What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-03-29 compared with 2023-03-31 · 1508 added, 1383 removed, 371 unchanged (89% of the section changed)

CONTROLS AND PROCEDURES

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, 2022, the end of the period covered by this Annual Report on Form 10-K,

have concluded that our disclosure controls and procedures were 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

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.

We are required to maintain “disclosure

controls and procedures,” as that term is defined in Rule 13a-15(e) and 15d-15(e), promulgated by the SEC pursuant to the Exchange

Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed

in the reports we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the

SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive

officer and principal financial officer, to allow timely decisions regarding required 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.

Our management, with the participation of our

principal executive officer and principal financial officer, evaluated our disclosure controls and procedures as of the end of the period

covered by this Quarterly Report on Form 10-Q.

Based on this evaluation, our principal executive officer and principal financial officer

concluded that as of December 31, 2022, our disclosure controls and procedures were not effective because of a material weakness in our

internal controls over financial reporting.

The ineffectiveness of our disclosure controls and procedures were not effective because

of the material weaknesses set forth below.

The ineffectiveness of our disclosure controls

and procedures 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.

We lack control over the custody of and accounting for digital currencies and other digital assets accounts.

● 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 third-party accountant

who is a certified public 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 control procedures.

In addition, while we have independent directors, we do not have an audit committee, resulting in ineffective

oversight in the establishment and monitoring of required internal controls and procedures.

These factors represent material weaknesses

in our internal controls 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.

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.

report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the exemption

provided to issuers that are not “large accelerated filers” nor “accelerated filers” under the Dodd-Frank Wall

Street Reform and Consumer Protection Act.

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.

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

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.

OTHER INFORMATION

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

Gabriel Daniels

Chief Information Officer

Gianfranco Lopane

Head of Business Development

Wayne Linsley

Joseph Nelson

Carly Schumer

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.

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.

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.

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.

Prior to BigString, Mr.

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.

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.

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.

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.

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.

Brett Blumberg – Chief Financial

Brett 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.

Blumberg – Chief Financial Officer

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.

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.

Gabriel Daniels – Chief Information

Gabriel Daniels has served as our Chief Information

Officer since March 2021.

Since May 2019, Mr.

Daniels has served as the Co-Founder, President & CEO of NGD Cybersecurity and Customer

Service Consultants LLC, a Minority-Woman Owned and Veteran Owned Business providing high-level technical, cyber commissioning, customer

service and project management consulting services for companies within the DHS 16 critical infrastructure.

From April 2018 to April

Daniels served as the Cybersecurity Program Manager at Chinook Systems, an engineering firm.

From June 2017 to April 2018,

Daniels worked as a Senior Information Assurance Manager at Navstar Inc., an Information Technology & Services firm.

addition, since December of 2017, Mr.

Daniels has worked as an adjunct professor at Northern Virginia (NoVA) Community College and Lord

Fairfax Community College, where he teaches classes such as introduction to telecommunications, cyberlaw, network attacks, computer crime

and hacking, and computer applications and concepts.

Daniels is a 15-year U.S.

Army and Navy veteran.

While serving in the Army,

Daniels aided in the development of the Army’s Strategic Cybersecurity and Cyber Incident Handling Response Plans.

Daniels holds a master’s degree in cybersecurity and a bachelor’s degree in marketing from the University of Maryland

University College.

Gianfranco Lopane – Head of Business

Gianfranco Lopane has served as our Head of Business

Development since February 2022 and President of our wholly-owned subsidiary, SmarterVerse, since July 2022.

Since August 2018, Mr.

has served as the founder of Generiqo, a NFT, metaverse, and blockchain consulting company.

From June 2020 to May 2021, Mr.

Lopane served

as a senior account executive at XPO Logistics, Inc.

From April 2017 to January 2020, Mr.

Lopane served as a co-founder of Real World

Ads, an advertising network company for the metaverse.

Lopane holds a Master’s degree in commerce and marketing from EUDE Business

School in Madrid, Spain.

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.

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 management.

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

Linsley has over 40 years of experience in business

Since April 2020, 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 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.

Linsley worked at CFO Oncall, Inc.

as an independent contractor.

Linsley holds Bachelor of Science degree

in Business Administration from Siena College.

We believe that Mr.

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

because of his experience as a director of public companies and background in financial reporting.

Joseph Nelson – Director

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

Nelson – Director

Joseph Nelson has served as a member of our board

of directors since August 2021.

Since December 2017, Mr.

Nelson has 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

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.

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.

From November 2014 to November 2017, Mr.

Nelson worked as an Equity Research Analyst at Maxim Group.

Nelson 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.

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.

Carly Schumer – Director

Carly Schumer has served as a member of our board

of directors since August 2021.

Since May 2011, Ms.

Schumer has worked as a digital consultant at ShmeeLive.

From May 2018 to June 2020,

Schumer served as a digital director for Lust For Life, LLC, a subsidiary of Renewable Energy & Power, Inc.

Schumer has in-depth experience in ecommerce and digital industries with specializations in digital marketing campaign development, content

marketing strategy, SEO and paid media management.

Her digital marketing background is rooted in inbound marketing strategies and her

approach focuses on listening to user needs and communicating to them via high quality content in order to attract return visitors and

Schumer specializes in working with start-up companies, across the technology, healthcare and fashion industries.

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

We believe that

Schumer is qualified to serve as a member of our board of directors because of her experience and background in digital marketing

for e-commerce and public companies.

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.

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

Carly Luogameno has served as a member of our

board of directors since August 2021.

Since May 2011, Mrs.

Luogameno has worked as a digital consultant at ShmeeLive.

