

amendment agreement, the Company recorded right-of-use assets and operating lease liabilities of $ 198,898 calculated using an incremental

borrowing rate is 18.0 % (based on historical borrowing rates).

Right-of- use assets are summarized below:

Less accumulated amortization

Right-of-use asset, net

Lease liabilities are summarized below:

Operating lease liabilities are summarized

Reduction of lease liability

2 unchanged sentences

Long term portion of lease liability

lease payments under the non-cancelable operating lease on December 31, 2023 are as follows:

For the year ended December 31:

present value discount

Total operating lease liability

5 – INTANGIBLE ASSETS

June 29, 2022, in connection with the acquisition of Avila, the Company issued an aggregate of 100,000 shares of the Company’s

common stock.

These shares were valued at $ 1,090,000 , or $ 10.90 per share, based on the quoted closing price of the Company’s common

stock on the measurement date.

The acquisition included patents for intellectual property rights in blockchain based digital rights management

and object sharing technology, including encrypted WebRTC real-time video and audio streaming communications (See Note 3).

was amortizing the patents over 5 years.

During the year ended December 31, 2022, activities related to intangible assets is as follows:

Acquisition of patents

amortization of patents

impairment of patents

Intangible assets, net

DATCHAT, INC.

AND SUBSIDIARIES

AND CONSOLIDATED ENTITIES

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 and 2023

Company periodically evaluates its finite intangible assets for impairment upon occurrence of events or changes in circumstances that

indicate the carrying amount of intangible assets may not be recoverable.

The Company concluded that the undiscounted cash flows did

not support the carrying values of its intangible assets as of December 31, 2022.

As of December 31, 2022, the Company has no projected

future revenues or cash flows related to the patents and has no current plans to exploit the patents.

Accordingly, the Company 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 .

6 – RELATED PARTY TRANSACTIONS

to Related Party

Company’s officer, Mr.

Darin Myman, from time to time, provides advances to the Company for working capital purposes.

31, 2023 and 2022, the Company had a payable to the officer of $0 and $ 1,315 , respectively, which is presented as due to related party

on the consolidated balance sheets.

These advances are short-term in nature and non-interest bearing.

During the year ended December

31, 2023, the Company repaid $ 1,315 .

and Development

July 19, 2022, the Company entered into a software development agreement with Metabizz.

On February 14, 2023, the Company began consolidating

Metabizz as VIEs.

For the period from January 1, 2023 to date of consolidation (February 14, 2023), the Company paid Metabizz $ 185,600

for software development services which is included in research and development expense on the accompanying consolidated statements of

Note 8 for Employment Agreement with the Company’s chief executive officer, Darin Myman .

the years ended December 31, 2023 and 2022, the wife of the Company’s chief executive officer was employed as an executive secretary

and earned $ 72,000 and $ 51,500 , respectively.

7 – STOCKHOLDERS’ EQUITY

September 19, 2023, the Company filed a Certificate of Change (the “Certificate of Change”) with the Secretary of State of

the State of Nevada to effectuate a 1-for-10 reverse stock split (the “Reverse Stock Split”) of the Company’s issued

and outstanding and authorized shares of common stock, par value $ 0.0001 per share (“Common Stock”).

The Reverse Stock Split

became effective on September 19, 2023.

Proportional adjustments for the Reverse Stock Split were made to the Company’s outstanding

stock options, warrants and equity incentive plans, and authorized shares.

November 9, 2023, the Company filed a Certificate of Correction with the Secretary of State of the State of Nevada to correct a typographical

error contained in the Certificate of Change that was filed with the Secretary of State of the State of Nevada on September 19, 2023

in order to effectuate the Reverse Stock Split.

The Certificate of Change incorrectly stated that the authorized shares of preferred

stock, par value $ 0.0001 per share following the change was 1,000,000 .

The Reverse Stock Split had no impact on the number of authorized

shares of preferred, par value $ 0.0001 , which remains unchanged at 20,000,000 shares.

December 27, 2023, the Company filed a Certificate of Change (the “Certificate of Change”) with the Secretary of State of

the State of Nevada to increase the number of authorized common stock from 18,000,000 shares to 180,000,000 shares.

All share and per-share data and amounts have been retroactively adjusted

as of the earliest period presented in the consolidated financial statements to reflect the Reverse Stock Split.

authorized capital stock consists of 200,000,000 shares, of which 180,000,000 are shares of common stock and 20,000,000 are shares of

preferred stock.

NOTE 7 – RELATED PARTY TRANSACTIONS

Due to Related Party

The Company’s officer, Mr.

from time to time, provided advances to the Company for working capital purposes.

During the year ended December 31, 2023, the Company

repaid $ 1,315 of advances.

On December 31, 2024 and 2023, the Company had no payable to the officer.

Research and Development

On July 19, 2022, the Company entered into a software

development agreement with Metabizz.

On February 14, 2023, the Company began consolidating Metabizz as VIEs.

For the period from January

1, 2023 to date of consolidation (February 14, 2023), the Company paid Metabizz $ 185,600 for software development services which is included

in research and development expense on the accompanying consolidated statements of operations.

See Note 9 for Employment Agreement with the Company’s

chief executive officer, Darin Myman .

During the years ended December 31, 2024 and 2023,

the wife of the Company’s chief executive officer was employed as an executive secretary and earned $ 72,000 and $ 72,000 , respectively.

On January 10, 2024, VR Interactive LLC (“VR

Interactive”), a company 45 % owned by Darin Myman, the Company’s CEO and 3.75 % owned by Peter Shelus, the Company’s

chief technology officer and director, purchased 8,000,000 shares of RPM Interactive from the Metabizz shareholders for cash amounting

to $ 120,000 .

Myman is a partner in VR Interactive.

Therefore, VR Interactive, a related party, became a 25 % non-controlling interest

in RPM Interactive.

NOTE 8 – STOCKHOLDERS’ EQUITY

Shares Authorized

On September 19, 2023, the Company filed a Certificate

of Change (the “Certificate of Change”) with the Secretary of State of the State of Nevada to effectuate a 1-for-10 reverse

stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding and authorized shares of common stock,

par value $ 0.0001 per share (“Common Stock”).

The Reverse Stock Split became effective on September 19, 2023.

adjustments for the Reverse Stock Split were made to the Company’s outstanding stock options, warrants and equity incentive plans,

and authorized shares.

