Item 1. Business
ITEM
1. BUSINESS
Overview
We
are a blockchain, cybersecurity, and social media company that not only focuses on protecting privacy on personal devices, but also protects
user information after it is shared with others. We believe that one’s right to privacy should not end the moment they click “send”,
and that we all deserve the same right to privacy online that we enjoy in our own living rooms. Our flagship product, DatChat Messenger
& Private Social Network, is a privacy platform and mobile application that gives users the ability to communicate with the privacy
and protection they deserve. Recently, we have expanded our business and product offerings to include the co-development of a mobile-based
social and gaming metaverse, known as “Habytat”, as well as the development of Museum, an a social network and multi-media
storage platform for consumers and enterprises.
DatChat
Messenger & Private Social Network
Our
platform allows users to exercise control over their messages and posts, even after they are sent. Through our application, users can
delete messages that they have sent, on their own device and the recipient’s device as well. There is no set time limit within
which they must exercise this choice. A user can elect at any time to delete a message that they previously sent to a recipient’s
device.
The
application also enables users to hide secret and encrypted messages behind a cover, which messages can only be unlocked by the recipient
and which are automatically destroyed after a fixed number of views or fixed amount of time. Users can decide how long their messages
last on the recipient’s device. The application also includes a screen shot protection system, which makes it virtually impossible
for the recipient to screenshot a message or picture before it gets destroyed. In addition, users can delete entire conversations at
any time, making it like the conversation never even happened.
In
addition to the foregoing, the application also provides users with the ability to connect via an encrypted live video chat that also
is designed to prevent screenshots or screen grabs. The application integrates with iMessage, making private messages potentially available
to hundreds of millions of users.
Habytat
In
June 2022, we formed a wholly owned subsidiary, Dragon Interactive, Inc. (formerly, SmarterVerse, Inc.) (“Dragon Interactive”).
In July 2022, Dragon Interactive entered into a development agreement with MetaBizz, LLC, an infrastructure firm that creates and develops
4D experiences in the metaverse (“MetaBizz”). In August 2022, we launched the “Habytat”, a virtual space that
blends real world and virtual realities into one, in real time, using emerging technology like virtual and augmented reality, to create
a highly immersive 3D environment. Habytat is supported by proprietary artificial intelligence (“AI”) and utilizes a machine
learning engine to develop more realistic looking content, daily rewards, games, and new utilities that are designed to further enhance
the user experience in an engaging way. Our goal is to leverage our patents and develop new technology that leads to more people joining
and seeing the value in the metaverse. The development agreement with MetaBizz is no longer active.
Each
Habytat user is granted user rights to use a designated piece of virtual property in Geniuz City, the first world within Habytat, through
the minting and issuance of a unique NFT. Geniuz City is designed to be a near photo-realistic world based on Miami’s Wynwood arts district
and its surrounding areas. Geniuz City enables users to visit art galleries, explore the town, interact with other users, take selfies
with famous landmarks, customize their properties and enjoy the culture of Geniuz City.
Users
will be able to customize their virtual property to represent their personal style and taste. Users will then be able to accumulate reward
points when they visit and interact with such virtual property or invite others to join Habytat, and such rewards can be used to enhance,
expand, and improve their virtual property. The official in-world currency of Habytat is the “Nirad,” which can be earned
through participation on the DatChat Social Network+ or the Habytat and used to upgrade properties and experiences in Habytat.
As
of March 28, 2024, we had over 140,000 Habytat users.
Mobile
Metaverse
In
May 2023, we launched the open mobile metaverse, Habytat 1.0, as part of our mission to democratize access to the metaverse. We hope
that by making Habytat available via mobile devices and offering free ownership of virtual land and homes, that Habytat will break down
obstacles that previously limited participation, such as the necessity for expensive virtual reality (“VR”) gear or metaverse
properties. We have assembled a team of over twenty game developers, graphic artists and back-end developers to create Habytat 1.0.