From May 2018 to

June 2020, Mrs.

Luogameno served as a digital director for Lust For Life, LLC, a subsidiary of Renewable Energy & Power, Inc.

From August 2013 to September 2015, Mrs.

Luogameno served as the Marketing Director for Jerrick Media,(OTC:

JMDA, now Creatd,

Luogameno has in-depth experience in ecommerce and digital industries with specializations in digital marketing campaign

development, content marketing strategy, SEO and paid media management.

Her digital marketing background is rooted in inbound marketing

strategies and her approach focuses on listening to user needs and communicating to them via high quality content in order to attract

return visitors and engagements.

Luogameno specializes in working with start-up companies, across the technology, healthcare and

fashion industries.

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.

Our audit committee consists of Wayne D.

Carly Schumer and Joseph Nelson, with Mr.

Carly Luogameno and Joseph Nelson, with Mr.

Linsley serving as chair.

8 unchanged sentences

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

Compensation Committee .

The compensation

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

● the adequacy and form of compensation of the board;

● 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.

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.

Our compensation committee will consists of Wayne

Linsley, Carly Schumer and Joseph Nelson, with Mr.

Linsley, Carly Luogameno and Joseph Nelson, with Mr.

Linsley serving as chair.

1 unchanged sentence

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

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.

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.

Our nominating and corporate governance committee

consists of Wayne D.

Linsley, Carly Schumer and Joseph Nelson, with Mr.

Linsley, Carly Luogameno and Joseph Nelson, with Mr.

Linsley serving as chair.

1 unchanged sentence

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

Code of Business Code 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.

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.

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.

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

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

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth for the year ended

December 31, 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 $100,000.

We refer to these officers as our “named executive

Name and Principal Position

Non-Equity Incentive Plan Compensation

Nonqualified Deferred Compensation

All Other Compensation

Chief Executive Officer

Brett Blumberg

Chief Financial Officer

Chief Technology Officer

1) On September 28, 2021, we granted 250,000 stock options to

The options have a term of 5 years from the date of grant and are exercisable at an exercise price of $35 per share.

vest 25% every six months from date of grant for two years.

2) Other compensation was made up of health insurance expenses.

Outstanding Equity

Awards at December 31, 2022

The following table provides information regarding

option awards held by each of our named executive officers that were outstanding as of December 31, 2022.

There were no stock awards

or other equity awards outstanding as of December 31, 2022.

OUTSTANDING EQUITY AWARDS AT 2022 FISCAL YEAR-END

OPTION AWARDS

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

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.

Incentive Plan

Unexercisable

1 unchanged sentence

that have not

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, 2022.

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 2022.

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.

Incentive Plan

compensation earnings

All Other Compensation

Joseph Nelson

Carly Schumer

Wayne Linsley

Employment Agreements

On August 27, 2021, DatChat, Inc.

(the “Company”)

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

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”).

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

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 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:

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 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.

(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 shall receive the Severance;

2 unchanged sentences

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 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.

Brett Blumberg Employment Agreement

On February 15, 2022, the Company entered into

an employment agreement (the “Blumberg Employment Agreement”) with Brett Blumberg effective as of February 15, 2022 pursuant

Blumberg will serve as Chief Financial Officer of the Company.

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.

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

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 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”).

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”).

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 Agreement).

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

Upon the termination of Mr.

Blumberg’s employment for death or Disability, Mr.

Blumberg shall be entitled to receive the Accrued Amounts.

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

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

9 unchanged sentences

Joseph Nelson (4)

Carly Schumer(4)

Carly Luogameno (4)

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

* Represents beneficial ownership of less than 1%.

(1) 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 20,234,066 shares of common stock outstanding on March 27, 2023.

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to the subject securities.

Shares of common stock that are currently exercisable or convertible within 60 days of March 27, 2023 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage beneficial ownership of such person, but are not treated as outstanding for the purpose of computing the percentage beneficial ownership of any other person.

Includes 187,500 vested stock options

Includes 43,750 of 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, 2022.

Plan Category

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.

The calculation in this column is based upon 20,234,066 shares of common

stock outstanding on March 28, 2024.

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes

voting or investment power with respect to the subject securities.

Shares of common stock that are currently exercisable or convertible

within 60 days of March 28, 2024 are deemed to be beneficially owned by the person holding such securities for the purpose of computing

the percentage beneficial ownership of such person, but are not treated as outstanding for the purpose of computing the percentage beneficial

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.

securities to

outstanding options, warrants

Weighted average

outstanding options, warrants

2 unchanged sentences

equity compensation plans

(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, 2022 and December 31, 2021 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, 2022 and 2021, 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.

Our Chief Executive Officer, Mr.

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

At December 31, 2022 and 2021, the Company had a payable

to the officer of $1,315 and $203, 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 years ended December 31, 2022 and 2021, respectively, Mr.

Myman provided advances

to the Company for working capital purposes totaling of $20,294 and $177,624 and the Company repaid $19,182 and $177,615 of these advances,

respectively.

Research and Development

On July 19, 2022, the Company entered into a software

development agreement with Metabizz LLC (“Metabizz”), a company whose managing partner is also the Chief Innovation Officer

of Smarterverse, the Company’s wholly-owned subsidiary.

During the year ended December 31, 2022, the Company paid Metabizz $514,957

for software development services which is included in research and development expense – related party on the accompanying consolidated

statements of operations.

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

● 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.

Director Independence

The Nasdaq Stock Market LLC (“Nasdaq”)

requires that a majority of our board of directors must be composed of “independent directors,” which is defined generally

as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which,

in the opinion of the company’s board of directors would interfere with the director’s exercise of independent judgment in

carrying out the responsibilities of a director.