On November 9, 2023, the Company filed a Certificate

of Correction with the Secretary of State of the State of Nevada to correct a typographical error contained in the Certificate of Change

that was filed with the Secretary of State of the State of Nevada on September 19, 2023 in order to effectuate the Reverse Stock Split.

The Certificate of Change incorrectly stated that the authorized shares of preferred stock, par value $ 0.0001 per share following the

change was 1,000,000 .

The Reverse Stock Split had no impact on the number of authorized shares of preferred, par value $ 0.0001 , which

remains unchanged at 20,000,000 shares.

On December 27, 2023, the Company filed a Certificate

of Change (the “Certificate of Change”) with the Secretary of State of the State of Nevada to increase the number of authorized

common stock from 18,000,000 shares to 180,000,000 shares.

All share and per-share data and amounts have

been retroactively adjusted as of the earliest period presented in the consolidated financial statements to reflect the Reverse Stock

The authorized capital stock consists of 200,000,000

shares, of which 180,000,000 are shares of common stock and 20,000,000 are shares of preferred stock.

2021 Omnibus Equity Incentive Plan

On July 26, 2021, the Company adopted the 2021

Omnibus Equity Incentive Plan (the “2021 Equity Plan”) and authorized the reservation of 200,000 shares of common stock for

future issuances under the 2021 Equity Plan.

The 2021 Equity Plan provides that the Company may grant options, stock appreciation rights,

restricted stock, restricted stock units, other stock-based awards or any combination of the foregoing.

On December 19, 2022, the Company

held its 2022 annual meeting of stockholders, and the shareholders approved to amend the 2021 Equity Plan to increase the number of shares

reserved for issuances thereunder to 300,000 shares from 200,000 .

On November 10, 2023, the board of directors of the Company approved

the adoption of the Amended and Restated 2021 Equity Plan, the sole purpose of which was to remove any inadvertent references to the Company

being a Delaware corporation or the 2021 Equity Plan being governed under Delaware law and to properly state that the Company is a Nevada

corporation and that the 2021 Equity Plan is governed by Nevada law.

On December 13, 2024, the Company held its 2024 annual meeting of

stockholders, and the shareholders approved to amend the 2021 Equity Plan to increase the number of shares reserved for issuances thereunder

to 600,000 shares from 300,000 .

DATCHAT, INC.

AND SUBSIDIARIES

AND CONSOLIDATED ENTITIES

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 and 2023

Omnibus Equity Incentive Plan

On July 26, 2021, the Company adopted the 2021 Omnibus Equity Incentive

Plan, and authorized the reservation of 200,000 shares of common stock for future issuances under the plan.

The Plan provides that the

Company may grant options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards or any combination

of the foregoing.

On December 19, 2022, Company held its 2022 annual meeting of stockholders, and the shareholders approved to amend the

Company’s 2021 Omnibus Equity Incentive Plan to increase the number of shares reserved for issuance thereunder to 300,000 shares

from 200,000 .

On November 10, 2023, the board of directors of the Company approved the adoption of the Amended and Restated 2021 Omnibus

Equity Incentive Plan, the sole purpose of which was to remove any inadvertent references to the Company being a Delaware corporation

or the 2021 Omnibus Equity Incentive Plan being governed under Delaware law and to properly state that the Company is a Nevada corporation

and that the 2021 Omnibus Equity Incentive Plan is governed by Nevada law.

A Preferred Stock

August 2016, the Company designated one share of Series A Preferred Stock, par value $0.0001 per share (the “Series A Preferred

Stock”), which has a stated value equal to $1.00 as may be adjusted for any stock dividends, combinations or splits.

share of the Series A Preferred Stock shall have voting rights equal to (x) the total issued and outstanding Common Stock eligible to

vote at the time of the respective vote divided by (y) forty-nine one hundredths (0.49) minus (z) the total issued and outstanding Common

Stock eligible to vote at the time of the respective vote.

Preferred Stock

Series A Preferred Stock

In August 2016, the Company designated one share

of Series A Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), which has a stated value equal

to $1.00 as may be adjusted for any stock dividends, combinations or splits.

Each one (1) share of the Series A Preferred Stock shall

have voting rights equal to (x) the total issued and outstanding Common Stock eligible to vote at the time of the respective vote divided

by (y) forty-nine one hundredths (0.49) minus (z) the total issued and outstanding Common Stock eligible to vote at the time of the respective

The Series A Preferred Stock does not convert into securities of the Company.

The Series A Preferred Stock does not contain any redemption provision.

In the event of liquidation of the Company, the holder of Series

A Preferred shall not have any priority or preferences with respect to any distribution of any assets of the Company and shall be entitled

to receive equally with the holders of the Company’s common stock.

As of December 31, 2023 and 2022, there were no Series A Preferred

Stock outstanding.

B Preferred Stock

August 4, 2023, the Board filed the Certificate of Designation of Preferences (“COD”), Rights and Limitations of Series B

Preferred Stock (the “Series B COD”) with the Secretary of State of the State of Nevada designating 2,000,000 shares of preferred

stock as Series B (the “Series B Preferred”).

The outstanding shares of Series B Preferred Stock shall have 10 votes per

share and shall vote together with the outstanding shares of the Company’s common stock as a single class exclusively with respect

to the Authorized Stock Increase (as defined in the Series B COD) and shall not be entitled to vote on any other matter.

The shares of

Series B Preferred Stock shall be voted, without action by the holder, on the Authorized Stock Increase in the same proportion as shares

of Common Stock are voted (excluding any shares of Common Stock that are not voted) on the Authorized Stock Increase.

The Series B Preferred

shall not have the right to vote and/or consent on any matter other than an Authorized Stock Increase Proposal.

The Series B Preferred

Stock shall not be entitled to participate in any distribution of assets or rights upon any liquidation, dissolution or winding up of

the Company, shall not be convertible into Common Stock or any other security of the Company, and shall not be entitled to any dividends

or distributions.

outstanding shares of Series B preferred shall be redeemed in whole, but not in part (i) if such redemption is ordered by the board of

directors, or (ii) automatically and effective immediately after the effectiveness of an anticipated Authorized Stock increase.