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HabyPets
In
August 2023, we launched a series of novel AI-powered pets called “HabyPets.” HabyPets provides an interactive experience
within the Habytat world, creating a more immersive and personal experience for users. Supported by Habytat’s proprietary AI and machine
learning engine, HabyPets grow over time from playful companions to mature adult pets. Similar to real-life pets, these AI pets can be
trained by users via a range of behavioral commands, replicating the natural progression of real pets over time. These include, but are
not limited to, catching frisbees, playing with toys, engaging in tug of war, and even participating in thrilling races with other pets
at the park. By actively engaging with their pets, users can establish a connection and provide proper care for their virtual companions,
fostering a realistic experience within the Habytat metaverse.
Myseum
We
are currently developing “Myseum,” a platform that will allow users to create a personal museum designed to easily share
pictures, videos and documents utilizing planned features, such as creating instant sharing spaces at family gatherings, time released
video messages, multi-tiered social media, and secure family document storage and sharing. Currently, Myseum is scheduled to launch in
the second quarter of 2024 and will encompass features and social networking technology designed to unlock and share digital media.
Spin-off
and Name Change
In January 2024, we announced plans to spin-off the
Habytat platform business into a new standalone public company pursuant to a distribution as further discussed below. As of the date of
this Annual Report, we currently own approximately 71.5% of Dragon Interactive, the entity that owns and operates the Habytat Platform
business. This marked a significant step forward in our corporate strategy to reposition the Company as a pureplay social media ecosystem
centered around our Myseum assets.
In February 2024, Darin Myman was appointed as President
of SmarterVerse.
In February 2024, SmarterVerse changed its name to
Dragon Interactive Corporation.
If the distribution proceeds, our shareholders will
maintain their current shares in the Company and receive a pro-rata distribution of a portion of our shares of Dragon Interactive. The
proposed distribution remains subject to approval by our board of directors as well as other customary conditions, including the filing
and effectiveness of either a Form S-1 or Form 10 registration statement with the U.S. Securities and Exchange Commission and obtaining
of any other required regulatory approvals. Upon consummation of the proposed distribution, Dragon Interactive would become a standalone
public company with plans seek a listing on a national stock exchange. No assurance can be given that the spin-off and/or the distribution
will occur as anticipated or at all.
Competition
DatChat
Messenger & Private Social Network
The
current market for mobile messenger applications is highly competitive, and we expect that it will remain competitive. There are currently
several large companies that provide mobile messenger applications and we expect several more competitors to enter into this market in
the next few years. Well-established competitors include Snapchat, WhatsApp, Facebook Messenger, Facebook, Telegram, MeWe, Confide and
Apple iMessage. We believe that it is the range of privacy and security features that we offer that sets us apart from our competitors.
Our
flagship applications are the DatChat Privacy Platform and Private Encrypted Social Network, which address the needs of consumers and
businesses to communicate with increased levels of privacy and control over messages and social posts, even after they are sent or shared.
In addition, we are developing a blockchain-based, decentralized communications platform that is being designed to allow consumers and
businesses to connect directly with each other.
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Observing
that mobile messaging and social media users are drawn to several different messaging platforms by specific capabilities, we set out
to create the application to consolidate popular messaging and social media features such as group chats, emoticons and video sharing,
offer new and unique features such as being able to “nuke” a conversation to remove all traces of it from all parties involved,
and deliver increased levels of privacy and security. As public concerns over privacy in an ever-expanding digital society grow, the
application offers comfort to its users with extensive control over their messages and posts, even after they are sent or shared. The
application allows users to not only control how long or how many times a message or post may be viewed by the recipient, but also allows
the sender to erase the message or entire conversation after it is sent. Our goal is to make the application a leader in the mobile secure
messaging and social media market based upon our proprietary technology and enhanced privacy and security features. We intend to roll
out additional features including video chat, attachments, unique social posts and other features to enhance the messaging and social
media experience.