The board has determined that Wayne D.

Linsley, Carly Schumer and Joseph Nelson are

“independent”.

Our board currently consists of three independent directors and two non-independent directors.

(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

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

Our board of directors has affirmatively

determined that Wayne D.

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

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate

fees billed by D.

Brooks and Associates CPAs, P.A.

as described below:

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:

Audit Related Fees

All Other Fees

(1) Audit Fees are paid for professional services rendered for

the audit of the Company’s annual consolidated financial statements and reviews of the Company’s unaudited condensed consolidated

financial statements.

Pre-Approval Policies and Procedures

Our Board of Directors pre-approves all services

provided by our independent auditors.

All of the above services and fees were reviewed and approved by our Board of Directors before

the respective services were rendered.

Our Board of Directors has considered the nature

and amount of fees billed by our independent registered public accounting firm and believe that the provision of services for activities

unrelated to the audit is compatible with maintaining their respective independence.

EXHIBIT AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:

(1) Financial Statements:

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:

Consolidated Balance Sheets

3 unchanged sentences

Notes to Consolidated Financial Statements

The consolidated financial statements required

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

(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.

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

Title of Document

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)

2 unchanged sentences

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)

1 unchanged sentence

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

Agreement and Plan of Merger, dated as of June 29, 2022, by and among DatChat, Inc., DatChat Patents I, Inc., DatChat Patents II, LLC, and Avila Security Corporation (Incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K Filed on July 5, 2022)

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)

Media Partnership Plan by and between, Datchat, Inc.

and Bartsool Sports (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on October 13, 2021)

Statement of Work by and between, Datchat, Inc.

and IZEA Worldwide, Inc.

(Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on September 24, 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)

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)

Consent of Salberg & Company, P.A.

Consent of D.

Brooks and Associates CPAs, P.A.

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

2 unchanged sentences

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

DatChat, Inc.

Clawback Policy

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, 2022 is formatted in Inline XBRL

* Filed herewith.

+ Indicates 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, 2023 is formatted

in Inline XBRL

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

FORM 10-K SUMMARY

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 31 st day of March, 2023.

DATCHAT, INC.

/s/ Darin Myman

Chief Executive Officer and Director

(Principal Executive Officer)

/s/ Brett Blumberg

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)

Brett Blumberg

Chief Financial Officer

(Principal Financial and Accounting Officer)

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.

Financial Officer

Financial and Accounting Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE

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

10 unchanged sentences

March 29, 2024

/s/ Gabriel Daniels

Chief Information Officer

March 29, 2024

Gabriel Daniels

March 31, 2023

/s/ Joseph Nelson

1 unchanged sentence

Joseph Nelson

/s/ Carly Schumer

/s/ Carly Luogameno

March 29, 2024

Carly Schumer

DATCHAT, INC.

INDEX TO FINANCIAL STATEMENTS

December 31, 2022 and 2021

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:

Consolidated Balance Sheets F-5

4 unchanged sentences

Report of Independent Registered Public Accounting

To the Stockholders and the Board of Directors

DatChat, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated

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.

Basis for Opinion

These consolidated financial statements are the

responsibility of the Company’s management.

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

standards of the PCAOB.

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

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 internal control over financial reporting.

As part of our audit, 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.

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

the risks of material misstatement of the consolidated 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

consolidated financial statements.

Our audit 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

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

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Board of Directors and

3 unchanged sentences

balance sheets of DatChat, Inc.

(the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations,

stockholders’ equity, and cash flows for the years ended December 31, 2022 and 2021, and related notes (collectively referred to

as the consolidated financial statements).

(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 and 2021 the results of its operations

and its cash flows for the years ended December 31, 2022 and 2021 in conformity with accounting principles generally accepted in the United

States of America.

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

23 unchanged sentences

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

Critical Audit Matters

Critical audit matters 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 financial statements and (2) involved our especially challenging,

subjective, or complex judgments.

We determined that there were no critical audit matters.

Brooks and Associates CPAs, P.A.

We have served as the Company’s auditor

Palm Beach Gardens, Florida

March 31, 2023

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

DATCHAT, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE

CURRENT ASSETS:

25 unchanged sentences

Series A Preferred stock ($ 0.0001 Par Value;

1 Share authorized;

1 Share designated;

none issued and outstanding on December 31, 2023 and 2022)

Series B Preferred stock ($ 0.0001 Par Value;

2,000,000 Share designated;

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

Common stock ($ 0.0001 par value;

180,000,000 shares authorized;

20,597,169 and 19,597,169 shares issued and outstanding on December 31, 2022 and 2021, respectively)

2,103,321 and 2,059,717 shares issued and 2,036,376 and 2,059,717 shares outstanding on December 31, 2023 and 2022, respectively)

Common stock to be issued ( 139 shares on December 31, 2023 and 2022)

Additional paid-in capital

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

Accumulated other comprehensive gain

Accumulated deficit

6 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS

OF OPERATIONS AND COMPREHENSIVE LOSS

For the Year Ended

3 unchanged sentences

Professional and consulting expenses

Research and development expense - related party

Research and development expense

General and administrative expenses

Impairment loss on intangible asset

Impairment loss on property and equipment and intangible asset

Impairment loss on digital currencies and other digital assets

1 unchanged sentence

LOSS FROM OPERATIONS

OTHER INCOME (EXPENSE):

Interest expense

Interest income

Gain from forgiveness of debt

( 8,784,031 )

( 12,226,725 )

OTHER INCOME (EXPENSES):