The aggregate

consideration payable for the outstanding Series B Preferred redeemed in the redemption shall be $ 10 in cash (the “Redemption Price”).

and after the time at which the shares of Series B Preferred Stock is called for Redemption (whether automatically or otherwise) in accordance

with Series B COD, such shares of Series B Preferred Stock shall cease to be outstanding, and the only right of the former holder of

such shares of Series B Preferred Stock, as such, will be to receive the applicable Redemption Price.

The shares of Series B Preferred

Stock redeemed by the Company pursuant to the Series B COD shall be automatically retired and restored to the status of an authorized

but unissued share of Preferred Stock, effective immediately after such Redemption.

August 4, 2023, the Company issued 2,000,000 of Series B preferred for aggregate cash of $ 1,000 .

Stock Issued for Acquisition

Pursuant to the Merger Agreement, in 2022, the Company acquired all

the issued and outstanding shares of Avila in consideration of the issuance of an aggregate of 100,000 shares of the Company’s common

These shares were value at $ 1,090,000 , or $ 10.90 per share, based on the quoted closing price of the Company’s common stock

on the measurement date (See Note 3).

The Series A Preferred Stock does not contain any

redemption provision.

In the event of liquidation of the Company, the holder of Series A Preferred shall not have any priority or preferences

with respect to any distribution of any assets of the Company and shall be entitled to receive equally with the holders of the Company’s

common stock.

As of December 31, 2024 and 2023, there were no Series A Preferred Stock outstanding.

Series B Preferred Stock

On August 4, 2023, the Board filed the Certificate

of Designation of Preferences (“COD”), Rights and Limitations of Series B Preferred Stock (the “Series B COD”)

with the Secretary of State of the State of Nevada designating 2,000,000 shares of preferred stock as Series B (the “Series B Preferred”).

The outstanding shares of Series B Preferred Stock shall have 10 votes per share and shall vote together with the outstanding shares of

the Company’s common stock as a single class exclusively with respect to the Authorized Stock Increase (as defined in the Series

B COD) and shall not be entitled to vote on any other matter.

The shares of Series B Preferred Stock shall be voted, without action by

the holder, on the Authorized Stock Increase in the same proportion as shares of Common Stock are voted (excluding any shares of Common

Stock that are not voted) on the Authorized Stock Increase.

The Series B Preferred shall not have the right to vote and/or consent on

any matter other than an Authorized Stock Increase Proposal.

The Series B Preferred Stock shall not be entitled to participate in any

distribution of assets or rights upon any liquidation, dissolution or winding up of the Company, shall not be convertible into Common

Stock or any other security of the Company, and shall not be entitled to any dividends or distributions.

The outstanding shares of Series B preferred shall

be redeemed in whole, but not in part (i) if such redemption is ordered by the board of directors, or (ii) automatically and effective

immediately after the effectiveness of an anticipated Authorized Stock increase.

The aggregate consideration payable for the outstanding

Series B Preferred redeemed in the redemption shall be $ 10 in cash (the “Redemption Price”).

From and after the time at which the shares of

Series B Preferred Stock is called for Redemption (whether automatically or otherwise) in accordance with Series B COD, such shares of

Series B Preferred Stock shall cease to be outstanding, and the only right of the former holder of such shares of Series B Preferred Stock,

as such, will be to receive the applicable Redemption Price.

The shares of Series B Preferred Stock redeemed by the Company pursuant to

the Series B COD shall be automatically retired and restored to the status of an authorized but unissued share of Preferred Stock, effective

immediately after such Redemption.

On August 4, 2023, the Company issued 2,000,000

of Series B preferred for aggregate cash of $ 1,000 .

Sale of Common Stock and Warrants

On January 16, 2024, the Company 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, the Company raised aggregate gross proceeds of $ 1,799,939 and received

net proceeds of $ 1,420,773 , net of Underwriters discounts and offering costs of $ 279,166 and legal fees of $ 100,000 .

The per share exercise price for the Pre-Funded

Warrants was $ 0.0001 and the Pre-Funded Warrants were exercisable immediately.

The Underwriters immediately exercised the 590,000 Pre-Funded

Warrants and the Underwriters received 589,981 shares of Common Stock since the exercise was cashless.

The Pre-Funded Warrants are not

and will not be listed for trading on any national securities exchange or other nationally recognized trading system.

DATCHAT, INC.

AND SUBSIDIARIES

AND CONSOLIDATED ENTITIES

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 and 2023

The Company is using the net proceeds from the

Offering for general corporate purposes, for sales and marketing and for research and development.

The Underwriting Agreement contained customary

representations, warranties and covenants made by the Company.

It also provided for customary indemnification by each of the Company and

the Underwriters, severally and not jointly, for losses or damages arising out of or in connection with the Offering, including for liabilities

under the Securities Act of 1933, as amended, other obligations of the parties and termination provisions.

In addition, pursuant to the

terms of the Underwriting Agreement, each of the Company’s directors and executive officers entered into “lock-up” agreements

with the Representative that generally prohibit, without the prior written consent of the Representative and subject to certain exceptions,

the sale, transfer or other disposition of securities of the Company until July 17, 2024.

Further, pursuant to the terms of the Underwriting

Agreement, the Company agreed for a period of 180-days from the closing date, subject to certain exceptions, not to issue, enter into

any agreement to issue or announce the issuance or proposed issuance of any shares of capital stock of the Company or any securities convertible

or exercisable or exchangeable for shares of capital stock of the Company;

(ii) file any registration statement;

(iii) complete any offering

of debt securities of the Company, other than entering into a line of credit with a traditional bank, or (iv) enter into any swap or other

arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company.

During the year ended December 31, 2024, RPM Interactive

entered into a Securities Purchase Agreements with institutional and accredited investors, pursuant to which RPM Interactive sold an aggregate

of 3,247,326 shares of RPM Interactive’s common stock, par value $ 0.0001 per share for an aggregate purchase price of $ 974,198 ,

or $ 0.30 per share.

2023 Stock Repurchase Plan

January 6, 2023, the Board of Directors of the Company approved a stock repurchase program authorizing the purchase of up to $ 2 million

of the Company’s common stock (the “2023 Stock Repurchase Program”).

In connection with the 2023 Stock Repurchase Program,

during the year ended December 31, 2023, the Company purchased 66,945 shares of its common stock for $ 397,969 , or at an average price

of $ 5.94 per share, which has been reflected as treasury stock on the accompanying consolidated balance sheet on December 31, 2023.