Software
and Development
DatChat
Messenger & Private Social Network
Our
ability to compete depends in large part on our continuous commitment to research and development, our ability to rapidly introduce new
features and functionality and our ability to improve proven applications for established markets in which we have competitive advantages.
We intend to work closely with our customers to continuously enhance the performance, functionality, usability, reliability and flexibility
of the application.
Our
software and development team is responsible for the design enhancements, development, testing and certification of the application.
In addition, we may, in the future, utilize third parties for our automated testing, managed upgrades, software development and other
technology services. We are also developing video messages and video messages containing hidden messages embedded in the video stream.
We anticipate that the video messaging currently under development will allow users to change the number of views allowed or destruct
the message after being sent, in addition to setting the message to auto-self-destruct. We are also in the process of developing a private
and encrypted social wall/network.
Habytat
and HabyPets
Our
software and development is led by SmarterVerse’s Chief Technology Officer, Rene J. Palacio Mongui, and Chief Operating Officer,
Ingrith Gartner Salazar. The software and development team is responsible for the engineering, development, design, integration and testing
of the Habytat metaverse and the HabyPets AI platform.
Marketing
and Monetization
DatChat
Messenger & Private Social Network
The
application is currently offered for free on Apple’s App Store and Google Play. Initial marketing is expected to consist of
public relations, “cost-per-install” campaigns, social media marketing using the Facebook’s ad platform and other readily
available advertising platforms.
We
anticipate utilizing social influencers and additional public relations strategies to promote the application on a global basis,
which also includes making the application available for use in other languages.
We
also plan to add in-app purchases such as user customization features, unique emoticons, stickers and long form video messages to monetize the
application.
We
anticipate monetizing the application with a subscription-based service for small and medium size businesses. In the future,
we may develop other mobile applications and services for consumers once our user base reaches a level at which we deem it to be economically
feasible. No assurance can be given that we will successfully develop new or future applications that will be embraced by users or generate
revenue.
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Intellectual
Property Portfolio
DatChat
Messenger & Private Social Network
We
strive to protect and enhance the proprietary technology and inventions that are commercially important to our business, including seeking,
maintaining and defending patent rights. Our policy is to seek to protect our proprietary position through a combination of intellectual
property rights in the United States, including patents, trademarks, copyrights, trade secret laws and internal procedures. Our commercial
success will depend in part on our ability to protect our intellectual property and proprietary technologies.
As of March 28, 2024, we had 11 issued patents,
no notices of allowance and 3 filed patent applications in the United States relating to our encryption technologies, blockchain platform
and digital assets. Our issued patents will expire in 2036. In addition, we plan to continue expanding and strengthening our IP portfolio
with additional patent applications in the future. We may not be able to obtain protection for our intellectual property, and our existing
and future patents, trademarks, and other intellectual property rights may not provide us with competitive advantages or distinguish our
products and services from those of our competitors. Our pending patent application and future applications may not result in the issuance
of patents, and any resulting issued patents may have claims narrower than those in our patent applications. Additionally, our current
and future patents, trademarks, and other intellectual property rights may be contested, circumvented, or found unenforceable or invalid,
and we may not be able to prevent third parties from infringing them. Our internal controls may not always be effective at preventing
unauthorized parties from obtaining our intellectual property and proprietary technologies.
Other
companies that own patents, copyrights, trademarks, trade secrets, and other intellectual property rights related to the mobile, encryption,
blockchain, communication, privacy, internet, and other technology-related industries frequently enter into litigation based on allegations
of infringement, misappropriation, and other violations of intellectual property or other rights. Third parties, including our competitors,
may make claims from time to time that we have infringed their patents, trademarks, copyrights, trade secrets, or other intellectual
property rights. As our business grows and competition rises, the risk of facing claims related to intellectual property and litigation
matters will likely increase.