Interest income, net

Gain on initial consolidation of variable interest entities

Foreign currency loss

Realized gain on short-term investments

Unrealized gain on short-term investments

Total other income, net

Unrealized gain (loss) on short-term investments

Total other income (expenses), net

$ ( 8,404,970 )

$ ( 12,138,572 )

COMPREHENSIVE LOSS:

$ ( 8,404,970 )

$ ( 12,138,572 )

Other comprehensive (loss) gain:

Unrealized (loss) gain on short-term investments

Unrealized foreign currency translation loss

Comprehensive loss

$ ( 8,370,417 )

$ ( 12,138,572 )

NET LOSS PER COMMON SHARE:

5 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

CONSOLIDATED STATEMENTS

OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER

31, 2023 AND 2022

Preferred Stock

Treasury Stock

Accumulated other

Comprehensive

Stockholders’

1 unchanged sentence

$ ( 27,590,546 )

Sale of common stock, net of offering costs

Common stock issued for common stock issuable

Common stock issued for exercise of Series A warrants

Common stock issued for services

Stock-based compensation in connection with stock option grants

Accretion of stock-based compensation

Fractional shares due to reverse split

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

4 unchanged sentences

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

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

3 unchanged sentences

$ ( 397,969 )

$ ( 48,134,088 )

See accompanying notes to consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended

CONSOLIDATED STATEMENTS

OF CASH FLOWS

For the Year Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

6 unchanged sentences

Stock-based professional fees

Gain from extinguishment of debt

Impairment loss on intangible asset

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

2 unchanged sentences

Realized gain on short-term investments

Unrealized gain on short-term investments

Unrealized loss on short-term investments

Changes in operating assets and liabilities:

Accounts receivable

Accounts receivable - related party

Prepaid expenses

7 unchanged sentences

Proceeds from sale of short-term investments

Purchase of short-term investments

Purchase of short-term investments, net

( 8,599,121 )

( 20,842,149 )

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 USED IN INVESTING ACTIVITIES

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

( 11,209,126 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Advances from related party

Payments on related party advances

Repayment of notes payable - related party

Proceeds from exercise of Series A Warrants

Net proceeds from the sale of common stock

NET CASH PROVIDED BY FINANCING ACTIVITIES

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

Proceeds from related party advances

Repayment of related party advances

Proceeds from sale of Series B preferred stock

Purchase of treasury stock

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

NET DECREASE IN CASH AND CASH EQUIVALENTS

( 18,466,779 )

CASH AND CASH EQUIVALENTS - beginning of year

CASH AND CASH EQUIVALENTS - end of year

Effect of exchange rate changes on cash

CASH AND CASH EQUIVALENTS -

beginning of year

CASH AND CASH EQUIVALENTS - end of

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

3 unchanged sentences

Common stock issued for future services

Subscription receivable from exercise of Series A warrants

Issuance of common shares for intangible assets

See accompanying notes to consolidated financial statements.

Increase in short-term investments and accumulated other comprehensive

See accompanying notes to

consolidated financial statements.

DATCHAT, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 and 2022

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING

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.

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.

to DatChat, Inc.

The Company established a fiscal year end of December 31.

The Company is a blockchain, cybersecurity,

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

is shared with others.

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.

On July 28, 2021, the Company filed a certificate

of change to the Company’s amended and restated certificate of incorporation, with the Secretary of State of the State of Nevada

to effectuate a one-for-two (1:2) reverse stock split (the “Reverse Stock Split”) of the Company’s common stock.

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

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.

On 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 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 1,000,000 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.

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.

Basis of presentation

The consolidated financial statements of the Company

include the accounts of DatChat and its wholly-owned subsidiaries, DatChat Patents II, LLC and SmarterVerse.

All intercompany accounts

and transactions have been eliminated in consolidation.

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

DATCHAT, INC.

AND SUBSIDIARIES

AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 and 2022

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)

Total liabilities

Going concern

As reflected in the accompanying consolidated

financial statements, for the years ended December 31, 2022 and 2021, the Company incurred a net loss of $ 12,138,572 and $ 10,829,034 ,

respectively.

Additionally, for the years ended December 31, 2022 and 2021, the Company used cash in operations of $ 7,258,765 and $ 8,454,504 ,

respectively.

As of December 31, 2022, the Company has an accumulated deficit of $ 39,729,118 and has generated minimal revenues since

During the year ended December 31, 2021, the Company received net proceeds of approximately $ 13.7 million from the sale of

its securities in connection with initial public offering and gross proceeds of approximately $ 14.4 million from the exercise of the Company’s

Series A warrants.

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 ,

These events served to mitigate the conditions

that historically raised substantial doubt about the Company’s ability to continue as a going concern.

The Company believes the

proceeds raised during the year ended December 31, 2021 will provide sufficient cash flows to meet its obligations for a minimum of twelve

months from the date of this filing.

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.

DATCHAT, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 and 2022

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 deferred tax assets, 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 maturity 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, 2022 and 2021, the Company had

cash in excess of FDIC limits of approximately $ 1,406,033 and $ 19,949,735 , 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.

t he 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.

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.

The Company did not identify any assets or liabilities that are required

to be presented on the balance sheet at fair value in accordance with the Financial Accounting Standard Board (“FASB”) Accounting

Standards Codification (“ASC”) Topic 820.

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, 2022.

Company did not have any financial assets and liabilities measured at fair value on December 31, 2021.

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.

December 31, 2023

December 31, 2022

Short-term investments

The Company’s short-term investments are

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

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.

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.