Stock Issued for Professional Services

February 2021, the Company entered into a one-year Advisory Board Agreement with an individual who will act as an advisor to the Company’s

In accordance with this agreement the Company issued 10,000 shares of its common stock as consideration for the services provided.

The Company valued these common shares at a fair value of $ 400,000 or $ 40.00 per common share based on sales of common stock in the recent

private placement.

During the year ended December 31, 2022, the Company recorded stock-based consulting fees of $ 50,000 , which was included

in professional and consulting expenses in the accompanying statements of operations.

March 6, 2023, the Company entered into a six-month consulting agreement with an entity for investor relations services.

In connection

with this consulting agreement, the Company issued 14,300 restricted common shares of the Company to the consultant.

These shares vest

These shares were valued at $ 100,000 , or $ 6.99 per common share, based on the quoted closing price of the Company’s

common stock on the measurement date.

In connection with this consulting agreement, during the year ended December 31, 2023, the Company

recorded stock-based professional fees of $ 100,000 .

July 25, 2023, the Company issued 19,802 of its common shares pursuant to a one-year consulting agreement.

On January 6, 2023, the Board of Directors of

the Company approved a stock repurchase program authorizing the purchase of up to $ 2 million of the Company’s common stock (the

”2023 Stock Repurchase Program”).

In connection with the 2023 Stock Repurchase Program, during the year ended December 31,

2023, the Company purchased 66,945 shares of its common stock for $ 397,969 , or at an average price of $ 5.94 per share, which has been

reflected as treasury stock on the accompanying consolidated balance sheet on December 31, 2024 and 2023.

During the year ended December

31, 2024, the Company did not purchase any treasury shares.

Common Stock Issued for Professional Services

On March 6, 2023, the Company entered into a six-month

consulting agreement with an entity for investor relations services.

In connection with this consulting agreement, the Company issued

14,300 restricted common shares of the Company to the consultant.

These shares vest immediately.

These shares were valued at $ 100,000 ,

$ 100,000 , or a per share price of $ 5.05 , based on the quoted closing price of the Company’s common stock on the measurement date.

In connection with these shares, during the year ended December 31, 2023, the Company recorded stock-based professional fees of $ 43,280

with the remaining $ 56,720 recorded as a prepaid asset as of December 31, 2023, which will be amortized into stock-based professional

fees over the remaining term.

December 26, 2021 and effective January 10, 2022, the Company approved the grant of 15,000 options to purchase the Company’s common

stock to a newly hired employee of the Company.

The options have a term of 5 years from the date of grant and are exercisable at an exercise

price of $ 40.00 per share.

The options vest 25 % every six months from date of grant for two years.

The employee service date shall start

on January 10, 2022 or the grant date which is when the Company started recognizing stock-based compensation expenses.

January 19, 2022, the Company granted an aggregate of 8,500 options to purchase the Company’s common stock to four newly hired

employees of the Company.

The options have a term of 5 years from the date of grant and are exercisable at an exercise price of $ 40.00

The options vest 25 % every six months from date of grant for two years.

The employee service date started on January 19, 2022

or the grant date which is when the Company started recognizing stock-based compensation expenses.

July 22, 2022, the Company granted an aggregate of 32,500 options to purchase the Company’s common stock to employees and consultants

of the Company.

The options have a term of 5 years from the date of grant and are exercisable at an exercise price of $ 40.00 per share.

The options vest 25 % every six months from date of grant for two years.

The stock options were valued at the grant date using a Black-Scholes

option pricing model which will be recognized as stock-based compensation expense over the vesting period.

2022 stock option grants were valued at the respective grant dates using a Black-Scholes option pricing model using the assumptions discussed

In connection with the stock option grants, the Company valued these stock options at a fair value of $ 751,681 and records stock-based

or $ 6.99 per common share, based on the quoted closing price of the Company’s common stock on the measurement date.

In connection

with this consulting agreement, during the year ended December 31, 2024 and 2023, the Company recorded stock-based professional fees of

$ 0 and $ 100,000 , respectively.

On July 25, 2023, the Company issued 19,802 of

its common shares pursuant to a one-year consulting agreement.

These shares were valued at $ 100,000 , or a per share price of $ 5.05 , based

on the quoted closing price of the Company’s common stock on the measurement date.

In connection with these shares, during the years

ended December 31, 2024 and 2023, the Company recorded stock-based professional fees of $ 56,720 and $ 43,280 , respectively.

DATCHAT, INC.

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 and 2023

On January 25, 2024, RPM Interactive entered into

a 9-month consulting agreement with an individual for business development, financial and market due diligence services to be rendered

over the term of the agreement.

In connection with this consulting agreement, RPM Interactive issued 1,500,000 of its shares for services

to be rendered.

The RPM Interactive shares were valued at $ 22,500 , or $ 0.015 per shares, based on the sale of the RPM Interactive shares

in a private transaction.

In the connection with the issuance of these shares, during the year ended December 31, 2024, the Company recorded

stock-based compensation of $ 22,500 .

RPM Interactive Shares Issued for Asset

On October 29, 2024, in connection with a Share

Exchange Agreement, RPM Interactive issued 3,500,000 shares of its common stock for an asset acquisition valued at $ 1,050,000 , or $ 0.30

per share, on the measurement date based on recent sales of shares of RPM Interactive’s common stock (See Note 5).

Stock Options

On February 3, 2023, the Company granted an aggregate

of 7,500 options to purchase the Company’s common stock to the Company’s board of directors.

The options each have a term

of 5 years from the date of grant and are exercisable at an exercise price of $ 12.50 per share.

The options vest six months from date

The stock options were valued at the grant date using a Black-Scholes option pricing model which will be recognized as stock-based

compensation expense over the vesting period.

Upon cancellation of unvested stock options, the fair value of these cancelled options

will be reversed.

February 3, 2023, the Company granted an aggregate of 7,500 options to purchase the Company’s common stock to the Company’s

board of directors.

The options each have a term of 5 years from the date of grant and are exercisable at an exercise price of $ 12.50

The options vest six months from date of grant.

On February 3, 2023, the Company granted an aggregate

of 21,500 options to purchase the Company’s common stock to an officers, employees and consultants of the Company.

The options each

have a term of 5 years from the date of grant and are exercisable at an exercise price of $ 12.50 per share.