Our
Privacy Policy
Privacy
and security are the foundations of our Company. We recognize that this is why users are drawn to the application and that our users
care deeply about how their personal information is collected, used and shared. When you read our Privacy Policy, we hope that you notice
that it has been written to advance our core principles and protect the integrity of the application.
When
users sign up for the application, they are required to provide us with certain personal information such as their name, email address
and phone number. We take commercially reasonable and appropriate measures to protect this personal information from accidental loss,
misuse, and unauthorized access, disclosure, alteration, or destruction, taking into account the risks involved in processing and the
nature of such data, and comply with applicable laws and regulations. We do not currently transfer any personal information to third-parties
that do not act on our behalf, and we will not do so without users’ opt-in consent. Similarly, we do not currently collect sensitive
personal information from users without opt-in consent. We may disclose personal information to certain types of third-party companies,
but only to the extent needed to enable them to provide such services. The types of companies that may receive personal information and
their functions are: marketing assistance, analytics and reporting, customer support, email and SMS delivery, cloud infrastructure, and
systems monitoring. All such third parties function as our agents, performing services at our instruction and on our behalf pursuant
to contracts which require them to provide at least the same level of privacy protection as is required by our Privacy Policy. In addition,
we may be required to disclose personal information in response to lawful requests by public authorities, including for the purpose of
meeting national security or law enforcement requirements. We may also disclose personal information to other third parties when compelled
to do so by government authorities or required by law or regulation including, but not limited to, in response to court orders and subpoenas.
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With
respect to retention of personal information, we may only retain such users’ personal information in a form that identifies them
only for as long as it serves the purpose(s) for which it was initially collected as stated in our Privacy Policy, or subsequently authorized.
We may continue processing users’ personal information for longer periods, but only for the time and to the extent such processing
reasonably serves the purposes of statistical analysis, and subject to the protection of our Privacy Policy. After such time periods
have expired, we may either delete the personal information or retain it in a form such that it does not identify the user personally.
Most
importantly, when users send an encrypted message through the application, we may only temporarily process and store the message in its
encrypted form. We do not (and cannot) read our users’ encrypted messages and we delete our users’ messages as soon as they
have been successfully self-destructed or deleted. Our end-to-end encryption ensures that we will never have access to the contents of
our users’ messages. Moreover, we recognize the privacy rights of our users and are committed to complying with data protection
laws to the extent they apply to us, and to assist our users in exercising their rights under applicable law. For example, users may
exercise their rights pursuant to the EU General Data Protection Regulation (“GDPR”) or Section 1798.83 of the California
Civil Code, simply by submitting a request via email to privacy@DatChat.com.
Employees
As
of March 28, 2024, we have a total of 12 full-time employees. We have established a network of external professionals and consultants
to which we outsource various research and development and operational tasks in an effort to minimize administrative overhead. We are
not a party to any collective bargaining agreements. We believe that we maintain good relations with our employees.
Our
Corporate Information
DatChat,
Inc. was initially incorporated in Nevada on December 4, 2014 under the name YssUp, Inc. On March 4, 2015, an amendment to our articles
of incorporation was filed with the Nevada Secretary of State, changing YssUp, Inc.’s name to “DatChat, Inc.” On September
22, 2016, amended and restated articles of incorporation were filed with the Nevada Secretary of State in order to, among other things,
authorize the Company to issue preferred stock.
Available
Information
Our
website address is www.datchat.com. The contents of, or information accessible through, our website are not part of this Annual
Report on Form 10-K, and our website address is included in this document as an inactive textual reference only. We make our filings
with the U.S. Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, available free of charge on our website as soon as reasonably
practicable after we file such reports with, or furnish such reports to, the SEC. The public may read and copy the materials we file
with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an internet site that
contains reports, proxy and information statements and other information. The address of the SEC’s website is www.sec.gov.
The information contained in the SEC’s website is not intended to be a part of this filing.
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