DATCHAT, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 and 2022

Short-term investments

The Company considers investments with original

maturities greater than three months and remaining maturities less than one year to be short-term investments.

Short-term investments

Treasury bills and certificates of deposit that are all highly rated and have initial maturities between four and twelve

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.

For the year ended December 31,

2022, net unrealized gain on short-term investments of $ 47,672 and realized gain on short-term investments of $ 28,176 are reported in

other income (expenses) on the consolidated statements of operations.

Accounting for digital currencies and other digital assets

The Company purchases Ethereum cryptocurrency

(“Ethereum”) and other digital assets and accepts Ethereum as a form of payment for non-fungible tokens sales (NFTs).

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

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 year ended December 31, 2022, the Company recorded

an impairment loss of $ 119,276 , which consists of an impairment of digital currency of $ 65,289 and impairment of virtual real estate of

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.

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).

DATCHAT, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 and 2022

Capitalized software costs

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:

(i) the preliminary project stage is completed;

management authorizes and commits to funding the project and it is probable the project will be completed and used to perform the function

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.

Software development costs incurred during the year

ended December 31, 2022 were expensed since the Metaverse software development project is in the preliminary project stage.

are included in research and development costs on the accompanying consolidated statement of operations and were incurred with a related

party (see Note 6).

Intangible assets

Intangible 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

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 $ 981,000 .

See Notes 3 and 5 for additional

information regarding intangible assets.

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.

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.

Lifetime subscriptions are being recognized to revenues over a 12-month

The Company’s NFT revenues were generated

from the sale of NFTs.

The Company accepts Ethereum as a form of payment for NFT sales.

The Company’s NFTs exist on the Ethereum

Blockchain under the Company’s VenVuu brand.

VenV uu is an iMetaverse advertising platform that allows advertisers and metaverse

landowners to connect using the Company’s proprietary metaverse ad network and dynamic NFT technology.

The Company uses 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 is determined based on the value of the Ethereum

crypto currency received as consideration.

Each NFT that is generated produces a unique identifying code.

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.

DATCHAT, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 and 2022

The Company tracks its revenue by product.

The following table summarizes

revenue by product for the years December 31, 2022 and 2021:

For the Years Ended

Subscription revenues

Research and Development

Research and development costs incurred in the

development of the Company’s products are expensed as incurred and includes costs such as outside development costs and other allocated

costs incurred.

For the year ended December 31, 2022, research and development costs incurred in the development of the Company’s

software products with a related party were $ 514,957 and are included in research and development expense – related party on the

accompanying consolidated statements of operations.

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 the advertising costs as they are incurred.

Advertising costs were $ 828,736 and $ 5,090,763 for the years ended December 31, 2022 and 2021, 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 require 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.

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.

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 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.

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.

DATCHAT, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 and 2022

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.

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.

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

Common stock equivalents:

1 unchanged sentence

Common stock options

Reclassification

Certain reclassifications have been made in the

consolidated financial statements to conform to the current year presentation.

Such reclassifications had no impact on the Company’

previously reported consolidated financial position or results of operations.

Specifically, on the consolidated statements of operations,

certain operating expenses that were classified as general and administrative expenses were reclassified to professional and consulting

Recent accounting pronouncements

Management does not believe that any recently

issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on its financial statements.

DATCHAT, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

DECEMBER 31, 2022 and

NOTE 2 – SHORT-TERM INVESTMENTS

On December 31, 2022, the Company’s short-term

investments consisted of the following:

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:

December 31, 2023

December 31, 2022

US Treasury bills

1 unchanged sentence

Total short-term investments

Short-term investments mature between January

2023 to October 2023.

NOTE 3 – ACQUISITION

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 of the issuance of an aggregate of 1,000,000 shares (the “ Acquisition Shares ”)

of the Company’s common stock.

These shares were valued at $ 1,090,000 , or $ 1.09 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.

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

Other than owning certain patents, Avila had no operations or no employees and was not considered a business.

Pursuant 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 1,000,000 common shares issued of $ 1,090,000 as the fair value of the assets acquired since this value was more

clearly evident, and thus, more reliable measurable than the fair value of the patents acquired.

NOTE 4 – 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 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.

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 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.

For the years ended December 31, 2022 and 2021, rent expense amounted $ 94,924 and

$ 78,280 , respectively, and was included in general and administrative expenses.

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

DATCHAT, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 and 2022

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 39 months and the incremental borrowing rate is 18.0 % (based on historical borrowing rates) on December 31,

Right-of- use assets are summarized below:

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:

Less accumulated amortization

Right-of-use asset, net

Operating Lease liabilities are summarized below:

Lease liabilities are summarized below:

Reduction of lease liability

2 unchanged sentences

Long term portion of lease liability

Minimum lease payments under the non-cancelable

operating lease on December 31, 2022 are as follows:

lease payments under the non-cancelable operating lease on December 31, 2023 are as follows:

For the year ended December 31:

1 unchanged sentence

Total operating lease liability

NOTE 5 – INTANGIBLE ASSETS

On June 29, 2022, in connection with the acquisition

of Avila, the Company issued an aggregate of 1,000,000 shares of the Company’s common stock.

These shares were valued at $ 1,090,000 ,

or $ 1.09 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).

The Company was amortizing the patents over 5 years.

year ended December 31, 2022, activities related to intangible assets is as follows:

For the Year Ended

December 31, 2022

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

2 unchanged sentences

Intangible assets, net

The 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 .

For the year ended December 31, 2022, amortization

of intangible assets amounted to $ 109,000 , which was included in general and administrative expenses on the accompanying consolidated

statements of operations.