The options vest 25 % every

six months from date of grant for 2 years.

The stock options were valued at the grant date using a Black-Scholes option pricing model

which will be recognized as stock-based compensation expense over the vesting period.

On September 6, 2023, the Company granted an aggregate

of 10,000 options to purchase the Company’s common stock to the Company’s chief financial officer ( 5,000 options) and to an

employee of the Company ( 5,000 options).

The options each have a term of 5 years from the date of grant and are exercisable at an exercise

price of $ 15.00 per share.

The options vest immediately.

The stock options were valued at the grant date using a Black-Scholes option

pricing model which will be recognized as stock-based compensation expense over the vesting period.

The 2023 stock option grants were valued at the

respective grant dates using a Black-Scholes option pricing model using the assumptions discussed below.

In connection with the stock

option grants, the Company valued these stock options at a fair value of $ 185,628 , or an average of $ 4.76 per option.

and records stock-based

compensation expense over the vesting period.

Upon cancellation of unvested stock options, the fair value of these cancelled options will

During the year ended December 31, 2023, certain

employees and consultants were terminated.

Accordingly, 33,775 unvested options were forfeited and $ 133,190 of previously recognized stock-based

compensation and $ 26,144 of previously recognized stock-based professional fees was reversed.

During the year ended December 31, 2023, accretion

of stock-based expense related to stock options, which is net of the reversal of previously recognized stock-based expense due to forfeiture,

amounted to $ 2,110,799 of which $ 2,002,777 was recorded in compensation and related expenses and $ 108,022 was recorded in professional

and consulting expenses as reflected in the consolidated statements of operations.

During the year ended December 31, 2024, accretion

of stock-based expense related to stock options, which is net of the reversal of previously recognized stock-based expense due to forfeiture,

amounted to $ 66,580 , of which $ 16,816 was recorded in compensation and related expenses and $ 49,764 was recorded in professional and consulting

expenses as reflected in the consolidated statements of operations.

DATCHAT, INC.

AND SUBSIDIARIES

AND CONSOLIDATED ENTITIES

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 and 2023

February 3, 2023, the Company granted an aggregate of 21,500 options to purchase the Company’s common stock to an officers, employees

and consultants of the Company.

The options each have a term of 5 years from the date of grant and are exercisable at an exercise price

of $ 12.50 per share.

The options vest 25 % every six months from date of grant for 2 years.

The stock options were valued at the grant

date using a Black-Scholes option pricing model which will be recognized as stock-based compensation expense over the vesting period.

September 6, 2023, the Company granted an aggregate of 10,000 options to purchase the Company’s common stock to the Company’s

chief financial officer ( 5,000 options) and to an employee of the Company ( 5,000 options).

The options each have a term of 5 years from

the date of grant and are exercisable at an exercise price of $ 15.00 per share.

The options vest immediately.

The stock options were

valued at the grant date using a Black-Scholes option pricing model which will be recognized as stock-based compensation expense over

the vesting period.

2023 stock option grants were valued at the respective grant dates using a Black-Scholes option pricing model using the assumptions discussed

In connection with the stock option grants, the Company valued these stock options at a fair value of $ 185,628 , or an average

of $ 4.76 per option.

and records stock-based compensation expense over the vesting period.

Upon cancellation of unvested stock options,

the fair value of these cancelled options will be reversed.

the year ended December 31, 2023, certain employees and consultants were terminated.

Accordingly, 33,775 unvested options were forfeited

and $ 133,190 of previously recognized stock-based compensation and $ 26,144 of previously recognized stock-based professional fees was

During the year ended December 31, 2023, accretion of stock-based expense

related to stock options, which is net of the reversal of previously recognized stock-based expense due to forfeiture, amounted to $ 2,110,799

of which $ 2,002,777 was recorded in compensation and related expenses and $ 108,022 was recorded in professional and consulting expenses

as reflected in the consolidated statements of operations.

During the year ended December 31, 2022, the Company recognized total stock-based

expenses related to stock options of $ 3,471,134 of which $ 3,173,401 was recorded in compensation and related expenses and $ 297,733 was

recorded in professional and consulting expenses as reflected in the statements of operations.

As of December 31, 2023, a balance of $ 94,606

remains to be expensed over future vesting periods related to unvested stock options issued for services to be expensed over a weighted

average period of 0.68 years.

the years ended December 31, 2023 and 2022, the stock options were valued at the grant date using a Black-Scholes option pricing model

with the following assumptions.

The simplified method was used for the expected option term and expected volatility was based on historical

As of December 31, 2024, a balance of $ 994 remains

to be expensed over future vesting periods related to unvested stock options issued for services to be expensed over a weighted average

period of 0.05 years.

During the year ended December 31, 2023, the stock

options were valued at the grant date using a Black-Scholes option pricing model with the following assumptions.

The simplified method

was used for the expected option term and expected volatility was based on historical volatility:

Dividend rate

1 unchanged sentence

137.0 % to 168.0 %

155.8 % to 160.0 %

Risk—free interest rate

3.96 % - 4.73 %

1.53 % to 2.93 %

following is a summary of the Company’s stock option activity for the years ended December 31, 2023 and 2022 as presented below:

The following is a summary of the Company’s

stock option activity for the years ended December 31, 2024 and 2023 as presented below:

Options Weighted

Price Weighted

Balance on December 31, 2022 160,420 $ 109.90 3.91

Granted 39,000 13.14 -

Cancelled ( 40,750 ) 35.35 -

Balance on December 31, 2023 158,670 105.30 3.12

Cancelled ( 44,100 ) 49.13 -

Balance on December 31, 2024 114,570 $ 126.92 2.08

1 unchanged sentence

Weighted average fair value of options granted during the 2024 period $ -

December 31, 2023, the aggregate intrinsic value of options outstanding was $ 0 .

DATCHAT, INC.

AND SUBSIDIARIES

AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 and 2022

Stock Warrants

During the year ended December 31, 2022, 6,250 warrants expired and

were cancelled pursuant to its terms.

summary of the Company’s outstanding stock warrants, including 44,252 Series A public warrants, is presented below:

On December 31, 2024, the aggregate intrinsic

value of options outstanding was $ 0 .

Common Stock Warrants

On January 16, 2024, in connection with the Underwriting

Agreement, the Company sold pre-funded warrants to purchase up to 590,000 shares of Common Stock (the “Pre-Funded Warrants”).