DATCHAT, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 and 2022

NOTE 6 – RELATED PARTY TRANSACTIONS

Due to Related Party

The Company’s officer, Mr.

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

On December 31, 2022 and 2021, the Company had a payable

to the officer of $ 1,315 and $ 203 , 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 years ended December 31, 2022 and 2021, respectively, Mr.

Myman provided advances

to the Company for working capital purposes totaling of $ 20,294 and $ 177,624 and the Company repaid $ 19,182 and $ 177,615 of these advances,

respectively.

Research and Development

On July 19, 2022, the Company entered into a software

development agreement with Metabizz LLC (“Metabizz”), a company whose managing partner is also the Chief Innovation Officer

of Smarterverse, the Company’s wholly-owned subsidiary.

During the year ended December 31, 2022, the Company paid Metabizz $ 514,957

for software development services which is included in research and development expense – related party on the accompanying consolidated

statements of operations.

NOTE 7 – STOCKHOLDERS’ EQUITY

Shares Authorized

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.

Reverse Stock Split

On July 28, 2021, the Company filed a certificate

of change to the Company’s amended and restated certificate of incorporation, with the Secretary of State of the State of Nevada,

to effectuate a one-for-two (1:2) reverse stock split of the Company’s common stock.

Proportional adjustments for the Reverse Stock

Split were made to the Company’s outstanding stock options, warrants and equity incentive plans.

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

2021 Omnibus Equity Incentive Plan

On July 26, 2021, the Company adopted the 2021

Omnibus Equity Incentive Plan, and authorized the reservation of 2,000,000 shares of common stock for future issuances under the plan.

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 3,000,000 shares from 2,000,000 .

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.

In August 2016, the Company designated 1 share

of Series A Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”) and 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, 2022 and 2021, there were no Series A Preferred Stock outstanding.

DATCHAT, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

DECEMBER 31, 2022 and

Sale of Common Stock

During the year ended December 31, 2021, the Company

sold an aggregate of 405,224 shares of its common stock at $ 4.00 per common share for gross proceeds of $ 1,620,896 and net proceeds of

$ 1,589,237 after escrow fees related to private placement sale.

As of December 31, 2022 and 2021, there were a

total of 1,389 shares of common stock to be issued.

Initial Public Offering

On August 12, 2021, the Company entered into an

underwriting agreement (the “Underwriting Agreement”) with EF Hutton, division of Benchmark Investments, LLC, in connection

with the initial public offering (the “Offering”) of 3,325,301 shares of the its common stock and Series A warrants (the “Series

A Warrants”) to purchase up to 3,325,301 shares of the its common stock for gross proceeds of $ 13,800,000 , before deducting underwriting

discounts, commissions, and other offering expenses, including legal expenses related to the Offering of approximately $ 1,718,000 which

are offset against the proceeds in additional paid in capital resulting in net proceeds to the Company of $ 12,081,837 .

The Offering closed

on August 17, 2021, and the underwriter subsequently exercised its over-allotment option, which closed on August 23, 2021.

The Series A Warrants are exercisable for a period

of five years from the date of issuance at an exercise price of $ 4.98 per share, subject to adjustment as provided therein.

A Warrants contain a provision for cashless exercise.

In addition, pursuant to the terms of the Offering,

the Company agreed to issue warrants to EF Hutton (the “Representative’s Warrants”) to purchase up to an aggregate of

231,325 shares of common stock, or 8 % of the shares of common stock sold in the offering.

The Representative’s Warrants are exercisable

for a period of five years at any time on or after the six-month anniversary of the date of the Offering at an exercise price of $ 4.98

per share, subject to adjustment.

The Representative’s Warrants contain a provision for cashless exercise.

Common Stock for Services

In March 2021, the Company issued an aggregate

of 105,000 shares of common stock for consulting and professional services rendered.

The Company valued these common shares at the fair

value of $ 420,000 or $ 4.00 per common share based on sales of common stock in the recent private placement.

The Company recorded stock-based

consulting of $ 420,000 which is included in professional and consulting expenses in the accompanying statements of operations for the

year ended December 31, 2021.

In 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 Board.

In accordance with this agreement

the Company issued 100,000 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 $ 4.00 per common share based on sales of common stock in the recent private placement.

The Company recorded

stock-based consulting of $ 350,000 which was included in professional and consulting expenses in the accompanying statements of operations

for the year ended December 31, 2021 and the remaining balance of $ 50,000 as of December 31, 2021 was deferred and included as a contra-equity

account within additional paid in capital and was amortized into professional and consulting expenses during the year ended December 31,

Common Stock Issued for Acquisition

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 1,000,000 shares (the “ Acquisition Shares ”)

of the Company’s common stock.

These shares were value at $ 1,090,000 , or $ 1.09 per share, based on the quoted closing price of the

Company’s common stock on the measurement date (See Note 3).

DATCHAT, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 and 2022

Common Stock Issued Upon Exercise of Series A Warrants

Between August 27, 2021 and October 5, 2021, the

Company received aggregate gross proceeds of $ 14,356,272 from the exercise of 2,882,785 Series A Warrants, resulting in an aggregate issuance

of 2,882,785 shares of common stock.

Common Stock Warrants

A summary of the Company’s outstanding stock

warrants is presented below:

Exercise Price

Balance on December 31, 2020

( 2,882,785 )

Balance on December 31, 2021

Balance on December 31, 2022

Warrants exercisable on December 31, 2022

On December 31, 2022, the aggregate intrinsic

value of warrants outstanding was $ 0 .

Stock Options

On August 13, 2021, the Company granted an aggregate

of 285,700 options to purchase the Company’s common stock to an officer, directors 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 $ 4.15 per share.

The options vest six months

from date of grant.

On August 24, 2021, the Company granted an aggregate

of 530,000 options to purchase the Company’s common stock to officers, 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 $ 6.25 per share.

The options vest 25 % every six months

from date of grant for two years.

On December 24, 2021, pursuant to a separation agreement, 115,000 unvested option were cancelled due

to termination of an employee.

On September 28, 2021, the Company granted an

aggregate of 18,500 options to purchase the Company’s common stock to an employee 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 $ 14.25 per share.

The options vest 25 % every six

months from date of grant for two years.

On September 28, 2021, the Company granted an

aggregate of 350,000 options to purchase the Company’s common stock to officers and directors of the Company.

The options have a

term of 5 years from the date of grant and are exercisable at an exercise price of $ 35 per share.

The options vest 25 % every six months

from date of grant for two years.

On December 24, 2021, pursuant to a separation agreement, 25,000 unvested options were cancelled due

to termination of an employee (see below).

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.

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).

DATCHAT, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 and 2022

On December 24, 2021, the Company entered into

a Separation and General Release Agreement (the “Separation Agreement”) with the Company’s former Chief Operating Officer.

Pursuant to the Separation Agreement the Company paid a severance fee of $ 35,000 on December 30, 2021.

Additionally, 10,000 stock options

previously granted in August 2021 vested immediately and shall be exercisable until one year from the initial grant date.

The total remaining

140,000 options ( 115,000 options was granted in August 2021 and 25,000 option was granted in September 2021) which have not vested was

forfeited and cancelled.

On December 26, 2021, the Company granted 10,000

options to purchase the Company’s common stock to an 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 $ 4 per share.

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.

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 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 2021 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 $ 7,139,392 and will record stock-based compensation expense over

the vesting period.

Upon cancellation of unvested stock options, the fair value of these cancelled option will be reversed.

On December 26, 2021 and effective January 10,

2022, the Company approved the grant of 150,000 options to purchase the Company’s common stock to a newly hired employee of the

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.

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.

On January 19, 2022, the Company granted an aggregate

of 85,000 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 $ 4.00 per share.

The options vest 25 % every six months from

date of grant for two years.

The employee service date shall start on January 19, 2022 or the grant date which is when the Company started

recognizing stock-based compensation expenses.

On July 22, 2022, the Company granted an aggregate

of 325,000 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 $ 4.00 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.

The 2022 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 $ 751,681 and will record stock-based compensation expense over

the vesting period.

Upon cancellation of unvested stock options, the fair value of these cancelled option will be reversed.

During the year ended December 31, 2021, accretion

of stock-based expense related to stock options amounted to $ 1,533,377 of which $ 1,090,027 was recorded in compensation and related expenses

and $ 443,350 was recorded in professional and consulting expenses as reflected in the consolidated statements of operations.

year ended December 31, 2022, accretion of stock-based expense related to stock options amounted to $ 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 consolidated

statements of operations.

As of December 31, 2022, a balance of $ 2,532,367 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 1.05 years.

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

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.

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.

DATCHAT, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 comparable and calculated volatility:

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

Dividend rate

3 unchanged sentences

Risk—free interest rate

1.53 % to 2.93 %

3.96 % - 4.73 %

1.53 % to 2.93 %

The following is a summary of the Company’s

stock option activity for the years ended December 31, 2022 and 2021 as presented below:

following is a summary of the Company’s stock option activity for the years ended December 31, 2023 and 2022 as presented below:

Balance on December 31, 2021

2 unchanged sentences

Options exercisable on December 31, 2023

Options expected to vest

Weighted average fair value of options granted during the year

On December 31, 2022, the aggregate intrinsic

value of options outstanding was $ 0 .

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Operating Lease Agreement

See Note 4 for disclosure on the Company’s

operating lease for its offices.

Consulting Agreement

On February 1, 2021, the Company entered into

an Engagement Agreement (the “Agreement”) with a consulting company who acted as an exclusive lead underwriter, financial

advisor, placement agent and investment banker of the Company, whereby the consultant assisted the Company to an initial public offering

of the Company’s equity, debt or equity derivative instruments (“Offering”).

The engagement period shall end on the

earlier of i) 12 months from the date of the agreement or ii) the final closing if any of the Offering.

Weighted average fair value of options granted during the 2023 period

December 31, 2023, the aggregate intrinsic value of options outstanding was $ 0 .

DATCHAT, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 and 2022

The consultant prepared an Underwriting Agreement

(the “Underwriting Agreement”) covering the sale of up to $ 10 million of equity, equity derivatives, and equity linked instruments

of the Company.

The Company shall pay compensation of 8 % of the total gross proceeds of the Offering and warrants equal to 8 % of the

aggregate number of shares of common stock sold in the Offering.

The warrants will be exercisable during the four- and half-year period

commencing 6 months from the effective date of the Offering at a price equal to 110 % of the public offering price per share of common

In addition, the Company shall pay 10 % broker dealer cash fee of the amount of capital raised from private equity placements and

6 % broker dealer cash fee of the amount capital raised from debt placements.

On August 17, 2021, the Company completed its initial public

offering, in which the Company issued 3,325,301 shares of its common stock and Series A warrants (the “Series A Warrants”)

to purchase up to 3,325,301 shares of its common stock for gross proceeds of approximately $ 13,800,000 .

As such, the Company paid the

consulting company 8 % of the total gross proceeds of the Offering and warrants equal to 8 % of the aggregate number of shares of common

stock sold in the Offering (see Note 7).