The public offering price was $ 1.8499 for each Pre-Funded Warrant for aggregate gross proceeds of $ 1,091,441 .

The per share exercise price

for the Pre-Funded Warrants was $ 0.0001 and the Pre-Funded Warrants were exercisable immediately.

The Underwriters immediately exercised

the 590,000 Pre-Funded Warrants and the Underwriters received 589,981 shares of Common Stock since the exercise was cashless.

A summary of the Company’s outstanding stock

warrants, including 44,252 Series A public warrants, is presented below:

Warrants Weighted

Price Weighted

Balance on December 31, 2022 67,385 $ 49.80 3.65

Balance on December 31, 2023 67,385 49.80 2.65

Granted 590,000

Exercised ( 590,000 ) -

Balance on December 31, 2024 67,385 $ 49.80 1.65

Warrants exercisable on December 31, 2024 67,385 $ 49.80 1.65

On December 31, 2023, the aggregate intrinsic value

of warrants outstanding was $ 0 .

8 – COMMITMENTS AND CONTINGENCIES

Lease Agreement

Note 4 for disclosure on the Company’s operating lease for its offices.

August 27, 2021 (the “Effective Date”), the Company entered into an agreement (the “Employment Agreement”) with

Darin Myman effective as of August 15, 2021 pursuant to which Mr.

Myman’s (i) base salary will increase to $ 450,000 per year, and

Myman may be entitled to receive an annual bonus in an amount up to $ 350,000 , which annual bonus may be increased by the Compensation

Committee of the Board of Directors of the Company (the “Compensation Committee”), in its sole discretion, upon the achievement

of additional criteria established by the Compensation Committee from time to time (the “Annual Bonus”).

The Employment

Agreement provides for a term of one (1) year (the “ Initial Term ”) from the date of the Effective Date and shall automatically

be extended for additional terms of one (1) year each (each a “ Renewal Term ”) unless either party gives prior written

notice of non-renewal to the other party no later than six (6) months prior to the expiration of the Initial Term, or the then current

Renewal Term, as the case may be.

On December 31, 2024, the aggregate intrinsic

value of warrants outstanding was $ 0 .

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Operating Lease Agreement

See Note 6 for disclosure on the Company’s operating lease for

DATCHAT, INC.

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 and 2023

Employment Agreement

On August 27, 2021 (the “Effective Date”),

the Company entered into an agreement (the “Employment Agreement”) with Darin Myman effective as of August 15, 2021 pursuant

Myman’s (i) base salary will increase to $ 450,000 per year, and (ii) Mr.

Myman may be entitled to receive an annual

bonus in an amount up to $ 350,000 , which annual bonus may be increased by the Compensation Committee of the Board of Directors of the

Company (the “Compensation Committee”), in its sole discretion, upon the achievement of additional criteria established by

the Compensation Committee from time to time (the “Annual Bonus”).

The Employment Agreement provides for a term of one

(1) year (the “ Initial Term ”) from the date of the Effective Date and shall automatically be extended for additional

terms of one (1) year each (each a “ Renewal Term ”) unless either party gives prior written notice of non-renewal to

the other party no later than six (6) months prior to the expiration of the Initial Term, or the then current Renewal Term, as the case

In addition, pursuant to the Employment Agreement, upon termination of Mr.

Myman’s employment

for death or Total Disability (as defined in the Employment Agreement), in addition to any accrued but unpaid compensation and vacation

pay through the date of his termination and any other benefits accrued to him under any Benefit Plans (as defined in the Employment Agreement)

outstanding at such time and the reimbursement of documented, unreimbursed expenses incurred prior to such termination date (collectively,

the “Payments”), Mr.

Myman’s employment for death or Total Disability

(as defined in the Employment Agreement), in addition to any accrued but unpaid compensation and vacation pay through the date of his

termination and any other benefits accrued to him under any Benefit Plans (as defined in the Employment Agreement) outstanding at such

time and the reimbursement of documented, unreimbursed expenses incurred prior to such termination date (collectively, the “Payments”),

Myman shall be entitled to the following severance benefits:

(i) 24 months of his then base salary;

Myman elects continuation coverage for group health coverage pursuant to COBRA Rights (as defined in the Employment Agreement),

then for a period of 24 months following Mr.

Myman’s termination he will be obligated to pay only the portion of the full COBRA

Rights cost of the coverage equal to an active employee’s share of premiums (if any) for coverage for the respective plan year;

and (iii) payment on a pro-rated basis of any Annual Bonus or other payments earned in connection with any bonus plan to which Mr.

was a participant as of the date of his termination (together with the Payments, the “Severance”).

Furthermore, pursuant

to the Employment Agreement, upon Mr.

Myman’s termination (i) at his option (A) upon 90 days prior written notice to the Company

or (B) for Good Reason (as defined in the Employment Agreement), (ii) termination by the Company without Cause (as defined in the Employment

Agreement) or (iii) termination of Mr.

Myman’s employment within 40 days of the consummation of a Change in Control Transaction

(as defined in the Employment Agreement), Mr.

Myman shall receive the Severance;

Myman elects continuation

coverage for group health coverage pursuant to COBRA Rights (as defined in the Employment Agreement), then for a period of 24 months following

Myman’s termination he will be obligated to pay only the portion of the full COBRA Rights cost of the coverage equal to an active

employee’s share of premiums (if any) for coverage for the respective plan year;

and (iii) payment on a pro-rated basis of any Annual

Bonus or other payments earned in connection with any bonus plan to which Mr.

Myman was a participant as of the date of his termination

(together with the Payments, the “Severance”).

Furthermore, pursuant to the Employment Agreement, upon Mr.

Myman’s termination

(i) at his option (A) upon 90 days prior written notice to the Company or (B) for Good Reason (as defined in the Employment Agreement),

(ii) termination by the Company without Cause (as defined in the Employment Agreement) or (iii) termination of Mr.

Myman’s employment

within 40 days of the consummation of a Change in Control Transaction (as defined in the Employment Agreement), Mr.

Myman shall receive

the Severance;

provided, however, Mr.

Myman shall be entitled to a

pro-rated Annual Bonus of at least $ 200,000 .

In addition, any equity grants issued to Mr.