Marketing Agreements

In September 2021, the Company executed a marketing

agreement for various social media marketing and ad campaigns that ran through October 2021 to December 2021.

The total marketing fees

for this campaign were approximately $ 1 million and was expensed to marketing and advertising expense during the year ended December 31,

In October 2021, the Company executed a marketing

agreement for various social media marketing and ad campaigns that ran through October 2021 to December 2021.

The total marketing fees

for this campaign will be approximately $ 3 million and was expensed to marketing and advertising expense during the year ended December

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 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 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

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:

Balance on December 31, 2021

Balance on December 31, 2022

Balance on December 31, 2023

Warrants exercisable on December 31, 2023

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.

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’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

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;

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;

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 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.

NASDAQ Notice

On October 14, 2022, the Company received written

notice from Nasdaq that the Company was not in compliance with Nasdaq Listing Rule 5550(a)(2), as the minimum bid price of our common

stock had been below $ 1.00 per share for 30 consecutive business days.

In accordance with Nasdaq Listing Rule 5810, the Company has a

period of 180 calendar days, or until April 12, 2023, to regain compliance with the minimum bid price requirement.

To regain compliance,

the closing bid price of the Company’s common stock must meet or exceed $ 1.00 per share for at least 10 consecutive business days

during this 180 calendar day period.

In the event the Company does not regain compliance by April 12, 2023, the Company may be eligible

for an additional 180 calendar day grace period if it meets the continued listing standards, with the exception of bid price, for The

Nasdaq Capital Market, and the Company provides written notice to Nasdaq of its intention to cure the deficiency during the second compliance

Although the Company may effect a reverse stock split of its issued and outstanding common stock in the future, there can be no

assurance that such reverse stock split will enable the Company to regain compliance with the Nasdaq minimum bid price requirement.

The Company intends to actively monitor the minimum

bid price of its common stock and may, as appropriate, consider available options to regain compliance with the Rule.

There can be no

assurance that the Company will be able to regain compliance with the Rule or will otherwise be in compliance with other NASDAQ listing

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

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 and 2022

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, 2022 and 2021 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 $ 20,636,324 for income tax purposes as of December 31, 2022.

The net operating losses carry forward for United

States income taxes, which may be available to reduce future years’ taxable income.

Management believes that the realization of

the benefits from these losses appears unlikely due to the Company’s limited operating history and continuing losses for United

States income tax purposes.

Accordingly, the Company has provided a 100 % valuation allowance on the deferred tax asset resulting from

the net operating losses to reduce the asset to zero.

Management will review this valuation allowance periodically and make adjustments

as necessary.

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, 2022 and 2021 were as

The Company has incurred aggregate net operating losses of approximately

$ 26,782,280 for income tax purposes as of December 31, 2023.

The net operating losses carry forward for United States income taxes, which

may be available to reduce future years’ taxable income.

Management believes that the realization of the benefits from these losses

appears unlikely due to the Company’s limited operating history and continuing losses for United States income tax purposes.

the Company has provided a 100 % valuation allowance on the deferred tax asset resulting from the net operating losses to reduce the asset

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:

Income tax benefit at U.S.

6 unchanged sentences

Total provision for income tax

The Company’s approximate net deferred tax asset on December

31, 2022 and 2021 was as follows:

Company’s approximate net deferred tax asset on December 31, 2023 and 2022 was as follows:

Deferred Tax Asset:

December 31, 2022

December 31, 2021

Net operating loss carryforward

3 unchanged sentences

Net deferred tax asset

Of the $ 20,636,324 of available net operating

losses, $ 1,403,306 begins to expire in 2034 and $ 19,233,018 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, 2022 and 2021 because it was not known whether future taxable income

will be sufficient to utilize the loss carryforward.

The increase in the allowance was $ 1,985,474 and $ 2,216,671 in years 2022 and 2021.

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 and 2022 Corporate Income Tax Returns are subject to

Internal Revenue Service examination.

DATCHAT, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

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 .

AND SUBSIDIARIES AND CONSOLIDATED ENTITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 and 2022

NOTE 10 – SUBSEQUENT EVENTS

2023 Stock Repurchase Program

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, As of March 29, 2023, the Company

purchased 480,025 shares of its common stock for $ 311,174 , or at an average price of $ 0.648 per share.

Stock Options

On February 3, 2023, the Company granted an aggregate

of 75,000 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 $ 1.25 per share.

The options vest six months from date of

On February 3, 2023, the Company granted an aggregate

of 215,000 options to purchase the Company’s common stock to an officers, employees and consultants of the Company.

each have a term of 5 years from the date of grant and are exercisable at an exercise price of $ 1.25 per share.

The options vest 25 % every

six months from date of grant for 2 years.

Non-controlling Interest

On February 14, 2023, the Company wholly-owned

subsidiary, SmarterVerse, entered into a subscription agreement with Metabizz, a company whose managing partner is also the Chief Innovation

Officer of SmarterVerse.

In connection with the subscription agreement, SmarterVerse sold Metabizz 8,000,000 shares of its common stock

for $ 800 , which is 40 % of the issued and outstanding common shares if SmarterVerse.

The Company will account for it noncontrolling interest

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.

Common Shares Issued for Services

On March 6, 2023, the Company entered into a 6-month

Marketing Services Agreement with a company to provided promotional services to the Company.

In accordance with this agreement, the Company

issued 143,000 shares of its common stock as consideration for the services provided.

The Company valued these common shares at a fair

value of $ 98,670 or $ 0.69 per common share based on the quoted closing price of the Company’s common stock on the measurement date.

The Company shall record stock-based professional fees over the term of the agreement.

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.

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