Myman shall immediately vest upon termination

Myman’s employment by him for Good Reason or by the Company at its option upon 90 days prior written notice to Mr.

without Cause.

the years ended December 31, 2023 and 2022, the compensation committee of the board of directors of the Company approved and the Company

recorded a bonus to the Company’s chief executive officer in the amount of $ 300,000 and $ 0 , respectively.

9 – INCOME TAXES

Company maintains deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying

amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The deferred tax assets

on December 31, 2023 and 2022 consist of net operating loss carryforwards.

The net deferred tax asset has been fully offset by a valuation

allowance because of the uncertainty of the attainment of future taxable income.

DATCHAT, INC.

AND SUBSIDIARIES

AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 and 2022

Myman shall be entitled to a pro-rated Annual Bonus of at least $ 200,000 .

In addition, any equity

grants issued to Mr.

Myman shall immediately vest upon termination of Mr.

Myman’s employment by him for Good Reason or by the Company

at its option upon 90 days prior written notice to Mr.

Myman, without Cause.

During the years ended December 31, 2024 and 2023,

the compensation committee of the board of directors of the Company approved and the Company recorded a bonus to the Company’s chief

executive officer in the amount of $ 300,000 and $ 300,000 , respectively.

Ambassador Settlement

Prior to the Company’s IPO, the Company

initiated a proposed “Ambassador Program” as a means to reward early investors for being Company brand ambassadors, helping

the Company create value by using and letting others know about the Company and its products.

However, the program never came to full

In connection with a recent review and evaluation of this initiative, management made a determination regarding the value of

what the eligible investors would have received.

As a result, the Company made outreach to these investors to provide them with an opportunity

to claim their reward payments, and distributions began in January 2025.

The maximum estimated total potential distribution under this

program is expected to be approximately $ 86,246 .

However, the actual distribution amount may be lower if less than all contacted shareholders

claim their reward payments.

The claim of reward payments has no expiration date.

As of December 31, 2024, the Company accrued $ 76,428

of such claim and recorded settlement expense of $ 76,428 , which is included and general and administrative expenses on the accompanying

statement of operation and comprehensive loss.

NOTE 9 – INCOME TAXES

The Company maintains deferred tax assets and

liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial

reporting purposes and the amounts used for income tax purposes.

The deferred tax assets on December 31, 2024 and 2023 consist of net

operating loss carryforwards.

The net deferred tax asset has been fully offset by a valuation allowance because of the uncertainty of

the attainment of future taxable income.

The Company has incurred aggregate net operating losses of approximately

6 unchanged sentences

Management will review this valuation allowance periodically and make adjustments as necessary.

items accounting for the difference between income taxes at the effective statutory rate and the provision for income taxes for the years

ended December 31, 2023 and 2022 were as follows:

The items accounting for the difference between

income taxes at the effective statutory rate and the provision for income taxes for the years ended December 31, 2024 and 2023 were as

Income tax benefit at U.S.

3 unchanged sentences

Income tax benefit – State

Non-deductible (income) expenses

Non-deductible expenses

Change in valuation allowance

Total provision for income tax

Company’s approximate net deferred tax asset on December 31, 2023 and 2022 was as follows:

DATCHAT, INC.

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2024 and 2023

The Company’s approximate net deferred tax

asset on December 31, 2024 and 2023 was as follows:

Deferred Tax Asset:

4 unchanged sentences

Net deferred tax asset

the $ 26,782,280 of available net operating losses, $ 1,403,306 begins to expire in 2034 and $ 25,378,974 which were generated after 2018

can be utilized indefinitely subject to annual usage limitations.

Company provided a valuation allowance equal to the deferred income tax asset for the years ended December 31, 2023 and 2022 because

it was not known whether future taxable income will be sufficient to utilize the loss carryforward.

The increase in the allowance was

$ 1,597,948 and $ 1,985,474 in years 2023 and 2022.

Additionally,

the future utilization of the net operating loss carryforward to offset future taxable income may be subject to an annual limitation

as a result of ownership changes that could occur in the future.

If necessary, the deferred tax assets will be reduced by any carryforward

that expires prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.

The Company does not have any uncertain tax positions or events leading

to uncertainty in a tax position.

The Company’s 2020, 2021, 2022 and 2023 Corporate Income Tax Returns are subject to Internal Revenue

Service examination.

10 – SUBSEQUENT EVENTS

Party Transaction

January 10, 2024, VR Interactive LLC (“VR Interactive”), a company 45 % owned by Darin Myman, the Company’s CEO and

3.75 % owned by Peter Shelus, the Company’s chief technology officer and director, purchased 8,000,000 shares of SmarterVerse from

the MetaBizz shareholders for cash amounting to $ 120,000 .

Myman is partner in VR Interactive.

Therefore, VR Interactive, a related

party, became a 25 % non-controlling interest in SmarterVerse.

February 14, 2024, SmarterVerse filed a Certificate of Amendment with the State of Nevada to change its name to Dragon Interactive Corporation.

of Common Stock and Warrants

January 16, 2024, the Company 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

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, the Company 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 .

Of the $ 31,494,927 of available net operating

losses, $ 1,403,306 begins to expire in 2034 and $ 30,091,621 which were generated after 2018 can be utilized indefinitely subject to annual

usage limitations.

The Company provided a valuation allowance equal to the deferred income

tax asset for the years ended December 31, 2024 and 2023 because it was not known whether future taxable income will be sufficient to

utilize the loss carryforward.

The increase in the allowance was $ 1,225,288 and $ 1,597,948 in years 2024 and 2023.

Additionally, the future utilization of the net

operating loss carryforward to offset future taxable income may be subject to an annual limitation as a result of ownership changes that

could occur in the future.

If necessary, the deferred tax assets will be reduced by any carryforward that expires prior to utilization

as a result of such limitations, with a corresponding reduction of the valuation allowance.

The Company does not have any uncertain tax positions

or events leading to uncertainty in a tax position.

The Company’s 2021, 2022, 2023 and 2024 Corporate Income Tax Returns are subject

to Internal Revenue Service examination.

NOTE 10 – SUBSEQUENT EVENTS

Sale of Common Shares

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 (the “Shares”) of common stock of the Company (the “Common Stock”),

at a purchase price of $ 4.25 per share of Common Stock (the “Offering”), for gross 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 sales of these securities under the Purchase Agreement took place on January 9, 2025 and the Company

received net proceeds of $ 4,537,000 after deducting placement fees and expenses of $ 563,000 .

The Company intends to use the net proceeds

from the offering for working capital and other general corporate purposes.

On January 7, 2025, the Company entered into an

engagement agreement with The Benchmark Company, LLC, as exclusive placement agent (“Benchmark” or the “Placement Agent”),

pursuant to which the Placement Agent agreed to act as placement agent on a reasonable “best efforts” basis in connection

with the Offering.

The Company agreed to pay the Placement Agent an aggregate cash fee equal to 7.0 % of the gross proceeds from the sale

of securities in the Offering and a non-accountable expense allowance equal to 1.0 % of the gross proceeds raised in the Offering.

Company also agreed to issue the Placement Agent (or its designees) a warrant (the “Placement Agent Warrant”) to

purchase up to 5 % of the aggregate number of shares of Common Stock sold in the offering, or warrants to purchase up to 60,000 shares

of 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.

In addition, the Company agreed to pay the Placement Agent $ 80,000 for legal expenses and other out-of-pocket expenses.

DATCHAT, INC.

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

1 unchanged sentence

DECEMBER 31, 2024 and 2023

per share exercise price for the Pre-Funded Warrants was $ 0.0001 and the Pre-Funded Warrants were exercisable immediately.

The Underwriters

immediately exercised the 590,000 Pre-Funded Warrants and the Underwriters received 589,981 shares of Common Stock since the exercise

was cashless.

The Pre-Funded Warrants are not and will not be listed for trading on any national securities exchange or other nationally

recognized trading system.

Company intends to use the net proceeds from the Offering (excluding any proceeds from any Pre-Funded Warrant exercises) for general

corporate purposes, for sales and marketing and for research and development.

Underwriting Agreement contains customary representations, warranties and covenants made by the Company.

It also provides for customary

indemnification by each of the Company and the Underwriters, severally and not jointly, for losses or damages arising out of or in connection

with the Offering, including for liabilities under the Securities Act of 1933, as amended, other obligations of the parties and termination

In addition, pursuant to the terms of the Underwriting Agreement, each of the Company’s directors and executive officers

have entered into “lock-up” agreements with the Representative that generally prohibit, without the prior written consent

of the Representative and subject to certain exceptions, the sale, transfer or other disposition of securities of the Company until July

Further, pursuant to the terms of the Underwriting Agreement, the Company has agreed for a period of 180-days from the closing

date, subject to certain exceptions, not to issue, enter into any agreement to issue or announce the issuance or proposed issuance of

any shares of capital stock of the Company or any securities convertible or exercisable or exchangeable for shares of capital stock of

(ii) file any registration statement;

(iii) complete any offering of debt securities of the Company, other than entering

into a line of credit with a traditional bank, or (iv) enter into any swap or other arrangement that transfers to another, in whole or

in part, any of the economic consequences of ownership of capital stock of the Company.

January 24, 2024, the compensation committee of the board of directors of the Company approved and the Company paid a one-time bonus

to the Company’s chief executive officer in the amount of $ 300,000 .

Shares for Services

January 25, 2024, SmarterVerse entered into a 21-month consulting agreement with an individual for business development, financial and

market due diligence services to be rendered over the term of the agreement.

In connection with this consulting agreement, SmarterVerse

issued 1,500,000 of its shares for services to be rendered.

Executive Bonus

On January 14, 2025, the compensation committee

of the board of directors of the Company approved and the Company paid a one-time bonus to the Company’s chief executive officer

in the amount of $ 350,000 .

Cancellation of RPM Interactive Shares

On January 14, 2025, the Company agreed to cancel

3,500,000 shares of RPM Common Stock for no consideration.

Stock Options

On January 14, 2025, the Company granted an aggregate

of 30,000 options to purchase the Company’s common stock to the Company’s board of directors.

The options each have a term

of 10 years from the date of grant and are exercisable at an exercise price of $ 5.50 per share.

The options vest in equal 25 % installments

every 6 months beginning on the 6-month anniversary of the date of grant.

The stock options were valued at the grant date using a Black-Scholes

option pricing model which will be recognized as stock-based compensation expense over the vesting period.

On January 14, 2025, the Company granted an aggregate of 230,000 options

to purchase the Company’s common stock to an officer, employees and consultants of the Company.

The options each have a term of

10 years from the date of grant and are exercisable at an exercise price of $ 5.50 per share.

The options vest in equal 25 % installments

every 6 months beginning on the 6-month anniversary of the date of grant.

The stock options were valued at the grant date using a Black-Scholes

option pricing model which will be recognized as stock-based compensation expense over the vesting period.

Equity Sales Agreement

On February 10, 2025, the Company entered into a Sales Agreement (the

“Sales Agreement”) with The Benchmark Company, LLC (“Benchmark”) to sell shares of the Company’s common

shares (the “Shares”) having an aggregate sales price of up to $ 6,000,000 , from time to time, through an “at the market

offering” program under which Benchmark will act as sales agent.

The sales, if any, of the Shares made under the Sales Agreement

will be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 promulgated under

the Securities Act of 1933, as amended.

The Company will pay Benchmark a commission rate equal to 4.0 % of the

aggregate gross proceeds from each sale of Shares;

provided however, that in the event that the amount of Shares sold under the Sales

Agreement increases to $ 1 million or more, then the commission rate will be reduced to 3 %.

In addition, the Company agreed to provide

Benchmark with customary indemnification and contribution rights.

The Company will also reimburse Benchmark for certain specified expenses

in connection with entering into the Sales Agreement.

The Sales Agreement contains customary representations and warranties and conditions

to the sale of the Shares pursuant thereto.

The Company is not obligated to sell any of the Shares under the Sales Agreement and may at

any time suspend solicitation and offers thereunder.

The offering of Shares pursuant to the Sales Agreement will terminate on the earlier

of (1) the sale, pursuant to the Sales Agreement, of Shares having an aggregate offering price of $ 6,000,000 and (2) the termination

of the Sales Agreement by either us or Benchmark, as permitted therein.

The Shares will be issued pursuant to our shelf registration statement

on Form S-3 (File No.

333-268058) filed by the Company with the SEC on October 28, 2022 and declared effective

by the SEC on December 6, 2022.

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 9A. Controls and Procedures